<PAGE>
As filed with the Securities and Exchange Commission on October 6, 1998
Securities Act File No. 33-4806
Investment Company Act File No. 811-4636
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
/x/
PRE-EFFECTIVE AMENDMENT NO.
POST-EFFECTIVE AMENDMENT NO. 35
and /x/
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
/x/
Amendment No. 36
/x/
The Galaxy Fund
(Exact Name of Registrant as Specified in Charter)
4400 Computer Drive
Westboro, Massachusetts 01581-5108
(Address of Principal Executive Officers)
Registrant's Telephone Number:
(800) 628-0414
W. Bruce McConnel, III
DRINKER BIDDLE & REATH LLP
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, Pennsylvania 19107
(Name and Address of Agent for Service)
Copy to:
Jylanne Dunne, Vice President
First Data Investor Services Group, Inc.
4400 Computer Drive
Westboro, Massachusetts 01581-5108
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[ X ] on November 1, 1998 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (___) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered: Class D - Special
Series 2, Class G - Series 3, Class I - Series 3 and Class X -
Series 3 shares of beneficial interest.
<PAGE>
THIS POST-EFFECTIVE AMENDMENT IS BEING FILED SOLELY IN ORDER TO
REGISTER RETAIL B SHARES OF FOUR EXISTING FUNDS, I.E. THE INTERMEDIATE
GOVERNMENT INCOME, EQUITY INCOME, INTERNATIONAL EQUITY AND SMALL CAP VALUE
FUNDS. THE PROSPECTUS FOR RETAIL A AND RETAIL B SHARES OF THE MIDCAP EQUITY
FUND IS INCORPORATED HEREIN BY REFERENCE. THE PROSPECTUSES AND STATEMENTS OF
ADDITIONAL INFORMATION FOR THE MONEY MARKET, GOVERNMENT, U.S. TREASURY,
INSTITUTIONAL GOVERNMENT MONEY MARKET, CONNECTICUT MUNICIPAL MONEY MARKET,
MASSACHUSETTS MUNICIPAL MONEY MARKET, PRIME RESERVES, GOVERNMENT RESERVES,
TAX-EXEMPT RESERVES, 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 AND FOR TRUST SHARES OF THE
SHORT-TERM BOND, INTERMEDIATE GOVERNMENT INCOME, HIGH QUALITY BOND, EQUITY
VALUE, EQUITY GROWTH, EQUITY INCOME, INTERNATIONAL EQUITY, SMALL COMPANY EQUITY,
MIDCAP EQUITY, ASSET ALLOCATION, GROWTH AND INCOME, SMALL CAP VALUE AND
STRATEGIC EQUITY FUNDS ARE NOT INCLUDED IN THIS FILING.
<PAGE>
THE GALAXY FUND
(Retail A Shares and Retail B Shares of the Equity Value Fund,
Equity Growth Fund, Equity Income Fund, International
Equity Fund, Small Company Equity Fund,
Asset Allocation Fund, Small Cap Value Fund,
Growth and Income Fund and Strategic Equity Fund)
FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
_____________________________________________
Part A
Item No. Prospectus Heading
- -------- ------------------
1. Cover Page. . . . . . . . . . . . . Cover Page
2. Synopsis. . . . . . . . . . . . . . Expense Summary
3. Condensed Financial
Information . . . . . . . . . . . . Not Applicable
4. General Description of
Registrant. . . . . . . . . . . . . Investment Objectives and
Policies; Investments,
Strategies and Risks;
Investment Limitations;
Description of Galaxy and its
Shares
5. Management of the Fund. . . . . . . Management of the Funds;
Investment Objectives and
Policies; Investment Adviser;
Authority to Act as Investment
Adviser; Administrator;
Custodian and Transfer Agent;
Expenses; Performance
Reporting; Miscellaneous
5A. Management's Discussion of
Fund Performance. . . . . . . . . . Not Applicable
6. Capital Stock and Other
Securities. . . . . . . . . . . . . Dividends and Distributions;
Taxes; Description of Galaxy
and Its Shares; Miscellaneous
7. Purchase of Securities
Being Offered . . . . . . . . . . . How to Purchase and Redeem
Shares; Distributor; Purchase
of Shares; Other Purchase and
Redemption Information
8. Redemption or
Repurchase. . . . . . . . . . . . . How to Purchase and Redeem
Shares; Distributor;
Redemption of Shares; Other
Purchase and Redemption
Information
9. Pending Legal
Proceedings . . . . . . . . . . . . Not Applicable
i
<PAGE>
THE GALAXY FUND
(Retail A Shares and Retail B Shares of the
Short-Term Bond Fund, Intermediate Government Income
and High Quality Bond Fund)
FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
_____________________________________________
Part A
Item No. Prospectus Heading
- -------- ------------------
1. Cover Page. . . . . . . . . . . . . Cover Page
2. Synopsis. . . . . . . . . . . . . . Expense Summary
3. Condensed Financial
Information . . . . . . . . . . . . Not Applicable
4. General Description of
Registrant. . . . . . . . . . . . . Investment Objectives and
Policies; Investments,
Strategies and Risks;
Investment Limitations;
Description of Galaxy and its
Shares
5. Management of the Fund. . . . . . . Management of the Funds;
Investment Objectives and
Policies; Investment Adviser;
Authority to Act as Investment
Adviser; Administrator;
Custodian and Transfer Agent;
Expenses; Performance
Reporting; Miscellaneous
5A. Management's Discussion of
Fund Performance. . . . . . . . . . Not Applicable
6. Capital Stock and Other
Securities. . . . . . . . . . . . . Dividends and Distributions;
Taxes; Description of Galaxy
and Its Shares; Miscellaneous
7. Purchase of Securities
Being Offered . . . . . . . . . . . How to Purchase and Redeem
Shares; Distributor; Purchase
of Shares; Other Purchase and
Redemption Information
8. Redemption or
Repurchase. . . . . . . . . . . . . How to Purchase and Redeem
Shares; Distributor;
Redemption of Shares; Other
Purchase and Redemption
Information
9. Pending Legal
Proceedings . . . . . . . . . . . . Not Applicable
ii
<PAGE>
THE GALAXY FUND
(Retail A Shares and Retail B Shares of the
Equity Value Fund, Equity Growth Fund,
Equity Income Fund, International Equity Fund,
Small Company Equity Fund, MidCap Equity Fund,
Asset Allocation Fund and Strategic Equity Fund)
FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
_____________________________________________
Part B Heading in Statement of
Item No. Additional Information
- -------- -----------------------
10. Cover Page. . . . . . . . . . . . . Cover Page
11. Table of Contents . . . . . . . . . Table of Contents
12. General Information and
History . . . . . . . . . . . . . . Not Applicable
13. Investment Objectives and
Policies. . . . . . . . . . . . . . Investment Objectives and
Policies; Net Asset Value
14. Management of the Fund. . . . . . . Trustees and Officers;
Miscellaneous
15. Control Persons and Principal
Holders of Securities . . . . . . . See Prospectus-"Management of
the Funds"
16. Investment Advisory and
Other Services. . . . . . . . . . . Advisory, Administration,
Custodian and Transfer Agency
Agreements; Distribution and
Services Plan; Distributor;
Auditors; Counsel
17. Brokerage Allocation and
Other Practices . . . . . . . . . . Portfolio Transactions
18. Capital Stock and Other
Securities. . . . . . . . . . . . . Description of Shares
19. Purchase, Redemption and
Pricing of Securities
Being Offered . . . . . . . . . . . Additional Purchase and
Redemption Information;
Description of Shares
20. Tax Status. . . . . . . . . . . . . Additional Information
Concerning Taxes
21. Underwriters. . . . . . . . . . . . Portfolio Transactions
22. Calculation of
Performance Data. . . . . . . . . . Performance and Yield
Calculation
23. Financial Statements. . . . . . . . Auditors
iii
<PAGE>
THE GALAXY FUND
(Retail A Shares and Retail B Shares of the
Short-Term Bond Fund, Intermediate Government Income Fund
and High Quality Bond Fund)
FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
_____________________________________________
Part B Heading in Statement of
Item No. Additional Information
- -------- -----------------------
10. Cover Page. . . . . . . . . . . . . Cover Page
11. Table of Contents . . . . . . . . . Table of Contents
12. General Information and
History . . . . . . . . . . . . . . Not Applicable
13. Investment Objectives and
Policies. . . . . . . . . . . . . . Investment Objectives and
Policies; Net Asset Value
14. Management of the Fund. . . . . . . Trustees and Officers;
Miscellaneous
15. Control Persons and Principal
Holders of Securities . . . . . . . See Prospectus-"Management of
the Funds"
16. Investment Advisory and
Other Services. . . . . . . . . . . Advisory, Administration,
Custodian and Transfer Agency
Agreements; Distribution and
Services Plan; Distributor;
Auditors; Counsel
17. Brokerage Allocation and
Other Practices . . . . . . . . . . Portfolio Transactions
18. Capital Stock and Other
Securities. . . . . . . . . . . . . Description of Shares
19. Purchase, Redemption and
Pricing of Securities
Being Offered . . . . . . . . . . . Additional Purchase and
Redemption Information;
Description of Shares
20. Tax Status. . . . . . . . . . . . . Additional Information
Concerning Taxes
21. Underwriters. . . . . . . . . . . . Portfolio Transactions
22. Calculation of
Performance Data. . . . . . . . . . Performance and Yield
Calculation
23. Financial Statements. . . . . . . . Auditors
iv
<PAGE>
THE GALAXY FUND
(Retail A Shares and Retail B Shares of the
Growth and Income Fund and Small Cap Value Fund)
FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
_____________________________________________
Part B Heading in Statement of
Item No. Additional Information
- -------- -----------------------
10. Cover Page. . . . . . . . . . . . . Cover Page
11. Table of Contents . . . . . . . . . Table of Contents
12. General Information and
History . . . . . . . . . . . . . . Not Applicable
13. Investment Objectives and
Policies. . . . . . . . . . . . . . Investment Objectives and
Policies; Net Asset Value
14. Management of the Fund. . . . . . . Trustees and Officers;
Miscellaneous
15. Control Persons and Principal
Holders of Securities . . . . . . . See Prospectus-"Management of
the Funds"
16. Investment Advisory and
Other Services. . . . . . . . . . . Advisory, Administration,
Custodian and Transfer Agency
Agreements; Distribution and
Services Plan; Distributor;
Auditors; Counsel
17. Brokerage Allocation and
Other Practices . . . . . . . . . . Portfolio Transactions
18. Capital Stock and Other
Securities. . . . . . . . . . . . . Description of Shares
19. Purchase, Redemption and
Pricing of Securities
Being Offered . . . . . . . . . . . Additional Purchase and
Redemption Information;
Description of Shares
20. Tax Status. . . . . . . . . . . . . Additional Information
Concerning Taxes
21. Underwriters. . . . . . . . . . . . Portfolio Transactions
22. Calculation of
Performance Data. . . . . . . . . . Performance and Yield
Calculation
23. Financial Statements. . . . . . . . Auditors
v
<PAGE>
RETAIL
THE GALAXY FUND
EQUITY VALUE FUND
EQUITY GROWTH FUND
EQUITY INCOME FUND
INTERNATIONAL EQUITY FUND
SMALL COMPANY EQUITY FUND
ASSET ALLOCATION FUND
SMALL CAP VALUE FUND
GROWTH AND INCOME FUND
STRATEGIC EQUITY FUND
PROSPECTUS
NOVEMBER 1, 1998
<PAGE>
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENTS OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS
OR FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING
BY THE FUNDS OR BY FIRST DATA DISTRIBUTORS, INC. IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HIGHLIGHTS................................................................ 1
EXPENSE SUMMARY........................................................... 3
FINANCIAL HIGHLIGHTS...................................................... 6
INVESTMENT OBJECTIVES AND POLICIES........................................ 16
Equity Value Fund....................................................... 16
Equity Growth Fund...................................................... 16
Equity Income Fund...................................................... 17
International Equity Fund............................................... 17
Small Company Equity Fund............................................... 18
Asset Allocation Fund................................................... 18
Small Cap Value Fund.................................................... 19
Growth And Income Fund.................................................. 19
Strategic Equity Fund................................................... 20
Special Risk Considerations............................................. 20
Other Investment Policies and Risk Considerations....................... 21
INVESTMENT LIMITATIONS.................................................... 29
PRICING OF SHARES......................................................... 30
HOW TO PURCHASE SHARES.................................................... 31
Distributor............................................................. 31
General................................................................. 31
Purchase Procedures--Customers of Institutions.......................... 31
Purchase Procedures--Direct Investors................................... 32
Other Purchase Information.............................................. 33
Applicable Sales Charge--Retail A Shares................................ 33
Quantity Discounts...................................................... 34
Applicable Sales Charge--Retail B Shares................................ 36
Characteristics of Retail A Shares and Retail
B Shares............................................................... 36
Factors to Consider When Selecting Retail
A Shares or Retail B Shares............................................ 37
HOW TO REDEEM SHARES...................................................... 38
General................................................................. 38
<CAPTION>
PAGE
----
<S> <C>
Redemption Procedures--Customers Of Institutions........................ 38
Redemption Procedures--Direct Investors................................. 38
Other Redemption Information............................................ 39
INVESTOR PROGRAMS......................................................... 39
Exchange Privilege...................................................... 39
Retirement Plans........................................................ 40
Automatic Investment Program and Systematic Withdrawal Plan............. 40
Payroll Deduction Program............................................... 41
College Investment Program.............................................. 41
Direct Deposit Program.................................................. 41
INFORMATION SERVICES...................................................... 41
Galaxy Information Center--24 Hour Information Service.................. 41
Voice Response System................................................... 42
Galaxy Shareholder Services............................................. 42
DIVIDENDS AND DISTRIBUTIONS............................................... 42
TAXES..................................................................... 42
Federal................................................................. 42
State And Local......................................................... 43
MANAGEMENT OF THE FUNDS................................................... 43
Investment Adviser and Sub-Adviser...................................... 43
Authority to Act as Investment Adviser.................................. 45
Administrator........................................................... 45
DESCRIPTION OF GALAXY AND ITS SHARES...................................... 45
Shareholder Services Plan............................................... 46
Distribution and Services Plan.......................................... 46
Agreements for Sub-Account Services..................................... 47
CUSTODIAN AND TRANSFER AGENT.............................................. 47
EXPENSES.................................................................. 47
PERFORMANCE REPORTING..................................................... 47
MISCELLANEOUS............................................................. 48
</TABLE>
[LOGO]
50% Recycled Paper
10% Post-Consumer Waste
<PAGE>
THE GALAXY FUND
4400 Computer Drive For an application and information regarding
Westboro, Massachusetts purchases, redemptions, exchanges and other
01581-5108 shareholder services or for current performance,
call 1-800-628-0414.
The Galaxy Fund ("Galaxy") is an open-end management investment company.
This Prospectus describes nine separate diversified investment portfolios
(individually, a "Fund," collectively, the "Funds") offered to investors by
Galaxy. Each Fund has its own investment objective and policies:
The EQUITY VALUE FUND'S investment objective is to seek long-term capital
appreciation. Income is secondary to the objective of capital appreciation. The
Fund attempts to achieve this objective by investing, under normal market and
economic conditions, at least 75% of its total assets in common stock, preferred
stock and debt securities convertible into common stock that the Fund's
investment adviser believes are undervalued and exhibit acceptable levels of
risk.
The EQUITY GROWTH FUND'S investment objective is to seek long-term capital
appreciation. The Fund attempts to achieve this objective by investing, under
normal market and economic conditions, at least 75% of its total assets in
common stock, preferred stock, common stock warrants and securities convertible
into common stock of companies that the Fund's investment adviser believes have
above-average earnings potential.
The EQUITY INCOME FUND'S investment objective is to seek current income and
capital appreciation. The Fund attempts to achieve this objective by investing,
under normal market and economic conditions, at least 75% of its total assets in
common stock and securities convertible into common stock that offer income
potential.
The INTERNATIONAL EQUITY FUND'S investment objective is to seek long-term
capital appreciation. The Fund attempts to achieve this objective by investing,
under normal market and economic conditions, at least 75% of its total assets in
the equity securities of foreign issuers.
The SMALL COMPANY EQUITY FUND'S investment objective is to seek capital
appreciation. The Fund attempts to achieve this objective by investing primarily
in the securities of companies with market value capitalizations of $1.5 billion
or less that the Fund's investment adviser believes represent the potential for
significant capital appreciation. Under normal market and economic conditions,
the Fund will invest at least 65% of its assets in the equity securities of
companies with market value capitalizations of $1.5 billion or less.
The ASSET ALLOCATION FUND'S investment objective is to seek a high total
return by providing both a current level of income that is greater than that
produced by the popular stock market averages as well as long-term growth in the
value of the Fund's assets. Due to the Fund's expenses, however, net income
distributed to shareholders may be less than that of the averages. The Fund
attempts to achieve this objective and at the same time reduce volatility by
allocating its assets in varying amounts among short-term obligations, common
stocks, preferred stocks and bonds.
The SMALL CAP VALUE FUND'S investment objective is to provide long-term
capital appreciation. The Fund attempts to achieve this objective by investing,
under normal market and economic conditions, at least 65% of its total assets in
equity securities of companies that have a market value capitalization of up to
$1.5 billion.
The GROWTH AND INCOME FUND'S investment objective is to provide a relatively
high total return through long-term capital appreciation and current income. The
Fund attempts to achieve this objective by investing primarily in common stocks
of companies believed to have prospects for above-average growth and dividends
or of companies where significant fundamental changes are taking place. Under
normal market and economic conditions, the Fund will invest at least 65% of its
total assets in common stocks, preferred stocks, common stock warrants and
securities convertible into common stock.
The STRATEGIC EQUITY FUND'S investment objective is to seek long-term
capital appreciation. The Fund attempts to achieve this objective by investing
primarily in the securities of companies that the Fund's investment adviser
believes are reasonably priced and offer favorable return potential relative to
other securities. Under normal market and economic conditions, the Fund will
invest at least 65% of its total assets in equity securities, including common
stocks, preferred stocks, securities convertible into common stock, rights and
warrants.
<PAGE>
This Prospectus describes the Retail A Shares and Retail B Shares
representing interests in the Funds (Retail A Shares and Retail B Shares are
referred to herein collectively as "Retail Shares"). Retail A Shares are sold
with a front-end sales charge. Retail B Shares are sold with a contingent
deferred sales charge. Retail Shares are offered to customers ("Customers") of
FIS Securities, Inc., Fleet Securities, Inc., Fleet Enterprises, Inc., Fleet
Financial Group, Inc., its affiliates, their correspondent banks, and other
qualified banks, savings and loan associations and broker/dealers
("Institutions"). Retail Shares may also be purchased directly by individuals,
corporations or other entities, who submit a purchase application to Galaxy,
purchasing either for their own account or for the accounts of others ("Direct
Investors"). Galaxy is also authorized to issue an additional series of shares
in each Fund: Trust Shares, which are offered under a separate prospectus
primarily to investors maintaining qualified accounts at bank and trust
institutions, including institutions affiliated with Fleet Financial Group,
Inc., and to participants in employer-sponsored defined contribution plans; and
A Prime Shares and B Prime Shares, which are offered under a separate prospectus
to customers of certain third party broker/dealers. Retail A Shares, Retail B
Shares, Trust Shares, A Prime Shares and B Prime Shares in a Fund represent
equal pro rata interests in the Fund, except they bear different expenses that
reflect the difference in the range of services provided to them. See "Financial
Highlights," "Management of the Funds" and "Description of Galaxy and Its
Shares" herein.
Each of the Funds is advised by Fleet Investment Advisors Inc. and sponsored
and distributed by First Data Distributors, Inc., which is not affiliated with
Fleet or its parent, Fleet Financial Group, Inc., and affiliates. Oechsle
International Advisors, L.P. serves as the sub-adviser to the International
Equity Fund.
This Prospectus sets forth concisely the information that prospective
investors should consider before investing. Investors should read this
Prospectus and retain it for future reference. Additional information about the
Funds, contained in the Statements of Additional Information relating to the
Funds and bearing the same date, has been filed with the Securities and Exchange
Commission. The current Statements of Additional Information are available upon
request without charge by contacting Galaxy at its telephone number or address
shown above. The Statements of Additional Information, as they may be amended
from time to time, are incorporated by reference in their entireties into this
Prospectus.
NOVEMBER 1, 1998
<PAGE>
HIGHLIGHTS
Q: WHAT IS THE GALAXY FUND?
A: Galaxy is an open-end management investment company (commonly known as a
mutual fund) that offers investors the opportunity to invest in different
investment portfolios, each having separate investment objectives and policies.
This Prospectus describes Galaxy's EQUITY VALUE, EQUITY GROWTH, EQUITY INCOME,
INTERNATIONAL EQUITY, SMALL COMPANY EQUITY, ASSET ALLOCATION, SMALL CAP VALUE,
GROWTH AND INCOME AND STRATEGIC EQUITY FUNDS. Prospectuses for Galaxy's MONEY
MARKET, GOVERNMENT, U.S. TREASURY, TAX-EXEMPT, CONNECTICUT MUNICIPAL MONEY
MARKET, MASSACHUSETTS MUNICIPAL MONEY MARKET, INSTITUTIONAL GOVERNMENT MONEY
MARKET, PRIME RESERVES, GOVERNMENT RESERVES, TAX-EXEMPT RESERVES, SHORT-TERM
BOND, INTERMEDIATE GOVERNMENT INCOME, HIGH QUALITY BOND, CORPORATE BOND,
TAX-EXEMPT BOND, NEW JERSEY MUNICIPAL BOND, NEW YORK MUNICIPAL BOND, CONNECTICUT
MUNICIPAL BOND, MASSACHUSETTS MUNICIPAL BOND and RHODE ISLAND MUNICIPAL BOND
FUNDS may be obtained by calling 1-800-628-0414.
Q: WHO ADVISES THE FUNDS?
A: The Funds are managed by Fleet Investment Advisors Inc. ("Fleet"), an
indirect wholly-owned subsidiary of Fleet Financial Group, Inc. Fleet Financial
Group, Inc. is a financial services company with total assets as of June 30,
1998 of approximately $100.7 billion. Oechsle International Advisors, L.P.
("Oechsle") serves as the sub-adviser to the International Equity Fund. Oechsle
had discretionary management authority over approximately $12.6 billion of
assets as of June 30, 1998. See "Management of the Funds--Investment Adviser and
Sub-Adviser."
Q: WHAT ADVANTAGES DO THE FUNDS OFFER?
A: The Funds offer investors the opportunity to invest in a variety of
professionally managed investment portfolios without having to become involved
with the detailed accounting and safekeeping procedures normally associated with
direct investments in securities. The Funds also offer the economic advantages
of block trading in portfolio securities and the availability of a family of
twenty-nine mutual funds should your investment goals change.
Q: HOW CAN I BUY AND REDEEM SHARES?
A: The Funds are distributed by First Data Distributors, Inc. Retail Shares
of the Funds are sold to individuals, corporations or other entities, who submit
a purchase application to Galaxy, purchasing either for their own accounts or
for the accounts of others ("Direct Investors"). Retail Shares may also be
purchased on behalf of Customers of FIS Securities, Inc., Fleet Securities,
Inc., Fleet Enterprises, Inc., Fleet Financial Group, Inc., its affiliates,
their correspondent banks and other qualified banks, savings and loan
associations and broker/dealers ("Institutions"). Retail A Shares of the Funds
may be purchased at their net asset value plus a maximum initial sales charge of
3.75%. Retail A Shares are subject to a shareholder servicing fee of up to .30%
of the average daily net asset value of such Shares. Retail B Shares of the
Funds may be purchased at their net asset value subject to a contingent deferred
sales charge ("CDSC"). The CDSC is paid on certain share redemptions made within
six years of the purchase date at the maximum rate of 5.00% of the lower of (i)
the net asset value of the redeemed shares or (ii) the original purchase price
of the redeemed shares. Retail B Shares are subject to shareholder servicing and
distribution fees of up to .95% of the average daily net asset value of such
Shares. Share purchase and redemption information for both Direct Investors and
Customers is provided below under "How to Purchase Shares" and "How to Redeem
Shares." Except as provided below under "Investor Programs," the minimum initial
investment for Direct Investors and the minimum initial aggregate investment for
Institutions purchasing on behalf of their Customers is $2,500. The minimum
investment for subsequent purchases is $100. There are no minimum requirements
for investors participating in the Automatic Investment Program described below.
Institutions may require Customers to maintain certain minimum investments in
Retail Shares. See "How to Purchase Shares" below.
Q: WHEN ARE DIVIDENDS PAID?
A: Dividends from net investment income of the Equity Value, Equity Growth,
Equity Income, Small Company Equity, Asset Allocation, Small Cap Value, Growth
and Income and Strategic Equity Funds are declared and paid quarterly. Dividends
from net investment income of the International Equity Fund are declared and
paid annually. Net realized capital gains of each Fund are distributed at least
annually. Dividends and distributions are paid in cash, although shareholders
may choose to have dividends and distributions automatically reinvested in
additional shares of the same series of shares with respect to which the
dividend or distribution was declared without sales or CDSC charges. See
"Dividends and Distributions."
Q: WHAT POTENTIAL RISKS ARE PRESENTED BY THE FUNDS' INVESTMENT PRACTICES?
A: One or more of the Funds may invest in foreign securities either directly
or indirectly through American Depository Receipts ("ADRs"), European Depository
Receipts ("EDRs") and, in the case of certain of the Funds, Global Depository
Receipts ("GDRs"). Investments in foreign securities incur higher costs than
investments in U.S. securities, including higher transaction costs as well as
the imposition of additional taxes by foreign governments. In addition, foreign
investments may include additional risks associated with currency exchange
rates, less complete financial information about individual companies, less
market liquidity, and political instability. See "Investment Objectives and
Policies--"Special Risk Considerations--Foreign Securities." The Small Company
Equity and Small Cap Value Funds invest primarily in small capitalization
stocks. The Growth and Income Fund invests primarily in growth-oriented equity
securities, which may include securities of issuers with small capitalizations.
As a result, these Funds may be more volatile than, and may fluctuate
independently of, broad stock market indices. See "Investment Objectives and
Policies." The Small
1
<PAGE>
Cap Value and Growth and Income Funds may invest in lower-rated convertible
securities, which are high-yield, high-risk bonds that are typically subject to
greater market fluctuations and may be more difficult to value or dispose of
than higher-rated, lower-yielding bonds. See "Investment Objectives and
Policies--Other Investment Policies and Risk Considerations--Convertible
Securities." One or more of the Funds may also invest in certain "derivative"
securities, such as put and call options, stock index futures and options,
indexed securities and swap agreements, foreign currency exchange transactions
and certain asset-backed and mortgage-backed securities. Derivative securities
derive their value from the performance of underlying assets, interest or
currency exchange rates and indices and as a result entail additional market and
credit risks. See "Investment Objectives and Policies--Other Investment Policies
and Risk Considerations--Derivative Securities."
Q: WHAT SHAREHOLDER PRIVILEGES ARE OFFERED BY THE FUNDS?
A: Retail A Shares of a Fund may be exchanged for Retail A Shares of any
other Galaxy portfolio which offers Retail A Shares and for shares of any other
investment portfolio otherwise advised by Fleet or its affiliates. Retail B
Shares of the Funds may be exchanged for Retail B Shares of any other Galaxy
portfolio which offers Retail B Shares. In either case, exchanges are not
subject to sales or additional CDSC charges. Galaxy offers Individual Retirement
Accounts ("IRAs"), Simplified Employee Pension Plan ("SEP") and Keogh Plan
accounts which can be established by contacting First Data Distributors, Inc.
Retail Shares are also available for purchase through Multi-Employee Retirement
Plan ("MERP") accounts which can be established by Customers directly with Fleet
Brokerage Securities, Inc. or its affiliates. Galaxy also offers an Automatic
Investment Program which allows investors to automatically invest in Retail
Shares of the Funds on a monthly or quarterly basis, as well as certain other
shareholder privileges. See "Investor Programs."
2
<PAGE>
EXPENSE SUMMARY
Set forth below is a summary of (i) the shareholder transaction expenses
imposed by each Fund with respect to its Retail A Shares and Retail B Shares,
and (ii) the operating expenses for Retail A Shares and Retail B Shares of each
Fund. Shareholder Transaction Expenses are charges you pay when buying or
selling shares of a Fund. Annual Fund Operating Expenses are paid out of each
Fund's assets and include fees for portfolio management, maintenance of
shareholder accounts, general Fund administration, accounting and other
services. Examples based on the summary are also shown.
<TABLE>
<CAPTION>
EQUITY EQUITY EQUITY INTERNATIONAL SMALL COMPANY
VALUE GROWTH INCOME EQUITY EQUITY
FUND FUND FUND FUND FUND
------------------- ------------------- ------------------- ------------------- -------------------
RETAIL RETAIL RETAIL RETAIL RETAIL RETAIL RETAIL RETAIL RETAIL RETAIL
A SHARES B SHARES A SHARES B SHARES A SHARES B SHARES A SHARES B SHARES A SHARES B SHARES
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER
TRANSACTION EXPENSES
- --------------------
Maximum Front-End
Sales Charge
Imposed on
Purchases (as a
percentage of
offering price).... 3.75%(1) None 3.75%(1) None 3.75%(1) None 3.75%(1) None 3.75%(1) None
Maximum Deferred
Sales Charge (as a
percentage of
offering price).... None 5.00%(2) None 5.00%(2) None 5.00%(2) None 5.00%(2) None 5.00%(2)
Sales Charge Imposed
on Reinvested
Dividends.......... None None None None None None None None None None
Redemption
Fees(3)............ None None None None None None None None None None
Exchange Fees....... None None None None None None None None None None
ANNUAL FUND
OPERATING EXPENSES
(AS A PERCENTAGE OF
AVERAGE NET ASSETS)
- --------------------
Advisory Fees (After
Fee Waivers)....... .75% .75% .75% .75% .75% .75% .66% .66% .75% .75%
12b-1 Fees (After
Fee Waivers)(4).... None .95% None .95% None .95% None .95% None .94%
Other Expenses
(After Fee
Waivers)........... .65% .42% .63% .39% .68% .40% 1.00% .47% .78% .47%
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Fund Operating
Expenses (After Fee
Waivers)........... 1.40% 2.12% 1.38% 2.09% 1.43% 2.10% 1.66 2.08% 1.53% 2.16%
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
</TABLE>
- --------------------------
(1) Reduced front-end sales charges may be available. A deferred sales charge
of up to 1.00% is assessed on certain redemptions of Retail A Shares that
are purchased with no initial sales charge as part of an investment of
$500,000 or more. See "How to Purchase Shares--Applicable Sales
Charges--Retail A Shares."
(2) This amount applies to redemptions made during the first year. The charge
decreases to 4.00%, 3.00%, 3.00%, 2.00% and 1.00% for redemptions made
during the second through sixth years, respectively. Retail B Shares
automatically convert to Retail A Shares after six years. See "How to
Purchase Shares-- Applicable Sales Charges--Retail B Shares."
(3) Direct Investors are charged a $5.00 fee if redemption proceeds are paid by
wire.
(4) Retail A Shares do not currently pay 12b-1 fees. Long-term investors in
Retail B Shares may pay more than the economic equivalent of the maximum
front-end sales charges permitted by the rules of the National Association
of Securities Dealers, Inc.
3
<PAGE>
<TABLE>
<CAPTION>
ASSET ALLOCATION SMALL CAP GROWTH AND INCOME STRATEGIC EQUITY
FUND VALUE FUND FUND FUND
-------------------- -------------------- -------------------- --------------------
RETAIL RETAIL RETAIL RETAIL RETAIL RETAIL RETAIL RETAIL
A SHARES B SHARES A SHARES B SHARES A SHARES B SHARES A SHARES B SHARES
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
- ------------------------------
Maximum Front-End Sales Charge
Imposed on Purchases (as a
percentage of offering
price)....................... 3.75%(1) None 3.75%(1) None 3.75%(1) None 3.75%(1) None
Maximum Deferred Sales Charge
(as a percentage of offering
price)....................... None 5.00%(2) None 5.00%(2) None 5.00%(2) None 5.00%(2)
Sales Charge Imposed on
Reinvested Dividends......... None None None None None None None None
Redemption Fees(3)............ None None None None None None None None
Exchange Fees................. None None None None None None None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE
NET ASSETS)
- ------------------------------
Advisory Fees (After Fee
Waivers)..................... .75% .75% .75% .75% .75% .75% .55% .55%
12b-1 Fees(4)................. None .95% None .95% None .95% None .95%
Other Expenses (After Fee
Waivers)..................... .67% .45% .56% .42% .53% .36% .95% .60%
-------- -------- -------- -------- -------- -------- -------- --------
Total Fund Operating Expenses
(After Fee Waivers).......... 1.42% 2.15% 1.31% 2.12% 1.28% 2.06% 1.50% 2.10%
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
</TABLE>
- --------------------------
(1) Reduced front-end sales charges may be available. A deferred sales charge
of up to 1.00% is assessed on certain redemptions of Retail A Shares that
are purchased with no initial sales charge as part of an investment of
$500,000 or more. See "How to Purchase Shares--Applicable Sales
Charges--Retail A Shares."
(2) This amount applies to redemptions made during the first year. The charge
decreases to 4.00%, 3.00%, 3.00%, 2.00% and 1.00% for redemptions made
during the second through sixth years, respectively. Retail B Shares
automatically convert to Retail A Shares after six years. See "How to
Purchase Shares-- Applicable Sales Charges--Retail B Shares."
(3) Direct Investors are charged a $5.00 fee if redemption proceeds are paid by
wire.
(4) Retail A Shares do not currently pay 12b-1 fees. Long-term investors in
Retail B Shares may pay more than the economic equivalent of the maximum
front-end sales charges permitted by the rules of the National Association
of Securities Dealers, Inc.
4
<PAGE>
- --------------------------
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return, and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- ------- ------- --------
<S> <C> <C> <C> <C>
Equity Value Fund (Retail A Shares)(1)............ $52 $80 $111 $197
Equity Value Fund (Retail B Shares)
Assuming complete redemption at end of
period(2)...................................... $71 $95 $132 $207(3)
Assuming no redemption.......................... $21 $65 $112 $207(3)
Equity Growth Fund (Retail A Shares)(1)........... $51 $79 $109 $195
Equity Growth Fund (Retail B Shares)
Assuming complete redemption at end of
period(2)...................................... $71 $95 $131 $204(3)
Assuming no redemption.......................... $21 $65 $111 $204(3)
Equity Income Fund (Retail A Shares)(1)........... $52 $81 $112 $200
Equity Income Fund (Retail B Shares)
Assuming complete redemption at end of
period(2)...................................... $71 $95 $131 $207(3)
Assuming no redemption.......................... $21 $65 $111 $207(3)
International Equity Fund (Retail A Shares)(1).... $54 $88 $124 $224
International Equity Fund (Retail B Shares)
Assuming complete redemption at end of
period(2)...................................... $21 $94 $130 $217(3)
Assuming no redemption.......................... $21 $64 $110 $217(3)
Small Company Equity Fund (Retail A Shares)(1).... $53 $84 $117 $211
Small Company Equity Fund (Retail B Shares)
Assuming complete redemption at end of
period(2)...................................... $72 $97 $134 $215(3)
Assuming no redemption.......................... $22 $67 $114 $215(3)
Asset Allocation Fund (Retail A Shares)(1)........ $52 $81 $112 $199
Asset Allocation Fund (Retail B Shares)
Assuming complete redemption at end of
period(2)...................................... $71 $96 $134 $209(3)
Assuming no redemption.......................... $22 $66 $114 $209(3)
Small Cap Value Fund (Retail A Shares)............ $51 $77 $106 $187
Small Cap Value Fund (Retail B Shares)
Assuming complete redemption at end of
period(2)...................................... $71 $95 $132 $202(3)
Assuming no redemption.......................... $21 $65 $112 $202(3)
Growth and Income Fund (Retail A Shares).......... $50 $76 $104 $184
Growth and Income Fund (Retail B Shares)
Assuming complete redemption at end of
period(2)...................................... $71 $94 $129 $197(3)
Assuming no redemption.......................... $21 $64 $109 $197(3)
Strategic Equity Fund (Retail A Shares)(1)........ $53 $83 N/A N/A
Strategic Equity Fund (Retail B Shares)
Assuming complete redemption at end of
period(2)...................................... $71 $95 N/A N/A
Assuming no redemption.......................... $21 $65 N/A N/A
</TABLE>
- --------------------------
(1) Assumes deduction at time of purchase of maximum applicable front-end sales
charge.
(2) Assumes deduction of maximum applicable contingent deferred sales charge.
(3) Based on conversion of Retail B Shares to Retail A Shares after six years.
The Expense Summary and Example are intended to assist investors in
understanding the costs and expenses that an investor in Retail A and/or Retail
B Shares of the Funds will bear directly or indirectly. The information
contained in the Expense Summary and Example with respect to Retail A Shares and
Retail B Shares of the Equity Value, Equity Growth, Small Company Equity, Asset
Allocation and Growth and Income Funds and Retail A Shares of the Equity Income,
International Equity and Small Cap Value Funds is based on expenses incurred by
each Fund during the last fiscal year, restated to reflect the expenses each
Fund expects to incur during the current fiscal year on its Retail A Shares
and/or Retail B Shares. The information in the Expense Summary and Example with
respect to Retail A Shares and Retail B Shares of the Strategic Equity Fund and
Retail B Shares of the Equity Income, International Equity and Small Cap Value
Funds is based on expenses which each Fund expects to incur during the current
fiscal year on its Retail A and/or Retail B Shares. Without voluntary fee
waivers by Fleet, (i) Advisory Fees would be .91% and .91% for Retail A Shares
and Retail B Shares, respectively, of the International Equity Fund and .75% and
.75% for Retail A Shares and Retail B Shares, respectively, of the Strategic
Equity Fund, (ii) 12b-1 Fees would be .95% for Retail B Shares of the Small
Company Equity Fund, (iii) Other Expenses would be .66% for Retail A Shares of
the Small Cap Value Fund, .60% for Retail A Shares of the Growth and Income Fund
and 1.03% for Retail A Shares of the Strategic Equity Fund, and (iv) Total Fund
Operating Expenses would be 1.91% and 2.33% for Retail A Shares and Retail B
Shares, respectively, of the International Equity Fund, 2.17% for Retail B
Shares of the Small Company Equity Fund, 1.41% for Retail A Shares of the Small
Cap Value Fund, 1.35% for Retail A Shares of the Growth and Income Fund and
1.78% and 2.30% for Retail A Shares and Retail B Shares of the Strategic Equity
Fund. Fleet is under no obligation to waive fees and/or reimburse expenses but
has advised Galaxy that it intends to waive fees and/or reimburse expenses
during the current year to the extent necessary to maintain the Funds' operating
expenses at the levels set forth in the above table. For more complete
descriptions of these costs and expenses, see "How to Purchase Shares," "How to
Redeem Shares," "Management of the Funds" and "Description of Galaxy and Its
Shares" in this Prospectus and the financial statements and notes incorporated
by reference into the Statements of Additional Information. Any fees that are
charged by affiliates of Fleet or other Institutions directly to their Customer
accounts for services related to an investment in Retail Shares of the Funds are
in addition to and not reflected in the fees and expenses described above.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN.
5
<PAGE>
FINANCIAL HIGHLIGHTS
This Prospectus describes the Retail A Shares and Retail B Shares in the
Funds. Galaxy is also authorized to issue three additional series of shares in
each Fund ("Trust Shares," "A Prime Shares" and "B Prime Shares"), which are
offered under separate prospectuses. As described below under "Description of
Galaxy and Its Shares," Retail A Shares, Retail B Shares, Trust Shares, A Prime
Shares and B Prime Shares represent equal pro rata interests in a Fund, except
that (i) Retail A Shares of the Funds bear the expenses incurred under Galaxy's
Shareholder Services Plan for Retail A Shares at an annual rate of up to .30% of
the average daily net asset value of each Fund's outstanding Retail A Shares,
(ii) Retail B Shares of the Funds bear the expenses incurred under Galaxy's
Distribution and Services Plan for Retail B Shares at an annual rate of up to
.95% of the average daily net asset value of each Fund's outstanding Retail B
Shares, (iii) A Prime Shares of the Funds bear the expenses incurred under
Galaxy's Shareholder Services Plan for A Prime Shares at an annual rate of up to
.30% of the average daily net asset value of each Fund's outstanding A Prime
Shares, (iv) B Prime Shares of the Funds bear the expenses incurred under
Galaxy's Distribution and Services Plan for B Prime Shares at an annual rate of
up to 1.00% of the average daily net asset value of each Fund's outstanding B
Prime Shares, and (v) Retail A Shares, Retail B Shares, Trust Shares, A Prime
Shares and B Prime Shares bear differing transfer agency expenses.
Except as noted below, the following financial highlights have been audited
by PricewaterhouseCoopers LLP, Galaxy's independent accountants, whose
unqualified report on the financial statements containing such information for
each of the years or periods in the five-year period ended October 31, 1997 is
contained in Galaxy's Annual Report to Shareholders relating to the Funds dated
October 31, 1997 and incorporated herein by reference into the Statements of
Additional Information. Such financial highlights should be read in conjunction
with the financial statements and notes thereto contained in Galaxy's Annual and
Semi-Annual Reports to Shareholders dated October 31, 1997 and April 30, 1998,
respectively, and incorporated by reference into the Statements of Additional
Information relating to the Funds. Information in the financial highlights
presented below with respect to Retail A Shares of the Equity Value, Equity
Growth, Equity Income, International Equity, Small Company Equity and Asset
Allocation Funds for periods prior to the fiscal year ended October 31, 1994
reflects the investment results of both Retail A Shares and Trust Shares of the
Funds (Retail A Shares of the Equity Value and Equity Growth Funds were first
offered during the fiscal year/period ended October 31, 1991, and Retail A
Shares of the Equity Income Fund were first offered during the fiscal year ended
October 31, 1992).
The Small Cap Value Fund and Growth and Income Fund commenced operations on
December 14, 1992 as separate investment portfolios (the "Predecessor Small Cap
Value Fund" and the "Predecessor Growth and Income Fund," respectively, and
collectively, the "Predecessor Funds") of The Shawmut Funds, which was organized
as a Massachusetts business trust. On December 4, 1995, the Funds were
reorganized as new portfolios of Galaxy. Prior to the reorganization, the
Predecessor Funds offered and sold two series of shares of beneficial interest
that were similar to the Funds' Retail A Shares and Trust Shares, respectively.
Information in the financial highlights presented below for the Small Cap Value
and Growth and Income Funds for periods prior to the fiscal year ended October
31, 1996 represents the investment results of the Predecessor Small Cap Value
and Predecessor Growth and Income Funds' Investment Shares (the series that is
similar to the Retail A Shares of the Small Cap Value and Growth and Income
Funds).
More information about the performance of the Funds is also contained in
Galaxy's Annual and Semi-Annual Reports, which may be obtained without charge by
contacting Galaxy at its telephone number or address provided above. During the
periods shown, Retail B Shares of the Equity Income, International Equity and
Small Cap Value Funds were not offered to investors.
6
<PAGE>
EQUITY VALUE FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
SIX MONTHS ENDED --------------------------------------------------------------------
APRIL 30, 1998 1996
(UNAUDITED) 1997 -------------------- 1995 1994
---------------------- -------------------- RETAIL -------- --------
RETAIL RETAIL RETAIL RETAIL RETAIL B RETAIL RETAIL
A SHARES B SHARES A SHARES B SHARES A SHARES SHARES(3) SHARES SHARES
--------- -------- --------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period......................... $ 18.21 $ 18.24 $ 15.96 $ 15.99 $ 14.33 $ 14.74 $ 13.31 $ 13.12
--------- -------- --------- -------- --------- -------- -------- --------
Income from Investment
Operations:
Net investment income(4,5).... 0.04 (0.02) 0.11 -- 0.14 0.04 0.22 0.18
Net realized and Unrealized
gain (loss) on investments... 2.92 2.92 4.16 4.17 2.74 1.25 2.24 0.45
--------- -------- --------- -------- --------- -------- -------- --------
Total from Investment
Operations:.............. 2.96 2.90 4.27 4.17 2.88 1.29 2.46 0.63
--------- -------- --------- -------- --------- -------- -------- --------
Less Dividends:
Dividends from net Investment
income....................... (0.04) -- (0.12) (0.02) (0.14) (0.04) (0.23) (0.16)
Dividends from net realized
capital gains................ (3.20) (3.20) (1.90) (1.90) (1.11) -- (1.21) (0.28)
--------- -------- --------- -------- --------- -------- -------- --------
Total Dividends........... (3.24) (3.20) (2.02) (1.92) (1.25) (0.04) (1.44) (0.44)
--------- -------- --------- -------- --------- -------- -------- --------
Net increase (decrease) in net
asset value.................... (0.28) (0.30) 2.25 2.25 1.63 1.25 1.02 0.19
--------- -------- --------- -------- --------- -------- -------- --------
Net Asset Value, End of
Period......................... $ 17.93 $ 17.94 $ 18.21 $ 18.24 $ 15.96 $ 15.99 $ 14.33 $ 13.31
--------- -------- --------- -------- --------- -------- -------- --------
--------- -------- --------- -------- --------- -------- -------- --------
Total Return(8)................. 19.38%(6) 18.96%(6) 29.48% 28.60% 21.49% 8.80%(6) 20.81% 4.97%
Ratios/Supplemental Data:
Net Assets, End of Period
(000's)...................... $246,841 $22,565 $182,641 $14,958 $131,998 $ 1,916 $ 96,555 $ 74,001
Ratios to average net assets:
Net investment income
including reimbursement/
waiver....................... 0.42%(7) (0.25)%(7) 0.63% (0.13)% 1.00% 0.43%(7) 1.62% 1.45%
Operating expenses including
reimbursement/ waiver........ 1.34%(7) 2.01%(7) 1.38% 2.07% 1.45% 1.94%(7) 1.49% 1.08%
Operating expenses excluding
reimbursement/ waiver........ 1.34%(7) 2.01%(7) 1.38% 2.38% 1.45% 2.24%(7) 1.50% 1.11%
Portfolio Turnover Rate......... 49%(6) 49%(6) 111% 111% 116% 116% 76% 71%
Average Commission Rate
Paid(9)........................ $ 0.0557 $0.0557 $ 0.0601 $0.0601 $ 0.0605 $0.0605 N/A N/A
<CAPTION>
PERIOD ENDED
OCT. 31,
1993(2) 1992(2) 1991(2) 1990(2) 1989(2) 1988(1,2)
--------- --------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period......................... $ 11.41 $ 11.52 $ 9.45 $ 11.51 $ 10.41 $ 10.00
--------- --------- -------- -------- -------- ------------
Income from Investment
Operations:
Net investment income(4,5).... 0.19 0.26 0.37 0.39 0.36 0.03
Net realized and Unrealized
gain (loss) on investments... 2.14 0.33 2.41 (1.37) 1.10 0.38
--------- --------- -------- -------- -------- ------------
Total from Investment
Operations:.............. 2.33 0.59 2.78 (0.98) 1.46 0.41
--------- --------- -------- -------- -------- ------------
Less Dividends:
Dividends from net Investment
income....................... (0.20) (0.27) (0.37) (0.38) (0.36) --
Dividends from net realized
capital gains................ (0.42) (0.43) (0.34) (0.70) -- --
--------- --------- -------- -------- -------- ------------
Total Dividends........... (0.62) (0.70) (0.71) (1.08) (0.36) --
--------- --------- -------- -------- -------- ------------
Net increase (decrease) in net
asset value.................... 1.71 (0.11) 2.07 (2.06) 1.10 0.41
--------- --------- -------- -------- -------- ------------
Net Asset Value, End of
Period......................... $ 13.12 $ 11.41 $ 11.52 $ 9.45 $ 11.51 $ 10.41
--------- --------- -------- -------- -------- ------------
--------- --------- -------- -------- -------- ------------
Total Return(8)................. 21.18% 5.66% 30.45% (9.43)% 14.19% 4.10%(6)
Ratios/Supplemental Data:
Net Assets, End of Period
(000's)...................... $ 176,107 $ 133,578 $ 99,601 $ 92,893 $ 92,366 $75,774
Ratios to average net assets:
Net investment income
including reimbursement/
waiver....................... 1.52% 2.24% 3.25% 3.66% 3.25% 1.89%(7)
Operating expenses including
reimbursement/ waiver........ 0.97% 0.94% 0.94% 0.95% 0.97% 0.95%(7)
Operating expenses excluding
reimbursement/ waiver........ 0.97% 0.94% 0.94% 0.95% 0.98% 0.94%(7)
Portfolio Turnover Rate......... 50% 136% 40% 94% 44% 4%(6)
Average Commission Rate
Paid(9)........................ N/A N/A N/A N/A N/A N/A
</TABLE>
- --------------------------
(1) The Fund commenced operations on September 1, 1988.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Retail and Trust
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) The Fund began issuing Retail B Shares on March 4, 1996.
(4) Net investment income per share for Retail A Shares before
reimbursement/waiver of fees by Fleet and/or the Fund's administrator for
the six months ended April 30, 1998 (unaudited), the year ended October 31,
1997, 1996, 1995, 1994, 1993, 1992, 1991, 1990 and 1989 and for the period
ended October 31, 1988 was $0.04, $0.11, $0.14, $0.22, $0.18, $0.19, $0.26,
$0.37, $0.39 and $0.36, respectively.
(5) Net investment income (loss) per share for Retail B Shares before
reimbursement/waiver of fees by Fleet and/or the Fund's administrator for
the six months ended April 30, 1998 (unaudited), the year ended October 31,
1997 and for the period ended October 31, 1996 was $(0.02), $(0.03) and
$0.01, respectively.
(6) Not annualized.
(7) Annualized.
(8) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares.
(9) Required for fiscal years beginning on or after September 1, 1995.
7
<PAGE>
EQUITY GROWTH FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
SIX MONTHS ENDED --------------------------------------------------------------------
APRIL 30, 1998 1996
(UNAUDITED) 1997 -------------------- 1995 1994
---------------------- -------------------- RETAIL -------- --------
RETAIL RETAIL RETAIL RETAIL RETAIL B RETAIL RETAIL
A SHARES B SHARES A SHARES B SHARES A SHARES SHARES(3) SHARES SHARES
--------- -------- --------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period......................... $ 25.14 $ 24.91 $ 20.37 $ 20.26 $ 17.29 $ 18.77 $ 14.18 $ 13.76
--------- -------- --------- -------- --------- -------- -------- --------
Income from Investment
Operations:
Net investment income(4,5).... 0.02 (0.03) 0.07 (0.09)(10) 0.10 (0.01) 0.14 0.17
Net realized and unrealized
gain (loss) on investments... 4.20 4.12 6.05 6.02 3.39 1.50 3.28 0.47
--------- -------- --------- -------- --------- -------- -------- --------
Total from Investment
Operations:.............. 4.22 4.09 6.12 5.93 3.49 1.49 3.42 0.64
--------- -------- --------- -------- --------- -------- -------- --------
Less Dividends:
Dividends from net investment
income....................... (0.02) -- (0.07) -- (0.11) -- (0.14) (0.16)
Dividends from net realized
capital gains................ (3.84) 3.84 (1.28) (1.28) (0.30) -- (0.17) (0.06)
--------- -------- --------- -------- --------- -------- -------- --------
Total Dividends........... (3.86) 3.84 (1.35) (1.28) (0.41) -- (0.31) (0.22)
--------- -------- --------- -------- --------- -------- -------- --------
Net increase (decrease) in net
asset value.................... 0.36 0.25 4.77 4.65 3.08 1.49 3.11 0.42
--------- -------- --------- -------- --------- -------- -------- --------
Net Asset Value, End of
Period......................... $ 25.50 $ 25.16 $ 25.14 $ 24.91 $ 20.37 $ 20.26 $ 17.29 $ 14.18
--------- -------- --------- -------- --------- -------- -------- --------
--------- -------- --------- -------- --------- -------- -------- --------
Total Return(8)................. 19.54%(6) 19.09%(6) 31.61% 30.78% 20.51% 7.95% 24.54% 4.72%
Ratios/Supplemental Data:
Net Assets, End of Period
(000's)...................... $307,670 $30,663 $226,330 $20,363 $160,800 $ 3,995 $ 98,911 $ 70,338
Ratios to average net assets:
Net investment income
including reimbursement/
waiver....................... 0.17%(7) (0.52)%(7) 0.30% (0.40)% 0.50% (0.16)% 0.85% 1.22%
Operating expenses including
reimbursement/waiver......... 1.32%(7) 2.01%(7) 1.37% 2.07% 1.40% 1.92% 1.45% 0.98%
Operating expenses excluding
reimbursement/waiver......... 1.32%(7) 2.01%(7) 1.37% 2.30% 1.40% 2.29% 1.47% 0.99%
Portfolio Turnover Rate......... 26%(6) 26%(6) 66% 66% 36% 36% 14% 18%
Average Commission Rate
Paid(9)........................ $ 0.0604 $0.0604 $ 0.0601 $0.0601 $ 0.0615 $0.0615 N/A N/A
<CAPTION>
PERIOD ENDED
OCTOBER 31,
1993(1) 1992(2) 1991(1,2)
--------- --------- ------------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period......................... $ 12.90 $ 11.99 $ 10.00
--------- --------- ------------
Income from Investment
Operations:
Net investment income(4,5).... 0.15 0.17 0.16
Net realized and unrealized
gain (loss) on investments... 0.95 0.91 1.97
--------- --------- ------------
Total from Investment
Operations:.............. 1.10 1.08 2.13
--------- --------- ------------
Less Dividends:
Dividends from net investment
income....................... (0.15) (0.17) (0.14)
Dividends from net realized
capital gains................ (0.09) -- --
--------- --------- ------------
Total Dividends........... (0.24) (0.17) (0.14)
--------- --------- ------------
Net increase (decrease) in net
asset value.................... 0.86 0.91 1.99
--------- --------- ------------
Net Asset Value, End of
Period......................... $ 13.76 $ 12.90 $ 11.99
--------- --------- ------------
--------- --------- ------------
Total Return(8)................. 8.58% 9.10% 21.39%(6)
Ratios/Supplemental Data:
Net Assets, End of Period
(000's)...................... $ 427,298 $ 224,630 $92,224
Ratios to average net assets:
Net investment income
including reimbursement/
waiver....................... 1.20% 1.37% 1.46%(7)
Operating expenses including
reimbursement/waiver......... 0.97% 0.95% 0.83%(7)
Operating expenses excluding
reimbursement/waiver......... 0.97% 0.95% 0.83%(7)
Portfolio Turnover Rate......... 16% 22% 16%(6)
Average Commission Rate
Paid(9)........................ N/A N/A N/A
</TABLE>
- --------------------------
(1) The Fund commenced operations on December 14, 1990.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Retail and Trust
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) The Fund began issuing Retail B Shares on March 4, 1996.
(4) Net investment income (loss) per share before reimbursement/waiver of fees
by Fleet and/or the Fund's administrator for Retail A Shares for the six
months ended April 30, 1998 (unaudited), the year ended October 31, 1997,
1996, 1995, 1994, 1993 and 1992 and for the period ended October 31, 1991
was $0.02, $0.07, $0.10, $0.13, $0.17, $0.15, $0.17 and $0.16,
respectively.
(5) Net investment income (loss) per share before reimbursement/waiver of fees
by Fleet and/or the Fund's administrator for Retail B Shares for the six
months ended April 30, 1998 (unaudited) the year ended October 31, 1997 and
for the period ended October 31, 1996 was $(0.03), $(0.14) and $(0.03),
respectively.
(6) Not Annualized.
(7) Annualized.
(8) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares.
(9) Required for fiscal years beginning on or after September 1, 1995.
(10) The selected per share data was calculated using the weighted average
shares outstanding method for the year.
8
<PAGE>
EQUITY INCOME FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
SIX MONTHS ENDED ------------------------------------------------------------------
APRIL 30, 1998
(UNAUDITED) 1997 1996 1995 1994
---------------- --------- --------- -------- -------- PERIOD ENDED
RETAIL RETAIL RETAIL RETAIL RETAIL OCTOBER 31,
A SHARES A SHARES A SHARES SHARES SHARES 1993(2) 1992(2) 1991(1,2)
---------------- --------- --------- -------- -------- --------- -------- ------------
Net Asset Value, Beginning
of Period.................. $ 18.82 $ 16.91 $ 14.98 $ 12.74 $ 12.85 $ 11.85 $ 11.29 $10.00
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-------- --------- --------- -------- -------- --------- -------- ------
Income from Investment
Operations:
Net investment
income(3)................ 0.12 0.30 0.30 0.28 0.30 0.30 0.30 0.29
Net realized and
unrealized gain (loss) on
investments.............. 3.11 3.35 2.47 2.47 0.07 1.09 0.76 1.26
-------- --------- --------- -------- -------- --------- -------- ------
Total from Investment
Operations:.......... 3.23 3.65 2.77 2.75 0.37 1.39 1.06 1.55
-------- --------- --------- -------- -------- --------- -------- ------
Less Dividends:
Dividends from net
investment income........ (0.13) (0.30) (0.30) (0.30) (0.29) (0.28) (0.30) (0.26)
Dividends from net
realized capital gains... (1.58) (1.44) (0.54) (0.21) (0.19) (0.11) (0.20) --
-------- --------- --------- -------- -------- --------- -------- ------
Total Dividends:...... (1.71) (1.74) (0.84) (0.51) (0.48) (0.39) (0.50) (0.26)
-------- --------- --------- -------- -------- --------- -------- ------
Net increase (decrease) in
net asset value............ 1.52 1.91 1.93 2.24 (0.11) 1.00 0.56 1.29
-------- --------- --------- -------- -------- --------- -------- ------
Net Asset Value, End of
Period..................... $ 20.34 $ 18.82 $ 16.91 $ 14.98 $ 12.74 $ 12.85 $ 11.85 $11.29
-------- --------- --------- -------- -------- --------- -------- ------
-------- --------- --------- -------- -------- --------- -------- ------
Total Return(6)............. 18.38%(4) 23.28% 19.01% 22.23% 2.94% 11.85% 9.71% 15.61%(4)
Ratios/Supplemental Data:
Net Assets, End of Period
(000's).................. $215,567 $ 169,276 $ 126,952 $ 81,802 $ 63,532 $ 123,970 $ 21,778 $7,096
Ratios to average net
assets:
Net investment income
including
reimbursement/waiver..... 1.27%(5) 1.70% 1.86% 2.08% 2.45% 2.34% 2.84% 2.72%(5)
Operating expenses
including
reimbursement/waiver..... 1.34%(5) 1.39% 1.40% 1.49% 1.11% 1.16% 1.03% 0.85%(5)
Operating expenses
excluding
reimbursement/waiver..... 1.34%(5) 1.41% 1.40% 1.51% 1.12% 1.22% 1.54% 1.39%(5)
Portfolio Turnover Rate..... 22%(4) 37% 45% 21% 31% 27% 18% 77%(4)
Average Commission Rate
Paid(7).................... $ 0.0571 $ 0.0598 $ 0.0620 N/A N/A N/A N/A N/A
</TABLE>
- --------------------------
(1) The Fund commenced operations on December 14, 1990.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Retail and Trust
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for Retail A Shares for the six
months ended April 30, 1998 (unaudited), the year ended October 31, 1997,
1996, 1995, 1994, 1993 and 1992 and for the period ended October 31, 1991
was $0.12, $0.30, $0.30, $0.28, $0.30, $0.29, $0.25 and $0.23,
respectively.
(4) Not Annualized.
(5) Annualized.
(6) Calculation does not include the effect of any sales charge for Retail A
Shares.
(7) Required for fiscal years beginning on or after September 1, 1995.
9
<PAGE>
INTERNATIONAL EQUITY FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED OCTOBER 31,
ENDED ------------------------------------------------------
APRIL 30, 1998
(UNAUDITED) 1997 1996 1995 1994
--------------- --------- --------- -------- -------- PERIOD ENDED
RETAIL RETAIL RETAIL RETAIL RETAIL OCTOBER 31,
A SHARES A SHARES A SHARES SHARES SHARES 1993(2) 1992(1,2)
--------------- --------- --------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period....................... $ 15.18 $ 13.94 $ 12.92 $ 13.20 $ 12.13 $ 9.66 $ 10.00
------- --------- --------- -------- -------- -------- -------------
Income from Investment
Operations:
Net investment income(3).... (0.01) 0.01 0.11 0.11 0.06 0.02 0.06
Net realized and unrealized
gain (loss) on
investments................ 3.11 2.09 1.27 (0.21) 1.02 2.51 (0.40)
------- --------- --------- -------- -------- -------- -------------
Total from Investment
Operations:............ 3.10 2.10 1.38 (0.10) 1.08 2.53 (0.34)
------- --------- --------- -------- -------- -------- -------------
Less Dividends:
Dividends from net
investment income.......... (0.07) (0.18) (0.12) (0.02) (0.01) (0.06) --
Dividends from net realized
capital gains.............. (0.36) (0.68) (0.24) (0.16) -- -- --
------- --------- --------- -------- -------- -------- -------------
Total Dividends......... (0.43) (0.86) (0.36) (0.18) (0.01) (0.06) --
------- --------- --------- -------- -------- -------- -------------
Net increase (decrease) in net
asset value.................. 2.67 1.24 1.02 (0.28) 1.07 2.47 (0.34)
------- --------- --------- -------- -------- -------- -------------
Net Asset Value, End of
Period....................... $ 17.85 $ 15.18 $ 13.94 $ 12.92 $ 13.20 $ 12.13 $ 9.66
------- --------- --------- -------- -------- -------- -------------
------- --------- --------- -------- -------- -------- -------------
Total Return(6)............... 21.10%(4) 15.88% 10.86% (0.64)% 8.91% 26.36% (3.40)%(4)
Ratios/Supplemental Data:
Net Assets, End of Period
(000's).................... $66,244 $56,592 $35,144 $ 30,104 $ 32,887 $ 39,246 $12,584
Ratios to average net assets:
Net investment income
including
reimbursement/waiver....... (0.19)%(5) 0.03% 0.78% 0.84% 0.69% 0.37% 1.19%(5)
Operating expenses including
reimbursement/waiver....... 1.50%(5) 1.60% 1.70% 1.76% 1.49% 1.57% 1.61%(5)
Operating expenses excluding
reimbursement/waiver....... 1.75%(5) 1.85% 1.98% 2.03% 1.79% 2.04% 2.79%(5)
Portfolio Turnover Rate....... 29%(4) 45% 146% 48% 39% 29% 21%(4)
Average Commission Rate
Paid(7)...................... $0.0343 $0.0214 $0.0381 N/A N/A N/A N/A
</TABLE>
- --------------------------
(1) The Fund commenced operations on December 30, 1991.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Retail and Trust
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for Retail A Shares for the six
months ended April 30, 1998 (unaudited), the year ended October 31, 1997,
1996, 1995, 1994 and 1993 and for the period ended October 31, 1992 was
$(0.02), $(0.01), $0.07, $0.08, $0.03, $0.00 and $0.00, respectively.
(4) Not Annualized.
(5) Annualized.
(6) Calculation does not include the effect of any sales charge for Retail A
Shares.
(7) Required for fiscal years beginning on or after September 1, 1995.
10
<PAGE>
SMALL COMPANY EQUITY FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
SIX MONTHS ENDED -----------------------------------------------------------------------
APRIL 30, 1998 1996
(UNAUDITED) 1997 --------------------- 1995 1994
---------------------- --------------------- RETAIL -------- ---------
RETAIL RETAIL RETAIL RETAIL RETAIL B RETAIL RETAIL
A SHARES B SHARES A SHARES B SHARES A SHARES SHARES(3) SHARES SHARES
--------- -------- --------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period.................. $ 20.94 $ 20.73 $ 19.96 $ 19.91 $ 16.28 $ 17.27 $ 12.35 $ 12.41
--------- -------- --------- -------- --------- -------- -------- ---------
Income from Investment
Operations:
Net investment
income(4,5).............. 0.10 (0.15) (0.18) (0.21) (0.14) (0.19)(6) (0.09) (0.01)
Net realized and
unrealized gain (loss) on
investments.............. 0.92 0.90 3.54 3.41 3.99 2.83 4.21 --
--------- -------- --------- -------- --------- -------- -------- ---------
Total from Investment
Operations:.......... 0.82 0.75 3.36 3.20 3.85 2.64 4.12 (0.01)
--------- -------- --------- -------- --------- -------- -------- ---------
Less Dividends:
Dividends from net
investment income........ -- -- -- -- -- -- -- --
Dividends from net
realized capital gains... (2.26) (2.26) (2.38) (2.38) (0.17) -- (0.19) (0.05)
--------- -------- --------- -------- --------- -------- -------- ---------
Total Dividends:...... (2.26) (2.26) (2.38) (2.38) (0.17) -- (0.19) (0.05)
--------- -------- --------- -------- --------- -------- -------- ---------
Net increase (decrease) in
net asset value............ (1.44) (1.51) 0.98 0.82 3.68 2.64 3.93 (0.06)
--------- -------- --------- -------- --------- -------- -------- ---------
Net Asset Value, End of
Period..................... $ 19.50 $ 19.22 $ 20.94 $ 20.73 $ 19.96 $ 19.91 $ 16.28 $ 12.35
--------- -------- --------- -------- --------- -------- -------- ---------
--------- -------- --------- -------- --------- -------- -------- ---------
Total Return(9)....... 5.49%(7) 5.18%(7) 19.08% 18.23% 23.97% 15.34%(7) 34.01% (0.06)%
Ratios/Supplemental Data:
Net Assets, End of Period
(000's).................. $ 142,911 $17,604 $ 135,593 $14,731 $ 111,101 $ 3,659 $ 45,668 $ 30,845
Ratios to average net
assets:
Net investment income
including
reimbursement/waiver..... (1.08)%(8) (1.71)%(8) (1.02)% (1.76)% (1.03)% (1.50)%(8) (0.85)% (0.40)%
Operating expenses
including
reimbursement/waiver..... 1.45%(8) 2.07%(8) 1.46% 2.20% 1.57% 2.04%(8) 1.60% 1.31%
Operating expenses
excluding
reimbursement/waiver..... 1.45%(8) 2.08%(8) 1.48% 2.44% 1.57% 2.44%(8) 1.64% 1.34%
Portfolio Turnover Rate..... 26%(7) 26%(7) 69% 69% 82% 82% 54% 35%
Average Commission Rate
Paid(10)................... $ 0.0535 $0.0535 $ 0.0576 $0.0576 $ 0.0531 $0.0531 N/A N/A
<CAPTION>
PERIOD ENDED
OCTOBER 31,
1993(3) 1992(1,2)
--------- ------------
<S> <C> <C>
Net Asset Value, Beginning
of Period.................. $ 8.79 $ 10.00
--------- ------------
Income from Investment
Operations:
Net investment
income(4,5).............. (0.04) (0.03)
Net realized and
unrealized gain (loss) on
investments.............. 3.66 (1.18)
--------- ------------
Total from Investment
Operations:.......... 3.62 (1.21)
--------- ------------
Less Dividends:
Dividends from net
investment income........ -- --
Dividends from net
realized capital gains... -- --
--------- ------------
Total Dividends:...... -- --
--------- ------------
Net increase (decrease) in
net asset value............ 3.62 (1.21)
--------- ------------
Net Asset Value, End of
Period..................... $ 12.41 $ 8.79
--------- ------------
--------- ------------
Total Return(9)....... 41.18% (12.10)%(7)
Ratios/Supplemental Data:
Net Assets, End of Period
(000's).................. $ 55,683 $ 29,072
Ratios to average net
assets:
Net investment income
including
reimbursement/waiver..... (0.66)% (0.63)%(8)
Operating expenses
including
reimbursement/waiver..... 1.18% 1.06%(8)
Operating expenses
excluding
reimbursement/waiver..... 1.22% 1.33%(8)
Portfolio Turnover Rate..... 57% 87%(7)
Average Commission Rate
Paid(10)................... N/A N/A
</TABLE>
- --------------------------
(1) The Fund commenced operations on December 30, 1991.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Retail and Trust
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) The Fund began issuing Retail B Shares on March 4, 1996.
(4) Net investment income (loss) per share before reimbursement/waiver of fees
by Fleet and/or the Fund's administrator for Retail A Shares for the six
months ended April 30, 1998 (unaudited), the year ended October 31, 1997,
1996, 1995, 1994 and 1993 and for the period ended October 31, 1992 was
$(0.10), $(0.18), $(0.14), $(0.09), $(0.01), $(0.04) and $(0.05),
respectively.
(5) Net investment income (loss) per share before reimbursement/waiver of fees
by Fleet and/or the Fund's administrator for Retail B Shares for the six
months ended April 30, 1998 (unaudited), the year ended October 31, 1997
and for the period ended October 31, 1996 was $(0.16), $(0.24) and $(0.24),
respectively.
(6) The selected per share data was calculated using the weighted average
shares outstanding method for the period.
(7) Not annualized.
(8) Annualized.
(9) Calculation does not include the effect of any sales change for Retail A
Shares and Retail B Shares.
(10) Required for fiscal years beginning on or after September 1, 1995.
11
<PAGE>
ASSET ALLOCATION FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
SIX MONTHS ENDED ---------------------------------------------------------------------
APRIL 30, 1998
(UNAUDITED) 1997 1996 1995 1994
---------------------- -------------------- ----------------------- -------- --------
RETAIL RETAIL RETAIL RETAIL RETAIL RETAIL RETAIL RETAIL
A SHARES B SHARES A SHARES B SHARES A SHARES B SHARES(3) SHARES SHARES
--------- -------- --------- -------- --------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period....................... $ 16.46 $ 16.43 $ 14.52 $ 14.51 $ 12.82 $ 13.59 $ 10.67 $ 11.15
--------- -------- --------- -------- --------- ----------- -------- --------
Income from Investment
Operations:
Net investment
income(4,5)................ 0.20 0.16 0.40 0.29 0.30 0.13 0.30 0.27
Net realized and unrealized
gain (loss) on
investments................ 1.60 1.58 2.43 2.42 1.83 0.91 2.16 (0.49)
--------- -------- --------- -------- --------- ----------- -------- --------
Total from Investment
Operations:............ 1.80 1.74 2.83 2.71 2.13 1.04 2.46 (0.22)
--------- -------- --------- -------- --------- ----------- -------- --------
Less Dividends:
Dividends from net
investment income.......... (0.21) (0.16) (0.38) (0.28) (0.30) (0.12) (0.31) (0.26)
Dividends from net realized
capital gains.............. (1.21) (1.21) (0.51) (0.51) (0.13) -- -- --
--------- -------- --------- -------- --------- ----------- -------- --------
Total Dividends......... (1.42) (1.37) (0.89) (0.79) (0.43) (0.12) (0.31) (0.26)
--------- -------- --------- -------- --------- ----------- -------- --------
Net increase (decrease) in net
asset value.................. 0.38 0.37 1.94 1.92 1.70 0.92 2.15 (0.48)
--------- -------- --------- -------- --------- ----------- -------- --------
Net Asset Value, End of
Period....................... $ 16.84 $ 16.80 $ 16.46 $ 16.43 $ 14.52 $ 14.51 $ 12.82 $ 10.67
--------- -------- --------- -------- --------- ----------- -------- --------
--------- -------- --------- -------- --------- ----------- -------- --------
Total Return(8)............... 11.75%(6) 11.36%(6) 20.23% 19.34% 16.92% 7.71%(6) 23.42% (2.02)%
Ratios/Supplemental Data:
Net Assets, End of Period
(000's).................... $268,997 $47,242 $177,239 $30,688 $116,852 $ 3,557 $ 76,368 $ 73,574
Ratios to average net assets:
Net investment income
including
reimbursement/waiver....... 2.53%(7) 1.85%(7) 2.66% 1.95% 2.29% 1.73%(7) 2.52% 2.66%
Operating expenses including
reimbursement/waiver....... 1.31%(7) 1.99%(7) 1.37% 2.10% 1.42% 1.95%(7) 1.48% 1.21%
Operating expenses excluding
reimbursement/waiver....... 1.31%(7) 1.99%(7) 1.37% 2.19% 1.42% 2.15%(7) 1.50% 1.22%
Portfolio Turnover Rate....... 52%(6) 52%(6) 58% 58% 48% 48% 41% 23%
Average Commission Rate
Paid(9)...................... $ 0.0613 $0.0613 $ 0.0609 $0.0609 $ 0.0635 $0.0635 N/A N/A
<CAPTION>
PERIOD ENDED
OCTOBER 31,
1993(2) 1991(1,2)
-------- ------------
<S> <C> <C>
Net Asset Value, Beginning of
Period....................... $ 10.16 $ 10.00
-------- ------------
Income from Investment
Operations:
Net investment
income(4,5)................ 0.25 0.15
Net realized and unrealized
gain (loss) on
investments................ 0.99 0.13
-------- ------------
Total from Investment
Operations:............ 1.24 0.28
-------- ------------
Less Dividends:
Dividends from net
investment income.......... (0.25) (0.12)
Dividends from net realized
capital gains.............. -- --
-------- ------------
Total Dividends......... (0.25) (0.12)
-------- ------------
Net increase (decrease) in net
asset value.................. 0.99 0.16
-------- ------------
Net Asset Value, End of
Period....................... $ 11.15 $ 10.16
-------- ------------
-------- ------------
Total Return(8)............... 12.37% 2.85%(6)
Ratios/Supplemental Data:
Net Assets, End of Period
(000's).................... $ 92,348 $11,555
Ratios to average net assets:
Net investment income
including
reimbursement/waiver....... 2.59% 2.80%(7)
Operating expenses including
reimbursement/waiver....... 1.14% 1.11%(7)
Operating expenses excluding
reimbursement/waiver....... 1.25% 2.39%(7)
Portfolio Turnover Rate....... 7% 2%(6)
Average Commission Rate
Paid(9)...................... N/A N/A
</TABLE>
- --------------------------
(1) The Fund commenced operations on December 30, 1991.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Retail and Trust
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) The Fund began issuing Retail B Shares on March 4, 1996.
(4) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for Retail A Shares for the six
months ended April 30, 1998 (unaudited), the year ended October 31, 1997,
1996, 1995, 1994 and 1993 and for the period ended October 31, 1992 was
$0.20, $0.40, $0.30, $0.30, $0.27, $0.24 and $0.08, respectively.
(5) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for Retail B Shares for the six
months ended April 30, 1998 (unaudited), the year ended October 31, 1997
and for the period ended October 31, 1996 was $0.16, $0.28 and $0.12,
respectively.
(6) Not Annualized.
(7) Annualized.
(8) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares.
(9) Required for fiscal year beginning on or after September 1, 1995.
12
<PAGE>
STRATEGIC EQUITY FUND(1)
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30, 1998
(UNAUDITED)
-----------------------------
RETAIL RETAIL
A SHARES B SHARES
------------- -------------
<S> <C> <C>
Net Asset Value, Beginning of
Period....................... $ 10.00 $ 10.00
------------- -------------
Income from Investment
Operations:
Net investment
income(2,3)................ --(8) --(8)
Net realized and unrealized
gain (loss) on
investments................ 0.17 0.17
------------- -------------
Total from Investment
Operations:............. 0.17 0.17
------------- -------------
Less Dividends:
Dividends from net
investment income.......... -- --
Dividends from net realized
capital gains.............. -- --
------------- -------------
Total Dividends......... -- --
------------- -------------
Net increase (decrease) in net
asset value.................. 0.17 0.17
------------- -------------
Net Asset Value, End of
Period....................... $ 10.17 $ 10.17
------------- -------------
------------- -------------
Total Return(6)............... 1.70%(4) 1.70%(4)
Ratios/Supplemental Data:
Net Assets, End of Period
(000's).................... $ 1,064 $ 133
Ratios to average net assets:
Net investment income
including
reimbursement/waiver....... 0.21%(5) 0.22%(5)
Operating expenses including
reimbursement/waiver....... 1.35%(5) 1.35%(5)
Operating expenses excluding
reimbursement/waiver....... 10.73%(5) 15.59%(5)
Portfolio Turnover Rate....... 9% 9%(4)
Average Commission Rate
Paid(7)...................... $0.0741 $0.0741
</TABLE>
- --------------------------
(1) The Fund commenced operations on March 4, 1998.
(2) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for Retail A Shares for the six
months ended April 30, 1998 (unaudited) was $0.00
(3) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for Retail B Shares for the six
months ended April 30, 1998 (unaudited) was less than $0.005.
(4) Not Annualized.
(5) Annualized.
(6) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares.
(7) Required for fiscal year beginning on or after September 1, 1995.
(8) Net investment income per share is less than $0.005.
13
<PAGE>
SMALL CAP VALUE FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED OCTOBER 31,
ENDED APRIL ---------------------------------------------------------
30, 1998
(UNAUDITED) 1997 1996(2)
------------- ------------- ------------- PERIOD ENDED
RETAIL RETAIL RETAIL OCTOBER 31,
A SHARES A SHARES A SHARES 1995 1994 1993(1)
------------- ------------- ------------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period....................... $ 18.29 $ 14.75 $ 12.68 $ 11.06 $ 11.21 $ 10.52
------------- ------------- ------------- ----------- ----------- -------
Income from Investment
Operations:
Net investment
income(3,4)................ 0.06 (0.04)(9) 0.01 (0.02) (0.01) (0.01)
Net realized gain (loss) on
investments................ 1.44 5.72 2.95 2.21 0.18 0.70
------------- ------------- ------------- ----------- ----------- -------
Total from Investment
Operations:............ 1.50 5.68 2.96 2.19 0.17 0.69
------------- ------------- ------------- ----------- ----------- -------
Less Dividends:
Dividends from net
investment income.......... (0.07) -- (0.02) -- -- --
Dividends in excess of net
investment income.......... -- -- -- -- -- --
Dividends from net realized
gains...................... (2.68) (2.14) (0.87) (0.57) (0.32) --
------------- ------------- ------------- ----------- ----------- -------
Total Dividends:........ (2.75) (2.14) (0.89) (0.57) (0.32) --
------------- ------------- ------------- ----------- ----------- -------
Net increase (decrease) in net
asset value.................. (1.25) 3.54 2.07 1.62 (0.15) 0.69
------------- ------------- ------------- ----------- ----------- -------
Net Asset Value, End of
Period....................... $ 17.04 $ 18.29 $ 14.75 $ 12.68 $ 11.06 $ 11.21
------------- ------------- ------------- ----------- ----------- -------
------------- ------------- ------------- ----------- ----------- -------
Total Return(5)............... 10.12%(6) 43.58% 24.77% 21.27% 1.64% 6.56%(6)
Ratios/Supplemental Data:
Net Assets, End of Period
(000s)..................... $97,447 $63,658 $34,402 $ 27,546 $ 19,764 $15,014
Ratios to average net assets:
Net investment income
including reimbursement/
waiver..................... 0.54%(7) (0.25)% 0.08% (0.19)% (0.10)% (0.19)%(7)
Operating Expenses including
reimbursement/waiver....... 1.31%(7) 1.30% 1.40% 1.35% 1.31% 1.33%(7)
Operating Expenses excluding
reimbursement/waiver....... 1.38%(7) 1.52% 1.55% 1.85% 1.84% 1.87%(7)
Portfolio Turnover Rate....... 20%(6) 52% 39% 32% 29% 29%(6)
Average Commission Rate
Paid(8)...................... $0.0530 $0.0577 $0.0559 N/A N/A N/A
</TABLE>
- --------------------------
(1) The Fund commenced operations on December 14, 1992 as a separate investment
portfolio (the "Predecessor Fund") of The Shawmut Funds. The Predecessor
Fund began offering Investment Shares on February 12, 1993.
(2) On December 4, 1995, the Predecessor Fund was reorganized as a new
portfolio of Galaxy. Prior to the reorganization, the Predecessor Fund
offered and sold two series of shares, Investment Shares and Trust Shares,
that were similar to the Fund's Retail A and Trust Shares, respectively. In
connection with the reorganization, shareholders of the Predecessor Fund
exchanged Investment Shares and Trust Shares for Retail A Shares and Trust
Shares, respectively, in the Fund.
(3) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for Retail A Shares for the six
months ended April 30, 1998 (unaudited), the year ended October 31, 1997
and 1996 was $0.05, $(0.02) and $0.01, respectively. Net investment income
(loss) per share for Retail A Shares before reimbursement/waiver of fees by
other parties for the years ended October 31, 1995 and 1994 and for the
period ended October 31, 1993 was $(0.08), $(0.06) and $(0.05),
respectively (unaudited).
(4) Net investment income per share does not reflect the tax reclassifications
arising in the current period.
(5) Calculation does not include the effect of any sales charge for Retail A
Shares.
(6) Not Annualized.
(7) Annualized.
(8) Required for fiscal years beginning on or after September 1, 1995.
(9) The selected per share data was calculated using the weighted average
shares outstanding method for the year.
14
<PAGE>
GROWTH AND INCOME FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
SIX MONTHS ENDED --------------------------------------------------------------
APRIL 30, 1998 1996
(UNAUDITED) 1997 -------------------- PERIOD
--------------------- -------------------- RETAIL ENDED
RETAIL RETAIL RETAIL RETAIL RETAIL B OCTOBER 31,
A SHARES B SHARES A SHARES B SHARES A SHARES SHARES(3) 1995 1994 1993(1)
-------- --------- --------- --------- --------- --------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period..... $ 16.24 $ 16.23 $ 13.78 $ 13.77 $ 12.35 $ 12.97 $ 11.15 $ 10.69 $ 10.23
-------- --------- --------- --------- --------- --------- ------- ------- -----------
Income from Investment
Operations:
Net investment
income(4,5)........... 0.07 0.02 0.18 0.10 0.21 0.07 0.24 0.22 0.15
Net realized gain
(loss) on
investments........... 2.63 2.62 3.67 3.65 2.16 0.81 1.70 0.72 0.48
-------- --------- --------- --------- --------- --------- ------- ------- -----------
Total from
Investment
Operations:....... 2.70 2.64 3.85 3.75 2.37 0.88 1.94 0.94 0.63
-------- --------- --------- --------- --------- --------- ------- ------- -----------
Less Dividends:
Dividends from net
investment income..... (0.08 ) (0.03) (0.20) (0.10) (0.21) (0.08) (0.25) (0.20) (0.17)
Dividends from net
realized gains........ (2.68 ) (2.68) (1.19) (0.19) (0.73) -- (0.49) (0.28) --
-------- --------- --------- --------- --------- --------- ------- ------- -----------
Total Dividends.... (2.76 ) (2.71) (1.39) (1.29) (0.94) (0.08) (0.74) (0.48) (0.17)
-------- --------- --------- --------- --------- --------- ------- ------- -----------
Net increase (decrease)
in net asset value...... (0.06 ) (0.07) 2.46 2.46 1.43 0.80 1.20 0.46 0.46
-------- --------- --------- --------- --------- --------- ------- ------- -----------
Net Asset Value, End of
Period.................. $ 16.18 $ 16.16 $ 16.24 $ 16.23 $ 13.78 $ 13.77 $ 12.35 $ 11.15 $ 10.69
-------- --------- --------- --------- --------- --------- ------- ------- -----------
-------- --------- --------- --------- --------- --------- ------- ------- -----------
Total Return(6).......... 19.26%(7) 18.80%(7) 30.10% 29.11% 20.25% 6.83%(7) 18.52% 9.12% 6.20%(7)
Ratios/Supplemental Data:
Net Assets, End of
Period (000s)......... $219,938 $51,630 $141,884 $35,178 $77,776 $ 4,562 $51,078 $22,244 $16,280
Ratios to average net
assets:
Net investment income
including
reimbursement/waiver... 0.96%(8) 0.25%(8) 1.18% 0.31% 1.65% 0.79%(8) 2.10% 2.06% 1.77%(8)
Operating Expenses
including
reimbursement/waiver... 1.28%(9) 1.99%(8) 1.27% 2.05% 1.34% 1.96%(8) 1.32% 1.29% 1.25%(8)
Operating Expenses
excluding
reimbursement/waiver... 1.34%(8) 1.99%(8) 1.45% 2.28% 1.45% 2.11%(8) 1.77% 1.74% 1.78%(8)
Portfolio Turnover
Rate.................... 18%(7) 18%(7) 93% 93% 59% 59% 51% 73% 38%(7)
Average Commission Rate
Paid(9)................. $0.0648 $0.0648 $ 0.0618 $0.0618 $0.0654 $0.0654 N/A N/A N/A
</TABLE>
- --------------------------
(1) The Fund commenced operations on December 14, 1992 as a separate investment
portfolio (the "Predecessor Fund") of The Shawmut Funds. The Predecessor
Fund began offering Investment Shares on February 12, 1993.
(2) On December 4, 1995, the Predecessor Fund was reorganized as a new
portfolio of Galaxy. Prior to the reorganization, the Predecessor Fund
offered and sold two series of shares, Investment Shares and Trust Shares,
that were similar to the Fund's Retail A and Trust Shares, respectively. In
connection with the reorganization, shareholders of the Predecessor Fund
exchanged Investment Shares and Trust Shares for Retail A Shares and Trust
Shares, respectively, in the Fund.
(3) The Fund began issuing Retail B Shares on March 4, 1996.
(4) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for (i) Retail A Shares for the six
months ended April 30, 1998 (unaudited), the year ended October 31, 1997
and 1996 was $0.06, $0.18 and $0.19, respectively, (ii) Retail B Shares for
the six months ended April 30, 1998 (unaudited), the year ended October 31,
1997 and for the period ended October 31, 1996 was $0.02, $0.08 and $0.05,
respectively. Net investment income per share before reimbursement/waiver
of fees by other parties for Retail A Shares for the years ended October
31, 1995 and 1994 and for the period ended October 31, 1993 was $0.22,
$0.18 and $0.18, respectively (unaudited).
(5) Net investment income per share does not reflect the tax reclassification
arising in the current period.
(6) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares.
(7) Not Annualized.
(8) Annualized.
(9) Required for fiscal years beginning on or after September 1, 1995.
15
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Fleet, and, with respect to the International Equity Fund, Fleet and
Oechsle, will use their best efforts to achieve each Fund's investment
objective, although such achievement cannot be assured. The investment objective
of a Fund may not be changed without the approval of the holders of a majority
of its outstanding shares (as defined under "Miscellaneous"). Except as noted
below under "Investment Limitations," a Fund's investment policies may be
changed without shareholder approval. An investor should not consider an
investment in the Funds to be a complete investment program.
EQUITY VALUE FUND
The investment objective of the Equity Value Fund is to seek long-term
capital appreciation. Income is secondary to the objective of capital
appreciation. The Fund attempts to achieve its investment objective by investing
primarily in common stock, preferred stock (including convertible preferred
stock) and debt obligations convertible into common stock that Fleet believes to
be undervalued, as measured by various financial tests, including one or more of
the following: cash flow, return on equity, return on assets, fixed charge
coverage and ratios of market capitalization to revenues. In addition, Fleet
considers the current value of an issuer's fixed assets (including real estate),
cash items, net working capital, indebtedness and historical book value. Stocks
which appear to be undervalued are also reviewed to determine whether
unacceptable risks account for their valuation. The Fund also seeks to purchase
stock with a projected price-earnings ratio below that of the Standard & Poor's
500 Composite Stock Price Index (the "S&P 500").
Under normal market and economic conditions, the Fund invests at least 75%
of its total assets in common stock, preferred stock and debt securities
convertible into common stock that Fleet believes to be undervalued. Debt
securities convertible into common stock are purchased primarily during periods
of relative market instability and are acquired principally for income with the
potential for appreciation being a secondary consideration. Equity investments
consist primarily of common stock of companies having capitalizations that
exceed $100 million. Stocks of such companies generally are listed on a national
exchange or are unlisted securities with an established over-the-counter market.
The Fund may hold other types of securities in such proportions as, in the
opinion of Fleet, existing market and economic conditions may warrant, including
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, and other high quality "money market" instruments. The Fund
may also hold cash pending investment, during temporary defensive periods or if,
in the opinion of Fleet, suitable stock or convertible debt securities are
unavailable.
The Fund may also invest up to 20% of its total assets in foreign
securities, either directly or indirectly through American Depository Receipts
("ADRs") and European Depository Receipts ("EDRs"). In addition, the Fund may
invest in securities issued by foreign branches of U.S. banks and foreign banks.
See "Special Risk Considerations--Foreign Securities" and "Other Investment
Policies and Risk Considerations--American, European and Global Depository
Receipts" below. The Fund may also write covered call options. See "Other
Investment Policies and Risk Considerations--Options and Futures Contracts" and
"Other Investment Policies and Risk Considerations--Derivative Securities"
below. See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Equity Value Fund.
EQUITY GROWTH FUND
The Equity Growth Fund's investment objective is to seek long-term capital
appreciation. The Fund attempts to achieve its investment objective by
investing, under normal market and economic conditions, at least 75% of its
total assets in a broadly diversified portfolio of equity securities such as
common stock, preferred stock, common stock warrants and securities convertible
into common stock of companies that Fleet believes will increase future earnings
to a level above the average earnings of similar issuers. Such companies often
retain their earnings to finance current and future growth and, for this reason,
generally pay little or no dividends. Equity securities in which the Fund
invests are selected based on analysis of trends in industries and companies,
earning power, growth features, quality and depth of management, marketing and
manufacturing skills, financial conditions and other investment criteria. By
investing in convertible securities, the Fund will seek the opportunity, through
the conversion feature, to participate in the capital appreciation of the common
stock into which the securities are convertible. See "Other Investment Policies
and Risk Considerations--Convertible Securities" below.
The Fund may invest up to 20% of its total assets in foreign securities,
either directly or indirectly through the purchase of ADRs and EDRs. In
addition, the Fund may invest in securities issued by foreign branches of U.S.
banks and foreign banks. See "Special Risk Considerations--Foreign Securities"
and "Other Investment Policies and Risk Considerations--American, European and
Global Depository Receipts" below. The Fund may also purchase put options and
call options and write covered call options. See
16
<PAGE>
"Other Investment Policies and Risk Considerations--Options and Futures
Contracts" and "Other Investment Policies and Risk Considerations--Derivative
Securities" below.
As a temporary defensive measure, the Fund may invest without limitation in
cash, "money market" instruments (such as those listed under "Other Investment
Policies and Risk Considerations" below) and U.S. Government obligations at such
times and in such proportions as, in the opinion of Fleet, prevailing market or
economic conditions warrant. See "Other Investment Policies and Risk
Considerations" below for information regarding additional investment policies
of the Equity Growth Fund.
EQUITY INCOME FUND
The Equity Income Fund's investment objective is to seek current income and
capital appreciation. The Fund attempts to achieve its investment objective by
investing, under normal market and economic conditions, at least 75% of its
total assets in common stock and securities convertible into common stock that
offer income potential. Factors generally considered in selecting portfolio
securities include current income and prospects for dividend growth and capital
appreciation. However, the Fund's portfolio can be expected to include
securities that offer only growth potential or only income potential, as well as
securities that combine both these elements.
The Equity Income Fund may invest up to 20% of its total assets in foreign
securities, either directly or indirectly through the purchase of ADRs and EDRs.
In addition, the Fund may invest in securities issued by foreign branches of
U.S. banks and foreign banks. See "Special Risk Considerations--Foreign
Securities" and "Other Investment Policies and Risk Considerations--American,
European and Global Depository Receipts" below. The Fund may also purchase put
options and call options and write covered call options. See "Other Investment
Policies and Risk Considerations-- Options and Futures Contracts" and "Other
Investment Policies and Risk Considerations--Derivative Securities" below.
As a temporary defensive measure, the Fund may invest without limitation in
cash, "money market" instruments (such as those listed under "Other Investment
Policies and Risk Considerations" below) and U.S. Government obligations at such
times and in such proportions as, in the opinion of Fleet, prevailing market or
economic conditions warrant. See "Other Investment Policies and Risk
Considerations" below for information regarding additional investment policies
of the Equity Income Fund.
INTERNATIONAL EQUITY FUND
The International Equity Fund's investment objective is to seek long-term
capital appreciation. The Fund attempts to achieve its investment objective by
investing at least 75% of its total assets in equity securities of foreign
issuers. The Fund's assets will be invested at all times in the securities of
issuers located in at least three different foreign countries. Although the Fund
may earn income from dividends, interest and other sources, current income will
not be its primary consideration. The Fund emphasizes established companies,
although it may invest in companies of varying sizes as measured by assets,
sales and capitalization.
The Fund may invest in securities of issuers located in a variety of
different foreign regions and countries, including, but not limited to,
Australia, Austria, Belgium, Brazil, Canada, Denmark, Finland, France, Germany,
Greece, Hong Kong, Ireland, Italy, Japan, Luxembourg, Malaysia, Mexico, the
Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden,
Switzerland, Thailand and the United Kingdom. More than 25% of the Fund's total
assets may be invested in the securities of issuers located in the same country.
Investment in a particular country of 25% or more of the Fund's total assets
will make the Fund's performance more dependent upon the political and economic
circumstances of a particular country than a mutual fund that is more widely
diversified among issuers in different countries. Criteria for determining the
appropriate distribution of investments among various countries and regions
include prospects for relative economic growth, expected levels of inflation,
government policies influencing business conditions, the outlook for currency
relationships, and the range of investment opportunities available to
international investors. Under normal market and economic conditions, no more
than 20% of the Fund's net assets will be invested in the aggregate in the
securities of issuers located in countries with emerging economies or emerging
securities markets.
The Fund invests in common stock and may invest in other securities with
equity characteristics, consisting of trust or limited partnership interests,
preferred stock, rights and warrants. The Fund may also invest in convertible
securities, consisting of debt securities or preferred stock that may be
converted into common stock or that carry the right to purchase common stock.
See "Other Investment Policies and Risk Considerations--Convertible Securities"
below. The Fund invests in securities listed on foreign or domestic securities
exchanges and securities traded in foreign or domestic over-the-counter markets,
and may invest in unlisted securities.
Securities issued in certain countries are currently accessible to the Fund
only through investment in other investment companies that are specifically
authorized to invest in such securities. The limitations on the Fund's
investment in other investment companies are described below under "Other
Investment Policies and Risk Considerations--Investment Company Securities."
17
<PAGE>
During temporary defensive periods in response to unusual and adverse
conditions affecting the equity markets, or to meet anticipated day-to-day
operating expenses, the Fund's assets may be invested in short-term debt
instruments. In addition, when the Fund experiences large cash inflows from the
issuance of new shares or the sale of portfolio securities, and desirable equity
securities that are consistent with the Fund's investment objective are
unavailable in sufficient quantities, the Fund may hold short-term investments
for a limited time pending availability of suitable equity securities. The
short-term debt instruments in which the Fund may invest may be denominated in
foreign currencies or U.S. dollars, and include foreign and domestic: (i)
short-term debt securities, including short-term obligations of national
governments, their agencies, instrumentalities, authorities or political
subdivisions; (ii) commercial paper, including master notes; (iii) bank
obligations, including negotiable certificates of deposit, time deposits,
bankers' acceptances, and Euro-currency instruments and securities; and (iv)
repurchase agreements.
Subject to applicable securities regulations, the Fund may, for the purpose
of hedging its portfolio, purchase and write covered call options on specific
portfolio securities and may purchase and write put and call options on foreign
stock indexes listed on foreign and domestic stock exchanges. In addition, the
Fund may invest up to 100% of its total assets in securities of foreign issuers
in the form of ADRs, EDRs or Global Depository Receipts ("GDRs") as described
under "Other Investment Policies and Risk Considerations." Furthermore, the Fund
may purchase and sell securities on a when-issued basis. For temporary defensive
purposes, the Fund may also invest a major portion of its assets in securities
of U.S. issuers. See "Other Investment Policies and Risk Considerations" below
regarding additional investment policies of the International Equity Fund.
SMALL COMPANY EQUITY FUND
The Small Company Equity Fund's investment objective is to seek capital
appreciation. The Fund attempts to achieve its investment objective by investing
primarily in the securities of companies with market value capitalizations of
$1.5 billion or less ("Small Capitalization Securities") which Fleet believes
represent the potential for significant capital appreciation.
Small Capitalization Securities in which the Fund may invest include common
stock, preferred stock, securities convertible into common stock, rights and
warrants. Under normal market and economic conditions, at least 65% of the
Fund's total assets will be invested in the equity securities of companies with
market value capitalizations of $1.5 billion or less. For temporary defensive
purposes, the Fund may also invest in corporate debt obligations.
The issuers of Small Capitalization Securities tend to be companies which
are smaller or newer than those listed on the New York or American Stock
Exchanges. As a result, Small Capitalization Securities are primarily traded on
the over-the-counter market, although they may also be listed for trading on the
New York or American Stock Exchanges. Because the issuers of Small
Capitalization Securities tend to be smaller or less well-established companies,
they may have limited product lines, markets or financial resources. As a
result, Small Capitalization Securities are often less marketable and may
experience a higher level of price volatility than the securities of larger or
more well-established companies.
The Fund may invest up to 20% of its total assets in foreign securities,
either directly or indirectly through ADRs and EDRs. See "Special Risk
Considerations--Foreign Securities" and "Other Investment Policies and Risk
Considerations--American, European and Global Depository Receipts" below.
The Fund may purchase put options and call options and write covered call
options as a hedge against changes resulting from market conditions and in the
value of the securities held in the Fund or which it intends to purchase and
where the transactions are economically appropriate for the reduction of risks
inherent in the ongoing management of the Fund. See "Other Investment Policies
and Risk Considerations--Options and Futures Contracts" and "Other Investment
Policies and Risk Considerations--Derivative Securities" below.
As a temporary defensive measure, the Fund may invest without limitation in
cash, "money market" instruments (such as those listed under "Other Investment
Policies and Risk Considerations" below) and U.S. Government obligations at such
times and in such proportions as, in the opinion of Fleet, prevailing market or
economic conditions warrant. See "Other Investment Policies and Risk
Considerations" below for information regarding additional investment policies
of the Small Company Equity Fund.
ASSET ALLOCATION FUND
The investment objective of the Asset Allocation Fund is to seek a high
total return by providing both a current level of income that is greater than
that provided by the popular stock market averages as well as long-term growth
in the value of the Fund's assets. Fleet interprets the objective to refer to
the Dow Jones Industrial Average (of 30 companies listed on the New York Stock
Exchange) and the S&P 500. Due to the Fund's expenses, net income distributed to
shareholders may be less than that of these averages.
The Fund attempts to achieve its investment objective and at the same time
reduce volatility by allocating its assets among short-term obligations, common
stock, preferred stock and bonds. The proportion of the Fund's assets invested
in each type of security will vary from time to time as a result of Fleet's
interpretation of economic and market conditions. However, at least 25% of the
Fund's total assets will at all times be invested in fixed-income senior
securities, including debt securities and preferred stocks. In selecting common
18
<PAGE>
stock for purchase by the Fund, Fleet will analyze the potential for changes in
earnings and dividends for a foreseeable period.
The Fund may also invest up to 20% of its total assets in foreign
securities. Such foreign investments may be made directly, by purchasing
securities issued or guaranteed by foreign corporations, banks or governments
(or their political subdivisions or instrumentalities) or by supranational banks
or other organizations, or indirectly, by purchasing ADRs and EDRs. Examples of
supranational banks include the International Bank for Reconstruction and
Development ("World Bank"), the Asian Development Bank and the InterAmerican
Development Bank. Obligations of supranational banks may be supported by
appropriated but unpaid commitments of their member countries and there is no
assurance that those commitments will be undertaken or met in the future. See
"Special Risk Considerations--Foreign Securities" and "Other Investment Policies
and Risk Considerations--American, European and Global Depository Receipts"
below. The Fund may also invest in dollar-denominated high quality debt
obligations of U.S. corporations issued outside the United States. The Fund may
purchase put options and call options and write covered call options, purchase
asset-backed securities and mortgage-backed securities and enter into foreign
currency exchange transactions. See "Other Investment Policies and Risk
Considerations" below.
As a temporary defensive measure, the Fund may invest without limitation in
cash, "money market" instruments (such as those listed under "Other Investment
Policies and Risk Considerations" below) and U.S. Government obligations at such
times and in such proportions as, in the opinion of Fleet, prevailing market and
economic conditions warrant. See "Other Investment Policies and Risk
Considerations" below for information regarding additional investment policies
of the Asset Allocation Fund.
SMALL CAP VALUE FUND
The Small Cap Value Fund's investment objective is to provide long-term
capital appreciation. The Fund attempts to achieve its investment objective by
investing, under normal market and economic conditions, at least 65% of its
assets in equity securities of companies that have a market value capitalization
of up to $1.5 billion.
Small capitalization stocks have historically been more volatile in price
than larger capitalization stocks, such as those included in the S&P 500. This
is because, among other things, smaller companies have a lower degree of
liquidity in the equity market and tend to have a greater sensitivity to
changing economic conditions. Further, in addition to exhibiting greater
volatility, these stocks may, to some degree, fluctuate independently of the
stocks of large companies. That is, the stock of small capitalization companies
may decline in price as the prices of large company stocks rise or vice versa.
Therefore, investors should expect that the Fund will be more volatile than, and
may fluctuate independently of, broad stock market indices such as the S&P 500.
The Fund may purchase convertible securities, including convertible
preferred stock, convertible bonds or debentures, units consisting of "usable"
bonds and warrants or a combination of the features of several of these
securities. See "Other Investment Policies and Risk Considerations--Convertible
Securities" below. The Fund may also buy and sell options and futures contracts
and utilize stock index futures contracts, options, swap agreements, indexed
securities, and options on futures contracts. See "Other Investment Policies and
Risk Considerations--Options and Futures Contracts", "Other Investment Policies
and Risk Considerations--Stock Index Futures, Swap Agreements, Indexed
Securities and Options" and "Other Investment Policies and Risk Considerations--
Derivative Securities" below.
The Fund may invest up to 20% of its total assets in securities of foreign
issuers which are freely traded on United States securities exchanges or in the
over-the-counter market in the form of ADRs, EDRs and GDRs. Securities of a
foreign issuer may present greater risks in the form of nationalization,
confiscation, domestic marketability, or other national or international
restrictions. As a matter of practice, the Fund will not invest in the
securities of a foreign issuer if any such risk appears to Fleet to be
substantial. See "Special Risk Considerations--Foreign Securities" and "Other
Investment Policies and Risk Considerations--American, European and Global
Depository Receipts" below.
As a temporary defensive measure, in such proportions as, in the judgment of
Fleet, prevailing market conditions warrant, the Fund may invest in: (i)
short-term money market instruments (such as those listed below under "Other
Investment Policies and Risk Considerations"); (ii) securities issued and/or
guaranteed as to payment of principal and interest by the U.S. Government, its
agencies, or instrumentalities; and (iii) repurchase agreements. Additional
information about the types of money market instruments and U.S. Government
obligations in which the Small Cap Value Fund is permitted to invest is
contained in the Statement of Additional Information relating to the Fund. See
"Other Investment Policies and Risk Considerations" below for information
regarding additional investment policies of the Small Cap Value Fund.
GROWTH AND INCOME FUND
The Growth and Income Fund's investment objective is to provide a relatively
high total return through long-term capital appreciation and current income. The
Fund attempts to achieve this objective by investing primarily in common stocks
of companies with prospects for above-average growth and dividends or of
companies where significant fundamental changes are taking place. Under normal
market conditions, the Fund will invest at least 65% of its assets in common
stocks, preferred stocks, common stock warrants and securities convertible into
common stock.
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The Fund invests primarily in growth-oriented equity securities.
Growth-oriented stocks may include issuers with smaller capitalizations. See
"Small Company Equity Fund" and "Small Cap Value Fund" above for a description
of the risks associated with investments in small capitalization stocks.
Investors should expect that the Fund will be more volatile than, and may
fluctuate independently of, broad stock indices such as the S&P 500.
The Fund may purchase convertible securities, including convertible
preferred stock, convertible bonds or debentures, units consisting of "usable"
bonds and warrants or a combination of the features of several of these
securities. See "Other Investment Policies and Risk Considerations--Convertible
Securities" below. The Fund may also buy and sell options and futures contracts
and utilize stock index futures contracts, options, swap agreements, indexed
securities, and options on futures contracts. See "Other Investment Policies and
Risk Considerations--Options and Futures Contracts," "Other Investment Policies
and Risk Considerations--Stock Index Futures, Swap Agreements, Indexed
Securities and Options" and "Other Investment Policies and Risk Considerations--
Derivative Securities" below.
The Fund may invest up to 20% of its total assets in securities of foreign
issuers which are freely traded on United States securities exchanges or in the
over-the-counter market in the form of ADRs, EDRs and GDRs. Securities of a
foreign issuer may present greater risks in the form of nationalization,
confiscation, domestic marketability, or other national or international
restrictions. As a matter of practice, the Fund will not invest in the
securities of foreign issuers if any such risk appears to Fleet to be
substantial. See "Special Risk Considerations--Foreign Securities" and Other
Investment Policies and Risk Considerations--American, European and Global
Depository Receipts" below.
As a temporary defensive measure, in such proportions as, in the judgment of
Fleet, prevailing market conditions warrant, the Fund may invest in: (i)
short-term money market instruments (such as those listed below under "Other
Investment Policies and Risk Considerations"); (ii) securities issued and/or
guaranteed as to payment of principal and interest by the U.S. Government, its
agencies, or instrumentalities; and (iii) repurchase agreements. Additional
information about the types of money market instruments and U.S. Government
obligations in which the Fund is permitted to invest is contained in the
Statement of Additional Information relating to the Fund. See "Other Investment
Policies and Risk Considerations" below for information regarding additional
investment policies of the Growth and Income Fund.
STRATEGIC EQUITY FUND
The investment objective of the Strategic Equity Fund is to seek long-term
capital appreciation. The Fund attempts to achieve its investment objective by
investing primarily in the securities of growth companies that Fleet believes
are reasonably priced and relative to other industries, competitors and
historical price/earnings multiples. In selecting investments for the Fund,
Fleet uses a fundamental analysis which focuses on intermediate and long-term
return forecasts for a broad universe of between 300 and 400 large and
mid-capitalization stocks. Under normal market and economic conditions, the Fund
will invest at least 65% of its total assets in equity securities, including
common stocks, preferred stocks, securities convertible into common stock,
rights and warrants.
The Fund may invest up to 20% of its total assets in foreign securities,
either directly or indirectly through ADRs, EDRs and GDRs. See "Special Risk
Considerations--Foreign Securities" and "Other Investment Policies and Risk
Considerations--American, European and Global Depository Receipts" below.
The Fund may also buy and sell options and futures contracts and utilize
stock index futures contracts, options, swap agreements, indexed securities and
options on futures contracts. See "Other Investment Policies and Risk
Considerations--Options and Futures Contracts", "Other Investment Policies and
Risk Considerations--Stock Index Futures, Swap Agreements, Indexed Securities
and Options" and "Other Investment Policies and Risk Considerations--Derivative
Securities" below.
As a temporary defensive measure, the Fund may invest without limitation in
cash, "money market" instruments (such as those listed under "Other Investment
Policies and Risk Considerations" below) and in U.S. Government obligations at
such times and in such proportions as, in the opinion of Fleet, prevailing
market and economic conditions warrant. See "Other Investment Policies and Risk
Considerations" below for information regarding additional investment policies
of the Strategic Equity Fund.
SPECIAL RISK CONSIDERATIONS
MARKET RISK
Each Fund invests primarily (or with respect to the Asset Allocation Fund,
to a significant degree) in equity securities. As with other mutual funds that
invest primarily or to a significant degree in equity securities, the Funds are
subject to market risks. That is, the possibility exists that common stocks will
decline over short or even extended periods of time and both the U.S. and
certain foreign equity markets tend to be cyclical, experiencing both periods
when stock prices generally increase and periods when stock prices generally
decrease.
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INTEREST RATE RISK
To the extent that the Funds invest in fixed income securities, their
holdings of such securities are sensitive to changes in interest rates and the
interest rate environment. Generally, the prices of bonds and other debt
securities fluctuate inversely with interest rate changes.
FOREIGN SECURITIES
Investments in foreign securities may involve higher costs than investments
in U.S. securities, including higher transaction costs, as well as the
imposition of additional taxes by foreign governments. In addition, foreign
investments may include additional risks associated with currency exchange
rates, less complete financial information about the issuers, less market
liquidity, and political instability. Future political and economic
developments, the possible imposition of withholding taxes on interest income,
the possible seizure or nationalization of foreign holdings, the possible
establishment of exchange controls, or the adoption of other governmental
restrictions, might adversely affect the payment of dividends or principal and
interest on foreign obligations.
Although each of the Funds may invest in securities denominated in foreign
currencies, each Fund values its securities and other assets in U.S. dollars. As
a result, the net asset value of a Fund's shares may fluctuate with U.S. dollar
exchange rates as well as with price changes of the Fund's securities in the
various local markets and currencies. Thus, an increase in the value of the U.S.
dollar compared to the currencies in which a Fund makes its investments could
reduce the effect of increases and magnify the effect of decreases in the price
of a Fund's securities in their local markets. Conversely, a decrease in the
value of the U.S. dollar will have the opposite effect of magnifying the effect
of increases and reducing the effect of decreases in the prices of a Fund's
securities in their local markets. In addition to favorable and unfavorable
currency exchange rate developments, the Funds are subject to the possible
imposition of exchange control regulations or freezes on convertibility of
currency.
Certain of the risks associated with investments in foreign securities are
heightened with respect to investments in countries with emerging economies or
emerging securities markets. The risks of expropriation, nationalization and
social, political and economic instability are greater in those countries than
in more developed capital markets.
EUROPEAN CURRENCY UNIFICATION
Many European countries are about to adopt a single European currency, the
euro. On January 1, 1999, the euro will become legal tender for all countries
participating in the Economic and Monetary Union ("EMU"). A new European Central
Bank will be created to manage the monetary policy of the new unified region. On
the same date, the exchange rates will be irrevocably fixed between the EMU
member countries. National currencies will continue to circulate until they are
replaced by euro coins and bank notes by the middle of 2002.
This change is likely to significantly impact the European capital markets
in which the International Equity Fund invests and may result in the Fund facing
additional risks in pursuing its investment objective. These risks, which
include, but are not limited to, uncertainty as to the proper tax treatment of
the currency conversion, volatility of currency exchange rates as a result of
the conversion, uncertainty as to capital market reaction, conversion costs that
may affect issuer profitability and creditworthiness, and lack of participation
by some European countries, may increase the volatility of the Fund's net asset
value per share.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in this Prospectus are among those which one or
more of the Funds have the power to utilize. Some may be employed on a regular
basis; others may not be used at all. Accordingly, reference to any particular
method or technique carries no implication that it will be utilized or, if it
is, that it will be successful.
RATINGS
All debt obligations, including convertible bonds, purchased by the Equity
Value, Equity Growth, Equity Income, Small Company Equity, Asset Allocation and
Strategic Equity Funds are rated investment grade by Moody's Investors Service,
Inc. ("Moody's") ("Aaa," "Aa," "A" and "Baa") or Standard & Poor's Ratings Group
("S&P") ("AAA," "AA," "A" and "BBB"), or, if not rated, are determined to be of
comparable quality by Fleet. Debt securities rated "Baa" by Moody's or "BBB" by
S&P are generally considered to be investment grade securities although they may
have speculative characteristics and changes in economic conditions or
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case for higher rated debt obligations.
The International Equity Fund may only purchase debt securities rated "A" or
higher by Moody's or S&P, or if unrated, determined by Fleet or Oechsle to be of
comparable quality. Issuers of commercial paper, bank obligations or
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repurchase agreements in which the International Equity Fund invests must have,
at the time of investment, outstanding debt rated A or higher by Moody's or S&P,
or, if they are not rated, the instrument purchased must be determined to be of
comparable quality.
The Small Cap Value and Growth and Income Funds may purchase convertible
bonds rated "Ba" or higher by Moody's or "BB" or higher by S&P or Fitch IBCA,
Inc. ("Fitch IBCA"), at the time of investment. See "Other Investment Policies
and Risk Considerations-- Convertible Securities" below for a discussion of the
risks of investing in convertible bonds rated either "Ba" or "BB". Short-term
money market instruments purchased by the Small Cap Value and Growth and Income
Funds must be rated in one of the top two rating categories by a nationally
recognized statistical rating agency, such as Moody's, S&P or Fitch IBCA.
U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS
The Funds may, in accordance with their respective investment policies,
invest from time to time in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities and in other "money market"
instruments, including bank obligations and commercial paper.
Obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities include U.S. Treasury securities, which differ only in their
interest rates, maturities and time of issuance: Treasury Bills have initial
maturities of one year or less; Treasury Notes have initial maturities of one to
ten years; and Treasury Bonds generally have initial maturities of more than ten
years. Obligations of certain agencies and instrumentalities of the U.S.
Government, such as those of the Government National Mortgage Association, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal Home Loan Banks, are supported by the right of the issuer
to borrow from the Treasury; others, such as those of the Federal National
Mortgage Association, are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; still others, such as those of
the Federal Home Loan Mortgage Corporation, are supported only by the credit of
the instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored instrumentalities if it
is not obligated to do so by law. Some of these instruments may be variable or
floating rate instruments.
Bank obligations include bankers' acceptances, negotiable certificates of
deposit and non-negotiable time deposits issued for a definite period of time
and earning a specified return by a U.S. bank which is a member of the Federal
Reserve System or is insured by the Federal Deposit Insurance Corporation
("FDIC"), or by a savings and loan association or savings bank which is insured
by the FDIC. With respect to each Fund other than the Small Cap Value and Growth
and Income Funds, bank obligations also include U.S. dollar-denominated
obligations of foreign branches of U.S. banks or of U.S. branches of foreign
banks, all of the same type as domestic bank obligations. Investments in bank
obligations are limited to the obligations of financial institutions having more
than $1 billion in total assets at the time of purchase. Time deposits with a
maturity longer than seven days or that do not provide for payment within seven
days after notice will be limited to 10% (15% with respect to the Small Cap
Value Fund, Growth and Income Fund and Strategic Equity Fund) of a Fund's net
assets.
Domestic and foreign banks are subject to extensive but different government
regulation which may limit the amount and types of their loans and the interest
rates that may be charged. In addition, the profitability of the banking
industry is largely dependent upon the availability and cost of funds to finance
lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and U.S.
branches of foreign banks may subject a Fund to additional risk because such
banks may be subject to less stringent reserve requirements and to different
accounting, auditing, reporting and recordkeeping standards than those
applicable to domestic branches of U.S. banks. Such investments may also subject
a Fund to investment risks similar to those accompanying direct investments in
foreign securities. See "Special Risk Considerations--Foreign Securities." The
Funds will invest in the obligations of U.S. branches of foreign banks or
foreign branches of U.S. banks only when Fleet and/or Oechsle believe that the
credit risk with respect to the instrument is minimal.
Commercial paper may include variable and floating rate instruments which
are unsecured instruments that permit the indebtedness thereunder to vary.
Variable rate instruments provide for periodic adjustments in the interest rate.
Floating rate instruments provide for automatic adjustment of the interest rate
whenever some other specified interest rate changes. Some variable and floating
rate obligations are direct lending arrangements between the purchaser and the
issuer and there may be no active secondary market. However, in the case of
variable and floating rate obligations with a demand feature, a Fund may demand
payment of principal and accrued interest at a time specified in the instrument
or may resell the instrument to a third party. In the event that an issuer of a
variable or floating rate obligation defaulted on its payment obligation, a Fund
might be unable to dispose of the note because of the absence of a secondary
market and could, for this or other reasons, suffer a loss to the extent of the
default. The Funds may also purchase Rule 144A securities. See "Investment
Limitations" below.
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REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
Each Fund may purchase portfolio securities subject to the seller's
agreement to repurchase them at a mutually specified date and price ("repurchase
agreements"). Repurchase agreements will be entered into only with financial
institutions such as banks and broker/dealers which are deemed to be
creditworthy by Fleet and/or Oechsle under guidelines approved by Galaxy's Board
of Trustees. No Fund will enter into repurchase agreements with Fleet or Oechsle
or any of their affiliates. Unless a repurchase agreement has a remaining
maturity of seven days or less or may be terminated on demand upon notice of
seven days or less, the repurchase agreement will be considered an illiquid
security and will be subject to the 10% limit (15% with respect to the Strategic
Equity Fund) described below in Investment Limitation No. 3 under "Investment
Limitations" with respect to the Equity Value, Equity Growth, Equity Income,
International Equity, Small Company Equity, Asset Allocation and Strategic
Equity Funds, and to the 15% limit described below in Investment Limitation No.
7 under "Investment Limitations" with respect to the Small Cap Value and Growth
and Income Funds.
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by a Fund at
not less than the agreed upon repurchase price. If the seller defaulted on its
repurchase obligation, the Fund holding such obligation would suffer a loss to
the extent that the proceeds from a sale of the underlying securities (including
accrued interest) were less than the repurchase price (including accrued
interest) under the agreement. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the Fund
might be delayed pending court action.
Each Fund may also borrow funds for temporary purposes by selling portfolio
securities to financial institutions such as banks and broker/dealers and
agreeing to repurchase them at a mutually specified date and price ("reverse
repurchase agreements"). Reverse repurchase agreements involve the risk that the
market value of the securities sold by a Fund may decline below the repurchase
price. The Funds would pay interest on amounts obtained pursuant to a reverse
repurchase agreement. Additional information regarding the Small Cap Value and
Growth and Income Funds' policies with respect to reverse repurchase agreements
is contained in the applicable Statement of Additional Information.
SECURITIES LENDING
Each Fund may lend its portfolio securities to financial institutions such
as banks and broker/dealers in accordance with the investment limitations
described below. Such loans would involve risks of delay in receiving additional
collateral or in recovering the securities loaned or even loss of rights in the
collateral, should the borrower of the securities fail financially. Any
portfolio securities purchased with cash collateral would also be subject to
possible depreciation. Loans will generally be short-term (except in the case of
the Small Cap Value and Growth and Income Funds which may loan their securities
on a long-term or short-term basis or both), will be made only to borrowers
deemed by Fleet and/or Oechsle to be of good standing and only when, in Fleet's
and/or Oechsle's judgment, the income to be earned from the loan justifies the
attendant risks. The Funds currently intend to limit the lending of their
portfolio securities so that, at any given time, securities loaned by a Fund
represent not more than one-third of the value of its total assets.
INVESTMENT COMPANY SECURITIES
The Equity Value, Equity Growth, Equity Income, International Equity, Small
Company Equity and Asset Allocation Funds may invest in securities issued by
other investment companies which invest in high quality, short-term debt
securities and which determine their net asset value per share based on the
amortized cost or penny-rounding method. The International Equity Fund may also
purchase shares of investment companies investing primarily in foreign
securities, including so-called "country funds." Country funds have portfolios
consisting exclusively of securities of issuers located in one foreign country.
The Small Cap Value, Growth and Income and Strategic Equity Funds may invest in
other investment companies primarily for the purpose of investing their
short-term cash which has not yet been invested in other portfolio instruments.
However, from time to time, on a temporary basis, the Small Cap Value, Growth
and Income and Strategic Equity Funds may invest exclusively in one other
investment company similar to the respective Funds. Investments in other
investment companies will cause a Fund (and, indirectly, the Fund's
shareholders) to bear proportionately the costs incurred in connection with the
investment companies' operations. Except as provided above with respect to the
Small Cap Value, Growth and Income and Strategic Equity Funds, securities of
other investment companies will be acquired by a Fund within the limits
prescribed by the Investment Company Act of 1940, as amended, (the "1940 Act").
Each Fund currently intends to limit its investments so that, as determined
immediately after a securities purchase is made: (a) not more than 5% of the
value of its total assets will be invested in the securities of any one
investment company; (b) not more than 10% of the value of its total assets will
be invested in the aggregate in securities of other investment companies as a
group; (c) not more than 3% of the outstanding voting stock of any one
investment company will
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be owned by the Fund; and (d) not more than 10% of the outstanding voting stock
of any one closed-end investment company will be owned in the aggregate by the
Fund, other investment portfolios of Galaxy, or any other investment companies
advised by Fleet or Oechsle.
REITS
Each Fund may invest up to 10% of its net assets in real estate investment
trusts ("REITs"). Equity REITs invest directly in real property while mortgage
REITs invest in mortgages on real property. REITs may be subject to certain
risks associated with the direct ownership of real estate, including declines in
the value of real estate, risks related to general and local economic
conditions, overbuilding and increased competition, increases in property taxes
and operating expenses, and variations in rental income. Generally, increases in
interest rates will decrease the value of high yielding securities and increase
the costs of obtaining financing, which could decrease the value of a REIT's
investments. In addition, equity REITs may be affected by changes in the value
of the underlying property owned by the REITs, while mortgage REITs may be
affected by the quality of credit extended. Equity and mortgage REITs are
dependent upon management skill, are not diversified and are subject to the
risks of financing projects. REITs are also subject to heavy cash flow
dependency, defaults by borrowers, self liquidation and the possibility of
failing to qualify for tax-free pass-through of income under the Internal
Revenue Code and to maintain exemption from the 1940 Act. REITs pay dividends to
their shareholders based upon available funds from operations. It is quite
common for these dividends to exceed a REIT's taxable earnings and profits
resulting in the excess portion of such dividends being designated as a return
of capital. Each Fund intends to include the gross dividends from any
investments in REITs in its periodic distributions to its shareholders and,
accordingly, a portion of the Fund's distributions may also be designated as a
return of capital. See "Taxes."
OPTIONS AND FUTURES CONTRACTS
PUT AND CALL OPTIONS--EQUITY GROWTH, EQUITY INCOME, SMALL COMPANY EQUITY AND
ASSET ALLOCATION FUNDS. The Equity Growth, Equity Income, Small Company Equity
and Asset Allocation Funds may purchase put options and call options on
securities and securities indices. A put option gives the buyer the right to
sell, and the writer the obligation to buy, the underlying security at the
stated exercise price at any time prior to the expiration of the option. A call
option gives the buyer the right to buy the underlying security at the stated
exercise price at any time prior to the expiration of the option. Options
involving securities indices provide the holder with the right to make or
receive a cash settlement upon exercise of the option based on movements in the
relevant index. Such options must be listed on a national securities exchange
and issued by the Options Clearing Corporation. The aggregate value of options
purchased by the Equity Growth, Equity Income, Small Company Equity and Asset
Allocation Funds may not exceed 5% of the value of their respective net assets.
COVERED CALL OPTIONS--EQUITY VALUE, EQUITY GROWTH, EQUITY INCOME,
INTERNATIONAL EQUITY, SMALL COMPANY EQUITY AND ASSET ALLOCATION FUNDS. To
further increase return on their portfolio securities, in accordance with their
respective investment objectives and policies, the Equity Value, Equity Growth,
Equity Income, International Equity, Small Company Equity and Asset Allocation
Funds may engage in writing covered call options (options on securities owned by
a Fund) and may enter into closing purchase transactions with respect to such
options. Such options must be listed on a national securities exchange and
issued by the Options Clearing Corporation. The aggregate value of the
securities subject to options written by the Equity Value, Equity Growth, Equity
Income, International Equity, Small Company Equity and Asset Allocation Funds
may not exceed 25% of the value of their respective net assets. By writing a
covered call option, a Fund forgoes the opportunity to profit from an increase
in the market price of the underlying security above the exercise price, except
insofar as the premium represents such a profit. The Fund will not be able to
sell the underlying security until the option expires or is exercised or the
Fund effects a closing purchase transaction by purchasing an option of the same
series. Such options will normally be written on underlying securities as to
which Fleet and/or Oechsle does not anticipate significant short-term capital
appreciation.
OPTIONS ON FOREIGN STOCK INDEXES--INTERNATIONAL EQUITY FUND. The
International Equity Fund may, for the purpose of hedging its portfolio, subject
to applicable securities regulations purchase and write put and call options on
foreign stock indexes listed on foreign and domestic stock exchanges. A stock
index fluctuates with changes in the market values of the stocks included in the
index. Examples of foreign stock indexes are the Canadian Market Portfolio Index
(Montreal Stock Exchange), The Financial Times--Stock Exchange 100 (London Stock
Exchange) and the Toronto Stock Exchange Composite 300 (Toronto Stock Exchange).
Options on stock indexes are generally similar to options on stock except
that the delivery requirements are different. Instead of giving the right to
take or make delivery of stock at a specified price, an option on a stock index
gives the holder the right to receive a cash "exercise settlement amount" equal
to (a) the amount, if any, by which the fixed exercise price of the option
exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying index on the date of exercise, multiplied by (b)
a fixed "index multiplier." Receipt of this cash amount will depend upon the
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closing level of the stock index upon which the option is based being greater
than, in the case of a call, or less than, in the case of a put, the exercise
price of the option. The writer of the option is obligated, in return for the
premium received, to make delivery of this amount. The writer may offset its
position in stock index options prior to expiration by entering into a closing
transaction on an exchange or the option may expire unexercised. For additional
information relating to option trading practices and related risks, see
"Derivative Securities" below and the Statement of Additional Information
relating to the Fund.
OPTIONS AND FUTURES CONTRACTS--SMALL CAP VALUE, GROWTH AND INCOME AND
STRATEGIC EQUITY FUNDS. The Small Cap Value, Growth and Income and Strategic
Equity Funds may buy and sell options and futures contracts to manage their
exposure to changing interest rates, security prices and currency exchange
rates. The Funds may invest in options and futures based on any type of
security, index, or currency, including options and futures based on foreign
exchanges (see "Options on Foreign Stock Indexes--International Equity Fund"
above) and options not traded on exchanges. Some options and futures strategies,
including selling futures, buying puts, and writing calls, tend to hedge a
Fund's investments against price fluctuations. Other strategies, including
buying futures, writing puts, and buying calls, tend to increase market
exposure. Options and futures may be combined with each other or with forward
contracts in order to adjust the risk and return characteristics of the overall
strategy.
Options and futures can be volatile investments, and involve certain risks.
If Fleet applies a hedge at an inappropriate time or judges market conditions
incorrectly, options and futures may lower a Fund's individual return. A Fund
could also experience losses if the prices of its options and futures positions
were poorly correlated with its other investments, or if it could not close out
its positions because of an illiquid secondary market. See the applicable
Statement of Additional Information for additional information as to the Funds'
policies on options and futures trading.
The Funds will not hedge more than 20% of their respective total assets by
selling futures, buying puts, and writing calls under normal conditions. The
Funds will not buy futures or write puts whose underlying value exceeds 20% of
their respective total assets, and will not buy calls with a value exceeding 5%
of their respective total assets.
STOCK INDEX FUTURES, SWAP AGREEMENTS, INDEXED SECURITIES AND OPTIONS--SMALL
CAP VALUE, GROWTH AND INCOME AND STRATEGIC EQUITY FUNDS. The Small Cap Value,
Growth and Income and Strategic Equity Funds may utilize stock index futures
contracts, options, swap agreements, indexed securities, and options on futures
contracts, subject to the limitation that the value of these futures contracts,
swap agreements, indexed securities, and options will not exceed 20% of the
Funds' respective total assets. The Funds will not purchase options to the
extent that more than 5% of the value of their respective total assets would be
invested in premiums on open put option positions. In addition, the Funds do not
intend to invest more than 5% of the market value of their respective total
assets in each of the following: futures contracts, swap agreements, and indexed
securities. When a Fund enters into a swap agreement, liquid assets of the Fund
equal to the value of the swap agreement will be segregated by that Fund.
There are several risks accompanying the utilization of futures contracts.
Positions in futures contracts may be closed only on an exchange or board of
trade that furnishes a secondary market for such contracts. While the Funds plan
to utilize futures contracts only if there exists an active market for such
contracts, there is no guarantee that a liquid market will exist for the
contracts at a specified time. Furthermore, because by definition, futures
contracts look to projected price levels in the future and not to current levels
of valuation, market circumstances may result in there being a discrepancy
between the price of the stock index future and the movement in the
corresponding stock index. The absence of a perfect price correlation between
the futures contract and its underlying stock index could stem from investors
choosing to close futures contracts by offsetting transactions, rather than
satisfying additional margin requirements. This could result in a distortion of
the relationship between the index and the futures market. In addition, because
the futures market imposes less burdensome margin requirements than the
securities market, an increased amount of participation by speculators in the
futures market could result in price fluctuations.
AMERICAN, EUROPEAN AND GLOBAL DEPOSITORY RECEIPTS
Each Fund may invest in ADRs and EDRs. The International Equity, Small Cap
Value, Growth and Income and Strategic Equity Funds may also invest in GDRs.
ADRs are receipts issued in registered form by a U.S. bank or trust company
evidencing ownership of underlying securities issued by a foreign issuer. EDRs
are receipts issued in Europe typically by non-U.S. banks or trust companies and
foreign branches of U.S. banks that evidence ownership of foreign or U.S.
securities. GDRs are receipts structured similarly to EDRs and are marketed
globally. ADRs may be listed on a national securities exchange or may be traded
in the over-the-counter market. EDRs are designed for use in European exchange
and over-the-counter markets. GDRs are designed for trading in non-U.S.
securities markets. ADRs, EDRs and GDRs traded in the over-the-counter market
which do not have an active or substantial secondary market will be considered
illiquid and therefore will be subject to the Funds' respective limitations with
respect to such securities. ADR prices are denominated in U.S. dollars although
the underlying securities are denominated in a foreign currency. Investments in
ADRs, EDRs and GDRs involve risks similar to those accompanying direct
investments in foreign securities. Certain of these risks are described above
under "Special Risk Considerations--Foreign Securities."
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FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Because each Fund may buy and sell securities denominated in currencies
other than the U.S. dollar, and may receive interest, dividends and sale
proceeds in currencies other than the U.S. dollar, the Funds from time to time
may enter into foreign currency exchange transactions to convert the U.S. dollar
to foreign currencies, to convert foreign currencies to the U.S. dollar and to
convert foreign currencies to other foreign currencies. A Fund either enters
into these transactions on a spot (i.e., cash) basis at the spot rate prevailing
in the foreign currency exchange market, or uses forward contracts to purchase
or sell foreign currencies. Forward foreign currency exchange contracts are
agreements to exchange one currency for another--for example, to exchange a
certain amount of U.S. dollars for a certain amount of Japanese yen--at a future
date and at a specified price. Typically, the other party to a currency exchange
contract will be a commercial bank or other financial institution.
Forward foreign currency exchange contracts also allow a Fund to hedge the
currency risk of portfolio securities denominated in a foreign currency. This
technique permits the assessment of the merits of a security to be considered
separately from the currency risk. By separating the asset and the currency
decision, it is possible to focus on the opportunities presented by the security
apart from the currency risk. Although forward foreign currency exchange
contracts are of short duration, generally between one and twelve months, such
contracts are rolled over in a manner consistent with a more long-term currency
decision. Because there is a risk of loss to a Fund if the other party does not
complete the transaction, forward foreign currency exchange contracts will be
entered into only with parties approved by Galaxy's Board of Trustees.
A Fund may maintain "short" positions in forward foreign currency exchange
transactions, which would involve the Fund's agreeing to exchange currency that
it currently does not own for another currency--for example, to exchange an
amount of Japanese yen that it does not own for a certain amount of U.S.
dollars--at a future date and at a specified price in anticipation of a decline
in the value of the currency sold short relative to the currency that the Fund
has contracted to receive in the exchange. In order to ensure that the short
position is not used to achieve leverage with respect to the Fund's investments,
the Fund will establish with its custodian a segregated account consisting of
cash or other liquid assets equal in value to the fluctuating market value of
the currency as to which the short position is being maintained. The value of
the securities in the segregated account will be adjusted at least daily to
reflect changes in the market value of the short position. See the applicable
Statement of Additional Information for additional information regarding foreign
currency exchange transactions.
ASSET-BACKED SECURITIES--ASSET ALLOCATION FUND
The Asset Allocation Fund may purchase asset-backed securities, which
represent a participation in, or are secured by and payable from, a stream of
payments generated by particular assets, most often a pool of assets similar to
one another. Assets generating such payments will consist of such instruments as
motor vehicle installment purchase obligations, credit card receivables and home
equity loans. Payment of principal and interest may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with entities issuing the securities. The
estimated life of an asset-backed security varies with the prepayment experience
with respect to the underlying debt instruments. The rate of such prepayments,
and hence the life of the asset-backed security, will be primarily a function of
current market rates, although other economic and demographic factors will be
involved. See "Asset-Backed Securities" in the applicable Statement of
Additional Information.
MORTGAGE-BACKED SECURITIES--ASSET ALLOCATION FUND
The Asset Allocation Fund may invest in mortgage-backed securities
(including collateralized mortgage obligations) that represent pools of mortgage
loans assembled for sale to investors by various governmental agencies and
government-related organizations, such as the Government National Mortgage
Association, the Federal National Mortgage Association, and the Federal Home
Loan Mortgage Corporation. Mortgage-backed securities provide a monthly payment
consisting of interest and principal payments. Additional payment may be made
out of unscheduled repayments of principal resulting from the sale of the
underlying residential property, refinancing or foreclosure, net of fees or
costs that may be incurred. Prepayments of principal on mortgage-backed
securities may tend to increase due to refinancing of mortgages as interest
rates decline. To the extent that the Fund purchases mortgage-backed securities
at a premium, mortgage foreclosures and prepayments of principal by mortgagors
(which may be made at any time without penalty) may result in some loss of the
Fund's principal investment to the extent of the premium paid. The yield of the
Fund, should it invest in mortgage-backed securities, may be affected by
reinvestment of prepayments at higher or lower rates than the original
investment.
Other mortgage-backed securities are issued by private issuers, generally
originators of and investors in mortgage loans, including savings associations,
mortgage bankers, commercial banks, investment bankers, and special purpose
entities. These private mortgage-backed securities may be supported by U.S.
Government mortgage-backed securities or
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some form of non-government credit enhancement. Mortgage-backed securities have
either fixed or adjustable interest rates. The rate of return on mortgage-backed
securities may be affected by prepayments of principal on the underlying loans,
which generally increase as interest rates decline; as a result, when interest
rates decline, holders of these securities normally do not benefit from
appreciation in market value to the same extent as holders of other non-callable
debt securities. In addition, like other debt securities, the value of
mortgage-related securities, including government and government-related
mortgage pools, generally will fluctuate in response to market interest rates.
MORTGAGE DOLLAR ROLLS--ASSET ALLOCATION FUND
The Asset Allocation Fund may enter into mortgage "dollar rolls" in which
the Fund sells securities for delivery in the current month and simultaneously
contracts with the same counterparty to repurchase similar (same type, coupon
and maturity) but not identical securities on a specified future date not
exceeding 120 days. During the roll period, the Fund loses the right to receive
principal and interest paid on the securities sold. However, the Fund would
benefit to the extent of any difference between the price received for the
securities sold and the lower forward price for the future purchase (often
referred to as the "drop") or fee income plus the interest earned on the cash
proceeds of the securities sold until the settlement date of the forward
purchase. Unless such benefits exceed the income, capital appreciation and gain
or loss due to mortgage prepayments that would have been realized on the
securities sold as part of the mortgage dollar roll, the use of this technique
will diminish the investment performance of the Fund compared with what such
performance would have been without the use of mortgage dollar rolls. All cash
proceeds will be invested in instruments that are permissible investments for
the Fund. The Fund will hold and maintain in a segregated account until the
settlement date cash or other liquid assets in an amount equal to the forward
purchase price.
For financial reporting and tax purposes, the Fund proposes to treat
mortgage dollar rolls as two separate transactions; one involving the purchase
of a security and a separate transaction involving a sale. The Fund does not
currently intend to enter into mortgage dollar rolls that are accounted for as a
financing.
Mortgage dollar rolls involve certain risks. If the broker-dealer to whom
the Fund sells the security becomes insolvent, the Fund's right to purchase or
repurchase the mortgage-related securities may be restricted and the instrument
which the Fund is required to repurchase may be worth less than the instrument
which the Fund originally held. Successful use of mortgage dollar rolls may
depend upon Fleet's ability to predict correctly interest rates and mortgage
prepayments. For these reasons, there is no assurance that mortgage dollar rolls
can be successfully employed.
CONVERTIBLE SECURITIES
The Funds may from time to time, in accordance with their respective
investment policies, invest in convertible securities. Convertible securities
are fixed income securities which may be exchanged or converted into a
predetermined number of shares of the issuer's underlying common stock at the
option of the holder during a specified time period. Convertible securities may
take the form of convertible preferred stock, convertible bonds or debentures,
units consisting of "usable" bonds and warrants or a combination of the features
of several of these securities.
Convertible bonds and convertible preferred stocks generally retain the
investment characteristics of fixed income securities until they have been
converted but also react to movements in the underlying equity securities. The
holder is entitled to receive the fixed income of a bond or the dividend
preference of a preferred stock until the holder elects to exercise the
conversion privilege. Usable bonds are corporate bonds that can be used in whole
or in part, customarily at full face value, in lieu of cash to purchase the
issuer's common stock. When owned as part of a unit along with warrants, which
are options to buy the common stock, they function as convertible bonds, except
that the warrants generally will expire before the bond's maturity. Convertible
securities are senior to equity securities and therefore have a claim to the
assets of the issuer prior to the holders of common stock in the case of
liquidation. However, convertible securities are generally subordinated to
similar non-convertible securities of the same issuer. The interest income and
dividends from convertible bonds and preferred stocks provide a stable stream of
income with generally higher yields than common stocks, but lower than
non-convertible securities of similar quality. A Fund will exchange or convert
the convertible securities held in its portfolio into shares of the underlying
common stock in instances in which, in Fleet's and/or Oechsle's opinion, the
investment characteristics of the underlying common shares will assist the Fund
in achieving its investment objective. Otherwise, a Fund will hold or trade the
convertible securities. In selecting convertible securities for a Fund, Fleet
evaluates the investment characteristics of the convertible security as a fixed
income instrument, and the investment potential of the underlying equity
security for capital appreciation. In evaluating these matters with respect to a
particular convertible security, Fleet considers numerous factors, including the
economic and political outlook, the value of the security relative to other
investment alternatives, trends in the determinants of the issuer's profits, and
the issuer's management capability and practices.
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The Small Cap Value and Growth and Income Funds may invest in convertible
bonds rated "BB" or higher by S&P or Fitch IBCA, or "Ba" or higher by Moody's at
the time of investment. Securities rated "BB" by S&P or Fitch IBCA or "Ba" by
Moody's provide questionable protection of principal and interest in that such
securities either have speculative characteristics or are predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. Debt obligations that are not
rated, or determined to be, investment grade are high-yield, high-risk bonds,
typically subject to greater market fluctuations, and securities in the lowest
rating category may be in danger of loss of income and principal due to an
issuer's default. To a greater extent than investment grade bonds, the value of
lower-rated bonds tends to reflect short-term corporate, economic, and market
developments, as well as investor perceptions of the issuer's credit quality. In
addition, lower-rated bonds may be more difficult to dispose of or to value than
higher-rated, lower-yielding bonds. Fleet will attempt to reduce the risks
described above through diversification of each Fund's portfolio and by credit
analysis of each issuer, as well as by monitoring broad economic trends and
corporate and legislative developments. If a convertible bond is rated below
"BB" or "Ba" after a Fund has purchased it, the Fund is not required to
eliminate the convertible bond from its portfolio, but will consider appropriate
action. The investment characteristics of each convertible security vary widely,
which allows convertible securities to be employed for different investment
objectives. The Funds do not intend to invest in such lower-rated bonds during
the current fiscal year. A description of the rating categories of S&P, Moody's
and Fitch IBCA is contained in the Appendix to the Statement of Additional
Information relating to the Small Cap Value and Growth and Income Funds.
DERIVATIVE SECURITIES
The Funds may from time to time, in accordance with their respective
investment policies, purchase certain "derivative" securities. Derivative
securities are instruments that derive their value from the performance of
underlying assets, interest or currency exchange rates, or indices, and include,
but are not limited to, put and call options, stock index futures and options,
indexed securities and swap agreements, foreign currency exchange contracts and
certain asset-backed and mortgage-backed securities.
Derivative securities present, to varying degrees, market risk that the
performance of the underlying assets, interest or exchange rates or indices will
decline; credit risk that the dealer or other counterparty to the transaction
will fail to pay its obligations; volatility and leveraging risk that, if
interest or exchange rates change adversely, the value of the derivative
security will decline more than the assets, rates or indices on which it is
based; liquidity risk that a Fund will be unable to sell a derivative security
when it wants because of lack of market depth or market disruption; pricing risk
that the value of a derivative security will not correlate exactly to the value
of the underlying assets, rates or indices on which it is based; and operations
risk that loss will occur as a result of inadequate systems and controls, human
error or otherwise. Some derivative securities are more complex than others, and
for those instruments that have been developed recently, data are lacking
regarding their actual performance over complete market cycles.
Fleet and/or Oechsle will evaluate the risks presented by the derivative
securities purchased by the Funds, and will determine, in connection with their
day-to-day management of the Funds, how such securities will be used in
furtherance of the Funds' investment objectives. It is possible, however, that
Fleet's and/or Oechsle's evaluations will prove to be inaccurate or incomplete
and, even when accurate and complete, it is possible that the Funds will,
because of the risks discussed above, incur loss as a result of their
investments in derivative securities. See "Investment Objectives and
Policies--Derivative Securities" in the applicable Statement of Additional
Information for additional information.
WHEN-ISSUED AND DELAYED SETTLEMENT TRANSACTIONS--
INTERNATIONAL EQUITY, SMALL CAP VALUE, GROWTH
AND INCOME AND STRATEGIC EQUITY FUNDS
The International Equity, Small Cap Value, Growth and Income and Strategic
Equity Funds may purchase eligible securities on a "when-issued" basis. The
Small Cap Value, Growth and Income and Strategic Equity Funds may also purchase
eligible securities on a "delayed settlement" basis. When-issued transactions,
which involve a commitment by a Fund to purchase or sell particular securities
with payment and delivery taking place at a future date (perhaps one or two
months later), permit the Fund to lock in a price or yield on a security it owns
or intends to purchase, regardless of future changes in interest rates. Delayed
settlement describes settlement of a securities transaction in the secondary
market which will occur sometime in the future. When-issued and delayed
settlement transactions involve the risk, however, that the yield or price
obtained in a transaction may be less favorable than the yield or price
available in the market when the securities delivery takes place.
A Fund may dispose of a commitment prior to settlement if Fleet or Oechsle,
as the case may be, deems it appropriate to do so. In addition, a Fund may enter
into transactions to sell its purchase commitments to third parties at current
market values and simultaneously acquire other commitments to purchase similar
securities at later dates. The Funds may realize short-term profits or losses
upon the sale of such commitments.
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PORTFOLIO TURNOVER
Each Fund may sell a portfolio investment soon after its acquisition if
Fleet and/or Oechsle believes that such a disposition is consistent with the
Fund's investment objective. Portfolio investments may be sold for a variety of
reasons, such as a more favorable investment opportunity or other circumstances
bearing on the desirability of continuing to hold such investments. A portfolio
turnover rate of 100% or more is considered high, although the rate of portfolio
turnover will not be a limiting factor in making portfolio decisions. A high
rate of portfolio turnover involves correspondingly greater brokerage commission
expenses and other transaction costs, which must be ultimately borne by a Fund's
shareholders. High portfolio turnover may result in the realization of
substantial net capital gains; distributions derived from such gains will be
treated as ordinary income for federal income tax purposes. See "Financial
Highlights" and "Taxes--Federal." Although the Strategic Equity Fund cannot
accurately predict its annual portfolio turnover rate, it is not expected to
exceed 100% for the Fund.
INVESTMENT LIMITATIONS
The following investment limitations are matters of fundamental policy and
may not be changed with respect to a particular Fund without the affirmative
vote of the holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Other investment limitations that also cannot be changed
without such a vote of shareholders are contained in the applicable Statements
of Additional Information under "Investment Objectives and Policies."
The Equity Value, Equity Growth, Equity Income, International Equity, Small
Company Equity, Asset Allocation and Strategic Equity Funds may not:
1. Make loans, except that (i) each Fund may purchase or hold debt
instruments in accordance with its investment objective and policies, and
may enter into repurchase agreements with respect to portfolio securities,
and (ii) each Fund may lend portfolio securities against collateral
consisting of cash or securities which are consistent with its permitted
investments, where the value of the collateral is equal at all times to at
least 100% of the value of the securities loaned.
2. Borrow money or issue senior securities, except that each Fund may
borrow from domestic banks for temporary purposes and then in amounts not in
excess of 10%, with respect to the Equity Value Fund, or 33%, with respect
to the Equity Growth, Equity Income, International Equity, Small Company
Equity, Asset Allocation and Strategic Equity Funds, of the value of its
total assets at the time of such borrowing (provided that the Funds may
borrow pursuant to reverse repurchase agreements in accordance with their
investment policies and in amounts not in excess of 10%, with respect to the
Equity Value Fund, or 33%, with respect to the Equity Growth, Equity Income,
International Equity, Small Company Equity, Asset Allocation and Strategic
Equity Funds, of the value of their respective total assets at the time of
such borrowing); or mortgage, pledge, or hypothecate any assets except in
connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10%, with respect to the Equity
Value Fund, or 33%, with respect to the Equity Growth, Equity Income,
International Equity, Small Company Equity, Asset Allocation and Strategic
Equity Funds, of the value of a Fund's total assets at the time of such
borrowing. No Fund will purchase securities while borrowings (including
reverse repurchase agreements) in excess of 5% of its total assets are
outstanding.
3. Invest more than 10% (15% with respect to the Strategic Equity Fund)
of the value of its net assets in illiquid securities, including repurchase
agreements with remaining maturities in excess of seven days, time deposits
with maturities in excess of seven days, restricted securities (with respect
to the Equity Value Fund), securities which are restricted as to transfer in
their principal market (with respect to the International Equity Fund),
non-negotiable time deposits and other securities which are not readily
marketable.
4. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities, if
immediately after such purchase more than 5% of the value of a Fund's total
assets would be invested in such issuer, except that up to 25% of the value
of its total assets may be invested without regard to this limitation.
The Small Cap Value and Growth and Income Funds may not:
5. Borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an arrangement to buy it back on a set
date) or pledge securities except, under certain circumstances, such Funds
may borrow up to one-third of the value of their respective total assets and
pledge up to 10% of the value of their respective total assets to secure
such borrowings.
6. With respect to 75% of the value of their respective total assets,
invest more than 5% in securities of any one issuer, other than cash, cash
items, or securities issued or guaranteed by the government of the United
States or its agencies or instrumentalities and repurchase agreements
collateralized by such securities, or acquire more than 10% of the
outstanding voting securities of any one issuer.
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The following investment policy may be changed by Galaxy's Board of Trustees
without shareholder approval. Shareholders will be notified before any material
change in this limitation becomes effective:
7. The Small Cap Value and Growth and Income Funds may not invest more
than 15% of their respective net assets in securities subject to
restrictions on resale under the Securities Act of 1933 (except for
commercial paper issued under Section 4(2) of the Securities Act of 1933 and
certain securities which meet the criteria for liquidity as established by
the Board of Trustees).
In addition, the Funds may not purchase any securities which would cause 25%
or more of the value of a Fund's total assets at the time of purchase to be
invested in the securities of one or more issuers conducting their principal
business activities in the same industry; provided, however that (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents, and
(c) utilities will be classified according to their services. (For example, gas,
gas transmission, electric and gas, electric and telephone each will be
considered a separate industry).
With respect to Investment Limitation No. 2 above, (a) the Equity Value Fund
intends to limit any borrowings (including reverse repurchase agreements) to not
more than 10% of the value of its total assets at the time of such borrowing and
each of the Equity Growth, Equity Income, International Equity, Small Company
Equity, Asset Allocation and Strategic Equity Funds intends to limit any
borrowings (including reverse repurchase agreements) to not more than 33% of the
value of its total assets at the time of such borrowing, and (b) mortgage dollar
rolls entered into by the Asset Allocation Fund that are not accounted for as
financings shall not constitute borrowings.
The Small Cap Value and Growth and Income Funds intend to invest in
restricted securities. Restricted securities are any securities in which a Fund
may otherwise invest pursuant to its investment objective and policies, but
which are subject to restriction on resale under federal securities law. Each
such Fund will limit its investments in illiquid securities, including certain
restricted securities not determined by the Board of Trustees to be liquid,
non-negotiable fixed time deposits with maturities over seven days, over-the-
counter options, and repurchase agreements providing for settlement in more than
seven days after notice, to 15% of its net assets.
Rule 144A under the Securities Act of 1933, as amended, (the "1933 Act")
allows for a broader institutional trading market for securities otherwise
subject to restrictions on resale to the general public. Rule 144A establishes a
"safe harbor" from the registration requirements of the 1933 Act for resales of
certain securities to qualified institutional buyers. A Fund's investment in
Rule 144A securities could have the effect of increasing the level of
illiquidity of the Fund during any period that qualified institutional buyers
were no longer interested in purchasing these securities. For purposes of each
Fund's 10% limitation (15% with respect to the Small Cap Value, Growth and
Income and Strategic Equity Funds) on purchases of illiquid instruments
described above, Rule 144A securities will not be considered to be illiquid if
Fleet and/or Oechsle has determined, in accordance with guidelines established
by the Board of Trustees, that an adequate trading market exists for such
securities.
If a percentage limitation is satisfied at the time of investment, a later
increase in such percentage resulting from a change in the value of a Fund's
portfolio securities generally will not constitute a violation of the
limitation.
PRICING OF SHARES
Net asset value per share of the Funds is determined as of the close of
regular trading hours on the New York Stock Exchange (the "Exchange"), currently
4:00 p.m. (Eastern Time). Net asset value per share is determined on each day on
which the Exchange is open for trading. Currently, the holidays which Galaxy
observes are New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. Net asset value per share for purposes of pricing sales and
redemptions is calculated separately for each series of shares by dividing the
value of all securities and other assets attributable to a particular series of
shares of a Fund, less the liabilities attributable to the shares of that series
of the Fund, by the number of outstanding shares of that series of the Fund.
VALUATION OF THE EQUITY VALUE, EQUITY GROWTH,
EQUITY INCOME, SMALL COMPANY EQUITY,
ASSET ALLOCATION, SMALL CAP VALUE, GROWTH AND INCOME
AND STRATEGIC EQUITY FUNDS
The assets in the Equity Value, Equity Growth, Equity Income, Small Company
Equity, Asset Allocation, Small Cap Value, Growth and Income and Strategic
Equity Funds which are traded on a recognized stock exchange are valued at the
last sale price on the securities exchange on which such securities are
primarily traded or at the last sale price on the national securities market.
Securities quoted on the NASD National Market System are also valued at the last
sale price. Other securities traded on over-the-counter markets are valued on
the basis of their closing over-the-counter bid prices.
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Securities for which there were no transactions are valued at the average of the
most recent bid and asked prices. Investments in debt securities with remaining
maturities of 60 days or less are valued based upon the amortized cost method.
Restricted securities, securities for which market quotations are not readily
available, and other assets are valued at fair value by Fleet under the
supervision of Galaxy's Board of Trustees. An option is generally valued at the
last sale price or, in the absence of a last sale price, the last offer price.
See "Valuation of International Equity Fund" below for a description of the
valuation of certain foreign securities held by these Funds.
VALUATION OF THE INTERNATIONAL EQUITY FUND
The International Equity Fund's portfolio securities which are primarily
traded on a domestic exchange are valued at the last sale price on that exchange
or, if there is no recent sale, at the last current bid quotation. Portfolio
securities which are primarily traded on foreign securities exchanges are
generally valued at the preceding closing values of such securities on their
respective exchanges, except when an occurrence subsequent to the time a value
was so established is likely to have changed such value, then the fair value of
those securities may be determined through consideration of other factors by or
under the direction of Galaxy's Board of Trustees. A security which is listed or
traded on more than one exchange is valued at the quotation on the exchange
determined to be the primary market for such security. Investments in debt
securities having a remaining maturity of 60 days or less are valued based upon
the amortized cost method. All other securities are valued at the last current
bid quotation if market quotations are available, or at fair value as determined
in accordance with policies established in good faith by the Board of Trustees.
For valuation purposes, quotations of foreign securities in foreign currency are
converted to U.S. dollars equivalent at the prevailing market rate on the day of
valuation. An option is generally valued at the last sale price or, in the
absence of a last sale price, the last offer price.
Certain of the securities acquired by the International Equity Fund may be
traded on foreign exchanges or over-the-counter markets on days on which the
Fund's net asset value is not calculated. In such cases, the net asset value of
the Fund's shares may be significantly affected on days when investors can
neither purchase nor redeem shares of the Fund.
HOW TO PURCHASE SHARES
DISTRIBUTOR
Shares in each Fund are sold on a continuous basis by Galaxy's distributor,
First Data Distributors, Inc. ("FD Distributors"), a wholly-owned subsidiary of
First Data Investor Services Group, Inc. FD Distributors is a registered broker/
dealer with principal offices located at 4400 Computer Drive, Westboro,
Massachusetts 01581.
GENERAL
Investments in Retail A Shares of the Funds are subject to a front-end sales
charge. Investments in Retail B Shares of the Funds are subject to a back-end
sales charge. This back-end sales charge declines over time and is known as a
"contingent deferred sales charge."
Investors should read "Characteristics of Retail A Shares and Retail B
Shares" and "Factors to Consider When Selecting Retail A Shares or Retail B
Shares" below before deciding between the two.
FD Distributors has established several procedures to enable different types
of investors to purchase Retail Shares of the Funds. The Retail Shares described
in this Prospectus may be purchased by individuals or corporations who submit a
purchase application to Galaxy, purchasing directly either for their own
accounts or for the accounts of others ("Direct Investors"). Retail Shares may
also be purchased by FIS Securities, Inc., Fleet Brokerage Securities, Inc.,
Fleet Securities, Inc., Fleet Enterprises, Inc., Fleet Financial Group, Inc.,
its affiliates, their correspondent banks and other qualified banks, savings and
loan associations and broker/dealers ("Institutions") on behalf of their
customers ("Customers"). Purchases by Direct Investors may take place only on
days on which FD Distributors and Galaxy's custodian and Galaxy's transfer agent
are open for business ("Business Days"). If an Institution accepts a purchase
order from a Customer on a non-Business Day, the order will not be executed
until it is received and accepted by FD Distributors on a Business Day in
accordance with FD Distributors' procedures.
PURCHASE PROCEDURES--CUSTOMERS OF INSTITUTIONS
Purchase orders for Retail Shares are placed by Customers of Institutions
through their Institutions. The Institution is responsible for transmitting
Customer purchase orders to FD Distributors and for wiring required funds in
payment to Galaxy's custodian on a timely basis. FD Distributors is responsible
for transmitting such orders to Galaxy's transfer
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agent for execution. Retail Shares purchased by Institutions on behalf of their
Customers will normally be held of record by the Institution and beneficial
ownership of Retail Shares will be recorded by the Institution and reflected in
the account statements provided to its Customers. Galaxy's transfer agent may
establish an account of record for each Customer of an Institution reflecting
beneficial ownership of Retail Shares. Depending on the terms of the arrangement
between a particular Institution and Galaxy's transfer agent, confirmations of
Retail Share purchases and redemptions and pertinent account statements will
either be sent by Galaxy's transfer agent directly to a Customer with a copy to
the Institution, or will be furnished directly to the Customer by the
Institution. Other procedures for the purchase of Retail Shares established by
Institutions in connection with the requirements of their Customer accounts may
apply. Customers wishing to purchase Retail Shares through their Institution
should contact such entity directly for appropriate purchase instructions.
PURCHASE PROCEDURES--DIRECT INVESTORS
PURCHASES BY MAIL. Retail Shares may be purchased by completing a purchase
application and mailing it, together with a check payable to each Fund in which
a Direct Investor wishes to invest, to:
The Galaxy Fund
P.O. Box 5108
4400 Computer Drive
Westboro, MA 01581
ALL PURCHASE ORDERS PLACED BY MAIL MUST BE ACCOMPANIED BY A PURCHASE
APPLICATION. APPLICATIONS MAY BE OBTAINED BY CALLING FD DISTRIBUTORS AT
1-800-628-0414.
Subsequent investments in an existing account in any Fund may be made at any
time by sending a check for a minimum of $100 payable to the Fund in which the
additional investment is being made to Galaxy at the address above along with
either (a) the detachable form that regularly accompanies confirmation of a
prior transaction, (b) a subsequent order form that may be obtained from FD
Distributors, or (c) a letter stating the amount of the investment, the name of
the Fund and the account number in which the investment is to be made. If a
Direct Investor's check does not clear, the purchase will be canceled.
PURCHASES BY WIRE. Direct Investors may also purchase Retail Shares by
arranging to transmit federal funds by wire to Fleet National Bank as agent for
First Data Investor Services Group, Inc. ("Investor Services Group"), Galaxy's
transfer agent. Prior to making any purchase by wire, an investor must telephone
FD Distributors at 1-800-628-0414 to place an order and for instructions.
Federal funds and registration instructions should be wired through the Federal
Reserve System to:
Fleet National Bank
75 State Street
Boston, MA 02109
ABA #0110-0013-8
DDA #79673-5702
Ref: The Galaxy Fund
[Shareholder Name]
[Shareholder Account Number]
Direct Investors making initial investments by wire must promptly complete a
purchase application and forward it to The Galaxy Fund, P.O. Box 5108, 4400
Computer Drive, Westboro, Massachusetts 01581. Applications may be obtained by
calling FD Distributors at 1-800-628-0414. Redemptions will not be processed
until the application in proper form has been received by FD Distributors.
Direct Investors making subsequent investments by wire should follow the
instructions above.
EFFECTIVE TIME OF PURCHASES. A purchase order for Retail Shares received
and accepted by FD Distributors from an Institution or a Direct Investor on a
Business Day prior to the close of regular trading hours on the Exchange
(currently, 4:00 p.m. Eastern Time) will be executed at the net asset value per
share determined on that date, provided that Galaxy's custodian receives the
purchase price in federal funds or other immediately available funds prior to
4:00 p.m. on the third Business Day following the receipt of such order. Such
order will be executed on the day on which the purchase price is received in
proper form. If funds are not received by such date and time, the order will not
be accepted and notice thereof will be given promptly to the Institution or
Direct Investor submitting the order. Payment for orders which are not received
or accepted will be returned. If an Institution accepts a purchase order from a
Customer on a non-Business Day, the order will not be executed until it is
received and accepted by FD Distributors on a Business Day in accordance with
the above procedures. On a Business Day when the Exchange closes early due to a
partial holiday or otherwise, Galaxy will advance the time at which purchase
orders must be received in order to be processed on that Business Day.
32
<PAGE>
OTHER PURCHASE INFORMATION
INVESTMENT MINIMUMS. Except as provided under "Investor Programs" below,
the minimum initial investment by a Direct Investor, or initial aggregate
investment by an Institution investing on behalf of its Customers, is $2,500.
The minimum investment for subsequent purchases is $100. The minimum investment
requirement with respect to IRAs, SEPs, MERPs and Keogh Plans (see below under
"Retirement Plans") is $500 (including spousal IRA accounts). There are no
minimum investment requirements for investors participating in the Automatic
Investment Program described below. Customers may agree with a particular
Institution to varying minimum initial and minimum subsequent purchase
requirements with respect to their accounts.
Galaxy reserves the right to reject any purchase order, in whole or in part,
or to waive any minimum investment requirement. The issuance of Retail Shares to
Direct Investors and Institutions is recorded on the books of Galaxy and share
certificates will not be issued.
Investors may be charged a separate fee if they effect transactions in
Retail Shares through a broker or agent.
APPLICABLE SALES CHARGE--RETAIL A SHARES
The public offering price for Retail A Shares of the Funds is the sum of the
net asset value of the Retail A Shares purchased plus any applicable front-end
sales charge. The sales charge assessed is as follows:
<TABLE>
<CAPTION>
TOTAL SALES CHARGE
-------------------------------- REALLOWANCE TO DEALERS
AS A % OF AS A % OF NET -----------------------
OFFERING PRICE ASSET VALUE AS A % OF OFFERING
AMOUNT OF TRANSACTION PER SHARE PER SHARE PRICE PER SHARE
- ------------------------------ -------------- --------------- -----------------------
<S> <C> <C> <C>
Less than $50,000............. 3.75 3.90 3.25
$50,000 but less than
$100,000..................... 3.50 3.63 3.00
$100,000 but less than
$250,000..................... 3.00 3.09 2.50
$250,000 but less than
$500,000..................... 2.50 2.56 2.00
$500,000 and over............. 0.00(*) 0.00(*) 0.00
</TABLE>
- --------------------------
(*) There is no initial sales charge on purchases of $500,000 or more of Retail
A Shares; however, a contingent deferred sales charge of 1.00% will be
imposed on the lesser of the offering price or the net asset value of such
Retail A Shares on the redemption date for Shares redeemed within one year
after purchase. The contingent deferred sales charge will not be assessed
on redemptions within one year after purchase in connection with the death
or disability of a shareholder. To receive this exemption, a Direct
Investor or Customer must explain the status of his or her redemption at
the time the Retail A Shares are redeemed.
Further reductions in the sales charges shown above are also possible. See
"Quantity Discounts" below.
The appropriate reallowance to dealers will be paid by FD Distributors to
broker-dealer organizations which have entered into agreements with FD
Distributors. The reallowance to dealers may be changed from time to time.
At various times FD Distributors may implement programs under which a
dealer's sales force may be eligible to win nominal awards for certain sales
efforts. Also, FD Distributors in its discretion may from time to time, pursuant
to objective criteria established by FD Distributors, pay fees to qualifying
dealers for certain services or activities which are primarily intended to
result in sales of Retail A Shares of a Fund. If any such program is made
available to any dealer, it will be made available to all dealers on the same
terms and conditions. Payments made under such programs will be made by FD
Distributors out of its own assets and not out of the assets of the Fund. These
programs will not change the price of Retail A Shares or the amount that the
Funds will receive from such sales.
Fleet's indirect parent, Fleet National Bank, or another affiliate of Fleet,
may at its expense, provide additional compensation to Fleet Enterprises, Inc.,
a broker-dealer affiliate of Fleet, whose customers purchase significant amounts
of Retail A Shares of a Fund. Such compensation will not represent an additional
expense to the Funds or their shareholders, since it will be paid from the
assets of Fleet's affiliates.
In certain situations or for certain individuals, the front-end sales charge
for Retail A Shares of the Funds may be waived either because of the nature of
the investor or the reduced sales effort required to attract such investments.
In order to receive the sales charge waiver, an investor must explain the status
of his or her investment at the time of purchase. No sales charge is assessed on
purchases of Retail A Shares of the Funds by the following categories of
investors or in the following types of transactions:
- reinvestment of dividends and distributions;
- purchases by any retirement account, including but not limited to SIMPLE,
IRA, SEP, Keogh and Roth accounts;
- purchases by persons who were beneficial owners of shares of the Funds or
any of the other portfolios offered by
33
<PAGE>
Galaxy or any other funds advised by Fleet or its affiliates before December 1,
1995;
- purchases by directors, officers and employees of broker-dealers having
agreements with FD Distributors pertaining to the sale of Retail A Shares to the
extent permitted by such organizations;
- investors who purchase pursuant to a "wrap fee" program offered by any
broker-dealer or other financial institution or financial planning organization;
- purchases made with redemption proceeds from another mutual fund complex
on which a front-end or back-end sales charge has been paid, provided the
purchase is made within 60 days after the redemption;
- purchases by current and retired members of Galaxy's Board of Trustees and
members of their immediate families;
- purchases by officers, directors, employees and retirees of Fleet
Financial Group, Inc. and any of its affiliates and members of their immediate
families;
- purchases by officers, directors, employees and retirees of First Data
Corporation and any of its affiliates and members of their immediate families;
- purchases by persons who are also plan participants in any employee
benefit plan which is the record or beneficial holder of Trust Shares of the
Funds or any of the other portfolios offered by Galaxy;
- purchases by institutional investors, including but not limited to bank
trust departments and registered investment advisers;
- purchases by investment advisers, consultants or financial planners who
place trades for their own accounts or the accounts of their clients and who
charge such clients a management, consulting, advisory or other fee;
- purchases by clients of investment advisers or financial planners who
place trades for their own accounts if such accounts are linked to the master
accounts of such investment advisers or financial planners on the books of the
broker-dealer through whom Retail A Shares are purchased;
- purchases by institutional clients of broker-dealers, including retirement
and deferred compensation plans and the trusts used to fund these plans, which
place trades through an omnibus account maintained with Galaxy by the
broker-dealer;
- purchases prior to July 1, 1999 by former deposit customers of financial
institutions (other than registered broker-dealers) acquired by Fleet Financial
Group, Inc. in February 1998; and
- any purchase pursuant to the Reinstatement Privilege described below.
QUANTITY DISCOUNTS
Direct Investors or Customers may be entitled to reduced sales charges
through Rights of Accumulation, a Letter of Intent or a combination of
investments, as described below, even if the Direct Investor or Customer does
not wish to make an investment of a size that would normally qualify for a
quantity discount.
In order to obtain quantity discount benefits, a Direct Investor or Customer
must notify Galaxy's administrator, First Data Investor Services Group, Inc.
("Investor Services Group"), at the time of purchase that he or she would like
to take advantage of any of the discount plans described below. Upon such
notification, the investor will receive the lowest applicable sales charge.
Quantity discounts may be modified or terminated at any time and are subject to
confirmation of a Direct Investor's or Customer's holdings through a check of
appropriate records. For more information about quantity discounts, please
contact FD Distributors or your Institution.
RIGHTS OF ACCUMULATION. A reduced sales charge applies to any purchase of
Retail A Shares of any portfolio of Galaxy that is sold with a sales charge
("Eligible Fund") where a Direct Investor's or Customer's then current aggregate
investment in Retail A Shares is $50,000 or more. "Aggregate investment" means
the total of: (a) the dollar amount of the then current purchase of shares of an
Eligible Fund; and (b) the value (based on current net asset value) of
previously purchased and beneficially owned shares of any Eligible Fund on which
a sales charge has been paid. If, for example, a Direct Investor or Customer
beneficially owns shares of one or more Eligible Funds with an aggregate current
value of $49,000 on which a sales charge has been paid and subsequently
purchases shares of an Eligible Fund having a current value of $1,000, the sales
charge applicable to the subsequent purchase would be reduced to 3.50% of the
offering price. Similarly, with respect to each subsequent investment, all
shares of Eligible Funds that are beneficially owned by the investor at the time
of investment may be combined to determine the applicable sales charge.
LETTER OF INTENT. By completing the Letter of Intent included as part of
the Account Application, a Direct Investor or Customer becomes eligible for the
reduced sales charge applicable to the total number of Eligible Fund Retail A
Shares purchased in a 13-month period pursuant to the terms and under the
conditions set forth below and in the Letter of Intent. To compute the
applicable sales charge, the offering price of Retail A Shares of an Eligible
Fund on which a sales charge has been paid and that are beneficially owned by a
Direct Investor or Customer on the date of submission of the Letter of Intent
may be used as a credit toward completion of the Letter of Intent. However, the
reduced sales charge will be applied only to new purchases.
34
<PAGE>
Investor Services Group will hold in escrow Retail A Shares equal to 5% of
the amount indicated in the Letter of Intent for payment of a higher sales
charge if a Direct Investor or Customer does not purchase the full amount
indicated in the Letter of Intent. The escrow will be released when a Direct
Investor or Customer fulfills the terms of the Letter of Intent by purchasing
the specified amount. If purchases qualify for a further sales charge reduction,
the sales charge will be adjusted to reflect a Direct Investor's or Customer's
total purchases. If total purchases are less than the amount specified, a Direct
Investor or Customer will be requested to remit an amount equal to the
difference between the sales charge actually paid and the sales charge
applicable to the total purchases. If such remittance is not received within 20
days, Investor Services Group, as attorney-in-fact pursuant to the terms of the
Letter of Intent and at FD Distributors' direction, will redeem an appropriate
number of Retail A Shares held in escrow to realize the difference. Signing a
Letter of Intent does not bind a Direct Investor or Customer to purchase the
full amount indicated at the sales charge in effect at the time of signing, but
a Direct Investor or Customer must complete the intended purchase in accordance
with the terms of the Letter of Intent to obtain the reduced sales charge. To
apply, a Direct Investor or Customer must indicate his or her intention to do so
under a Letter of Intent at the time of purchase.
QUALIFICATION FOR DISCOUNTS. For purposes of applying the Rights of
Accumulation and Letter of Intent privileges described above, the scale of sales
charges applies to the combined purchases made by any individual and/or spouse
purchasing securities for his, her or their own account or for the account of
any minor children, or the aggregate investments of a trustee or custodian of
any qualified pension or profit-sharing plan established (or the aggregate
investment of a trustee or other fiduciary) for the benefit of the persons
listed above.
REINSTATEMENT PRIVILEGE. Direct Investors and Customers may reinvest all or
any portion of their redemption proceeds in Retail A Shares of the Funds or in
Retail A Shares of another portfolio of Galaxy within 90 days of the redemption
trade date without paying a sales load. Retail A Shares so reinvested will be
purchased at a price equal to the net asset value next determined after Galaxy's
transfer agent receives a reinstatement request and payment in proper form.
Direct Investors and Customers wishing to exercise this Privilege must
submit a written reinstatement request to Investor Services Group as transfer
agent stating that the investor is eligible to use the Privilege. The
reinstatement request and payment must be received within 90 days of the trade
date of the redemption. Currently, there are no restrictions on the number of
times an investor may use this Privilege.
Generally, exercising the Reinstatement Privilege will not affect the
character of any gain or loss realized on redemptions for federal income tax
purposes. However, if a redemption results in a loss, the reinstatement may
result in the loss being disallowed under the Internal Revenue Code's "wash
sale" rules.
GROUP SALES. Members of qualified groups may purchase Retail A Shares of
the Funds at the following group sales rates:
<TABLE>
<CAPTION>
TOTAL SALES CHARGE REALLOWANCE TO DEALERS
-------------------------------- -----------------------
AS A % OF AS A % OF AS A % OF
NUMBER OF QUALIFIED GROUP OFFERING PRICE NET ASSET OFFERING PRICE
MEMBERS PER SHARE VALUE PER SHARE PER SHARE
- ------------------------------ -------------- --------------- -----------------------
<S> <C> <C> <C>
50,000 but less than
250,000...................... 3.00 3.09 3.00
250,000 but less than
500,000...................... 2.75 2.83 2.75
500,000 but less than
750,000...................... 2.50 2.56 2.50
750,000 and over.............. 2.00 2.04 2.00
</TABLE>
To be eligible for the discount, a group must meet the requirements set
forth below and be approved in advance as a qualified group by FD Distributors.
To receive the group sales charge rate, group members must purchase Retail A
Shares directly from FD Distributors in accordance with any of the procedures
described above under "Purchase Procedures-- Direct Investors." Group members
must also ensure that their qualification group affiliation is identified on the
purchase application.
A qualified group is a group that (i) has at least 50,000 members, (ii) was
not formed for the purpose of buying Fund shares at a reduced sales charge,
(iii) within one year of the initial member purchase, has at least 1% of its
members invested in the Funds or any of the other investment portfolios offered
by Galaxy, (iv) agrees to include Galaxy sales material in publications and
mailings to members at a reduced cost or no cost, and (v) meets certain other
uniform criteria. FD Distributors may request periodic certification of group
and member eligibility. FD Distributors reserves the right to determine whether
a group qualifies for a quantity discount and to suspend this offer at any time.
35
<PAGE>
APPLICABLE SALES CHARGE--RETAIL B SHARES
The public offering price for Retail B Shares of the Funds is the net asset
value of the Retail B Shares purchased. Although Direct Investors and Customers
pay no front-end sales charge on purchases of Retail B Shares, such Shares are
subject to a contingent deferred sales charge at the rates set forth below if
they are redeemed within six years of purchase. Securities dealers, brokers,
financial institutions and other industry professionals will receive commissions
from FD Distributors in connection with sales of Retail B Shares. These
commissions may be different than the reallowances or placement fees paid to
dealers in connection with sales of Retail A Shares. Certain affiliates of Fleet
may, at their own expense, provide additional compensation to Fleet Enterprises,
Inc., a broker-dealer affiliate of Fleet, whose customers purchase significant
amounts of Retail B Shares of a Fund. See "Applicable Sales Charge--Retail A
Shares." The contingent deferred sales charge on Retail B Shares is based on the
lesser of the net asset value of the Shares on the redemption date or the
original cost of the Shares being redeemed. As a result, no sales charge is
imposed on any increase in the principal value of a Direct Investor's or
Customer's Retail B Shares. In addition, a contingent deferred sales charge will
not be assessed on Retail B Shares purchased through reinvestment of dividends
or capital gains distributions.
The amount of any contingent deferred sales charge Direct Investors and
Customers must pay depends on the number of years that elapse between the
purchase date and the date such Retail B Shares are redeemed. Solely for
purposes of this determination, all payments during a month will be aggregated
and deemed to have been made on the first day of the month.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
(AS A PERCENTAGE OF
NUMBER OF YEARS DOLLAR AMOUNT SUBJECT
ELAPSED SINCE PURCHASE TO THE CHARGE)
- --------------------------------------------------------- ---------------------
<S> <C>
Less than one............................................ 5.00%
More than one but less than two.......................... 4.00%
More than two but less than three........................ 3.00%
More than three but less than four....................... 3.00%
More than four but less than five........................ 2.00%
More than five but less than six......................... 1.00%
After six................................................ None
</TABLE>
When a Direct Investor or Customer redeems his or her Retail B Shares, the
redemption request is processed to minimize the amount of the contingent
deferred sales charge that will be charged. Retail B Shares are redeemed first
from those shares that are not subject to a contingent deferred sales charge
(I.E., Retail B Shares that were acquired through reinvestment of dividends or
distributions or that qualify for other deferred sales charge exemptions) and
after that from the Retail B Shares that have been held the longest.
The proceeds from the contingent deferred sales charge that a Direct
Investor or Customer may pay upon redemption go to FD Distributors, which may
use such amounts to defray the expenses associated with the distribution-related
services involved in selling Retail B Shares.
EXEMPTIONS FROM THE CONTINGENT DEFERRED SALES CHARGE. Certain types of
redemptions may also qualify for an exemption from the contingent deferred sales
charge. To receive exemptions (i), (vi) or (viii) listed below, a Direct
Investor or Customer must explain the status of his or her redemption at the
time Retail B Shares are redeemed. The contingent deferred sales charge with
respect to Retail B Shares is not assessed on: (i) exchanges described under
"Investor Programs--Exchange Privilege" below; (ii) redemptions in connection
with required (or, in some cases, discretionary) distributions to participants
or beneficiaries of an employee pension, profit-sharing or other trust or
qualified retirement or Keogh plan, individual retirement account or custodial
account maintained pursuant to Section 403(b)(7) of the Internal Revenue Code of
1986, as amended, (the "Code"); (iii) redemptions in connection with required
(or, in some cases, discretionary) distributions to participants in qualified
retirement or Keogh plans, individual retirement accounts or custodial accounts
maintained pursuant to Section 403(b)(7) of the Code due to death, disability or
the attainment of a specified age; (iv) redemptions effected pursuant to a
Fund's right to liquidate a shareholder's account if the aggregate net asset
value of Retail B Shares held in the account is less than the minimum account
size; (v) redemptions in connection with the combination of a Fund with any
other investment company registered under the 1940 Act by merger, acquisition of
assets, or by any other transaction; (vi) redemptions in connection with the
death or disability of a shareholder; (vii) redemptions resulting from a
tax-free return of an excess contribution pursuant to Section 408(d)(4) or (5)
of the Code; or (viii) any redemption of Retail B Shares held by Direct
Investors or Customers, provided the Direct Investor or Customer was the
beneficial owner of shares of a Fund (or any of the other portfolios offered by
Galaxy or otherwise advised by Fleet or its affiliates) before December 1, 1995.
In addition to the foregoing exemptions, no contingent deferred sales charge
will be imposed on redemptions made pursuant to the Systematic Withdrawal Plan,
subject to the limitations set forth under "Investor Programs--Automatic
Investment Program and Systematic Withdrawal Plan" below.
CHARACTERISTICS OF RETAIL A SHARES AND RETAIL B SHARES
The primary difference between Retail A Shares and Retail B Shares lies in
their sales charge structures and shareholder servicing/distribution expenses. A
Direct Investor or Customer should understand that the purpose and function of
the sales charge structures and shareholder servicing/
36
<PAGE>
distribution arrangements for both Retail A Shares and Retail B Shares are the
same.
Retail A Shares of the Funds are sold at their net asset value plus a
front-end sales charge of up to 3.75%. This front-end sales charge may be
reduced or waived in some cases. (See "Applicable Sales Charges--Retail A
Shares" and "Quantity Discounts"). Retail A Shares of a Fund are currently
subject to ongoing shareholder servicing fees at an annual rate of up to .30% of
the Fund's average daily net assets attributable to its Retail A Shares.
Retail B Shares of the Funds are sold at net asset value without an initial
sales charge. Normally, however, a deferred sales charge is paid if the Shares
are redeemed within six years of investment. (See "Applicable Sales
Charges--Retail B Shares.") Retail B Shares of a Fund are currently subject to
ongoing shareholder servicing and distribution fees at an annual rate of up to
.95% of the Fund's average daily net assets attributable to its Retail B Shares.
These ongoing fees, which are higher than those charged on Retail A Shares, will
cause Retail B Shares to have a higher expense ratio and pay lower dividends
than Retail A Shares.
Six years after purchase, Retail B Shares of the Funds will convert
automatically to Retail A Shares of the Funds. The purpose of the conversion is
to relieve a holder of Retail B Shares of the higher ongoing expenses charged to
those shares, after enough time has passed to allow FD Distributors to recover
approximately the amount it would have received if a front-end sales charge had
been charged. The conversion from Retail B Shares to Retail A Shares takes place
at net asset value, as a result of which a Direct Investor or Customer receives
dollar-for-dollar the same value of Retail A Shares as he or she had of Retail B
Shares. The conversion occurs six years after the beginning of the calendar
month in which the Shares are purchased. Upon conversion, the converted shares
will be relieved of the distribution and shareholder servicing fees borne by
Retail B Shares, although they will be subject to the shareholder servicing fees
borne by Retail A Shares.
Retail B Shares acquired through a reinvestment of dividends or
distributions (as discussed under "Applicable Sales Charge--Retail B Shares")
are also converted at the earlier of two date--six years after the beginning of
the calendar month in which the reinvestment occurred or the date of conversion
of the most recently purchased Retail B Shares that were not acquired through
reinvestment of dividends or distributions. For example, if a Direct Investor or
Customer makes a one-time purchase of Retail B Shares of a Fund, and
subsequently acquires additional Retail B Shares of such Fund only through
reinvestment of dividends and/or distributions, all of such Direct Investor's or
Customer's Retail B Shares in the Fund, including those acquired through
reinvestment, will convert to Retail A Shares of such Fund on the same date.
FACTORS TO CONSIDER WHEN SELECTING RETAIL A SHARES OR RETAIL B SHARES
Before purchasing Retail A Shares or Retail B Shares of the Funds, Direct
Investors and Customers should consider whether, during the anticipated periods
of their investments in the particular Funds, the accumulated distribution and
shareholder servicing fees and potential contingent deferred sales charge on
Retail B Shares prior to conversion would be less than the initial sales charge
and accumulated shareholder servicing fees on Retail A Shares purchased at the
same time, and to what extent such differential would be offset by the higher
yield of Retail A Shares. In this regard, to the extent that the sales charge
for Retail A Shares is waived or reduced by one of the methods described above,
investments in Retail A Shares become more desirable. An investment of $250,000
or more in Retail B Shares would not be in most shareholders' best interest.
Shareholders should consult their financial advisers and/or brokers with respect
to the advisability of purchasing Retail B Shares in amounts exceeding $250,000.
Although Retail A Shares are subject to a shareholder servicing fee, they
are not subject to the higher distribution and shareholder servicing fee
applicable to Retail B Shares. For this reason, Retail A Shares can be expected
to pay correspondingly higher dividends per Share. However, because initial
sales charges are deducted at the time of purchase, purchasers of Retail A
Shares (that do not qualify for exemptions from or reductions in the initial
sales charge) would have less of their purchase price initially invested in
these Funds than purchasers of Retail B Shares in the Funds.
As described above, purchasers of Retail B Shares will have more of their
initial purchase price invested. Any positive investment return on this
additional invested amount would partially or wholly offset the expected higher
annual expenses borne by Retail B Shares. Because a Fund's future returns cannot
be predicted, there can be no assurance that this will be the case. Holders of
Retail B Shares would, however, own shares that are subject to a contingent
deferred sales charge of up to 5.00% upon redemption, depending upon the year of
redemption. Direct Investors or Customers expecting to redeem during this
six-year period should compare the cost of the contingent deferred sales charge
plus the aggregate distribution and shareholder servicing fees on Retail B
Shares to the cost of the initial sales charge and shareholder servicing fees on
the Retail A Shares. Over time, the expense of the annual distribution and
shareholder servicing fees on the Retail B Shares may equal or exceed the
initial sales charge and annual shareholder servicing fee applicable to Retail A
Shares. For example, if net asset value remains constant, the aggregate
distribution and shareholder servicing fees with respect to Retail B Shares of a
Fund would equal or exceed the initial sales charge and aggregate shareholder
servicing fees of Retail A Shares approximately six years after the purchase. In
order to reduce such fees for investors that hold Retail B Shares for more than
six years, Retail B Shares will be automatically converted to Retail A Shares as
described above at the end of such six-year period.
37
<PAGE>
HOW TO REDEEM SHARES
GENERAL
Redemption orders are effected at the net asset value per share next
determined after receipt of the order by FD Distributors. On a Business Day when
the Exchange closes early due to a partial holiday or otherwise, Galaxy will
advance the time at which redemption orders must be received in order to be
processed on that Business Day. Proceeds from the redemptions of Retail B Shares
of the Funds will be reduced by the amount of any applicable contingent deferred
sales charge. Galaxy reserves the right to transmit redemption proceeds within
seven days after receiving the redemption order if, in its judgment, an earlier
payment could adversely affect a Fund.
REDEMPTION PROCEDURES--CUSTOMERS OF INSTITUTIONS
Customers of Institutions may redeem all or part of their Retail Shares in
accordance with procedures governing their accounts at Institutions. It is the
responsibility of the Institutions to transmit redemption orders to FD
Distributors and credit their Customers' accounts with the redemption proceeds
on a timely basis. No charge for wiring redemption payments to Institutions is
imposed by Galaxy, although Institutions may charge a Customer's account for
redemption services. Information relating to such redemption services and
charges, if any, is available from the Institutions.
Payments for redemption orders received by FD Distributors on a Business Day
will normally be wired on the third Business Day to the Institutions.
Direct Investors may redeem all or part of their Retail Shares in accordance
with any of the procedures described below.
REDEMPTION PROCEDURES--DIRECT INVESTORS
REDEMPTION BY MAIL. Retail Shares may be redeemed by a Direct Investor by
submitting a written request for redemption to:
The Galaxy Fund
P.O. Box 5108
4400 Computer Drive
Westboro, MA 01581
A written redemption request must (i) state the name of the Fund and the
number of shares to be redeemed, (ii) identify the shareholder account number
and tax identification number, and (iii) be signed by each registered owner
exactly as the shares are registered. A redemption request for an amount in
excess of $50,000, or for any amount where (i) the proceeds are to be sent
elsewhere than the address of record (excluding the transfer of assets to a
successor custodian), (ii) the proceeds are to be sent to an address of record
which has changed in the preceding 30 days, or (iii) the check is to be made
payable to someone other than the registered owner(s), must be accompanied by
signature guarantees. The guarantor of a signature must be a bank that is a
member of the FDIC, a trust company, a member firm of a national securities
exchange or any other eligible guarantor institution. FD Distributors will not
accept guarantees from notaries public. FD Distributors may require additional
supporting documents for redemptions made by corporations, executors,
administrators, trustees and guardians. A redemption request will not be deemed
to be properly received until FD Distributors receives all required documents in
proper form. The Funds ordinarily will make payment for Retail Shares redeemed
by mail within three Business Days after proper receipt by FD Distributors of
the redemption request. Questions with respect to the proper form for redemption
requests should be directed to FD Distributors at 1-800-628-0414.
REDEMPTION BY TELEPHONE. Direct Investors who have not otherwise indicated
on the application, or in a subsequent notification in writing, may redeem
Retail Shares by calling 1-800-628-0414 and instructing FD Distributors to mail
a check for redemption proceeds of up to $50,000 to the address of record. A
redemption request for an amount in excess of $50,000 or for any amount where
(i) the proceeds are to be sent elsewhere than the address of record (excluding
the transfer of assets to a successor custodian), (ii) the proceeds are to be
sent to an address of record which has changed in the preceding 30 days, or
(iii) the check is to be made payable to someone other than the registered
owner(s), must be accompanied by signature guarantees. (See "Redemption by Mail"
above for details regarding signature guarantees.)
REDEMPTION BY WIRE. Direct Investors who have so indicated on the
application, or have subsequently arranged in writing to do so, may redeem
Retail Shares by instructing FD Distributors by wire or telephone to wire the
redemption proceeds of $1,000 or more directly to a Direct Investor's account at
any commercial bank in the United States. FD Distributors charges a $5.00 fee
for each wire redemption and the fee is deducted from the redemption proceeds.
The redemption proceeds must be paid to the same bank and account as designated
on the application or in written instructions subsequently received by FD
Distributors. To request redemption of Retail Shares by wire, Direct Investors
should call FD Distributors at 1-800-628-0414.
In order to arrange for redemption by wire after an account has been opened
or to change the bank or account designated to receive redemption proceeds, a
written request must be sent to Galaxy at the address listed above under
"Redemption by Mail." Such requests must be signed by the
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investor and accompanied by a signature guarantee (see "Redemption by Mail"
above for details regarding signature guarantees). Further documentation may be
requested from corporations, executors, administrators, trustees, or guardians.
If, due to temporary adverse conditions, investors are unable to effect
telephone transactions, investors are encouraged to follow the procedures for
transactions by wire or mail which are described above.
Galaxy reserves the right to refuse a wire or telephone redemption if it
believes it is advisable to do so. Procedures for redeeming Retail Shares by
wire or telephone may be modified or terminated at any time by Galaxy or FD
Distributors. In attempting to confirm that telephone instructions are genuine,
Galaxy will use such procedures as are considered reasonable, including
recording those instructions and requesting information as to account
registration (such as the name in which an account is registered, the account
number, recent transactions in the account, and the account holder's social
security number, address and/or bank). If Galaxy fails to follow established
procedures for the authentication of telephone instructions, it may be liable
for losses due to unauthorized or fraudulent telephone transactions.
NO REDEMPTION BY A DIRECT INVESTOR IN ANY FUND WILL BE PROCESSED UNTIL
GALAXY HAS RECEIVED A COMPLETED APPLICATION WITH RESPECT TO THE DIRECT
INVESTOR'S ACCOUNT.
IF ANY PORTION OF THE RETAIL SHARES TO BE REDEEMED REPRESENTS AN INVESTMENT
MADE BY PERSONAL CHECK, GALAXY RESERVES THE RIGHT TO DELAY PAYMENT OF PROCEEDS
UNTIL FD DISTRIBUTORS IS REASONABLY SATISFIED THAT THE CHECK HAS BEEN COLLECTED,
WHICH COULD TAKE UP TO 15 DAYS FROM THE PURCHASE DATE. A DIRECT INVESTOR WHO
ANTICIPATES THE NEED FOR MORE IMMEDIATE ACCESS TO HIS OR HER INVESTMENT SHOULD
PURCHASE RETAIL SHARES BY FEDERAL FUNDS OR BANK WIRE OR BY CERTIFIED OR
CASHIER'S CHECK. BANKS NORMALLY IMPOSE A CHARGE IN CONNECTION WITH THE USE OF
BANK WIRES, AS WELL AS CERTIFIED CHECKS, CASHIER'S CHECKS AND FEDERAL FUNDS.
OTHER REDEMPTION INFORMATION
Except as provided under "Investor Programs" below, Galaxy reserves the
right to redeem accounts (other than retirement plan accounts) involuntarily,
upon 60 days' written notice, if the account's net asset value falls below $250
as a result of redemptions. In addition, if an investor has agreed with a
particular Institution to maintain a minimum balance in his or her account at
the Institution with respect to Retail Shares of a Fund, and the balance in such
account falls below that minimum, the Customer may be obliged by the Institution
to redeem all of his or her shares.
INVESTOR PROGRAMS
EXCHANGE PRIVILEGE
Direct Investors and Customers of Institutions may, after appropriate prior
authorization, exchange Retail A Shares of a Fund having a value of at least
$100 for Retail A Shares of any of the other Funds or portfolios offered by
Galaxy or for shares of any other investment portfolios otherwise advised by
Fleet or its affiliates in which the Direct Investor or Customer maintains an
existing account, provided that such other shares may legally be sold in the
state of the investor's residence. Direct Investors and Customers of
Institutions may exchange Retail B Shares of the Funds for Retail B Shares of
the Money Market, Short-Term Bond, Intermediate Government Income, High Quality
Bond and Tax-Exempt Bond Funds offered by Galaxy, provided that such other
Retail B Shares may legally be sold in the state of the investor's residence.
No additional sales charge will be incurred when exchanging Retail A Shares
of a Fund for Retail A Shares of another Galaxy portfolio that imposes a sales
charge. Retail B Shares may be exchanged without the payment of any contingent
deferred sales charge at the time the exchange is made. In determining the
holding period for calculating the contingent deferred sales charge payable on
redemptions of Retail B Shares, the holding period of the Retail B Shares
originally held will be added to the holding period of the Retail B Shares
acquired through exchange.
The minimum initial investment to establish an account in another Fund or
portfolio by exchange, except for the Institutional Government Money Market
Fund, is $2,500, unless at the time of the exchange the Direct Investor or
Customer elects, with respect to the Fund or portfolio into which the exchange
is being made, to participate in the Automatic Investment Program described
below, in which event there is no minimum initial investment requirement, or in
the College Investment Program described below, in which event the minimum
initial investment is generally $100. The minimum initial investment to
establish an account by exchange in the Institutional Government Money Market
Fund is $2 million.
An exchange involves a redemption of all or a portion of the Retail Shares
of a Fund and the investment of the redemption proceeds in Retail Shares of
another Fund or portfolio offered by Galaxy or, with respect to Retail A Shares,
otherwise advised by Fleet or its affiliates. The redemption will be made at the
per share net asset value next determined after the exchange request is
received. The Retail Shares of a Fund or portfolio to be acquired will be
purchased at the per share net asset value next determined after acceptance of
the exchange request, plus any applicable sales charge.
Investors may find the exchange privilege useful if their investment
objectives or market outlook should change after
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they invest in any of the Funds. For further information regarding Galaxy's
exchange privilege, Direct Investors should call Investor Services Group at
1-800-628-0414. Customers of Institutions should call their Institution for such
information. Customers exercising the exchange privilege into other portfolios
should request and review these portfolios' prospectuses prior to making an
exchange. Telephone 1-800-628-0414 for a prospectus or to make an exchange. See
"How to Redeem Shares--Redemption Procedures--Direct Investors--Redemptions by
Wire" above for a description of Galaxy's policy regarding telephone
transactions.
In order to prevent abuse of this privilege to the disadvantage of other
shareholders, Galaxy reserves the right to terminate the exchange privilege of
any shareholder who requests more than three exchanges a year. Galaxy will
determine whether to do so based on a consideration of both the number of
exchanges that any particular shareholder or group of shareholders has requested
and the time period over which their exchange requests have been made, together
with the level of expense to Galaxy which will result from effecting additional
exchange requests. The exchange privilege may be modified or terminated at any
time. At least 60 days' notice of any material modification or termination will
be given to shareholders except where notice is not required under the
regulations of the Securities and Exchange Commission ("SEC").
Galaxy does not charge any exchange fee. However, Institutions may charge
such fees with respect to either all exchange requests or with respect to any
request which exceeds the permissible number of free exchanges during a
particular period. Customers of Institutions should contact their Institutions
for applicable information.
For federal income tax purposes, an exchange of shares is a taxable event
and, accordingly, a capital gain or loss may be realized by an investor. Before
making an exchange request, a Customer or Direct Investor should consult a tax
or other financial adviser to determine the tax consequences.
RETIREMENT PLANS
Retail Shares of the Funds are available for purchase in connection with the
following tax-deferred prototype retirement plans:
INDIVIDUAL RETIREMENT ACCOUNTS ("IRAS") (including traditional, Roth and
Education IRAs and "roll-overs" from existing retirement plans), a
retirement-savings vehicle for qualifying individuals. The minimum initial
investment for an IRA account is $500 (including a spousal account).
SIMPLIFIED EMPLOYEE PENSION PLANS ("SEPS"), a form of retirement plan for
sole proprietors, partnerships and corporations. The minimum initial investment
for a SEP account is $500.
MULTI-EMPLOYEE PENSION PLANS ("MERPS"), a retirement vehicle established by
employers for their employees which is qualified under Section 401(k) and 403(b)
of the Internal Revenue Code. The minimum initial investment for a MERP is $500.
KEOGH PLANS, a retirement vehicle for self-employed individuals. The
minimum initial investment for a Keogh Plan is $500.
Investors purchasing Retail Shares pursuant to a retirement plan are not
subject to the minimum investment provisions described above under "How to
Purchase Shares-- Other Purchase Information." Detailed information concerning
eligibility and other matters related to these plans and the form of application
is available from FD Distributors (call 1-800-628-0414) with respect to IRAs,
SEPs and Keogh Plans and from Fleet Brokerage Securities, Inc. (call
1-800-221-8210) with respect to MERPs.
AUTOMATIC INVESTMENT PROGRAM AND SYSTEMATIC WITHDRAWAL PLAN
The Automatic Investment Program permits a Direct Investor to purchase
Retail Shares of a Fund each month or each quarter (minimum of $50 per
transaction except for Direct Investors purchasing Retail Shares to be held in
an Education IRA, in which event the minimum amount is $40 per month and $125
per quarter). Provided the Direct Investor's financial institution allows
automatic withdrawals, Retail Shares are purchased by transferring funds from a
Direct Investor's checking, bank money market, NOW or savings account designated
by the Direct Investor. The account designated will be debited in the specified
amount, and Retail Shares will be purchased, on a monthly or quarterly basis, on
any Business Day designated by a Direct Investor. If the designated day falls on
a weekend or holiday, the purchase will be made on the Business Day closest to
the designated day. Only an account maintained at a domestic financial
institution which is an Automated Clearing House member may be so designated.
The Systematic Withdrawal Plan permits a Direct Investor to automatically
redeem Retail Shares on a monthly, quarterly, semi-annual, or annual basis on
any Business Day designated by a Direct Investor, if the account has a starting
value of at least $10,000. If the designated day falls on a weekend or holiday,
the redemption will be made on the Business Day closest to the designated day.
Proceeds of the redemption will be sent to the shareholder's address of record
or financial institution within three Business Days of the redemption. If
redemptions exceed purchases and dividends, the number of shares in the account
will be reduced. Investors may terminate the Systematic Withdrawal Plan at any
time upon written notice to Investor Services Group, Galaxy's transfer agent
(but not less than five days before a payment
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date). There is no charge for this service. Purchases of additional Retail A
Shares concurrently with withdrawals are ordinarily not advantageous because of
the sales charge involved in the additional purchases. No contingent deferred
sales charge will be assessed on redemptions of Retail B Shares made through the
Systematic Withdrawal Plan that do not exceed 12% of an account's net asset
value on an annualized basis. For example, monthly, quarterly and semi-annual
Systematic Withdrawal Plan redemptions of Retail B Shares will not be subject to
the contingent deferred sales charge if they do not exceed 1%, 3% and 6%,
respectively, of an account's net asset value on the redemption date. Systematic
Withdrawal Plan redemptions of Retail B Shares in excess of this limit are still
subject to the applicable contingent deferred sales charge.
PAYROLL DEDUCTION PROGRAM
The Payroll Deduction Program provides Direct Investors with a convenient,
systematic way to purchase Fund shares by deducting a minimum amount of $25 per
pay period from their paycheck. To be eligible for the Program, the payroll
department of a Direct Investor's employer must have the capability to forward
transactions directly through the Automated Clearing House (ACH), or indirectly
through a third party payroll processing company that has access to the ACH. A
Direct Investor must complete and submit a Galaxy Payroll Deduction Application
to his or her employer's payroll department, which will arrange for the
specified amount to be debited from the Direct Investor's paycheck each pay
period. Retail Shares of Galaxy will be purchased within three days after the
debit occurred. If the designated day falls on a weekend or non-Business Day,
the purchase will be made on the Business Day closest to the designated day. A
Direct Investor should allow between two to four weeks for the Payroll Deduction
Program to be established after submitting an application to the employer's
payroll department.
COLLEGE INVESTMENT PROGRAM
The College Investment Program (the "College Program") permits a Direct
Investor to open an account with Galaxy and purchase Retail Shares of a Fund
with a minimum amount of $100 for initial or subsequent investments, except that
if the Direct Investor purchases Retail Shares through the Automatic Investment
Program, the minimum per transaction is $50. The College Program is designed to
assist Direct Investors who want to finance a college savings plan. See
"Investor Programs--Automatic Investment Program and Systematic Withdrawal Plan"
for information on the Automatic Investment Program. Galaxy reserves the right
to redeem accounts participating in the College Program involuntarily, upon 60
days' written notice, if the account's net asset value falls below the
applicable minimum initial investment as a result of redemptions. See "How to
Redeem Shares--Other Redemption Information" above for further information.
Direct Investors in the College Program will receive consolidated monthly
statements of their accounts. Detailed information concerning College Program
accounts and applications may be obtained from FD Distributors (call
1-800-628-0414).
DIRECT DEPOSIT PROGRAM
Direct Investors receiving social security benefits are eligible for the
Direct Deposit Program. This Program enables a Direct Investor to purchase
Retail Shares of a Fund by having social security payments automatically
deposited into his or her Fund account. There is no minimum deposit requirement.
For instructions on how to enroll in the Direct Deposit Program, Direct
Investors should call FD Distributors at 1-800-628-0414. Death or legal
incapacity will terminate a Direct Investor's participation in the Program. A
Direct Investor may elect at any time to terminate his or her participation by
notifying in writing the Social Security Administration. Further, Galaxy may
terminate a Direct Investor's participation upon 30 days' notice to the Direct
Investor.
INFORMATION SERVICES
GALAXY INFORMATION CENTER--24 HOUR INFORMATION SERVICE
The Galaxy Information Center provides Fund performance and investment
information 24 hours a day, seven days a week. To access the Galaxy Information
Center, just call 1-800-628-0414.
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VOICE RESPONSE SYSTEM
The Voice Response System provides Direct Investors automated access to Fund
and account information as well as the ability to make telephone redemptions and
exchanges. These transactions are subject to the terms and conditions described
above under "How to Redeem Shares" and "Investor Programs". To access the Voice
Response System, just call 1-800-628-0414 from any touch-tone telephone and
follow the recorded instructions.
GALAXY SHAREHOLDER SERVICES
For account information and recent exchange transactions, Direct Investors
can call Galaxy Shareholder Services Monday through Friday, between the hours of
8:00 a.m. to 6:00 p.m. (Eastern Time) at 1-800-628-0414.
Galaxy also offers a TDD service for the hearing impaired. Just call
1-800-696-6515, 24 hours a day, seven days a week.
Direct Investors residing outside the United States can contact Galaxy by
calling 1-508-855-5237.
Investment returns and principal values will vary with market conditions so
that an investor's Retail Shares, when redeemed, may be worth more or less than
their original cost. Past performance is no guarantee of future results. Unless
otherwise indicated, total return figures include changes in share price,
deduction of any applicable sales charge, and reinvestment of dividends and
capital gains distributions, if any.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Equity Value, Equity Growth,
Equity Income, Small Company Equity, Asset Allocation, Small Cap Value, Growth
and Income and Strategic Equity Funds are declared and paid quarterly. Dividends
from net investment income of the International Equity Fund are declared and
paid annually. Dividends on each share of a Fund are determined in the same
manner, irrespective of series, but may differ in amount because of the
difference in the expenses paid by the respective series. Net realized capital
gains are distributed at least annually.
Dividends and distributions will be paid in cash. Customers and Direct
Investors may elect to have their dividends reinvested in additional Retail
Shares of the same series of a Fund at the net asset value of such shares on the
ex-dividend date. Such election, or any revocation thereof, must be communicated
in writing to Galaxy's transfer agent (see "Custodian and Transfer Agent" below)
and will become effective with respect to dividends paid after its receipt.
TAXES
FEDERAL
The Equity Value Fund, Equity Growth Fund, Equity Income Fund, International
Equity Fund, Small Company Equity Fund, Asset Allocation Fund, Small Cap Value
Fund and Growth and Income Fund each qualified during its last taxable year and
intends to continue to qualify, and the Strategic Equity Fund intends to
qualify, as a "regulated investment company" under the Code. Such qualification
generally relieves a Fund of liability for federal income taxes to the extent
the Fund's earnings are distributed in accordance with the Code.
The policy of each Fund is to distribute as dividends substantially all of
its investment company taxable income and any net tax-exempt interest income
each year. Such dividends will be taxable as ordinary income to the Fund's
shareholders who are not currently exempt from federal income taxes, whether
such dividends are received in cash or reinvested in additional Retail Shares.
(Federal income taxes for distributions to an IRA or a qualified retirement plan
are deferred under the Code.) Such ordinary income distributions will qualify
for the dividends received deduction for corporations to the extent of the total
qualifying dividends received by the distributing Fund from domestic
corporations for the taxable year.
Distribution by a Fund of "net capital gain" (the excess of its net
long-term capital gain over its net short-term capital loss), if any, of a Fund,
is taxable to shareholders as long-term capital gain, regardless of how long the
shareholder has held shares and whether such gains are received in cash or
reinvested in additional Retail Shares. Such distributions are not eligible for
the dividends received deduction.
The dividends received deduction is not available for dividends attributable
to distributions made by a REIT to a Fund. In addition, distributions paid by
REITs often include a "return of capital." The Code requires a REIT to
distribute at least 95% of its taxable income to investors. In many cases,
however, because of "non-cash" expenses such as property depreciation, an equity
REIT's cash flow will exceed its taxable income. The REIT may distribute this
excess cash to offer a more competitive yield. This portion of the distribution
is deemed a return of capital and is generally not taxable to shareholders.
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Dividends declared in October, November or December of any year that are
payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by a Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
If you are considering buying shares of a Fund on or just before the record
date of a dividend or capital gain distribution, you should be aware that the
amount of the forthcoming distribution payment, although in effect a return of
capital to the shareholder, generally will be taxable to you.
A taxable gain or loss may be realized by a shareholder upon redemption,
transfer or exchange of shares of a Fund depending upon the tax basis of such
shares and their price at the time of redemption, transfer or exchange.
It is expected that the International Equity Fund will be subject to foreign
withholding taxes with respect to income received from sources within foreign
countries. So long as more than 50% of the value of the Fund's total assets at
the close of any taxable year consists of stock or securities of foreign
corporations, the Fund may elect, for U.S. federal income tax purposes, to treat
certain foreign taxes paid by it, including generally any withholding taxes and
other foreign income taxes, as paid by its shareholders. If the Fund makes this
election, the amount of such foreign taxes paid by the Fund will be included in
its shareholders' income pro rata (in addition to taxable distributions actually
received by them), and shareholders would be entitled either (a) to credit their
proportionate amount of such taxes against their U.S. federal income tax
liabilities, subject to certain limitations described in the Statement of
Additional Information relating to the Fund, or (b) if they itemize their
deductions, to deduct such proportionate amount from their U.S. income, should
they so choose. Shareholders of the Equity Value, Equity Growth, Equity Income,
Small Company Equity, Asset Allocation, Small Cap Value, Growth and Income and
Strategic Equity Funds should not expect to claim a foreign tax credit or
deduction.
The foregoing summarizes some of the important federal tax considerations
generally affecting the Funds and their shareholders and is not intended as a
substitute for careful tax planning. Accordingly, potential investors in the
Funds should consult their tax advisers with specific reference to their own tax
situation. Shareholders will be advised annually as to the federal income tax
consequences of distributions made each year.
STATE AND LOCAL
Investors are advised to consult their tax advisers concerning the
application of state and local taxes, which may have different consequences from
those of the federal income tax law described above.
MANAGEMENT OF THE FUNDS
The business and affairs of the Funds are managed under the direction of
Galaxy's Board of Trustees. The applicable Statements of Additional Information
contain the names of and general background information concerning the Trustees.
INVESTMENT ADVISER AND SUB-ADVISER
Fleet, with principal offices at 75 State Street, Boston, Massachusetts
02109, serves as the investment adviser to the Funds. Fleet is an indirect
wholly-owned subsidiary of Fleet Financial Group, Inc., a registered bank
holding company with total assets of approximately $100.7 billion at June 30,
1998. Fleet, which commenced operations in 1984, also provides investment
management and advisory services to individual and institutional clients and
manages the other investment portfolios of Galaxy.
Subject to the general supervision of Galaxy's Board of Trustees and in
accordance with each Fund's investment policies, Fleet manages each Fund, makes
decisions with respect to and places orders for all purchases and sales of its
portfolio securities and maintains related records (except with respect to such
functions that have been delegated to Oechsle, the International Equity Fund's
sub-adviser, as described below).
For the services provided and expenses assumed with respect to the Equity
Value, Equity Growth, Equity Income, Small Company Equity, Asset Allocation,
Small Cap Value, Growth and Income and Strategic Equity Funds, Fleet is entitled
to receive advisory fees, computed daily and paid monthly, at the annual rate of
.75% of the average daily net assets of each Fund. For the services provided and
expenses assumed with respect to the International Equity Fund, Fleet is
entitled to receive advisory fees, computed daily and paid monthly, at the
annual rate of 1.15% of the first $50 million of the Fund's average daily net
assets, plus .95% of the next $50 million of such assets, plus .85% of net
assets in excess of $100 million.
Fleet may from time to time, in its discretion, waive advisory fees payable
by the Funds in order to help maintain a competitive expense ratio and may from
time to time allocate a portion of its advisory fees to Fleet Bank or other
subsidiaries of Fleet Financial Group, Inc., in consideration for administrative
and/or shareholder support services which they provide to beneficial
shareholders. For the fiscal year ended October 31, 1997, Fleet received
advisory fees (after fee waivers) at the effective annual rates of .75%, .75%,
.75%, .68%, .75%, .75%, .75% and .75% of the average daily net assets of the
Equity Value, Equity Growth, Equity Income, International Equity, Small Company
Equity, Asset Allocation, Small Cap Value and Growth and Income Funds,
respectively. In addition to fee waivers, during the fiscal year ended October
31, 1997, Fleet also reimbursed each of the Funds for certain operating
expenses, which reimbursement
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may be revised or discontinued at any time. The Strategic Equity Fund did not
conduct investment operations during the fiscal year ended October 31, 1997.
The advisory agreement between Galaxy and Fleet with respect to the
International Equity Fund provides that Fleet will provide a continuous
investment program for the Fund, including research and management with respect
to all securities and investments and cash equivalents in the Fund. In addition,
the advisory agreement authorizes Fleet to engage a sub-adviser to assist it in
the performance of its services. Pursuant to such authorization, Fleet has
appointed Oechsle, a Delaware limited partnership with principal offices at One
International Place, Boston, Massachusetts 02210, as the sub-adviser to the
International Equity Fund. The general partner of Oechsle is Oechsle Group,
L.P., and the managing general partner of Oechsle Group, L.P. is Walter Oechsle.
Oechsle currently manages approximately $10.2 billion in assets.
Under its sub-advisory agreement with Fleet, Oechsle determines which
securities and other investments will be purchased, retained or sold for the
Fund; places orders for the Fund; manages the Fund's overall cash position; and
provides Fleet with foreign broker research and a quarterly review of
international economic and investment developments. Fleet, among other things,
assists and consults with Oechsle in connection with the Fund's continuous
investment program; approves lists of foreign countries recommended by Oechsle
for investment; reviews the investment policies and restrictions of the Fund and
recommends appropriate changes to the Board of Trustees; and provides the Board
of Trustees and Oechsle with information concerning relevant economic and
political developments.
For the services provided and the expenses assumed pursuant to the
sub-advisory agreement, Fleet pays a fee to Oechsle, computed daily and paid
quarterly, at the annual rate of .40% of the first $50 million of the
International Equity Fund's average daily net assets, plus .35% of average daily
net assets in excess of $50 million. For the fiscal year ended October 31, 1997,
Oechsle received sub-advisory fees from Fleet at the effective annual rate of
.36% of the Fund's average daily net assets.
The Equity Value Fund's portfolio manager, G. Jay Evans, is primarily
responsible for the day-to-day management of the Fund's investment portfolio.
Mr. Evans has been with Fleet and its predecessors since 1978, is a senior Vice
President, and has been the Fund's portfolio manager since the spring of 1993.
The Equity Growth Fund's portfolio manager, Robert G. Armknecht, is
primarily responsible for the day-to-day management of the Fund's investment
portfolio. Mr. Armknecht, an Executive Vice President, has been with Fleet and
its predecessors since 1989 and has been the Fund's portfolio manager since its
inception.
The Equity Income Fund's portfolio manager, J. Edward Klisiewicz, is
primarily responsible for the day-to-day management of the Fund's investment
portfolio. Mr. Klisiewicz, a Senior Vice President, has been with Fleet and its
predecessors since 1970 and has been the Fund's portfolio manager since its
inception.
The International Equity Fund's portfolio managers, David von Hemert of
Fleet, and S. Dewey Keesler, Jr. and Kathleen Harris of Oechsle, are primarily
responsible for the day-to-day management of the Fund's investment portfolio.
Mr. von Hemert, a Senior Vice President, has been with Fleet and its
predecessors since 1980 and has been managing the Fund since August 1994. Mr.
Keesler, General Partner and Portfolio Manager, has been with Oechsle since its
founding in 1986. Ms. Harris has been a Portfolio Manager at Oechsle since
January 1995. Prior thereto, she was Portfolio Manager and Investment Director
for the State of Wisconsin Investment Board and a Fund Manager and Equity
Analyst for Northern Trust Company. Mr. Keesler and Ms. Harris have been
managing the Fund since August 1996.
The Small Company Equity Fund's portfolio manager, Stephen D. Barbaro, is
primarily responsible for the day-to-day management of the Fund's investment
portfolio. Mr. Barbaro, a Vice President and Senior Portfolio Manager, has been
with Fleet and its predecessors since 1976 and has been the Fund's portfolio
manager since its inception.
The Asset Allocation Fund's co-portfolio managers, Donald Jones and David
Lindsay, are primarily responsible for the day-to-day management of the Fund's
investment portfolio. Mr. Jones determines the allocation of the Fund's assets
between equity and fixed income investments and manages the equity portion of
the Fund's investment portfolio. Mr. Lindsay manages the fixed income portion of
the Fund's investment portfolio. Mr. Jones, who currently serves as a Vice
President, has been with Fleet and its predecessors as a portfolio manager since
1988 and has been the Fund's portfolio manager since May 1, 1995. Mr. Lindsay, a
Senior Vice President, has been with Fleet and its predecessors since 1986. He
has managed the fixed income portion of the Fund's portfolio since January 1997.
The Small Cap Value Fund's portfolio manager, Peter Larson, is primarily
responsible for the day-to-day management of the Fund's investment portfolio.
Mr. Larson served as the portfolio manager of the Predecessor Small Cap Value
Fund since its inception in 1992. Prior to joining Fleet in 1995, he was
associated with Shawmut Bank since 1963 as an investment officer and was a Vice
President in charge of its Small Cap Equity Management product since 1982.
The Growth and Income Fund's portfolio manager, Gregory M. Miller, is
primarily responsible for the day-to-day management of the Fund's investment
portfolio. Mr. Miller, a Vice President, has been associated with Fleet since
1985. He has managed the Growth and Income Fund since July 1, 1998.
The Strategic Equity Fund's portfolio manager, Peter B. Hathaway, is
primarily responsible for the day-to-day management of the Fund's portfolio. Mr.
Hathaway, a Vice President, has been associated with Fleet since 1995. Prior to
joining Fleet, he was with Shawmut Investment Advisors and its predecessors as
an institutional fund manager. He has over 30 years of investment experience.
Fleet and Oechsle are authorized to allocate purchase and sale orders for
portfolio securities to certain financial institutions, including, to the extent
permitted by law or order of the SEC, financial institutions that are affiliated
with Fleet or Oechsle or that have sold shares of the Funds, if Fleet or
Oechsle, as the case may be, believes that the quality of the transaction and
the commission are comparable to what they would be with other qualified
brokerage firms.
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AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities such as Retail
Shares of the Funds, but do not prohibit such a bank holding company or its
affiliates or banks generally from acting as investment adviser, transfer agent,
or custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of customers. Fleet, the custodian and
Institutions which agree to provide shareholder support services that are banks
or bank affiliates are subject to such banking laws and regulations. Should
legislative, judicial or administrative action prohibit or restrict the
activities of such companies in connection with their services to the Funds,
Galaxy might be required to alter materially or discontinue its arrangements
with such companies and change its method of operation. It is anticipated,
however, that any resulting change in the Funds' method of operation would not
affect a Fund's net asset value per share or result in financial loss to any
shareholder.
ADMINISTRATOR
First Data Investor Services Group, Inc. ("Investor Services Group"),
located at 4400 Computer Drive, Westboro, Massachusetts 01581-5108, serves as
the Funds' administrator. Investor Services Group is a wholly-owned subsidiary
of First Data Corporation.
Investor Services Group generally assists the Funds in their administration
and operation. Investor Services Group also serves as administrator to the other
portfolios of Galaxy. For the services provided to the Funds, Investor Services
Group is entitled to receive administration fees, computed daily and paid
monthly, at the annual rate of .09% of the first $2.5 billion of the combined
average daily net assets of the Funds and the other portfolios offered by Galaxy
(collectively, the "Portfolios"), .085% of the next $2.5 billion of combined
average daily net assets and .075% of combined average daily net assets over $5
billion. In addition, Investor Services Group also receives a separate annual
fee from each Portfolio for certain fund accounting services. From time to time,
Investor Services Group may waive voluntarily all or a portion of the
administration fee payable to it by the Funds. For the fiscal year ended October
31, 1997, the Equity Value, Equity Growth, Equity Income, International Equity,
Small Company Equity, Asset Allocation, Small Cap Value and Growth and Income
Funds paid Investor Services Group administration fees at the effective annual
rate of .082% of each Fund's average daily net assets. The Strategic Equity Fund
did not conduct investment operations during the fiscal year ended October 31,
1997.
DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on March 31, 1986.
Galaxy's Declaration of Trust authorizes the Board of Trustees to classify or
reclassify any unissued shares into one or more classes or series of shares.
Pursuant to such authority, the Board of Trustees has authorized the issuance of
an unlimited number of shares in each of the series in the Funds as follows:
Class C shares (Trust Shares), Class C--Special Series 1 shares (Retail A
Shares), Class C-- Special Series 2 shares (Retail B Shares), Class C--Special
Series 3 shares (A Prime Shares) and Class C--Special Series 4 shares (B Prime
Shares), each series representing interests in the Equity Value Fund; Class
G--Series 1 shares (Trust Shares), Class G--Series 2 shares (Retail A Shares),
Class G--Series 3 shares (Retail B Shares), Class G--Series 4 shares (A Prime
Shares) and Class G--Series 5 shares (B Prime Shares), each series representing
interests in the International Equity Fund; Class H--Series 1 shares (Trust
Shares), Class H--Series 2 shares (Retail A Shares), Class H--Series 3 shares
(Retail B Shares), Class H--Series 4 shares (A Prime Shares) and Class H--Series
5 shares (B Prime Shares), each series representing interests in the Equity
Growth Fund; Class I--Series 1 shares (Trust Shares), Class I--Series 2 shares
(Retail A Shares), Class I--Series 3 shares (Retail B Shares), Class I--Series 4
shares (A Prime Shares) and Class I--Series 5 shares (B Prime Shares), each
series representing interests in the Equity Income Fund; Class K--Series 1
shares (Trust Shares), Class K--Series 2 shares (Retail A Shares), Class
K--Series 3 shares (Retail B Shares), Class K--Series 4 shares (A Prime Shares)
and Class K--Series 5 shares (B Prime Shares), each series representing
interests in the Small Company Equity Fund; Class N--Series 1 shares (Trust
Shares), Class N--Series 2 shares (Retail A Shares), Class N--Series 3 shares
(Retail B Shares), Class N--Series 4 shares (A Prime Shares) and Class N--Series
5 shares (B Prime Shares), each series representing interests in the Asset
Allocation Fund; Class U-- Series 1 shares (Trust Shares), Class U--Series 2
shares (Retail A Shares), Class U--Series 3 shares (Retail B Shares), Class
U--Series 4 shares (A Prime Shares) and Class U--Series 5 shares (B Prime
Shares), each series representing interests in the Growth and Income Fund; Class
X-- Series 1 shares (Trust Shares), Class X--Series 2 shares (Retail A Shares),
Class X--Series 3 shares (Retail B Shares), Class X--Series 4 (A Prime Shares)
and Class X--Series 5 shares (B Prime Shares), each series representing
interests in the Small Cap Value Fund; and Class AA--Series 1 shares (Trust
Shares), Class AA--Series 2 shares (Retail A Shares), Class AA--Series 3 shares
(Retail B Shares), Class AA--
45
<PAGE>
Series 4 shares (A Prime Shares) and Class AA--Series 5 shares (B Prime Shares),
each series representing interests in the Strategic Equity Fund. Each Fund is
classified as a diversified company under the 1940 Act. The Board of Trustees
has also authorized the issuance of additional classes and series of shares
representing interests in other portfolios of Galaxy. For information regarding
the Funds' Trust Shares, A Prime Shares, B Prime Shares and these other
portfolios, which are offered through separate prospectuses, contact FD
Distributors at 1-800-628-0414.
Shares of each series in a Fund bear their pro rata portion of all operating
expenses paid by that Fund except as follows. Holders of a Fund's Retail A
Shares bear the fees that are paid to Institutions under Galaxy's Shareholder
Services Plan described below. Holders of a Fund's Retail B Shares bear the fees
that are paid under Galaxy's Distribution and Services Plan described below.
Holders of A Prime Shares bear the fees that are paid under Galaxy's Shareholder
Services Plan for A Prime Shares. Holders of B Prime Shares bear the fees paid
under Galaxy's Distribution and Services Plan for B Prime Shares. In addition,
shares of each series in a Fund bear differing transfer agency expenses.
Standardized yield and total return quotations are computed separately for each
series of shares. The differences in the expenses paid by the respective series
will affect their performance.
Each share of Galaxy (irrespective of series designation) has a par value of
$.001 per share, represents an equal proportionate interest in the related
investment portfolio with other shares of the same class (irrespective of series
designation), and is entitled to such dividends and distributions out of the
income earned on the assets belonging to such investment portfolio as are
declared in the discretion of Galaxy's Board of Trustees.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and will vote in
the aggregate and not by class or series, except as otherwise expressly required
by law or when the Board of Trustees determines that the matter to be voted on
affects only the interests of shareholders of a particular class or series.
Galaxy is not required under Massachusetts law to hold annual shareholder
meetings and intends to do so only if required by the 1940 Act. Shareholders
have the right to remove Trustees.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to which it intends
to enter into servicing agreements with Institutions (including Fleet Bank and
its affiliates). Pursuant to these servicing agreements, Institutions will
render certain administrative and support services to Customers who are the
beneficial owners of Retail A Shares. Such services will be provided to
Customers who are the beneficial owners of Retail A Shares and are intended to
supplement the services provided by Investor Services Group as administrator and
transfer agent to the shareholders of record of the Retail A Shares. The Plan
provides that Galaxy will pay fees for such services at an annual rate of up to
.50% of the average daily net asset value of Retail A Shares owned beneficially
by Customers. Institutions may receive up to one-half of this fee for providing
one or more of the following services to such Customers: aggregating and
processing purchase and redemption requests and placing net purchase and
redemption orders with FD Distributors; processing dividend payments from a
Fund; providing sub-accounting with respect to Retail A Shares or the
information necessary for sub-accounting; and providing periodic mailings to
Customers. Institutions may also receive up to one-half of this fee for
providing one or more of these additional services to such Customers: providing
Customers with information as to their positions in Retail A Shares; responding
to Customer inquiries; and providing a service to invest the assets of Customers
in Retail A Shares. These services are described more fully in the applicable
Statements of Additional Information under "Shareholder Services Plan."
Although the Shareholder Services Plan has been approved with respect to
both Retail A Shares and Trust Shares of the Funds, as of the date of this
Prospectus, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares of each Fund, and
to limit the payment under these servicing agreements for each Fund to an
aggregate fee of not more than .30% (on an annualized basis) of the average
daily net asset value of the Retail A Shares of the Fund beneficially owned by
Customers of Institutions. Galaxy understands that Institutions may charge fees
to their Customers who are the beneficial owners of Retail A Shares in
connection with their accounts with such Institutions. Any such fees would be in
addition to any amounts which may be received by an Institution under the
Shareholder Services Plan. Under the terms of each servicing agreement entered
into with Galaxy, Institutions are required to provide to their Customers a
schedule of any fees that they may charge in connection with Customer
investments in Retail A Shares.
DISTRIBUTION AND SERVICES PLAN
Galaxy has adopted a Distribution and Services Plan pursuant to Rule 12b-1
under the 1940 Act with respect to Retail B Shares of the Funds. Under the
Distribution and Services Plan, Galaxy may pay (a) FD Distributors or another
person for expenses and activities intended to result in the sale of Retail B
Shares, including the payment of commissions to broker-dealers and other
industry professionals who sell Retail B Shares and the direct or indirect cost
of financing such payments, (b) Institutions for shareholder liaison services,
which means personal services for holders of Retail
46
<PAGE>
B Shares and/or the maintenance of shareholder accounts, such as responding to
customer inquiries and providing information on accounts, and (c) Institutions
for administrative support services, which include but are not limited to (i)
transfer agent and sub-transfer agent services for beneficial owners of Retail B
Shares; (ii) aggregating and processing purchase and redemption orders; (iii)
providing beneficial owners with statements showing their positions in Retail B
Shares; (iv) processing dividend payments; (v) providing sub-accounting services
for Retail B Shares held beneficially; (vi) forwarding shareholder
communications, such as proxies, shareholder reports, dividend and tax notices,
and updating prospectuses to beneficial owners; and (vii) receiving, translating
and transmitting proxies executed by beneficial owners.
Under the Distribution and Services Plan for Retail B Shares, payments by
Galaxy (i) for distribution expenses may not exceed the annualized rate of .65%
of the average daily net assets attributable to each such Fund's outstanding
Retail B Shares, and (ii) to an Institution for shareholder liaison services
and/or administrative support services may not exceed the annual rates of .25%
and .25%, respectively, of the average daily net assets attributable to each
such Fund's outstanding Retail B Shares which are owned of record or
beneficially by that Institution's Customers for whom the Institution is the
dealer of record or shareholder of record or with whom it has a servicing
relationship. As of the date of this Prospectus, Galaxy intends to limit each
Fund's payments for shareholder liaison and administrative support services
under the Plan to an aggregate fee of not more than .30% (on an annualized
basis) of the average daily net asset value of Retail B Shares owned of record
or beneficially by Customers of Institutions.
AGREEMENTS FOR SUB-ACCOUNT SERVICES
Investor Services Group may enter into agreements with one or more entities,
including affiliates of Fleet, pursuant to which such entities agree to perform
certain sub-accounting and administrative functions ("Sub-Account Services") on
a per account basis with respect to Trust Shares of each Fund held by defined
contribution plans, including maintaining records reflecting separately with
respect to each plan participant's sub-account all purchases and redemptions of
Trust Shares and the dollar value of Trust Shares in each sub-account; crediting
to each participant's sub-account all dividends and distributions with respect
to that sub-account; and transmitting to each participant a periodic statement
regarding the sub-account as well as any proxy materials, reports and other
material Fund communications. Such entities are compensated by Investor Services
Group for the Sub-Account Services and in connection therewith the transfer
agency fees payable by Trust Shares of the Funds to Investor Services Group have
been increased by an amount equal to these fees. In substance, therefore, the
holders of Trust Shares of these Funds indirectly bear these fees.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase Manhattan"), located at One Chase Manhattan
Plaza, New York, New York 10081, a wholly-owned subsidiary of The Chase
Manhattan Corporation, serves as the custodian of the Funds' assets. Chase
Manhattan may employ sub-custodians for the Funds for the purpose of providing
custodial services for the Funds' foreign assets held outside the United States.
First Data Investor Services Group, Inc. ("Investor Services Group"), a
wholly-owned subsidiary of First Data Corporation, serves as the Funds' transfer
and dividend disbursing agent. Services performed by these entities for the
Funds are described in the applicable Statements of Additional Information.
Communications to Investor Services Group should be directed to Investor
Services Group at P.O. Box 5108, 4400 Computer Drive, Westboro, Massachusetts
01581.
EXPENSES
Except as noted below, Fleet and Investor Services Group bear all expenses
in connection with the performance of their services for the Funds. Galaxy bears
the expenses incurred in the Funds' operations including: taxes; interest; fees
(including fees paid to its trustees and officers who are not affiliated with
Investor Services Group); SEC fees; state securities fees; costs of preparing
and printing prospectuses for regulatory purposes and for distribution to
existing shareholders; advisory, administration, shareholder servicing, Rule
12b-1 distribution, fund accounting and custody fees; charges of the transfer
agent and dividend disbursing agent; certain insurance premiums; outside
auditing and legal expenses; costs of independent pricing services; costs of
shareholder reports and meetings; and any extraordinary expenses. The Funds also
pay for brokerage fees and commissions in connection with the purchase of
portfolio securities.
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders, the
performance of the Funds may be quoted and compared to that of other mutual
funds with similar investment objectives and to stock or other relevant indices
or to rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
performance of the Funds may be compared to data prepared by Lipper Analytical
47
<PAGE>
Services, Inc., a widely recognized independent service which monitors the
performance of mutual funds, S&P 500, an unmanaged index of groups of common
stocks, the Consumer Price Index, or the Dow Jones Industrial Average, a
recognized unmanaged index of common stocks of 30 industrial companies listed on
the New York Stock Exchange. In addition, the performance of the International
Equity Fund may be compared to the Morgan Stanley Capital International Index or
the FT World Actuaries Index and the performance of the Small Company Equity
Fund and Small Cap Value Fund may be compared to the NASDAQ Composite Index, an
unmanaged index of over-the-counter stock prices.
Performance data as reported in national financial publications including,
but not limited to, MONEY MAGAZINE, FORBES, BARRON'S, THE WALL STREET JOURNAL
and THE NEW YORK TIMES, or publications of a local or regional nature may also
be used in comparing the performance of the Funds. Performance data will be
calculated separately for Trust Shares, Retail A Shares and/or Retail B Shares
of the Funds.
The standard yield is computed by dividing a Fund's average daily net
investment income per share during a 30-day (or one month) base period
identified in the advertisement by the maximum public offering price per share
on the last day of the period, and annualizing the result on a semi-annual
basis. Each Fund may also advertise its "effective yield" which is calculated
similarly but, when annualized, the income earned by an investment in the Fund
is assumed to be reinvested.
The Funds may also advertise their performance using "average annual total
return" figures over various periods of time. Such total return figures reflect
the average percentage change in the value of an investment in a Fund from the
beginning date of the measuring period to the end of the measuring period.
Average total return figures will be given for the most recent one-, five- and
ten-year periods (if applicable), and may be given for other periods as well,
such as from the commencement of a Fund's operations, or on a year-by-year
basis. Each Fund may also use aggregate total return figures for various
periods, representing the cumulative change in the value of an investment in a
Fund for the specified period. Both methods of calculating total return reflect
the maximum front-end sales load for Retail A Shares of the Funds and the
applicable contingent deferred sales charge for Retail B Shares of the Equity
Value, Equity Growth, Small Company Equity, Asset Allocation, Growth and Income
and Strategic Equity Funds and assume that dividends and capital gain
distributions made by a Fund during the period are reinvested in Fund shares.
The Funds may also advertise total return data without reflecting the sales
charges imposed on the purchase of Retail A Shares or the redemption of Retail B
Shares in accordance with the rules of the SEC. Quotations that do not reflect
the sales charges will be higher than quotations that do reflect the sales
charges.
The performance of the Funds will fluctuate and any quotation of performance
should not be considered as representative of the future performance of the
Funds. Since yields fluctuate, yield data cannot necessarily be used to compare
an investment in a Fund's shares with bank deposits, savings accounts and
similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that
performance data are generally functions of the kind and quality of the
instruments held in a portfolio, portfolio maturity, operating expenses, and
market conditions. Any additional fees charged by Institutions with respect to
accounts of Customers that have invested in Retail Shares of a Fund will not be
included in performance calculations.
The portfolio managers of the Funds and other investment professionals may
from time to time discuss in advertising, sales literature or other material,
including periodic publications, various topics of interest to shareholders and
prospective investors. The topics may include but are not limited to the
advantages and disadvantages of investing in tax-deferred and taxable
investments; Fund performance and how such performance may compare to various
market indices; shareholder profiles and hypothetical investor scenarios; the
economy; the financial and capital markets; investment strategies and
techniques; investment products; and tax, retirement and investment planning.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
Funds' investment operations and annual financial statements audited by
independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a majority of the
outstanding shares" of a particular Fund or a particular series of shares in a
Fund means, with respect to the approval of an investment advisory agreement, a
distribution plan or a change in an investment objective or fundamental
investment policy, the affirmative vote of the holders of the lesser of (a) more
than 50% of the outstanding shares of such Fund or such series of shares, or (b)
67% or more of the shares of such Fund or such series of shares present at a
meeting if more than 50% of the outstanding shares of such Fund or such series
of shares are represented at the meeting in person or by proxy.
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.
48
<PAGE>
RETAIL
THE GALAXY FUND
SHORT-TERM BOND FUND
INTERMEDIATE GOVERNMENT INCOME FUND
HIGH QUALITY BOND FUND
PROSPECTUS
NOVEMBER 1, 1998
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS
OR FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING
BY THE FUNDS OR BY FIRST DATA DISTRIBUTORS, INC. IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
HIGHLIGHTS................................................................ 1
EXPENSE SUMMARY........................................................... 3
FINANCIAL HIGHLIGHTS...................................................... 5
INVESTMENT OBJECTIVES AND POLICIES........................................ 9
Short-Term Bond Fund.................................................... 9
Intermediate Government Income Fund..................................... 10
High Quality Bond Fund.................................................. 10
Special Risk Considerations............................................. 11
Other Investment Policies and Risk Considerations....................... 11
INVESTMENT LIMITATIONS.................................................... 17
PRICING OF SHARES......................................................... 17
HOW TO PURCHASE SHARES.................................................... 18
Distributor............................................................. 18
General................................................................. 18
Purchase Procedures--Customers of Institutions.......................... 18
Purchase Procedures--Direct Investors................................... 19
Other Purchase Information.............................................. 19
Applicable Sales Charges--Retail A Shares............................... 20
Quantity Discounts...................................................... 21
Applicable Sales Charges--Retail B Shares............................... 22
Characteristics of Retail A Shares and Retail B Shares.................. 23
Factors to Consider When Selecting Retail A Shares or Retail B Shares... 24
HOW TO REDEEM SHARES...................................................... 24
General................................................................. 24
Redemption Procedures--Customers of Institutions........................ 25
Redemption Procedures--Direct Investors................................. 25
<CAPTION>
PAGE
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<S> <C>
Other Redemption Information............................................ 26
INVESTOR PROGRAMS......................................................... 26
Exchange Privilege...................................................... 26
Retirement Plans........................................................ 27
Automatic Investment Program and Systematic Withdrawal Plan............. 27
Payroll Deduction Program............................................... 28
College Investment Program.............................................. 28
Direct Deposit Program.................................................. 28
INFORMATION SERVICES...................................................... 28
Galaxy Information Center--24 Hour Information Service.................. 28
Voice Response System................................................... 28
Galaxy Shareholder Services............................................. 28
DIVIDENDS AND DISTRIBUTIONS............................................... 29
TAXES..................................................................... 29
Federal................................................................. 29
State and Local......................................................... 30
MANAGEMENT OF THE FUNDS................................................... 30
Investment Adviser...................................................... 30
Authority to Act as Investment Adviser.................................. 30
Administrator........................................................... 31
DESCRIPTION OF GALAXY AND ITS SHARES...................................... 31
Shareholder Services Plan............................................... 32
Distribution and Services Plan.......................................... 32
Agreements for Sub-Account Services..................................... 32
CUSTODIAN AND TRANSFER AGENT.............................................. 33
EXPENSES.................................................................. 33
PERFORMANCE REPORTING..................................................... 33
MISCELLANEOUS............................................................. 34
</TABLE>
<PAGE>
THE GALAXY FUND
4400 Computer Drive For an application and information regarding
Westboro, Massachusetts purchases, redemptions, exchanges and other
01581-5108 shareholder services or for current performance,
call 1-800-628-0414.
The Galaxy Fund ("Galaxy") is an open-end management investment company.
This Prospectus relates to three separate investment portfolios (individually, a
"Fund," collectively, the "Funds") offered to investors by Galaxy. Each Fund has
its own investment objective and policies:
The SHORT-TERM BOND FUND'S investment objective is to seek a high level of
current income consistent with preservation of capital. Under normal market and
economic conditions, the Fund will invest substantially all of its assets in
debt obligations of domestic and foreign issuers rated at the time of purchase
within the four highest rating categories assigned by Standard & Poor's Ratings
Group ("S&P") or Moody's Investors Service, Inc. ("Moody's") (or which, if
unrated, are of comparable quality) and in obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities and "money market"
instruments.
The INTERMEDIATE GOVERNMENT INCOME FUND'S investment objective is to seek
the highest level of current income consistent with prudent risk of capital.
Subject to this objective, the Fund's investment adviser will consider the total
rate of return on portfolio securities in managing the Fund. Under normal market
and economic conditions, the Fund will invest substantially all of its assets in
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, in debt obligations rated at the time of purchase within the
three highest rating categories assigned by S&P or Moody's (or which, if
unrated, are of comparable quality) and in "money market" instruments.
The HIGH QUALITY BOND FUND'S investment objective is to seek a high level of
current income consistent with prudent risk of capital. Under normal market and
economic conditions, the Fund will invest substantially all of its assets in
high quality debt obligations that are rated at the time of purchase within the
three highest rating categories assigned by S&P or Moody's (or which, if
unrated, are of comparable quality) and in obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities and "money market"
instruments.
This Prospectus describes the Retail A Shares and Retail B Shares
representing interests in each Fund (Retail A Shares and Retail B Shares are
referred to herein collectively as "Retail Shares"). Retail A Shares are sold
with a front-end sales charge. Retail B Shares are sold with a contingent
deferred sales charge. Retail Shares are offered to customers ("Customers") of
FIS Securities, Inc., Fleet Securities, Inc., Fleet Enterprises, Inc., Fleet
Financial Group, Inc., its affiliates, their correspondent banks, and other
qualified banks, savings and loan associations and broker/dealers
("Institutions"). Retail Shares may also be purchased directly by individuals,
corporations or other entities, who submit a purchase application to Galaxy,
purchasing either for their own account or for the accounts of others ("Direct
Investors"). Galaxy is also authorized to issue another series of shares in each
Fund: Trust Shares, which are offered under a separate prospectus primarily to
investors maintaining qualified accounts at bank and trust institutions,
including institutions affiliated with Fleet Financial Group, Inc., and to
participants in employer-sponsored defined contribution plans; and A Prime
Shares and B Prime Shares, which are offered under a separate prospectus to
customers of certain third party broker/dealers. Retail A Shares, Retail B
Shares, Trust Shares, A Prime Shares and B Prime Shares in a Fund represent
equal pro rata interests in the Fund, except they bear different expenses which
reflect the difference in the range of services provided to them. See "Financial
Highlights," "Management of the Funds" and "Description of Galaxy and Its
Shares" herein.
Each of the Funds is advised by Fleet Investment Advisors Inc. and sponsored
and distributed by First Data Distributors, Inc., which is not affiliated with
Fleet Investment Advisors Inc. or its parent, Fleet Financial Group, Inc., and
affiliates.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUNDS ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL VARY AS A RESULT OF MARKET CONDITIONS OR OTHER FACTORS SO THAT SHARES
OF THE FUNDS, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL AMOUNT INVESTED.
This Prospectus sets forth concisely the information that prospective
investors should consider before investing. Investors should read this
Prospectus and retain it for future reference. Additional information about the
Funds, contained in the Statement of Additional Information relating to the
Funds and bearing the same date, has been filed with the Securities and Exchange
Commission. The current Statement of Additional Information is available upon
request without charge by contacting Galaxy at its telephone number or address
shown above. The Statement of Additional Information, as it may be amended from
time to time, is incorporated by reference in its entirety into this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
NOVEMBER 1, 1998
<PAGE>
HIGHLIGHTS
Q: WHAT IS THE GALAXY FUND?
A: Galaxy is an open-end management investment company (commonly known as a
mutual fund) that offers investors the opportunity to invest in different
investment portfolios, each having separate investment objectives and policies.
This Prospectus describes Galaxy's SHORT-TERM BOND, INTERMEDIATE GOVERNMENT
INCOME and HIGH QUALITY BOND FUNDS. Prospectuses for Galaxy's MONEY MARKET,
GOVERNMENT, U.S. TREASURY, TAX-EXEMPT, CONNECTICUT MUNICIPAL MONEY MARKET,
MASSACHUSETTS MUNICIPAL MONEY MARKET, INSTITUTIONAL GOVERNMENT MONEY MARKET,
PRIME RESERVES, GOVERNMENT RESERVES, TAX-EXEMPT RESERVES, EQUITY VALUE, EQUITY
GROWTH, EQUITY INCOME, INTERNATIONAL EQUITY, SMALL COMPANY EQUITY, ASSET
ALLOCATION, SMALL CAP VALUE, GROWTH AND INCOME, STRATEGIC EQUITY, CORPORATE
BOND, TAX-EXEMPT BOND, NEW JERSEY MUNICIPAL BOND, NEW YORK MUNICIPAL BOND,
CONNECTICUT MUNICIPAL BOND, MASSACHUSETTS MUNICIPAL BOND and RHODE ISLAND
MUNICIPAL BOND FUNDS may be obtained by calling 1-800-628-0414.
Q: WHO ADVISES THE FUNDS?
A: The Funds are managed by Fleet Investment Advisors Inc. ("Fleet"), an
indirect wholly-owned subsidiary of Fleet Financial Group, Inc. Fleet Financial
Group, Inc. is a financial services company with total assets as of June 30,
1998 of approximately $100.7 billion. See "Management of the Funds--Investment
Adviser."
Q: WHAT ADVANTAGES DO THE FUNDS OFFER?
A: The Funds offer investors the opportunity to invest in a variety of
professionally managed investment portfolios without having to become involved
with the detailed accounting and safekeeping procedures normally associated with
direct investments in securities. The Funds also offer the economic advantages
of block trading in portfolio securities and the availability of a family of
twenty-nine mutual funds should your investment goals change.
Q: HOW CAN I BUY AND REDEEM SHARES?
A: The Funds are distributed by First Data Distributors, Inc. Retail Shares
of the Funds are sold to individuals, corporations or other entities, who submit
a purchase application to Galaxy, purchasing either for their own accounts or
for the accounts of others ("Direct Investors"). Shares may also be purchased on
behalf of Customers of FIS Securities, Inc., Fleet Securities, Inc., Fleet
Enterprises, Inc., Fleet Financial Group, Inc., its affiliates, their
correspondent banks and other qualified banks, savings and loan associations and
broker/dealers ("Institutions"). Retail A Shares of the Funds may be purchased
at their net asset value plus a maximum initial sales charge of 3.75%. Retail A
Shares are currently subject to a shareholder servicing fee of up to .15% of the
average daily net asset value of such Shares. Retail B Shares of the Funds may
be purchased at their net asset value subject to a contingent deferred sales
charge ("CDSC"). The CDSC is paid on certain share redemptions made within six
years of the purchase date at the maximum rate of 5.00% of the lower of (i) the
net asset value of the redeemed shares or (ii) the original purchase price of
the redeemed shares. Retail B Shares are currently subject to shareholder
servicing and distribution fees of up to .80% of the average daily net asset
value of such Shares. Share purchase and redemption information for both Direct
Investors and Customers of Institutions is provided below under "How to Purchase
Shares" and "How to Redeem Shares." Except as provided below under "Investor
Programs," the minimum initial investment for Direct Investors and the minimum
initial aggregate investment for Institutions purchasing on behalf of their
Customers is $2,500. The minimum investment for subsequent purchases is $100.
There are no minimum investment requirements for investors participating in the
Automatic Investment Program described below. Institutions may require Customers
to maintain certain minimum investments in Retail Shares. See "How to Purchase
Shares" below.
Q: WHEN ARE DIVIDENDS PAID?
A: Dividends from net investment income of the Funds are declared daily and
paid monthly. Net realized capital gains of the Funds are distributed at least
annually. Dividends and distributions are paid in cash, although shareholders
may choose to have dividends and distributions automatically reinvested in
additional shares of the same series of shares with respect to which the
dividend or distribution was declared without sales or CDSC charges. See
"Dividends and Distributions."
Q: WHAT POTENTIAL RISKS ARE PRESENTED BY THE FUNDS' INVESTMENT PRACTICES?
A: The Short-Term Bond Fund invests primarily in corporate debt obligations
rated within the four highest rating categories assigned by S&P or Moody's.
Corporate debt obligations rated in the lowest of the four highest rating
categories assigned by Moody's or S&P are considered to have speculative
characteristics, even though they are of investment grade quality. The
Intermediate Government Income and High Quality Bond Funds invest in such
obligations rated within the three highest rating categories assigned by S&P or
Moody's. The Short-Term Bond Fund may invest in the debt obligations of foreign
corporations and banks and in obligations issued or guaranteed by foreign
governments or any of their political subdivisions or instrumentalities. Each
Fund may invest in dollar-denominated debt obligations of U.S. corporations
issued outside the United States. The Funds may lend their securities and enter
into repurchase agreements and reverse repurchase agreements with qualifying
banks and broker/dealers. In addition, each Fund may enter into interest rate
futures contracts. The Funds may purchase eligible securities on a "when-issued"
basis and may purchase or sell securities on a "forward commitment" or "delayed
settlement" basis. In addition, the Funds may acquire "stand-by commitments"
with respect to obligations issued by state or local governmental issuers
("municipal securities") held in
1
<PAGE>
their respective portfolios. The value of the Funds' portfolio securities will
generally vary inversely with changes in prevailing interest rates. See
"Investment Objectives and Policies."
Q: WHAT SHAREHOLDER PRIVILEGES ARE OFFERED BY THE FUNDS?
A: Retail A Shares of a Fund may be exchanged for Retail A Shares of any
other Galaxy portfolio which offers Retail A Shares and for shares of any other
investment portfolio otherwise advised by Fleet or its affiliates. Retail B
Shares of the Funds may be exchanged for Retail B Shares of any other Galaxy
portfolio which offers Retail B Shares. In either case, exchanges are not
subject to additional sales or CDSC charges. Galaxy offers Individual Retirement
Accounts ("IRAs"), Simplified Employee Pension Plans ("SEP") accounts and Keogh
Plan accounts, which can be established by contacting Galaxy's distributor.
Retail Shares are also available for purchase through Multi-Employee Retirement
Plans ("MERP") accounts which can be established by Customers directly with
Fleet Brokerage Securities, Inc. or its affiliates. Galaxy also offers an
Automatic Investment Program which allows investors to automatically invest in
Retail Shares on a monthly or quarterly basis, as well as certain other
shareholder privileges. See "Investor Programs."
2
<PAGE>
EXPENSE SUMMARY
Set forth below is a summary of (i) the shareholder transaction expenses
imposed by each Fund with respect to its Retail A Shares and Retail B Shares,
and (ii) the operating expenses for Retail A Shares and Retail B Shares of each
Fund. SHAREHOLDER TRANSACTION EXPENSES are charges you pay when buying or
selling shares of the Funds. ANNUAL FUND OPERATING EXPENSES are paid out of each
Fund's assets and include fees for portfolio management, maintenance of
shareholder accounts, general Fund administration, accounting and other
services. Examples based on the summary are also shown.
<TABLE>
<CAPTION>
INTERMEDIATE
SHORT-TERM GOVERNMENT HIGH QUALITY
BOND FUND INCOME FUND BOND FUND
--------------------- --------------------- ---------------------
(RETAIL (RETAIL (RETAIL (RETAIL (RETAIL (RETAIL
A SHARES) B SHARES) A SHARES) B SHARES) A SHARES) B SHARES)
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
- ----------------------------------------
Maximum Front End Sales Charge Imposed
on Purchases (as a percentage of
offering price)........................ 3.75%(1) None 3.75%(1) None 3.75%(1) None
Maximum Deferred Sales Charge (as a
percentage of offering price).......... None 5.00%(2) None 5.00%(2) None 5.00%(2)
Sales Charge Imposed on Reinvested
Dividends.............................. None None None None None None
Redemption Fees(3)...................... None None None None None None
Exchange Fees........................... None None None None None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
- ----------------------------------------
Advisory Fees (After Fee Waivers)....... .55% .55% .55% .55% .55% .55%
12b-1 Fees(4)........................... None .80% None .80% None .80%
Other Expenses.......................... .58% .43% .51% .29% .51% .38%
--------- --------- --------- --------- --------- ---------
Total Fund Operating Expenses (After Fee
Waivers)............................... 1.13% 1.78% 1.06% 1.64% 1.06% 1.73%
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
- --------------------------
(1) Reduced front-end sales charges may be available. A deferred sales charge
of up to 1.00% is assessed on certain redemptions of Retail A Shares that
are purchased with no sales charge as part of an investment of $500,000 or
more. See "How to Purchase and Redeem Shares--Applicable Sales
Charges--Retail A Shares."
(2) This amount applies to redemptions during the first year. The charge
decreases to 4.00%, 3.00%, 3.00%, 2.00% and 1.00% for redemptions made
during the second through sixth years, respectively. Retail B Shares
automatically convert to Retail A Shares after six years. See "How to
Purchase and Redeem Shares--Applicable Sales Charge--Retail B Shares."
(3) Direct Investors are charged a $5.00 fee if redemption proceeds are paid by
wire.
(4) Retail A Shares do not currently charge 12b-1 fees. Long-term investors in
Retail B Shares may pay more than the economic equivalent of the maximum
front-end sales charges permitted by the rules of the National Association
of Securities Dealers, Inc.
3
<PAGE>
- --------------------------
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return, and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- -------- -------- ---------
<S> <C> <C> <C> <C>
Short-Term Bond Fund (Retail A
Shares)(1)............................. $49 $72 $ 97 $168
Short-Term Bond Fund (Retail B Shares)
Assuming complete redemption at end of
period(2)............................ $68 $85 $115 $174(3)
Assuming no redemption................ $18 $55 $ 95 $174(3)
Intermediate Government Income Fund
(Retail A Shares)(1)................... $48 $70 $ 93 $160
Intermediate Government Income Fund
(Retail B Shares)
Assuming Complete Redemption at End of
Period(2)............................ $66 $81 $108 $162(3)
Assuming No Redemption................ $16 $51 $ 88 $162(3)
High Quality Bond Fund (Retail A
Shares)(1)............................. $48 $70 $ 93 $160
High Quality Bond Fund (Retail B Shares)
Assuming complete redemption at end of
period(2)............................ $67 $84 $112 $167(3)
Assuming no redemption................ $17 $54 $ 92 $167(3)
</TABLE>
- --------------------------
(1) Assumes deduction at time of purchase of maximum applicable front-end sales
charge.
(2) Assumes deduction of maximum applicable contingent deferred sales charge.
(3) Based on conversion of Retail B Shares to Retail A Shares after six years.
The Expense Summary and Example are intended to assist investors in
understanding the costs and expenses that an investor in Retail A and/or Retail
B Shares of the Funds will bear directly or indirectly. The information
contained in the Expense Summary and Example with respect to Retail A Shares of
each Fund and Retail B Shares of the Short-Term Bond Fund and High Quality Bond
Fund is based on expenses incurred by each Fund during the last fiscal year,
restated to reflect the expenses that each Fund expects to incur during the
current fiscal year on its Retail A and/or Retail B Shares. The information
contained in the expense summary and example with respect to Retail B Shares of
the Intermediate Government Income Fund is based on expenses which the Fund
expects to incur during the current fiscal year on its Retail B Shares. Without
voluntary fee waivers by Fleet, "Advisory Fees" would be .75% and .75% for
Retail A Shares and Retail B Shares, respectively, of the Short-Term Bond Fund,
.75% and .75% for Retail A Shares and Retail B Shares, respectively, of the
Intermediate Government Income Fund and .75% and .75% for Retail A Shares and
Retail B Shares, respectively, of the High Quality Bond Fund, and Total Fund
Operating Expenses would be 1.33% and 1.98% for Retail A Shares and Retail B
Shares, respectively, of the Short-Term Bond Fund, 1.26% and 1.84% for Retail A
Shares and Retail B Shares, respectively, of the Intermediate Government Income
Fund and 1.26% and 1.93% for Retail A Shares and Retail B Shares, respectively,
of the High Quality Bond Fund. Fleet is under no obligation to waive fees and/or
reimburse expenses but has advised Galaxy that it intends to waive fees and/or
reimburse expenses during the current year to the extent necessary to maintain
the Funds' operating expenses at the levels set forth in the above table. For
more complete descriptions of these costs and expenses, see "How to Purchase
Shares," "How to Redeem Shares," "Management of the Funds" and "Description of
Galaxy and Its Shares" in this Prospectus and the financial statements and notes
incorporated by reference into the Statement of Additional Information. Any fees
charged by affiliates of Fleet or other Institutions directly to their Customer
accounts for services related to an investment in Retail Shares of the Funds are
in addition to and not reflected in the fees and expenses described above.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN.
4
<PAGE>
FINANCIAL HIGHLIGHTS
This Prospectus describes Retail A Shares and Retail B Shares in the Funds.
Galaxy is also authorized to issue three additional series of shares in each
Fund ("Trust Shares," "A Prime Shares" and "B Prime Shares"), which are offered
under separate prospectuses. Retail A Shares, Retail B Shares, Trust Shares, A
Prime Shares and B Prime Shares represent equal pro rata interests in each Fund,
except that (i) effective October 1, 1994, Retail A Shares of the Funds bear the
expenses incurred under Galaxy's Shareholder Services Plan for Retail A Shares
at an annual rate of up to .15% of the average daily net asset value of each
Fund's outstanding Retail A Shares, (ii) Retail B Shares of the Funds bear the
expenses incurred under Galaxy's Distribution and Services Plan for Retail B
Shares at an annual rate of up to .80% of the average daily net asset value of
each Fund's outstanding Retail B Shares, (iii) A Prime Shares of the Funds bear
the expenses incurred under Galaxy's Shareholder Services Plan for A Prime
Shares at an annual rate of up to .30% of the average daily net asset value of
each Fund's outstanding A Prime Shares, (iv) B Prime Shares bear the expenses
incurred under Galaxy's Distribution and Services Plan for B Prime Shares at an
annual rate of up to 1.00% of the average daily net asset value of each Fund's
outstanding B Prime Shares, and (v) Retail A Shares, Retail B Shares, Trust
Shares, A Prime Shares and B Prime Shares bear differing transfer agency
expenses.
Except as noted below, the following financial highlights have been audited
by PricewaterhouseCoopers LLP, Galaxy's independent accountants, whose
unqualified report on the financial statements containing such information for
each of the years or periods in the five-year period ended October 31, 1997 is
contained in Galaxy's Annual Report to Shareholders relating to the Funds dated
October 31, 1997 and incorporated herein by reference into the statement of
additional information. Such financial highlights should be read in conjunction
with the financial statements and notes thereto contained in the annual and
semi-annual reports to shareholders relating to the funds dated October 31, 1997
and April 30, 1998, respectively, and incorporated by reference into the
Statement of Additional Information. Information in the financial highlights for
periods prior to the fiscal year ended October 31, 1994 reflect the investment
results of both Retail A Shares and Trust Shares of the Funds (Retail A Shares
of the Intermediate Government Income Fund were first offered during the fiscal
year ended October 31, 1992). More information about the performance of the
Funds is also contained in the Annual and semi-annual reports, which may be
obtained without charge by contacting Galaxy at its telephone number or address
provided above. During the periods shown, Retail B shares of the Intermediate
Government Income Fund were not offered to investors.
5
<PAGE>
SHORT-TERM BOND FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
SIX MONTHS ENDED -----------------------------------------------
APRIL 30, 1998
(UNAUDITED) 1997 1996
--------------------- ---------------------- ----------------------
RETAIL RETAIL RETAIL RETAIL RETAIL RETAIL
A SHARES B SHARES A SHARES B SHARES(3) A SHARES B SHARES(3)
-------- -------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 10.01 $10.01 $ 9.99 $ 9.99 $ 10.06 $ 10.09
-------- -------- -------- ----------- -------- -----------
Income from Investment Operations:
Net investment income(4,5)............ 0.24 0.21 0.53 0.46 0.52 0.31
Net realized and unrealized gain
(loss) on investments................ (0.04) (0.04) 0.02 0.03 (0.07) (0.10)
-------- -------- -------- ----------- -------- -----------
Total from Investment
Operations:...................... 0.20 0.17 0.55 0.49 0.45 0.21
-------- -------- -------- ----------- -------- -----------
Less Dividends:
Dividends from net investment
income............................... (0.24) (0.21) (0.53) (0.47) (0.52) (0.31)
Dividends from net realized capital
gains................................ -- -- -- -- -- --
Dividends in excess of net realized
capital gains........................ -- -- -- -- -- --
-------- -------- -------- ----------- -------- -----------
Total Dividends................... (0.24) (0.21) (0.53) (0.47) (0.52) (0.31)
-------- -------- -------- ----------- -------- -----------
Net increase (decrease) in net asset
value.................................. (0.04) (0.04) 0.02 0.02 (0.07) (0.10)
-------- -------- -------- ----------- -------- -----------
Net Asset Value, End of Period.......... $ 9.97 $ 9.97 $ 10.01 $10.01 $ 9.99 $ 9.99
-------- -------- -------- ----------- -------- -----------
-------- -------- -------- ----------- -------- -----------
Total Return(6)......................... 2.45%(7) 2.13%(7) 5.64% 4.99% 4.63% 2.12%(7)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)....... $27,139 $1,014 $27,961 $ 905 $33,388 $ 260
Ratios to average net assets:
Net investment income including
reimbursement/waiver................. 5.68%(8) 5.01%(8) 5.29% 4.56% 5.22% 4.73%
Operating expenses including
reimbursement/waiver................. 1.10%(8) 1.78%(8) 1.00% 1.75% 1.11% 1.77%(8)
Operating expenses excluding
reimbursement/waiver................. 1.30%(8) 1.99%(8) 1.21% 2.01% 1.35% 1.98%(8)
Portfolio Turnover Rate................. 73%(7) 73% 173% 173% 214% 214%
<CAPTION>
PERIOD ENDED
OCTOBER 31,
1995 1994
-------- --------
RETAIL SHARES 1993(2) 1992(1,2)
------------------- -------- ------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 9.73 $ 10.30 $ 10.09 $ 10.00
-------- -------- -------- ------------
Income from Investment Operations:
Net investment income(4,5)............ 0.55 0.44 0.47 0.42
Net realized and unrealized gain
(loss) on investments................ 0.33 (0.51) 0.22 0.09
-------- -------- -------- ------------
Total from Investment
Operations:...................... 0.88 (0.07) 0.69 0.51
-------- -------- -------- ------------
Less Dividends:
Dividends from net investment
income............................... (0.55) (0.44) (0.47) (0.42)
Dividends from net realized capital
gains................................ -- -- (0.01) --
Dividends in excess of net realized
capital gains........................ -- (0.06) -- --
-------- -------- -------- ------------
Total Dividends................... (0.55) (0.50) (0.48) (0.42)
-------- -------- -------- ------------
Net increase (decrease) in net asset
value.................................. 0.33 (0.57) 0.21 0.09
-------- -------- -------- ------------
Net Asset Value, End of Period.......... $ 10.06 $ 9.73 $ 10.30 $ 10.09
-------- -------- -------- ------------
-------- -------- -------- ------------
Total Return(6)......................... 9.28% (0.68)% 6.98% 5.21%(7)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)....... $ 31,542 $ 34,061 $ 85,211 $57,403
Ratios to average net assets:
Net investment income including
reimbursement/waiver................. 5.54% 4.43% 4.51% 5.77%(8)
Operating expenses including
reimbursement/waiver................. 0.99% 0.93% 0.86% 0.90%(8)
Operating expenses excluding
reimbursement/waiver................. 1.32% 1.14% 1.06% 1.20%(8)
Portfolio Turnover Rate................. 289% 233% 100% 114%(7)
</TABLE>
- --------------------------
(1) The Fund commenced operations on December 30, 1991.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Retail and Trust
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) The Fund began offering Retail B Shares on March 4, 1996.
(4) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or Fund's administrator for (i) Retail A Shares for the six
months ended April 30, 1998 (unaudited), the year ended October 31, 1997,
1996, 1995 and 1994 was $0.24, $0.51, $0.50, $0.52 and $0.42, respectively,
and for (ii) Retail B Shares for the six months ended April 30, 1998
(unaudited), the year ended October 31, 1997 and for the period ended
October 31, 1996 was $0.20, $0.44 and $0.29, respectively.
(5) Net investment income per share before reimbursement/waiver of fee by Fleet
and/or the Fund's administrator for the year ended October 31, 1993 and for
the period ended October 31, 1992 was $0.45 and $0.40, respectively.
(6) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares.
(7) Not Annualized.
(8) Annualized.
6
<PAGE>
INTERMEDIATE GOVERNMENT INCOME FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, -----------------------------------------
1998
(UNAUDITED) 1997 1996 1995 1994 YEAR ENDED OCTOBER
----------- -------- -------- -------- -------- 31,(2)
RETAIL RETAIL RETAIL RETAIL RETAIL ---------------------
A SHARES A SHARES A SHARES A SHARES A SHARES 1993 1992
----------- -------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 10.18 $ 10.06 $ 10.28 $ 9.68 $ 10.72 $ 10.83 $ 10.46
----------- -------- -------- -------- -------- --------- ---------
Income from Investment Operations:
Net investment income(3,4)............ 0.31 0.59 0.57 0.61 0.57 0.65 0.71
Net realized and unrealized gain
(loss) on investments................ (0.03) 0.12 (0.22) 0.60 (1.03) 0.10 0.40
----------- -------- -------- -------- -------- --------- ---------
Total from Investment
Operations:...................... 0.28 0.71 0.35 1.21 (0.46) 0.75 1.11
----------- -------- -------- -------- -------- --------- ---------
Less Dividends:
Dividends from net investment
income............................... (0.31) (0.59) (0.57) (0.61) (0.56) (0.64) (0.74)
Dividends in excess of net investment
income............................... -- -- -- -- (0.01) (0.03) --
Dividends from net realized capital
gains................................ -- -- -- -- -- (0.19) --
Dividends in excess of net realized
capital gains........................ -- -- -- -- (0.01) -- --
----------- -------- -------- -------- -------- --------- ---------
Total Dividends................... (0.31) (0.59) (0.57) (0.61) (0.58) (0.86) (0.74)
----------- -------- -------- -------- -------- --------- ---------
Net increase (decrease) in net asset
value.................................. (0.03) 0.12 (0.22) 0.60 (1.04) (0.11) 0.37
----------- -------- -------- -------- -------- --------- ---------
Net Asset Value, End of Period.......... $ 10.15 $ 10.18 $ 10.06 $ 10.28 $ 9.68 $ 10.72 $ 10.83
----------- -------- -------- -------- -------- --------- ---------
----------- -------- -------- -------- -------- --------- ---------
Total Return(5)......................... 2.83%(6) 7.33% 3.58% 12.85% (4.42)% 7.06% 10.95%
Ratios/Supplemental Data:
Net Assets, End of Period (000's)..... $64,328 $65,626 $79,741 $79,558 $94,669 $ 447,359 $ 199,135
Ratios to average net assets:
Net investment income including
reimbursement/waiver................. 6.22%(7) 5.90% 5.69% 6.10% 5.58% 6.03% 6.52%
Operating expenses including
reimbursement/waiver................. 1.02%(7) 1.02% 1.04% 1.02% 0.78% 0.80% 0.80%
Operating expenses excluding
reimbursement/waiver................. 1.22%(7) 1.22% 1.24% 1.26% 0.99% 1.00% 0.94%
Portfolio Turnover Rate................. 118%(6) 128% 235% 145% 124% 153% 103%
<CAPTION>
PERIOD ENDED
OCTOBER 31,
1991 1990 1989 1988(1,2)
-------- -------- -------- ------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 9.73 $ 10.27 $ 10.40 $ 10.00
-------- -------- -------- ------------
Income from Investment Operations:
Net investment income(3,4)............ 0.73 0.76 0.82 0.11
Net realized and unrealized gain
(loss) on investments................ 0.71 (0.56) 0.16 0.29
-------- -------- -------- ------------
Total from Investment
Operations:...................... 1.44 0.20 0.98 0.40
-------- -------- -------- ------------
Less Dividends:
Dividends from net investment
income............................... (0.71) (0.74) (0.96) --
Dividends in excess of net investment
income............................... -- -- -- --
Dividends from net realized capital
gains................................ -- -- (0.15) --
Dividends in excess of net realized
capital gains........................ -- -- -- --
-------- -------- -------- ------------
Total Dividends................... (0.71) (0.74) (1.11) --
-------- -------- -------- ------------
Net increase (decrease) in net asset
value.................................. 0.73 (0.54) (0.13) 0.40
-------- -------- -------- ------------
Net Asset Value, End of Period.......... $ 10.46 $ 9.73 $ 10.27 $ 10.40
-------- -------- -------- ------------
-------- -------- -------- ------------
Total Return(5)......................... 15.35% 2.06% 10.22% 3.90%(6)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)..... $ 99,942 $ 80,645 $ 71,400 $58,318
Ratios to average net assets:
Net investment income including
reimbursement/waiver................. 7.25% 7.69% 8.19% 6.41%(7)
Operating expenses including
reimbursement/waiver................. 0.96% 0.98% 0.99% 0.98%(7)
Operating expenses excluding
reimbursement/waiver................. 0.96% 0.99% 1.00% 0.98%(7)
Portfolio Turnover Rate................. 150% 162% 112% 41%(6)
</TABLE>
- --------------------------
(1) The Fund (formerly called the Intermediate Bond Fund) commenced operations
on September 1, 1988.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Retail and Trust
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for Retail A Shares for the six
months ended April 30, 1998 (unaudited), the year ended October 31, 1997,
1996, 1995 and 1994 was $0.28, $0.57, $0.55, $0.58 and $0.54, respectively.
(4) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for Retail A Shares for the years
ended October 31, 1993, 1992, 1991, 1990 and 1989 and for the period ended
October 31, 1988 was $0.63, $0.70, $0.73, $0.73, $0.82 and $0.11
respectively.
(5) Calculation does not include the effect of any sales charge for Retail A
Shares.
(6) Not Annualized.
(7) Annualized.
7
<PAGE>
HIGH QUALITY BOND FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30, 1998 YEAR ENDED YEAR ENDED
(UNAUDITED) OCTOBER 31, 1997 OCTOBER 31, 1996
--------------------- ---------------------- ----------------------
RETAIL RETAIL RETAIL RETAIL RETAIL RETAIL
A SHARES B SHARES A SHARES B SHARES(3) A SHARES B SHARES(3)
-------- -------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 10.70 $ 10.70 $ 10.47 $ 10.47 $ 10.63 $10.72
-------- -------- -------- ----------- -------- -----------
Income from Investment Operations:
Net investment income(4,5)............ 0.29 0.26 0.60 0.53 0.59 0.36
Net realized and unrealized gain
(loss) on investments................ 0.05 0.05 0.23 0.24 (0.16) (0.25)
-------- -------- -------- ----------- -------- -----------
Total from Investment
Operations:...................... 0.34 0.31 0.83 0.77 0.43 0.11
-------- -------- -------- ----------- -------- -----------
Less Dividends:
Dividends from net investment
income............................... (0.29) (0.26) (0.60) (0.54) (0.59) (0.36)
Dividends from net realized capital
gains................................ -- -- -- -- -- --
Dividends in excess of net realized
capital gains........................ -- -- -- -- -- --
-------- -------- -------- ----------- -------- -----------
Total Dividends................... (0.29) (0.26) (0.60) (0.54) (0.59) (0.36)
-------- -------- -------- ----------- -------- -----------
Net increase (decrease) in net asset
value.................................. 0.05 0.05 0.23 0.23 (0.16) (0.25)
-------- -------- -------- ----------- -------- -----------
Net Asset Value, End of Period.......... $ 10.75 $ 10.75 $ 10.70 $ 10.70 $ 10.47 $10.47
-------- -------- -------- ----------- -------- -----------
-------- -------- -------- ----------- -------- -----------
Total Return(6)......................... 3.22%(7) 2.95%(7) 8.22% 7.59% 4.24% 1.14%(7)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)....... $ 35,339 $ 3,385 $ 27,950 $ 1,998 $ 30,984 $ 646
Ratios to average net assets:
Net investment income including
reimbursement/waiver................. 5.42%(8) 4.78%(8) 5.73% 5.07% 5.66% 5.34%(8)
Operating expenses including
reimbursement/waiver................. 1.02%(8) 1.63%(8) 1.01% 1.69% 1.07% 1.60%(8)
Operating expenses excluding
reimbursement/waiver................. 1.22%(8) 1.83%(8) 1.21% 1.95% 1.28% 1.81%(8)
Portfolio Turnover Rate................. 149%(7) 149%(7) 182% 182% 163% 163%
<CAPTION>
YEAR ENDED OCTOBER 31,(2) PERIOD ENDED
-------------------------------------------- OCTOBER 31,
1995 1994
-------- --------
RETAIL SHARES 1993 1992 1991(1,2)
------------------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 9.54 $ 11.37 $ 10.60 $ 10.35 $ 10.00
-------- -------- --------- --------- ------------
Income from Investment Operations:
Net investment income(4,5)............ 0.62 0.64 0.66 0.68 0.64
Net realized and unrealized gain
(loss) on investments................ 1.09 (1.56) 0.93 0.36 0.33
-------- -------- --------- --------- ------------
Total from Investment
Operations:...................... 1.71 (0.92) 1.59 1.04 0.97
-------- -------- --------- --------- ------------
Less Dividends:
Dividends from net investment
income............................... (0.62) (0.64) (0.66) (0.71) (0.62)
Dividends from net realized capital
gains................................ -- -- (0.16) (0.08) --
Dividends in excess of net realized
capital gains........................ -- (0.27) -- -- --
-------- -------- --------- --------- ------------
Total Dividends................... (0.62) (0.91) (0.82) (0.79) (0.62)
-------- -------- --------- --------- ------------
Net increase (decrease) in net asset
value.................................. 1.09 (1.83) 0.77 0.25 0.35
-------- -------- --------- --------- ------------
Net Asset Value, End of Period.......... $ 10.63 $ 9.54 $ 11.37 $ 10.60 $ 10.35
-------- -------- --------- --------- ------------
-------- -------- --------- --------- ------------
Total Return(6)......................... 18.46% (8.41)% 15.63% 10.32% 10.04%(7)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)....... $ 30,093 $ 26,654 $ 162,594 $ 108,774 $57,580
Ratios to average net assets:
Net investment income including
reimbursement/waiver................. 6.16% 6.25% 5.98% 6.55% 7.25%(6)
Operating expenses including
reimbursement/waiver................. 1.02% 0.81% 0.76% 0.87% 0.95%(8)
Operating expenses excluding
reimbursement/waiver................. 1.26% 1.02% 0.96% 0.94% 0.95%(8)
Portfolio Turnover Rate................. 110% 108% 128% 121% 145%(7)
</TABLE>
- --------------------------
(1) The Fund commenced operations on December 14, 1990.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Retail and Trust
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) The Fund began offering Retail B Shares on March 4, 1996.
(4) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for (i) Retail A Shares for the six
months ended April 30, 1998 (unaudited), the year ended October 31, 1997,
1996, 1995 and 1994 was $0.28, $0.58, $0.57, $0.59 and $0.62, respectively,
for (ii) Retail B Shares for the six months ended April 30, 1998, the year
ended October 31, 1997 and for the period ended October 31, 1996 was $0.25,
$0.51 and $0.34, respectively.
(5) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for the years ended October 31, 1993
and 1992 and for the period ended October 31, 1991 was $0.63, $0.67 and
$0.64, respectively.
(6) Calculation does not include the effect of any sales charge for Retail A
and Retail B Shares.
(7) Not Annualized.
(8) Annualized.
8
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Fleet Investment Advisors Inc. ("Fleet") will use its best efforts to
achieve each Fund's investment objective, although such achievement cannot be
assured. The investment objective of a Fund may not be changed without the
approval of the holders of a majority of its outstanding shares (as defined
under "Miscellaneous"). Except as noted below under "Investment Limitations," a
Fund's investment policies may be changed without shareholder approval. An
investor should not consider an investment in the Funds to be a complete
investment program.
SHORT-TERM BOND FUND
The Short-Term Bond Fund's investment objective is to seek a high level of
current income consistent with preservation of capital. The Fund will invest
substantially all of its assets in debt obligations of domestic and foreign
corporations such as bonds and debentures, obligations convertible into common
stock, "money market" instruments such as bank obligations and commercial paper,
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, and asset-backed and mortgage-backed securities. The Fund may
also invest, from time to time, in municipal securities. The purchase of
municipal securities may be advantageous when, as a result of prevailing
economic, regulatory or other circumstances, the performance of such securities,
on a pre-tax basis, is comparable to that of corporate or U.S. Government debt
obligations. The Fund may also enter into interest rate futures contracts to
hedge against changes in market values. See "Other Investment Policies and Risk
Considerations." Under normal market and economic conditions, at least 65% of
the Fund's total assets will be invested in bonds and debentures, subject to the
quality standards described below. The Fund will not invest in common stock, and
any common stock received through the conversion of convertible debt obligations
will be sold in an orderly manner as soon as possible.
Under normal market and economic conditions, the Fund will invest
substantially all of its assets in debt obligations rated at the time of
purchase within the four highest rating categories assigned by S&P ("AAA," "AA,"
"A" and "BBB") or Moody's ("Aaa," "Aa," "A" and "Baa") (or which, if unrated,
are determined by Fleet to be of comparable quality) and in obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities and
"money market" instruments such as those listed below under "Other Investment
Policies." Debt obligations rated within the four highest rating categories
assigned by S&P or Moody's are considered to be investment grade. Debt
obligations rated in the lowest of the four highest rating categories assigned
by S&P or Moody's are considered to have speculative characteristics, even
though they are of investment grade quality, and changes in economic conditions
or other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade debt
obligations. Under normal market and economic conditions, at least 65% of the
Fund's total assets will be invested in debt obligations rated in the three
highest rating categories assigned by S&P or Moody's. Unrated securities will be
determined to be of comparable quality to rated debt obligations if, among other
things, other outstanding obligations of the issuers of such securities are
rated BBB/Baa or better. When, in the opinion of Fleet, a defensive investment
posture is warranted, the Fund may invest temporarily and without limitation in
high quality, short-term money market instruments. See Appendix A to the
Statement of Additional Information for a description of S&P's and Moody's
rating categories.
In addition, the Fund may invest in obligations of foreign banks and in
obligations issued or guaranteed by foreign governments or any of their
political subdivisions or instrumentalities. Such obligations include debt
obligations issued by Canadian Provincial Governments, which are similar to U.S.
municipal securities except that the income derived therefrom is fully subject
to U.S. federal taxation. These instruments are denominated in either Canadian
or U.S. dollars and have an established over-the-counter market in the United
States. Also included are debt obligations of supranational entities.
Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples of these include the International Bank for Reconstruction
and Development ("World Bank"), the Asian Development Bank and the InterAmerican
Development Bank. Obligations of supranational entities may be supported by
appropriated but unpaid commitments of their member countries, and there is no
assurance that these commitments will be undertaken or met in the future. The
Fund may not invest more than 35% of its total assets in the securities of
foreign issuers. The Fund may also invest in dollar-denominated debt obligations
of U.S. corporations issued outside the United States.
Under normal conditions the Fund's portfolio securities will have an average
weighted maturity of less than three years.
The value of the Fund's portfolio securities will generally vary inversely
with changes in prevailing interest rates. See "Other Investment Policies and
Risk Considerations" below for information regarding additional investment
policies of the Short-Term Bond Fund.
9
<PAGE>
INTERMEDIATE GOVERNMENT INCOME FUND
The Intermediate Government Income Fund's investment objective is to seek
the highest level of current income consistent with prudent risk of capital.
Subject to this objective, Fleet will consider the total rate of return on
securities in managing the Fund. The Fund will invest in obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, in
corporate debt obligations such as bonds and debentures, obligations convertible
into common stock and "money market" instruments, such as bank obligations and
commercial paper, and in asset-backed and mortgage-backed securities. The Fund
may also invest, from time to time, in municipal securities. See "Investment
Objectives and Policies--Short-Term Bond Fund." The Fund may also enter into
interest rate futures contracts to hedge against changes in market values. See
"Other Investment Policies and Risk Considerations." The Fund will not invest in
common stock, and any common stock received through the conversion of
convertible debt obligations will be sold in an orderly manner as soon as
possible.
Under normal market and economic conditions, the Fund will invest
substantially all of its assets in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, in debt obligations rated, at the
time of purchase, within the three highest rating categories assigned by S&P
("AAA," "AA" and "A") or Moody's ("Aaa," "Aa" and "A") (or which, if unrated,
are determined by Fleet to be of comparable quality) and "money market"
instruments such as those listed below under "Other Investment Policies and Risk
Considerations." Unrated securities will be determined to be of comparable
quality to rated debt obligations if, among other things, other outstanding
obligations of the issuers of such securities are rated A or better.
Notwithstanding the foregoing, under normal market and economic conditions, at
least 65% of the Fund's assets will be invested in obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities. When, in
the opinion of Fleet, a defensive investment posture is warranted, the Fund may
invest temporarily and without limitation in high quality, short-term "money
market" instruments. See Appendix A to the Statement of Additional Information
for a description of S&P's and Moody's rating categories.
In addition, the Fund may invest in obligations issued by Canadian
Provincial Governments and in debt obligations of supranational entities. See
"Investment Objectives and Policies--Short-Term Bond Fund." The Fund may also
invest in dollar-denominated high quality debt obligations of U.S. corporations
issued outside the United States.
Fleet expects that under normal market conditions the Fund's portfolio
securities will have an average weighted maturity of three to ten years.
The value of the Fund's portfolio securities will generally vary inversely
with changes in prevailing interest rates. See "Other Investment Policies and
Risk Considerations" below for information regarding additional investment
policies of the Intermediate Government Income Fund.
HIGH QUALITY BOND FUND
The High Quality Bond Fund's investment objective is to seek a high level of
current income consistent with prudent risk of capital. The Fund will invest
substantially all of its assets in debt obligations such as bonds and
debentures, obligations convertible into common stock, "money market"
instruments such as bank obligations and commercial paper, obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, and
asset-backed and mortgage-backed securities. The Fund may also invest, from time
to time, in municipal securities. See "Investment Objectives and
Policies--Short-Term Bond Fund." The Fund may also enter into interest rate
futures contracts to hedge against changes in the market values of fixed income
instruments that the Fund holds or intends to purchase. See "Other Investment
Policies and Risk Considerations." At least 65% of the Fund's total assets will
be invested in non-convertible bonds. Any common stock received through the
conversion of convertible debt obligations will be sold in an orderly manner as
soon as possible.
Under normal market and economic conditions, the Fund will invest
substantially all of its assets in high quality debt obligations that are rated,
at the time of purchase, within the three highest rating categories assigned by
S&P ("AAA," "AA" and "A") or Moody's ("Aaa," "Aa" and "A") (or which, if
unrated, are determined by Fleet to be of comparable quality) and in obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities
and "money market" instruments such as those listed below under "Other
Investment Policies and Risk Considerations." Unrated securities will be
determined to be of comparable quality to high quality debt obligations if,
among other things, other outstanding obligations of the issuers of such
securities are rated A or better. When, in the opinion of Fleet, a defensive
investment posture is warranted, the Fund may invest temporarily and without
limitation in high quality, short-term "money market" instruments. See Appendix
A to the Statement of Additional Information for a description of S&P's and
Moody's rating categories.
In addition, the Fund may invest in obligations issued by Canadian
Provincial Governments and in debt obligations of supranational entities. See
"Investment Objectives and Policies--Short-Term Bond Fund." The Fund may also
invest in dollar-denominated high quality debt obligations of U.S. corporations
issued outside the United States.
The Fund seeks to provide a current yield greater than that generally
available from a portfolio of high quality short-term obligations. The Fund's
average weighted maturity will vary from time to time depending on, among other
things, current market and economic conditions and the comparative
10
<PAGE>
yields on instruments with different maturities. The Fund adjusts its average
weighted maturity and its holdings of corporate and U.S. Government debt
securities in a manner consistent with Fleet's assessment of prospective changes
in interest rates. The success of this strategy depends upon Fleet's ability to
predict changes in interest rates.
The value of the Fund's portfolio securities will generally vary inversely
with changes in prevailing interest rates. The high quality credit criteria
applied to the selection of portfolio securities are intended to reduce adverse
price changes due to credit considerations. See "Other Investment Policies and
Risk Considerations" below for information regarding additional investment
policies of the High Quality Bond Fund.
SPECIAL RISK CONSIDERATIONS
Investments by the Short-Term Bond Fund in foreign securities may involve
higher costs than investments in U.S. securities, including higher transaction
costs, as well as the imposition of additional taxes by foreign governments. In
addition, foreign investments may include additional risks associated with
currency exchange rates, less complete financial information about the issuers,
less market liquidity, and political instability. Future political and economic
developments, the possible imposition of withholding taxes on interest income,
the possible seizure or nationalization of foreign holdings, the possible
establishment of exchange controls, or the adoption of other governmental
restrictions, might adversely affect the payment of principal and interest on
foreign obligations.
Although the Short-Term Bond Fund may invest in securities denominated in
foreign currencies, the Fund values its securities and other assets in U.S.
dollars. As a result, the net asset value of the Fund's shares may fluctuate
with U.S. dollar exchange rates as well as with price changes of the Fund's
foreign securities in the various local markets and currencies. Thus, an
increase in the value of the U.S. dollar compared to the currencies in which the
Fund makes its foreign investments could reduce the effect of increases and
magnify the effect of decreases in the price of the Fund's foreign securities in
their local markets. Conversely, a decrease in the value of the U.S. dollar will
have the opposite effect of magnifying the effect of increases and reducing the
effect of decreases in the prices of the Fund's foreign securities in their
local markets. In addition to favorable and unfavorable currency exchange rate
developments, the Fund is subject to the possible imposition of exchange control
regulations or freezes on convertibility of currency.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in this Prospectus are among those which one or
more of the Funds have the power to utilize. Some may be employed on a regular
basis; others may not be used at all. Accordingly, reference to any particular
method or technique carries no implication that it will be utilized or, if it
is, that it will be successful.
U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS
Each Fund may, in accordance with its investment policies, invest from time
to time in obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities and in "money market" instruments, including bank
obligations and commercial paper.
Obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities include U.S. Treasury securities which differ only in their
interest rates, maturities and time of issuance: Treasury Bills have initial
maturities of one year or less; Treasury Notes have initial maturities of one to
ten years; and Treasury Bonds generally have initial maturities of more than ten
years. Obligations of certain agencies and instrumentalities of the U.S.
Government, such as those of the Government National Mortgage Association, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal Home Loan Banks, are supported by the right of the issuer
to borrow from the Treasury; others, such as those of the Federal National
Mortgage Association, are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; still others, such as those of
the Federal Home Loan Mortgage Corporation, are supported only by the credit of
the instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored instrumentalities if it
is not obligated to do so by law. Some of these instruments may be variable or
floating rate instruments.
Bank obligations include bankers' acceptances, negotiable certificates of
deposit, and non-negotiable time deposits issued for a definite period of time
and earning a specified return by a U.S. bank which is a member of the Federal
Reserve System or is insured by the Federal Deposit Insurance Corporation
("FDIC"), or by a savings and loan association or savings bank which is insured
by the FDIC. Bank obligations also include U.S. dollar-denominated obligations
of foreign branches of U.S. banks or of U.S. branches of foreign banks, all of
the same type as domestic bank obligations. Investments in bank obligations are
limited to the obligations of financial institutions having more than $1 billion
in total assets at the time of purchase.
11
<PAGE>
Domestic and foreign banks are subject to extensive but different government
regulation which may limit the amount and types of their loans and the interest
rates that may be charged. In addition, the profitability of the banking
industry is largely dependent upon the availability and cost of funds to finance
lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and of U.S.
branches of foreign banks may subject a Fund to additional risks, including
future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. In addition, foreign
branches of U.S. banks and U.S. branches of foreign banks may be subject to less
stringent reserve requirements and to different accounting, auditing, reporting,
and recordkeeping standards than those applicable to domestic branches of U.S.
banks. The Funds will invest in the obligations of U.S. branches of foreign
banks or foreign branches of U.S. banks only when Fleet believes that the credit
risk with respect to the instrument is minimal.
Commercial paper may include variable and floating rate instruments which
are unsecured instruments that permit the indebtedness thereunder to vary.
Variable rate instruments provide for periodic adjustments in the interest rate.
Floating rate instruments provide for automatic adjustment of the interest rate
whenever some other specified interest rate changes. Some variable and floating
rate obligations are direct lending arrangements between the purchaser and the
issuer and there may be no active secondary market. However, in the case of
variable and floating rate obligations with a demand feature, a Fund may demand
payment of principal and accrued interest at a time specified in the instrument
or may resell the instrument to a third party. In the event that an issuer of a
variable or floating rate obligation defaulted on its payment obligation, a Fund
might be unable to dispose of the note because of the absence of a secondary
market and could, for this or other reasons, suffer a loss to the extent of the
default. The Funds may also purchase Rule 144A securities. See "Investment
Limitations."
TYPES OF MUNICIPAL SECURITIES
The two principal classifications of municipal securities which may be held
by the Funds are "general obligation" securities and "revenue" securities.
General obligation securities are secured by the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest.
Revenue securities are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source such as the user of the
facility being financed. Private activity bonds held by the Funds are in most
cases revenue securities and are not payable from the unrestricted revenues of
the issuer. Consequently, the credit quality of such private activity bonds is
usually directly related to the credit standing of the corporate user of the
facility involved.
Each Fund's portfolio may also include "moral obligation" securities, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation securities is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.
Opinions relating to the validity of municipal securities and to the
exemption of interest thereon from regular federal income tax are rendered by
bond counsel to the respective issuers at the time of issuance. Neither the
Funds nor Fleet will review the proceedings relating to the issuance of
municipal securities or the bases for such opinions.
VARIABLE AND FLOATING RATE MUNICIPAL SECURITIES
Municipal securities purchased by the Funds may include rated and unrated
variable and floating rate tax-exempt instruments. There may be no active
secondary market with respect to a particular variable or floating rate
instrument. Nevertheless, the periodic readjustments of their interest rates
tend to assure that their value to a Fund will approximate their par value.
Illiquid variable and floating rate instruments (instruments which are not
payable upon seven days' notice and do not have an active trading market) that
are acquired by the Funds are subject to the 10% limit described in Investment
Limitation No. 3 under "Investment Limitations" in this Prospectus.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
Each Fund may purchase portfolio securities subject to the seller's
agreement to repurchase them at a mutually specified date and price ("repurchase
agreements"). Repurchase agreements will be entered into only with financial
institutions such as banks and broker/dealers which are deemed to be
creditworthy by Fleet under guidelines approved by Galaxy's Board of Trustees.
No Fund will enter into repurchase agreements with Fleet or any of its
affiliates.
12
<PAGE>
Unless a repurchase agreement has a remaining maturity of seven days or less or
may be terminated on demand by notice of seven days or less, the repurchase
agreement will be considered an illiquid security and will be subject to the 10%
limit described in Investment Limitation No. 3 under "Investment Limitations" in
this Prospectus.
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by a Fund at
not less than the agreed upon repurchase price. If the seller defaulted on its
repurchase obligation, the Fund holding such obligation would suffer a loss to
the extent that the proceeds from a sale of the underlying securities (including
accrued interest) were less than the repurchase price (including accrued
interest) under the agreement. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the Fund
might be delayed pending court action.
Each Fund may also borrow funds for temporary purposes by selling portfolio
securities to financial institutions such as banks and broker/dealers and
agreeing to repurchase them at a mutually specified date and price ("reverse
repurchase agreements"). Reverse repurchase agreements involve the risk that the
market value of the securities sold by a Fund may decline below the repurchase
price. A Fund would pay interest on amounts obtained pursuant to a reverse
repurchase agreement.
SECURITIES LENDING
Each Fund may lend its portfolio securities to financial institutions such
as banks and broker/dealers in accordance with the investment limitations
described below. Such loans would involve risks of delay in receiving additional
collateral or in recovering the securities loaned or even loss of rights in the
collateral, should the borrower of the securities fail financially. Any
portfolio securities purchased with cash collateral would also be subject to
possible depreciation. Loans will generally be short-term, will be made only to
borrowers deemed by Fleet to be of good standing and only when, in Fleet's
judgment, the income to be earned from the loan justifies the attendant risks.
The Funds currently intend to limit the lending of their portfolio securities so
that, at any given time, securities loaned by a Fund represent not more than
one-third of the value of its total assets.
INVESTMENT COMPANY SECURITIES
The Funds may invest in securities issued by other investment companies
which invest in high quality, short-term debt securities and which determine
their net asset value per share based on the amortized cost or penny-rounding
method. Investments in other investment companies will cause a Fund (and,
indirectly, the Fund's shareholders) to bear proportionately the costs incurred
in connection with the investment companies' operations. Securities of other
investment companies will be acquired by the Funds within the limits prescribed
by the Investment Company Act of 1940, as amended, (the "1940 Act"). Each Fund
currently intends to limit its investments so that, as determined immediately
after a securities purchase is made: (a) not more than 5% of the value of its
total assets will be invested in the securities of any one investment company;
(b) not more than 10% of the value of its total assets will be invested in the
aggregate in securities of other investment companies as a group; (c) not more
than 3% of the outstanding voting stock of any one investment company will be
owned by the Fund; and (d) not more than 10% of the outstanding voting stock of
any one closed-end investment company will be owned in the aggregate by the
Funds, other investment portfolios of Galaxy, or any other investment companies
advised by Fleet.
INTEREST RATE FUTURES CONTRACTS
The Funds may enter into contracts (both purchase and sales) which provide
for the future delivery of fixed income securities (commonly known as interest
rate futures contracts). The Funds will not engage in futures transactions for
speculation, but only to hedge against changes in the market values of
securities which the Funds hold or intend to purchase. The Funds will engage in
futures transactions only to the extent permitted by the Commodity Futures
Trading Commission ("CFTC") and the Securities and Exchange Commission ("SEC").
The purchase of futures instruments in connection with securities which a Fund
intends to purchase will require an amount of cash and/or liquid assets, equal
to the market value of the outstanding futures contracts, to be deposited in a
segregated account to collateralize the position and thereby insure that the use
of such futures is unleveraged. Each Fund will limit its hedging transactions in
futures contracts so that, immediately after any such transaction, the aggregate
initial margin that is required to be posted by the Fund under the rules of the
exchange on which the futures contract is traded does not exceed 5% of the
Fund's total assets after taking into account any unrealized profits and
unrealized losses on the Fund's open contracts. In addition, no more than
one-third of each Fund's total assets may be covered by such contracts.
Transactions in futures as a hedging device may subject the Funds to a
number of risks. Successful use of futures by the Funds is subject to the
ability of Fleet to predict correctly movements in the direction of the market.
In addition, there may be an imperfect correlation, or no correlation at all,
13
<PAGE>
between movements in the price of futures contracts and movements in the price
of the instruments being hedged. There is no assurance that a liquid market will
exist for any particular futures contract at any particular time. Consequently,
a Fund may realize a loss on a futures transaction that is not offset by a
favorable movement in the price of securities which it holds or intends to
purchase or a Fund may be unable to close a futures position in the event of
adverse price movements. Additional information concerning futures transactions
is contained in Appendix B to the Statement of Additional Information.
WHEN-ISSUED, FORWARD COMMITMENT AND DELAYED SETTLEMENT TRANSACTIONS
Each Fund may purchase eligible securities on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis. Each Fund may also
purchase or sell securities on a "delayed settlement" basis. When-issued and
forward commitment transactions, which involve a commitment by a Fund to
purchase or sell particular securities with payment and delivery taking place at
a future date (perhaps one or two months later), permit the Fund to lock in a
price or yield on a security it owns or intends to purchase, regardless of
future changes in interest rates. Delayed settlement describes settlement of a
securities transaction in the secondary market which will occur sometime in the
future. When-issued, forward commitment and delayed settlement transactions
involve the risk, however, that the yield or price obtained in a transaction may
be less favorable than the yield or price available in the market when the
security delivery takes place. It is expected that forward commitments, when-
issued purchases and delayed settlements will not exceed 25% of the value of a
Fund's total assets absent unusual market conditions. In the event a Fund's
forward commitments, when-issued purchases and delayed settlements ever exceeded
25% of the value of its total assets, the Fund's liquidity and the ability of
Fleet to manage the Fund might be adversely affected. The Funds do not intend to
engage in when-issued purchases, forward commitments and delayed settlements for
speculative purposes, but only in furtherance of their respective investment
objectives.
STAND-BY COMMITMENTS
Each Fund may acquire "stand-by commitments" with respect to municipal
securities held by them. Under a stand-by commitment, a dealer agrees to
purchase, at a Fund's option, specified municipal securities at a specified
price. The Funds will acquire stand-by commitments solely to facilitate
portfolio liquidity and do not intend to exercise their rights thereunder for
trading purposes. The Funds expect that stand-by commitments will generally be
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, a Fund may pay for a stand-by commitment either
separately in cash or by paying a higher price for municipal securities which
are acquired subject to the commitment (thus reducing the yield otherwise
available for the same securities). Stand-by commitments acquired by a Fund
would be valued at zero in determining the Fund's net asset value.
ASSET-BACKED SECURITIES
Each Fund may purchase asset-backed securities, which represent a
participation in, or are secured by and payable from, a stream of payments
generated by particular assets, most often a pool of assets similar to one
another. Assets generating such payments will consist of such instruments as
motor vehicle installment purchase obligations, credit card receivables and home
equity loans. Payment of principal and interest may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with entities issuing the securities. The
estimated life of an asset-backed security varies with the prepayment experience
with respect to the underlying debt instruments. The rate of such prepayments,
and hence the life of the asset-backed security, will be primarily a function of
current market rates, although other economic and demographic factors will be
involved. See "Asset-Backed Securities" in the Statement of Additional
Information.
MORTGAGE-BACKED SECURITIES
Each Fund may invest in mortgage-backed securities (including collateralized
mortgage obligations) that represent pools of mortgage loans assembled for sale
to investors by various governmental agencies and government-related
organizations, such as the Government National Mortgage Association, the Federal
National Mortgage Association, and the Federal Home Loan Mortgage Corporation.
Mortgage-backed securities provide a monthly payment consisting of interest and
principal payments. Additional payment may be made out of unscheduled repayments
of principal resulting from the sale of the underlying residential property,
refinancing or foreclosure, net of fees or costs that may be incurred.
Prepayments of principal on mortgage-backed securities may tend to increase due
to refinancing of mortgages as interest rates decline. To the extent that the
Fund purchases mortgage-backed securities at a premium, mortgage foreclosures
and prepayments of principal by mortgagors (which may be made at any time
without penalty) may result in some loss of
14
<PAGE>
the Fund's principal investment to the extent of the premium paid. The yield of
a Fund that invests in mortgage-backed securities may be affected by
reinvestment of prepayments at higher or lower rates than the original
investment.
Other mortgage-backed securities are issued by private issuers, generally
originators of and investors in mortgage loans, including savings associations,
mortgage bankers, commercial banks, investment bankers and special purpose
entities. These private mortgage-backed securities may be supported by U.S.
Government mortgage-backed securities or some form of non-government credit
enhancement. Mortgage-backed securities have either fixed or adjustable interest
rates. The rate of return on mortgage-backed securities may be affected by
prepayments of principal on the underlying loans, which generally increase as
interest rates decline; as a result, when interest rates decline, holders of
these securities normally do not benefit from appreciation in market value to
the same extent as holders of other non-callable debt securities. In addition,
like other debt securities, the value of mortgage-related securities, including
government and government-related mortgage pools, generally will fluctuate in
response to market interest rates.
MORTGAGE DOLLAR ROLLS
Each Fund may enter into mortgage "dollar rolls" in which a Fund sells
securities for delivery in the current month and simultaneously contracts with
the same counterparty to repurchase similar (same type, coupon and maturity) but
not identical securities on a specified future date not exceeding 120 days.
During the roll period, a Fund loses the right to receive principal and interest
paid on the securities sold. However, the Fund would benefit to the extent of
any difference between the price received for the securities sold and the lower
forward price for the future purchase (often referred to as the "drop") or fee
income plus the interest earned on the cash proceeds of the securities sold
until the settlement date of the forward purchase. Unless such benefits exceed
the income, capital appreciation and gain or loss due to mortgage prepayments
that would have been realized on the securities sold as part of the mortgage
dollar roll, the use of this technique will diminish the investment performance
of a Fund compared with what such performance would have been without the use of
mortgage dollar rolls. All cash proceeds will be invested in instruments that
are permissible investments for each Fund. The Funds will hold and maintain in a
segregated account until the settlement date cash or other liquid assets in an
amount equal to the forward purchase price.
For financial reporting and tax purposes, the Funds propose to treat
mortgage dollar rolls as two separate transactions, one involving the purchase
of a security and a separate transaction involving a sale. The Funds do not
currently intend to enter into mortgage dollar rolls that are accounted for as a
financing.
Mortgage dollar rolls involve certain risks. If the broker-dealer to whom a
Fund sells the security becomes insolvent, the Fund's right to purchase or
repurchase the mortgage-related securities may be restricted and the instrument
which the Fund is required to repurchase may be worth less than the instrument
which the Fund originally held. Successful use of mortgage dollar rolls may
depend upon Fleet's ability to predict correctly interest rates and mortgage
prepayments. For these reasons, there is no assurance that mortgage dollar rolls
can be successfully employed.
STRIPPED OBLIGATIONS
To the extent consistent with its investment objective, each Fund may
purchase U.S. Treasury receipts and other "stripped" securities that evidence
ownership in either the future interest payments or the future principal
payments on U.S. Government and other obligations. These participations, which
may be issued by the U.S. Government or by private issuers, such as banks and
other institutions, are issued at their "face value," and may include stripped
mortgage-backed securities ("SMBS"), which are derivative multi-class mortgage
securities. Stripped securities, particularly SMBS, may exhibit greater price
volatility than ordinary debt securities because of the manner in which their
principal and interest are returned to investors.
SMBS are usually structured with two or more classes that receive different
proportions of the interest and principal distributions from a pool of
mortgage-backed obligations. A common type of SMBS will have one class receiving
all of the interest, while the other class will receive all of the principal.
However, in some instances, one class will receive some of the interest and most
of the principal while the other class will receive most of the interest and the
remainder of the principal. If the underlying obligations experience greater
than anticipated prepayments of principal, the Fund may fail to fully recoup its
initial investment in these securities. The market value of the class consisting
entirely of principal payments generally is extremely volatile in response to
changes in interest rates. The yields on a class of SMBS that receives all or
most of the interest are generally higher than prevailing market yields on other
mortgage-backed obligations because their cash flow patterns are more volatile
and there is a greater risk that the initial investment will not be fully
recouped. SMBS which are not issued by the U.S. Government (or a U.S. Government
agency or instrumentality) are considered illiquid by the Funds. Obligations
issued by the U.S. Government may be considered liquid under guidelines
established by Galaxy's Board of Trustees if they can be disposed of promptly in
the ordinary course of business at a value reasonably close to that used in the
calculation of net asset value per share.
15
<PAGE>
GUARANTEED INVESTMENT CONTRACTS
Each Fund may invest in guaranteed investment contracts ("GICs") issued by
United States and Canadian insurance companies. Pursuant to GICs, a Fund makes
cash contributions to a deposit fund of the insurance company's general account.
The insurance company then credits to the Fund payments at negotiated, floating
or fixed interest rates. A GIC is a general obligation of the issuing insurance
company and not a separate account. The purchase price paid for a GIC becomes
part of the general assets of the insurance company, and the contract is paid
from the company's general assets. The Funds will only purchase GICs that are
issued or guaranteed by insurance companies that at the time of purchase are
rated at least AA by S&P or receive a similar high quality rating from a
nationally recognized service which provides ratings of insurance companies.
GICs are considered illiquid securities and will be subject to the Funds' 10%
limitation on such investments, unless there is an active and substantial
secondary market for the particular instrument and market quotations are readily
available.
BANK INVESTMENT CONTRACTS
Each Fund may invest in bank investment contracts ("BICs") issued by banks
that meet the quality and asset size requirements for banks described above
under "U.S. Government Obligations and Money Market Instruments." Pursuant to
BICs, cash contributions are made to a deposit account at the bank in exchange
for payments at negotiated, floating or fixed interest rates. A BIC is a general
obligation of the issuing bank. BICs are considered illiquid securities and will
be subject to the Funds' 10% limitation on such investments, unless there is an
active and substantial secondary market for the particular instrument and market
quotations are readily available.
DERIVATIVE SECURITIES
The Funds may from time to time, in accordance with their respective
investment policies, purchase certain "derivative" securities. Derivative
securities are instruments that derive their value from the performance of
underlying assets, interest rates or indices, and include, but are not limited
to, interest rate futures and certain asset-backed and mortgage-backed
securities.
Derivative securities present, to varying degrees, market risk that the
performance of the underlying assets, interest rates or indices will decline;
credit risk that the dealer or other counterparty to the transaction will fail
to pay its obligations; volatility and leveraging risk that, if interest rates
change adversely, the value of the derivative security will decline more than
the assets, rates or indices on which it is based; liquidity risk that the Funds
will be unable to sell a derivative security when it wants because of lack of
market depth or market disruption; pricing risk that the value of a derivative
security will not correlate exactly to the value of the underlying assets, rates
or indices on which it is based; and operations risk that loss will occur as a
result of inadequate systems and controls, human error or otherwise. Some
derivative securities are more complex than others, and for those instruments
that have been developed recently, data are lacking regarding their actual
performance over complete market cycles.
Fleet will evaluate the risks presented by the derivative securities
purchased by the Funds, and will determine, in connection with its day-to-day
management of the Funds, how they will be used in furtherance of each Fund's
investment objective. It is possible, however, that Fleet's evaluations will
prove to be inaccurate or incomplete and, even when accurate and complete, it is
possible that the Funds will, because of the risks discussed above, incur loss
as a result of their investments in derivative securities. See "Investment
Objectives and Policies--Derivative Securities" in the Statement of Additional
Information relating to the Funds for additional information.
PORTFOLIO TURNOVER
Each Fund may sell a portfolio investment soon after its acquisition if
Fleet believes that such a disposition is consistent with the Fund's investment
objective. Portfolio investments may be sold for a variety of reasons, such as a
more favorable investment opportunity or other circumstances bearing on the
desirability of continuing to hold such investments. A portfolio turnover rate
of 100% or more is considered high, although the rate of portfolio turnover will
not be a limiting factor in making portfolio decisions. A high rate of portfolio
turnover may result in the realization of substantial capital gains and involves
correspondingly greater transaction costs. To the extent that net capital gains
are realized, distributions derived from such gains are treated as ordinary
income for federal income tax purposes. See "Financial Highlights" and
"Taxes--Federal."
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<PAGE>
INVESTMENT LIMITATIONS
The following investment limitations are matters of fundamental policy and
may not be changed with respect to any Fund without the affirmative vote of the
holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Other investment limitations that also cannot be changed
without such a vote of shareholders are contained in the Statement of Additional
Information under "Investment Objectives and Policies."
No Fund may:
1. Make loans, except that (i) each Fund may purchase or hold debt
instruments in accordance with its investment objective and policies, and
may enter into repurchase agreements with respect to portfolio securities,
and (ii) each Fund may lend portfolio securities against collateral
consisting of cash or securities which are consistent with the Fund's
permitted investments, where the value of the collateral is equal at all
times to at least 100% of the value of the securities loaned.
2. Borrow money or issue senior securities, except that each Fund may
borrow from domestic banks for temporary purposes and then in amounts not in
excess of 10% of the value of its total assets at the time of such borrowing
(provided that each Fund may borrow pursuant to reverse repurchase
agreements in accordance with its investment policies and in amounts not in
excess of 10% of the value of its total assets at the time of such
borrowing); or mortgage, pledge, or hypothecate any assets except in
connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of its total
assets at the time of such borrowing. No Fund will purchase securities while
borrowings (including reverse repurchase agreements) in excess of 5% of its
total assets are outstanding.
3. Invest more than 10% of the value of its net assets in illiquid
securities, including repurchase agreements with remaining maturities in
excess of seven days, time deposits with maturities in excess of seven days,
restricted securities, non-negotiable time deposits and other securities
which are not readily marketable.
4. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities, if
immediately after such purchase more than 5% of the value of its total
assets would be invested in such issuer, except that up to 25% of the value
of its total assets may be invested without regard to this limitation.
In addition, the Funds may not purchase any securities which would cause 25%
or more of the value of a Fund's total assets at the time of purchase to be
invested in the securities of one or more issuers conducting their principal
business activities in the same industry; provided, however, that (a) there is
no limitation with respect to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents, and
(c) utilities will be classified according to their services. (For example, gas,
gas transmission, electric and gas, electric and telephone each will be
considered a separate industry.)
With respect to Investment Limitation No. 2 above, (a) each Fund intends to
limit any borrowings (including reverse repurchase agreements) to not more than
10% of the value of its total assets at the time of such borrowing, and (b)
mortgage dollar rolls entered into by a Fund that are not accounted for as
financings shall not constitute borrowings.
Rule 144A under the Securities Act of 1933, as amended, (the "1933 Act")
allows for a broader institutional trading market for securities otherwise
subject to restrictions on resale to the general public. Rule 144A establishes a
"safe harbor" from the registration requirements of the 1933 Act for resales of
certain securities to qualified institutional buyers. A Fund's investment in
Rule 144A securities could have the effect of increasing the level of
illiquidity of the Fund during any period that qualified institutional buyers
were no longer interested in purchasing these securities. For purposes of the
10% limitation on purchases of illiquid instruments described under Investment
Limitation No. 3 above, Rule 144A securities will not be considered to be
illiquid if Fleet has determined, in accordance with guidelines established by
the Board of Trustees, that an adequate trading market exists for such
securities.
If a percentage limitation is satisfied at the time of investment, a later
increase in such percentage resulting from a change in the value of a Fund's
portfolio securities generally will not constitute a violation of the
limitation.
PRICING OF SHARES
Net asset value per share of the Funds is determined as of the close of
regular trading hours on the New York Stock Exchange (the "Exchange"), currently
4:00 p.m. (Eastern Time), on each day on which the Exchange is open for trading.
Currently, the holidays which Galaxy observes are New Year's Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Net asset value per share of a
Fund for purposes of pricing sales and redemptions is calculated separately for
each series of shares by dividing the value of all securities and other assets
attributable to a particular series of shares of the Fund, less the
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<PAGE>
liabilities attributable to shares of that series of the Fund, by the number of
outstanding shares of that series of the Fund.
The Funds' assets are valued for purposes of pricing sales and redemptions
by an independent pricing service ("Service") approved by Galaxy's Board of
Trustees. When, in the judgment of the Service, quoted bid prices for portfolio
securities are readily available and are representative of the bid side of the
market, these investments are valued at the mean between quoted bid prices (as
obtained by the Service from dealers in such securities) and asked prices (as
calculated by the Service based upon its evaluation of the market for such
securities). Other investments are carried at fair value as determined by the
Service, based on methods which include consideration of yields or prices of
bonds of comparable quality, coupon, maturity and type; indications as to values
from dealers; and general market conditions. The Service may also employ
electronic data processing techniques and matrix systems to determine value.
Short-term securities are valued at amortized cost, which approximates market
value. The amortized cost method involves valuing a security at its cost on the
date of purchase and thereafter assuming a constant amortization to maturity of
the difference between the principal amount due at maturity and cost.
HOW TO PURCHASE SHARES
DISTRIBUTOR
Shares in each Fund are sold on a continuous basis by Galaxy's distributor,
First Data Distributors, Inc. ("FD Distributors"), a wholly-owned subsidiary of
First Data Investor Services Group, Inc. FD Distributors is a registered broker/
dealer with principal offices located at 4400 Computer Drive, Westboro,
Massachusetts 01581-5108.
GENERAL
Investments in Retail A Shares of the Funds are subject to a front-end sales
charge. Investments in Retail B Shares of the Funds are subject to a back-end
sales charge. This back-end sales charge declines over time and is known as a
"contingent deferred sales charge."
Investors should read "Characteristics of Retail A Shares and Retail B
Shares" and "Factors to Consider When Selecting Retail A Shares or Retail B
Shares" before deciding between the two.
FD Distributors has established several procedures to enable different types
of investors to purchase Retail Shares of the Funds. The Retail Shares described
in this Prospectus may be purchased by individuals, corporations or other
entities, who submit a purchase application to Galaxy, purchasing directly
either for their own accounts or for the accounts of others ("Direct
Investors"). Retail Shares may also be purchased by FIS Securities, Inc., Fleet
Brokerage Securities, Inc., Fleet Securities, Inc., Fleet Enterprises, Inc.,
Fleet Financial Group, Inc., its affiliates, their correspondent banks and other
qualified banks, savings and loan associations and broker/dealers
("Institutions") on behalf of their customers ("Customers"). Purchases by Direct
Investors may take place only on days on which the FD Distributors, Galaxy's
custodian and Galaxy's transfer agent are open for business ("Business Days").
If an Institution accepts a purchase order from a Customer on a non-Business
Day, the order will not be executed until it is received and accepted by FD
Distributors on a Business Day in accordance with FD Distributors' procedures.
PURCHASE PROCEDURES--CUSTOMERS OF INSTITUTIONS
Purchase orders for Retail Shares are placed by Customers of Institutions
through their Institutions. The Institution is responsible for transmitting
Customer purchase orders to FD Distributors and for wiring required funds in
payment to Galaxy's custodian on a timely basis. FD Distributors is responsible
for transmitting such orders to Galaxy's transfer agent for execution. Retail
Shares purchased by Institutions on behalf of their Customers will normally be
held of record by the Institution and beneficial ownership of Retail Shares will
be recorded by the Institution and reflected in the account statements provided
to their Customers. Galaxy's transfer agent may establish an account of record
for each Customer of an Institution reflecting beneficial ownership of Retail
Shares. Depending on the terms of the arrangement between a particular
Institution and Galaxy's transfer agent, confirmations of Retail Share purchases
and redemptions and pertinent account statements will either be sent by Galaxy's
transfer agent directly to a Customer with a copy to the Institution, or will be
furnished directly to the Customer by the Institution. Other procedures for the
purchase of Retail Shares established by Institutions in connection with the
requirements of their Customer accounts may apply. Customers wishing to purchase
Retail Shares through their Institution should contact such entity directly for
appropriate purchase instructions.
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<PAGE>
PURCHASE PROCEDURES--DIRECT INVESTORS
PURCHASES BY MAIL. Retail Shares may be purchased by completing a purchase
application and mailing it, together with a check payable to each Fund in which
a Direct Investor wishes to invest, to:
The Galaxy Fund
P.O. Box 5108
4400 Computer Drive
Westboro, MA 01518-5108
ALL PURCHASE ORDERS PLACED BY MAIL MUST BE ACCOMPANIED BY A PURCHASE
APPLICATION. APPLICATIONS MAY BE OBTAINED BY CALLING FD DISTRIBUTORS AT
1-800-628-0414.
Subsequent investments in an existing account in any Fund may be made at any
time by sending a check for a minimum of $100 payable to the Fund in which the
additional investment is being made to Galaxy at the address above along with
either (a) the detachable form that regularly accompanies confirmation of a
prior transaction, (b) a subsequent order form that may be obtained from FD
Distributors, or (c) a letter stating the amount of the investment, the name of
the Fund and the account number in which the investment is to be made. If a
Direct Investor's check does not clear, the purchase will be cancelled.
PURCHASES BY WIRE. Direct Investors may also purchase Retail Shares by
arranging to transmit federal funds by wire to Fleet National Bank as agent for
First Data Investor Services Group, Inc. ("Investor Services Group"), Galaxy's
transfer agent. Prior to making any purchase by wire, an investor must telephone
1-800-628-0414 to place an order and for instructions. Federal funds and
registration instructions should be wired through the Federal Reserve System to:
Fleet National Bank
75 State Street
Boston, MA 02109
ABA #0110-0013-8
DDA #79673-5702
Ref: The Galaxy Fund
[Shareholder Name]
[Shareholder Account Number]
Direct Investors making initial investments by wire must promptly complete a
purchase application and forward it to The Galaxy Fund, P.O. Box 5108, 4400
Computer Drive, Westboro, Massachusetts 01581-5108. Applications may be obtained
by calling FD Distributors at 1-800-628-0414. Redemptions will not be processed
until the application in proper form has been received by Investor Services
Group. Direct Investors making subsequent investments by wire should follow the
instructions above.
EFFECTIVE TIME OF PURCHASES. A purchase order for Retail Shares received
and accepted by FD Distributors from an Institution or a Direct Investor on a
Business Day prior to the close of regular trading hours on the Exchange
(currently, 4:00 p.m. Eastern Time) will be executed at the net asset value per
share determined on that date, provided that Galaxy's custodian receives the
purchase price in federal funds or other immediately available funds prior to
4:00 p.m. on the third Business Day following the receipt of such order. Such
order will be executed on the day on which the purchase price is received in
proper form. If funds are not received by such date and time, the order will not
be accepted and notice thereof will be given promptly to the Institution or
Direct Investor submitting the order. Payment for orders which are not received
or accepted will be returned. If an Institution accepts a purchase order from a
Customer on a non-Business Day, the order will not be executed until it is
received and accepted by FD Distributors on a Business Day in accordance with
the above procedures. On a Business Day when the Exchange closes early due to a
partial holiday or otherwise, Galaxy will advance the time at which purchase
orders must be received in order to be processed on that Business Day.
OTHER PURCHASE INFORMATION
Except as provided under "Investor Programs" below, the minimum initial
investment by a Direct Investor, or initial aggregate investment by an
Institution investing on behalf of its Customers, is $2,500. The minimum
investment for subsequent purchases is $100. The minimum investment requirement
with respect to IRAs, SEPs, MERPs and Keogh Plans (see below under "Retirement
Plans") is $500 (including spousal IRA accounts). There are no minimum
investment requirements for investors participating in the Automatic Investment
Program described below. Customers may agree with a particular Institution to
varying minimum initial and minimum subsequent purchase requirements with
respect to their accounts.
Galaxy reserves the right to reject any purchase order, in whole or in part,
or to waive any minimum investment requirement. The issuance of Retail Shares to
Direct Investors and Institutions is recorded on the books of Galaxy and Retail
Share certificates will not be issued.
Investors may be charged a separate fee if they effect transactions in
Retail Shares through a broker or other agent.
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<PAGE>
APPLICABLE SALES CHARGES--RETAIL A SHARES
The public offering price for Retail A Shares of the Funds is the sum of the
net asset value of the Retail A Shares purchased plus any applicable front-end
sales charge. The sales charge is assessed as follows:
<TABLE>
<CAPTION>
TOTAL SALES CHARGE REALLOWANCE TO DEALERS
-------------------------------- -----------------------
AS A % OF AS A % OF AS A % OF
OFFERING PRICE NET ASSET OFFERING PRICE
AMOUNT OF TRANSACTION PER SHARE VALUE PER SHARE PER SHARE
- ------------------------------ -------------- --------------- -----------------------
<S> <C> <C> <C>
Less than $50,000............. 3.75 3.90 3.25
$50,000 but less than
$100,000..................... 3.50 3.63 3.00
$100,000 but less than
$250,000..................... 3.00 3.09 2.50
$250,000 but less than
$500,000..................... 2.50 2.56 2.00
$500,000 and over............. 0.00* 0.00* 0.00
</TABLE>
- --------------------------
* There is no initial sales charge on purchases of $500,000 or more of Retail A
Shares; however, a contingent deferred sales charge of 1.00% will be imposed
on the lesser of the offering price or the net asset value of such Retail A
Shares on the redemption date for Shares redeemed within one year after
purchase. The contingent deferred sales charge will not be assessed on
redemptions within one year after purchase in connection with the death or
disability of a shareholder. To receive this exemption, a Direct Investor or
Customer must explain the status of his or her redemption at the time the
Retail A Shares are redeemed.
Further reductions in the sales charges shown above are also possible. See
"Quantity Discounts" below.
The appropriate reallowance to dealers will be paid by FD Distributors to
broker-dealer organizations which have entered into agreements with FD
Distributors. The reallowance to dealers may be changed from time to time.
At various times FD Distributors may implement programs under which a
dealer's sales force may be eligible to win nominal awards for certain sales
efforts. Also, FD Distributors in its discretion may from time to time, pursuant
to objective criteria established by FD Distributors, pay fees to qualifying
dealers for certain services or activities which are primarily intended to
result in sales of Retail A Shares of a Fund. If any such program is made
available to any dealer, it will be made available to all dealers on the same
terms and conditions. Payments made under such programs will be made by FD
Distributors out of its own assets and not out of the assets of the Funds. These
programs will not change the price of Retail A Shares or the amount that the
Funds will receive from such sales.
Fleet's indirect parent, Fleet National Bank, or another affiliate of Fleet,
may at its expense, provide additional compensation to Fleet Enterprises, Inc.,
a broker-dealer affiliate of Fleet, whose customers purchase significant amounts
of Retail A Shares of a Fund. Such compensation will not represent an additional
expense to the Funds or their shareholders, since it will be paid from the
assets of Fleet's affiliates.
In certain situations or for certain individuals, the front-end sales charge
for Retail A Shares of the Funds may be waived either because of the nature of
the investor or the reduced sales effort required to attract such investments.
In order to receive the sales charge waiver, an investor must explain the status
of his or her investment at the time of purchase. No sales charge is assessed on
purchases of Retail A Shares of the Funds by the following categories of
investors or in the following types of transactions:
- reinvestment of dividends and distributions;
- purchases by any retirement account, including but not limited to SIMPLE,
IRA, SEP, Keogh and Roth accounts;
- purchases by persons who were beneficial owners of shares of the Funds or
any of the other portfolios offered by Galaxy or any other funds advised by
Fleet or its affiliates before December 1, 1995;
- purchases by directors, officers and employees of broker-dealers having
agreements with FD Distributors pertaining to the sale of Retail A Shares to the
extent permitted by such organizations;
- investors who purchase pursuant to a "wrap fee" program offered by any
broker-dealer or other financial institution or financial planning organization;
- purchases made with redemption proceeds from another mutual fund complex
on which a front-end or back-end sales charge has been paid, provided the
purchase is made within 60 days after the redemption;
- purchases by current and retired members of Galaxy's Board of Trustees and
members of their immediate families;
- purchases by officers, directors, employees and retirees of Fleet
Financial Group, Inc. and any of its affiliates and members of their immediate
families;
- purchases by officers, directors, employees and retirees of First Data
Corporation and any of its affiliates and members of their immediate families;
- purchases by persons who are also plan participants in any employee
benefit plan which is the record or beneficial holder of Trust Shares of the
Funds or any of the other portfolios offered by Galaxy;
20
<PAGE>
- purchases by institutional investors, including but not limited to bank
trust departments and registered investment advisers;
- purchases by investment advisers, consultants or financial planners who
place trades for their own accounts or the accounts of their clients and who
charge such clients a management, consulting, advisory or other fee;
- purchases by clients of investment advisors or financial planners who
place trades for their own accounts if such accounts are linked to the master
accounts of such investment advisers or financial planners on the books of the
broker-dealer through whom Retail A Shares are purchased;
- purchases by institutional clients of broker-dealers, including retirement
and deferred compensation plans and the trusts used to fund these plans, which
place trades through an omnibus account maintained with Galaxy by the
broker-dealer;
- purchases prior to July 1, 1999 by former deposit customers of financial
institutions (other than registered broker-dealers) acquired by Fleet Financial
Group, Inc. in February 1998; and
- any purchase pursuant to the Reinstatement Privilege described below.
QUANTITY DISCOUNTS
Direct Investors or Customers may be entitled to reduced sales charges
through Rights of Accumulation, a Letter of Intent or a combination of
investments, as described below, even if the Direct Investor or Customer does
not wish to make an investment of a size that would normally qualify for a
quantity discount.
In order to obtain quantity discount benefits, a Direct Investor or Customer
must notify Galaxy's administrator, First Data Investor Services Group, Inc.
("Investor Services Group"), at the time of purchase that he or she would like
to take advantage of any of the discount plans described below. Upon such
notification, the investor will receive the lowest applicable sales charge.
Quantity discounts may be modified or terminated at any time and are subject to
confirmation of a Direct Investor's or Customer's holdings through a check of
appropriate records. For more information about quantity discounts, please
contact FD Distributors or your Institution.
RIGHTS OF ACCUMULATION. A reduced sales charge applies to any purchase of
Retail A Shares of any portfolio of Galaxy that is sold with a sales charge
("Eligible Fund") where a Direct Investor's or Customer's then current aggregate
investment in Retail A Shares is $50,000 or more. "Aggregate investment" means
the total of: (a) the dollar amount of the then current purchase of shares of an
Eligible Fund; and (b) the value (based on current net asset value) of
previously purchased and beneficially-owned shares of any Eligible Fund on which
a sales charge has been paid. If, for example, a Direct Investor or Customer
beneficially owns shares of one or more Eligible Funds with an aggregate current
value of $49,000 on which a sales charge has been paid and subsequently
purchases shares of an Eligible Fund having a current value of $1,000, the sales
charge applicable to the subsequent purchase would be reduced to 3.50% of the
offering price. Similarly, with respect to each subsequent investment, all
shares of Eligible Funds that are beneficially owned by the investor at the time
of investment may be combined to determine the applicable sales charge.
LETTER OF INTENT. By completing the Letter of Intent included as part of
the Account Application, a Direct Investor or Customer becomes eligible for the
reduced sales charge applicable to the total number of Eligible Fund Retail A
Shares purchased in a 13-month period pursuant to the terms and under the
conditions set forth below and in the Letter of Intent. To compute the
applicable sales charge, the offering price of Retail A Shares of an Eligible
Fund on which a sales charge has been paid and that are beneficially owned by a
Direct Investor or Customer on the date of submission of the Letter of Intent
may be used as a credit toward completion of the Letter of Intent. However, the
reduced sales charge will be applied only to new purchases.
Investor Services Group will hold in escrow Retail A Shares equal to 5% of
the amount indicated in the Letter of Intent for payment of a higher sales
charge if a Direct Investor or Customer does not purchase the full amount
indicated in the Letter of Intent. The escrow will be released when a Direct
Investor or Customer fulfills the terms of the Letter of Intent by purchasing
the specified amount. If purchases qualify for a further sales charge reduction,
the sales charge will be adjusted to reflect a Direct Investor's or Customer's
total purchases. If total purchases are less than the amount specified, a Direct
Investor or Customer will be requested to remit an amount equal to the
difference between the sales charge actually paid and the sales charge
applicable to the total purchases. If such remittance is not received within 20
days, Investor Services Group, as attorney-in-fact pursuant to the terms of the
Letter of Intent and at FD Distributors' direction, will redeem an appropriate
number of Retail A Shares held in escrow to realize the difference. Signing a
Letter of Intent does not bind a Direct Investor or Customer to purchase the
full amount indicated at the sales charge in effect at the time of signing, but
a Direct Investor or Customer must complete the intended purchase in accordance
with the terms of the Letter of Intent to obtain the reduced sales charge. To
apply, a Direct Investor or Customer must indicate his or her intention to do so
under a Letter of Intent at the time of purchase.
QUALIFICATION FOR DISCOUNTS. For purposes of applying the Rights of
Accumulation and Letter of Intent privileges described above, the scale of sales
charges applies to the combined purchases made by any individual and/or spouse
purchasing securities for his, her or their own account or for the account of
any minor children, or the aggregate investments of a trustee or custodian of
any qualified pension or profit sharing plan established (or the aggregate
investment
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<PAGE>
of a trustee or other fiduciary) for the benefit of the persons listed above.
REINSTATEMENT PRIVILEGE. Direct Investors and Customers may reinvest all or
any portion of their redemption proceeds in Retail A Shares of the Funds or in
Retail A Shares of another portfolio of Galaxy within 90 days of the redemption
trade date without paying a sales load. Retail A Shares so reinvested will be
purchased at a price equal to the net asset value next determined after Investor
Services Group, Galaxy's transfer agents receive a reinstatement request and
payment in proper form.
Direct Investors and Customers wishing to exercise this Privilege must
submit a written reinstatement request to Investor Services Group as transfer
agent stating that the investor is eligible to use the Privilege. The
reinstatement request and payment must be received within 90 days of the trade
date of the redemption. Currently, there are no restrictions on the number of
times an investor may use this Privilege.
Generally, exercising the Reinstatement Privilege will not affect the
character of any gain or loss realized on redemptions for federal income tax
purposes. However, if a redemption results in a loss, the reinstatement may
result in the loss being disallowed under the Internal Revenue Code's "wash
sale" rules.
GROUP SALES. Members of qualified groups may purchase Retail A Shares of
the Funds at the following group sales rates:
<TABLE>
<CAPTION>
TOTAL SALES CHARGE REALLOWANCE TO DEALERS
-------------------------------- -----------------------
AS A % OF AS A % OF AS A % OF
NUMBER OF QUALIFIED OFFERING PRICE NET ASSET VALUE OFFERING PRICE
GROUP MEMBERS PER SHARE PER SHARE PER SHARE
- ------------------------------ -------------- --------------- -----------------------
<S> <C> <C> <C>
50,000 but less than
250,000...................... 3.00 3.09 3.00
250,000 but less than
500,000...................... 2.75 2.83 2.75
500,000 but less than
750,000...................... 2.50 2.56 2.50
750,000 and over.............. 2.00 2.04 2.00
</TABLE>
To be eligible for the discount, a group must meet the requirements set
forth below and be approved in advance as a qualified group by FD Distributors.
To receive the group sales charge rate, group members must purchase Retail A
Shares directly from FD Distributors in accordance with any of the procedures
described above under "Purchase Procedures-- Direct Investors." Group members
must also ensure that their qualification group affiliation is identified on the
purchase application.
A qualified group is a group that (i) has at least 50,000 members, (ii) was
not formed for the purpose of buying Fund shares at a reduced sales charge,
(iii) within one year of the initial member purchase, has at least 1% of its
members invested in the Funds or any of the other investment portfolios offered
by Galaxy, (iv) agrees to include Galaxy sales material in publications and
mailings to members at a reduced cost or no cost, and (v) meets certain other
uniform criteria. FD Distributors may request periodic certification of group
and member eligibility. FD Distributors reserves the right to determine whether
a group qualifies for a quantity discount and to suspend this offer at any time.
APPLICABLE SALES CHARGES--RETAIL B SHARES
The public offering price for Retail B Shares of the Funds is the net asset
value of the Retail B Shares purchased. Although Direct Investors and Customers
pay no front-end sales charge on purchases of Retail B Shares, such Shares are
subject to a contingent deferred sales charge at the rates set forth below if
they are redeemed within six years of purchase. Securities dealers, brokers,
financial institutions and other industry professionals will receive commissions
from FD Distributors in connection with sales of Retail B Shares. These
commissions may be different than the reallowances or placement fees paid to
dealers in connection with sales of Retail A Shares. Certain affiliates of Fleet
may, at their own expense, provide additional compensation to Fleet Enterprises,
Inc., a broker-dealer affiliate of Fleet, whose customers purchase significant
amounts of Retail B Shares of a Fund. See "Applicable Sales Charges--Retail A
Shares." The contingent deferred sales charge on Retail B Shares is based on the
lesser of the net asset value of the Shares on the redemption date or the
original cost of the Shares being redeemed. As a result, no sales charge is
imposed on any increase in the principal value of a Direct Investor's or
Customer's Retail B Shares. In addition, a contingent deferred sales charge will
not be assessed on Retail B Shares purchased through reinvestment of dividends
or capital gains distributions.
The amount of any contingent deferred sales charge Direct Investors and
Customers must pay depends on the number of years that elapse between the
purchase date and the date such Retail B Shares are redeemed. Solely for
purposes of this determination, all payments during a month will
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<PAGE>
be aggregated and deemed to have been made on the first day of the month.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
(AS A PERCENTAGE OF
DOLLAR AMOUNT
NUMBER OF YEARS SUBJECT TO THE
ELAPSED SINCE PURCHASE CHARGE)
-------------------------- --------------------
<S> <C>
Less than one..................................... 5.00%
More than one but less than two................... 4.00%
More than two but less than three................. 3.00%
More than three but less than four................ 3.00%
More than four but less than five................. 2.00%
More than five but less than six.................. 1.00%
After six......................................... None
</TABLE>
When a Direct Investor or Customer redeems his or her Retail B Shares, the
redemption request is processed to minimize the amount of the contingent
deferred sales charge that will be charged. Retail B Shares are redeemed first
from those shares that are not subject to a contingent deferred sales charge
(I.E., Retail B Shares that were acquired through reinvestment of dividends or
distributions or that qualify for other deferred sales charge exemptions) and
after that from the Retail B Shares that have been held the longest.
The proceeds from the contingent deferred sales charge that a Direct
Investor or Customer may pay upon redemption go to FD Distributors, which may
use such amounts to defray the expenses associated with the distribution-related
services involved in selling Retail B Shares.
EXEMPTIONS FROM THE CONTINGENT DEFERRED SALES CHARGE. Certain types of
redemptions may also qualify for an exemption from the contingent deferred sales
charge. To receive exemptions (i), (iv) or (viii) listed below, a Direct
Investor or Customer must explain the status of his or her redemption at the
time Retail B Shares are redeemed. The contingent deferred sales charge with
respect to Retail B Shares is not assessed on: (i) exchanges described under
"Investor Programs--Exchange Privilege" below; (ii) redemptions in connection
with required (or, in some cases, discretionary) distributions to participants
or beneficiaries of an employee pension, profit-sharing or other trust or
qualified retirement or Keogh plan, individual retirement account or custodial
account maintained pursuant to Section 403(b)(7) of the Internal Revenue Code of
1986, as amended, (the "Code"); (iii) redemptions in connection with required
(or, in some cases, discretionary) distributions to participants in qualified
retirement or Keogh plans, individual retirement accounts or custodial accounts
maintained pursuant to Section 403(b)(7) of the Code due to death, disability or
the attainment of a specified age; (iv) redemptions effected pursuant to a
Fund's right to liquidate a shareholder's account if the aggregate net asset
value of Retail B Shares held in the account is less than the minimum account
size; (v) redemptions in connection with the combination of the Funds with any
other investment company registered under the 1940 Act by merger, acquisition of
assets, or by any other transaction; (vi) redemptions in connection with the
death or disability of a shareholder; (vii) redemptions resulting from a
tax-free return of an excess contribution pursuant to Section 408(d)(4) or (5)
of the Code; or (viii) any redemption of Retail B Shares held by Direct
Investors or Customers, provided the Direct Investor or Customer was the
beneficial owner of shares of the Funds (or any of the other portfolios offered
by Galaxy or otherwise advised by Fleet or its affiliates) before December 1,
1995. In addition to the foregoing exemptions, no contingent deferred sales
charge will be imposed on redemptions made pursuant to the Systematic Withdrawal
Plan, subject to the limitations set forth under "Investor Programs--Automatic
Investment Program and Systematic Withdrawal Plan" below.
CHARACTERISTICS OF RETAIL A SHARES AND RETAIL B SHARES
The primary difference between Retail A Shares and Retail B Shares lies in
their sales charge structures and shareholder servicing/distribution expenses. A
Direct Investor or Customer should understand that the purpose and function of
the sales charge structures and shareholder servicing/distribution arrangements
for both Retail A Shares and Retail B Shares are the same.
Retail A Shares of the Funds are sold at their net asset value plus a
front-end sales charge of up to 3.75%. This front-end sales charge may be
reduced or waived in some cases. (See "Applicable Sales Charges--Retail A
Shares" and "Quantity Discounts.") Retail A Shares of a Fund are currently
subject to ongoing shareholder servicing fees at an annual rate of up to .15% of
a Fund's average daily net assets attributable to its Retail A Shares.
Retail B Shares of the Funds are sold at net asset value without an initial
sales charge. Normally, however, a deferred sales charge is paid if the Shares
are redeemed within six years of investment. (See "Applicable Sales
Charges--Retail B Shares.") Retail B Shares of a Fund are currently subject to
ongoing shareholder servicing and distribution fees at an annual rate of up to
.80% of the Fund's average daily net assets attributable to its Retail B Shares.
These ongoing fees, which are higher than those charged on Retail A Shares, will
cause Retail B Shares to have a higher expense ratio and pay lower dividends
than Retail A Shares.
Six years after purchase, Retail B Shares of the Funds will convert
automatically to Retail A Shares of the Funds. The purpose of the conversion is
to relieve a holder of Retail B Shares of the higher ongoing expenses charged to
those Shares, after enough time has passed to allow FD Distributors to recover
approximately the amount it would have received if a front-end sales charge had
been charged. The conversion from Retail B Shares to Retail A Shares takes place
at net asset value, as a result of which a Direct Investor or Customer receives
dollar-for-dollar the same value of Retail A Shares as he or she had of Retail B
Shares. The conversion occurs six years after the beginning of the calendar
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<PAGE>
month in which the Shares are purchased. Upon conversion, the converted Shares
will be relieved of the distribution and shareholder servicing fees borne by
Retail B Shares, although they will be subject to the shareholder servicing fees
borne by Retail A Shares.
Retail B Shares acquired through a reinvestment of dividends or
distributions (as discussed under "Applicable Sales Charges--Retail B Shares")
are also converted at the earlier of two dates--six years after the beginning of
the calendar month in which the reinvestment occurred or the date of conversion
of the most recently purchased Retail B Shares that were not acquired through
reinvestment of dividends or distributions. For example, if a Direct Investor or
Customer makes a one-time purchase of Retail B Shares of a Fund, and
subsequently acquires additional Retail B Shares of such Fund only through
reinvestment of dividends and/or distributions, all of such Direct Investor's or
Customer's Retail B Shares in the Fund, including those acquired through
reinvestment, will convert to Retail A Shares of such Fund on the same date.
FACTORS TO CONSIDER WHEN SELECTING RETAIL A SHARES OR RETAIL B SHARES
Before purchasing Retail A Shares or Retail B Shares of the Funds, Direct
Investors and Customers should consider whether, during the anticipated periods
of their investments in the particular Fund, the accumulated distribution and
shareholder servicing fees and potential contingent deferred sales charge on
Retail B Shares prior to conversion would be less than the initial sales charge
and accumulated shareholder servicing fees on Retail A Shares purchased at the
same time, and to what extent such differential would be offset by the higher
yield of Retail A Shares. In this regard, to the extent that the sales charge
for Retail A Shares is waived or reduced by one of the methods described above,
investments in Retail A Shares become more desirable. An investment of $250,000
or more in Retail B Shares would not be in most shareholders' best interest.
Shareholders should consult their financial advisers and/or brokers with respect
to the advisability of purchasing Retail B Shares in amounts exceeding $250,000.
Although Retail A Shares are subject to a shareholder servicing fee, they
are not subject to the higher distribution and shareholder servicing fee
applicable to Retail B Shares. For this reason, Retail A Shares can be expected
to pay correspondingly higher dividends per Share. However, because initial
sales charges are deducted at the time of purchase, purchasers of Retail A
Shares (that do not qualify for exemptions from or reductions in the initial
sales charge) would have less of their purchase price initially invested in
these Funds than purchasers of Retail B Shares in the Funds.
As described above, purchasers of Retail B Shares will have more of their
initial purchase price invested. Any positive investment return on this
additional invested amount would partially or wholly offset the expected higher
annual expenses borne by Retail B Shares. Because a Fund's future returns cannot
be predicted, there can be no assurance that this will be the case. Holders of
Retail B Shares would, however, own shares that are subject to a contingent
deferred sales charge of up to 5.00% upon redemption, depending upon the year of
redemption. Direct Investors or Customers expecting to redeem during this
six-year period should compare the cost of the contingent deferred sales charge
plus the aggregate annual distribution and shareholder servicing fees on Retail
B Shares to the cost of the initial sales charge and shareholder servicing fees
on the Retail A Shares. Over time, the expense of the annual distribution and
shareholder servicing fees on the Retail B Shares may equal or exceed the
initial sales charge and annual shareholder servicing fee applicable to Retail A
Shares. For example, if net asset value remains constant, the aggregate
distribution and shareholder servicing fees with respect to Retail B Shares of a
Fund would equal or exceed the initial sales charge and aggregate shareholder
servicing fees of Retail A Shares approximately six years after the purchase. In
order to reduce such fees for investors that hold Retail B Shares for more than
six years, Retail B Shares will be automatically converted to Retail A Shares as
described above at the end of such six-year period.
HOW TO REDEEM SHARES
GENERAL
Redemption orders are effected at the net asset value per share next
determined after receipt of the order by FD Distributors. On a Business Day when
the Exchange closes early due to a partial holiday or otherwise, Galaxy will
advance the time at which redemption orders must be received in order to be
processed on that Business Day. Proceeds from the redemptions of Retail B Shares
of the Funds will be reduced by the amount of any applicable contingent deferred
sales charge. Galaxy reserves the right to transmit redemption proceeds within
seven days after receiving the redemption order if, in its judgment, an earlier
payment could adversely affect a Fund.
24
<PAGE>
REDEMPTION PROCEDURES--CUSTOMERS OF INSTITUTIONS
Customers of Institutions may redeem all or part of their Retail Shares in
accordance with procedures governing their accounts at Institutions. It is the
responsibility of the Institutions to transmit redemption orders to FD
Distributors and credit their Customers' accounts with the redemption proceeds
on a timely basis. No charge for wiring redemption payments to Institutions is
imposed by Galaxy, although Institutions may charge a Customer's account for
redemption services. Information relating to such redemption services and
charges, if any, is available from the Institutions.
Payments for redemption orders received by FD Distributors on a Business Day
will normally be wired on the third Business Day to the Institutions.
Direct Investors may redeem all or part of their Retail Shares in accordance
with any of the procedures described below.
REDEMPTION PROCEDURES--DIRECT INVESTORS
REDEMPTION BY MAIL. Shares may be redeemed by a Direct Investor by
submitting a written request for redemption to:
The Galaxy Fund
P.O. Box 5108
4400 Computer Drive
Westboro, MA 01581-5108
A written redemption request must (i) state the name of the Fund and the
number of shares to be redeemed, (ii) identify the shareholder account number
and tax identification number, and (iii) be signed by each registered owner
exactly as the Retail Shares are registered. A redemption request for an amount
in excess of $50,000, or for any amount where (i) the proceeds are to be sent
elsewhere than the address of record (excluding the transfer of assets to a
successor custodian), (ii) the proceeds are to be sent to an address of record
which has changed in the preceding 30 days, or (iii) the check is to be made
payable to someone other than the registered owner(s), must be accompanied by
signature guarantees. The guarantor of a signature must be a bank which is a
member of the FDIC, a trust company, a member firm of a national securities
exchange or any other eligible guarantor institution. FD Distributors will not
accept guarantees from notaries public. FD Distributors may require additional
supporting documents for redemptions made by corporations, executors,
administrators, trustees and guardians. A redemption request will not be deemed
to be properly received until FD Distributors receives all required documents in
proper form. The Funds ordinarily will make payment for Retail Shares redeemed
by mail within three Business Days after proper receipt by FD Distributors of
the redemption request. Questions with respect to the proper form for redemption
requests should be directed to FD Distributors at 1-800-628-0414.
REDEMPTION BY TELEPHONE. Direct Investors who have not otherwise indicated
on the application, or in a subsequent notification in writing, may redeem
Retail Shares by calling 1-800-628-0414 and instructing FD Distributors to mail
a check for redemption proceeds of up to $50,000 to the address of record. A
redemption request for an amount in excess of $50,000, or for any amount where
(i) the proceeds are to be sent elsewhere than the address of record (excluding
the transfer of assets to a successor custodian), (ii) the proceeds are to be
sent to an address of record which has changed in the preceding 30 days, or
(iii) the check is to be made payable to someone other than the registered
owner(s), must be accompanied by signature guarantees. (See "Redemption by Mail"
above for details regarding signature guarantees.)
REDEMPTION BY WIRE. Direct Investors who have so indicated on the
application, or have subsequently arranged in writing to do so, may redeem
Retail Shares by instructing FD Distributors by wire or telephone to wire the
redemption proceeds of $1,000 or more directly to the Direct Investor's account
at any commercial bank in the United States. FD Distributors charges a $5.00 fee
for each wire redemption and the fee is deducted from the redemption proceeds.
The redemption proceeds must be paid to the same bank and account as designated
on the application or in written instructions subsequently received by FD
Distributors. To request redemption of Retail Shares by wire, Direct Investors
should call FD Distributors at 1-800-628-0414.
In order to arrange for redemption by wire after an account has been opened
or to change the bank or account designated to receive redemption proceeds, a
written request must be sent to Galaxy at the address listed above under
"Redemption by Mail." Such requests must be signed by the investor and
accompanied by a signature guarantee (see "Redemption by Mail" above for details
regarding signature guarantees). Further documentation may be requested from
corporations, executors, administrators, trustees, or guardians. If, due to
temporary adverse conditions, investors are unable to effect telephone
transactions, investors are encouraged to follow the procedures for transactions
by wire or mail which are described above.
Galaxy reserves the right to refuse a wire or telephone redemption if it
believes it is advisable to do so. Procedures for redeeming Retail Shares by
wire or telephone may be modified or terminated at any time by Galaxy or FD
Distributors. In attempting to confirm that telephone instructions are genuine,
Galaxy will use such procedures as are considered reasonable, including
recording those instructions and
25
<PAGE>
requesting information as to account registration (such as the name in which an
account is registered, the account number, recent transactions in the account,
and the account holder's social security number, address and/or bank). If Galaxy
fails to follow established procedures for the authentication of telephone
instructions, it may be liable for losses due to unauthorized or fraudulent
telephone transactions.
NO REDEMPTION BY A DIRECT INVESTOR IN ANY FUND WILL BE PROCESSED UNTIL
GALAXY HAS RECEIVED A COMPLETED APPLICATION WITH RESPECT TO THE DIRECT
INVESTOR'S ACCOUNT.
IF ANY PORTION OF THE RETAIL SHARES TO BE REDEEMED REPRESENTS AN INVESTMENT
MADE BY PERSONAL CHECK, GALAXY RESERVES THE RIGHT TO DELAY PAYMENT OF PROCEEDS
UNTIL FD DISTRIBUTORS IS REASONABLY SATISFIED THAT THE CHECK HAS BEEN COLLECTED
WHICH COULD TAKE UP TO 15 DAYS FROM THE PURCHASE DATE. A DIRECT INVESTOR WHO
ANTICIPATES THE NEED FOR MORE IMMEDIATE ACCESS TO HIS OR HER INVESTMENT SHOULD
PURCHASE RETAIL SHARES BY FEDERAL FUNDS OR BANK WIRE OR BY CERTIFIED OR
CASHIER'S CHECK. BANKS NORMALLY IMPOSE A CHARGE IN CONNECTION WITH THE USE OF
BANK WIRES, AS WELL AS CERTIFIED CHECKS, CASHIER'S CHECKS AND FEDERAL FUNDS.
OTHER REDEMPTION INFORMATION
Except as provided under "Investor Programs" below, Galaxy reserves the
right to redeem accounts (other than retirement plan accounts) involuntarily,
upon 60 days' written notice, if the account's net asset value falls below $250
as a result of redemptions. In addition, if an investor has agreed with a
particular Institution to maintain a minimum balance in his or her account at
the Institution with respect to Retail Shares of a Fund, and the balance in such
account falls below that minimum, the Customer may be obliged by the Institution
to redeem all of his or her shares.
INVESTOR PROGRAMS
EXCHANGE PRIVILEGE
Direct Investors and Customers of Institutions may, after appropriate prior
authorization, exchange Retail A Shares of a Fund having a value of at least
$100 for Retail A Shares of any of the other Funds or portfolios offered by
Galaxy or for shares of any other investment portfolios otherwise advised by
Fleet or its affiliates in which the Direct Investor or Customer maintains an
existing account, provided that such other shares may legally be sold in the
state of the investor's residence. Direct Investors and Customers of
Institutions may exchange Retail B Shares of the Funds for Retail B Shares of
the Money Market, Tax-Exempt Bond, Equity Value, Equity Growth, Equity Income,
Small Company Equity, Small Cap Value, International Equity, Asset Allocation,
Growth and Income, and Strategic Equity Funds offered by Galaxy, provided that
such other Retail B Shares may legally be sold in the state of the investor's
residence.
No additional sales charge will be incurred when exchanging Retail A Shares
of a Fund for Retail A Shares of another Galaxy portfolio that imposes a sales
charge. Retail B Shares may be exchanged without the payment of any contingent
deferred sales charge at the time the exchange is made. In determining the
holding period for calculating the contingent deferred sales charge payable on
redemptions of Retail B Shares, the holding period of the Retail B Shares
originally held will be added to the holding period of the Retail B Shares
acquired through exchange.
The minimum initial investment to establish an account in another Fund or
portfolio by exchange, except for the Institutional Government Money Market
Fund, is $2,500, unless at the time of the exchange the Direct Investor or
Customer elects, with respect to the Fund or portfolio into which the exchange
is being made, to participate in the Automatic Investment Program described
below, in which event there is no minimum initial investment requirement, or in
the College Investment Program described below, in which event the minimum
initial investment is generally $100. The minimum initial investment to
establish an account by exchange in the Institutional Government Money Market
Fund is $2 million.
An exchange involves a redemption of all or a portion of the Retail Shares
of a Fund and the investment of the redemption proceeds in Retail Shares of
another Fund or portfolio offered by Galaxy or, with respect to Retail A Shares,
otherwise advised by Fleet or its affiliates. The redemption will be made at the
per share net asset value next determined after the exchange request is
received. The Retail Shares of a Fund or portfolio to be acquired will be
purchased at the per share net asset value next determined after acceptance of
the exchange request, plus any applicable sales charge.
Investors may find the exchange privilege useful if their investment
objectives or market outlook should change after they invest in any of the
Funds. For further information regarding Galaxy's exchange privilege, Direct
Investors should call Investor Services Group at 1-800-628-0414. Customers of
Institutions should call their Institution for such information. Customers
exercising the exchange privilege into other portfolios should request and
review these portfolios' prospectuses prior to making an exchange. Telephone
1-800-628-0414 for a prospectus or to make an exchange. See "How to Redeem
Shares--Redemption Procedure--Direct Investors--Redemptions by Wire" above for a
description of Galaxy's policy regarding telephone transactions.
In order to prevent abuse of this privilege to the disadvantage of other
shareholders, Galaxy reserves the right to terminate the exchange privilege of
any shareholder who
26
<PAGE>
requests more than three exchanges a year. Galaxy will determine whether to do
so based on a consideration of both the number of exchanges that any particular
shareholder or group of shareholders has requested and the time period over
which their exchange requests have been made, together with the level of expense
to Galaxy which will result from effecting additional exchange requests. The
exchange privilege may be modified or terminated at any time. At least 60 days'
notice of any material modification or termination will be given to shareholders
except where notice is not required under the regulations of the SEC.
Galaxy does not charge any exchange fee. However, Institutions may charge
such fees with respect to either all exchange requests or with respect to any
request which exceeds the permissible number of free exchanges during a
particular period. Customers of Institutions should contact their respective
Institutions for applicable information.
For federal income tax purposes, an exchange of shares is a taxable event
and, accordingly, a capital gain or loss may be realized by an investor. Before
making an exchange request, a Customer or Direct Investor should consult a tax
or other financial adviser to determine the tax consequences.
RETIREMENT PLANS
Retail Shares of the Funds are available for purchase in connection with the
following tax-deferred prototype retirement plans:
INDIVIDUAL RETIREMENT ACCOUNTS ("IRAS") (including traditional, Roth and
Education IRAS and "rollovers" from existing retirement plans), a
retirement-savings vehicle for qualifying individuals. The minimum initial
investment for an IRA account is $500 (including a spousal account).
SIMPLIFIED EMPLOYEE PENSION PLANS ("SEPS"), a form of retirement plan for
sole proprietors, partnerships and corporations. The minimum initial investment
for a SEP account is $500.
MULTI-EMPLOYEE RETIREMENT PLANS ("MERPS"), a retirement vehicle established
by employers for their employees which is qualified under Sections 401(k) and
403(b) of the Internal Revenue Code. The minimum initial investment for a MERP
is $500.
KEOGH PLANS, a retirement vehicle for self-employed individuals. The minimum
initial investment for a Keogh Plan is $500.
Investors purchasing Retail Shares pursuant to a retirement plan are not
subject to the minimum investment provisions described above under "How to
Purchase Shares-- Other Purchase Information." Detailed information concerning
eligibility, service fees and other matters relating to these plans and the form
of application is available from Galaxy's distributor (call 1-800-628-0414) with
respect to IRAs, SEPs and Keogh Plans and from Fleet Brokerage Securities, Inc.
(call 1-800-221-8210) with respect to MERPs.
AUTOMATIC INVESTMENT PROGRAM AND SYSTEMATIC WITHDRAWAL PLAN
The Automatic Investment Program permits a Direct Investor to purchase
Retail Shares of a Fund each month or each quarter (minimum of $50 per
transaction except for Direct Investors purchasing Retail Shares to be held in
an Education IRA, in which event the minimum amount is $40 per month or $125 per
quarter). Provided the Direct Investor's financial institution allows automatic
withdrawals, Retail Shares are purchased by transferring funds from a Direct
Investor's checking, bank money market, NOW or savings account designated by the
Direct Investor. The account designated will be debited in the specified amount,
and Retail Shares will be purchased on a monthly or quarterly basis, on any
Business Day designated by a Direct Investor. If the designated day falls on a
weekend or holiday, the purchase will be made on the Business Day closest to the
designated day. Only an account maintained at a domestic financial institution
which is an Automated Clearing House member may be so designated.
The Systematic Withdrawal Plan permits a Direct Investor to automatically
redeem Retail Shares on a monthly, quarterly, semi-annual, or annual basis on
any Business Day designated by a Direct Investor, if the account has a starting
value of at least $10,000. If the designated day falls on a weekend or holiday,
the redemption will be made on the Business Day closest to the designated day.
Proceeds of the redemption will be sent to the shareholder's address of record
or financial institution within three Business Days of the redemption. If
redemptions exceed purchases and dividends, the number of shares in the account
will be reduced. Investors may terminate the Systematic Withdrawal Plan at any
time upon written notice to the Investor Services Group, Galaxy's transfer agent
(but not less than five days before a payment date). There is no charge for this
service. Purchases of additional Retail A Shares concurrently with withdrawals
are ordinarily not advantageous because of the sales charge involved in the
additional purchases. No contingent deferred sales charge will be assessed on
redemptions of Retail B Shares made through the Systematic Withdrawal Plan that
do not exceed 12% of an account's net asset value on an annualized basis. For
example, monthly, quarterly and semi-annual Systematic Withdrawal Plan
redemptions of Retail B Shares will not be subject to the contingent deferred
sales charge if they do not exceed 1%, 3% and 6%, respectively, of an account's
net asset value on the redemption date. Systematic Withdrawal Plan redemptions
of Retail B Shares in excess of this limit are still subject to the applicable
contingent deferred sales charge.
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PAYROLL DEDUCTION PROGRAM
The Payroll Deduction Program provides Direct Investors with a convenient,
systematic way to purchase Fund shares by deducting a minimum amount of $25 per
pay period from their paycheck. To be eligible for the Program, the payroll
department of a Direct Investor's employer must have the capability to forward
transactions directly through the Automated Clearing House (ACH), or indirectly
through a third party payroll processing company that has access to the ACH. A
Direct Investor must complete and submit a Galaxy Payroll Deduction Application
to his or her employer's payroll department, which will arrange for the
specified amount to be debited from the Direct Investor's paycheck each pay
period. Retail Shares of Galaxy will be purchased within three days after the
debit occurs. If the designated day falls on a weekend or non-Business Day, the
purchase will be made on the Business Day closest to the designated day. A
Direct Investor should allow between two to four weeks for the Payroll Deduction
Program to be established after submitting an application to the employer's
payroll department.
COLLEGE INVESTMENT PROGRAM
The College Investment Program (the "College Program") permits a Direct
Investor to open an account with Galaxy and purchase Retail Shares of a Fund
with a minimum amount of $100 for initial or subsequent investments, except that
if the Direct Investor purchases Retail Shares through the Automatic Investment
Program, the minimum per transaction is $50. The College Program is designed to
assist Direct Investors who want to finance a college savings plan. See
"Investor Programs--Automatic Investment Program and Systematic Withdrawal Plan"
for information on the Automatic Investment Program. Galaxy reserves the right
to redeem accounts participating in the College Program involuntarily, upon 60
days' written notice, if the account's net asset value falls below the
applicable minimum initial investment as a result of redemptions. See "How to
Redeem Shares--Other Redemption Information" above for further information.
Direct Investors in the College Program will receive consolidated monthly
statements of their accounts. Detailed information concerning College Program
accounts and applications may be obtained from FD Distributors (call
1-800-628-0414).
DIRECT DEPOSIT PROGRAM
Direct Investors receiving social security benefits are eligible for the
Direct Deposit Program. This Program enables a Direct Investor to purchase
Retail Shares of a Fund by having social security payments automatically
deposited into his or her Fund account. There is no minimum deposit requirement.
For instructions on how to enroll in the Direct Deposit Program, Direct
Investors should call FD Distributors at 1-800-628-0414. Death or legal
incapacity will terminate a Direct Investor's participation in the Program. A
Direct Investor may elect at any time to terminate his or her participation by
notifying in writing the Social Security Administration. Further, Galaxy may
terminate a Direct Investor's participation upon 30 days' notice to the Direct
Investor.
INFORMATION SERVICES
GALAXY INFORMATION CENTER--24 HOUR INFORMATION SERVICE
The Galaxy Information Center provides Fund performance and investment
information 24 hours a day, 7 days a week. To access the Galaxy Information
Center, just call 1-800-628-0414.
VOICE RESPONSE SYSTEM
The Voice Response System provides Direct Investors automated access to Fund
and account information as well as the ability to make telephone redemptions and
exchanges. These transactions are subject to the terms and conditions described
under "How To Redeem Shares" and "Investor Programs" above. To access the Voice
Response System, just call 1-800-628-0414 from any touch-tone telephone and
follow the recorded instructions.
GALAXY SHAREHOLDER SERVICES
For account information and recent exchange transactions, Direct Investors
can call Galaxy Shareholder Services Monday through Friday, between the hours of
8:00 a.m. to 6:00 p.m. (Eastern Time) at 1-800-628-0414.
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Galaxy also offers a TDD service for the hearing impaired. Just call
1-800-696-6515, 24 hours a day, 7 days a week.
Direct Investors residing outside the United States can contact Galaxy by
calling 1-508-855-5237.
Investment returns and principal values will vary with market conditions so
that an investor's Retail Shares, when redeemed, may be worth more or less than
their original cost. Past performance is no guarantee of future results. Unless
otherwise indicated, total return figures include changes in share price,
deduction of any applicable sales charge, and reinvestment of dividends and
capital gains distributions, if any.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Funds are declared daily and
paid monthly. Dividends on each share of the Fund are determined in the same
manner, irrespective of series, but may differ in amount because of the
difference in the expenses paid by the respective series. Net realized capital
gains are distributed at least annually.
Dividends and distributions will be paid in cash. Customers and Direct
Investors may elect to have their dividends reinvested in additional Retail
Shares of the same series of a Fund at the net asset value of such Shares on the
ex-dividend date. Such election, or any revocation thereof, must be communicated
in writing to Galaxy's transfer agent (see "Custodian and Transfer Agent" below)
and will become effective with respect to dividends paid after its receipt.
TAXES
FEDERAL
Each Fund qualified during its last taxable year and intends to continue to
qualify as a "regulated investment company" under the Code. Such qualification
generally relieves a Fund of liability for federal income taxes to the extent
the Fund's earnings are distributed in accordance with the Code.
Qualification as a regulated investment company under the Code for a taxable
year requires, among other things, that a Fund distribute to its shareholders an
amount equal to at least 90% of its investment company taxable income and 90% of
its tax-exempt interest income (if any) net of certain deductions for such year.
In general, a Fund's investment company taxable income will be its taxable
income, including dividends, interest and short-term capital gains (the excess
of net short-term capital gain over net long-term capital loss), subject to
certain adjustments and excluding the excess of any net long-term capital gain
for the taxable year over the net short-term capital loss, if any, for such
year. The policy of each Fund is to distribute as dividends substantially all of
its investment company taxable income and any net tax-exempt interest income
each year. Such dividends will be taxable as ordinary income to each Fund's
shareholders who are not currently exempt from federal income taxes, whether
such dividends are received in cash or reinvested in additional shares. (Federal
income taxes for distributions to an IRA or a qualified retirement plan are
deferred under the Code.) It is anticipated that no part of any distribution
will qualify for the dividends received deduction for corporations.
Distribution by a Fund of "net capital gain" (the excess of its net
long-term capital gain over net short-term capital loss), if any, of a Fund, is
taxable to shareholders as long-term capital gain, regardless of how long the
shareholder has held shares and whether such gains are received in cash or
reinvested in additional Retail Shares. Such distributions are not eligible for
the dividends received deduction.
Dividends declared in October, November or December of any year which are
payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by a Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
Prior to any purchase of shares of a Fund, the impact of capital gain and
other distributions which are expected to be declared or have been declared, but
not paid, should be carefully considered. Any capital gain or other distribution
paid shortly after the purchase of shares of a Fund will have the effect of
reducing the per share net asset value by the per share amount of the
distribution. Furthermore, all or a portion of such distributions, although in
effect a return of capital to the shareholder, are subject to tax.
A taxable gain or loss may be realized by a shareholder upon redemption,
transfer or exchange of shares of a Fund depending upon the tax basis of such
shares and their price at the time of redemption, transfer or exchange.
The foregoing summarizes some of the important federal tax considerations
generally affecting the Funds and their shareholders and is not intended as a
substitute for careful tax planning. Accordingly, potential investors in the
Funds should consult their tax advisers with specific reference to their own tax
situation. Shareholders will be advised annually as to the federal income tax
consequences of distributions made each year.
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STATE AND LOCAL
Investors are advised to contact their tax advisers concerning the
application of state and local taxes, which may have different consequences than
those of the federal income tax law described above.
MANAGEMENT OF THE FUNDS
The business and affairs of the Funds are managed under the direction of
Galaxy's Board of Trustees. The Statement of Additional Information contains the
names of and general background information concerning the Trustees.
INVESTMENT ADVISER
Fleet, with principal offices at 75 State Street, Boston, Massachusetts,
02109, serves as the investment adviser to the Funds. Fleet is an indirect
wholly-owned subsidiary of Fleet Financial Group, Inc., a registered bank
holding company with total assets of approximately $100.7 billion at June 30,
1998. Fleet, which commenced operations in 1984, also provides investment
management and advisory services to individual and institutional clients and
manages the other investment portfolios of Galaxy.
Subject to the general supervision of Galaxy's Board of Trustees and in
accordance with each Fund's investment policies, Fleet manages each Fund, makes
decisions with respect to and places orders for all purchases and sales of its
portfolio securities and maintains related records.
For the services provided and expenses assumed with respect to the Funds,
Fleet is entitled to receive advisory fees, computed daily and paid monthly, at
the annual rate of .75% of the average daily net assets of each Fund.
Fleet may from time to time, in its discretion, waive advisory fees payable
by the Funds in order to help maintain a competitive expense ratio and may from
time to time allocate a portion of its advisory fees to Fleet Bank or other
subsidiaries of Fleet Financial Group, Inc. in consideration for administrative
and/or shareholder support services which they provide to beneficial
shareholders. Fleet is currently waiving a portion of the advisory fees payable
to it by the Funds so that it is entitled to receive advisory fees at the annual
rate of .55% of each Fund's average daily net assets, but Fleet may in its
discretion revise or discontinue this waiver at any time. For the fiscal year
ended October 31, 1997, Fleet received advisory fees (after fee waivers) at the
effective annual rates of .55%, .55% and .55%, respectively, of the Short-Term
Bond, Intermediate Government Income and High Quality Bond Funds' average daily
net assets. In addition to fee waivers, during the fiscal year ended October 31,
1997, Fleet also reimbursed the Short-Term Bond and High Quality Bond Funds for
certain operating expenses, which reimbursement may be revised or discontinued
at any time.
The Short-Term Bond Fund's portfolio manager, Perry J. Vieth, is primarily
responsible for the day-to-day management of the Fund's investment portfolio.
Mr. Vieth, a Vice President, has over eleven years of experience as an
investment manager and previously managed the Shawmut Limited Term Income Fund
for Shawmut Investment Advisors and was a manager of Fuji Securities, Inc.'s
derivative products group. He also was responsible for fixed income risk
management at NationsBank CRT. Mr. Vieth has managed the Short-Term Bond Fund
since March 1, 1996.
The Intermediate Government Income Fund's portfolio manager, Marie H.
Schofield, is primarily responsible for the day-to-day management of the Fund's
investment portfolio. Ms. Schofield, a Vice President, has been with Fleet since
1991 and has been engaged in providing investment management services for over
twenty years. She has managed the Intermediate Government Income Fund since
December 1, 1996.
Ms. Schofield also serves as portfolio manager of the High Quality Bond Fund
and is primarily responsible for the day-to-day management of the Fund's
investment portfolio. Ms. Schofield began serving as co-portfolio manager of the
Fund on March 1, 1996 and has been sole portfolio manager of the Fund since
April 1, 1996.
Fleet is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, to the extent permitted
by law or order of the SEC, financial institutions that are affiliated with
Fleet or that have sold shares of the Funds, if Fleet believes that the quality
of the transaction and the commission are comparable to what they would be with
other qualified brokerage firms.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities such as Retail
Shares of the Funds, but do not prohibit such a bank holding company or its
affiliates or banks generally from acting as investment
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adviser, transfer agent or custodian to such an investment company or from
purchasing shares of such a company as agent for and upon the order of
customers. Fleet, the custodian and Institutions which have agreed to provide
shareholder support services that are banks or bank affiliates are subject to
such banking laws and regulations. Should legislative, judicial or
administrative action prohibit or restrict the activities of such companies in
connection with their services to the Funds, Galaxy might be required to alter
materially or discontinue its arrangements with such companies and change its
method of operation. It is anticipated, however, that any resulting change in
the Funds' method of operation would not affect their net asset value per share
or result in financial losses to any shareholder.
ADMINISTRATOR
First Data Investor Services Group, Inc. ("Investor Services Group"),
located at 4400 Computer Drive, Westboro, Massachusetts 01581-5108, serves as
the Funds' administrator. Investor Services Group is a wholly-owned subsidiary
of First Data Corporation.
Investor Services Group generally assists the Funds in their administration
and operation. Investor Services Group also serves as administrator to the other
portfolios of Galaxy. For the services provided to the Funds, Investor Services
Group is entitled to receive administration fees, computed daily and paid
monthly, at the annual rate of .09% of the first $2.5 billion of combined
average daily net assets of the Funds and the other portfolios offered by Galaxy
(collectively, the "Portfolios"), .085% of the next $2.5 billion of combined
average daily net assets and .075% of combined average daily net assets over $5
billion. In addition, Investor Services Group also receives a separate annual
fee from each Portfolio for certain fund accounting services. From time to time,
Investor Services Group may waive voluntarily all or a portion of the
administration fee payable to it by the Funds. For the fiscal year ended October
31, 1997, Investor Services Group received administration fees at the effective
annual rate of .082% of each Fund's average daily net assets.
DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on March 31, 1986.
Galaxy's Declaration of Trust authorizes the Board of Trustees to classify or
reclassify any unissued shares into one or more classes or series of shares.
Pursuant to such authority, the Board of Trustees has authorized the issuance of
an unlimited number of shares in each series of the Funds as follows: Class D
shares (Trust Shares), Class D--Special Series 1 shares (Retail A Shares), Class
D--Special Series 2 shares (Retail B Shares), Class D--Special Series 3 shares
(A Prime Shares) and Class D--Special Series 4 shares (B Prime Shares), each
series representing interests in the Intermediate Government Income Fund; Class
J--Series 1 shares (Trust Shares), Class J--Series 2 shares (Retail A Shares),
Class J-- Series 3 shares (Retail B Shares), Class J--Series 4 shares (A Prime
Shares) and Class J--Series 5 shares (B Prime Shares), each series representing
interests in the High Quality Bond Fund; and Class L--Series 1 shares (Trust
Shares), Class L-- Series 2 shares (Retail A Shares), Class L--Series 3 shares
(Retail B Shares) Class L--Series 4 shares (A Prime Shares) and Class L--Series
5 shares (B Prime Shares), each series representing interests in the Short-Term
Bond Fund. Each fund is classified as a diversified company under the 1940 Act.
The Board of Trustees has also authorized the issuance of additional classes
and services of shares representing interests in other investment portfolios of
Galaxy. For information concerning the Funds' Trust Shares, A Prime Shares, B
Prime Shares and these other portfolios, which are offered through separate
prospectuses, contact FD Distributors at 1-800-628-0414.
Shares of each series in a Fund bear their pro rata portion of all operating
expenses paid by that Fund except as follows. Holders of a Fund's Retail A
Shares bear the fees that are paid under Galaxy's Shareholder Services Plan for
Retail A Shares described below and holders of a Fund's Retail B Shares bear the
fees that are paid under Galaxy's Distribution and Services Plan for Retail B
Shares described below. Holders of a Fund's A Prime Shares bear the fees that
are paid under Galaxy's Shareholder Services Plan for A Prime Shares. Holders of
a Fund's B Prime Shares bear the fees paid under Galaxy's Distribution and
Services Plan for B Prime Shares. Currently, these payments are not made with
respect to a Fund's Trust Shares. In addition, shares of each series in a Fund
bear differing transfer agency expenses. Standardized yield and total return
quotations are computed separately for each series of shares. The difference in
the expenses paid by the respective series will affect their performance.
Each share of Galaxy (irrespective of series designation) has a par value of
$.001 per share, represents an equal proportionate interest in the related
investment portfolios with other shares of the same class, and is entitled to
such dividends and distributions out of the income earned on the assets
belonging to such investment portfolio as are declared in the discretion of
Galaxy's Board of Trustees.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and will vote in
the aggregate and not by class or series, except as otherwise expressly required
by law or when the Board of Trustees determines that the matter to be voted on
affects only the interests of shareholders of a particular class or series.
Galaxy is not required under Massachusetts law to hold annual shareholder
meetings and intends to do so only if required by the 1940 Act. Shareholders
have the right to remove Trustees.
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SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to which it intends
to enter into servicing agreements with Institutions (including Fleet Bank and
its affiliates). Pursuant to these servicing agreements, Institutions will
render certain administrative and support services to Customers who are the
beneficial owners of Retail A Shares. Such services will be provided to
Customers who are the beneficial owners of Retail A Shares and are intended to
supplement the services provided by Investor Services Group as administrator and
transfer agent to the shareholders of record of the Retail A Shares. The Plan
provides that Galaxy will pay fees for such services at an annual rate of up to
.30% of the average daily net asset value of Retail A Shares of the Funds owned
beneficially by Customers. Institutions may receive up to one-half of this fee
for providing one or more of the following services to such Customers:
aggregating and processing purchase and redemption requests and placing net
purchase and redemption orders with FD Distributors; processing dividend
payments from a Fund; providing sub-accounting with respect to Retail A Shares
or the information necessary for sub-accounting; and providing periodic mailings
to Customers. Institutions may also receive up to one-half of this fee for
providing one or more of these additional services to such Customers: providing
Customers with information as to their positions in Retail A Shares; responding
to Customer inquiries; and providing a service to invest the assets of Customers
in Retail A Shares. These services are described more fully in the Statement of
Additional Information under "Shareholder Services Plan."
Although the Shareholder Services Plan has been approved with respect to
both Retail A Shares and Trust Shares of the Funds, as of the date of this
Prospectus, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares of each Fund, and
to limit the payment under these servicing agreements for each Fund to an
aggregate fee of not more than .15% (on an annualized basis) of the average
daily net asset value of the Retail A Shares of the Fund beneficially owned by
Customers of Institutions. Galaxy understands that Institutions may charge fees
to their Customers who are the beneficial owners of Retail A Shares in
connection with their accounts with such Institutions. Any such fees would be in
addition to any amounts which may be received by an Institution under the
Shareholder Services Plan. Under the terms of each servicing agreement entered
into with Galaxy, Institutions are required to provide to their Customers a
schedule of any fees that they may charge in connection with Customer
investments in Retail A Shares.
DISTRIBUTION AND SERVICES PLAN
Galaxy has adopted a Distribution and Services Plan pursuant to Rule 12b-1
under the 1940 Act with respect to Retail B Shares of the Funds. Under the
Distribution and Services Plan, Galaxy may pay (a) FD Distributors or another
person for expenses and activities intended to result in the sale of Retail B
Shares, including the payment of commissions to broker-dealers and other
industry professionals who sell Retail B Shares and the direct or indirect cost
of financing such payments, (b) Institutions for shareholder liaison services,
which means personal services for holders of Retail B Shares and/or the
maintenance of shareholder accounts, such as responding to customer inquiries
and providing information on accounts, and (c) Institutions for administrative
support services, which include but are not limited to (i) transfer agent and
subtransfer agent services for beneficial owners of Retail B Shares; (ii)
aggregating and processing purchase and redemption orders; (iii) providing
beneficial owners with statements showing their positions in Retail B Shares;
(iv) processing dividend payments; (v) providing sub-accounting services for
Retail B Shares held beneficially; (vi) forwarding shareholder communications,
such as proxies, shareholder reports, dividend and tax notices, and updating
prospectuses to beneficial owners; and (vii) receiving, translating and
transmitting proxies executed by beneficial owners.
Under the Distribution and Services Plan for Retail B Shares, payments by
Galaxy (i) for distribution expenses may not exceed the annual rate of .65% of
the average daily net assets attributable to each fund's outstanding Retail B
Shares, and (ii) to an Institution for shareholder liaison services and/or
administrative support services may not exceed the annual rates of .15% and
.15%, respectively, of the average daily net assets attributable to each fund's
outstanding Retail B Shares which are owned of record or beneficially by that
Institution's Customers for whom the Institution is the dealer of record or
shareholder of record or with whom it has a servicing relationship. As of the
date of this Prospectus, Galaxy intends to limit the Funds' payments for
shareholder liaison and administrative support services under the Plan to an
aggregate fee of not more than .15% (on an annualized basis) of the average
daily net asset value of Retail B Shares owned of record or beneficially by
Customers of Institutions.
AGREEMENTS FOR SUB-ACCOUNT SERVICES
Investor Services Group may enter into agreements with one or more entities,
including affiliates of Fleet, pursuant to which such entities agree to perform
certain sub-accounting and administrative functions ("Sub-Account Services") on
a per account basis with respect to Trust Shares of each Fund held by defined
contribution plans, including maintaining records reflecting separately with
respect to each plan participant's sub-account all purchases and redemptions of
Trust
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Shares and the dollar value of Trust Shares in each sub-account; crediting to
each participant's sub-account all dividends and distributions with respect to
that sub-account; and transmitting to each participant a periodic statement
regarding the sub-account as well as any proxy materials, reports and other
material Fund communications. Such entities are compensated by Investor Services
Group for the Sub-Account Services and in connection therewith the transfer
agency fees payable by Trust Shares of the Funds to Investor Services Group have
been increased by an amount equal to these fees. In substance, therefore, the
holders of Trust Shares of these Funds indirectly bear these fees.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank, located at One Chase Manhattan Plaza, New York,
New York 10081, a wholly-owned subsidiary of The Chase Manhattan Corporation,
serves as the custodian of the Funds' assets. Chase Manhattan may employ
sub-custodians for the Short-Term Bond Fund for the purpose of providing
custodian services for the Fund's foreign assets held outside the United States.
First Data Investor Services Group, Inc. ("Investor Services Group"), a wholly-
owned subsidiary of First Data Corporation, serves as the Funds' transfer and
dividend disbursing agent. Services performed by both entities for the Funds are
described in the Statement of Additional Information. Communications to Investor
Services Group should be directed to Investor Services Group at P.O. Box 5108,
4400 Computer Drive, Westboro, Massachusetts 01581-5108.
EXPENSES
Except as noted below, Fleet and Investor Services Group bear all expenses
in connection with the performance of their services for the Funds. Galaxy bears
the expenses incurred in the Funds' operations including taxes; interest; fees
(including fees paid to its trustees and officers who are not affiliated with
Investor Services Group); SEC fees; state securities fees; costs of preparing
and printing prospectuses for regulatory purposes and for distribution to
existing shareholders; advisory, administration, shareholder servicing, Rule
12b-1 distribution, fund accounting and custody fees; charges of the transfer
agent and dividend disbursing agent; certain insurance premiums; outside
auditing and legal expenses; costs of independent pricing services; costs of
shareholder reports and meetings; and any extraordinary expenses. The Funds also
pay for brokerage fees and commissions in connection with the purchase of
portfolio securities.
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders, the
performance of the Funds may be quoted and compared to that of other mutual
funds with similar investment objectives and to stock or other relevant bond
indices or to rankings prepared by independent services or other financial or
industry publications that monitor the performance of mutual funds. For example,
the performance of the Funds may be compared to data prepared by LIPPER
ANALYTICAL SERVICES, INC., a widely recognized independent service which
monitors the performance of mutual funds.
Performance data as reported in national financial publications including,
but not limited to, MONEY MAGAZINE, FORBES, BARRON'S, THE WALL STREET JOURNAL
and THE NEW YORK TIMES, or publications of a local or regional nature, may also
be used in comparing the performance of the Funds. Performance data will be
calculated separately for Trust Shares, Retail A Shares and/or Retail B Shares
of the Funds.
The standard yield is computed by dividing a Fund's average daily net
investment income per Share during a 30-day (or one month) base period
identified in the advertisement by the maximum public offering price per share
on the last day of the period, and analyzing the result on a semi-annual basis.
A Fund may also advertise its "effective yield," which is calculated similarly
but, when annualized, the income earned by an investment in a Fund is assumed to
be reinvested.
The Funds may also advertise their performance using "average annual total
return" figures over various periods of time. Such total return figures reflect
the average percentage change in the value of an investment in a Fund from the
beginning date of the measuring period to the end of the measuring period.
Average total return figures will be given for the most recent one-, five- and
ten-year periods (if applicable), and may be given for other periods as well,
such as from the commencement of a Fund's operations, or on a year-by-year
basis. Each Fund may also use "aggregate total return" figures for various
periods, representing the cumulative change in the value of an investment in a
Fund for the specified period. Both methods of calculating total return reflect
the maximum front-end sales load charged by the Funds for Retail A Shares and
the applicable contingent deferred sales charge for Retail B Shares and assume
that dividends and capital gains distributions made by a Fund during the period
are reinvested in Fund shares.
The Funds may also advertise total return data without reflecting the sales
charge imposed on the purchase of Retail A Shares or the redemption of Retail B
Shares in accordance with the rules of the SEC. Quotations that do not reflect
the
33
<PAGE>
sales charge will be higher than quotations that do reflect the sales charge.
The performance of the Funds will fluctuate and any quotation of performance
should not be considered as representative of future performance. Since yields
fluctuate, yield data cannot necessarily be used to compare an investment in a
Fund's shares with bank deposits, savings accounts and similar investment
alternatives which often provide an agreed or guaranteed fixed yield for a
stated period of time. Shareholders should remember that performance data are
generally functions of the kind and quality of the instruments held in a
portfolio, portfolio maturity, operating expenses, and market conditions. Any
additional fees charged directly by Institutions to accounts of Customers that
have invested in shares of a Fund will not be included in performance
calculations.
The portfolio managers of the Funds and other investment professionals may
from time to time discuss in advertising, sales literature or other material,
including periodic publications, various topics of interest to shareholders and
prospective investors. The topics may include but are not limited to the
advantages and disadvantages of investing in tax-deferred and taxable
investments; Fund performance and how such performance may compare to various
market indices; shareholder profiles and hypothetical investor scenarios; the
economy; the financial and capital markets; investment strategies and
techniques; investment products; and tax, retirement and investment planning.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
Funds' investment operations and annual financial statements audited by
independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a majority of the
outstanding shares" of a particular Fund or a particular series of shares means,
with respect to the approval of an investment advisory agreement, a distribution
plan or a change in an investment objective or fundamental investment policy,
the affirmative vote of the holders of the lesser of (a) more than 50% of the
outstanding shares of such Fund or such series of shares, or (b) 67% or more of
the shares of such Fund or such series of shares present at a meeting if more
than 50% of the outstanding shares of such Fund or such series of shares are
represented at the meeting in person or by proxy.
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.
34
<PAGE>
RETAIL
THE GALAXY FUND
STATEMENT OF ADDITIONAL INFORMATION
Equity Value Fund
Equity Growth Fund
Equity Income Fund
International Equity Fund
Small Company Equity Fund
MidCap Equity Fund
Asset Allocation Fund
Strategic Equity Fund
November 1, 1998
<PAGE>
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the current prospectuses (the "Prospectuses") for the
Retail A Shares and Retail B Shares of the Equity Value, Equity Growth, Equity
Income, International Equity, Small Company Equity, MidCap Equity, Asset
Allocation and Strategic Equity Funds, each dated November 1, 1998, of The
Galaxy Fund ("Galaxy"), as they may from time to time be supplemented or
revised. This Statement of Additional Information is incorporated by reference
in its entirety into each such Prospectus. No investment in shares of the Funds
should be made without reading the Prospectuses. Copies of the Prospectuses may
be obtained by writing Galaxy c/o First Data Distributors, Inc., 4400 Computer
Drive, Westboro, Massachusetts 01581-5108 or by calling Galaxy at
1-800-628-0414.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUNDS ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL VARY AS A RESULT OF MARKET CONDITIONS OR OTHER FACTORS SO THAT SHARES
OF THE FUNDS, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
THE PRINCIPAL AMOUNT INVESTED.
<PAGE>
TABLE OF CONTENTS
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THE GALAXY FUND. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . . . . . . 1
Variable and Floating Rate Obligations. . . . . . . . . . . . . . . . . 1
Bank Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Asset-Backed Securities . . . . . . . . . . . . . . . . . . . . . . . . 1
When-Issued Securities and Delayed Settlement Transactions. . . . . . . 2
Repurchase Agreements; Reverse Repurchase Agreements; Loans of
Portfolio Securities. . . . . . . . . . . . . . . . . . . . . . . . . . 3
U.S. Government Securities. . . . . . . . . . . . . . . . . . . . . . . 3
Derivative Securities . . . . . . . . . . . . . . . . . . . . . . . . . 3
Put and Call Options -- Equity Growth, Equity Income, . . . . . . . . . 3
Small Company Equity and Asset Allocation Funds . . . . . . . . . . . . 3
Covered Call Options -- Equity Value, Equity Growth, Equity Income,
International Equity, Small Company Equity and Asset
Allocation Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Options on Foreign Stock Indexes -- International Equity Fund . . . . . 6
Put and Call Options-- MidCap Equity and Strategic Equity Funds . . . . 6
Stock Index Futures and Options-- MidCap Equity and Strategic
Equity Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Restrictions on Use of Futures Contracts And Options-- MidCap Equity
and Strategic Equity Funds. . . . . . . . . . . . . . . . . . . . . . . 8
Indexed Securities-- MidCap Equity and Strategic Equity Funds . . . . . 8
Swap Agreements-- MidCap Equity and Strategic Equity Funds. . . . . . . 8
Foreign Currency Exchange Transactions. . . . . . . . . . . . . . . . . 9
Additional Investment Limitations . . . . . . . . . . . . . . . . . . . 10
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION . . . . . . . . . . . . . . . 11
DESCRIPTION OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ADDITIONAL INFORMATION CONCERNING TAXES. . . . . . . . . . . . . . . . . . . 16
In General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Taxation of Certain Financial Instruments . . . . . . . . . . . . . . . 18
State Taxation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
TRUSTEES AND OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Shareholder and Trustee Liability . . . . . . . . . . . . . . . . . . . 24
ADVISORY, SUB-ADVISORY, ADMINISTRATION, CUSTODIAN AND
TRANSFER AGENCY AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . 25
Custodian and Transfer Agent. . . . . . . . . . . . . . . . . . . . . . 27
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SHAREHOLDER SERVICES PLAN. . . . . . . . . . . . . . . . . . . . . . . . . . 29
DISTRIBUTION AND SERVICES PLAN . . . . . . . . . . . . . . . . . . . . . . . 30
DISTRIBUTOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
COUNSEL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
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TABLE OF CONTENTS
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PERFORMANCE AND YIELD INFORMATION. . . . . . . . . . . . . . . . . . . . . . 34
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
APPENDIX A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
APPENDIX B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
</TABLE>
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<PAGE>
THE GALAXY FUND
The Galaxy Fund ("Galaxy") is an open-end management investment company
which is currently authorized to offer shares of beneficial interest in thirty
investment portfolios.
This Statement of Additional Information relates to the Retail A Shares and
Retail B Shares of eight of those investment portfolios: the Equity Value Fund,
Equity Growth Fund, Equity Income Fund, International Equity Fund, Small Company
Equity Fund, MidCap Equity Fund, Asset Allocation Fund and Strategic Equity Fund
(the "Funds"). This Statement of Additional Information provides additional
investment information with respect to the Funds and should be read in
conjunction with the current Prospectuses. As of the date of this Statement of
Additional Information, the MidCap Equity Fund had not commenced investment
operations.
INVESTMENT OBJECTIVES AND POLICIES
VARIABLE AND FLOATING RATE OBLIGATIONS
The Funds may purchase variable and floating rate instruments in accordance
with their investment objectives and policies as described in their
Prospectuses. If such an instrument is not rated, Fleet Investment Advisors
Inc. ("Fleet"), the investment adviser to the Funds, or Oechsle International
Advisors, L.P. ("Oechsle"), the sub-adviser to the International Equity Fund,
must determine that such instrument is comparable to rated instruments eligible
for purchase by the Funds and will consider the earning power, cash flows and
other liquidity ratios of the issuers and guarantors of such instruments and
will continuously monitor their financial status in order to meet payment on
demand. In determining average weighted portfolio maturity of each of these
Funds, a variable or floating rate instrument issued or guaranteed by the U.S.
Government or an agency or instrumentality thereof will be deemed to have a
maturity equal to the period remaining until the obligation's next interest rate
adjustment. Long-term variable and floating rate obligations with a demand
feature will be deemed to have a maturity equal to the longer of the period
remaining to the next interest rate adjustment or the demand notice period.
BANK OBLIGATIONS
Investments by the Funds in non-negotiable time deposits are limited to no
more than 5% of each such Fund's total assets at the time of purchase.
ASSET-BACKED SECURITIES
Asset-backed securities are generally issued as pass-through certificates,
which represent undivided fractional ownership interests in an underlying pool
of assets, or as debt instruments, which are also known as collateralized
obligations, and are generally issued as the debt of a special purpose entity
organized solely for the purpose of owning such assets and issuing such
<PAGE>
debt. Asset-backed securities are often backed by a pool of assets representing
the obligations of a number of different parties.
The yield characteristics of asset-backed securities differ from
traditional debt securities. A major difference is that the principal amount of
the obligations may be prepaid at any time because the underlying assets (i.e.,
loans) generally may be prepaid at any time. As a result, if an asset-backed
security is purchased at a premium, a prepayment rate that is faster than
expected will reduce yield to maturity, while a prepayment rate that is slower
than expected will have the opposite effect of increasing yield to maturity.
Conversely, if an asset-backed security is purchased at a discount, faster than
expected prepayments will increase, while slower than expected prepayments, will
decrease, yield to maturity.
Prepayments on asset-backed securities generally increase with falling
interest rates and decrease with rising interest rates; furthermore prepayment
rates are influenced by a variety of economic and social factors. In general,
the collateral supporting non-mortgage asset-backed securities is of shorter
maturity than mortgage loans and is less likely to experience substantial
prepayments. Like other fixed income securities, when interest rates rise, the
value of an asset-backed security generally will decline; however, when interest
rates decline, the value of an asset-backed security with prepayment features
may not increase as much as that of other fixed income securities.
Asset-backed securities are subject to greater risk of default during
periods of economic downturn. Also, the secondary market for certain
asset-backed securities may not be as liquid as the market for other types of
securities, which could result in a Fund's experiencing difficulty in valuing or
liquidating such securities. For these reasons, under certain circumstances,
asset-backed securities may be considered illiquid securities.
WHEN-ISSUED SECURITIES AND DELAYED SETTLEMENT TRANSACTIONS
When a Fund agrees to purchase securities on a "when-issued" or "delayed
settlement" basis, the Fund's custodian will set aside cash or liquid portfolio
securities equal to the amount of the commitment in a separate account. In the
event of a decline in the value of the securities that the custodian has set
aside, the Fund may be required to place additional assets in the separate
account in order to ensure that the value of the account remains equal to the
amount of the Fund's commitment. A Fund's net assets may fluctuate to a greater
degree if it sets aside portfolio securities to cover such purchase commitments
than if it sets aside cash.
When a Fund engages in when-issued or delayed settlement transactions, it
relies on the seller to consummate the trade. Failure of the seller to do so may
result in the Fund's incurring a loss or missing an opportunity to obtain a
price considered to be advantageous for a security. For purposes of determining
the average weighted maturity of a Fund's portfolio, the maturity of when-issued
securities is calculated from the date of settlement of the purchase to the
maturity date.
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<PAGE>
REPURCHASE AGREEMENTS; REVERSE REPURCHASE AGREEMENTS; LOANS OF PORTFOLIO
SECURITIES
Each Fund may enter into repurchase agreements. The repurchase price under
a repurchase agreement generally equals the price paid by a Fund plus interest
negotiated on the basis of current short-term rates (which may be more or less
than the rate on the securities underlying the repurchase agreement).
Securities subject to a repurchase agreement will be held by a Fund's custodian
or sub-custodian in a segregated account or in the Federal Reserve/Treasury
book-entry system. Repurchase agreements are considered to be loans by a Fund
under the Investment Company Act of 1940, as amended, (the "1940 Act").
Each Fund may enter into reverse repurchase agreements. Whenever a Fund
enters into a reverse repurchase agreement, it will place in a segregated
custodial account liquid assets such as cash or liquid portfolio securities
equal to the repurchase price (including accrued interest). The Fund will
monitor the account to ensure such equivalent value is maintained. Reverse
repurchase agreements are considered to be borrowings by a Fund under the 1940
Act.
A Fund that loans portfolio securities would continue to accrue interest on
the securities loaned and would also earn income on the loans. Any cash
collateral received by the Funds would be invested in high quality, short-term
"money market" instruments.
U.S. GOVERNMENT SECURITIES
Examples of the types of obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities (hereinafter, "U.S. Government
obligations") that may be held by the Funds include, without limitation, direct
obligations of the U.S. Treasury, and securities issued or guaranteed by the
Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, Federal
Housing Administration, Farmers Home Administration, Export-Import Bank of the
United States, Small Business Administration, Government National Mortgage
Association, Federal National Mortgage Association, General Services
Administration, Central Bank for Cooperatives, Federal Home Loan Mortgage
Corporation, Federal Intermediate Credit Banks, Resolution Trust Corporation and
Maritime Administration.
DERIVATIVE SECURITIES
PUT AND CALL OPTIONS -- EQUITY GROWTH, EQUITY INCOME,
SMALL COMPANY EQUITY AND ASSET ALLOCATION FUNDS
The Equity Growth, Equity Income, Small Company Equity and Asset Allocation
Funds may purchase put and call options issued by the Options Clearing
Corporation which are listed on a national securities exchange. Such options
may relate to particular securities or to various stock indexes, except that a
Fund may not write covered call options on an index. A Fund may not purchase
options unless immediately after any such transaction the aggregate amount of
premiums paid for put or call options does not exceed 5% of its total assets.
Purchasing options is a specialized investment technique that may entail the
risk of a complete loss of the amounts paid as premiums to the writer of the
option.
-3-
<PAGE>
In order to close out call or put option positions, a Fund will be required
to enter into a "closing purchase transaction" -- the purchase of a call or put
option (depending upon the position being closed out) on the same security with
the same exercise price and expiration date as the option that it previously
wrote. When a portfolio security subject to a call option is sold, a Fund will
effect a closing purchase transaction to close out any existing call option on
that security. If a Fund is unable to effect a closing purchase transaction, it
will not be able to sell the underlying security until the option expires or a
Fund delivers the underlying security upon exercise.
In contrast to an option on a particular security, an option on an index
provides the holder with the right to make or receive a cash settlement upon
exercise of the option. The amount of this settlement will be equal to the
difference between the closing price of the index at the time of exercise and
the exercise price of the option expressed in dollars, times a specified
multiple.
When a Fund purchases a put or call option, the premium paid by it is
recorded as an asset of the Fund. The amount of this asset will be subsequently
marked-to-market to reflect the current value of the option purchased. The
current value of the traded option is the last sale price or, in the absence of
a sale, the average of the closing bid and asked prices. If an option purchased
by a Fund expires unexercised, the Fund realizes a loss equal to the premium
paid. If a Fund enters into a closing sale transaction on an option purchased
by it, the Fund will realize a gain if the premium received by the Fund on the
closing transaction is more than the premium paid to purchase the option, or a
loss if it is less.
There are several risks associated with transactions in options on
securities. For example, there are significant differences between the
securities and options markets which could result in an imperfect correlation
between the markets, causing a given transaction not to achieve its objectives.
In addition, a liquid secondary market for particular options, whether traded
over-the-counter or on a national securities exchange may be absent for reasons
which include the following: there may be insufficient trading interest in
certain options; restrictions may be imposed by an exchange on opening
transactions, closing transactions or both; trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options or underlying securities; unusual or unforeseen circumstances may
interrupt normal operations on an exchange; the facilities of an exchange or the
Options Clearing Corporation may not at all times be adequate to handle current
trading volume; or one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that exchange (or in that class or series of options) would cease to
exist, although outstanding options that had been issued by the Options Clearing
Corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms. A Fund will likely be unable to
control losses by closing its position where a liquid secondary market does not
exist. Moreover, regardless of how much the market price of the underlying
security increases or decreases, the option buyer's risk is limited to the
amount of the original investment for the purchase of the option. However,
options may be more volatile than their underlying
-4-
<PAGE>
securities, and therefore, on a percentage basis, an investment in options may
be subject to greater fluctuation than an investment in the underlying
securities.
A decision as to whether, when and how to use options involves the exercise
of skill and judgment, and even a well-conceived transaction may be unsuccessful
to some degree because of market behavior or unexpected events.
COVERED CALL OPTIONS -- EQUITY VALUE, EQUITY GROWTH, EQUITY INCOME,
INTERNATIONAL EQUITY, SMALL COMPANY EQUITY AND ASSET ALLOCATION FUNDS
The Equity Value, Equity Growth, Equity Income, International Equity, Small
Company Equity and Asset Allocation Funds may write listed covered call options.
A listed call option gives the purchaser of the option the right to buy from a
clearing corporation, and obligates the writer to sell to the clearing
corporation, the underlying security at the stated exercise price at any time
prior to the expiration of the option, regardless of the market price of the
security. The premium paid to the writer is consideration for undertaking the
obligations under the option contract. If an option expires unexercised, the
writer realizes a gain in the amount of the premium. Such a gain may be offset
by a decline in the market price of the underlying security during the option
period.
A Fund may terminate its obligation to sell prior to the expiration date of
the option by executing a closing purchase transaction, which is effected by
purchasing on an exchange an option of the same series (i.e., same underlying
security, exercise price and expiration date) as the option previously written.
Such a purchase does not result in the ownership of an option. A closing
purchase transaction will ordinarily be effected to realize a profit on an
outstanding call option, to prevent an underlying security from being called, to
permit the sale of the underlying security or to permit the writing of a new
call option containing different terms on such underlying security. The cost of
such a liquidating purchase plus transaction costs may be greater than the
premium received upon the original option, in which event the writer will have
incurred a loss in the transaction. An option position may be closed out only
on an exchange that provides a secondary market for an option of the same
series. There is no assurance that a liquid secondary market on an exchange will
exist for any particular option. A covered option writer, unable to effect a
closing purchase transaction, will not be able to sell the underlying security
until the option expires or the underlying security is delivered upon exercise.
The writer in such circumstances will be subject to the risk of market decline
of the underlying security during such period. A Fund will write an option on a
particular security only if Fleet and/or Oechsle believes that a liquid
secondary market will exist on an exchange for options of the same series, which
will permit the Fund to make a closing purchase transaction in order to close
out its position.
When a Fund writes an option, an amount equal to the net premium (the
premium less the commission) received by the Fund is included as a deferred
credit in the liability section of the Fund's statement of assets and
liabilities. The amount of the deferred credit will be subsequently
marked-to-market to reflect the current value of the option written. The
current value of the traded option is the last sale price or, in the absence of
a sale price, the average of the closing bid
-5-
<PAGE>
and asked prices. If an option expires on the stipulated expiration date or if
a Fund enters into a closing purchase transaction, it will realize a gain (or
loss if the cost of a closing purchase transaction exceeds the net premium
received when the option is sold), and the deferred credit related to such
option will be eliminated. If an option is exercised, the Fund may deliver the
underlying security from its portfolio and purchase the underlying security in
the open market. In either event, the proceeds of the sale will be increased by
the net premium originally received, and the Fund will realize a gain or loss.
Premiums from expired call options written by a Fund and net gains from closing
purchase transactions are treated as short-term capital gains for federal income
tax purposes, and losses on closing purchase transactions are treated as
short-term capital losses.
OPTIONS ON FOREIGN STOCK INDEXES -- INTERNATIONAL EQUITY FUND
The effectiveness of purchasing or writing stock index options as a hedging
technique will depend upon the extent to which price movements in the portion of
the securities portfolio of the International Equity Fund correlate with price
movements of the stock index selected. Because the value of an index option
depends upon movements in the level of the index rather than the price of a
particular stock, whether the Fund realizes a gain or loss from the purchase or
writing of options on an index is dependent upon movements in the level of stock
prices in the stock market generally or, in the case of certain indexes, in an
industry or market segment, rather than movements in the price of a particular
stock. Accordingly, successful use by the Fund of options on stock indexes will
be subject to Fleet's and/or Oechsle's ability to predict correctly movements in
the direction of the stock market generally or of a particular industry. This
requires different skills and techniques than predicting changes in the price of
individual stocks. There can be no assurance that such judgment will be
accurate or that the use of these portfolio strategies will be successful. The
Fund will engage in stock index options transactions that are determined to be
consistent with its efforts to control risk.
When the Fund writes an option on a stock index, the Fund will establish a
segregated account with its custodian or with a foreign sub-custodian in which
the Fund will deposit cash or other liquid assets in an amount equal to the
market value of the option, and will maintain the account while the option is
open.
PUT AND CALL OPTIONS -- MIDCAP EQUITY AND STRATEGIC EQUITY FUNDS
The MidCap Equity and Strategic Equity Funds may purchase and sell put
options on their portfolio securities as described in the Prospectuses.
STOCK INDEX FUTURES AND OPTIONS -- MIDCAP EQUITY AND STRATEGIC EQUITY FUNDS
The MidCap Equity and Strategic Equity Funds may utilize stock index
futures contracts and options on stocks, stock indices and stock index futures
contracts for the purposes of managing cash flows into and out of their
respective portfolios and potentially reducing transactional costs. The Funds
may not use stock index futures contracts and options for speculative purposes.
-6-
<PAGE>
As a means of reducing fluctuations in the net asset value of shares of the
Funds, the Funds may attempt to hedge all or a portion of their respective
portfolios through the purchase of listed put options on stocks, stock indices
and stock index futures contracts. These options will be used as a form of
forward pricing to protect portfolio securities against decreases in value
resulting from market factors, such as an anticipated increase in interest
rates. A purchased put option gives a Fund, in return for a premium, the right
to sell the underlying security to the writer (seller) at a specified price
during the term of the option. Put options on stock indices are similar to put
options on stocks except for the delivery requirements. Instead of giving a
Fund the right to make delivery of stock at a specified price, a put option on a
stock index gives the Fund, as holder, the right to receive an amount of cash
upon exercise of the option.
The Funds may also write covered call options. As the writer of a call
option, a Fund has the obligation upon exercise of the option during the option
period to deliver the underlying security upon payment of the exercise price.
The Funds may only: (1) buy listed put options on stock indices and stock
index futures contracts; (2) buy listed put options on securities held in their
respective portfolios; and (3) sell listed call options either on securities
held in their respective portfolios or on securities which they have the right
to obtain without payment of further consideration (or have segregated cash in
the amount of any such additional consideration). A Fund will maintain its
positions in securities, option rights, and segregated cash subject to puts and
calls until the options are exercised, closed or expired. A Fund may also enter
into stock index futures contracts. A stock index futures contract is a
bilateral agreement which obligates the seller to deliver (and the purchaser to
take delivery of) an amount of cash equal to a specific dollar amount times the
difference between the value of a specific stock index at the close of trading
of the contract and the price at which the agreement is originally made. There
is no physical delivery of the stocks constituting the index, and no price is
paid upon entering into a futures contract.
In general, option contracts are closed out prior to their expiration. A
Fund, when purchasing or selling a futures contract, will initially be required
to deposit in a segregated account in the broker's name with the Fund's
custodian an amount of cash or liquid portfolio securities approximately equal
to 5% - 10% of the contract value. This amount is known as "initial margin,"
and it is subject to change by the exchange or board of trade on which the
contract is traded. Subsequent payments to and from the broker are made on a
daily basis as the price of the index or the securities underlying the futures
contract fluctuates. These payments are known as "variation margins," and the
fluctuation in value of the long and short positions in the futures contract is
a process referred to as "marking to market." A Fund may decide to close its
position on a contract at any time prior to the contract's expiration. This is
accomplished by the Fund taking an opposite position at the then prevailing
price, thereby terminating its existing position in the contract. Because the
initial margin resembles a performance bond or good-faith deposit on the
contract, it is returned to the Fund upon the termination of the contract,
assuming that all contractual obligations have been satisfied. Therefore, the
margin utilized in futures contracts is readily distinguishable from the margin
employed in security transactions, since the
-7-
<PAGE>
margin employed in futures contracts does not involve the borrowing of funds to
finance the transaction.
RESTRICTIONS ON USE OF FUTURES CONTRACTS AND OPTIONS -- MIDCAP EQUITY AND
STRATEGIC EQUITY FUNDS
Neither the MidCap Equity Fund nor the Strategic Equity Fund will enter
into futures contracts to the extent that, immediately thereafter, the sum of
its initial margin deposits on open contracts exceeds 5% of the market value of
its total assets. Further, a Fund will enter into stock index futures contracts
only for bona fide hedging purposes or such other purposes permitted under Part
4 of the regulations promulgated by the Commodity Futures Trading Commission.
Also, a Fund may not enter into stock index futures contracts and options to the
extent that the value of such contracts would exceed 20% of the Fund's total net
assets and may not purchase put options to the extent that more than 5% of the
value of the Fund's total assets would be invested in premiums on open put
option positions.
INDEXED SECURITIES -- MIDCAP EQUITY AND STRATEGIC EQUITY FUNDS
The MidCap Equity and Strategic Equity Funds may invest in indexed
securities whose value is linked to foreign currencies, interest rates,
commodities, indices or other financial indicators. Most indexed securities are
short- to intermediate-term fixed income securities whose values at maturity or
interest rates rise or fall according to the change in one or more specified
underlying instruments. Indexed securities may be positively or negatively
indexed (i.e., their value may increase or decrease if the underlying instrument
appreciates), and may have return characteristics similar to direct investments
in the underlying instrument or to one or more options on the underlying
instrument. Indexed securities may be more volatile than the underlying
instrument itself.
SWAP AGREEMENTS -- MIDCAP EQUITY AND STRATEGIC EQUITY FUNDS
As one way of managing their exposure to different types of investments,
the MidCap Equity and Strategic Equity Funds may enter into interest rate swaps,
currency swaps, and other types of swap agreements such as caps, collars, and
floors. In a typical interest rate swap, one party agrees to make regular
payments equal to a floating interest rate times a "notional principal amount,"
in return for payments equal to a fixed rate times the same amount, for a
specified period of time. If a swap agreement provides for payments in
different currencies, the parties might agree to exchange notional principal
amount as well. Swaps may also depend on other prices or rates, such as the
value of an index or mortgage prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by the
other party. For example, the buyer of an interest rate cap obtains the right
to receive payments to the extent that a specified interest rate exceeds an
agreed upon level, while the seller of an interest rate floor is obligated to
make payments to the extent that a specified interest rate falls below an agreed
upon level. An interest rate collar combines elements of buying a cap and
selling a floor.
-8-
<PAGE>
Swap agreements will tend to shift a Fund's investment exposure from one
type of investment to another. For example, if a Fund agreed to exchange
payments in dollars for payments in foreign currency, the swap agreement would
tend to decrease the Fund's exposure to U.S. interest rates and increase its
exposure to foreign currency and interest rates. Caps and floors have an effect
similar to buying or writing options. Depending on how they are used, swap
agreements may increase or decrease the overall volatility of a Fund's
investments and its share price and yield.
Swap agreements are sophisticated hedging instruments that typically
involve a small investment of cash relative to the magnitude of risks assumed.
As a result, swaps can be highly volatile and may have a considerable impact on
the Funds' performance. Swap agreements are subject to risks related to the
counterparty's ability to perform, and may decline in value if the
counterparty's creditworthiness deteriorates. The Funds may also suffer losses
if they are unable to terminate outstanding swap agreements or reduce their
exposure through offsetting transactions.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Because the Funds may buy and sell securities denominated in currencies
other than the U.S. dollar, and receive interest, dividends and sale proceeds in
currencies other than the U.S. dollar, the Funds may enter into foreign currency
exchange transactions to convert United States currency to foreign currency and
foreign currency to United States currency as well as convert foreign currency
to other foreign currencies. A Fund either enters into these transactions on a
spot (i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market, or uses forward contracts to purchase or sell foreign
currencies.
A forward foreign currency exchange contract is an obligation by a Fund to
purchase or sell a specific currency at a specified price and future date, which
may be any fixed number of days from the date of the contract. Forward foreign
currency exchange contracts establish an exchange rate at a future date. These
contracts are transferable in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A
forward foreign currency exchange contract generally has no deposit requirement
and is traded at a net price without commission. Neither spot transactions nor
forward foreign currency exchange contracts eliminate fluctuations in the prices
of a Fund's portfolio securities or in foreign exchange rates, or prevent loss
if the prices of these securities should decline.
The Funds may enter into foreign currency hedging transactions in an
attempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or changes in
foreign currency exchange rates that would adversely affect a portfolio position
or an anticipated portfolio position. Since consideration of the prospect for
currency parities will be incorporated into a Fund's long-term investment
decisions, the Funds will not routinely enter into foreign currency hedging
transactions with respect to portfolio security transactions; however, it is
important to have the flexibility to enter into foreign currency hedging
transactions when it is determined that the transactions would be
-9-
<PAGE>
in the Fund's best interest. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be realized should the
value of the hedged currency increase. The precise matching of the forward
contract amounts and the value of the securities involved will not generally be
possible because the future value of these securities in foreign currencies will
change as a consequence of market movements in the value of those securities
between the date the forward contract is entered into and the date it matures.
The projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.
ADDITIONAL INVESTMENT LIMITATIONS
In addition to the investment limitations disclosed in their Prospectuses,
the Funds are subject to the following investment limitations, which may be
changed with respect to a particular Fund only by a vote of the holders of a
majority of such Fund's outstanding shares (as defined under "Miscellaneous" in
the Prospectuses).
Each Fund may not:
1. Purchase securities on margin (except such short-term credits as may
be necessary for the clearance of purchases), make short sales of
securities, or maintain a short position.
2. Act as an underwriter within the meaning of the Securities Act of
1933; except insofar as a Fund might be deemed to be an underwriter
upon disposition of restricted portfolio securities; and except to the
extent that the purchase of securities directly from the issuer
thereof in accordance with the Fund's investment objective, policies
and limitations may be deemed to be underwriting.
3. Purchase or sell real estate; except that each Fund may purchase
securities that are secured by real estate, and the Funds may purchase
securities of issuers which deal in real estate or interests therein;
however, the Funds will not purchase or sell interests in real estate
limited partnerships.
4. Purchase or sell commodities or commodity contracts or invest in oil,
gas, or other mineral exploration or development programs or mineral
leases; provided however, that (i) the Equity Value, Equity Growth,
Equity Income, International Equity, Small Company Equity and Asset
Allocation Funds may enter into forward currency contracts and foreign
currency futures contracts and related options to the extent permitted
by their respective investment objectives and policies, and (ii) the
MidCap Equity and Strategic Equity Funds may engage in transactions
involving financial futures contracts or options on financial futures
contracts.
5. Invest in or sell put options, call options, straddles, spreads, or
any combination thereof; provided, however, that each of the Equity
Value, Equity Growth, Equity Income, International Equity, Small
Company Equity and Asset Allocation Funds
-10-
<PAGE>
may write covered call options with respect to its portfolio
securities that are traded on a national securities exchange, and may
enter into closing purchase transactions with respect to such options
if, at the time of the writing of such options, the aggregate value of
the securities subject to the options written by the Fund does not
exceed 25% of the value of its total assets; and further provided that
(i) the Equity Growth, Equity Income, International Equity, Small
Company Equity and Asset Allocation Funds may purchase put and call
options to the extent permitted by their investment objectives and
policies, and (ii) the MidCap Equity and Strategic Equity Funds may
buy and sell options, including without limit buying or writing puts
and calls, based on any type of security, index or currency, including
options on foreign exchanges and options not traded on exchanges.
6. Invest in companies for the purpose of exercising management or
control.
7. Purchase securities of other investment companies except in connection
with a merger, consolidation, reorganization, or acquisition of
assets; provided, however, that the Funds may acquire such securities
in accordance with the 1940 Act; and further provided, that each of
the MidCap Equity and Strategic Equity Funds may from time to time, on
a temporary basis, invest exclusively in one other investment company
similar to the respective Fund.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Funds are sold on a continuous basis by First Data
Distributors, Inc. ("FD Distributors"), and FD Distributors has agreed to use
appropriate efforts to solicit all purchase orders. As described in the
Prospectuses, Retail A Shares and Retail B Shares of the Funds are sold to
customers ("Customers") of FIS Securities, Inc., Fleet Brokerage Securities,
Inc., Fleet Securities, Inc., Fleet Enterprises, Inc., Fleet Financial Group,
Inc., its affiliates, their correspondent banks, and other qualified banks,
savings and loan associations and broker/dealers ("Institutions"). As
described in the Prospectuses, Retail A Shares and Retail B Shares of the
Funds may also be sold to individuals, corporations or other entities, who
submit a purchase application to Galaxy, purchasing either for their own
accounts or for the accounts of others ("Direct Investors").
Retail A Shares of the Funds are sold to Direct Investors and Customers at
the public offering price based on a Fund's net asset value plus a front-end
sales charge as described in the applicable Prospectus. A deferred sales charge
of up to 1.00% is assessed on certain redemptions of Retail A Shares that are
purchased with no initial sales charge as part of an investment of $500,000 or
more. Retail B Shares of the Funds are sold to Direct Investors and Customers
at the net asset value next determined after a purchase order is received, but
are subject to a contingent deferred sales charge which is payable on redemption
of such shares as described in the Prospectus.
-11-
<PAGE>
Retail A Shares of the Funds are offered for sale with a maximum front-end
sales charge of 3.75%, with certain exemptions as described in the Prospectus.
An illustration of the computation of the offering price per share of Retail A
Shares of the Funds, using the value of each Fund's net assets attributable to
such Shares and the number of outstanding Retail A Shares of each Fund at the
close of business on April 30, 1998 (with respect to the MidCap Equity Fund,
based on the projected value of the Fund's net assets and the projected number
of outstanding Retail A Shares of the Fund on the date such Shares are first
offered for sale to public investors) and the maximum front-end sales charge of
3.75%, is as follows:
<TABLE>
<CAPTION>
Equity Value Equity Growth
Fund Fund
------------ -------------
<S> <C> <C>
Net Assets . . . . . . . . . . . . . . $246,841,192 $307,669,547
Outstanding Shares . . . . . . . . . . 13,765,489 12,066,975
Net Asset Value Per Share. . . . . . . $ 17.93 $ 25.50
Sales Charge (3.75% of
the offering price). . . . . . . . . . $ 0.70 $ 0.99
Offering Price to Public . . . . . . . $ 18.63 $ 26.49
<CAPTION>
Equity International
Income Fund Equity Fund
------------ -------------
<S> <C> <C>
Net Assets . . . . . . . . . . . . . . $215,567,310 $66,243,935
Outstanding Shares . . . . . . . . . . 10,598,146 3,710,396
Net Asset Value Per Share. . . . . . . $ 20.34 $ 17.85
Sales Charge (3.75% of
the offering price). . . . . . . . . . $ 0.79 $ 0.70
Offering Price to Public . . . . . . . $ 21.13 $ 18.55
</TABLE>
-12-
<PAGE>
<TABLE>
<CAPTION>
Small Company MidCap
Equity Fund Equity Fund
------------- -------------
<S> <C> <C>
Net Assets . . . . . . . . . . . . . . $142,911,306 $ 10
Outstanding Shares . . . . . . . . . . 7,330,273 1
Net Asset Value Per Share. . . . . . . $ 19.50 $ 10.00
Sales Charge (3.75% of
the offering price). . . . . . . . . . $ 0.76 $ 0.39
Offering Price to Public . . . . . . . $ 20.26 $ 10.39
<CAPTION>
Asset Allocation Strategic Equity
Fund Fund
---------------- ---------------
<S> <C> <C>
Net Assets . . . . . . . . . . . . . . $268,997,155 $ 1,064,046
Outstanding Shares . . . . . . . . . . 15,976,364 104,578
Net Asset Value Per Share. . . . . . . $ 16.84 $ 10.17
Sales Charge (3.75% of
the offering price). . . . . . . . . . $ 0.66 $ 0.40
Offering Price to Public . . . . . . . $ 17.50 $ 10.57
</TABLE>
If the Board of Trustees determines that conditions exist which make
payment of redemption proceeds wholly in cash unwise or undesirable, Galaxy may
make payment wholly or partly in securities or other property. Such redemptions
will only be made in "readily marketable" securities. In such an event, a
shareholder would incur transaction costs in selling the securities or other
property.
Galaxy may suspend the right of redemption or postpone the date of payment
for shares for more than seven days during any period when (a) trading in the
markets the Funds normally utilize is restricted, or an emergency, as defined by
the rules and regulations of the Securities and Exchange Commission (the "SEC")
exists making disposal of a Fund's investments or determination of its net asset
value not reasonably practicable; (b) the New York Stock Exchange is closed
(other than customary weekend and holiday closings); or (c) the SEC by order has
permitted such suspension.
Galaxy may require any information reasonably necessary to ensure that a
redemption has been duly authorized.
-13-
<PAGE>
DESCRIPTION OF SHARES
Galaxy is a Massachusetts business trust. Galaxy's Declaration of Trust
authorizes the Board of Trustees to issue an unlimited number of shares and
to classify or reclassify any unissued shares into one or more additional
classes by setting or changing in any one or more respects their respective
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption. Pursuant to such authority, the Board of Trustees has authorized
the issuance of thirty classes of shares, each representing interests in one
of thirty separate investment portfolios: Money Market Fund, Government Fund,
U.S. Treasury Fund, Tax-Exempt Fund, Connecticut Municipal Money Market Fund,
Massachusetts Municipal Money Market Fund, Institutional Government Money
Market Fund, Prime Reserves, Government Reserves, Tax-Exempt Reserves, Equity
Value Fund, Equity Growth Fund, Equity Income Fund, International Equity
Fund, Small Company Equity Fund, MidCap Equity Fund, Asset Allocation Fund,
Small Cap Value Fund, Growth and Income Fund, Strategic Equity Fund,
Short-Term Bond Fund, Intermediate Government Income Fund, High Quality Bond
Fund, Corporate Bond Fund, Tax-Exempt Bond Fund, New Jersey Municipal Bond
Fund, New York Municipal Bond Fund, Connecticut Municipal Bond Fund,
Massachusetts Municipal Bond Fund and Rhode Island Municipal Bond Fund. In
addition to the Retail A Shares and Retail B Shares offered by the
Prospectuses to which this Statement of Additional Information relates, three
separate series of shares (Trust Shares, A Prime Shares and B Prime Shares)
for the Funds are offered under separate Prospectuses to different categories
of investors.
Shares have no preemptive rights and only such conversion or exchange
rights as the Board of Trustees may grant in its discretion. When issued for
payment as described in the Prospectuses, shares will be fully paid and
non-assessable. Each series of shares (i.e., Retail A Shares, Retail B
Shares, Trust Shares, A Prime Shares and B Prime Shares) bear pro rata the
same expenses and are entitled equally to a Fund's dividends and
distributions except as follows. Each series will bear the expenses of any
distribution and/or shareholder servicing plans applicable to such series.
For example, as described below, holders of Retail A Shares will bear the
expenses of the Shareholder Services Plan for Retail A Shares and Trust
Shares (which is currently applicable only to Retail A Shares) and holders of
Retail B Shares will bear the expenses of the Distribution and Services Plan
for Retail B Shares. In addition, each series may incur differing transfer
agency fees and may have differing sales charges. In the event of a
liquidation or dissolution of Galaxy or an individual Fund, shareholders of a
particular Fund would be entitled to receive the assets available for
distribution belonging to such Fund, and a proportionate distribution, based
upon the relative asset values of Galaxy's respective Funds, of any general
assets of Galaxy not belonging to any particular Fund, which are available
for distribution. Shareholders of a Fund are entitled to participate in the
net distributable assets of the particular Fund involved in liquidation based
on the number of shares of the Fund that are held by each shareholder, except
that each series of a Fund would be solely responsible for the Fund's
payments under any distribution and/or shareholder servicing plan applicable
to such series.
-14-
<PAGE>
Holders of all outstanding shares of a particular Fund will vote together
in the aggregate and not by series on all matters, except that only shares of a
particular series will be entitled to vote on matters submitted to shareholders
pertaining to any distribution and/or shareholder servicing plan for such
series (e.g., only Retail A Shares and Trust Shares of a Fund will be entitled
to vote on matters submitted to a vote of shareholders pertaining to Galaxy's
Shareholder Services Plan for Retail A and Trust Shares and only Retail B Shares
of a Fund will be entitled to vote on matters submitted to a vote of
shareholders pertaining to Galaxy's Distribution and Services Plan for Retail B
Shares). Further, shareholders of all of the Funds, as well as those of any
other investment portfolio now or hereafter offered by Galaxy, will vote
together in the aggregate and not separately on a Fund-by-Fund basis, except as
otherwise required by law or when permitted by the Board of Trustees. Rule
18f-2 under the 1940 Act provides that any matter required to be submitted to
the holders of the outstanding voting securities of an investment company such
as Galaxy shall not be deemed to have been effectively acted upon unless
approved by the holders of a majority of the outstanding shares of each Fund
affected by the matter. A particular Fund is deemed to be affected by a matter
unless it is clear that the interests of each Fund in the matter are
substantially identical or that the matter does not affect any interest of the
Fund. Under the Rule, the approval of an investment advisory agreement or any
change in an investment objective or a fundamental investment policy would be
effectively acted upon with respect to a Fund only if approved by a majority of
the outstanding shares of such Fund (irrespective of series designation).
However, the Rule also provides that the ratification of the appointment of
independent public accountants, the approval of principal underwriting
contracts, and the election of trustees may be effectively acted upon by
shareholders of Galaxy voting without regard to class or series.
Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held. Voting rights are not cumulative
and, accordingly, the holders of more than 50% in the aggregate of Galaxy's
outstanding shares may elect all of the trustees, irrespective of the votes of
other shareholders.
Galaxy does not intend to hold annual shareholder meetings except as may be
required by the 1940 Act. Galaxy's Declaration of Trust provides that a meeting
of shareholders shall be called by the Board of Trustees upon a written request
of shareholders owning at least 10% of the outstanding shares of Galaxy entitled
to vote.
Galaxy's Declaration of Trust authorizes the Board of Trustees, without
shareholder approval (unless otherwise required by applicable law), to (a) sell
and convey the assets of a Fund to another management investment company for
consideration which may include securities issued by the purchaser and, in
connection therewith, to cause all outstanding shares of the Fund involved to be
redeemed at a price which is equal to their net asset value and which may be
paid in cash or by distribution of the securities or other consideration
received from the sale and conveyance; (b) sell and convert a Fund's assets into
money and, in connection therewith, to cause all outstanding shares of the Fund
involved to be redeemed at their net asset value; or (c) combine the assets
belonging to a Fund with the assets belonging to another Fund of Galaxy and, in
connection therewith, to cause all outstanding shares of any Fund to be redeemed
at their net asset value or converted into shares of another class of Galaxy's
shares at the net asset
-15-
<PAGE>
value. In the event that shares are redeemed in cash at their net asset value,
a shareholder may receive in payment for such shares, due to changes in the
market prices of the Fund's portfolio securities, an amount that is more or less
than the original investment. The exercise of such authority by the Board of
Trustees will be subject to the provisions of the 1940 Act, and the Board of
Trustees will not take any action described in this paragraph unless the
proposed action has been disclosed in writing to the Fund's shareholders at
least 30 days prior thereto.
ADDITIONAL INFORMATION CONCERNING TAXES
IN GENERAL
The following summarizes certain additional tax considerations generally
affecting the Funds and their shareholders that are not described in the Funds'
Prospectuses. No attempt is made to present a detailed explanation of the tax
treatment of the Funds or their shareholders, and the discussion here and in the
Prospectuses is not intended as a substitute for careful tax planning. Potential
investors should consult their tax advisers with specific reference to their own
tax situation.
Each Fund is treated as a separate corporate entity under the Internal
Revenue Code of 1986, as amended, (the "Code"), and each Fund intends to qualify
as a "regulated investment company" under the Code. By following this policy,
each Fund expects to eliminate or reduce to a nominal amount the federal income
taxes to which it may be subject. If for any taxable year a Fund does not
qualify for the special federal tax treatment afforded regulated investment
companies, all of the Fund's taxable income would be subject to tax at regular
corporate rates without any deduction for distributions to shareholders. In
such event, a Fund's distributions to shareholders would be taxable as ordinary
income, to the extent of the current and accumulated earnings and profits of the
particular Fund, and would be eligible for the dividends received deduction in
the case of corporate shareholders.
Qualification as a regulated investment company under the Code for a
taxable year requires, among other things, that each Fund distribute to its
shareholders an amount equal to at least the sum of 90% of its investment
company taxable income and 90% of its tax-exempt interest income, if any, net of
certain deductions for such year (the "Distribution Requirement"). In addition,
each Fund must satisfy certain requirements with respect to the source of its
income for a taxable year. At least 90% of the gross income of each Fund must
be derived from dividends, interest, payments with respect to securities loans,
gains from the sale or other disposition of stock, securities or foreign
currencies, and other income (including, but not limited to, gains from options,
futures, or forward contracts) derived with respect to the Fund's business of
investing in such stock, securities or currencies (the "Income Requirement").
The Treasury Department may by regulation exclude from qualifying income foreign
currency gains which are not directly related to a Fund's principal business of
investing in stock or securities, or options and futures with respect to stock
or securities. Any income derived by a Fund from a partnership or trust is
treated for this purpose as derived with respect to the Fund's business of
investing in stock, securities or currencies, only to the extent that such
income is attributable to items of
-16-
<PAGE>
income which would have been qualifying income if realized by the Fund in the
same manner as by the partnership or trust.
Substantially all of each Fund's net capital gain (excess of net long-term
capital gain over net short-term capital loss), if any, will be distributed at
least annually to Fund shareholders. A Fund will generally have no tax
liability with respect to such gains and the distributions will be taxable to
Fund shareholders who are not currently exempt from federal income taxes as
long-term capital gain regardless of how long the shareholders have held Fund
shares and whether such gains are received in cash or reinvested in additional
shares.
Each Fund will designate the tax status of any distribution in a written
notice mailed to shareholders within 60 days after the close of its taxable
year. Shareholders should note that, upon the sale or exchange of Fund shares,
if the shareholder has not held such shares for more than six months, any loss
on the sale or exchange of those shares will be treated as long term capital
loss to the extent of the capital gain dividends received with respect to the
shares.
Ordinary income of individuals is taxable at a maximum nominal rate of
39.6%, but because of limitations on itemized deductions otherwise allowable and
the phase-out of personal exemptions, the maximum effective marginal rate of tax
for some taxpayers may be higher. An individual's long-term capital gains on
stocks and securities are taxable at a maximum nominal rate of 20% . For
corporations, long-term capital gains and ordinary income are both taxable at a
maximum average rate of 35% (a maximum effective marginal rate of 39% applies in
the case of corporations having taxable income between $100,000 and $335,000).
A 4% non-deductible excise tax is imposed on regulated investment companies
that fail to currently distribute specified percentages of their ordinary
taxable income and capital gain net income (excess of capital gains over capital
losses). Each Fund intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and any capital gain net income
prior to the end of each calendar year to avoid liability for this excise tax.
The Funds will be required in certain cases to withhold and remit to the
United States Treasury 31% of taxable dividends or gross sale proceeds paid to
any shareholder who (i) has failed to provide a correct tax identification
number, (ii) is subject to backup withholding due to prior failure to properly
include on his or her return payments of taxable interest or dividends, or (iii)
has failed to certify to the Funds that he or she is not subject to back up
withholding when required to do so or that he or she is an "exempt recipient."
Income received by the Funds from sources within foreign countries may be
subject to withholding and other foreign taxes. The payment of such taxes will
reduce the amount of dividends and distributions paid to a Fund's shareholders.
So long as a Fund qualifies as a regulated investment company, certain
distribution requirements are satisfied, and more than 50% of the value of the
Fund's assets at the close of the taxable year consists of stock or securities
of foreign corporations, the Fund may elect, for U.S. federal income tax
purposes, to treat foreign income taxes paid by the Fund that can be treated as
income taxes under U.S. income tax principles as paid by its shareholders. A
Fund may qualify for and make this election
-17-
<PAGE>
in some, but not necessarily all, of its taxable years. If a Fund were to make
an election, an amount equal to the foreign income taxes paid by the Fund would
be included in the income of its shareholders and each shareholder would be
entitled either (i) to credit their portions of this amount against their U.S.
tax due, if any, or (ii) if the shareholder itemizes deductions, to deduct such
portion from their U.S. taxable income, if any, should the shareholder so
choose. Shortly after any year for which it makes such an election, a Fund will
report to its shareholders, in writing, the amount per share of such foreign tax
that must be included in each shareholder's gross income and the amount which
will be available for deduction or credit. Certain limitations are imposed on
the extent to which the credit (but not the deduction) for foreign taxes may be
claimed.
Shareholders who choose to utilize a credit (rather than a deduction) for
foreign taxes will be subject to the limitation that the credit may not exceed
the shareholder's U.S. tax (determined without regard to the availability of the
credit) attributable to his or her total foreign source taxable income. For
this purpose, the portion of dividends and distributions paid by the Fund from
its foreign source income will be treated as foreign source income. A Fund's
gains and losses from the sale of securities generally will be treated as
derived from United States sources and certain foreign currency gains and losses
likewise will be treated as derived from United States sources. The limitation
on the foreign tax credit is applied separately to foreign source "passive
income," such as the portion of dividends received from a Fund which qualifies
as foreign source income. Additional limitations apply to using the foreign tax
credit to offset the alternative minimum tax imposed on corporations and
individuals. Because of these limitations, shareholders may be unable to claim
a credit for the full amount of their proportionate shares of the foreign income
taxes paid by a Fund.
TAXATION OF CERTAIN FINANCIAL INSTRUMENTS
Strategic rules govern the federal income tax treatment of financial
instruments that may be held by the Funds. These rules may have a particular
impact on the amount of income or gain that the Funds must distribute to their
respective shareholders to comply with the Distribution Requirement and on the
income or gain qualifying under the Income Requirement.
Generally, futures contracts and options on futures contracts held by the
Funds and certain foreign currency contracts entered into by the Funds (as
described above) (collectively, the "Instruments") at the close of their taxable
year are treated for federal income tax purposes as sold for their fair market
value on the last business day of such year, a process known as
"mark-to-market." Forty percent of any gain or loss resulting from such
constructive sales will be treated as short-term capital gain or loss and 60% of
such gain or loss will be treated as long-term capital gain or loss without
regard to the period a Fund has held the Instruments ("the 40-60 rule"). The
amount of any capital gain or loss actually realized by a Fund in a subsequent
sale or other disposition of those Instruments is adjusted to reflect any
capital gain or loss taken into account by the Fund in a prior year as a result
of the constructive sale of the Instruments. Losses with respect to certain
foreign currency contracts, which are regarded as parts of a "mixed straddle"
because their values fluctuate inversely to the values of specific securities
held by the Funds, are subject to certain loss deferral rules, which limit the
amount of loss currently
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<PAGE>
deductible on either part of the straddle to the amount thereof that exceeds the
unrecognized gain, if any, with respect to the other part of the straddle, and
to certain wash sales regulations. With respect to certain Instruments,
deductions for interest and carrying charges may not be allowed.
Notwithstanding the rules described above, with respect to certain foreign
currency contracts that are properly identified as such, a Fund may make an
election which will exempt (in whole or in part) those identified foreign
currency contracts from the Rules of Section 1256 of the Code including "the
40-60 rule" and "mark-to-market," but gains and losses will be subject to such
short sales, wash sales and loss deferral rules and the requirement to
capitalize interest and carrying charges. Under Temporary Regulations, a Fund
would be allowed (in lieu of the foregoing) to elect either (1) to offset gains
or losses from portions which are part of a mixed straddle by separately
identifying each mixed straddle to which such treatment applies, or (2) to
establish a mixed straddle account for which gains and losses would be
recognized and offset on a periodic basis during the taxable year. Under either
election, "the 40-60 rule" will apply to the net gain or loss attributable to
the Instruments, but in the case of a mixed straddle account election, not more
than 50% of any net gain may be treated as long-term and no more than 40% of any
net loss may be treated as short-term.
Certain foreign currency contracts entered into by a Fund may be subject to
the "mark-to-market" process, but gain or loss will be treated as 100% ordinary
income or loss. A foreign currency contract must meet the following conditions
in order to be subject to the mark-to-market rules described above: (1) the
contract must require delivery of, or settlement by reference to the value of, a
foreign currency of a type in which regulated futures contracts are traded; (2)
the contract must be entered into at arm's length at a price determined by
reference to the price in the interbank market; and (3) the contract must be
traded in the interbank market. The Treasury Department has broad authority to
issue regulations under the provisions respecting foreign currency contracts.
As of the date of this Statement of Additional Information, the Treasury
Department has not issued any such regulations. Other foreign currency
contracts entered into by a Fund may result in the creation of one or more
straddles for federal income tax purposes, in which case certain loss deferral,
short sales, and wash sales rules and the requirement to capitalize interest and
carrying charges may apply.
Some of the non-U.S. dollar denominated investments that a Fund may make,
such as foreign securities, European Depository Receipts, Global Depository
Receipts and foreign currency contracts, may be subject to the provisions of
Subpart J of the Code, which govern the federal income tax treatment of certain
transactions denominated in terms of a currency other than the U.S. dollar or
determined by reference to the value of one or more currencies other than the
U.S. dollar. The types of transactions covered by these provisions include the
following: (1) the acquisition of, or becoming the obligor under, a bond or
other debt instrument (including, to the extent provided in Treasury
regulations, preferred stock); (2) the accruing of certain trade receivables and
payables; and (3) the entering into or acquisition of any forward contract,
futures contract, option and similar financial instrument. The disposition of a
currency other than the U.S. dollar by a U.S. taxpayer also is treated as a
transaction subject to the special currency rules. However, foreign
currency-related regulated futures contracts and nonequity options are generally
not subject to the special currency rules if they are or would be treated as
sold for their fair market value at year-end under the mark-to-market rules,
unless an election is made to have
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such currency rules apply. With respect to transactions covered by the special
rules, foreign currency gain or loss is calculated separately from any gain or
loss on the underlying transaction and is normally taxable as ordinary gain or
loss. A taxpayer may elect to treat as capital gain or loss foreign currency
gain or loss arising from certain identified forward contracts, futures
contracts and options that are capital assets in the hands of the taxpayer and
which are not part of a straddle. In accordance with Treasury regulations,
certain transactions that are part of a "Section 988 hedging transaction" (as
defined in the Code and Treasury regulations) may be integrated and treated as a
single transaction or otherwise treated consistently for purposes of the Code.
"Section 988 hedging transactions" are not subject to the mark-to-market or loss
deferral rules under the Code. Gain or loss attributable to the foreign
currency component of transactions engaged in by the Funds, which is not subject
to the special currency rules (such as foreign equity investments other than
certain preferred stocks), is treated as capital gain or loss and is not
segregated from the gain or loss on the underlying transaction.
The Funds may be subject to U.S. federal income tax on a portion of any
"excess distribution" or a gain from the disposition of stock of a passive
foreign investment company even if the Fund distributes the income to its
shareholders. To avoid such tax, a Fund may instead elect to treat such a
company as a "qualified electing fund" or to mark such stock to market as of the
end of each year; under either of these alternative approaches the Fund may also
recognize taxable income in a year without receiving any corresponding amount of
cash.
STATE TAXATION
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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<TABLE>
<CAPTION>
Principal Occupation
Positions with During Past 5 Years
Name and Address The Galaxy Fund and Other Affiliations
- ---------------- --------------- ----------------------
<S> <C> <C>
Dwight E. Vicks, Jr. Chairman & President & Director, Vicks
Vicks Lithograph & Trustee Lithograph & Printing
Printing Corporation Corporation (book manufacturing
Commercial Drive and commercial printing);
P.O. Box 270 Director, Utica Fire Insurance
Yorkville, NY 13495 Company; Trustee, Savings Bank
Age 64 of Utica; Director, Monitor
Life Insurance Company;
Director, Commercial Travelers
Mutual Insurance Company;
Trustee, The Galaxy VIP Fund;
Trustee, Galaxy Fund II.
John T. O'Neill(1) President, Executive Vice President and
Hasbro, Inc. Treasurer & CFO, Hasbro, Inc. (toy and game
1027 Newport Avenue Trustee manufacturer); Trustee, The
Pawtucket, RI 02862 Galaxy VIP Fund; Trustee,
Age 53 Galaxy Fund II.
Louis DeThomasis Trustee President, Saint Mary's
Saint Mary's College College of Minnesota; Director,
of Minnesota Bright Day Travel, Inc.;
Winona, MN 55987 Trustee, Religious Communities
Age 57 Trust; Trustee, The Galaxy VIP
Fund; Trustee, Galaxy Fund II.
Donald B. Miller Trustee Chairman, Horizon Media, Inc.
10725 Quail Covey Road (broadcast services);
Boynton Beach, FL 33436 Director/Trustee, Lexington
Age 72 Funds; Chairman, Executive
Committee, Compton
International, Inc.
(advertising agency); Trustee,
Keuka College; Trustee, The
Galaxy VIP Fund; Trustee,
Galaxy Fund II.
James M. Seed Trustee Chairman and President, The
The Astra Ventures, Inc. Astra Projects, Incorporated
One Citizens Plaza (land development); President,
Providence, RI 02903 The Astra Ventures,
Age 56 Incorporated (previously,
Buffinton Box Company -
manufacturer of cardboard
boxes); Commissioner, Rhode
Island
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<PAGE>
<CAPTION>
Principal Occupation
Positions with During Past 5 Years
Name and Address The Galaxy Fund and Other Affiliations
- ---------------- --------------- ----------------------
<S> <C> <C>
Investment Commission;
Trustee, The Galaxy VIP Fund;
Trustee, Galaxy Fund II.
Bradford S. Wellman(1) Trustee Private Investor; Vice
2468 Ohio Street President and Director, Acadia
Bangor, ME 04401 Management Company (investment
Age 66 services); Director, Essex
County Gas Company, until
January 1994; Director, Maine
Mutual Fire Insurance Co.;
Member, Maine Finance Authority;
Trustee, The Galaxy VIP Fund;
Trustee, Galaxy Fund II.
W. Bruce McConnel, III Secretary Partner of the law firm
Philadelphia National Drinker Biddle & Reath LLP,
Bank Building Philadelphia, Pennsylvania.
1345 Chestnut Street.
Philadelphia, PA 19107
Age 54
Jylanne Dunne Vice President Vice President, First Data
First Data Investor Services and Assistant Investor Services Group, Inc.,
Group, Inc. Treasurer 1990 to present.
4400 Computer Drive
Westboro, MA 01581-5108
Age 38
</TABLE>
- -------------------------
1. May be deemed to be an "interested" person within the definition set forth
in Section 2(a)(19) of the 1940 Act.
Effective March 5, 1998, each trustee receives an annual aggregate fee of
$40,000 for his services as a trustee of Galaxy, The Galaxy VIP Fund ("Galaxy
VIP") and Galaxy Fund II ("Galaxy II") (collectively, the "Trusts"), plus an
additional $2,500 for each in-person Galaxy Board meeting attended and $1,500
for each in-person Galaxy VIP or Galaxy II Board meeting attended not held
concurrently with an in-person Galaxy meeting, and is reimbursed for expenses
incurred in attending all meetings. Each trustee also receives $750 for each
telephone Board meeting in which the trustee participates, $1,000 for each
in-person Board committee meeting attended and $500 for each telephone Board
committee meeting in which the trustee participates. The Chairman of the Boards
of the Trusts is entitled to an additional annual aggregate fee in the
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<PAGE>
amount of $4,000, and the President and Treasurer of the Trusts is entitled to
an additional annual aggregate fee of $2,500 for their services in these
respective capacities. The foregoing trustees' and officers' fees are allocated
among the portfolios of the Trusts based on their relative net assets. Prior to
March 5, 1998, (i) each trustee received an annual aggregate fee of $29,000 for
his services as a trustee of the Trusts, plus an additional $2,250 for each
in-person Galaxy Board meeting attended and $1,500 for each in-person Galaxy VIP
or Galaxy II Board meeting attended not held concurrently with an in-person
Galaxy Board meeting, and (ii) the President and Treasurer of the Trusts
received the same fees as they are currently paid for their services in these
capacities.
Effective March 1, 1996, each trustee became entitled to participate in The
Galaxy Fund, The Galaxy VIP Fund and Galaxy Fund II Deferred Compensation Plans
(the "Original Plans"). Effective January 1, 1997, the Original Plans were
merged into The Galaxy Fund/The Galaxy VIP Fund/Galaxy Fund II Deferred
Compensation Plan (together with the Original Plans, the "Plan"). Under the
Plan, a trustee may elect to have his deferred fees treated as if they had been
invested by the Trusts in the shares of one or more portfolios in the Trusts, or
other types of investment options, and the amount paid to the trustees under the
Plan will be determined based upon the performance of such investments.
Deferral of trustees' fees will have no effect on a portfolio's assets,
liabilities, and net income per share, and will not obligate the Trusts to
retain the services of any trustee or obligate a portfolio to any level of
compensation to the trustee. The Trusts may invest in underlying securities
without shareholder approval.
No employee of First Data Investor Services Group, Inc., ("Investor
Services Group") receives any compensation from Galaxy for acting as an officer.
No person who is an officer, director or employee of Fleet or Oechsle, or any of
their respective affiliates, serves as a trustee, officer or employee of Galaxy.
The trustees and officers of Galaxy own less than 1% of its outstanding shares.
The following chart provides certain information about the fees received by
Galaxy's trustees in the most recently completed fiscal year.
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<PAGE>
<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Benefits from Galaxy and
Aggregate Accrued as Fund
Compensation from Part of Fund Complex* Paid to
Name of Person/Position Galaxy Expenses Trustees
----------------------- ------ -------- --------
<S> <C> <C> <C>
Bradford S. Wellman $34,591 None $38,500
Trustee
Dwight E. Vicks, Jr. $38,184 None $42,500
Chairman and Trustee
Donald B. Miller** $34,574 None $38,500
Trustee
Rev. Louis DeThomasis $34,591 None $38,500
Trustee
John T. O'Neill $36,837 None $41,000
President, Treasurer
and Trustee
James M. Seed** $34,574 None $38,500
Trustee
</TABLE>
- -------------
* The "Fund Complex" consists of Galaxy, The Galaxy VIP Fund and Galaxy Fund
II.
** Deferred compensation (including interest) in the amounts of $35,777 and
$40,992 accrued during Galaxy's fiscal year ended October 31, 1997 for
Messrs. Miller and Seed, respectively.
SHAREHOLDER AND TRUSTEE LIABILITY
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.
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<PAGE>
The Declaration of Trust states further that no trustee, officer or agent
of Galaxy shall be personally liable for or on account of any contract, debt,
claim, damage, judgment or decree arising out of or connected with the
administration or preservation of the trust estate or the conduct of any
business of Galaxy; nor shall any trustee be personally liable to any person for
any action or failure to act except by reason of his own bad faith, willful
misfeasance, gross negligence or reckless disregard of his duties as trustee.
The Declaration of Trust also provides that all persons having any claim against
the trustees or Galaxy shall look solely to the trust property for payment.
With the exceptions stated, the Declaration of Trust provides that a
trustee is entitled to be indemnified against all liabilities and expenses
reasonably incurred by him in connection with the defense or disposition of any
proceeding in which he may be involved or with which he may be threatened by
reason of his being or having been a trustee, and that the Board of Trustees
shall indemnify representatives and employees of Galaxy to the same extent to
which they themselves are entitled to indemnification.
ADVISORY, SUB-ADVISORY, ADMINISTRATION, CUSTODIAN AND TRANSFER
AGENCY AGREEMENTS
Fleet serves as investment adviser to the Funds. In its advisory
agreement, Fleet has agreed to provide investment advisory services to the
Funds as described in the Prospectuses. Fleet has also agreed to pay all
expenses incurred by it in connection with its activities under the advisory
agreement other than the cost of securities (including brokerage commissions)
purchased for the Funds. See "Expenses" in the Prospectuses.
For the services provided and expenses assumed by Fleet, Galaxy paid Fleet
for the fiscal years ended October 31, 1995, October 31, 1996 and October 31,
1997 advisory fees (net of expense reimbursements) of $1,797,623, $2,220,230 and
$2,860,410, respectively, with respect to the Equity Value Fund; and $3,406,615,
$4,746,270 and $6,555,045, respectively, with respect to the Equity Growth Fund.
For the fiscal years ended October 31, 1995 and October 31, 1997, Fleet
reimbursed advisory fees of $2,347 and $26,924, respectively, with respect to
the Equity Value Fund; and $9,296 and $27,033, respectively, with respect to the
Equity Growth Fund.
For the fiscal years ended October 31, 1995, October 31, 1996 and October
31, 1997, Galaxy paid Fleet advisory fees (net of expense reimbursements) of
$1,097,887, $1,533,644 and $1,947,792, respectively, with respect to the Equity
Income Fund. For the fiscal years ended October 31, 1995, October 31, 1996 and
October 31, 1997, Fleet reimbursed advisory fees of $24,627, $0 and $38,298,
respectively, with respect to the Equity Income Fund.
For the fiscal years ended October 31, 1995, October 31, 1996 and October
31, 1997, Fleet received advisory fees (net of expense reimbursements) of
$807,983, $1,562,481 and $2,610,431, respectively, with respect to the Small
Company Equity Fund; and $982,310, $1,447,310 and $2,313,863, respectively, with
respect to the Asset Allocation Fund. For the
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<PAGE>
fiscal years ended October 31, 1995, October 31, 1996 and October 31, 1997,
Fleet reimbursed advisory fees of $11,087, $331 and $118,118, respectively, with
respect to the Small Company Equity Fund; and $37,161, $12,512 and $19,254,
respectively, with respect to the Asset Allocation Fund.
For the fiscal years ended October 31, 1995, October 31, 1996 and October
31, 1997, Fleet received advisory fees (net of fee waivers and expense
reimbursements) of $850,924, $1,154,303 and $1,844,037, respectively, with
respect to the International Equity Fund. During the same periods, Fleet waived
advisory fees of $291,265, $464,938 and $682,009, respectively, with respect to
the International Equity Fund. During the fiscal year ended October 31, 1997,
Fleet reimbursed advisory fees of $18,362 with respect to the International
Equity Fund.
The advisory agreement provides that Fleet shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Funds in
connection with the performance of its duties under the advisory agreement,
except a loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of Fleet in the
performance of its duties or from reckless disregard by it of its duties and
obligations thereunder. Unless sooner terminated, the advisory agreement will
continue in effect with respect to a particular Fund until August 10, 1998, and
thereafter from year to year as long as such continuance is approved at least
annually (i) by the vote of a majority of trustees who are not parties to such
advisory agreement or interested persons (as defined in the 1940 Act) of any
such party, cast in person at a meeting called for the purpose of voting on such
approval; and (ii) by Galaxy's Board of Trustees, or by a vote of a majority of
the outstanding shares of such Fund. The term "majority of the outstanding
shares of such Fund" means, with respect to approval of an advisory agreement,
the vote of the lesser of (i) 67% or more of the shares of the Fund present at a
meeting, if the holders of more than 50% of the outstanding shares of the Fund
are present or represented by proxy, or (ii) more than 50% of the outstanding
shares of the 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.
Oechsle serves as sub-adviser to the International Equity Fund. Under
its sub-advisory agreement with Fleet, Oechsle determines which securities
and other investments will be purchased, retained or sold for the
International Equity Fund; places orders for the Fund; manages the Fund's
overall cash position; and provides Fleet with foreign broker research and a
quarterly review of international economic and investment developments.
Fleet, among other things, assists and consults with Oechsle in connection
with the International Equity Fund's continuous investment program; approves
lists of foreign countries recommended by Oechsle for investment; reviews the
Fund's investment policies and restrictions and recommends appropriate
changes to the Board of Trustees; and provides the Board of Trustees and
Oechsle with information concerning relevant economic and political
developments. Oechsle will provide services under this agreement in
accordance with the Fund's investment objectives, policies and restrictions.
Unless sooner terminated by Fleet or the Board of Trustees upon sixty days'
written notice or by Oechsle upon ninety days' written notice, the
sub-advisory agreement will continue in effect from year to year as long as
such continuance is approved at
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<PAGE>
least annually as described above. For the fiscal year ended October 31, 1997
and for the period from August 12, 1996 through October 31, 1996, Oechsle
received sub-advisory fees of $979,810 and $119,374, respectively, with respect
to the International Equity Fund.
Prior to August 12, 1996, Wellington Management Company served as
sub-adviser to the International Equity Fund. For the fiscal year ended October
31, 1995 and for the period from November 1, 1995 through August 11, 1996,
Wellington Management Company received sub-advisory fees of $423,376 and
$431,198, respectively, with respect to the International Equity Fund.
Investor Services Group serves as Galaxy's administrator. Under the
administration agreement, Investor Services Group has agreed to maintain office
facilities for Galaxy, furnish Galaxy with statistical and research data,
clerical, accounting, and bookkeeping services, certain other services such as
internal auditing services required by Galaxy, and compute the net asset value
and net income of the Funds. Investor Services Group prepares the Funds' annual
and semi-annual reports to the SEC, federal and state tax returns, and filings
with state securities commissions, arranges for and bears the cost of processing
share purchase and redemption orders, maintains the Funds' financial accounts
and records, and generally assists in all aspects of Galaxy's operations.
Prior to March 31, 1995, Galaxy's administrator and transfer agent was 440
Financial Group of Worcester, Inc., a wholly-owned subsidiary of State Mutual
Life Assurance Company of America. On March 31, 1995, Investor Services Group,
a wholly-owned subsidiary of First Data Corporation, acquired all of the assets
of 440 Financial Group of Worcester, Inc.
For the fiscal years ended October 31, 1995, October 31, 1996 and
October 31, 1997, Investor Services Group and/or its predecessors received
administration fees (net of waivers) of $210,049, $249,569 and $314,236,
respectively, with respect to the Equity Value Fund; $398,623, $532,514 and
$716,320, respectively, with respect to the Equity Growth Fund; $130,993,
$174,406 and $216,835, respectively, with respect to the Equity Income Fund;
$97,015, $141,571 and $222,620, respectively, with respect to the International
Equity Fund; $95,582, $137,001 and $222,620, respectively, with respect to the
Small Company Equity Fund; and $118,968, $163,060 and $253,881, respectively,
with respect to the Asset Allocation Fund. For the fiscal year ended October
31, 1996, Investor Services Group waived administration fees of $1,640, $4,360,
$4,570 and $2,010 for the Equity Value Fund, Equity Growth Fund, Small Company
Equity Fund and the Asset Allocation Fund, respectively.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase Manhattan") serves as custodian to the
Funds pursuant to a Global Custody Agreement. Under its custody agreement,
Chase Manhattan has agreed to: (i) maintain a separate account or accounts in
the name of each Fund; (ii) hold and disburse portfolio securities on account of
each Fund; (iii) collect and make disbursements of money on behalf of each Fund;
(iv) collect and receive all income and other payments and distributions on
account of each Fund's portfolio securities; (v) respond to correspondence from
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<PAGE>
security brokers and others relating to its duties; and (vi) make periodic
reports to the Board of Trustees concerning the Funds' operations. Chase
Manhattan is authorized to select one or more banks or trust companies to serve
as sub-custodian for the Funds, provided that Chase Manhattan shall remain
responsible for the performance of all of its duties under the custodian
agreement and shall be liable to the Funds for any loss which shall occur as a
result of the failure of a sub-custodian to exercise reasonable care with
respect to the safekeeping of the Funds' assets. In addition, Chase Manhattan
may employ sub-custodians for the Funds upon prior approval by the Board of
Trustees in accordance with the regulations of the SEC, for the purpose of
providing custodial services for the foreign assets of those Funds held outside
the U.S. The assets of the Funds are held under bank custodianship in
compliance with the 1940 Act.
Investor Services Group also serves as Galaxy's transfer agent and dividend
disbursing agent pursuant to a Transfer Agency and Services Agreement ("Transfer
Agency Agreement"). Under the Transfer Agency Agreement, Investor Services
Group has agreed to: (i) issue and redeem shares of each Fund; (ii) transmit all
communications by each Fund to its shareholders of record, including reports to
shareholders, dividend and distribution notices and proxy materials for meetings
of shareholders; (iii) respond to correspondence by security brokers and others
relating to its duties; (iv) maintain shareholder accounts; and (v) make
periodic reports to the Board of Trustees concerning Galaxy's operations.
PORTFOLIO TRANSACTIONS
The cost of securities purchased from underwriters includes an underwriting
commission or concession, and the prices at which securities are purchased from
and sold to dealers include a dealer's mark-up or mark-down. Transactions in
equity securities on U.S. stock exchanges for the Funds involve the payment of
negotiated brokerage commissions. On U.S. stock exchanges on which commissions
are negotiated, the cost of transactions may vary among different brokers.
Transactions in the over-the-counter market are generally principal transactions
with dealers and the costs of such transactions involve dealer spreads rather
than brokerage commissions. With respect to over-the-counter transactions,
Fleet and Oechsle will normally deal directly with the dealers who make a market
in the securities involved except in those circumstances where better prices and
execution are available elsewhere or as described below.
For the fiscal years ended October 31, 1995, October 31, 1996 and
October 31, 1997, the Equity Value Fund paid brokerage commissions aggregating
$588,613, $790,862 and $934,709, respectively; the Equity Growth Fund paid
brokerage commissions aggregating $192,433, $539,416 and $7,006,331,
respectively; the Equity Income Fund paid brokerage commissions aggregating
$108,082, $217,231 and $201,407, respectively, the Asset Allocation Fund paid
brokerage commissions aggregating $101,436, $112,582 and $155,296, respectively;
the Small Company Equity Fund paid brokerage commissions aggregating $109,014,
$258,606 and $354,910, respectively; and the International Equity Fund paid
brokerage commissions aggregating $341,377, $1,155,060 and $851,919,
respectively.
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<PAGE>
The Funds may engage in short-term trading to achieve their investment
objectives. Portfolio turnover may vary greatly from year to year as well as
within a particular year. In purchasing or selling securities for the Funds,
Fleet or Oechsle will seek to obtain the best net price and the most favorable
execution of orders. To the extent that the execution and price offered by more
than one broker/dealer are comparable, Fleet or Oechsle may effect transactions
in portfolio securities with broker/dealers who provide research, advice or
other services such as market investment literature.
Except as permitted by the SEC or applicable law, the Funds will not
acquire portfolio securities from, make savings deposits in, enter into
repurchase or reverse repurchase agreements with, or sell securities to, Fleet,
Oechsle, Investor Services Group, or their affiliates, and will not give
preference to affiliates and correspondent banks of Fleet with respect to such
transactions.
Galaxy is required to identify any securities of its "regular brokers or
dealers" that the Funds have acquired during Galaxy's most recent fiscal year.
At October 31, 1997, (1) the Asset Allocation Fund held 1,961,375 shares of
common stock of Chase Manhattan Corp. with a value of $1,961,375; (2) the Equity
Value Fund held 56,8000 shares of common stock of Chase Manhattan Corp. with a
value of $6,553,300 and held 50,000 shares of common stock of Merrill Lynch &
Co., Inc. with a value of $3,381,250; (3) the Equity Growth Fund held 175,000
shares of common stock of Chase Manhattan Corp. with a value of $20,190,625.
Chase Manhattan Corp. and Merrill Lynch & Co. Inc. are considered "regular
brokers or dealers" of Galaxy.
Investment decisions for each Fund are made independently from those for
the other Funds and portfolios of Galaxy and for any other investment companies
and accounts advised or managed by Fleet or Oechsle. When a purchase or sale of
the same security is made at substantially the same time on behalf of a Fund,
another portfolio of Galaxy, and/or another investment company or account, the
transaction will be averaged as to price, and available investments allocated as
to amount, in a manner which Fleet or Oechsle believes to be equitable to the
Fund and such other portfolio, investment company or account. In some instances,
this investment procedure may adversely affect the price paid or received by a
Fund or the size of the position obtained or sold by such Fund. To the extent
permitted by law, Fleet or Oechsle may aggregate the securities to be sold or
purchased for a Fund with those to be sold or purchased for Galaxy's other Funds
and portfolios, or other investment companies or accounts in order to obtain
best execution.
SHAREHOLDER SERVICES PLAN
As stated in the Prospectuses for each Fund, Galaxy may enter into
agreements ("Servicing Agreements") pursuant to its Shareholder Services Plan
("Services Plan") with Institutions and other organizations (including Fleet
Bank and its affiliates) (collectively, "Service Organizations") pursuant to
which Service Organizations will be compensated by Galaxy for offering to
provide certain administrative and support services to Customers who are
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<PAGE>
the beneficial owners of Retail A Shares and Trust Shares of a Fund. As of
October 31, 1997, Galaxy had entered into Servicing Agreements only with Fleet
Bank and affiliates.
Each Servicing Agreement between Galaxy and a Service Organization relating
to the Services Plan requires that, with respect to those Funds which declare
dividends on a daily basis, the Service Organization agree to waive a portion of
the servicing fee payable to it under the Services Plan to the extent necessary
to ensure that the fees required to be accrued with respect to the Retail A
Shares of such Funds on any day do not exceed the income to be accrued to such
Retail A Shares on that day.
For the fiscal years ended October 31, 1995, October 31, 1996 and October
31, 1997, payments to Service Organizations totaled $245,304, $331,670 and
$440,920, respectively, with respect to Retail A Shares of the Equity Value
Fund; $237,326, $356,642 and $558,695, respectively, with respect to Retail A
Shares of the Equity Growth Fund; $203,471, $309,334 and $434,674, respectively,
with respect to Retail A Shares of the Equity Income Fund; $93,434, $79,239 and
$102,465, respectively, with respect to Retail A Shares of the International
Equity Fund; $102,102, $172,887 and $287,068, respectively, with respect to
Retail A Shares of the Small Company Equity Fund; and $205,546, $267,695 and
$412,384, respectively, with respect to Retail A Shares of the Asset Allocation
Fund.
Galaxy's Servicing Agreements are governed by the Services Plan that has
been adopted by Galaxy's Board of Trustees in connection with the offering of
Retail A Shares of each Fund. Pursuant to the Services Plan, the Board of
Trustees reviews, at least quarterly, a written report of the amounts paid under
the Servicing Agreements and the purposes for which the expenditures were made.
In addition, the arrangements with Service Organizations must be approved
annually by a majority of Galaxy's trustees, including a majority of the
trustees who are not "interested persons" of Galaxy as defined in the 1940 Act
and who have no direct or indirect financial interest in such arrangements (the
"Disinterested Trustees").
The Board of Trustees has approved Galaxy's arrangements with Service
Organizations based on information provided by Galaxy's service contractors that
there is a reasonable likelihood that the arrangements will benefit the Funds
and their shareholders by affording Galaxy greater flexibility in connection
with the efficient servicing of the accounts of the beneficial owners of Retail
A Shares of the Funds. Any material amendment to Galaxy's arrangements with
Service Organizations must be approved by a majority of Galaxy's Board of
Trustees (including a majority of the Disinterested Trustees). So long as
Galaxy's arrangements with Service Organizations are in effect, the selection
and nomination of the members of Galaxy's Board of Trustees who are not
"interested persons" (as defined in the 1940 Act) of Galaxy will be committed to
the discretion of such Disinterested Trustees.
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<PAGE>
DISTRIBUTION AND SERVICES PLAN
Galaxy has adopted a Distribution and Services Plan (the "12b-1 Plan")
pursuant to Rule 12b-1 under the 1940 Act with respect to Retail B Shares of the
Funds. The 12b-1 Plan is described in the applicable Prospectus.
Under the 12b-1 Plan, payments by Galaxy (i) for distribution expenses may
not exceed .65% (annualized) of the average daily net assets attributable to
such Funds' outstanding Retail B Shares, (ii) to an Institution for shareholder
liaison services and/or administrative support services may not exceed .25%
(annualized) and .25% (annualized), respectively, of the average daily net
assets attributable to each such Funds' outstanding Retail B Shares which are
owned of record or beneficially by that Institution's Customers for whom the
Institution is the dealer of record or shareholder of record or with whom it has
a servicing relationship. As of the date of this Statement of Additional
Information, Galaxy intends to limit the Funds' payments for shareholder liaison
and administrative support services under the 12b-1 Plan to an aggregate fee of
not more than .30% (on an annualized basis) of the average daily net asset value
of Retail B Shares owned of record or beneficially by Customers of Institutions.
Payments for distribution expenses under the 12b-1 Plan are subject to Rule
12b-1 (the "Rule") under the 1940 Act. The Rule defines distribution expenses
to include the cost of "any activity which is primarily intended to result in
the sale of Galaxy shares." The Rule provides, among other things, that an
investment company may bear such expenses only pursuant to a plan adopted in
accordance with the Rule. In accordance with the Rule, the 12b-1 Plan provides
that a report of the amounts expended under the 12b-1 Plan, and the purposes for
which such expenditures were incurred, will be made to the Board of Trustees for
its review at least quarterly. The 12b-1 Plan provides that it may not be
amended to increase materially the costs which Retail B Shares of a Fund may
bear for distribution pursuant to the 12b-1 Plan without shareholder approval,
and that any other type of material amendment must be approved by a majority of
the Board of Trustees, and by a majority of the trustees who are neither
"interested persons" (as defined in the 1940 Act) of Galaxy nor have any direct
or indirect financial interest in the operation of the 12b-1 Plan or in any
related agreements, by vote cast in person at a meeting called for the purpose
of considering such amendments (the "Disinterested Trustees").
For the fiscal year ended October 31, 1997, Retail B Shares of the Equity
Value, Equity Growth, Small Company Equity and Asset Allocation Funds bore the
following distribution and shareholder servicing fees under the 12b-1 Plan:
$50,897 in distribution fees and $21,199 in shareholder servicing fees with
respect to Retail B Shares of the Equity Value Fund; $75,906 in distribution
fees and $34,034 in shareholder servicing fees with respect to Retail B Shares
of the Equity Growth Fund; $55,371 in distribution fees and $23,556 in
shareholder servicing fees with respect to Retail B Shares of the Small Company
Equity Fund; and $99,219 in distribution fees and $44,293 in shareholder
servicing fees with respect to Retail B Shares of the Asset Allocation Fund.
For the fiscal year ended October 31, 1997, all amounts paid under the 12b-1
Plan were attributable to payments to broker-dealers.
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<PAGE>
For the period from March 4, 1996 (date of initial public offering of
Retail B Shares) through October 31, 1996, Retail B Shares of the Equity Value,
Equity Growth, Small Company Equity and Asset Allocation Funds bore the
following distribution and shareholder servicing fees until the 12b-1 Plan:
$3,518 in distribution fees and $1,624 in shareholder servicing fees with
respect to Retail B Shares of the Equity Value Fund; $7,613 in distribution fees
and $3,514 in shareholder servicing fees with respect to Retail B Shares of the
Equity Growth Fund; $7,282 in distribution fees and $3,361 in shareholder
servicing fees with respect to Retail B Shares of the Small Company Equity Fund;
and $6,389 in distribution fees and $2,949 in shareholder servicing fees with
respect to Retail B Shares of the Asset Allocation Fund. For the fiscal year
ended October 31, 1996, all amounts paid under the 12b-1 Plan were attributable
to payments to broker-dealers.
Galaxy's Board of Trustees has concluded that there is a reasonable
likelihood that the 12b-1 Plan will benefit the Funds and holders of Retail B
Shares. The 12b-1 Plan is subject to annual reapproval by a majority of the
Disinterested Trustees and is terminable at any time with respect to any Fund by
a vote of a majority of such Trustees or by vote of the holders of a majority of
the Retail B Shares of the Fund involved. Any agreement entered into pursuant
to the 12b-1 Plan with a Service Organization is terminable with respect to any
Fund without penalty, at any time, by vote of a majority of the Disinterested
Trustees, by vote of the holders of a majority of the Retail B Shares of such
Fund, by FD Distributors or by the Service Organization. An agreement will also
terminate automatically in the event of its assignment.
As long as the 12b-1 Plan is in effect, the nomination of the trustees who
are not interested persons of Galaxy (as defined in the 1940 Act) must be
committed to the discretion of such Disinterested Trustees.
DISTRIBUTOR
First Data Distributors, Inc., a wholly-owned subsidiary of Investor
Services Group, serves as Galaxy's distributor. On March 31, 1995, Investor
Services Group acquired all of the issued and outstanding stock of FD
Distributors. Prior to that time, FD Distributors was a wholly-owned subsidiary
of 440 Financial Group of Worcester, Inc. and an indirect subsidiary of State
Mutual Life Assurance Company of America.
Unless otherwise terminated, the Distribution Agreement between Galaxy and
FD Distributors remains in effect until May 31, 1999, and thereafter will
continue from year to year upon annual approval by Galaxy's Board of Trustees,
or by the vote of a majority of the outstanding shares of Galaxy and by the vote
of a majority of the Board of Trustees of Galaxy who are not parties to the
Agreement or interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval. The Agreement will terminate
in the event of its assignment, as defined in the 1940 Act.
FD Distributors is entitled to the payment of a front-end sales charge on
the sale of Retail A Shares of the Funds as described in the applicable
Prospectus. For the fiscal year ended
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<PAGE>
October 31, 1997, FD Distributors received front-end sales charges in connection
with Retail A Share purchases as follows: Equity Value Fund -- $451,771; Equity
Growth Fund -- $491,165; Equity Income Fund -- $592,347; International Equity
Fund -- $320,935; Small Company Equity Fund -- $343,614; and Asset Allocation
Fund -- $1,010,359. Of these amounts, the Distributor and affiliates of Fleet
retained $0 and $451,771, respectively, with respect to the Equity Value Fund;
$0 and $491,165, respectively, with respect to the Equity Growth Fund; $0 and
$592,347, respectively, with respect to the Equity Income Fund; $0 and $320,935,
respectively, with respect to the International Equity Fund; $0 and $343,614,
respectively, with respect to the Small Company Equity Fund; and $0 and
$1,010,359, respectively, with respect to the Asset Allocation Fund.
FD Distributors is also entitled to the payment of contingent deferred
sales charges upon the redemption of Retail B Shares of the CDSC Funds. For the
fiscal year ended October 31, 1997, FD Distributors received contingent deferred
sales charges in connection with Retail B Share redemptions as follows: Equity
Value Fund -- $21,384; Equity Growth Fund -- $28,379; Small Company Equity Fund
- -- $34,481; and Asset Allocation Fund -- $57,559. All such amounts were paid
to affiliates of Fleet.
The following table shows all sales charges, commissions and other
compensation received by FD Distributors directly or indirectly from the Funds
during the fiscal year ended October 31, 1997:
<TABLE>
<CAPTION>
Fund Net Underwriting Compensation on Brokerage Other
----- Discounts and Redemption and Commissions in Compensation(3)
Commissions(1) Repurchase(2) Connection with --------------
---------------- --------------- Fund Transactions
-----------------
<S> <C> <C> <C> <C>
Equity Value $ 473,155 $21,384 $ 0 $494,552
Equity Growth $ 519,543 $28,379 $ 0 $556,499
Equity Income $ 592,347 $N/A $ 0 $421,303
International Equity $ 320,935 $N/A $ 0 $108,934
Small Company Equity $ 378,095 $34,481 $ 0 $350,051
Asset Allocation $1,067,918 $57,559 $ 0 $517,061
</TABLE>
- -------------------------
(1) Represents amounts received from front-end sales charges on Retail A
Shares and commissions received in connection with sales of Retail B
Shares.
(2) Represents amounts received from contingent deferred sales charges on
Retail B Shares. The basis on which such sales charges are paid is
described in the Prospectus relating to Retail B Shares. All such amounts
were paid to affiliates of Fleet.
(3) Represents payments made under the Shareholder Services Plan and
Distribution and Services Plan during the fiscal year ended October 31,
1997, which includes fees accrued in the fiscal year ended October 31,
1996, which were paid in 1997 (see "Shareholder Services Plan" and
"Distribution and Services Plan" above).
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<PAGE>
AUDITORS
PricewaterhouseCoopers LLP, independent certified public accountants,
with offices at One Post Office Square, Boston, Massachusetts 02109, serve
as auditors to Galaxy. The financial highlights for the respective Funds
included in their Prospectuses and the financial statements for the Funds
contained in Galaxy's Annual Report to Shareholders and incorporated by
reference into this Statement of Additional Information for the respective
fiscal periods ended October 31 of each calendar year have been audited by
PricewaterhouseCoopers LLP for the periods included in their report thereon
which appears therein.
COUNSEL
Drinker Biddle & Reath LLP (of which W. Bruce McConnel, III, Secretary
of Galaxy, is a partner), 1345 Chestnut Street, Suite 1100, Philadelphia,
Pennsylvania 19107, are counsel to Galaxy and will pass upon certain legal
matters on its behalf.
PERFORMANCE AND YIELD INFORMATION
The Funds' 30-day (or one month) standard yields described in their
Prospectuses are calculated separately for each series of shares in each Fund
in accordance with the method prescribed by the SEC for mutual funds:
6
YIELD = 2[(( a - b)/cd +1 ) - 1]
Where: a = dividends and interest earned by a Fund during the period;
b = expenses accrued for the period (net of reimbursements);
c = average daily number of shares outstanding during the
period, entitled to receive dividends; and
d = maximum offering price per share on the last day of
the period.
For the purpose of determining net investment income earned during the period
(variable "a" in the formula), dividend income on equity securities held by a
Fund is recognized by accruing 1/360 of the stated dividend rate of the
security each day that the security is in the Fund. Except as noted below,
interest earned on debt obligations held by a Fund is calculated by computing
the yield to maturity of each obligation based on the market value of the
obligation (including actual accrued interest) at the close of business on
the last business day of each month, or, with respect
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<PAGE>
to obligations purchased during the month, the purchase price (plus actual
accrued interest) and dividing the result by 360 and multiplying the quotient
by the market value of the obligation (including actual accrued interest) in
order to determine the interest income on the obligation for each day of the
subsequent month that the obligation is held by the Fund. For purposes of
this calculation, it is assumed that each month contains 30 days. The
maturity of an obligation with a call provision is the next call date on
which the obligation reasonably may be expected to be called or, if none, the
maturity date. With respect to debt obligations purchased at a discount or
premium, the formula generally calls for amortization of the discount or
premium. The amortization schedule will be adjusted monthly to reflect
changes in the market value of such debt obligations. Expenses accrued for
the period (variable "b" in the formula) include all recurring fees charged
by a Fund to all shareholder accounts in proportion to the length of the base
period and the Fund's mean (or median) account size. Undeclared earned
income will be subtracted from the offering price per share (variable "d" in
the formula).
With respect to mortgage or receivables-backed obligations that are
expected to be subject to monthly payments of principal and interest
("pay-downs"), (i) gain or loss attributable to actual monthly pay-downs are
accounted for as an increase or decrease to interest income during the
period, and (ii) each Fund may elect either (a) to amortize the discount and
premium on the remaining security, based on the cost of the security, to the
weighted average maturity date, if such information is available, or to the
remaining term of the security, if any, if the weighted average date is not
available or (b) not to amortize discount or premium on the remaining
security.
Based on the foregoing calculation, the standard yield for Retail A
Shares of the Equity Value, Equity Growth, Equity Income, International
Equity, Small Company Equity , Asset Allocation and Strategic Equity Funds
for the 30-day period ended April 30, 1998 were 1.13%, 0.35%, 0.80%, -1.23%,
1.20%, 1.96% and -0.07%, respectively.
Based on the foregoing calculation, the standard yield for Retail B
Shares of the Equity Value, Equity Growth, Small Company Equity, Asset
Allocation and Strategic Equity Funds for the 30-day period ended April 30,
1998 were 0.48%, -1.06%, 0.52%, 1.36% and -0.77%, respectively.
Each Fund that advertises its "average annual total return" computes
such return separately for each series of shares by determining the average
annual compounded rate of return during specified periods that equates the
initial amount invested to the ending redeemable value of such investment
according to the following formula:
1/n
T = [(ERV/P) - 1]
Where: T = average annual total return;
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the l, 5 or 10 year (or other)
periods at the end of the applicable period (or a
fractional portion thereof);
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<PAGE>
P = hypothetical initial payment of $1,000; and
n = period covered by the computation, expressed in years.
Each Fund that advertises its "aggregate total return" computes such
returns separately for each series of shares by determining the aggregate
compounded rates of return during specified periods that likewise equate the
initial amount invested to the ending redeemable value of such investment.
The formula for calculating aggregate total return is as follows:
Aggregate Total Return = [(ERV/P) - l]
The calculations are made assuming that (1) all dividends and capital
gain distributions are reinvested on the reinvestment dates at the price per
share existing on the reinvestment date, (2) all recurring fees charged to
all shareholder accounts are included, and (3) for any account fees that vary
with the size of the account, a mean (or median) account size in the Fund
during the periods is reflected. The ending redeemable value (variable "ERV"
in the formula) is determined by assuming complete redemption of the
hypothetical investment after deduction of all nonrecurring charges at the
end of the measuring period. In addition, the Funds' Retail Shares average
annual total return and aggregate total return quotations will reflect the
deduction of the maximum sales load charged in connection with purchases of
Retail A Shares or redemptions of Retail B Shares.
Aggregate total return for Retail A Shares of the Equity Value Fund for
the period September 1, 1988 (inception) to April 30, 1998 was 312.16%.
From September 1, 1988 (inception) to April 30, 1998, the average annual
total return for Retail A Shares of the Equity Value Fund was 15.79%. For
the one-year and five-year periods ended April 30, 1998, the average annual
total returns for Retail A Shares of the Equity Value Fund were 35.69% and
20.49%, respectively.
Aggregate total returns for Retail A Shares of the Equity Growth and
Equity Income Funds from December 14, 1990 (inception) to April 30, 1998
were 242.24% and 198.36%, respectively. From December 14, 1990 (inception)
to April 30, 1998, average annual total returns for Retail A Shares of the
Equity Growth and Equity Income Funds were 18.15% and 15.98%, respectively.
For the one-year and five-year periods ended April 30, 1998, the average
annual total returns for Retail A Shares of the Equity Growth and Equity
Income Funds were 37.44% and 19.70%, and 26.92% and 17.09%, respectively.
Aggregate total returns for Retail A Shares of the Small Company Equity,
Asset Allocation and International Equity Funds from December 30, 1991
(inception) to April 30, 1998 were 149.13%, 111.34% and 97.78%,
respectively. From December 30, 1991 (inception) to April 30, 1998, average
annual total returns for Retail A Shares of the Small Company Equity, Asset
Allocation and International Equity Funds were 15.51%, 12.54% and 11.37%,
respectively. For the one-year and five-year periods ended April 30, 1998,
the average annual total returns for Retail A Shares of the Small Company
Equity, Asset Allocation and
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<PAGE>
International Equity Funds were 40.70% and 20.21%, 20.11% and 13.84%, and 24.63%
and 12.88%, respectively.
Aggregate total return for Retail A Shares of the Strategic Equity Fund
for the period from March 4, 1998 (inception) to April 30, 1998 was -2.12%.
Aggregate total returns for Retail B Shares of the Equity Value, Equity
Growth, Small Company Equity and Asset Allocation Funds from March 4, 1996
(date of their initial public offering) to April 30, 1998 were 63.45%,
65.12%, 40.44% and 40.14%, respectively. From March 4, 1996 (date of their
initial public offering) through April 30, 1998, the average annual total
returns for Retail B Shares of the Equity Value, Equity Growth, Small Company
Equity and Asset Allocation Funds were 17.06%, 26.19%, 25.59% and 16.94%,
respectively. For the one-year period ended April 30, 1998, the average
annual total returns for Retail B Shares of the Equity Value, Equity Growth,
Small Company Equity and Asset Allocation Funds were 34.90%, 36.80%, 40.27%
and 18.82%, respectively.
Aggregate total return for Retail B Shares of the Strategic Equity
Fund for the period from March 4, 1998 (inception) to April 30, 1998 was
- -4.21%.
As stated in the Prospectus, the Funds may also calculate total return
quotations without deducting the maximum sales charge imposed on purchases of
Retail A Shares or redemptions of Retail B Shares. The effect of not
deducting the sales charge will be to increase the total return reflected.
MISCELLANEOUS
As used in the Prospectus, "assets belonging to a particular series of
a Fund" means the consideration received by Galaxy upon the issuance of
shares in that particular series of the Fund, together with all income,
earnings, profits, and proceeds derived from the investment thereof,
including any proceeds from the sale of such investments, any funds or
payments derived from any reinvestment of such proceeds and a portion of any
general assets of Galaxy not belonging to a particular series or Fund. In
determining the net asset value of a particular series of a Fund, assets
belonging to the particular series of the Fund are charged with the direct
liabilities in respect of that series and with a share of the general
liabilities of Galaxy, which are allocated in proportion to the relative
asset values of the respective series and Funds at the time of allocation.
Subject to the provisions of Galaxy's Declaration of Trust, determinations by
the Board of Trustees as to the direct and allocable liabilities, and the
allocable portion of any general assets with respect to a particular series
or Fund, are conclusive.
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<PAGE>
As of September 8, 1998, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding Trust
Shares of each of Galaxy's investment portfolios (including shares of the
Institutional Treasury Money Market Fund) were as follows: Money Market
Fund -- Fleet New York, Fleet Investment Services, 159 East Main Street,
NY/RO/TO3C, Rochester, NY 14638, Account 00000150286 (99.79%); Tax-Exempt Money
Market Fund -- Fleet New York, Fleet Investment Services, 159 East Main Street,
NY/RO/TO3C, Rochester, NY 14638, Account 00000007717 (100.00%); Government Money
Market Fund -- Fleet New York, Fleet Investment Services, 159 East Main Street,
NY/RO/TO3C, Rochester, NY 14368, Account 00000012621 (98.18%); U.S. Treasury
Money Market Fund -- Fleet New York, Fleet Investment Services, 159 East Main
Street, NY/RO/TO3C, Rochester, NY 14638, Account 00000015922 (91.26%);
Institutional Treasury Money Market Fund -- Fleet New York, Fleet Investment
Services, 159 East Main Street, NY/RO/TO3C, Rochester, NY 14638, Account
00000000019 (88.02%); Luitpold Pharmaceuticals, Inc., Kirk Sobecki, CFO, One
Luitpold Drive, Shirley, NY 11967, (12.66%); Equity Value Fund -- Gales & Co.,
Fleet Investment Services, Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A,
Rochester, NY 14683, Account 00000000064 (76.76%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY
14683, Account 00000003294 (17.27%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit, 159 East Main Street, NY/RO/T04A, Rochester, NY 14683,
Account 00000011551 (5.88%); Equity Growth Fund -- Gales & Co., Fleet Investment
Services, Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY
14683, Account 00000000082 (69.69%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14683,
Account 00000010017 (15.72%); Gales & Co., Fleet Investment Services, Mutual
Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14683, Account
00000030718 (14.66%); Equity Income Fund -- Gales & Co., Fleet Investment
Services, Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY
14683, Account 00000015771 (49.58%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14683,
Account 00000003748 (35.00%); Gales & Co., Fleet Investment Services, Mutual
Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14683, Account
00000000037 (14.37%); International Equity Fund -- Gales & Co., Fleet Investment
Services, Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY
14638, Account 00000000073 (43.72%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638,
Account 00000000876 (39.22%); Gales & Co., Fleet Investment Services, Mutual
Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638, Account
00000004088 (13.60%); Growth and Income Fund -- Gales & Co., Fleet Investment
Services, Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY
14638, Account 05000503793 (66.29%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638,
Account 05000503873 (27.27%); Gales & Co., Fleet Investment Services, Mutual
Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account
0500503837 (6.43%); Asset Allocation Fund -- Gales & Co., Fleet Investment
Services, Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY
14638, Account 00000000073 (91.42%). Gales & Co., Fleet Investment Services,
Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638,
Account 00000002598 (6.73%); Small Company Equity -- Gales & Co., Fleet
Investment
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<PAGE>
Services, Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY
14638, Account 00000000046 (66.17%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit, 159 Main Street, NY/RO/TO4A, Rochester, NY 14638, Account
00000001492 (24.19%); Gales & Co., Fleet Investment Services, Mutual Funds Unit,
159 East Main Street, NY/RO/TO4A, Rochester, NY 14638, Account 00000006102
(7.06%); Small Cap Value Fund -- Gales & Co., Fleet Investment Services, Mutual
Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638, Account
05000503999 (62.82%); Gales & Co., Fleet Investment Services, Mutual Funds Unit,
159 East Main Street, NY/RO/TO4A, Rochester, NY 14638, Account 05000503917
(18.99%); Gales & Co., Fleet Investment Services, Mutual Funds Unit, 159 East
Main Street, NY/RO/TO4A, Rochester, NY 14638, Account 05000503953 (17.64%);
Intermediate Government Income Fund -- Gales & Co., Fleet Investment Services,
Mutual Funds Unit, NY/RO/TO4A, Rochester, NY 14638, Account 00000038408
(39.89%); Gales & Co., Fleet Investment Services, Mutual Funds Unit, 159 East
Main Street, NY/RO/TO4A, Rochester, NY 14638, Account 00000007183 (33.03%);
Gales & Co., Fleet Investment Services, Mutual Funds Unit, 159 East Main Street,
NY/RO/TO4A, Rochester, NY 14638, Account 00000000037 (27.08%); High Quality Bond
Fund -- Gales & Co., Fleet Investment Services, Mutual Funds Unit, 159 East Main
Street, NY/RO/TO4A, Rochester, NY 14638, Account 00000000037 (66.15%); Gales &
Co., Fleet Investment Services, Mutual Funds Unit, 159 East Main Street,
NY/RO/TO4A, Rochester, NY 14638, Account 00000001465 (21.14%); Gales & Co.,
Fleet Investment Services, Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A,
Rochester, NY 14638, Account 00000006095 (12.18%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638 (66.67%); Short-Term Bond Fund -- Gales & Co., Fleet Investment Services,
Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638,
Account 00000008627 (34.17%); Gales & Co., Fleet Investment Services, Mutual
Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638, Account
00000000064 (47.52%); Gales & Co., Fleet Investment Services, Mutual Funds Unit,
159 East Main Street, NY/RO/TO4A, Rochester, NY 14638, Account 00000001090
(18.17%); Tax-Exempt Bond Fund -- Gales & Co., Fleet Investment Services,
Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638,
Account 00000005899 (39.27%); Gales & Co, Fleet Investment Services, Mutual
Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638, Account
00000000028 (38.05%); Gales and Co., Fleet Investment Services, Mutual Funds
Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638, Account 00000000670
(22.68%); Connecticut Municipal Bond Fund -- Gales & Co., Fleet Investment
Services, Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY
14638, Account 00000000019 (77.47%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638,
Account 00000000037 (21.91%); Massachusetts Municipal Bond Fund -- Gales & Co.,
Fleet Investment Services, Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A,
Rochester, NY 14638, Account 00000000019 (53.36%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY
14638, Account 00000000073 (46.64%); Corporate Bond Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit, NY/RO/TO4A, Rochester, NY 14638, Account
00000000046 (47.32%); Gales & Co., Fleet Investment Services, Mutual Funds Unit,
159 East Main Street, NY/RO/TO4A, Rochester, NY 14638, Account 00000006102
(39.21%); Gales & Co., Fleet Investment Services, Mutual Funds Unit, 159 East
Main Street, NY/RO/TO4A, Rochester, NY 14638, Account 00000001492 (6.30%); New
York
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<PAGE>
Municipal Bond Fund -- Gales & Co., Fleet Investment Services, Mutual Funds
Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638, Account 00000000019
(13.68%); Gales & Co., Fleet Investment Services, Mutual Fund Unit, 159 East
Main Street, NY/RO/TO4A, Rochester, NY 14638, Account 00000001107 (75.01%);
Gales & Co., Fleet Investment Services, Mutual Fund Unit, 159 East Main Street,
NY/RO/TO4A, Rochester, NY 14638, Account 00000005292 (11.32%); 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
(56.67%); Gales & Co., Fleet Investment Services, Mutual Funds Unit, 159 East
Main Street, NY/RO/TO4A, Rochester, NY 14638, Account 05100115504 (43.33%); and
Strategic Equity Fund -- Gales & Co., Fleet Investment Services, Mutual Funds
Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638, Account 05100115522
(95.86%).
As of September 8, 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
Securities Inc., 26 Broadway, New York, NY 10004, Account 05100115684 (5.23%);
Tax-Exempt Money Market Fund -- Hope H. Van Beuren, P.O. Box 4098, Middletown,
RI 02842, Account 00000025010 (7.61%); U.S. Treasury Money Market Fund -- US
Clearing, a Division of Fleet Securities Inc., 26 Broadway, New York, NY 10004,
Account 5100115684 (10.77%); Massachusetts Municipal Money Market Fund -- Fleet
New York, Fleet Investment Services, 159 East Main St., NY/RO/TO3C, Rochester,
NY 14638, Account 05100058503 (47.76%); Connecticut Municipal Money Market Fund
- -- Fleet New York, Fleet Investment Services, 159 East Main St., NY/RO/TO3C,
Rochester, NY 14638, Account 05100058521 (29.67%); Massachusetts Municipal Bond
Fund -- New England Realty Associates, Robert Blank, Ronald Brown, Howard Brown
& Carl Valeri, 39 Brighton Ave., Boston, MA 02128, Account 05100587013 (5.78%);
Lawrence Levine & Susan Levine (JTWROS), 40 Southpoint, Ipswich, MA 01938,
(5.08%); Rhode Island Municipal Bond Fund - Gales & Co.. Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A. 159 East Main Street, Rochester, NY
14638, Account 00000001492 (38.33%); James R. McCulloch, c/o Microfibre, PO Box
1208, Pawtucket, RI 02860, Account 05000414933 (7.45%); New York Municipal Bond
Fund - Marilyn J. Brantley, PO Box 65, 7276 Ramsey Road, Belfast, NY 14711,
Account 5100977627 (10.77%); and New Jersey Municipal Bond Fund -- Jeffery W
Golden, 7 Hampton Ridge CT, Old Tappan, NJ 07675, Account 05100780704 (23.40%);
NFSC FEBO # BHN-183671, Finley G. Auld, Virginia Auld, 25 Normandy Court, Ho Ho
Kus, NJ 07423, (55.63%).
As of September 8, 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 -- Richard Bothwell & Kyra Bothwell (JTWROS) 558 Hoyt St., Darien, CT,
06820, Account 5100588904 (17.40%); Steven R. Schwartz, 2393 Lake Elmo Avenue N,
Lake Elmo, MN 55042-8407, Account 5100583213 (6.77%); Thomas A. Dowd, Myrna L.
Dowd (JTWROS), 9 Cypress Ave., Shrewsbury, MA 01545, Account 05100563501
(6.21%); Paul Dworkin & Barbara C. Dworkin (JTWROS), 884 Meadow Lane, Niskayuna,
NY 12309, (6.80%); High Quality Bond Fund -- E.L. Bradley and
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Co., Inc., 18 Meadow Brook Lane, Unit 3, Easton, MA 02375, Account 05100649206,
(5.06%); Short-Term Bond Fund - Michael J. Palmer, 79 Candlewood Road, Groton,
CT 06340, Account 5100969967 (8.41%); Gabriella Dulac & Alain Dulac (JTWROS) 40
Dix Road, Wethersfield, CT 06109, Account 5100818032, (6.31%); Elizabeth Mugar,
10 Chestnut St. Apt. 1808, Springfield, MA 01103, Account 5100760012 (5.34%);
Tax-Exempt Bond Fund -- David Fendler & Sylvia Fendler (JTWROS), 72 Brinkerhoff
Ave., Stamford, CT 06905, Account 05100255354, (9.88%); Doris M. Peloguin, 43
Keene Street, Providence, RI 02906-1520, Account 05100506413, (6.70%); NFSC FEBO
# AAD-181030, Carol & Ali E. Guy, 14 Thomas Street, Scarsdale, NY 10583, Account
7000076164, (5.38%); and Strategic Equity Fund -- Yuet Kum Ku, 7 Mason Street,
Malden, MA 02148, Account 05100918601, (5.16%); Claire M. Dileone & Susan F.
Torre (JTWROS), 260 Waybosset Street, New Haven, CT 06513, (6.71%); Betsey Tan,
7 Donovan's Lane, Natiek, MA 01760, (13.68%).
As of September 8, the name, address and share ownership of the entities or
persons that held beneficially more than 5% of the outstanding Trust Shares of
each of Galaxy's investment portfolios were as follows: Money Market
Fund--Stable Asset Fund, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (8.21%); Tax-Exempt Money Fund--Robert W. Doyle Irrevocable
Trust, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638,
(5.20%); Government Money Fund--Brown University Non- Exp. Fund, c/o Norstar
Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638, (5.93%); U.S.
Treasury Money Fund, Loring Walcott Client Sweep Acct., c/o Norstar Trust Co.,
Gales & Co., 159 East Main, Rochester, NY 14638, (19.60%); Equity Value
Fund--Fleet Savings Plus Equity Value, c/o Norstar Trust Co., Gales & Co., 159
East Main, Rochester, NY 14638, (18.77%); Equity Growth Fund--Fleet Savings Plus
Equity Growth, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY
14638, (23.20%); Nusco Retiree Health VEBA Trust, c/o Norstar Trust Co., Gales &
Co., 159 East Main, Rochester, NY 14638, (7.22%); International Equity Fund--FFG
International Equity Fund, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (14.27%); Fleet Savings Plus-Intl Equity, c/o Norstar Trust
Co., Gales & Co., 159 East Main, Rochester, NY 14638, (9.77%); Intermediate
Govt. Inc.--Nusco Retiree Health VEBA Trust, c/o Norstar Trust Co., Gales & Co.,
159 East Main, Rochester, NY 14638, (5.82%); Strategic Equity Fund--FFG
Retirement & Pension VDG, c/o Fleet Financial Group, 159 East Main, Rochester,
NY 14638, (79.15%); Perstorp Retirement Trust, c/o Norstar Trust Co., Gales &
Co., 159 East Main, Rochester, NY 14638, (16.71%); High Quality Bond
Trust--Fleet Savings Plus Plan-HQ Bond, c/o Norstar Trust Co., Gales & Co., 159
East Main, Rochester, NY 14638, (23.06%); Short Term Bond Fund--Swarovski North
America Ret. Plan, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester,
NY 14638, (6.50%); Asset Allocation Fund--Fleet Savings Plus-Asset Allocation,
c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638,
(27.07%); Small Company Equity Fund--Fleet Savings Plus-Small Company, c/o
Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638, (31.07%);
Tax Exempt Fund Bond-- Nusco Retiree Health VEBA Trust, c/o Norstar Trust Co.,
Gales & Co., 159 East Main, Rochester, NY 14638, (36.11%); Connecticut Municipal
Bond Fund--Florence M. Roberts, IMA Agency, c/o Norstar Trust Co., Gales & Co.,
159 East Main, Rochester, NY 14638, (5.25%); Corporate Bond Fund--Cole Hersee
Pension Plan, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY
14638, (7.41%); Growth Income Fund--Fleet Savings Plus-Growth Income, c/o
Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638,
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<PAGE>
(44.30%); Small Cap Value Fund--FFG Emp. Ret. Misc. Assets SNC, c/o Norstar
Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638, (30.74%);
Institutional Government Fund--Aeroflex Inc. CAPFOC, c/o Norstar Trust, c/o
Gales & Co., 159 East Main, Rochester, NY 14638, (7.43%); New Jersey Municipal
Bond Fund--Perillo Tours, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (27.60%); Royal Chambord IMA, c/o Norstar Trust Co., Gales
& Co., 159 East Main, Rochester, NY, 14638, (13.80%); McKee Wendell A. Marital
Trust, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638,
(13.70%); Varco Inc. IMA, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (6.90%); Tiernan Diana V IA, c/o Norstar Trust Co., Gales &
Co., 159 East Main, Rochester, NY 14638, (5.93%); and Dunnington, Ruth U., c/o
Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638, (5.51%).
FINANCIAL STATEMENTS
Galaxy's Annual Report to Shareholders with respect to the Funds for the
fiscal year ended October 31, 1997 and Semi-Annual Report to Shareholders
with respect to the Funds for the period ended April 30, 1998 have been filed
with the Securities and Exchange Commission. The financial statements in
such Annual Report and Semi-Annual Report (the "Financial Statements") are
incorporated by reference into this Statement of Additional Information. The
Financial Statements included in the Annual Report for the Funds for the
fiscal year ended October 31, 1997 have been audited by Galaxy's independent
accountants, PricewaterhouseCoopers LLP, whose report thereon also appears
in such Annual Report and is incorporated herein by reference. The Financial
Statements in such Annual Report have been incorporated herein by reference
in reliance upon such report given upon the authority of such firm as experts
in accounting and auditing. The Financial Statements included in the
Semi-Annual Report for the period ended April 30, 1998 are unaudited.
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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, ("Fitch IBCA"), Standard &
Poor's Ratings Group, Division of McGraw Hill ("S&P"), Moody's Investors
Service, Inc. ("Moody's"), and Thomson BankWatch, Inc. ("Thomson").
CORPORATE AND TAX-EXEMPT BOND RATINGS
The four highest ratings of D&P for tax-exempt and corporate
fixed-income securities are AAA, AA, A and BBB. Securities rated AAA are of
the highest credit quality. The risk factors are considered to be
negligible, being only slightly more than for risk-free U.S. Treasury debt.
Securities rated AA are of high credit quality. Protection factors are
strong. Risk is modest but may vary slightly from time to time because of
economic conditions. Securities that are rated "A" have protection factors
that are average but adequate. However, risk factors are more variable and
greater in periods of economic stress. Securities that are rated "BBB" have
below average protection factors but are still considered sufficient for
prudent investment. Considerable variability in risk is present during
economic cycles. The AA, A and BBB ratings may be modified by an addition of
a plus (+) or minus (-) sign to show relative standing within these major
rating categories.
The four highest ratings of Fitch IBCA for tax-exempt and corporate
bonds are AAA, AA, A and BBB. Plus (+) and minus (-) signs are used with a
rating symbol to indicate the relative position of a credit within the rating
category. AAA bonds are considered to be investment grade and of the highest
credit quality. The obligor is judged to have an exceptionally strong
ability to pay interest and repay principal, which is unlikely to be affected
by reasonably foreseeable events. AA bonds are considered to be investment
grade and of very high credit quality. The obligor's ability to pay interest
and repay principal is very strong, although not quite as strong as bonds
rated AAA. Because bonds rated in the AAA and AA categories are not
significantly vulnerable to foreseeable future developments, short-term debt
of these issuers is generally rated F-1+. A bonds are considered to be
investment grade and of high credit quality. The obligor's ability to pay
interest and repay principal is considered to be strong, but may be more
vulnerable to adverse changes in economic conditions and circumstances than
bonds with higher ratings. BBB bonds are considered to be investment grade
and of satisfactory credit quality. The obligor's ability to pay interest
and repay principal is considered to be adequate. Adverse changes in
economic conditions and circumstances, however, are more likely to have an
adverse impact on these bonds, and therefore, impair timely payment. The
likelihood that the ratings of these bonds will fall below investment grade
is higher than for bonds with higher ratings.
The four highest ratings of S&P for tax-exempt and corporate bonds are
AAA, AA, A and BBB. Bonds rated AAA bear the highest rating assigned by S&P
to a debt obligation and the AAA rating indicates in its opinion an extremely
strong capacity to pay interest and repay
A-1
<PAGE>
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.
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
A-2
<PAGE>
as to investment grade. Risk factors are larger and subject to more
variation. Nevertheless, timely payment is expected. Duff 4 indicates
speculative investment characteristics.
Fitch IBCA's short-term ratings apply to tax-exempt and corporate debt
obligations that are payable on demand or have original maturities of up to
three years. The four highest ratings of Fitch IBCA for short-term
securities are F-1+, F-1, F-2 and F-3. F-1+ securities possess exceptionally
strong credit quality. Issues assigned this rating are regarded as having
the strongest degree of assurance for timely payment. F-1 securities possess
very strong credit quality. Issues assigned this rating reflect an assurance
of timely payment only slightly less in degree than issues rated F-1+. F-2
securities possess good credit quality. Issues carrying this rating have a
satisfactory degree of assurance for timely payment, but the margin of safety
is not as great as the F-1+ and F-1 categories. F-3 securities possess fair
credit quality. Issues assigned this rating have characteristics suggesting
that the degree of assurance for timely payment is adequate; however,
near-term adverse changes could cause these securities to be rated below
investment grade.
S&P's commercial paper ratings are current assessments of the likelihood
of timely payment of debt considered short-term in the relevant market.
Issues assigned A-1 ratings, in S&P's opinion, indicate that the degree of
safety regarding timely payment is strong. Those issues determined to
possess extremely strong safety characteristics will be denoted with a plus
(+) designation. Issues rated A-2 by S&P indicate that capacity for timely
payment on these issues is satisfactory. However, the relative degree of
safety is not as high as for issues designated A-1. Issues rated A-3 have an
adequate capacity for timely payment. They are, however, somewhat more
vulnerable to the adverse effects of changes and circumstances than
obligations carrying the higher designations. Issues rated B are regarded as
having only a speculative capacity for timely payment.
Moody's commercial paper ratings are opinions of the ability of issuers
to repay punctually promissory obligations not having an original maturity in
excess of nine months. Issuers rated Prime-1 (or related supporting
institutions) in the opinion of Moody's "have a superior capacity for
repayment of short-term promissory obligations." Principal repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well established industries; high rates of return on
funds employed; conservative capitalization structures with moderate reliance
on debt and ample asset protection; broad margins in earning coverage of
fixed financial charges and high internal cash generation; and well
established access to a range of financial markets and assured sources of
alternate liquidity. Issuers rated Prime-2 (or related supporting
institutions) have a strong capacity for repayment of short-term promissory
obligations. This capacity will normally be evidenced by many of the
characteristics of Prime-1 rated issues, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected
by external conditions. Ample alternate liquidity is maintained. Issuers
rated Prime-3 (or related supporting institutions) have an acceptable
capacity for repayment of short-term promissory obligations. Issuers rated
Not Prime do not fall within any of the Prime rating categories.
A-3
<PAGE>
Thomson commercial paper ratings assess the likelihood of an untimely or
incomplete payment of principal or interest of debt having a maturity of one
year or less, which is issued by a bank holding company or an entity within
the holding company structure. The designation TBW-1 represents the highest
rating category and indicates a very high degree of likelihood that principal
and interest will be paid on a timely basis. The designation TBW-2
represents the second highest rating category and indicates that while the
degree of safety regarding timely payment of principal and interest is
strong, the relative degree of safety is not as high as for issues rated
TBW-1. The designation TBW-3 represents the lowest investment grade category
and indicates that while more susceptible to adverse developments (both
internal and external) than obligations with higher ratings, the capacity to
service principal and interest in a timely fashion is considered adequate.
TAX-EXEMPT NOTE RATINGS
A S&P rating reflects the liquidity concerns and market access risks
unique to notes due in three years or less. Notes rated SP-1 are issued by
issuers that exhibit very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety
characteristics are given a plus (+) designation. Notes rated SP-2 are
issued by issuers that exhibit satisfactory capacity to pay principal and
interest. Notes rated SP-3 are issued by issuers that exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term loans
are designated MIG and variable rate demand obligations are designated VMIG.
Such ratings recognize the differences between short-term credit risk and
long-term risk. Loans bearing the designation MIG-1 or VMIG-1 are of the
best quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing. Loans bearing the designation MIG-2 or VMIG-2 are of high
quality, with margins of protection ample although not so large as with loans
rated MIG-1 or VMIG-1. Loans bearing the designation MIG-3 or VMIG-3 are of
favorable quality with all security elements accounted for but lacking the
undeniable strength of the preceding grades. Liquidity and cash flow
protection may be narrow and market access for refinancing is likely to be
less well established. Loans bearing the designation MIG-4 or VMIG-4 are of
adequate quality, carrying specific risk but having protection commonly
regarded as required of an investment security and not distinctly or
predominantly speculative.
Fitch IBCA uses its short-term ratings described above under "Corporate
and Tax-Exempt Commercial Paper Ratings" for tax-exempt notes.
A-4
<PAGE>
APPENDIX B
As stated in the applicable Prospectuses, the MidCap Equity and
Strategic Equity Funds may enter into futures transactions for hedging
purposes. The following is a description of such transactions.
I. INTEREST RATE FUTURES CONTRACTS
USE OF INTEREST RATE FUTURES CONTRACTS. Bond prices are established in
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the
future for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, the Funds may use interest rate
futures contracts as a defense, or hedge, against anticipated interest rate
changes and not for speculation. As described below, this would include the
use of futures contract sales to protect against expected increases in
interest rates and futures contract purchases to offset the impact of
interest rate declines.
The Funds presently could accomplish a similar result to that which they
hope to achieve through the use of futures contracts by selling bonds with
long maturities and investing in bonds with short maturities when interest
rates are expected to increase, or conversely, selling short-term bonds and
investing in long-term bonds when interest rates are expected to decline.
However, because of the liquidity that is often available in the futures
market, the protection is more likely to be achieved, perhaps at a lower cost
and without changing the rate of interest being earned by the Funds, through
using futures contracts.
DESCRIPTION OF INTEREST RATE FUTURES CONTRACTS. An interest rate
futures contract sale would create an obligation by a Fund, as seller, to
deliver the specific type of financial instrument called for in the contract
at a specific future time for a specified price. A futures contract purchase
would create an obligation by the Fund, as purchaser, to take delivery of the
specific type of financial instrument at a specific future time at a specific
price. The specific securities delivered or taken, respectively, at
settlement date, would not be determined until at or near that date. The
determination would be in accordance with the rules of the exchange on which
the futures contract sale or purchase was made.
Although interest rate futures contracts by their terms call for actual
delivery or acceptance of securities, in most cases the contracts are closed
out before the settlement date without the making or taking of delivery of
securities. Closing out a futures contract sale is effected by a Fund's
entering into a futures contract purchase for the same aggregate amount of
the specific type of financial instrument and the same delivery date. If the
price of the sale exceeds the price of the offsetting purchase, the Fund
immediately is paid the difference and thus realizes a gain. If the
offsetting purchase price exceeds the sale price, the Fund pays the
difference and realizes a loss. Similarly, the closing out of a futures
contract purchase is effected
B-1
<PAGE>
by a Fund entering into a futures contract sale. If the offsetting sale
price exceeds the purchase price, the Fund realizes a gain, and if the
purchase price exceeds the offsetting sale price, the Fund realizes a loss.
Interest rate futures contracts are traded in an auction environment on
the floors of several exchanges -- principally, the Chicago Board of Trade,
the Chicago Mercantile Exchange and the New York Futures Exchange. The Funds
would deal only in standardized contracts on recognized exchanges. Each
exchange guarantees performance under contract provisions through a clearing
corporation, a nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various
financial instruments including long-term United States Treasury Bonds and
Notes; Government National Mortgage Association (GNMA) modified pass-through
mortgage backed securities; three-month United States Treasury Bills; and
ninety-day commercial paper. The Funds may trade in any interest rate
futures contracts for which there exists a public market, including, without
limitation, the foregoing instruments.
EXAMPLE OF FUTURES CONTRACT SALE. The Funds would engage in an interest
rate futures contract sale to maintain the income advantage from continued
holding of a long-term bond while endeavoring to avoid part or all of the
loss in market value that would otherwise accompany a decline in long-term
securities prices. Assume that the market value of a certain security held
by a particular Fund tends to move in concert with the futures market prices
of long-term United States Treasury bonds ("Treasury bonds"). Fleet wishes
to fix the current market value of this portfolio security until some point
in the future. Assume the portfolio security has a market value of 100, and
Fleet believes that, because of an anticipated rise in interest rates, the
value will decline to 95. The Fund might enter into futures contract sales of
Treasury bonds for an equivalent of 98. If the market value of the portfolio
security does indeed decline from 100 to 95, the equivalent futures market
price for the Treasury bonds might also decline from 98 to 93.
In that case, the five point loss in the market value of the portfolio
security would be offset by the five point gain realized by closing out the
futures contract sale. Of course, the futures market price of Treasury bonds
might well decline to more than 93 or to less than 93 because of the
imperfect correlation between cash and futures prices mentioned below.
Fleet could be wrong in its forecast of interest rates, and the
equivalent futures market price could rise above 98. In this case, the
market value of the portfolio securities, including the portfolio security
being protected, would increase. The benefit of this increase would be
reduced by the loss realized on closing out the futures contract sale.
If interest rate levels did not change, the Fund in the above example
might incur a loss of 2 points (which might be reduced by an offsetting
transaction prior to the settlement date). In each transaction, transaction
expenses would also be incurred.
B-2
<PAGE>
EXAMPLE OF FUTURES CONTRACT PURCHASE. A Fund would engage in an
interest rate futures contract purchase when it is not fully invested in
long-term bonds but wishes to defer for a time the purchase of long-term
bonds in light of the availability of advantageous interim investments, e.g.,
shorter term securities whose yields are greater than those available on
long-term bonds. A Fund's basic motivation would be to maintain for a time
the income advantage from investing in the short-term securities; the Fund
would be endeavoring at the same time to eliminate the effect of all or part
of an expected increase in market price of the long-term bonds that the Fund
may purchase.
For example, assume that the market price of a long-term bond that the
Fund may purchase, currently yielding 10%, tends to move in concert with
futures market prices of Treasury bonds. Fleet wishes to fix the current
market price (and thus 10% yield) of the long-term bond until the time (four
months away in this example) when it may purchase the bond. Assume the
long-term bond has a market price of 100, and Fleet believes that, because of
an anticipated fall in interest rates, the price will have risen to 105 (and
the yield will have dropped to about 9 1/2%) in four months. The Fund might
enter into futures contracts purchases of Treasury bonds for an equivalent
price of 98. At the same time, the Fund would assign a pool of investments
in short-term securities that are either maturing in four months or earmarked
for sale in four months, for purchase of the long-term bond at an assumed
market price of 100. Assume these short-term securities are yielding 15%. If
the market price of the long-term bond does indeed rise from 100 to 105, the
equivalent futures market price for Treasury bonds might also rise from 98 to
103. In that case, the 5 point increase in the price that the Fund pays for
the long-term bond would be offset by the 5 point gain realized by closing
out the futures contract purchase.
Fleet could be wrong in its forecast of interest rates; long-term
interest rates might rise to above 10%; and the equivalent futures market
price could fall below 98. If short-term rates at the same time fall to 10%
or below, it is possible that the Fund would continue with its purchase
program for long-term bonds. The market price of available long-term bonds
would have decreased. The benefit of this price decrease, and thus yield
increase, will be reduced by the loss realized on closing out the futures
contract purchase.
If, however, short-term rates remained above available long-term rates,
it is possible that the Fund would discontinue its purchase program for
long-term bonds. The yield on short-term securities in the portfolio,
including those originally in the pool assigned to the particular long-term
bond, would remain higher than yields on long-term bonds. The benefit of
this continued incremental income will be reduced by the loss realized on
closing out the futures contract purchase. In each transaction, expenses
would also be incurred.
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II. MARGIN PAYMENTS
Unlike purchases or sales of portfolio securities, no price is paid or
received by a Fund upon the purchase or sale of a futures contract.
Initially, the Fund will be required to deposit with the broker or in a
segregated account with Galaxy's custodian an amount of cash or liquid
portfolio securities, known as initial margin, based on the value of the
contract. The nature of initial margin in futures transactions is different
from that of margin in security transactions in that futures contract margin
does not involve the borrowing of funds by the customer to finance the
transactions. Rather, the initial margin is in the nature of a performance
bond or good faith deposit on the contract which is returned to the Fund upon
termination of the futures contract assuming all contractual obligations have
been satisfied. Subsequent payments, called variation margin, to and from the
broker, will be made on a daily basis as the price of the underlying
instruments fluctuates making the long and short positions in the futures
contract more or less valuable, a process known as marking-to-the-market.
For example, when a particular Fund has purchased a futures contract and the
price of the contract has risen in response to a rise in the underlying
instruments, that position will have increased in value and the Fund will be
entitled to receive from the broker a variation margin payment equal to that
increase in value. Conversely, where the Fund has purchased a futures
contract and the price of the future contract has declined in response to a
decrease in the underlying instruments, the position would be less valuable
and the Fund would be required to make a variation margin payment to the
broker. At any time prior to expiration of the futures contract, Fleet may
elect to close the position by taking an opposite position, subject to the
availability of a secondary market, which will operate to terminate the
Fund's position in the futures contract. A final determination of variation
margin is then made, additional cash is required to be paid by or released to
the Fund, and the Fund realizes a loss or gain.
III. RISKS OF TRANSACTIONS IN FUTURES CONTRACTS
There are several risks in connection with the use of futures by the
MidCap Equity and Strategic Equity Funds as hedging devices. One risk arises
because of the imperfect correlation between movements in the price of the
futures and movements in the price of the instruments that are the subject of
the hedge. The price of the futures may move more than or less than the
price of the instruments being hedged. If the price of the futures moves
less than the price of the instruments which are the subject of the hedge,
the hedge will not be fully effective but, if the price of the instruments
being hedged has moved in an unfavorable direction, a Fund would be in a
better position than if it had not hedged at all. If the price of the
instruments being hedged has moved in a favorable direction, this advantage
will be partially offset by the loss on the futures. If the price of the
futures moves more than the price of the hedged instruments, the Funds
involved will experience either a loss or gain on the futures, which will not
be completely offset by movements in the price of the instruments which are
the subject of the hedge. To compensate for the imperfect correlation of
movements in the price of instruments being hedged and movements in the price
of futures contracts, a Fund may buy or sell futures contracts in a greater
dollar amount than the dollar amount of instruments being hedged if the
volatility over a particular time period of the prices of such instruments
has been greater than the volatility over such time period of the futures, or
if otherwise deemed to be appropriate by the investment adviser. Conversely,
a Fund may buy or sell fewer futures contracts if the volatility over a
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particular time period of the prices of the instruments being hedged is less
than the volatility over such time period of the futures contract being used,
or if otherwise deemed to be appropriate by Fleet. It is also possible that,
where a Fund had sold futures to hedge its portfolio against a decline in the
market, the market may advance and the value of instruments held in the Fund
may decline. If this occurred, the Fund would lose money on the futures and
also experience a decline in value in its portfolio securities.
Where futures are purchased to hedge against a possible increase in the
price of securities before a Fund is able to invest its cash (or cash
equivalents) in an orderly fashion, it is possible that the market may
decline instead; if the Fund then concludes not to invest its cash at that
time because of concern as to possible further market decline or for other
reasons, the Fund will realize a loss on the futures contract that is not
offset by a reduction in the price of the instruments that were to be
purchased.
In instances involving the purchase of futures contracts by a Fund, an
amount of cash and liquid portfolio securities, equal to the market value of
the futures contracts, will be deposited in a segregated account with
Galaxy's custodian and/or in a margin account with a broker to collateralize
the position and thereby insure that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and
the instruments being hedged, the price of futures may not correlate
perfectly with movement in the cash market due to certain market distortions.
Rather than meeting additional margin deposit requirements, investors may
close futures contracts through off-setting transactions that could distort
the normal relationship between the cash and futures markets. Second, with
respect to financial futures contracts, the liquidity of the futures market
depends on participants entering into off-setting transactions rather than
making or taking delivery. To the extent participants decide to make or take
delivery, liquidity in the futures market could be reduced thus producing
distortions. Third, from the point of view of speculators, the deposit
requirements in the futures market are less onerous than margin requirements
in the securities market. Therefore, increased participation by speculators
in the futures market may also cause temporary price distortions. Due to the
possibility of price distortion in the futures market, and because of the
imperfect correlation between the movements in the cash market and movements
in the price of futures, a correct forecast of general market trends or
interest rate movements by the adviser may still not result in a successful
hedging transaction over a short time frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Funds
intend to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance that a
liquid secondary market on any exchange or board of trade will exist for any
particular contract or at any particular time. In such event, it may not be
possible to close a futures investment position, and in the event of adverse
price movements, a Fund would continue to be required to make daily cash
payments of variation margin. However, in the event futures contracts have
been used to hedge portfolio securities, such securities will not be sold
until the futures contract can be terminated. In such circumstances, an
increase in the price of
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the securities, if any, may partially or completely offset losses on the
futures contract. However, as described above, there is no guarantee that the
price of the securities will in fact correlate with the price movements in
the futures contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary market in
a futures contract may be adversely affected by "daily price fluctuation
limits" established by commodity exchanges which limit the amount of
fluctuation in a futures contract price during a single trading day. Once the
daily limit has been reached in the contract, no trades may be entered into
at a price beyond the limit, thus preventing the liquidation of open futures
positions. The trading of futures contracts is also subject to the risk of
trading halts, suspensions, exchange or clearing house equipment failures,
government intervention, insolvency of a brokerage firm or clearing house or
other disruptions of normal activity, which could at times make it difficult
or impossible to liquidate existing positions or to recover excess variation
margin payments.
Successful use of futures by the Funds is also subject to Fleet's
ability to predict correctly movements in the direction of the market. For
example, if a particular Fund has hedged against the possibility of a decline
in the market adversely affecting securities held by it and securities prices
increase instead, the Fund will lose part or all of the benefit to the
increased value of its securities which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such situations,
if the Fund has insufficient cash, it may have to sell securities to meet
daily variation margin requirements. Such sales of securities may be, but
will not necessarily be, at increased prices which reflect the rising market.
The Funds may have to sell securities at a time when it may be
disadvantageous to do so.
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RETAIL
THE GALAXY FUND
STATEMENT OF ADDITIONAL INFORMATION
Short-Term Bond Fund
Intermediate Government Income Fund
High Quality Bond Fund
November 1, 1998
<PAGE>
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the current prospectus (the "Prospectus") for Retail A
Shares and Retail B Shares of the Short-Term Bond, Intermediate Government
Income and High Quality Bond Funds, dated November 1, 1998, of The Galaxy Fund
("Galaxy"), as it may from time to time be supplemented or revised. This
Statement of Additional Information is incorporated by reference in its entirety
into such Prospectus. No investment in shares of the Funds should be made
without reading the Prospectus. Copies of the Prospectus may be obtained by
writing Galaxy c/o First Data Distributors, 4400 Computer Drive, Westboro,
Massachusetts 01581 or by calling Galaxy at 1-800-628-0414.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUNDS ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL VARY AS A RESULT OF MARKET CONDITIONS OR OTHER FACTORS SO THAT SHARES
OF THE FUNDS, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
THE PRINCIPAL AMOUNT INVESTED.
<PAGE>
Table of Contents
Page
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THE GALAXY FUND. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . . . . . . 1
Variable and Floating Rate Obligations. . . . . . . . . . . . . . . . . 1
Bank Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Asset-Backed Securities . . . . . . . . . . . . . . . . . . . . . . . . 1
Municipal Securities. . . . . . . . . . . . . . . . . . . . . . . . . . 2
When-Issued Securities and Forward Commitment and Delayed Settlement
Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Stand-By Commitments. . . . . . . . . . . . . . . . . . . . . . . . . . 4
Repurchase Agreements; Reverse Repurchase Agreements; Loans of
Portfolio Securities. . . . . . . . . . . . . . . . . . . . . . . . . . 5
U.S. Government Securities. . . . . . . . . . . . . . . . . . . . . . . 5
Derivative Securities . . . . . . . . . . . . . . . . . . . . . . . . . 5
Foreign Currency Exchange Transactions. . . . . . . . . . . . . . . . . 5
Additional Investment Limitations . . . . . . . . . . . . . . . . . . . 6
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION . . . . . . . . . . . . . . . 7
DESCRIPTION OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ADDITIONAL INFORMATION CONCERNING TAXES. . . . . . . . . . . . . . . . . . . 11
In General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Taxation of Certain Financial Instruments . . . . . . . . . . . . . . . 13
State Taxation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
TRUSTEES AND OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Shareholder and Trustee Liability . . . . . . . . . . . . . . . . . . . 19
ADVISORY, ADMINISTRATION, CUSTODIAN AND TRANSFER AGENCY AGREEMENTS . . . . . 20
Custodian and Transfer Agent. . . . . . . . . . . . . . . . . . . . . . 21
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SHAREHOLDER SERVICES PLAN. . . . . . . . . . . . . . . . . . . . . . . . . . 23
DISTRIBUTION AND SERVICES PLAN . . . . . . . . . . . . . . . . . . . . . . . 24
DISTRIBUTOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
COUNSEL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
PERFORMANCE AND YIELD INFORMATION. . . . . . . . . . . . . . . . . . . . . . 27
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
APPENDIX A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-1
APPENDIX B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-1
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THE GALAXY FUND
The Galaxy Fund ("Galaxy") is an open-end management investment company
currently authorized to offer shares of beneficial interest in thirty investment
portfolios.
This Statement of Additional Information relates to the Retail A Shares and
Retail B Shares of three of those investment portfolios: the Short-Term Bond
Fund, Intermediate Government Income Fund and High Quality Bond Fund (the
"Funds"). This Statement of Additional Information provides additional
investment information with respect to the Funds and should be read in
conjunction with the current Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
VARIABLE AND FLOATING RATE OBLIGATIONS
The Funds may purchase variable and floating rate instruments as described
in the Prospectus. If such an instrument is not rated, Fleet Investment
Advisors Inc. ("Fleet"), the investment adviser to the Funds, must determine
that such instrument is comparable to rated instruments eligible for purchase by
a Fund and will consider the earning power, cash flows and other liquidity
ratios of the issuers and guarantors of such instruments and will continuously
monitor their financial status in order to meet payment on demand. In
determining average weighted portfolio maturity of each of these Funds, a
variable or floating rate instrument issued or guaranteed by the U.S. Government
or an agency or instrumentality thereof will be deemed to have a maturity equal
to the period remaining until the obligation's next interest rate adjustment.
Long-term variable and floating rate obligations with a demand feature will be
deemed to have a maturity equal to the longer of the period remaining to the
next interest rate adjustment or the demand notice period.
BANK OBLIGATIONS
Investments by the Funds in non-negotiable time deposits are limited to no
more than 5% of each such Fund's total assets at the time of purchase.
ASSET-BACKED SECURITIES
Asset-backed securities are generally issued as pass-through certificates,
which represent undivided fractional ownership interests in an underlying pool
of assets, or as debt instruments, which are also known as collateralized
obligations, and are generally issued as the debt of a special purpose entity
organized solely for the purpose of owning such assets and issuing such debt.
Asset-backed securities are often backed by a pool of assets representing the
obligations of a number of different parties.
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
<PAGE>
asset-backed security is purchased at a premium, a prepayment rate that is
faster than expected will reduce yield to maturity, while a prepayment rate that
is slower than expected will have the opposite effect of increasing yield to
maturity. Conversely, if an asset-backed security is purchased at a discount,
faster than expected prepayments will increase, while slower than expected
prepayments, will decrease, yield to maturity.
Prepayments on asset-backed securities generally increase with falling
interest rates and decrease with rising interest rates; furthermore prepayment
rates are influenced by a variety of economic and social factors. In general,
the collateral supporting non-mortgage asset-backed securities is of shorter
maturity than mortgage loans and is less likely to experience substantial
prepayments. Like other fixed income securities, when interest rates rise, the
value of an asset-backed security generally will decline; however, when interest
rates decline, the value of an asset-backed security with prepayment features
may not increase as much as that of other fixed income securities.
Asset-backed securities are subject to greater risk of default during
periods of economic downturn. Also, the secondary market for certain
asset-backed securities may not be as liquid as the market for other types of
securities, which could result in a Fund's experiencing difficulty in valuing or
liquidating such securities. For these reasons, under certain circumstances,
asset-backed securities may be considered illiquid securities.
MUNICIPAL SECURITIES
The Funds may invest in Municipal Securities when such investments are
deemed appropriate by Fleet in light of the Funds' investment objectives. As a
result of the favorable tax treatment afforded such obligations under the
Internal Revenue Code of 1986, as amended, yields on municipal obligations can
generally be expected under normal market conditions to be lower than yields on
corporate and U.S. Government obligations, although from time to time Municipal
Securities have outperformed, on a total return basis, comparable corporate and
federal debt obligations as a result of prevailing economic, regulatory or other
circumstances.
Municipal Securities acquired by the Funds include debt obligations issued
by governmental entities to obtain funds for various public purposes, including
the construction of a wide range of public facilities, the refunding of
outstanding obligations, the payment of general operating expenses, and the
extension of loans to public institutions and facilities. Private activity
bonds that are issued by or on behalf of public authorities to finance various
privately operated facilities are "Municipal Securities" if the interest paid
thereon is exempt from regular federal income tax and not treated as a specific
tax preference item under the federal alternative minimum tax.
The two principal categories of Municipal Securities include "general
obligation" and "revenue" issues. The Funds' portfolios may also include "moral
obligation" issues, which are normally issued by special purpose authorities.
There are, of course, variations in the quality of Municipal Securities, both
within a particular category and between categories, and the yields on Municipal
Securities depend upon a variety of factors, including general market
conditions, the financial condition of the issuer, general conditions of the
municipal bond market, the size of a
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<PAGE>
particular offering, the maturity of the obligation, and the rating of the
issue. The ratings of a nationally recognized statistical rating organization
("NRSRO"), such as Moody's Investors Service, Inc. ("Moody's") and Standard &
Poor's Ratings Group ("S&P"), described in the Prospectus and in Appendix A
hereto, represent such rating services' opinion as to the quality of Municipal
Securities. It should be emphasized that these ratings are general and are not
absolute standards of quality. Municipal Securities with the same maturity,
interest rate and rating may have different yields. Municipal Securities of the
same maturity and interest rate with different ratings may have the same yield.
Subsequent to its purchase by a Fund, an issue of Municipal Securities may cease
to be rated or its rating may be reduced below the minimum rating required for
purchase by the Fund.
The payment of principal and interest on most Municipal Securities
purchased by the Funds will depend upon the ability of the issuers to meet their
obligations. Each state, the District of Columbia, each of their political
subdivisions, agencies, instrumentalities and authorities and each multistate
agency of which a state is a member is a separate "issuer" as that term is used
in this Statement of Additional Information and the Prospectus. The
non-governmental user of facilities financed by private activity bonds is also
considered to be an "issuer." An issuer's obligations under its Municipal
Securities are subject to the provisions of bankruptcy, insolvency and other
laws affecting the rights and remedies of creditors, such as the federal
Bankruptcy Code and laws, if any, which may be enacted by federal or state
legislatures extending the time for payment of principal or interest, or both,
or imposing other constraints upon enforcement of such obligations or upon the
ability of municipalities to levy taxes. The power or ability of an issuer to
meet its obligations for the payment of interest on and principal of its
Municipal Securities may be materially adversely affected by litigation or other
conditions.
Among other instruments, the Funds may purchase short-term general
obligation notes, tax anticipation notes, bond anticipation notes, revenue
anticipation notes, tax-exempt commercial paper, construction loan notes and
other forms of short-term loans. Such instruments are issued with a short-term
maturity in anticipation of the receipt of tax funds, the proceeds of bond
placements or other revenues. In addition, the Funds may invest in long-term
tax-exempt instruments, such as municipal bonds and private activity bonds to
the extent consistent with the limitations set forth in the Prospectus.
Private activity bonds are or have been issued to obtain funds to provide,
among other things, privately operated housing facilities, pollution control
facilities, convention or trade show facilities, mass transit, airport, port or
parking facilities and certain local facilities for water supply, gas,
electricity or sewage or solid waste disposal. Private activity bonds are also
issued to privately held or publicly owned corporations in the financing of
commercial or industrial facilities. State and local governments are authorized
in most states to issue private activity bonds for such purposes in order to
encourage corporations to locate within their communities. The principal and
interest on these obligations may be payable from the general revenues of the
users of such facilities.
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<PAGE>
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENT AND DELAYED SETTLEMENT
TRANSACTIONS
When a Fund agrees to purchase securities on a "when-issued," "forward
commitment" or "delayed settlement" basis, the Fund's custodian will set aside
cash or liquid portfolio securities equal to the amount of the commitment in a
separate account. In the event of a decline in the value of the securities that
the custodian has set aside, the Fund may be required to place additional assets
in the separate account in order to ensure that the value of the account remains
equal to the amount of the Fund's commitment. A Fund's net assets may fluctuate
to a greater degree if it sets aside portfolio securities to cover such purchase
commitments than if it sets aside cash. Because a Fund sets aside liquid assets
to satisfy its purchase commitments in the manner described, its liquidity and
ability to manage its portfolio might be adversely affected in the event its
commitments to purchase "forward commitments," commitments to purchase
"when-issued" securities or commitments to purchase securities on a "delayed
settlement" basis exceeded 25% of the value of its assets.
When a Fund engages in "when-issued," "forward commitment" or "delayed
settlement" transactions, it relies on the seller to consummate the trade.
Failure of the seller to do so may result in the Fund's incurring a loss or
missing an opportunity to obtain a price considered to be advantageous for a
security. For purposes of determining the average weighted maturity of a Fund's
portfolio, the maturity of "when-issued" securities is calculated from the date
of settlement of the purchase to the maturity date.
STAND-BY COMMITMENTS
Under a "stand-by commitment," a dealer agrees to purchase from a Fund, at
the Fund's option, specified Municipal Securities at a specified price.
Stand-by commitments are exercisable by a Fund at any time before the maturity
of the underlying Municipal Security, and may be sold, transferred or assigned
by the Fund only with respect to the underlying instruments.
Although stand-by commitments are often available without the payment of
any direct or indirect consideration, if necessary or advisable, a Fund may pay
for a stand-by commitment either separately in cash or by paying a higher price
for securities that are acquired subject to the commitment. Where a Fund pays
any consideration directly or indirectly for a stand-by commitment, its cost
will be reflected as unrealized depreciation for the period during which the
commitment is held by the Fund.
A Fund will enter into stand-by commitments only with banks and
broker/dealers that present minimal credit risks. In evaluating the
creditworthiness of the issuer of a stand-by commitment, Fleet will review
periodically the issuer's assets, liabilities, contingent claims and other
relevant financial information.
The Funds will acquire stand-by commitments solely to facilitate liquidity
and do not intend to exercise their rights thereunder for trading purposes.
Stand-by commitments will be valued at zero in determining a Fund's net asset
value.
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<PAGE>
REPURCHASE AGREEMENTS; REVERSE REPURCHASE AGREEMENTS; LOANS OF PORTFOLIO
SECURITIES
Each Fund may enter into repurchase agreements. The repurchase price under
a repurchase agreement generally equals the price paid by a Fund plus interest
negotiated on the basis of current short-term rates (which may be more or less
than the rate on the securities underlying the repurchase agreement).
Securities subject to repurchase agreements will be held by a Fund's custodian
or sub-custodian in a segregated account or in the Federal Reserve/Treasury
book-entry system. Repurchase agreements are considered to be loans by a Fund
under the Investment Company Act of 1940, as amended, (the "1940 Act").
Each Fund may enter into reverse repurchase agreements. Whenever a Fund
enters into a reverse repurchase agreement, it will place in a segregated
custodial account liquid assets such as cash or liquid portfolio securities
equal to the repurchase price (including accrued interest). The Fund will
monitor the account to ensure such equivalent value is maintained. Reverse
repurchase agreements are considered to be borrowings by a Fund under the 1940
Act.
A Fund that loans portfolio securities would continue to accrue interest on
the securities loaned and would also earn income on the loans. Any cash
collateral received by a Fund would be invested in high quality, short-term
"money market" instruments.
U.S. GOVERNMENT SECURITIES
Examples of the types of obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities (hereinafter, "U.S. Government
obligations") that may be held by the Funds include, without limitation, direct
obligations of the U.S. Treasury, and securities issued or guaranteed by the
Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, Federal
Housing Administration, Farmers Home Administration, Export-Import Bank of the
United States, Small Business Administration, Government National Mortgage
Association, Federal National Mortgage Association, General Services
Administration, Central Bank for Cooperatives, Federal Home Loan Mortgage
Corporation, Federal Intermediate Credit Banks, Resolution Trust Corporation and
Maritime Administration.
DERIVATIVE SECURITIES
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the Short-Term Bond Fund may
buy and sell securities denominated in currencies other than the U.S. dollar,
and receive interest, dividends and sale proceeds in currencies other than the
U.S. dollar, the Fund may enter into foreign currency exchange transactions to
convert United States currency to foreign currency and foreign currency to
United States currency as well as convert foreign currency to other foreign
currencies. The Fund either enters into these transactions on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign currency exchange market,
or uses forward contracts to purchase or sell foreign currencies.
A forward foreign currency exchange contract is an obligation by the Fund
to purchase or sell a specific currency at a specified price and future date,
which may be any fixed number of days from the date of the contract. Forward
foreign currency exchange contracts establish an
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<PAGE>
exchange rate at a future date. These contracts are transferable in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. A forward foreign currency exchange
contract generally has no deposit requirement and is traded at a net price
without commission. Neither spot transactions nor forward foreign currency
exchange contracts eliminate fluctuations in the prices of the Fund's portfolio
securities or in foreign exchange rates, or prevent loss if the prices of these
securities should decline.
The Short-Term Bond Fund may enter into foreign currency hedging
transactions in an attempt to protect against changes in foreign currency
exchange rates between the trade and settlement dates of specific securities
transactions or changes in foreign currency exchange rates that would adversely
affect a portfolio position or an anticipated portfolio position. Since
consideration of the prospect for currency parities will be incorporated into
the Fund's long-term investment decisions, the Fund will not routinely enter
into foreign currency hedging transactions with respect to portfolio security
transactions; however, it is important to have the flexibility to enter into
foreign currency hedging transactions when it is determined that the
transactions would be in the Fund's best interest. Although these transactions
tend to minimize the risk of loss due to a decline in the value of the hedged
currency, at the same time they tend to limit any potential gain that might be
realized should the value of the hedged currency increase. The precise matching
of the forward contract amounts and the value of the securities involved will
not generally be possible because the future value of these securities in
foreign currencies will change as a consequence of market movements in the value
of those securities between the date the forward contract is entered into and
the date it matures. The projection of currency market movements is extremely
difficult, and the successful execution of a hedging strategy is highly
uncertain.
ADDITIONAL INVESTMENT LIMITATIONS
In addition to the investment limitations disclosed in the Prospectus, the
Funds are subject to the following investment limitations, which may be changed
with respect to a particular Fund only by a vote of the holders of a majority of
such Fund's outstanding shares (as defined under "Miscellaneous" in the
Prospectus).
Each Fund may not:
1. Purchase securities on margin (except such short-term credits as may
be necessary for the clearance of purchases), make short sales of
securities, or maintain a short position.
2. Act as an underwriter within the meaning of the Securities Act of
1933; except insofar as a Fund might be deemed to be an underwriter
upon disposition of restricted portfolio securities; and except to the
extent that the purchase of securities directly from the issuer
thereof in accordance with the Fund's investment objective, policies
and limitations may be deemed to be underwriting.
3. Purchase or sell real estate; except that each Fund may purchase
securities that are secured by real estate and may purchase securities
of issuers which deal in real
-6-
<PAGE>
estate or interests therein; however, the Funds will not purchase or
sell interests in real estate limited partnerships.
4. Purchase or sell commodities or commodity contracts or invest in oil,
gas, or other mineral exploration or development programs or mineral
leases; provided however, that each Fund may enter into interest rate
futures contracts to the extent permitted under the Commodity Exchange
Act and the 1940 Act; and further provided that the Short-Term Bond
Fund may enter into forward currency contracts and foreign currency
futures contracts and related options to the extent permitted by their
respective investment objectives and policies.
5. Invest in or sell put options, call options, straddles, spreads, or
any combination thereof.
6. Invest in companies for the purpose of exercising management or
control.
7. Purchase securities of other investment companies except in connection
with a merger, consolidation, reorganization, or acquisition of
assets; provided, however, that each Fund may acquire such securities
in accordance with the 1940 Act.
In addition to the above limitations:
8. The Funds, with the exception of the Short-Term Bond Fund, may not
purchase foreign securities, except that the Intermediate Government
Income and High Quality Bond Funds may purchase certificates of
deposit, bankers' acceptances, or other similar obligations issued by
U.S. branches of foreign banks or foreign branches of U.S. banks; and
provided, however, that the Intermediate Government Income and High
Quality Bond Funds may also purchase obligations of Canadian
Provincial Governments in accordance with each Fund's investment
objective and policies.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Funds are sold on a continuous basis by First Data
Distributors, Inc. ("FD Distributors"), and FD Distributors has agreed to use
appropriate efforts to solicit all purchase orders. As described in the
Prospectus, Retail A Shares and Retail B Shares of the Funds are sold to
customers ("Customers") of FIS Securities, Inc., Fleet Brokerage Securities,
Inc., Fleet Securities, Inc., Fleet Enterprises, Inc., Fleet Financial Group,
Inc., its affiliates, their correspondent banks, and other qualified banks,
savings and loan associations and broker/dealers ("Institutions"). As described
in the Prospectus, Retail A Shares and Retail B Shares of the Funds may also be
sold to individuals, corporations or other entities, who submit a purchase
application to Galaxy, purchasing either for their own accounts or for the
accounts of others ("Direct Investors").
-7-
<PAGE>
Retail A Shares of the Funds are sold to Direct Investors and Customers at
the public offering price based on a Fund's net asset value plus a front-end
sales charge as described in the applicable Prospectuses. A deferred sales
charge of up to 1.00% is assessed on certain redemptions of Retail A Shares that
are purchased with no initial sales charge as part of an investment of $500,000
or more. Retail B Shares of the Funds are sold to Direct Investors and
Customers at the net asset value next determined after a purchase order is
received, but are subject to a contingent deferred sales charge which is payable
on redemption of such shares as described in the prospectus.
Retail A Shares of the Funds are offered for sale with a maximum front-end
sales charge of 3.75%, with certain exemptions as described in the Prospectus.
An illustration of the computation of the offering price per share of Retail A
Shares of the Funds, using the value of each Fund's net assets attributable to
such Shares and the number of outstanding Retail A Shares of each Fund at the
close of business on April 30, 1998 and the maximum front-end sales charge of
3.75%, is as follows:
<TABLE>
<CAPTION>
Intermediate
Short-Term Government Income
Bond Fund Fund
------------ -----------------
<S> <C> <C>
Net Assets. . . . . . . $27,138,852 $64,328,378
Outstanding Shares. . . 2,722,608 6,337,533
Net Asset Value Per
Share . . . . . . . . . $ 9.97 $ 10.15
Sales Charge (3.75% of
the offering price) . . $ 0.39 $ 0.40
Offering Price to Public $ 10.36 $ 10.55
<CAPTION>
High Quality
Bond Fund
-------------
<S> <C>
Net Assets. . . . . . . $35,338,772
Outstanding Shares. . . 3,286,441
Net Asset Value Per
Share . . . . . . . . . $ 10.75
Sales Charge (3.75% of
the offering price) . . $ 0.42
Offering Price to Public $ 11.17
</TABLE>
-8-
<PAGE>
If the Board of Trustees determines that conditions exist that make payment
of redemption proceeds wholly in cash unwise or undesirable, Galaxy may make
payment wholly or partly in securities or other property. Such redemptions will
only be made in "readily marketable" securities. In such an event, a
shareholder would incur transaction costs in selling the securities or other
property.
Galaxy may suspend the right of redemption or postpone the date of payment
for shares for more than seven days during any period when (a) trading in the
markets the Funds normally utilize is restricted, or an emergency, as defined by
the rules and regulations of the Securities and Exchange Commission (the "SEC")
exists making disposal of a Fund's investments or determination of its net asset
value not reasonably practicable; (b) the New York Stock Exchange is closed
(other than customary weekend and holiday closings); or (c) the SEC by order has
permitted such suspension.
Galaxy may require any information reasonably necessary to ensure that a
redemption has been duly authorized.
DESCRIPTION OF SHARES
Galaxy is a Massachusetts business trust. Galaxy's Declaration of Trust
authorizes the Board of Trustees to issue an unlimited number of shares and
to classify or reclassify any unissued shares into one or more additional
classes by setting or changing in any one or more respects their respective
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption. Pursuant to such authority, the Board of Trustees has authorized
the issuance of thirty classes of shares, each representing interests in one
of thirty separate investment portfolios: Money Market Fund, Government Fund,
U.S. Treasury Fund, Tax-Exempt Fund, Connecticut Municipal Money Market Fund,
Massachusetts Municipal Money Market Fund, Institutional Government Money
Market Fund, Prime Reserves Fund, Government Reserves Fund, Tax-Exempt
Reserves Fund, Equity Value Fund, Equity Growth Fund, Equity Income Fund,
International Equity Fund, Small Company Equity Fund, MidCap Equity Fund,
Asset Allocation Fund, Growth and Income Fund, Small Cap Value Fund,
Strategic Equity Fund, Short-Term Bond Fund, Intermediate Government Income
Fund, High Quality Bond Fund, Corporate Bond Fund, Tax-Exempt Bond Fund, New
Jersey Municipal Bond Fund, New York Municipal Bond Fund, Connecticut
Municipal Bond Fund, Massachusetts Municipal Bond Fund and Rhode Island
Municipal Bond Fund. In addition to the Retail A Shares and Retail B Shares
offered by the Prospectus to which this Statement of Additional Information
relates, three separate series of shares (Trust Shares, A Prime Shares and B
Prime Shares) of the Funds are offered under separate Prospectuses for
different categories of investors.
Shares have no preemptive rights and only such conversion or exchange
rights as the Board of Trustees may grant in its discretion. When issued for
payment as described in the Prospectuses, shares will be fully paid and
non-assessable. Each series of shares (i.e., Retail A Shares, Retail B
Shares, Trust Shares, A Prime Shares and B Prime Shares) bear pro rata the
same expenses and are entitled equally to a Fund's dividends and
distributions except as follows. Each series will bear the
-9-
<PAGE>
expenses of any distribution and/or shareholder servicing plans applicable to
such series. For example, as described below, holders of Retail A Shares will
bear the expenses of the Shareholder Services Plan for Retail A Shares and Trust
Shares (which is currently applicable only to Retail A Shares) and holders of
Retail B Shares will bear the expenses of the Distribution and Services Plan for
Retail B Shares. In addition, each series may incur differing transfer agency
fees and may have differing sales charges. In the event of a liquidation or
dissolution of Galaxy or an individual Fund, shareholders of a particular Fund
would be entitled to receive the assets available for distribution belonging to
such Fund, and a proportionate distribution, based upon the relative asset
values of Galaxy's respective Funds, of any general assets of Galaxy not
belonging to any particular Fund, which are available for distribution.
Shareholders of a Fund are entitled to participate in the net distributable
assets of the particular Fund involved in liquidation based on the number of
shares of the Fund that are held by each shareholder, except that each series of
a Fund would be solely responsible for the Fund's payments under any
distribution and/or shareholder servicing plan applicable to such series.
Holders of all outstanding shares of a particular Fund will vote together
in the aggregate and not by series on all matters, except that only shares of a
particular series will be entitled to vote on matters submitted to shareholders
pertaining to any distribution and/or shareholder servicing plan for such series
(e.g., only Retail A Shares and Trust Shares of a Fund will be entitled to vote
on matters submitted to a vote of shareholders pertaining to Galaxy's
Shareholder Services Plan for Retail A and Trust Shares and only Retail B Shares
of a Fund will be entitled to vote on matters submitted to a vote of
shareholders pertaining to Galaxy's Distribution and Services Plan for Retail B
Shares). Further, shareholders of all of the Funds, as well as those of any
other investment portfolio now or hereafter offered by Galaxy, will vote
together in the aggregate and not separately on a Fund-by-Fund basis, except as
otherwise required by law or when permitted by the Board of Trustees. Rule
18f-2 under the 1940 Act provides that any matter required to be submitted to
the holders of the outstanding voting securities of an investment company such
as Galaxy shall not be deemed to have been effectively acted upon unless
approved by the holders of a majority of the outstanding shares of each Fund
affected by the matter. A particular Fund is deemed to be affected by a matter
unless it is clear that the interests of each Fund in the matter are
substantially identical or that the matter does not affect any interest of the
Fund. Under the Rule, the approval of an investment advisory agreement or any
change in an investment objective or a fundamental investment policy would be
effectively acted upon with respect to a Fund only if approved by a majority of
the outstanding shares of such Fund (irrespective of series designation).
However, the Rule also provides that the ratification of the appointment of
independent public accountants, the approval of principal underwriting
contracts, and the election of trustees may be effectively acted upon by
shareholders of Galaxy voting without regard to class or series.
Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held. Voting rights are not cumulative
and, accordingly, the holders of more than 50% in the aggregate of Galaxy's
outstanding shares may elect all of the trustees, irrespective of the votes of
other shareholders.
Galaxy does not intend to hold annual shareholder meetings except as may be
required by the 1940 Act. Galaxy's Declaration of Trust provides that a meeting
of shareholders shall be
-10-
<PAGE>
called by the Board of Trustees upon a written request of shareholders owning at
least 10% of the outstanding shares of Galaxy entitled to vote.
Galaxy's Declaration of Trust authorizes the Board of Trustees, without
shareholder approval (unless otherwise required by applicable law), to (a) sell
and convey the assets of a Fund to another management investment company for
consideration which may include securities issued by the purchaser and, in
connection therewith, to cause all outstanding shares of the Fund involved to be
redeemed at a price which is equal to their net asset value and which may be
paid in cash or by distribution of the securities or other consideration
received from the sale and conveyance; (b) sell and convert a Fund's assets into
money and, in connection therewith, to cause all outstanding shares of the Fund
involved to be redeemed at their net asset value; or (c) combine the assets
belonging to a Fund with the assets belonging to another Fund of Galaxy and, in
connection therewith, to cause all outstanding shares of any Fund to be redeemed
at their net asset value or converted into shares of another class of Galaxy's
shares at the net asset value. In the event that shares are redeemed in cash at
their net asset value, a shareholder may receive in payment for such shares, due
to changes in the market prices of the Fund's portfolio securities, an amount
that is more or less than the original investment. The exercise of such
authority by the Board of Trustees will be subject to the provisions of the 1940
Act, and the Board of Trustees will not take any action described in this
paragraph unless the proposed action has been disclosed in writing to the Fund's
shareholders at least 30 days prior thereto.
ADDITIONAL INFORMATION CONCERNING TAXES
IN GENERAL
The following summarizes certain additional tax considerations generally
affecting the Funds and their shareholders that are not described in the Funds'
Prospectuses. No attempt is made to present a detailed explanation of the tax
treatment of the Funds or their shareholders, and the discussion here and in the
Prospectuses is not intended as a substitute for careful tax planning. Potential
investors should consult their tax advisers with specific reference to their own
tax situation.
Each Fund is treated as a separate corporate entity under the Internal
Revenue Code of 1986, as amended, (the "Code"), and each Fund intends to qualify
as a "regulated investment company" under the Code. By following this policy,
each Fund expects to eliminate or reduce to a nominal amount the federal income
taxes to which it may be subject. If for any taxable year a Fund does not
qualify for the special federal tax treatment afforded regulated investment
companies, all of the Fund's taxable income would be subject to tax at regular
corporate rates without any deduction for distributions to shareholders. In
such event, a Fund's distributions to shareholders (including amounts derived
from interest on Municipal Securities) would be taxable as ordinary income, to
the extent of the current and accumulated earnings and profits of the particular
Fund, and would be eligible for the dividends received deduction in the case of
corporate shareholders.
-11-
<PAGE>
Qualification as a regulated investment company under the Code for a
taxable year requires, among other things, that each Fund distribute to its
shareholders an amount equal to at least the sum of 90% of its investment
company taxable income and 90% of its tax-exempt interest income, if any, net of
certain deductions for such year (the "Distribution Requirement"). In addition,
each Fund must satisfy certain requirements with respect to the source of its
income for a taxable year. At least 90% of the gross income of each Fund must
be derived from dividends, interest, payments with respect to securities loans,
gains from the sale or other disposition of stock, securities or foreign
currencies, and other income (including, but not limited to, gains from options,
futures, or forward contracts) derived with respect to the Fund's business of
investing in such stock, securities or currencies (the "Income Requirement").
The Treasury Department may by regulation exclude from qualifying income foreign
currency gains which are not directly related to a Fund's principal business of
investing in stock or securities, or options and futures with respect to stock
or securities. Any income derived by a Fund from a partnership or trust is
treated for this purpose as derived with respect to the Fund's business of
investing in stock, securities or currencies, only to the extent that such
income is attributable to items of income which would have been qualifying
income if realized by the Fund in the same manner as by the partnership or
trust.
Substantially all of each Fund's net capital gain (excess of net long-term
capital gain over net short-term capital loss), if any, will be distributed at
least annually to Fund shareholders. A Fund will generally have no tax
liability with respect to such gains and the distributions will be taxable to
Fund shareholders who are not currently exempt from federal income taxes as
long-term capital gain, regardless of how long the shareholders have held Fund
shares and whether such gains are received in cash or reinvested in additional
shares.
Each Fund will designate the tax status of any distribution in a written
notice mailed to shareholders within 60 days after the close of its taxable
year. Shareholders should note that, upon the sale or exchange of Fund shares,
if the shareholder has not held such shares for more than six months, any loss
on the sale or exchange of those shares will be treated as long term capital
loss to the extent of the capital gain dividends received with respect to the
shares.
Ordinary income of individuals is taxable at a maximum nominal rate of
39.6%, but because of limitations on itemized deductions otherwise allowable and
the phase-out of personal exemptions, the maximum effective marginal rate of tax
for some taxpayers may be higher. An individual's long-term capital gains on
stocks and securities are taxable at a maximum nominal rate of 20%. For
corporations, long-term capital gains and ordinary income are both taxable at a
maximum average rate of 35% (a maximum effective marginal rate of 39% applies in
the case of corporations having taxable income between $100,000 and $335,000).
A 4% non-deductible excise tax is imposed on regulated investment companies
that fail to distribute with respect to each calendar year at least 98% of their
ordinary taxable income and capital gain net income (excess of capital gains
over capital losses) for the 1-year period ending on October 31 of such calendar
year. The balance of such income must be distributed during the next calendar
year. Each Fund intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and any capital gain net income
prior to the end of each calendar year to avoid liability for this excise tax.
-12-
<PAGE>
The Funds will be required in certain cases to withhold and remit to the
United States Treasury 31% of taxable dividends or gross sale proceeds paid to
any shareholder who (i) has failed to provide a correct tax identification
number, (ii) is subject to withholding by the Internal Revenue Service for
failure to properly include on his or her return payments of taxable interest or
dividends, or (iii) has failed to certify to the Funds that he or she is not
subject to back up withholding when required to do so or that he or she is an
"exempt recipient."
Income received by the Funds from sources within foreign countries may be
subject to withholding and other foreign taxes. The payment of such taxes will
reduce the amount of dividends and distributions paid to a Fund's shareholders.
So long as a Fund qualifies as a regulated investment company, certain
distribution requirements are satisfied, and more than 50% of the value of the
Fund's assets at the close of the taxable year consists of stock or securities
of foreign corporations, the Fund may elect, for U.S. federal income tax
purposes, to treat foreign income taxes paid by the Fund that can be treated as
income taxes under U.S. income tax principles as paid by its shareholders. A
Fund may qualify for and make this election in some, but not necessarily all, of
its taxable years. If a Fund were to make an election, an amount equal to the
foreign income taxes paid by the Fund would be included in the income of its
shareholders, and each shareholder would be entitled either (i) to credit their
portions of this amount against their U.S. tax due, if any, or (ii) if the
shareholder itemizes deductions, to deduct such portion from their U.S. taxable
income, if any, should the shareholder so choose. Shortly after any year for
which it makes such an election, a Fund will report to its shareholders, in
writing, the amount per share of such foreign tax that must be included in each
shareholder's gross income and the amount which will be available for deduction
or credit. Certain limitations are imposed on the extent to which the credit
(but not the deduction) for foreign taxes may be claimed.
Shareholders who choose to utilize a credit (rather than a deduction) for
foreign taxes will be subject to the limitation that the credit may not exceed
the shareholder's United States tax (determined without regard to the
availability of the credit) attributable to his or her total foreign source
taxable income. For this purpose, the portion of dividends and distributions
paid by the Fund from its foreign source income will be treated as foreign
source income. A Fund's gains and losses from the sale of securities generally
will be treated as derived from United States sources and certain foreign
currency gains and losses likewise will be treated as derived from United States
sources. The limitation on the foreign tax credit is applied separately to
foreign source "passive income," such as the portion of dividends received from
a Fund which qualifies as foreign source income. Additional limitations apply
to using the foreign tax credit to offset the alternative minimum tax imposed on
corporations and individuals. Because of these limitations, shareholders may be
unable to claim a credit for the full amount of their proportionate shares of
the foreign income taxes paid by a Fund.
TAXATION OF CERTAIN FINANCIAL INSTRUMENTS
Special rules govern the federal income tax treatment of financial
instruments that may be held by the Funds. These rules may have a particular
impact on the amount of income or gain
-13-
<PAGE>
that the Funds must distribute to their respective shareholders to comply with
the Distribution Requirement, and on the income or gain qualifying under the
Income Requirement.
Generally, futures contracts and options on futures contracts held by the
Funds and certain foreign currency contracts entered into by the Short-Term Bond
Fund (as described above) (collectively, the "Instruments") at the close of
their taxable year are treated for federal income tax purposes as sold for their
fair market value on the last business day of such year, a process known as
"mark-to-market." Forty percent of any gain or loss resulting from such
constructive sales will be treated as short-term capital gain or loss, and 60%
of such gain or loss will be treated as long-term capital gain or loss without
regard to the period a Fund has held the Instruments ("the 40-60 rule"). The
amount of any capital gain or loss actually realized by a Fund in a subsequent
sale or other disposition of those Instruments is adjusted to reflect any
capital gain or loss taken into account by the Fund in a prior year as a result
of the constructive sale of the Instruments. Losses with respect to futures
contracts to sell related options, and certain foreign currency contracts, which
are regarded as parts of a "mixed straddle" because their values fluctuate
inversely to the values of specific securities held by the Funds, are subject to
certain loss deferral rules, which limit the amount of loss currently deductible
on either part of the straddle to the amount thereof that exceeds the
unrecognized gain, if any, with respect to the other part of the straddle, and
to certain wash sales regulations. With respect to certain Instruments,
deductions for interest and carrying charges may not be allowed.
Notwithstanding the rules described above, with respect to futures contracts
that are part of a "mixed straddle" to sell related options, and certain foreign
currency contracts that are properly identified as such, a Fund may make an
election which will exempt (in whole or in part) those identified futures
contracts, options and foreign currency contracts from the Rules of Section 1256
of the Code including "the 40-60 rule" and "mark-to-market," but gains and
losses will be subject to such short sales, wash sales and loss deferral rules
and the requirement to capitalize interest and carrying charges. Under
Temporary Regulations, a Fund would be allowed (in lieu of the foregoing) to
elect either (1) to offset gains or losses from portions that are part of a
mixed straddle by separately identifying each mixed straddle to which such
treatment applies, or (2) to establish a mixed straddle account for which gains
and losses would be recognized and offset on a periodic basis during the taxable
year. Under either election, "the 40-60 rule" will apply to the net gain or
loss attributable to the Instruments, but in the case of a mixed straddle
account election, not more than 50% of any net gain may be treated as long-term
and no more than 40% of any net loss may be treated as short-term.
A foreign currency contract must meet the following conditions in order to
be subject to the mark-to-market rules described above: (1) the contract must
require delivery of a foreign currency of a type in which regulated futures
contracts are traded or upon which the settlement value of the contract depends;
(2) the contract must be entered into at arm's length at a price determined by
reference to the price in the interbank market; and (3) the contract must be
traded in the interbank market. The Treasury Department has broad authority to
issue regulations under the provisions respecting foreign currency contracts.
As of the date of this Statement of Additional Information, the Treasury
Department has not issued any such regulations. Other foreign currency
contracts entered into by a Fund may result in the creation of one or more
straddles for federal income tax purposes, in which case certain loss deferral,
short sales, and wash sales rules and the requirement to capitalize interest and
carrying charges may apply.
-14-
<PAGE>
Some of the non-U.S. dollar denominated investments that the Short-Term
Bond Fund may make, such as foreign securities, European Depository Receipts and
foreign currency contracts, may be subject to the provisions of Subpart J of the
Code, which govern the federal income tax treatment of certain transactions
denominated in terms of a currency other than the U.S. dollar or determined by
reference to the value of one or more currencies other than the U.S dollar. The
types of transactions covered by these provisions include the following: (1) the
acquisition of, or becoming the obligor under, a bond or other debt instrument
(including, to the extent provided in Treasury regulations, preferred stock);
(2) the accruing of certain trade receivables and payables; and (3) the entering
into or acquisition of any forward contract, futures contract, option and
similar financial instrument. The disposition of a currency other than the U.S.
dollar by a U.S. taxpayer also is treated as a transaction subject to the
special currency rules. However, foreign currency-related regulated futures
contracts and nonequity options are generally not subject to the special
currency rules if they are or would be treated as sold for their fair market
value at year-end under the mark-to-market rules, unless an election is made to
have such currency rules apply. With respect to transactions covered by the
special rules, foreign currency gain or loss is calculated separately from any
gain or loss on the underlying transaction and is normally taxable as ordinary
gain or loss. A taxpayer may elect to treat as capital gain or loss foreign
currency gain or loss arising from certain identified forward contracts, futures
contracts and options that are capital assets in the hands of the taxpayer and
which are not part of a straddle. In accordance with Treasury regulations,
certain transactions that are part of a "Section 988 hedging transaction" (as
defined in the Code and Treasury regulations) may be integrated and treated as a
single transaction or otherwise treated consistently for purposes of the Code.
"Section 988 hedging transactions" are not subject to the mark-to-market or loss
deferral rules under the Code. Gain or loss attributable to the foreign
currency component of transactions engaged in by the Fund, which is not subject
to the special currency rules (such as foreign equity investments other than
certain preferred stocks), is treated as capital gain or loss and is not
segregated from the gain or loss on the underlying transaction.
The Fund may be subject to U.S. federal income tax on a portion of any
"excess distribution" or a gain from the disposition of passive foreign
investment companies even if it distributes the income to its shareholders.
STATE TAXATION
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.
-15-
<PAGE>
TRUSTEES AND OFFICERS
The trustees and executive officers of Galaxy, their addresses, principal
occupations during the past five years, and other affiliations are as follows:
<TABLE>
<CAPTION>
Positions Principal Occupation
with The During Past 5 Years
Name and Address Galaxy Fund and Other Affiliations
----------------------- ----------- ----------------------------
<S> <C> <C>
Chairman & President & Director, Vicks
Dwight E. Vicks, Jr. Trustee Lithograph & Printing
Vicks Lithograph & Corporation (book
Printing Corporation manufacturing and commercial
Commercial Drive printing); Director, Utica
P.O. Box 270 Fire Insurance Company;
Yorkville, NY 13495 Trustee, Savings Bank of
Age 64 Utica; Director, Monitor Life
Insurance Company; Director,
Commercial Travelers Mutual
Insurance Company; Trustee,
The Galaxy VIP Fund; Trustee,
Galaxy Fund II.
John T. O'Neill(1) President, Executive Vice President and
Hasbro, Inc. Treasurer & CFO, Hasbro, Inc. (toy and
1027 Newport Drive Trustee game manufacturer); Trustee,
Pawtucket, RI 02862 The Galaxy VIP Fund; Trustee,
Age 53 Galaxy Fund II.
Louis DeThomasis Trustee President, Saint Mary's
Saint Mary's College College of Minnesota;
of Minnesota Director, Bright Day Travel,
Winona, MN 55987 Inc.; Trustee, Religious
Age 57 Communities Trust; Trustee,
The Galaxy VIP Fund; Trustee,
Galaxy Fund II.
Trustee Chairman, Horizon Media, Inc.
Donald B. Miller (broadcast services);
10725 Quail Covey Road Director/Trustee, Lexington
Boynton Beach, FL 33436 Funds; Chairman, Executive
Age 72 Committee, Compton
International, Inc.
(advertising agency); Trustee,
Keuka College; Trustee, The
Galaxy VIP Fund; Trustee,
Galaxy Fund II.
-16-
<PAGE>
<CAPTION>
Positions Principal Occupation
with The During Past 5 Years
Name and Address Galaxy Fund and Other Affiliations
------------------------- ----------- ------------------------------
<S> <C> <C>
James M. Seed Trustee Chairman and President, The
The Astra Ventures, Inc. Astra Projects, Incorporated
One Citizens Plaza (land development); President,
Providence, RI 02903 The Astra Ventures,
Age 56 Incorporated (previously,
Buffinton Box Company --
manufacturer of cardboard
boxes); Commissioner, Rhode
Island Investment Commission;
Trustee the Galaxy VIP Fund;
Trustee, Galaxy Fund II.
Bradford S. Wellman(1) Trustee Private Investor; Vice
2468 Ohio Street President and Director, Acadia
Bangor, ME 04401 Management Company (investment
Age 66 services); Director, Essex
County Gas Company, until
January 1994; Director, Maine
Mutual Fire Insurance Co.;
Member, Maine Finance Authority;
Trustee, The Galaxy VIP Fund;
Trustee, Galaxy Fund II.
W. Bruce McConnel, III Secretary Partner of the law firm
Philadelphia National Drinker Biddle & Reath LLP,
Bank Building Philadelphia, Pennsylvania.
1345 Chestnut Street
Philadelphia, PA 19107
Age 54
Jylanne Dunne Vice President Vice President, First Data
First Data Investor and Assistant Investor Services Group, Inc.,
Services Group, Inc. Treasurer 1990 to present.
4400 Computer Drive
Westboro, MA 01581-5108
Age 38
</TABLE>
- -------------------------
1. May be deemed to be an "interested" person within the definition set forth
in Section 2(a)(19) of the 1940 Act.
-17-
<PAGE>
Effective March 5, 1998, each trustee receives an annual aggregate fee of
$40,000 for his services as a trustee of Galaxy, The Galaxy VIP Fund ("Galaxy
VIP") and Galaxy Fund II ("Galaxy II") (collectively, the "Trusts"), plus an
additional $2,500 for each in-person Galaxy Board meeting attended and $1,500
for each in-person Galaxy VIP or Galaxy II Board meeting attended not held
concurrently with an in-person Galaxy meeting, and is reimbursed for expenses
incurred in attending all meetings. Each trustee also receives $750 for each
telephone Board meeting in which the trustee participates, $1,000 for each
in-person Board committee meeting attended and $500 for each telephone Board
committee meeting in which the trustee participates. The Chairman of the Boards
of the Trusts is entitled to an additional annual aggregate fee in the amount of
$4,000, and the President and Treasurer of the Trusts is entitled to an
additional annual aggregate fee of $2,500 for their services in these respective
capacities. The foregoing trustees' and officers' fees are allocated among the
portfolios of the Trusts based on their relative net assets. Prior to March 5,
1998, (i) each trustee received an annual aggregate fee of $29,000 for his
services as a trustee of the Trusts, plus an additional $2,250 for each
in-person Galaxy Board meeting attended and $1,500 for each in-person Galaxy VIP
or Galaxy II Board meeting attended not held concurrently with an in-person
Galaxy Board meeting, and (ii) the President and Treasurer of the Trusts
received the same fees as they are currently paid for their services in these
capacities.
Effective March 1, 1996, each trustee became entitled to participate in The
Galaxy Fund, The Galaxy VIP Fund and Galaxy Fund II Deferred Compensation Plans
(the "Original Plans"). Effective January 1, 1997, the Original Plans were
merged into The Galaxy Fund/The Galaxy VIP Fund/Galaxy Fund II Deferred
Compensation Plan (together with the Original Plans, the "Plan"). Under the
Plan, a trustee may elect to have his deferred fees treated as if they had been
invested by the Trusts in the shares of one or more portfolios in the Trusts, or
other types of investment options, and the amount paid to the trustees under the
Plan will be determined based upon the performance of such investments.
Deferral of trustees' fees will have no effect on a portfolio's assets,
liabilities, and net income per share, and will not obligate the Trusts to
retain the services of any trustee or obligate a portfolio to any level of
compensation to the trustee. The Trusts may invest in underlying securities
without shareholder approval.
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.
-18-
<PAGE>
The following chart provides certain information about the fees received by
Galaxy's trustees in the most recently completed fiscal year.
<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Benefits from Galaxy and
Aggregate Accrued as Fund
Name of Compensation from Part of Fund Complex*Paid to
Person/Position Galaxy Expenses Trustees
----------------------- ----------------- ------------ ---------------
<S> <C> <C> <C>
Bradford S. Wellman $34,591 None $38,500
Trustee
Dwight E. Vicks, Jr. $38,184 None $42,500
Chairman & Trustee
Donald B. Miller** $34,574 None $38,500
Trustee
Rev. Louis DeThomasis $34,591 None $38,500
Trustee
John T. O'Neill $36,837 None $41,000
President, Treasurer &
Trustee
James M. Seed** $34,574 None $38,500
Trustee
</TABLE>
- -------------
* The "Fund Complex" consists of The Galaxy Fund, The Galaxy VIP Fund and
Galaxy Fund II.
** Deferred compensation in the amounts of $35,777 and $40,992 accrued during
Galaxy's fiscal year ended October 31, 1997 for Messrs. Miller and Seed,
respectively.
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. However, Galaxy's Declaration of Trust provides that shareholders
shall not be subject to any personal liability for the acts or obligations of
Galaxy, and that every note, bond, contract, order or other undertaking made by
Galaxy shall contain a provision to the effect that the shareholders are not
personally liable thereunder. The Declaration of Trust provides for
indemnification out of the trust property of any shareholder held personally
liable solely by reason of his or her being or having been a shareholder and not
because of his or her acts or omissions outside such capacity or some other
reason. The Declaration of Trust also provides that Galaxy shall, upon request,
assume the defense of any claim made against any shareholder for any act or
obligation of
-19-
<PAGE>
Galaxy and shall satisfy any judgment thereon. Thus, the risk of shareholder
liability is limited to circumstances in which Galaxy itself would be unable to
meet its obligations.
The Declaration of Trust states further that no trustee, officer or agent
of Galaxy shall be personally liable for or on account of any contract, debt,
claim, damage, judgment or decree arising out of or connected with the
administration or preservation of the trust estate or the conduct of any
business of Galaxy; nor shall any trustee be personally liable to any person for
any action or failure to act except by reason of his own bad faith, willful
misfeasance, gross negligence or reckless disregard of his duties as trustee.
The Declaration of Trust also provides that all persons having any claim against
the trustees or Galaxy shall look solely to the trust property for payment.
With the exceptions stated, the Declaration of Trust provides that a
trustee is entitled to be indemnified against all liabilities and expenses
reasonably incurred by him in connection with the defense or disposition of any
proceeding in which he may be involved or with which he may be threatened by
reason of his being or having been a trustee, and that the Board of Trustees
shall indemnify representatives and employees of Galaxy to the same extent to
which they themselves are entitled to indemnification.
ADVISORY, ADMINISTRATION, CUSTODIAN AND TRANSFER AGENCY AGREEMENTS
Fleet serves as investment adviser to the Funds. In its advisory
agreement, Fleet has agreed to provide investment advisory services to the Funds
as described in the Prospectuses. Fleet has also agreed to pay all expenses
incurred by it in connection with its activities under the advisory agreement
other than the cost of securities (including brokerage commissions) purchased
for the Funds. See "Expenses" in the Prospectuses.
For the fiscal years ended October 31, 1995, October 31, 1996 and October
31, 1997, Fleet received advisory fees (net of fee waivers) of $359,155,
$531,062 and $470,347, respectively, with respect to the Short-Term Bond Fund;
$1,527,441, $1,653,803 and $1,535,166, respectively, with respect to the
Intermediate Government Income Fund; and $818,510, $932,381 and $1,089,506,
respectively, with respect to the High Quality Bond Fund.
For the fiscal years ended October 31, 1995, October 31, 1996 and October
31, 1997, Fleet waived advisory fees of $130,062, $193,702 and $171,035,
respectively, with respect to the Short-Term Bond Fund; $557,058, $608,385 and
$558,241, respectively, with respect to the Intermediate Government Income Fund;
and $297,640, $339,047 and $396,183, respectively, with respect to the High
Quality Bond Fund.
For the fiscal years ended October 31, 1995, October 31, 1996 and October
31, 1997, Fleet reimbursed advisory fees of $65,354, $40,375 and $2,300,
respectively, with respect to the Short-Term Bond Fund; $60,356, $0 and $0,
respectively, with respect to the Intermediate Government Income Fund; and
$34,946, $2,956 and $28,489, respectively, with respect to the High Quality Bond
Fund.
-20-
<PAGE>
The advisory agreement provides that Fleet shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Funds in
connection with the performance of its duties under the advisory agreement,
except a loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of Fleet in the
performance of its duties or from reckless disregard by it of its duties and
obligations thereunder. Unless sooner terminated, the advisory agreement will
continue in effect with respect to a particular Fund from year to year as long
as such continuance is approved at least annually (i) by the vote of a majority
of trustees who are not parties to such advisory agreement or interested persons
(as defined in the 1940 Act) of any such party, cast in person at a meeting
called for the purpose of voting on such approval; and (ii) by Galaxy's Board of
Trustees, or by a vote of a majority of the outstanding shares of such Fund. The
term "majority of the outstanding shares of such Fund" means, with respect to
approval of an advisory agreement, the vote of the lesser of (i) 67% or more of
the shares of the Fund present at a meeting, if the holders of more than 50% of
the outstanding shares of the Fund are present or represented by proxy, or (ii)
more than 50% of the outstanding shares of the Fund. The advisory agreement may
be terminated by Galaxy or by Fleet on sixty days' written notice, and will
terminate immediately in the event of its assignment.
Investor Services Group, a wholly-owned subsidiary of First Data
Corporation, serves as Galaxy's administrator. Under the administration
agreement, Investor Services Group has agreed to maintain office facilities for
Galaxy, furnish Galaxy with statistical and research data, clerical, accounting,
and bookkeeping services, certain other services such as internal auditing
services required by Galaxy, and compute the net asset value and net income of
the Funds. Investor Services Group prepares the Funds' annual and semi-annual
reports to the SEC, federal and state tax returns, and filings with state
securities commissions, arranges for and bears the cost of processing share
purchase and redemption orders, maintains the Funds' financial accounts and
records, and generally assists in all aspects of Galaxy's operations.
Prior to March 31, 1995, Galaxy's administrator and transfer agent was 440
Financial Group of Worcester, Inc., a wholly-owned subsidiary of State Mutual
Life Assurance Company of America. On March 31, 1995, Investor Services Group
acquired all of the assets of 440 Financial Group of Worcester, Inc.
For the fiscal years ended October 31, 1995, October 31, 1996 and October
31, 1997, Investor Services Group and/or its predecessors received
administration fees (net of fee waivers) of $57,153, $82,440 and $69,851,
respectively, with respect to the Short-Term Bond Fund; $244,446, $256,059 and
$227,963, respectively, with respect to the Intermediate Government Income Fund;
and $130,250, $143,905 and $161,732, respectively, with respect to the High
Quality Bond Fund.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase Manhattan") serves as custodian to the
Funds pursuant to a Global Custody Agreement. Under its custody agreement,
Chase Manhattan has agreed to: (i) maintain a separate account or accounts in
the name of each Fund; (ii) hold and
-21-
<PAGE>
disburse portfolio securities on account of each Fund; (iii) collect and make
disbursements of money on behalf of each Fund; (iv) collect and receive all
income and other payments and distributions on account of each Fund's portfolio
securities; (v) respond to correspondence from security brokers and others
relating to its duties; and (vi) make periodic reports to the Board of Trustees
concerning the Funds' operations. Chase Manhattan is authorized to select one
or more banks or trust companies to serve as sub-custodian for the Funds,
provided that Chase Manhattan shall remain responsible for the performance of
all of its duties under the custodian agreement and shall be liable to the Funds
for any loss which shall occur as a result of the failure of a sub-custodian to
exercise reasonable care with respect to the safekeeping of the Funds' assets.
In addition, Chase Manhattan may employ sub-custodians for the Short-Term Bond
Fund upon prior approval by the Board of Trustees in accordance with the
regulations of the SEC, for the purpose of providing custodial services for the
foreign assets of those Funds held outside the United States. The assets of the
Funds are held under bank custodianship in compliance with the 1940 Act.
Investor Services Group also serves as Galaxy's transfer agent and dividend
disbursing agent pursuant to a Transfer Agency and Services Agreement ("Transfer
Agency Agreement"). Under the Transfer Agency Agreement, Investor Services
Group has agreed to: (i) issue and redeem shares of each Fund; (ii) transmit all
communications by each Fund to its shareholders of record, including reports to
shareholders, dividend and distribution notices and proxy materials for meetings
of shareholders; (iii) respond to correspondence by security brokers and others
relating to its duties; (iv) maintain shareholder accounts; and (v) make
periodic reports to the Board of Trustees concerning Galaxy's operations.
PORTFOLIO TRANSACTIONS
Debt securities purchased or sold by the Funds are generally traded in the
over-the-counter market on a net basis (i.e., without commission) through
dealers, or otherwise involve transactions directly with the issuer of an
instrument. The cost of securities purchased from underwriters includes an
underwriting commission or concession, and the prices at which securities are
purchased from and sold to dealers include a dealer's mark-up or mark-down.
The Funds may engage in short-term trading to achieve their investment
objectives. Portfolio turnover may vary greatly from year to year as well as
within a particular year.
In purchasing or selling securities for the Funds, Fleet will seek to
obtain the best net price and the most favorable execution of orders. To the
extent that the execution and price offered by more than one broker/dealer are
comparable, Fleet may effect transactions in portfolio securities with
broker/dealers who provide research, advice or other services such as market
investment literature.
Except as permitted by the SEC or applicable law, the Funds will not
acquire portfolio securities from, make savings deposits in, enter into
repurchase or reverse repurchase agreements with, or sell securities to, Fleet,
Investor Services Group, or their affiliates, and will not give preference to
affiliates and correspondent banks of Fleet with respect to such transactions.
-22-
<PAGE>
Galaxy is required to identify any securities of its "regular brokers or
dealers" that the Funds have acquired during Galaxy's most recent fiscal year.
During fiscal year ended October 31, 1997, the Galaxy bond funds did not acquire
or sell securities of its regular brokers and dealers.
Investment decisions for each Fund are made independently from those for
the other Funds and portfolios of Galaxy and for any other investment companies
and accounts advised or managed by Fleet. When a purchase or sale of the same
security is made at substantially the same time on behalf of a Fund, another
portfolio of Galaxy, and/or another investment company or account, the
transaction will be averaged as to price, and available investments allocated as
to amount, in a manner which Fleet believes to be equitable to the Fund and such
other portfolio, investment company or account. In some instances, this
investment procedure may adversely affect the price paid or received by a Fund
or the size of the position obtained or sold by such Fund. To the extent
permitted by law, Fleet may aggregate the securities to be sold or purchased for
a Fund with those to be sold or purchased for Galaxy's other Funds and
portfolios, or other investment companies or accounts in order to obtain best
execution.
SHAREHOLDER SERVICES PLAN
As stated in the Prospectus, Galaxy may enter into agreements ("Servicing
Agreements") pursuant to its Shareholder Services Plan ("Services Plan") with
Institutions and other organizations (including Fleet Bank and its affiliates)
(collectively, "Service Organizations") pursuant to which Service Organizations
will be compensated by Galaxy for offering to provide certain administrative and
support services to Customers who are the beneficial owners of Retail A Shares
and Trust Shares of a Fund. As of October 31, 1997, Galaxy had entered into
Servicing Agreements only with Fleet Bank and affiliates.
Each Servicing Agreement between Galaxy and a Service Organization relating
to the Services Plan requires that, with respect to those Funds which declare
dividends on a daily basis, the Service Organization agree to waive a portion of
the servicing fee payable to it under the Services Plan to the extent necessary
to ensure that the fees required to be accrued with respect to the Retail A
Shares of such Funds on any day do not exceed the income to be accrued to such
Retail A Shares on that day.
For the fiscal years ended October 31, 1995, October 31, 1996 and October
31, 1997, payments to Service Organizations totaled $45,148, $54,596 and
$43,131, respectively, with respect to Retail A Shares of the Short-Term Bond
Fund; $122,743, $122,781 and $102,805, respectively, with respect to Retail A
Shares of the Intermediate Government Income Fund; and $39,826, $45,938 and
$35,749, respectively, with respect to Retail A Shares of the High Quality Bond
Fund.
Galaxy's Servicing Agreements are governed by the Services Plan that has
been adopted by Galaxy's Board of Trustees in connection with the offering of
Retail A Shares of each Fund. Pursuant to the Services Plan, the Board of
Trustees reviews, at least quarterly, a written report
-23-
<PAGE>
of the amounts paid under the Servicing Agreements and the purposes for which
the expenditures were made. In addition, the arrangements with Service
Organizations must be approved annually by a majority of Galaxy's trustees,
including a majority of the trustees who are not "interested persons" of Galaxy
as defined in the 1940 Act and who have no direct or indirect financial interest
in such arrangements (the "Disinterested Trustees").
The Board of Trustees has approved Galaxy's arrangements with Service
Organizations based on information provided by Galaxy's service contractors that
there is a reasonable likelihood that the arrangements will benefit the Funds
and their shareholders by affording Galaxy greater flexibility in connection
with the efficient servicing of the accounts of the beneficial owners of Retail
A Shares of the Funds. Any material amendment to Galaxy's arrangements with
Service Organizations must be approved by a majority of Galaxy's Board of
Trustees (including a majority of the Disinterested Trustees). So long as
Galaxy's arrangements with Service Organizations are in effect, the selection
and nomination of the members of Galaxy's Board of Trustees who are not
"interested persons" (as defined in the 1940 Act) of Galaxy will be committed to
the discretion of such Disinterested Trustees.
DISTRIBUTION AND SERVICES PLAN
Galaxy has adopted a Distribution and Services Plan (the "12b-1 Plan")
pursuant to Rule 12b-1 under the 1940 Act with respect to Retail B Shares of the
Funds. The 12b-1 Plan is described in the Prospectus.
Under the 12b-1 Plan for Retail B Shares, payments by Galaxy (i) for
distribution expenses may not exceed .65% (annualized) of the average daily net
assets attributable to each Fund's outstanding Retail B Shares, (ii) to an
Institution for shareholder liaison services and/or administrative support
services may not exceed .15% (annualized) and .15% (annualized), respectively,
of the average daily net assets attributable to each Fund's outstanding Retail B
Shares which are owned of record or beneficially by that Institution's Customers
for whom the Institution is the dealer of record or shareholder of record or
with whom it has a servicing relationship. As of the date of this Statement of
Additional Information, Galaxy intends to limit the Funds' payments for
shareholder liaison and administrative support services under the 12b-1 Plan to
an aggregate fee of not more than .15% (on an annualized basis) of the average
daily net asset value of Retail B Shares owned of record or beneficially by
Customers of Institutions.
Payments for distribution expenses under the 12b-1 Plan are subject to Rule
12b-1 (the "Rule") under the 1940 Act. The Rule defines distribution expenses
to include the cost of "any activity which is primarily intended to result in
the sale of Galaxy shares." The Rule provides, among other things, that an
investment company may bear such expenses only pursuant to a plan adopted in
accordance with the Rule. In accordance with the Rule, the 12b-1 Plan provides
that a report of the amounts expended under the 12b-1 Plan, and the purposes for
which such expenditures were incurred, will be made to the Board of Trustees for
its review at least quarterly. The 12b-1 Plan provides that it may not be
amended to increase materially the costs which Retail B Shares of a Fund may
bear for distribution pursuant to the 12b-1 Plan without shareholder approval,
and that any other type of material amendment must be approved by a
-24-
<PAGE>
majority of the Board of Trustees, and by a majority of the Trustees who are
neither "interested persons" (as defined in the 1940 Act) of Galaxy nor have any
direct or indirect financial interest in the operation of the 12b-1 Plan or in
any related agreements, by vote cast in person at a meeting called for the
purpose of considering such amendments (the "Disinterested Trustees").
For the fiscal year ended October 31, 1997, Retail B Shares of the
Short-Term Bond and High Quality Bond Funds bore the following distribution and
shareholder servicing fees under the 12b-1 Plan: $3,443 in distribution fees
and $788 in shareholder servicing fees with respect to Retail B Shares of the
Short-Term Bond Fund; and $7,645 in distribution fees and $1,729 in shareholder
servicing fees with respect to Retail B Shares of the High Quality Bond Fund.
For the fiscal year ended October 31, 1997, all amounts paid under the 12b-1
Plan were attributable to payments to broker-dealers. For the period from March
4, 1996 (date of initial public offering of Retail B Shares) through October 31,
1996, Retail B Shares of the Short-Term Bond and High Quality Bond Funds bore
the following distribution and shareholder servicing fees under the 12b-1 Plan:
$822 in distribution fees and $190 in shareholder servicing fees with respect to
Retail B Shares of the Short-Term Bond Fund; and $1,580 in distribution fees and
$365 in shareholder servicing fees with respect to Retail B Shares of the High
Quality Bond Fund. For the fiscal year ended October 31, 1996, all amounts paid
under the 12b-1 Plan were attributable to payments to broker-dealers.
Galaxy's Board of Trustees has concluded that there is a reasonable
likelihood that the 12b-1 Plan will benefit the Funds and holders of Retail B
Shares. The 12b-1 Plan is subject to annual reapproval by a majority of the
Disinterested Trustees and is terminable at any time with respect to any Fund by
a vote of a majority of such Trustees or by vote of the holders of a majority of
the Retail B Shares of the Fund involved. Any agreement entered into pursuant
to the 12b-1 Plan with a Service Organization is terminable with respect to any
Fund without penalty, at any time, by vote of a majority of the Disinterested
Trustees, by vote of the holders of a majority of the Retail B Shares of such
Fund, by FD Distributors or by the Service Organization. An agreement will also
terminate automatically in the event of its assignment.
As long as the 12b-1 Plan is in effect, the nomination of the trustees who
are not interested persons of Galaxy (as defined in the 1940 Act) must be
committed to the discretion of such Disinterested Trustees.
DISTRIBUTOR
First Data Distributors, Inc. ("FD Distributors"), a wholly-owned
subsidiary of Investor Services Group, serves as Galaxy's distributor. On March
31, 1995, Investor Services Group acquired all of the issued and outstanding
stock of FD Distributors. Prior to that time, FD Distributors was a
wholly-owned subsidiary of 440 Financial Group of Worcester, Inc. and an
indirect subsidiary of State Mutual Life Assurance Company of America.
Unless otherwise terminated, the Distribution Agreement between Galaxy and
FD Distributors, remains in effect until May 31, 1999, and thereafter will
continue from year to year upon annual approval by Galaxy's Board of Trustees,
or by the vote of a majority of the
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<PAGE>
outstanding shares of Galaxy and by the vote of a majority of the Board of
Trustees of Galaxy who are not parties to the Agreement or interested persons of
any such party, cast in person at a meeting called for the purpose of voting on
such approval. The Agreement will terminate in the event of its assignment, as
defined in the 1940 Act.
FD Distributors is entitled to the payment of a front-end sales charge on
the sale of Retail A Shares of the Funds as described in the applicable
Prospectuses. For the fiscal year ended October 31, 1997, the Distributor
received front-end sales charges in connection with Retail A Share purchases as
follows: Short-Term Bond Fund -- $15,074; Intermediate Government Income Fund
- -- $28,979; and High Quality Bond Fund -- $43,211. Of these amounts, FD
Distributors and affiliates of Fleet retained $0 and $15,074, respectively, with
respect to the Short-Term Bond Fund; $0 and $28,979, respectively, with respect
to the Intermediate Government Income Fund; and $0 and $43,211, respectively,
with respect to the High Quality Bond Fund.
FD Distributors is also entitled to the payment of contingent deferred
sales charges upon the redemption of Retail B Shares of the Funds. For the
fiscal year ended October 31, 1997, FD Distributors received contingent deferred
sales charges in connection with Retail B Share redemptions as follows:
Short-Term Bond Fund -- $3,662; and High Quality Bond Fund -- $5,970. All such
amounts were paid to affiliates of Fleet.
The following table shows all sales charges, commissions and other
compensation received by FD Distributors directly or indirectly from the Funds
during the fiscal year ended October 31, 1997:
<TABLE>
<CAPTION>
Brokerage
Net Commissions in
Underwriting Compensation on Connection
Discounts and Redemption and with Fund Other
Fund Commissions(1) Repurchase(2) Transactions Compensation(3)
------ -------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Short-Term Bond $18,735.01 $3,661.62 $0 $49,576
Intermediate $28,979.34 N/A $0 $105,181
Government
Income
High Quality
Bond $49,180.72 $5,969.93 $0 $49,750
</TABLE>
- ----------------------
(1) Represents amounts received from front-end sales charges on Retail A Shares
and commissions received in connection with sales of Retail B Shares.
(2) Represents amounts received from contingent deferred sales charges on
Retail B Shares. The basis on which such sales charges are paid is
described in the Prospectus relating to Retail B Shares. All such amounts
were paid to affiliates of Fleet.
(3) Represents payments made under the Shareholder Services Plan and
Distribution and Services Plan during the fiscal year ended October 31,
1997, which includes fees accrued in the fiscal year ended October 31, 1996
which were paid in 1997 (see "Shareholder Services Plan" and "Distribution
and Services Plan" above).
-26-
<PAGE>
AUDITORS
PricewaterhouseCoopers LLP, independent certified public accountants, with
offices at One Post Office Square, Boston, Massachusetts 02109, serve as
auditors to Galaxy. The financial highlights for the Funds included in the
Prospectus and the financial statements for the Funds contained in Galaxy's
Annual Report to Shareholders and incorporated by reference into this Statement
of Additional Information for the respective fiscal periods ended October 31 of
each calendar year have been audited by PricewaterhouseCoopers LLP for the
periods included in their report thereon which appears therein.
COUNSEL
Drinker Biddle & Reath LLP (of which W. Bruce McConnel, III, Secretary of
Galaxy, is a partner), 1345 Chestnut Street, Suite 1100, Philadelphia,
Pennsylvania 19107, are counsel to Galaxy, will pass upon certain legal matters
on its behalf.
PERFORMANCE AND YIELD INFORMATION
YIELD AND PERFORMANCE OF THE FUNDS
The Funds' 30-day (or one month) standard yields described in their
Prospectuses are calculated separately for each series of shares in each Fund in
accordance with the method prescribed by the SEC for mutual funds:
6
YIELD = 2[((a-b) +1 ) - 1]
Where: a = dividends and interest earned by a Fund during the period;
b = expenses accrued for the period (net of reimbursements);
c = average daily number of shares outstanding during the period,
entitled to receive dividends; and
d = maximum offering price per share on the last day of the period.
For the purpose of determining net investment income earned during the period
(variable "a" in the formula), dividend income on equity securities held by a
Fund is recognized by accruing 1/360 of the stated dividend rate of the security
each day that the security is in the Fund. Except as noted below, interest
earned on debt obligations held by a Fund is calculated by computing the yield
to maturity of each obligation based on the market value of the obligation
(including actual
-27-
<PAGE>
accrued interest) at the close of business on the last business day of each
month, or, with respect to obligations purchased during the month, the purchase
price (plus actual accrued interest) and dividing the result by 360 and
multiplying the quotient by the market value of the obligation (including
actual accrued interest) in order to determine the interest income on the
obligation for each day of the subsequent month that the obligation is held by
the Fund. For purposes of this calculation, it is assumed that each month
contains 30 days. The maturity of an obligation with a call provision is the
next call date on which the obligation reasonably may be expected to be called
or, if none, the maturity date. With respect to debt obligations purchased at
a discount or premium, the formula generally calls for amortization of the
discount or premium. The amortization schedule will be adjusted monthly to
reflect changes in the market value of such debt obligations. Expenses accrued
for the period (variable "b" in the formula) include all recurring fees charged
by a Fund to all shareholder accounts in proportion to the length of the base
period and the Fund's mean (or median) account size. Undeclared earned income
will be subtracted from the offering price per share (variable "d" in the
formula).
Interest earned on tax-exempt obligations that are issued without original
issue discount and have a current market discount is calculated by using the
coupon rate of interest instead of the yield to maturity. In the case of
tax-exempt obligations that are issued with original issue discount but which
have discounts based on current market value that exceed the then-remaining
portion of the original issue discount (market discount), the yield to maturity
is the imputed rate based on the original issue discount calculation. On the
other hand, in the case of tax-exempt obligations that are issued with original
issue discount but which have discounts based on current market value that are
less than the then-remaining portion of the original issue discount (market
premium), the yield to maturity is based on the market value.
With respect to mortgage or other receivables-backed obligations that are
expected to be subject to monthly payments of principal and interest
("pay-downs"), (i) gain or loss attributable to actual monthly pay downs are
accounted for as an increase or decrease to interest income during the period,
and (ii) each Fund may elect either (a) to amortize the discount and premium on
the remaining security, based on the cost of the security, to the weighted
average maturity date, if such information is available, or to the remaining
term of the security, if any, if the weighted average date is not available or
(b) not to amortize discount or premium on the remaining security.
Based on the foregoing calculation, the standard yields for Retail A Shares
of the Short-Term Bond, Intermediate Government Income and High Quality Bond
Funds for the 30-day period ended April 30, 1998 were 5.78%, 5.60% and 5.57%,
respectively.
Based on the foregoing calculation, the standard yields for Retail B Shares
of the Short-Term Bond and High Quality Bond Funds for the 30-day period ended
April 30, 1998 were 5.80% and 5.59%, respectively.
Each Fund that advertises its "average annual total return" computes such
return separately for each series of shares by determining the average annual
compounded rate of return during specified periods that equates the initial
amount invested to the ending redeemable value of such investment according to
the following formula:
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<PAGE>
1/n
T = [(ERV/P) - 1]
Where: T = average annual total return;
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the l, 5 or 10 year
(or other) periods at the end of the applicable period
(or a fractional portion thereof);
P = hypothetical initial payment of $1,000; and
n = period covered by the computation, expressed in years.
Each Fund that advertises its "aggregate total return" computes such
returns separately for each series of shares by determining the aggregate
compounded rates of return during specified periods that likewise equate the
initial amount invested to the ending redeemable value of such investment. The
formula for calculating aggregate total return is as follows:
Aggregate Total Return = [(ERV/P) - l]
The calculations are made assuming that (1) all dividends and capital gain
distributions are reinvested on the reinvestment dates at the price per share
existing on the reinvestment date, (2) all recurring fees charged to all
shareholder accounts are included, and (3) for any account fees that vary with
the size of the account, a mean (or median) account size in the Fund during the
periods is reflected. The ending redeemable value (variable "ERV" in the
formula) is determined by assuming complete redemption of the hypothetical
investment after deduction of all nonrecurring charges at the end of the
measuring period. In addition, the Funds' average annual return and aggregate
total returns will reflect the deduction of the maximum sales load charged in
connection with purchases of Retail A shares or redemptions of Retail B shares,
as the case may be.
Aggregate total return for Retail A Shares of the Intermediate Government
Income Fund for the period September 1, 1988 (inception) to April 30, 1998 was
90.06%. From September 1, 1988 (inception) to April 30, 1998, the average
annual total return for Retail A Shares of the Intermediate Government Income
Fund was 6.87%. For the one-year and five-year periods ended April 30, 1998,
the average annual total returns for Retail A Shares of the Intermediate
Government Income Fund were 4.30% and 3.77%, respectively.
Aggregate total returns for Retail A Shares of the High Quality Bond Fund
from December 14, 1990 (inception) to April 30, 1998 was 70.67%. From December
14, 1990 (inception) to April 30, 1998, the average annual total return for
Retail A Shares of the High Quality Bond Fund was 7.52%. For the one-year and
five-year periods ended April 30, 1998, the average annual total returns for
Retail A Shares of the High Quality Bond Fund were 6.39% and 5.44%,
respectively.
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<PAGE>
Aggregate total return for Retail A Shares of the Short-Term Bond Fund
from December 30, 1991 (inception) to April 30, 1998 was 33.13%. From
December 30, 1991 (inception) to April 30, 1998, average annual total return
for Retail A Shares of the Short-Term Bond Fund was 4.62%, respectively. For
the one-year and five-year periods ended April 30, 1998, the average annual
total returns for Retail A Shares of the Short-Term Bond Fund were 2.25% and
4.02%, respectively.
Aggregate Total Returns for Retail B Shares of the Short-Term Bond and
High Quality Bond Funds from March 4, 1996 (date of initial public offering)
through April 30, 1998 were 6.54% and 9.03%, respectively. From March 4, 1996
(date of initial public offering) through April 30, 1998, average annual
total returns for Retail B Shares of the Short-Term Bond and High Quality
Bond Funds were 2.98% and 4.09%, respectively. For the one-year period ended
April 30, 1998, the average annual returns for Retail B Shares of the
Short-Term Bond and High Quality Bond Funds were .56% and 4.94%, respectively.
As stated in the Prospectus, the Funds may also calculate total return
quotations without deducting the maximum sales load imposed on purchases of
Retail A Shares or redemptions of Retail B Shares. The effect of not
deducting the sales charge will be to increase the total return reflected.
MISCELLANEOUS
As used in the Prospectus, "assets belonging to a particular series of a
Fund" means the consideration received by Galaxy upon the issuance of shares
in that particular series of the Fund, together with all income, earnings,
profits, and proceeds derived from the investment thereof, including any
proceeds from the sale of such investments, any funds or payments derived
from any reinvestment of such proceeds and a portion of any general assets of
Galaxy not belonging to a particular series or Fund. In determining the net
asset value of a particular series of a Fund, assets belonging to the
particular series of the Fund are charged with the direct liabilities in
respect of that series and with a share of the general liabilities of Galaxy,
which are allocated in proportion to the relative asset values of the
respective series and Funds at the time of allocation. Subject to the
provisions of Galaxy's Declaration of Trust, determinations by the Board of
Trustees as to the direct and allocable liabilities, and the allocable
portion of any general assets with respect to a particular series or fund,
are conclusive.
As of September 8, 1998, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding Trust
Shares of each of Galaxy's investment portfolios (including shares of the
Institutional Treasury Money Market Fund) were as follows: Money Market
Fund-- Fleet New York, Fleet Investment Services, 159 East Main Street,
NY/RO/TO3C, Rochester, NY 14638, Account 00000150286 (99.79%); Tax-Exempt
Money Market Fund -- Fleet New York, Fleet Investment Services, 159 East Main
Street, NY/RO/TO3C, Rochester, NY 14638, Account 00000007717 (100.00%);
Government Money Market Fund -- Fleet New York, Fleet Investment Services,
159 East Main Street, NY/RO/TO3C, Rochester, NY 14368, Account 00000012621
(98.18%); U.S. Treasury Money Market Fund -- Fleet New York, Fleet Investment
Services, 159 East Main Street, NY/RO/TO3C, Rochester, NY 14638, Account
00000015922 (91.26%); Institutional Treasury Money Market Fund -- Fleet New
York, Fleet Investment Services, 159 East Main Street, NY/RO/TO3C, Rochester,
NY 14638, Account 00000000019 (88.02%); Luitpold Pharmaceuticals, Inc., Kirk
Sobecki, CFO, One Luitpold Drive, Shirley, NY 11967, (12.66%); Equity Value
Fund -- Gales & Co., Fleet Investment Services, Mutual Funds Unit, 159 East
Main Street, NY/RO/TO4A, Rochester, NY 14683, Account 00000000064 (76.76%);
Gales & Co., Fleet Investment Services, Mutual Funds Unit, 159 East Main
Street, NY/RO/TO4A, Rochester, NY 14683, Account 00000003294 (17.27%); Gales
& Co., Fleet Investment Services, Mutual Funds Unit, 159 East Main Street,
NY/RO/T04A, Rochester, NY 14683, Account 00000011551 (5.88%); Equity Growth
Fund -- Gales & Co., Fleet Investment Services, Mutual Funds Unit, 159 East
Main Street, NY/RO/TO4A, Rochester, NY 14683, Account 00000000082 (69.69%);
Gales & Co., Fleet Investment Services, Mutual Funds Unit, 159 East Main
Street, NY/RO/TO4A, Rochester, NY 14683, Account 00000010017 (15.72%); Gales
& Co., Fleet Investment Services, Mutual Funds Unit, 159 East Main Street,
NY/RO/TO4A, Rochester, NY 14683, Account 00000030718 (14.66%); Equity Income
Fund -- Gales & Co., Fleet Investment Services, Mutual Funds Unit, 159 East
Main Street, NY/RO/TO4A, Rochester, NY 14683, Account 00000015771 (49.58%);
Gales & Co., Fleet Investment Services, Mutual Funds Unit, 159 East Main
Street, NY/RO/TO4A, Rochester, NY 14683, Account 00000003748 (35.00%); Gales
& Co., Fleet Investment Services, Mutual Funds Unit, 159 East Main Street,
NY/RO/TO4A, Rochester, NY 14683, Account 00000000037 (14.37%); International
Equity Fund -- Gales & Co., Fleet Investment Services, Mutual Funds Unit, 159
East Main Street, NY/RO/TO4A, Rochester, NY 14638, Account 00000000073
(43.72%); Gales & Co., Fleet Investment Services, Mutual Funds Unit, 159 East
Main Street, NY/RO/TO4A, Rochester, NY 14638, Account 00000000876 (39.22%);
Gales & Co., Fleet Investment Services, Mutual Funds Unit, 159 East Main
Street, NY/RO/TO4A, Rochester, NY 14638, Account 00000004088 (13.60%); Growth
and Income Fund -- Gales & Co., Fleet Investment Services, Mutual Funds Unit,
159 East Main Street, NY/RO/TO4A, Rochester, NY 14638, Account 05000503793
(66.29%); Gales & Co., Fleet Investment Services, Mutual Funds Unit, 159 East
Main Street, NY/RO/TO4A, Rochester, NY 14638, Account 05000503873 (27.27%);
Gales & Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159
East Main Street, Rochester, NY 14638, Account 0500503837 (6.43%); Asset
Allocation Fund -- Gales & Co., Fleet Investment Services, Mutual Funds Unit,
159 East Main Street, NY/RO/TO4A, Rochester, NY 14638, Account 00000000073
(91.42%). Gales & Co., Fleet Investment Services, Mutual Funds Unit, 159
East Main Street, NY/RO/TO4A, Rochester, NY 14638, Account 00000002598
(6.73%); Small Company Equity -- Gales & Co., Fleet Investment
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Services, Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY
14638, Account 00000000046 (66.17%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit, 159 Main Street, NY/RO/TO4A, Rochester, NY 14638, Account
00000001492 (24.19%); Gales & Co., Fleet Investment Services, Mutual Funds
Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638, Account
00000006102 (7.06%); Small Cap Value Fund -- Gales & Co., Fleet Investment
Services, Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY
14638, Account 05000503999 (62.82%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638,
Account 05000503917 (18.99%); Gales & Co., Fleet Investment Services, Mutual
Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638, Account
05000503953 (17.64%); Intermediate Government Income Fund -- Gales & Co.,
Fleet Investment Services, Mutual Funds Unit, NY/RO/TO4A, Rochester, NY
14638, Account 00000038408 (39.89%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638,
Account 00000007183 (33.03%); Gales & Co., Fleet Investment Services, Mutual
Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638, Account
00000000037 (27.08%); High Quality Bond Fund -- Gales & Co., Fleet Investment
Services, Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY
14638, Account 00000000037 (66.15%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638,
Account 00000001465 (21.14%); Gales & Co., Fleet Investment Services, Mutual
Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638, Account
00000006095 (12.18%); Gales & Co., Fleet Investment Services, Mutual Funds
Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638 (66.67%);
Short-Term Bond Fund -- Gales & Co., Fleet Investment Services, Mutual Funds
Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638, Account
00000008627 (34.17%); Gales & Co., Fleet Investment Services, Mutual Funds
Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638, Account
00000000064 (47.52%); Gales & Co., Fleet Investment Services, Mutual Funds
Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638, Account
00000001090 (18.17%); Tax-Exempt Bond Fund -- Gales & Co., Fleet Investment
Services, Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY
14638, Account 00000005899 (39.27%); Gales & Co, Fleet Investment Services,
Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638,
Account 00000000028 (38.05%); Gales and Co., Fleet Investment Services,
Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638,
Account 00000000670 (22.68%); Connecticut Municipal Bond Fund -- Gales & Co.,
Fleet Investment Services, Mutual Funds Unit, 159 East Main Street,
NY/RO/TO4A, Rochester, NY 14638, Account 00000000019 (77.47%); Gales & Co.,
Fleet Investment Services, Mutual Funds Unit, 159 East Main Street,
NY/RO/TO4A, Rochester, NY 14638, Account 00000000037 (21.91%); Massachusetts
Municipal Bond Fund -- Gales & Co., Fleet Investment Services, Mutual Funds
Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638, Account
00000000019 (53.36%); Gales & Co., Fleet Investment Services, Mutual Funds
Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638, Account
00000000073 (46.64%); Corporate Bond Fund -- Gales & Co., Fleet Investment
Services, Mutual Funds Unit, NY/RO/TO4A, Rochester, NY 14638, Account
00000000046 (47.32%); Gales & Co., Fleet Investment Services, Mutual Funds
Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638, Account
00000006102 (39.21%); Gales & Co., Fleet Investment Services, Mutual Funds
Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638, Account
00000001492 (6.30%); New York
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Municipal Bond Fund -- Gales & Co., Fleet Investment Services, Mutual Funds
Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638, Account
00000000019 (13.68%); Gales & Co., Fleet Investment Services, Mutual Fund
Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638, Account
00000001107 (75.01%); Gales & Co., Fleet Investment Services, Mutual Fund
Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638, Account
00000005292 (11.32%); 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 (56.67%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A,
Rochester, NY 14638, Account 05100115504 (43.33%); and Strategic Equity Fund
- -- Gales & Co., Fleet Investment Services, Mutual Funds Unit, 159 East Main
Street, NY/RO/TO4A, Rochester, NY 14638, Account 05100115522 (95.86%).
As of September 8, 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 Securities Inc., 26 Broadway, New York, NY 10004, Account
05100115684 (5.23%); Tax-Exempt Money Market Fund -- Hope H. Van Beuren, P.O.
Box 4098, Middletown, RI 02842, Account 00000025010 (7.61%); U.S. Treasury
Money Market Fund -- US Clearing, a Division of Fleet Securities Inc., 26
Broadway, New York, NY 10004, Account 5100115684 (10.77%); Massachusetts
Municipal Money Market Fund -- Fleet New York, Fleet Investment Services, 159
East Main St., NY/RO/TO3C, Rochester, NY 14638, Account 05100058503 (47.76%);
Connecticut Municipal Money Market Fund -- Fleet New York, Fleet Investment
Services, 159 East Main St., NY/RO/TO3C, Rochester, NY 14638, Account
05100058521 (29.67%); Massachusetts Municipal Bond Fund -- New England Realty
Associates, Robert Blank, Ronald Brown, Howard Brown & Carl Valeri, 39
Brighton Ave., Boston, MA 02128, Account 05100587013 (5.78%); Lawrence Levine
& Susan Levine (JTWROS), 40 Southpoint, Ipswich, MA 01938, (5.08%); Rhode
Island Municipal Bond Fund - Gales & Co.. Fleet Investment Services, Mutual
Funds Unit - NY/RO/TO4A. 159 East Main Street, Rochester, NY 14638, Account
00000001492 (38.33%); James R. McCulloch, c/o Microfibre, PO Box 1208,
Pawtucket, RI 02860, Account 05000414933 (7.45%); New York Municipal Bond
Fund - Marilyn J. Brantley, PO Box 65, 7276 Ramsey Road, Belfast, NY 14711,
Account 5100977627 (10.77%); and New Jersey Municipal Bond Fund -- Jeffery W
Golden, 7 Hampton Ridge CT, Old Tappan, NJ 07675, Account 05100780704
(23.40%); NFSC FEBO # BHN-183671, Finley G. Auld, Virginia Auld, 25 Normandy
Court, Ho Ho Kus, NJ 07423, (55.63%).
As of September 8, 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 -- Richard Bothwell & Kyra Bothwell (JTWROS) 558 Hoyt St.,
Darien, CT, 06820, Account 5100588904 (17.40%); Steven R. Schwartz, 2393 Lake
Elmo Avenue N, Lake Elmo, MN 55042-8407, Account 5100583213 (6.77%); Thomas
A. Dowd, Myrna L. Dowd (JTWROS), 9 Cypress Ave., Shrewsbury, MA 01545,
Account 05100563501 (6.21%); Paul Dworkin & Barbara C. Dworkin (JTWROS), 884
Meadow Lane, Niskayuna, NY 12309, (6.80%); High Quality Bond Fund -- E.L.
Bradley and
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<PAGE>
Co., Inc., 18 Meadow Brook Lane, Unit 3, Easton, MA 02375, Account
05100649206, (5.06%); Short-Term Bond Fund - Michael J. Palmer, 79 Candlewood
Road, Groton, CT 06340, Account 5100969967 (8.41%); Gabriella Dulac & Alain
Dulac (JTWROS) 40 Dix Road, Wethersfield, CT 06109, Account 5100818032,
(6.31%); Elizabeth Mugar, 10 Chestnut St. Apt. 1808, Springfield, MA 01103,
Account 5100760012 (5.34%); Tax-Exempt Bond Fund -- David Fendler & Sylvia
Fendler (JTWROS), 72 Brinkerhoff Ave., Stamford, CT 06905, Account
05100255354, (9.88%); Doris M. Peloguin, 43 Keene Street, Providence, RI
02906-1520, Account 05100506413, (6.70%); NFSC FEBO # AAD-181030, Carol & Ali
E. Guy, 14 Thomas Street, Scarsdale, NY 10583, Account 7000076164, (5.38%);
and Strategic Equity Fund -- Yuet Kum Ku, 7 Mason Street, Malden, MA 02148,
Account 05100918601, (5.16%); Claire M. Dileone & Susan F. Torre (JTWROS),
260 Waybosset Street, New Haven, CT 06513, (6.71%); Betsey Tan, 7 Donovan's
Lane, Natiek, MA 01760, (13.68%).
As of September 8, the name, address and share ownership of the entities
or persons that held beneficially more than 5% of the outstanding Trust
Shares of each of Galaxy's investment portfolios were as follows: Money
Market Fund--Stable Asset Fund, c/o Norstar Trust Co., Gales & Co., 159 East
Main, Rochester, NY 14638, (8.21%); Tax-Exempt Money Fund--Robert W. Doyle
Irrevocable Trust, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (5.20%); Government Money Fund--Brown University Non-
Exp. Fund, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY
14638, (5.93%); U.S. Treasury Money Fund, Loring Walcott Client Sweep Acct.,
c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638,
(19.60%); Equity Value Fund--Fleet Savings Plus Equity Value, c/o Norstar
Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638, (18.77%); Equity
Growth Fund--Fleet Savings Plus Equity Growth, c/o Norstar Trust Co., Gales &
Co., 159 East Main, Rochester, NY 14638, (23.20%); Nusco Retiree Health VEBA
Trust, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY
14638, (7.22%); International Equity Fund--FFG International Equity Fund, c/o
Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638, (14.27%);
Fleet Savings Plus-Intl Equity, c/o Norstar Trust Co., Gales & Co., 159 East
Main, Rochester, NY 14638, (9.77%); Intermediate Govt. Inc.--Nusco Retiree
Health VEBA Trust, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (5.82%); Strategic Equity Fund--FFG Retirement & Pension
VDG, c/o Fleet Financial Group, 159 East Main, Rochester, NY 14638, (79.15%);
Perstorp Retirement Trust, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (16.71%); High Quality Bond Trust--Fleet Savings Plus
Plan-HQ Bond, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester,
NY 14638, (23.06%); Short Term Bond Fund--Swarovski North America Ret. Plan,
c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638,
(6.50%); Asset Allocation Fund--Fleet Savings Plus-Asset Allocation, c/o
Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638, (27.07%);
Small Company Equity Fund--Fleet Savings Plus-Small Company, c/o Norstar
Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638, (31.07%); Tax
Exempt Fund Bond-- Nusco Retiree Health VEBA Trust, c/o Norstar Trust Co.,
Gales & Co., 159 East Main, Rochester, NY 14638, (36.11%); Connecticut
Municipal Bond Fund--Florence M. Roberts, IMA Agency, c/o Norstar Trust Co.,
Gales & Co., 159 East Main, Rochester, NY 14638, (5.25%); Corporate Bond
Fund--Cole Hersee Pension Plan, c/o Norstar Trust Co., Gales & Co., 159 East
Main, Rochester, NY 14638, (7.41%); Growth Income Fund--Fleet Savings
Plus-Growth Income, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638,
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(44.30%); Small Cap Value Fund--FFG Emp. Ret. Misc. Assets SNC, c/o Norstar
Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638, (30.74%);
Institutional Government Fund--Aeroflex Inc. CAPFOC, c/o Norstar Trust, c/o
Gales & Co., 159 East Main, Rochester, NY 14638, (7.43%); New Jersey
Municipal Bond Fund--Perillo Tours, c/o Norstar Trust Co., Gales & Co., 159
East Main, Rochester, NY 14638, (27.60%); Royal Chambord IMA, c/o Norstar
Trust Co., Gales & Co., 159 East Main, Rochester, NY, 14638, (13.80%); McKee
Wendell A. Marital Trust, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (13.70%); Varco Inc. IMA, c/o Norstar Trust Co., Gales &
Co., 159 East Main, Rochester, NY 14638, (6.90%); Tiernan Diana V IA, c/o
Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638, (5.93%);
and Dunnington, Ruth U., c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (5.51%).
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<PAGE>
FINANCIAL STATEMENTS
Galaxy's Annual Report to Shareholders with respect to the Funds for the
fiscal year ended October 31, 1997 and Semi-Annual Report to Shareholders with
respect to the Funds for the period ended April 30, 1998 have been filed with
the Securities and Exchange Commission. The financial statements in such Annual
Report and Semi-Annual Report (the "Financial Statements") are incorporated by
reference into this Statement of Additional Information. The Financial
Statements included in the Annual Report for the Funds for the fiscal year ended
October 31, 1997 have been audited by Galaxy's independent accountants,
PricewaterhouseCoopers LLP, whose report thereon also appears in such Annual
Report and is incorporated herein by reference. The Financial Statements in
such Annual Report have been incorporated herein by reference in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing. The Financial Statements included in the Semi-Annual Report for the
period ended April 30, 1998 are unaudited.
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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"), IBCA Limited and Thomson BankWatch, Inc. ("Thomson").
CORPORATE AND TAX-EXEMPT BOND RATINGS
The four highest ratings of D&P for tax-exempt and corporate fixed-income
securities are AAA, AA, A and BBB. Securities rated AAA are of the highest
credit quality. The risk factors are considered to be negligible, being only
slightly more than for risk-free U.S. Treasury debt. Securities rated AA are of
high credit quality. Protection factors are strong. Risk is modest but may
vary slightly from time to time because of economic conditions. Securities that
are rated "A" have protection factors that are average but adequate. However,
risk factors are more variable and greater in periods of economic stress.
Securities that are rated "BBB" have below average protection factors but are
still considered sufficient for prudent investment. Considerable variability in
risk is present during economic cycles. The AA, A and BBB ratings may be
modified by an addition of a plus (+) or minus (-) sign to show relative
standing within these major rating categories.
The four highest ratings of Fitch IBCA for tax-exempt and corporate bonds
are AAA, AA, A and BBB. Plus (+) and minus (-) signs are used with a rating
symbol to indicate the relative position of a credit within the rating category.
AAA bonds are considered to be investment grade and of the highest credit
quality. The obligor is judged to have an exceptionally strong ability to pay
interest and repay principal, which is very unlikely to be affected by
reasonably foreseeable events. AA bonds are considered to be investment grade
and of very high credit quality. The obligor's ability to pay interest and
repay principal is very strong, although not quite as strong as bonds rated AAA.
Because bonds rated in the AAA and AA categories are not significantly
vulnerable to foreseeable future developments, short-term debt of these issuers
is generally rated F-1+. A bonds are considered to be investment grade and of
high credit quality. The obligor's ability to pay interest and repay principal
is considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings. BBB bonds
are considered to be investment grade and of good credit quality. The obligor's
ability to pay interest and repay principal is considered to be adequate.
Adverse changes in economic conditions and circumstances, however, are more
likely to have an adverse impact on these bonds, and therefore, impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
The four highest ratings of S&P for tax-exempt and corporate bonds are AAA,
AA, A and BBB. Bonds rated AAA bear the highest rating assigned by S&P to a
debt obligation and the AAA rating indicates in its opinion an extremely strong
capacity to pay interest and repay principal. Bonds rated AA by S&P are
judged by it to have a very strong capacity to pay interest
A-1
<PAGE>
and repay principal, and they differ from AAA issues only in small degree.
Bonds rated A are considered to have a strong capacity to pay interest and
repay principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds of a
higher rated category. Bonds rated BBB are regarded as having an adequate
capacity to pay interest and repay principal. Whereas such bonds normally
exhibit adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest
and repay principal for debt in this category than for higher rated categories.
The AA, A and BBB ratings may be modified by an addition of a plus (+) or minus
(-) sign to show relative standing within these major rating categories.
The four highest ratings of Moody's for tax-exempt and corporate bonds are
Aaa, Aa, A and Baa. Tax-exempt and corporate bonds rated Aaa are judged to be
of the "best quality." The rating of Aa is assigned to bonds which are of "high
quality by all standards." Aa bonds are rated lower than Aaa bonds because
margins of protection may not be as large or fluctuations of protective elements
may be of greater amplitude or there may be other elements which make the
long-term risks appear somewhat larger. Bonds that are rated A possess many
favorable investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are considered
adequate but elements may be present that suggest a susceptibility to impairment
sometime in the future. Bonds that are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as well.
Moody's may modify a rating of Aa, A or Baa by adding numerical modifiers of 1,
2 or 3 to show relative standing within these categories. The foregoing ratings
are sometimes presented in parentheses preceded with a "con" indicating the
bonds are rated conditionally. Such parenthetical rating denotes the probable
credit stature upon completion of construction or elimination of the basis of
the condition.
CORPORATE AND TAX-EXEMPT COMMERCIAL PAPER RATINGS
The highest rating of D&P for commercial paper is Duff 1. D&P employs
three designations, Duff 1 plus, Duff 1 and Duff 1 minus, within the highest
rating category. Duff 1 plus indicates highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is judged to be "outstanding, and safety is just
below risk-free U.S. Treasury short-term obligations." Duff 1 indicates very
high certainty of timely payment. Liquidity factors are excellent and supported
by good fundamental protection factors. Risk factors are considered to be
minor. Duff 1 minus indicates high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small. Duff 2 indicates good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to capital markets is
good. Risk factors are small. Duff 3 indicates satisfactory liquidity and other
protection factors qualify such issues as to investment grade. Risk factors are
larger and subject to more variation. Nevertheless, timely payment is expected.
Duff 4 indicates speculative investment characteristics.
A-2
<PAGE>
Fitch IBCA's short-term ratings apply to tax-exempt and corporate debt
obligations that are payable on demand or have original maturities of up to
three years. The four highest ratings of Fitch IBCA for short-term securities
are F-1+, F-1, F-2 and F-3. F-1+ securities possess exceptionally strong credit
quality. Issues assigned this rating are regarded as having the strongest
degree of assurance for timely payment. F-1 securities possess very strong
credit quality. Issues assigned this rating reflect an assurance of timely
payment only slightly less in degree than issues rated F-1+. F-2 securities
possess good credit quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as great
as the F-1+ and F-1 categories. F-3 securities possess fair credit quality.
Issues assigned this rating have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
S&P's commercial paper ratings are current assessments of the likelihood of
timely payment of debt considered short-term in the relevant market. Issues
assigned A-1 ratings, in S&P's opinion, indicate that the degree of safety
regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics will be denoted with a plus (+)
designation. Issues rated A-2 by S&P indicate that capacity for timely payment
on these issues is satisfactory. However, the relative degree of safety is not
as high as for issues designated A-1. Issues rated A-3 have an adequate
capacity for timely payment. They are, however, somewhat more vulnerable to the
adverse effects of changes and circumstances than obligations carrying the
higher designations. Issues rated B are regarded as having only a speculative
capacity for timely payment.
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Issuers rated Prime-1 (or related supporting
institutions) in the opinion of Moody's "have a superior capacity for repayment
of short-term promissory obligations." Principal repayment capacity will
normally be evidenced by the following characteristics: leading market positions
in well established industries; high rates of return on funds employed;
conservative capitalization structures with moderate reliance on debt and ample
asset protection; broad margins in earning coverage of fixed financial charges
and high internal cash generation; and well established access to a range of
financial markets and assured sources of alternate liquidity. Issuers rated
Prime-2 (or related supporting institutions) have a strong capacity for
repayment of short-term promissory obligations. This capacity will normally be
evidenced by many of the characteristics of Prime-1 rated issues, but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained. Issuers rated Prime-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. Issuers
rated Not Prime do not fall within any of the Prime rating categories.
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
A-3
<PAGE>
TBW-1 represents the highest rating category and indicates a very high degree of
likelihood that principal and interest will be paid on a timely basis. The
designation TBW-2 represents the second highest rating category and indicates
that while the degree of safety regarding timely payment of principal and
interest is strong, the relative degree of safety is not as high as for issues
rated TBW-1. The designation TBW-3 represents the lowest investment grade
category and indicates that while more susceptible to adverse developments (both
internal and external) than obligations with higher ratings, the capacity to
service principal and interest in a timely fashion is considered adequate.
TAX-EXEMPT NOTE RATINGS
A S&P rating reflects the liquidity concerns and market access risks unique
to notes due in three years or less. Notes rated SP-1 are issued by issuers
that exhibit very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics are given
a plus (+) designation. Notes rated SP-2 are issued by issuers that exhibit
satisfactory capacity to pay principal and interest. Notes rated SP-3 are
issued by issuers that exhibit speculative capacity to pay principal and
interest.
Moody's ratings for state and municipal notes and other short-term loans
are designated MIG and variable rate demand obligations are designated VMIG.
Such ratings recognize the differences between short-term credit risk and
long-term risk. Loans bearing the designation MIG-1 or VMIG-1 are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing. Loans bearing the designation MIG-2 or VMIG-2 are of high quality,
with margins of protection ample although not so large as with loans rated MIG-1
or VMIG-1. Loans bearing the designation MIG-3 or VMIG-3 are of favorable
quality with all security elements accounted for but lacking the undeniable
strength of the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less well established.
Loans bearing the designation MIG-4 or VMIG-4 are of adequate quality, carrying
specific risk but having protection commonly regarded as required of an
investment security and not distinctly or predominantly speculative.
Fitch IBCA uses its short-term ratings described above under "Corporate and
Tax-Exempt Commercial Paper Ratings" for tax-exempt notes.
A-4
<PAGE>
APPENDIX B
As stated in the Prospectus, the Funds may enter into futures transactions
for hedging purposes. The following is a description of such transactions.
I. INTEREST RATE FUTURES CONTRACTS
USE OF INTEREST RATE FUTURES CONTRACTS. Bond prices are established in
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the future
for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, the Funds may use interest rate futures
contracts as a defense, or hedge, against anticipated interest rate changes and
not for speculation. As described below, this would include the use of futures
contract sales to protect against expected increases in interest rates and
futures contract purchases to offset the impact of interest rate declines.
The Funds presently could accomplish a similar result to that which they
hope to achieve through the use of futures contracts by selling bonds with long
maturities and investing in bonds with short maturities when interest rates are
expected to increase, or conversely, selling short-term bonds and investing in
long-term bonds when interest rates are expected to decline. However, because
of the liquidity that is often available in the futures market, the protection
is more likely to be achieved, perhaps at a lower cost and without changing the
rate of interest being earned by the Funds, through using futures contracts.
DESCRIPTION OF INTEREST RATE FUTURES CONTRACTS. An interest rate futures
contract sale would create an obligation by a Fund, as seller, to deliver the
specific type of financial instrument called for in the contract at a specific
future time for a specified price. A futures contract purchase would create an
obligation by the Fund, as purchaser, to take delivery of the specific type of
financial instrument at a specific future time at a specific price. The specific
securities delivered or taken, respectively, at settlement date, would not be
determined until at or near that date. The determination would be in accordance
with the rules of the exchange on which the futures contract sale or purchase
was made.
Although interest rate futures contracts by their terms call for actual
delivery or acceptance of securities, in most cases the contracts are closed out
before the settlement date without the making or taking of delivery of
securities. Closing out a futures contract sale is effected by a Fund's
entering into a futures contract purchase for the same aggregate amount of the
specific type of financial instrument and the same delivery date. If the price
of the sale exceeds the price of the offsetting purchase, the Fund immediately
is paid the difference and thus realizes a gain. If the offsetting purchase
price exceeds the sale price, the Fund pays the difference and realizes a loss.
Similarly, the closing out of a futures contract purchase is effected by a Fund
entering into a futures contract sale. If the offsetting sale price exceeds the
purchase
B-1
<PAGE>
price, the Fund realizes a gain, and if the purchase price exceeds the
offsetting sale price, the Fund realizes a loss.
Interest rate futures contracts are traded in an auction environment on the
floors of several exchanges -- principally, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Futures Exchange. The Funds would
deal only in standardized contracts on recognized exchanges. Each exchange
guarantees performance under contract provisions through a clearing corporation,
a nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various financial
instruments including long-term United States Treasury Bonds and Notes;
Government National Mortgage Association (GNMA) modified pass-through mortgage
backed securities; three-month United States Treasury Bills; and ninety-day
commercial paper. The Funds may trade in any interest rate futures contracts
for which there exists a public market, including, without limitation, the
foregoing instruments.
EXAMPLE OF FUTURES CONTRACT SALE. The Funds would engage in an interest
rate futures contract sale to maintain the income advantage from continued
holding of a long-term bond while endeavoring to avoid part or all of the
loss in market value that would otherwise accompany a decline in long-term
securities prices. Assume that the market value of a certain security held
by a particular Fund tends to move in concert with the futures market prices
of long-term United States Treasury bonds ("Treasury bonds"). Fleet wishes
to fix the current market value of this portfolio security until some point
in the future. Assume the portfolio security has a market value of 100, and
Fleet believes that, because of an anticipated rise in interest rates, the
value will decline to 95. The Fund might enter into futures contract sales of
Treasury bonds for an equivalent of 98. If the market value of the portfolio
security does indeed decline from 100 to 95, the equivalent futures market
price for the Treasury bonds might also decline from 98 to 93.
In that case, the five point loss in the market value of the portfolio
security would be offset by the five point gain realized by closing out the
futures contract sale. Of course, the futures market price of Treasury bonds
might well decline to more than 93 or to less than 93 because of the imperfect
correlation between cash and futures prices mentioned below.
Fleet could be wrong in its forecast of interest rates, and the
equivalent futures market price could rise above 98. In this case, the
market value of the portfolio securities, including the portfolio security
being protected, would increase. The benefit of this increase would be
reduced by the loss realized on closing out the futures contract sale.
If interest rate levels did not change, the Fund in the above example might
incur a loss of 2 points (which might be reduced by an offsetting transaction
prior to the settlement date). In each transaction, transaction expenses would
also be incurred.
EXAMPLE OF FUTURES CONTRACT PURCHASE. A Fund would engage in an interest
rate futures contract purchase when it is not fully invested in long-term bonds
but wishes to defer for a time the purchase of long-term bonds in light of the
availability of advantageous interim investments,
B-2
<PAGE>
e.g., shorter term securities whose yields are greater than those available on
long-term bonds. A Fund's basic motivation would be to maintain for a time the
income advantage from investing in the short-term securities; the Fund would be
endeavoring at the same time to eliminate the effect of all or part of an
expected increase in market price of the long-term bonds that the Fund may
purchase.
For example, assume that the market price of a long-term bond that the Fund
may purchase, currently yielding 10%, tends to move in concert with futures
market prices of Treasury bonds. Fleet wishes to fix the current market
price (and thus 10% yield) of the long-term bond until the time (four months
away in this example) when it may purchase the bond. Assume the long-term bond
has a market price of 100, and Fleet believes that, because of an
anticipated fall in interest rates, the price will have risen to 105 (and the
yield will have dropped to about 9 1/2%) in four months. The Fund might enter
into futures contracts purchases of Treasury bonds for an equivalent price of
98. At the same time, the Fund would assign a pool of investments in short-term
securities that are either maturing in four months or earmarked for sale in four
months, for purchase of the long-term bond at an assumed market price of 100.
Assume these short-term securities are yielding 15%. If the market price of the
long-term bond does indeed rise from 100 to 105, the equivalent futures market
price for Treasury bonds might also rise from 98 to 103. In that case, the 5
point increase in the price that the Fund pays for the long-term bond would be
offset by the 5 point gain realized by closing out the futures contract
purchase.
Fleet could be wrong in its forecast of interest rates; long-term
interest rates might rise to above 10%; and the equivalent futures market
price could fall below 98. If short-term rates at the same time fall to 10%
or below, it is possible that the Fund would continue with its purchase
program for long-term bonds. The market price of available long-term bonds
would have decreased. The benefit of this price decrease, and thus yield
increase, will be reduced by the loss realized on closing out the futures
contract purchase.
If, however, short-term rates remained above available long-term rates, it
is possible that the Fund would discontinue its purchase program for long-term
bonds. The yield on short-term securities in the portfolio, including those
originally in the pool assigned to the particular long-term bond, would remain
higher than yields on long-term bonds. The benefit of this continued
incremental income will be reduced by the loss realized on closing out the
futures contract purchase. In each transaction, expenses would also be
incurred.
II. MARGIN PAYMENTS
Unlike purchases or sales of portfolio securities, no price is paid or
received by a Fund upon the purchase or sale of a futures contract. Initially,
the Fund will be required to deposit with the broker or in a segregated account
with Galaxy's custodian an amount of cash or cash equivalents, known as initial
margin, based on the value of the contract. The nature of initial margin in
futures transactions is different from that of margin in security transactions
in that futures contract margin does not involve the borrowing of funds by the
customer to finance the transactions. Rather, the initial margin is in the
nature of a performance bond or good faith deposit on the contract which is
returned to the Fund upon termination of the futures contract
B-3
<PAGE>
assuming all contractual obligations have been satisfied. Subsequent
payments, called variation margin, to and from the broker, will be made on a
daily basis as the price of the underlying instruments fluctuates making the
long and short positions in the futures contract more or less valuable, a
process known as marking-to-the-market. For example, when a particular Fund
has purchased a futures contract and the price of the contract has risen in
response to a rise in the underlying instruments, that position will have
increased in value and the Fund will be entitled to receive from the broker a
variation margin payment equal to that increase in value. Conversely, where
the Fund has purchased a futures contract and the price of the future
contract has declined in response to a decrease in the underlying
instruments, the position would be less valuable and the Fund would be
required to make a variation margin payment to the broker. At any time prior
to expiration of the futures contract, Fleet may elect to close the position
by taking an opposite position, subject to the availability of a secondary
market, which will operate to terminate the Fund's position in the futures
contract. A final determination of variation margin is then made, additional
cash is required to be paid by or released to the Fund, and the Fund realizes
a loss or gain.
III. RISKS OF TRANSACTIONS IN FUTURES CONTRACTS
There are several risks in connection with the use of futures by the Funds
as hedging devices. One risk arises because of the imperfect correlation
between movements in the price of the futures and movements in the price of the
instruments that are the subject of the hedge. The price of the futures may
move more than or less than the price of the instruments being hedged. If the
price of the futures moves less than the price of the instruments which are the
subject of the hedge, the hedge will not be fully effective but, if the price of
the instruments being hedged has moved in an unfavorable direction, a Fund would
be in a better position than if it had not hedged at all. If the price of the
instruments being hedged has moved in a favorable direction, this advantage will
be partially offset by the loss on the futures. If the price of the futures
moves more than the price of the hedged instruments, the Funds involved will
experience either a loss or gain on the futures, which will not be completely
offset by movements in the price of the instruments which are the subject of the
hedge. To compensate for the imperfect correlation of movements in the price of
instruments being hedged and movements in the price of futures contracts, a Fund
may buy or sell futures contracts in a greater dollar amount than the dollar
amount of instruments being hedged if the volatility over a particular time
period of the prices of such instruments has been greater than the volatility
over such time period of the futures, or if otherwise deemed to be appropriate
by the investment adviser. Conversely, a Fund may buy or sell fewer futures
contracts if the volatility over a particular time period of the prices of the
instruments being hedged is less than the volatility over such time period of
the futures contract being used, or if otherwise deemed to be appropriate by
Fleet. It is also possible that, where a Fund had sold futures to hedge its
portfolio against a decline in the market, the market may advance and the value
of instruments held in the Fund may decline. If this occurred, the Fund would
lose money on the futures and also experience a decline in value in its
portfolio securities.
Where futures are purchased to hedge against a possible increase in the
price of securities before a Fund is able to invest its cash (or cash
equivalents) in an orderly fashion, it is possible that the market may decline
instead; if the Fund then concludes not to invest its cash at that time because
of concern as to possible further market decline or for other reasons, the Fund
will
B-4
<PAGE>
realize a loss on the futures contract that is not offset by a reduction in the
price of the instruments that were to be purchased.
In instances involving the purchase of futures contracts by a Fund, an
amount of cash and cash equivalents, equal to the market value of the futures
contracts, will be deposited in a segregated account with Galaxy's custodian
and/or in a margin account with a broker to collateralize the position and
thereby insure that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between movements in the futures and the instruments
being hedged, the price of futures may not correlate perfectly with movement in
the cash market due to certain market distortions. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through off-setting transactions that could distort the normal relationship
between the cash and futures markets. Second, with respect to financial futures
contracts, the liquidity of the futures market depends on participants entering
into off-setting transactions rather than making or taking delivery. To the
extent participants decide to make or take delivery, liquidity in the futures
market could be reduced thus producing distortions. Third, from the point of
view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may also cause temporary
price distortions. Due to the possibility of price distortion in the futures
market, and because of the imperfect correlation between the movements in the
cash market and movements in the price of futures, a correct forecast of general
market trends or interest rate movements by the adviser may still not result in
a successful hedging transaction over a short time frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Funds
intend to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance that a liquid
secondary market on any exchange or board of trade will exist for any particular
contract or at any particular time. In such event, it may not be possible to
close a futures investment position, and in the event of adverse price
movements, a Fund would continue to be required to make daily cash payments of
variation margin. However, in the event futures contracts have been used to
hedge portfolio securities, such securities will not be sold until the futures
contract can be terminated. In such circumstances, an increase in the price of
the securities, if any, may partially or completely offset losses on the futures
contract. However, as described above, there is no guarantee that the price of
the securities will in fact correlate with the price movements in the futures
contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary market in a
futures contract may be adversely affected by "daily price fluctuation limits"
established by commodity exchanges which limit the amount of fluctuation in a
futures contract price during a single trading day. Once the daily limit has
been reached in the contract, no trades may be entered into at a price beyond
the limit, thus preventing the liquidation of open futures positions. The
trading of futures contracts is also subject to the risk of trading halts,
suspensions, exchange or clearing house equipment failures, government
intervention, insolvency of a brokerage firm or clearing
B-5
<PAGE>
house or other disruptions of normal activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.
Successful use of futures by the Funds is also subject to Fleet's ability
to predict correctly movements in the direction of the market. For example, if
a particular Fund has hedged against the possibility of a decline in the market
adversely affecting securities held by it and securities prices increase
instead, the Fund will lose part or all of the benefit to the increased value of
its securities which it has hedged because it will have offsetting losses in its
futures positions. In addition, in such situations, if the Fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements. Such sales of securities may be, but will not necessarily be, at
increased prices which reflect the rising market. The Funds may have to sell
securities at a time when it may be disadvantageous to do so.
B-6
<PAGE>
RETAIL
THE GALAXY FUND
STATEMENT OF ADDITIONAL INFORMATION
Growth and Income Fund
Small Cap Value Fund
November 1, 1998
<PAGE>
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the current prospectus (the "Prospectus") for Retail A
Shares and Retail B Shares of the Growth and Income and Small Cap Value Funds of
The Galaxy Fund ("Galaxy"), dated November 1, 1998, as it may from time to time
be supplemented or revised. This Statement of Additional Information is
incorporated by reference in its entirety into such Prospectus. No investment
in shares of the Funds should be made without reading the Prospectus. Copies of
the Prospectus may be obtained by writing Galaxy c/o First Data Distributors,
Inc., 4400 Computer Drive, Westboro, Massachusetts 01581-5108 or by calling
Galaxy at 1-800-628-0414. Capitalized terms used herein but not otherwise
defined have the same meanings as in the Prospectus.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUNDS ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL VARY AS A RESULT OF MARKET CONDITIONS OR OTHER FACTORS SO THAT SHARES
OF THE FUNDS, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
THE PRINCIPAL AMOUNT INVESTED.
<PAGE>
TABLE OF CONTENTS
PAGE
----
THE GALAXY FUND. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . . . . . .2
Types of Investments . . . . . . . . . . . . . . . . . . . . . . .2
Money Market Instruments . . . . . . . . . . . . . . . . . . . . .2
U.S. Government Obligations. . . . . . . . . . . . . . . . . . . .3
When-Issued and Delayed Settlement Transactions. . . . . . . . . .3
Restricted And Illiquid Securities . . . . . . . . . . . . . . . .4
Repurchase Agreements, Reverse Repurchase Agreements
and Lending of Portfolio Securities . . . . . . . . . . . . .5
Derivative Securities. . . . . . . . . . . . . . . . . . . . . . .6
Put and Call Options . . . . . . . . . . . . . . . . . . . . . . .6
Stock Index Futures and Options. . . . . . . . . . . . . . . . . .6
Restrictions on the Use of Futures Contracts and Options . . . . .7
Indexed Securities . . . . . . . . . . . . . . . . . . . . . . . .8
Swap Agreements. . . . . . . . . . . . . . . . . . . . . . . . . .8
Foreign Currency Exchange Transactions . . . . . . . . . . . . . .9
Portfolio Securities Generally . . . . . . . . . . . . . . . . . 10
Portfolio Turnover . . . . . . . . . . . . . . . . . . . . . . . 10
Additional Investment Limitations. . . . . . . . . . . . . . . . 10
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION . . . . . . . . . . . . . . 14
DESCRIPTION OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ADDITIONAL INFORMATION CONCERNING TAXES. . . . . . . . . . . . . . . . . . 18
In General . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Taxation of Certain Financial Instruments. . . . . . . . . . . . 20
State Taxation . . . . . . . . . . . . . . . . . . . . . . . . . 22
TRUSTEES AND OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Shareholder and Trustee Liability. . . . . . . . . . . . . . . . 27
ADVISORY, ADMINISTRATION, CUSTODIAN AND TRANSFER AGENCY AGREEMENTS . . . . 27
Custodian and Transfer Agent . . . . . . . . . . . . . . . . . . 29
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SHAREHOLDER SERVICES PLAN. . . . . . . . . . . . . . . . . . . . . . . . . 31
DISTRIBUTION AND SERVICES PLAN . . . . . . . . . . . . . . . . . . . . . . 33
DISTRIBUTOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
COUNSEL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
PERFORMANCE AND YIELD INFORMATION. . . . . . . . . . . . . . . . . . . . . 34
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-1
APPENDIX B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-1
i
<PAGE>
THE GALAXY FUND
The Galaxy Fund ("Galaxy") is an open-end management investment company
currently authorized to offer shares of beneficial interest in thirty
investment portfolios. This Statement of Additional Information provides
additional investment information with respect to the Retail A Shares and
Retail B Shares of the Growth and Income Fund and Small Cap Value Fund
(collectively, the "Funds"), and should be read in conjunction with the
current Prospectus for the Funds.
The Growth and Income and Small Cap Value Funds commenced operations on
December 14, 1992 as separate investment portfolios (the "Predecessor Growth
and Income Fund" and "Predecessor Small Cap Value Fund", respectively, and
collectively, the "Predecessor Funds") of The Shawmut Funds, which was
organized as a Massachusetts business trust. On December 4, 1995, the
Predecessor Funds were reorganized as new portfolios of Galaxy. Prior to the
reorganization, the Predecessor Funds offered and sold shares of beneficial
interest that were similar to Galaxy's Trust Shares and Retail A Shares.
INVESTMENT OBJECTIVES AND POLICIES
TYPES OF INVESTMENTS
The Growth and Income Fund invests principally in a
professionally-managed and diversified portfolio of common stocks of
companies with prospects for above average growth and dividends or of
companies where significant fundamental changes are taking place. The Growth
and Income Fund will seek to invest in equity securities of companies that
are projected to show earnings growth superior to the Standard & Poor's 500
Composite Stock Index. Although the Growth and Income Fund may invest in
other securities and in money market instruments, it is the Growth and Income
Fund's policy, under normal market conditions, to invest at least 65% of its
total assets in equity securities. The securities in which the Growth and
Income Fund may invest include foreign securities, as described in the
Prospectuses.
The Small Cap Value Fund invests primarily in a diversified portfolio of
equity securities of companies that have a market value capitalization of up to
$1 billion to achieve long-term capital appreciation and current income. Under
normal circumstances, the Small Cap Value Fund will invest at least 65% of its
total assets in equity securities of companies that have a market value
capitalization of up to $1 billion. In addition, the Small Cap Value Fund may
invest as described below, and as described in the Prospectuses.
MONEY MARKET INSTRUMENTS
The Funds may invest in the following money market instruments:
<PAGE>
- instruments of domestic banks and savings and loans if they have
capital, surplus, and undivided profits of over $100,000,000, or if
the principal amount of the instrument is insured in full by the
Federal Deposit Insurance Corporation; and
- prime commercial paper (rated A-1 by Standard & Poor's Ratings Group,
Prime-1 by Moody's Investors Service, Inc., or F-1 by Fitch IBCA,
Inc.)
U.S. GOVERNMENT OBLIGATIONS
The types of U.S. Government obligations in which the Funds may invest
generally include direct obligations of the U.S. Treasury (such as U.S. Treasury
bills, notes, and bonds) and obligations issued or guaranteed by U.S. Government
agencies or instrumentalities. These securities are backed by:
- the full faith and credit of the U.S. Treasury;
- the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;
- the discretionary authority of the U.S. Government to purchase certain
obligations of agencies or instrumentalities; or
- the credit of the agency or instrumentality issuing the obligations.
Examples of U.S. Government agencies and instrumentalities that are permissible
investments and may not always receive financial support from the U.S.
Government are:
- Federal Farm Credit Banks;
- Federal Home Loan Banks;
- Federal National Mortgage Association; and
- Federal Home Loan Mortgage Corporation.
WHEN-ISSUED AND DELAYED SETTLEMENT TRANSACTIONS
When a Fund agrees to purchase securities on a "when-issued" or "delayed
settlement" basis, the Fund's custodian will set aside cash or liquid portfolio
securities equal to the amount of the commitment in a separate account. In the
event of a decline in the value of the securities that the custodian has set
aside, the Fund may be required to place additional assets in the separate
account in order to ensure that the value of the account remains equal to the
amount of the Fund's commitment. A Fund's net assets may fluctuate to a greater
degree if it sets aside portfolio securities to cover such purchase commitments
than if it sets aside cash.
-2-
<PAGE>
When a Fund engages in when-issued or delayed settlement transactions, it
relies on the seller to consummate the trade. Failure of the seller to do so may
result in the Fund's incurring a loss or missing an opportunity to obtain a
price considered to be advantageous for a security. For purposes of determining
the average weighted maturity of a Fund's portfolio, the maturity of when-issued
securities is calculated from the date of settlement of the purchase to the
maturity date.
RESTRICTED AND ILLIQUID SECURITIES
The Funds may invest in commercial paper issued in reliance on the
exemption from registration afforded by Section 4(2) of the Securities Act of
1933. Section 4(2) commercial paper is restricted as to disposition under
federal securities law and is generally sold to institutional investors, such as
the Funds, who agree that they are purchasing the paper for investment purposes
and not with a view to public distribution. Any resale by the purchaser must be
in an exempt transaction. Section 4(2) commercial paper is normally resold to
other institutional investors like the Funds through or with the assistance of
the issuer or investment dealers who make a market in Section 4(2) commercial
paper, thus providing liquidity. The Funds believe that Section 4(2) commercial
paper and possibly certain other restricted securities that meet the criteria
for liquidity established by Galaxy's Board of Trustees are quite liquid. The
Funds intend, therefore, to treat the restricted securities that meet the
criteria for liquidity established by the Board of Trustees, including Section
4(2) commercial paper (as determined by Fleet), as liquid and not subject to the
investment limitation applicable to illiquid securities. In addition, because
Section 4(2) commercial paper is liquid, the Funds do not intend to subject such
paper to the limitation applicable to restricted securities.
The ability of the Board of Trustees to determine the liquidity of certain
restricted securities is permitted under a Securities and Exchange Commission
(the "SEC") staff position set forth in the adopting release for Rule 144A (the
"Rule") under the Securities Act of 1933, as amended. The Rule is a
non-exclusive, safe-harbor for certain secondary market transactions involving
securities subject to restrictions on resale under federal securities laws. The
Rule provides an exemption from registration for resales of otherwise restricted
securities to qualified institutional buyers. The Rule was expected to further
enhance the liquidity of the secondary market for securities eligible for resale
under the Rule. Galaxy, on behalf of the Funds, believes that the staff of the
SEC has left the question of determining the liquidity of all restricted
securities (eligible for resale under Rule 144A) for determination to the Board
of Trustees. The Board of Trustees considers the following criteria in
determining the liquidity of certain restricted securities:
- the frequency of trades and quotes for the security;
- the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
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<PAGE>
- dealer undertakings to make a market in the security; and
- the nature of the security and the nature of the marketplace trades.
Investing in Rule 144A securities could have the effect of increasing the level
of a Fund's illiquidity to the extent that qualified institutional buyers
become, for a time, uninterested in purchasing these securities. The Funds
expect that less than 5% of their respective net assets will be invested in Rule
144A securities during the current fiscal year.
REPURCHASE AGREEMENTS, REVERSE REPURCHASE AGREEMENTS AND LENDING OF PORTFOLIO
SECURITIES
Each Fund may enter into repurchase agreements, which are arrangements in
which banks, broker/dealers and other recognized financial institutions sell
U.S. Government securities or other securities to the Funds and agree at the
time of sale to repurchase them at a mutually agreed upon time and price within
one year from the date of acquisition. A Fund requires its custodian to take
possession of the securities subject to a repurchase agreement and these
securities are marked to market daily. To the extent that the original seller
does not repurchase the securities from a Fund, the Fund could receive less than
the repurchase price on any sale of such securities. In the event that such a
defaulting seller filed for bankruptcy or became insolvent, disposition of such
securities by a Fund might be delayed pending court action. The Funds believe
that, under the regular procedures normally in effect for custody of a Fund's
portfolio securities subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Fund and allow retention or disposition
of such securities. The Funds will only enter into repurchase agreements with
banks and other recognized financial institutions, such as broker/dealers, which
are deemed by Fleet to be creditworthy pursuant to guidelines established by the
Board of Trustees.
The Funds may also enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase agreement,
a Fund transfers possession of a portfolio instrument to another person, such as
a financial institution, broker or dealer, in return for a percentage of the
instrument's market value in cash, and agrees that on a stipulated date in the
future the Fund will repurchase the portfolio instrument by remitting the
original consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable a Fund to avoid selling portfolio instruments
at a time when a sale may be deemed to be disadvantageous, but the ability to
enter into reverse repurchase agreements does not ensure that the Fund will be
able to avoid selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of a Fund in a
dollar amount sufficient to make payment for the obligations to be purchased are
segregated at the trade date. These securities are marked to market daily and
are maintained until the transaction is settled.
The collateral received when the Funds lend portfolio securities must be
valued daily and, should the market value of the loaned securities increase, the
borrower must furnish additional
-4-
<PAGE>
collateral to the Funds. During the time portfolio securities are on loan, the
borrower pays a Fund any dividends or interest paid on such securities. Loans
are subject to termination at the option of the Funds or the borrower. The
Funds may pay reasonable administrative and custodial fees in connection with a
loan and may pay a negotiated portion of the interest earned on the cash or
equivalent collateral to the borrower or placing broker.
DERIVATIVE SECURITIES
PUT AND CALL OPTIONS
Each Fund may purchase and sell put options on its portfolio securities as
described in the Prospectus.
STOCK INDEX FUTURES AND OPTIONS
The Funds may utilize stock index futures contracts and options on stocks,
stock indices and stock index futures contracts for the purposes of managing
cash flows into and out of a Fund's portfolio and potentially reducing
transactional costs. The Funds may not use stock index futures contracts and
options for speculative purposes.
As a means of reducing fluctuations in the net asset value of shares of the
Funds, the Funds may attempt to hedge all or a portion of their respective
portfolios through the purchase of listed put options on stocks, stock indices
and stock index futures contracts. These options will be used as a form of
forward pricing to protect portfolio securities against decreases in value
resulting from market factors, such as an anticipated increase in interest
rates. A purchased put option gives the Funds, in return for a premium, the
right to sell the underlying security to the writer (seller) at a specified
price during the term of the option. Put options on stock indices are similar
to put options on stocks except for the delivery requirements. Instead of
giving the Funds the right to make delivery of stock at a specified price, a put
option on a stock index gives the Funds, as holders, the right to receive an
amount of cash upon exercise of the option.
The Funds may also write covered call options. As the writer of a call
option, the Funds have the obligation upon exercise of the option during the
option period to deliver the underlying security upon payment of the exercise
price.
Each Fund may only: (1) buy listed put options on stock indices and stock
index futures contracts; (2) buy listed put options on securities held in its
portfolio; and (3) sell listed call options either on securities held in its
portfolio or on securities which it has the right to obtain without payment of
further consideration (or has segregated cash in the amount of any such
additional consideration). A Fund will maintain its positions in securities,
option rights, and segregated cash subject to puts and calls until the options
are exercised, closed or expired. A Fund may also enter into stock index
futures contracts. A stock index futures contract is a bilateral agreement
which obligates the seller to deliver (and the purchaser to take delivery of) an
amount of cash equal to a specific dollar amount times the difference between
the value of a
-5-
<PAGE>
specific stock index at the close of trading of the contract and the price at
which the agreement is originally made. There is no physical delivery of the
stocks constituting the index, and no price is paid upon entering into a futures
contract.
In general, option contracts are closed out prior to their expiration.
Each Fund, when purchasing or selling a futures contract, will initially be
required to deposit in a segregated account in the broker's name with the Fund's
custodian an amount of cash or liquid portfolio securities approximately equal
to 5% - 10% of the contract value. This amount is known as "initial margin",
and it is subject to change by the exchange or board of trade on which the
contract is traded. Subsequent payments to and from the broker are made on a
daily basis as the price of the index or the securities underlying the futures
contract fluctuates. These payments are known as "variation margins", and the
fluctuation in value of the long and short positions in the futures contract is
a process referred to as "marking to market". A Fund may decide to close its
position on a contract at any time prior to the contract's expiration. This is
accomplished by the Fund taking an opposite position at the then prevailing
price, thereby terminating its existing position in the contract. Because the
initial margin resembles a performance bond or good-faith deposit on the
contract, it is returned to the Fund upon the termination of the contract,
assuming that all contractual obligations have been satisfied. Therefore, the
margin utilized in futures contracts is readily distinguishable from the margin
employed in security transactions, since the margin employed in futures
contracts does not involve the borrowing of funds to finance the transaction.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS AND OPTIONS
Neither Fund will enter into futures contracts to the extent that,
immediately thereafter, the sum of its initial margin deposits on open contracts
exceeds 5% of the market value of its total assets. Further, each Fund will
enter into stock index futures contracts only for bona fide hedging purposes or
such other purposes permitted under Part 4 of the regulations promulgated by the
Commodity Futures Trading Commission. Also, neither Fund may enter into stock
index futures contracts and options to the extent that the value of such
contracts would exceed 20% of the Fund's total net assets and may not purchase
put options to the extent that more than 5% of the value of the Fund's total
assets would be invested in premiums on open put option positions.
INDEXED SECURITIES
The Funds may invest in indexed securities whose value is linked to foreign
currencies, interest rates, commodities, indices or other financial indicators.
Most indexed securities are short- to intermediate-term fixed income securities
whose values at maturity or interest rates rise or fall according to the change
in one or more specified underlying instruments. Indexed securities may be
positively or negatively indexed (i.e., their value may increase or decrease if
the underlying instrument appreciates), and may have return characteristics
similar to direct investments in the underlying instrument or to one or more
options on the underlying instrument. Indexed securities may be more volatile
than the underlying instrument itself.
-6-
<PAGE>
SWAP AGREEMENTS
As one way of managing their exposure to different types of investments,
the Funds may enter into interest rate swaps, currency swaps, and other types of
swap agreements such as caps, collars, and floors. In a typical interest rate
swap, one party agrees to make regular payments equal to a floating interest
rate times a "notional principal amount," in return for payments equal to a
fixed rate times the same amount, for a specified period of time. If a swap
agreement provides for payments in different currencies, the parties might agree
to exchange notional principal amount as well. Swaps may also depend on other
prices or rates, such as the value of an index or mortgage prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by the
other party. For example, the buyer of an interest rate cap obtains the right
to receive payments to the extent that a specified interest rate exceeds an
agreed upon level, while the seller of an interest rate floor is obligated to
make payments to the extent that a specified interest rate falls below an agreed
upon level. An interest rate collar combines elements of buying a cap and
selling a floor.
Swap agreements will tend to shift the Funds' investment exposure from one
type of investment to another. For example, if a Fund agreed to exchange
payments in dollars for payments in foreign currency, the swap agreement would
tend to decrease the Fund's exposure to U.S. interest rates and increase its
exposure to foreign currency and interest rates. Caps and floors have an effect
similar to buying or writing options. Depending on how they are used, swap
agreements may increase or decrease the overall volatility of a Fund's
investments and its share price and yield.
Swap agreements are sophisticated hedging instruments that typically
involve a small investment of cash relative to the magnitude of risks assumed.
As a result, swaps can be highly volatile and may have a considerable impact on
the Funds' performance. Swap agreements are subject to risks related to the
counterparty's ability to perform, and may decline in value if the
counterparty's creditworthiness deteriorates. The Funds may also suffer losses
if they are unable to terminate outstanding swap agreements or reduce their
exposure through offsetting transactions.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Because the Funds may buy and sell securities denominated in currencies
other than the U.S. dollar, and receive interest, dividends and sale proceeds in
currencies other than the U.S. dollar, the Funds may enter into foreign currency
exchange transactions to convert United States currency to foreign currency and
foreign currency to United States currency as well as convert foreign currency
to other foreign currencies. A Fund either enters into these transactions on a
spot (i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market, or uses forward contracts to purchase or sell foreign
currencies.
-7-
<PAGE>
A forward foreign currency exchange contract is an obligation by a Fund to
purchase or sell a specific currency at a specified price and future date, which
may be any fixed number of days from the date of the contract. Forward foreign
currency exchange contracts establish an exchange rate at a future date. These
contracts are transferable in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A
forward foreign currency exchange contract generally has no deposit requirement
and is traded at a net price without commission. Neither spot transactions nor
forward foreign currency exchange contracts eliminate fluctuations in the prices
of a Fund's portfolio securities or in foreign exchange rates, or prevent loss
if the prices of these securities should decline.
The Funds may enter into foreign currency hedging transactions in an
attempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or changes in
foreign currency exchange rates that would adversely affect a portfolio position
or an anticipated portfolio position. Since consideration of the prospect for
currency parities will be incorporated into a Fund's long-term investment
decisions, neither Fund will routinely enter into foreign currency hedging
transactions with respect to portfolio security transactions; however, it is
important to have the flexibility to enter into foreign currency hedging
transactions when it is determined that the transactions would be in the Fund's
best interest. Although these transactions tend to minimize the risk of loss
due to a decline in the value of the hedged currency, at the same time they tend
to limit any potential gain that might be realized should the value of the
hedged currency increase. The precise matching of the forward contract amounts
and the value of the securities involved will not generally be possible because
the future value of these securities in foreign currencies will change as a
consequence of market movements in the value of those securities between the
date the forward contract is entered into and the date it matures. The
projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.
PORTFOLIO SECURITIES GENERALLY
Subsequent to its purchase by a Fund an issue of securities may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Board of Trustees or Fleet, pursuant to guidelines
established by the Board, will promptly consider such an event in determining
whether the Fund involved should continue to hold the obligation. The Board of
Trustees or Fleet may determine that it is appropriate for the Fund to continue
to hold the obligation if retention is in accordance with the interests of the
particular Fund and applicable regulations of the Securities and Exchange
Commission.
PORTFOLIO TURNOVER
A Fund may sell a portfolio investment soon after its acquisition if Fleet
believes that such a disposition is consistent with the Fund's investment
objective. Portfolio investments may be sold for a variety of reasons, such as
a more favorable investment opportunity or other circumstances bearing on the
desirability of continuing to hold such investments. A high rate of
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<PAGE>
portfolio turnover involves correspondingly greater brokerage commission
expenses and other transaction costs, which must be ultimately borne by the
Fund's shareholders.
ADDITIONAL INVESTMENT LIMITATIONS
In addition to the investment limitations disclosed in the Prospectus, the
Funds are subject to the following investment limitations, which may be changed
with respect to a particular Fund only by a vote of the holders of a majority of
such Fund's outstanding shares (as defined under "Miscellaneous" in the
Prospectus):
1. Neither Fund may sell any securities short or purchase any securities
on margin, but each Fund may obtain such short-term credits as may be
necessary for the clearance of purchases and sales of portfolio
securities. A deposit or payment by a Fund of initial or variation
margin in connection with futures contracts or related options
transactions is not considered the purchase of a security on margin.
2. Neither Fund may issue senior securities except that each Fund may
borrow money or engage in reverse repurchase agreements in amounts up
to one-third of the value of its total assets, including the amounts
borrowed; and except to the extent that each Fund may enter into
futures contracts. Neither Fund will borrow money or engage in
reverse repurchase agreements for investment leverage, but rather as a
temporary, extraordinary, or emergency measure to facilitate
management of the portfolio by enabling a Fund to meet redemption
requests when the liquidation of portfolio securities is deemed to be
inconvenient or disadvantageous. Neither Fund will purchase any
securities while borrowings in excess of 5% of its total assets are
outstanding.
3. Neither Fund may mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, a Fund may only
mortgage, pledge, or hypothecate assets having a market value not
exceeding 10% of the value of its total assets at the time of
purchase. For purposes of this limitation, the following will not be
deemed to be pledges of a Fund's assets: (a) the deposit of assets in
escrow in connection with the writing of covered put or call options
and the purchase of securities on a when-issued basis; and (b)
collateral arrangements with respect to: (i) the purchase and sale of
stock options (and options on stock indices) and (ii) initial or
variation margin for futures contracts. Margin deposits from the
purchase and sale of futures contracts and related options are not
deemed to be a pledge.
4. Neither Fund may purchase or sell real estate or real estate limited
partnerships, although each Fund may invest in securities of issuers
whose business involves the purchase or sale of real estate or in
securities which are secured by real estate or interests in real
estate.
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<PAGE>
5. Neither Fund may purchase or sell commodities, commodity contracts, or
commodity futures contracts except to the extent that a Fund may
engage in transactions involving financial futures contracts or
options on financial futures contracts.
6. Neither Fund may underwrite any issue of securities, except as a Fund
may be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its
investment objective, policies and limitations.
7. Neither Fund may lend any of its assets except that a Fund may lend
portfolio securities up to one-third the value of its total assets.
This limitation shall not prevent a Fund from purchasing or holding
money market instruments, repurchase agreements, obligations of the
U.S. Government, its agencies or instrumentalities, variable rate
demand notes, bonds, debentures, notes, certificates of indebtedness,
or certain debt instruments as permitted by its investment objective,
policies and limitations or Galaxy's Declaration of Trust.
8. With respect to securities comprising 75% of the value of its total
assets, neither Fund will purchase securities issued by any one issuer
(other than cash, cash items, or securities issued or guaranteed by
the government of the United States or its agencies or
instrumentalities and repurchase agreements collateralized by such
securities) if, as a result, more than 5% of the value of its total
assets would be invested in the securities of that issuer. Neither
Fund will acquire more than 10% of the outstanding voting securities
of any one issuer.
9. Neither Fund will invest 25% of more of the value of its total assets
in any one industry (other than securities issued by the U.S.
Government, its agencies or instrumentalities). However, a Fund may
invest as temporary investments more than 25% of the value of its
assets in cash or cash items, securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, or instruments
secured by these money market instruments, such as repurchase
agreements.
The following limitations may be changed by Galaxy's Board of Trustees
without shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.
10. Each Fund will limit its investments in other investment companies to
not more than 3% of the total outstanding voting stock of any
investment company; will invest no more than 5% of its total assets in
any one investment company; and will invest no more than 10% of its
total assets in investment companies in general. However, these
limitations are not applicable if the securities are acquired in a
merger, consolidation, reorganization or acquisition of assets.
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<PAGE>
The Funds will purchase the securities of other investment companies
only in open market transactions involving only customary broker's
commissions. It should be noted that investment companies incur
certain expenses such as management fees, and therefore any investment
by a Fund in shares of another investment company would be subject to
such duplicate expenses.
11. Neither Fund may purchase or retain the securities of any issuer if
the officers and Trustees of Galaxy or Fleet, owning individually more
than 1/2 of 1% of the issuer's securities, together own more than 5%
of the issuer's securities.
12. Neither Fund may purchase or sell interests in oil, gas, or other
mineral exploration or development programs or leases; except that the
Funds may purchase the securities of issuers which invest in or
sponsor such programs.
13. Neither Fund may purchase put options on securities, unless the
securities are held in the Fund's portfolio and not more than 5% of
the value of the Fund's total assets would be invested in premiums on
open put option positions.
14. Neither Fund may write call options on securities, unless the
securities are held in the Fund's portfolio or unless the Fund is
entitled to them in deliverable form without further payment or after
segregating cash in the amount of any further payment. Neither Fund
may write call options in excess of 5% of the value of its total
assets.
15. Neither Fund may invest more than 5% of the value of its total assets
in securities of issuers which have records of less than three years
of continuous operations, including the operation of any predecessor.
16. Neither Fund will invest more than 15% of the value of its net assets
in illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice, non-negotiable fixed
time deposits with maturities over seven days, and certain securities
not determined by the Board of Trustees to be liquid.
17. Neither Fund may invest more than 15% of its total assets in
securities subject to restrictions on resale under the Securities Act
of 1933, except for commercial paper issued under Section 4(2) of the
Securities Act of 1933 and certain other restricted securities which
meet the criteria for liquidity as established by the Board of
Trustees.
18. Neither Fund may invest in companies for the purpose of exercising
management or control.
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19. Neither Fund may invest more than 5% of its net assets in warrants.
No more than 2% of this 5% may be warrants which are not listed on the
New York Stock Exchange.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not result
in violation of such restriction.
For purposes of their respective policies and limitations, the Funds
consider certificates of deposit and demand and time deposits issued by a
U.S. branch of a domestic bank or savings and loan having capital, surplus,
and undivided profits in excess of $100,000,000 at the time of investment to
be "cash items."
The Funds do not intend to borrow money in excess of 5% of the value of
their respective net assets during the next twelve months.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Funds are sold on a continuous basis by First Data
Distributors, Inc. ("FD Distributors"), and FD Distributors has agreed to use
appropriate efforts to solicit all purchase orders. As described in the
Prospectus, Retail A Shares and Retail B Shares of the Funds are sold to
customers ("Customers") of FIS Securities, Inc., Fleet Brokerage Securities,
Inc., Fleet Securities, Inc., Fleet Enterprises, Inc., Fleet Financial Group,
Inc., its affiliates, their correspondent banks, and other qualified banks,
savings and loan associations and broker/dealers ("Institutions"). As
described in the Prospectus, Retail A Shares and Retail B Shares of the Funds
may also be sold to individuals, corporations or other entities, who submit a
purchase application to Galaxy, purchasing either for their own accounts or
for the accounts of others ("Direct Investors").
Retail A Shares of the Funds are sold to Direct Investors and Customers
at the public offering price based on a Fund's net asset value plus a
front-end sales charge as described in the Prospectus. Retail B Shares of
the Funds are sold to Direct Investors and Customers at the net asset value
next determined after a purchase order is received but are subject to a
contingent deferred sales charge which is payable on redemption of such
shares as described in the Prospectus.
Retail A Shares of the Funds are offered for sale with a maximum
front-end sales charge of 3.75%, with certain exceptions as described in the
Prospectus. An illustration of the computation of the offering price per
share of the Funds, using the value of each Fund's net assets and number of
outstanding Retail A Shares at the close of business on April 30, 1998, is as
follows:
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<TABLE>
<CAPTION>
Growth and Small Cap
Income Fund Value Fund
----------- ----------
<S> <C> <C>
Net Assets . . . . . . . . . . . . . . . $212,937,752 $97,447,336
Outstanding Shares . . . . . . . . . . . 13,162,340 5,718,287
Net Asset Value Per
Share. . . . . . . . . . . . . . . . . . $ 16.18 $ 17.04
Sales Charge (3.75% of
the offering price). . . . . . . . . . . $ 0.63 $ 0.66
Offering Price to
Public . . . . . . . . . . . . . . . . . $ 16.81 $ 17.70
</TABLE>
If the Board of Trustees determines that conditions exist which make
payment of redemption proceeds wholly in cash unwise or undesirable, Galaxy
may make payment wholly or partly in securities or other property. Such
redemptions will only be made in "readily marketable" securities. In such an
event, a shareholder would incur transaction costs in selling the securities
or other property.
Galaxy may suspend the right of redemption or postpone the date of
payment for shares for more than seven days during any period when (a)
trading in the markets the Funds normally utilize is restricted, or an
emergency, as defined by the rules and regulations of the Securities and
Exchange Commission (the "SEC") exists making disposal of a Fund's
investments or determination of its net asset value not reasonably
practicable; (b) the New York Stock Exchange is closed (other than customary
weekend and holiday closings); or (c) the SEC by order has permitted such
suspension.
Galaxy may require any information reasonably necessary to ensure that a
redemption has been duly authorized.
DESCRIPTION OF SHARES
Galaxy is a Massachusetts business trust. Galaxy's Declaration of Trust
authorizes the Board of Trustees to issue an unlimited number of shares and
to classify or reclassify any unissued shares into one or more additional
classes by setting or changing in any one or more respects their respective
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption. Pursuant to such authority, the Board of Trustees has authorized
the issuance of thirty classes of shares, each representing interests in one
of thirty separate investment portfolios: Money Market Fund, Government Fund,
Tax-Exempt Fund, U.S. Treasury Fund, Institutional Government Money Market
Fund, Connecticut Municipal Money Market Fund, Massachusetts Municipal Money
-13-
<PAGE>
Market Fund, Prime Reserves Fund, Government Reserves Fund, Tax-Exempt
Reserves Fund, Equity Value Fund, Equity Growth Fund, Equity Income Fund,
International Equity Fund, Small Company Equity Fund, MidCap Equity Fund,
Asset Allocation Fund, Small Cap Value Fund, Growth and Income Fund,
Strategic Equity Fund, Short-Term Bond Fund, Intermediate Government Income
Fund, High Quality Bond Fund, Corporate Bond Fund, Tax-Exempt Bond Fund, New
Jersey Municipal Bond Fund, New York Municipal Bond Fund, Connecticut
Municipal Bond Fund, Massachusetts Municipal Bond Fund and Rhode Island
Municipal Bond Fund. In addition to the Retail A Shares and Retail B Shares
offered by the Prospectus to which this Statement of Additional Information
relates, three separate series of shares (Trust Shares, A Prime Shares and B
Prime Shares) for the Funds are offered under separate Prospectuses to
different categories of investors.
Shares have no preemptive rights and only such conversion or exchange
rights as the Board of Trustees may grant in its discretion. When issued for
payment as described in the Prospectuses, shares will be fully paid and
non-assessable. Each series of shares (i.e., Retail A Shares, Retail B
Shares, Trust Shares, A Prime Shares and B Prime Shares) bear pro rata the
same expenses and are entitled equally to a Fund's dividends and
distributions except as follows. Each series will bear the expenses of any
distribution and/or shareholder servicing plans applicable to such series.
For example, as described below, holders of Retail A Shares will bear the
expenses of the Shareholder Services Plan for Retail A Shares and Trust
Shares (which is currently applicable only to Retail A Shares) and holders of
Retail B Shares will bear the expenses of the Distribution and Services Plan
for Retail B Shares. In addition, each series may incur differing transfer
agency fees and may have differing sales charges. In the event of a
liquidation or dissolution of Galaxy or an individual Fund, shareholders of a
particular Fund would be entitled to receive the assets available for
distribution belonging to such Fund, and a proportionate distribution, based
upon the relative asset values of Galaxy's respective Funds, of any general
assets of Galaxy not belonging to any particular Fund, which are available
for distribution. Shareholders of a Fund are entitled to participate in the
net distributable assets of the particular Fund involved in liquidation based
on the number of shares of the Fund that are held by each shareholder, except
that each series of a Fund would be solely responsible for the Fund's
payments under any distribution and/or shareholder servicing plan applicable
to such series.
Holders of all outstanding shares of a particular Fund will vote together
in the aggregate and not by series on all matters, except that only shares of a
particular series will be entitled to vote on matters submitted to shareholders
pertaining to any distribution and/or shareholder servicing plan for such series
(e.g., only Retail A Shares and Trust Shares of a Fund will be entitled to vote
on matters submitted to a vote of shareholders pertaining to Galaxy's
Shareholder Services Plan for Retail A Shares and Trust Shares and only Retail B
Shares of a Fund will be entitled to vote on matters submitted to a vote of
shareholders pertaining to Galaxy's Distribution and Services Plan for Retail B
Shares. Further, shareholders of all of the Funds, as well as those of any
other investment portfolio now or hereafter offered by Galaxy, will vote
together in the aggregate and not separately on a Fund-by-Fund basis, except as
otherwise required by law or when permitted by the Board of Trustees. Rule
18f-2 under the 1940 Act provides that any matter required to be submitted to
the holders of the outstanding voting securities of an investment company such
as Galaxy shall not be deemed to have been effectively acted upon
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<PAGE>
unless approved by the holders of a majority of the outstanding shares of
each Fund affected by the matter. A particular Fund is deemed to be affected
by a matter unless it is clear that the interests of each Fund in the matter
are substantially identical or that the matter does not affect any interest
of the Fund. Under the Rule, the approval of an investment advisory
agreement or any change in an investment objective or fundamental investment
policy would be effectively acted upon with respect to a Fund only if
approved by a majority of the outstanding shares of such Fund (irrespective
of series designation). However, the Rule also provides that the
ratification of the appointment of independent public accountants, the
approval of principal underwriting contracts, and the election of trustees
may be effectively acted upon by shareholders of Galaxy voting without regard
to class or series.
Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held. Voting rights are not cumulative
and, accordingly, the holders of more than 50% in the aggregate of Galaxy's
outstanding shares may elect all of the trustees, irrespective of the votes of
other shareholders.
Galaxy does not intend to hold annual shareholder meetings except as may be
required by the 1940 Act. Galaxy's Declaration of Trust provides that a meeting
of shareholders shall be called by the Board of Trustees upon a written request
of shareholders owning at least 10% of the outstanding shares of Galaxy entitled
to vote.
Galaxy's Declaration of Trust authorizes the Board of Trustees, without
shareholder approval (unless otherwise required by applicable law), to (a) sell
and convey the assets of a Fund to another management investment company for
consideration that may include securities issued by the purchaser and, in
connection therewith, to cause all outstanding shares of the Fund involved to be
redeemed at a price that is equal to their net asset value and that may be paid
in cash or by distribution of the securities or other consideration received
from the sale and conveyance; (b) sell and convert a Fund's assets into money
and, in connection therewith, to cause all outstanding shares of the Fund
involved to be redeemed at their net asset value; or (c) combine the assets
belonging to a Fund with the assets belonging to another Fund of Galaxy and, in
connection therewith, to cause all outstanding shares of any Fund to be redeemed
at their net asset value or converted into shares of another class of Galaxy's
shares at the net asset value. In the event that shares are redeemed in cash at
their net asset value, a shareholder may receive in payment for such shares, due
to changes in the market prices of the Fund's portfolio securities, an amount
that is more or less than the original investment. The exercise of such
authority by the Board of Trustees will be subject to the provisions of the 1940
Act, and the Board of Trustees will not take any action described in this
paragraph unless the proposed action has been disclosed in writing to the Fund's
shareholders at least 30 days prior thereto.
-15-
<PAGE>
ADDITIONAL INFORMATION CONCERNING TAXES
IN GENERAL
The following summarizes certain additional tax considerations generally
affecting the Funds and their shareholders that are not described in the Funds'
Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the Funds or their shareholders, and the discussion here and in the
Prospectus is not intended as a substitute for careful tax planning. Potential
investors should consult their tax advisers with specific reference to their own
tax situation.
Each Fund of Galaxy is treated as a separate corporate entity under the
Internal Revenue Code of 1986, as amended, (the "Code"), and each Fund intends
to qualify as a "regulated investment company" under the Code. By following
this policy, each Fund expects to eliminate or reduce to a nominal amount the
federal income taxes to which it may be subject. If for any taxable year a Fund
does not qualify for the special federal tax treatment afforded regulated
investment companies, all of the Fund's taxable income would be subject to tax
at regular corporate rates without any deduction for distributions to
shareholders. In such event, a Fund's distributions to shareholders would be
taxable as ordinary income, to the extent of the current and accumulated
earnings and profits of the particular Fund, and would be eligible for the
dividends received deduction in the case of corporate shareholders.
Qualification as a regulated investment company under the Code for a
taxable year requires, among other things, that each Fund distribute to its
shareholders an amount equal to at least the sum of 90% of its investment
company taxable income and 90% of its exempt-interest income, if any, net of
certain deductions for such year (the "Distribution Requirement"). In addition,
each Fund must satisfy certain requirements with respect to the source of its
income for a taxable year. At least 90% of the gross income of each Fund must
be derived from dividends, interest, payments with respect to securities loans,
gains from the sale or other disposition of stock, securities or foreign
currencies, and other income (including, but not limited to, gains from options,
futures, or forward contracts) derived with respect to the Fund's business of
investing in such stock, securities or currencies (the "Income Requirement").
The Treasury Department may by regulation exclude from qualifying income foreign
currency gains which are not directly related to a Fund's principal business of
investing in stock or securities, or options and futures with respect to stock
or securities. Any income derived by a Fund from a partnership or trust is
treated for this purpose as derived with respect to the Fund's business of
investing in stock, securities or currencies, only to the extent that such
income is attributable to items of income which would have been qualifying
income if realized by the Fund in the same manner as by the partnership or
trust.
Substantially all of each Fund's net realized long-term capital gains, if
any, will be distributed at least annually to Fund shareholders. A Fund will
generally have no tax liability with respect to such gains and the distributions
will be taxable to Fund shareholders who are not currently exempt from federal
income taxes as long-term capital gains, regardless of how long
-16-
<PAGE>
the shareholders have held Fund shares and whether such gains are received in
cash or reinvested in additional shares.
Each Fund will designate the tax status of any distributions in a written
notice mailed to shareholders within 60 days after the close of its taxable
year. Shareholders should note that, upon the sale or exchange of Fund shares,
if the shareholder has not held such shares for more than six months, any loss
on the sale or exchange of those shares will be treated as long-term capital
loss to the extent of the capital gain dividends received with respect to the
shares.
Ordinary income of individuals is taxable at a maximum nominal rate of
39.6%, but because of limitations on itemized deductions otherwise allowable and
the phase-out of personal exemptions, the maximum effective marginal rate of tax
for some taxpayers may be higher. An individual's long-term capital gains on
stocks and securities are taxable at a maximum nominal rate of 20%. For
corporations, long-term capital gains and ordinary income are both taxable at a
maximum average rate of 35% (a maximum effective marginal rate of 39% applies in
the case of corporations having taxable income between $100,000 and $335,000).
A 4% non-deductible excise tax is imposed on regulated investment companies
that fail to currently distribute specified percentages of their ordinary
taxable income and capital gain net income (excess of capital gains over capital
losses). Each Fund intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and any capital gain net income
prior to the end of each calendar year to avoid liability for this excise tax.
The Funds will be required in certain cases to withhold and remit to the
United States Treasury 31% of taxable dividends or gross sale proceeds paid to
any shareholder who (i) has failed to provide a correct tax identification
number, (ii) is subject to backup withholding due to prior failure to properly
include on his or her return payments of taxable interest or dividends, or (iii)
has failed to certify to the Funds that he or she is not subject to back up
withholding when required to do so or that he or she is an "exempt recipient."
Shareholders are subject to federal income tax on dividends received as
cash or additional shares.
Capital gains experienced by the Funds could result in an increase in
dividends. Capital losses could result in a decrease in dividends.
TAXATION OF CERTAIN FINANCIAL INSTRUMENTS
Special rules govern the federal income tax treatment of financial
instruments that may be held by the Funds. These rules may have a particular
impact on the amount of income or gain that the Funds must distribute to their
respective shareholders to comply with the Distribution Requirement and on the
income or gain qualifying under the Income Requirement described above.
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<PAGE>
Generally, futures contracts and options on futures contracts held by the
Funds and certain foreign currency contracts entered into by the Funds (as
described above) (collectively, the "Instruments") at the close of their taxable
year are treated for federal income tax purposes as sold for their fair market
value on the last business day of such year, a process known as
"mark-to-market." Forty percent of any gain or loss resulting from such
constructive sales will be treated as short-term capital gain or loss, and 60%
of such gain or loss will be treated as long-term capital gain or loss without
regard to the period a Fund has held the Instruments ("the 40-60 rule"). The
amount of any capital gain or loss actually realized by a Fund in a subsequent
sale or other disposition of those Instruments is adjusted to reflect any
capital gain or loss taken into account by the Fund in a prior year as a result
of the constructive sale of the Instruments. Losses with respect to futures
contracts to sell, related options and certain foreign currency contracts, which
are regarded as parts of a "mixed straddle" because their values fluctuate
inversely to the values of specific securities held by the Funds, are subject to
certain loss deferral rules, which limit the amount of loss currently deductible
on either part of the straddle to the amount thereof that exceeds the
unrecognized gain, if any, with respect to the other part of the straddle, and
to certain wash sales regulations. With respect to certain Instruments,
deductions for interest and carrying charges may not be allowed.
Notwithstanding the rules described above, with respect to futures contracts
that are part of a "mixed straddle" to sell related options, and certain foreign
currency contracts that are properly identified as such, a Fund may make an
election which will exempt (in whole or in part) those identified futures
contracts, options and foreign currency contracts from the Rules of Section 1256
of the Code including "the 40-60 rule" and "mark-to-market," but gains and
losses will be subject to such short sales, wash sales and loss deferral rules
and the requirement to capitalize interest and carrying charges. Under
Temporary Regulations, a Fund would be allowed (in lieu of the foregoing) to
elect either (1) to offset gains or losses from portions which are part of a
mixed straddle by separately identifying each mixed straddle to which such
treatment applies, or (2) to establish a mixed straddle account for which gains
and losses would be recognized and offset on a periodic basis during the taxable
year. Under either election, "the 40-60 rule" will apply to the net gain or
loss attributable to the Instruments, but in the case of a mixed straddle
account election, not more than 50% of any net gain may be treated as long-term,
and no more than 40% of any net loss may be treated as short-term.
Certain foreign currency contracts entered into by a Fund may be subject to
the "mark-to-market" process, but gain or loss will be treated as 100% ordinary
income or loss. A foreign currency contract must meet the following conditions
in order to be subject to the mark-to-market rules described above: (1) the
contract must require delivery of, or settlement by reference to the value of, a
foreign currency of a type in which regulated futures contracts are traded; (2)
the contract must be entered into at arm's length at a price determined by
reference to the price in the interbank market; and (3) the contract must be
traded in the interbank market. The Treasury Department has broad authority to
issue regulations under the provisions respecting foreign currency contracts.
As of the date of this Statement of Additional Information, the Treasury
Department has not issued any such regulations. Other foreign currency
contracts entered into by an Equity Fund may result in the creation of one or
more straddles for federal
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<PAGE>
income tax purposes, in which case certain loss deferral, short sales, and wash
sales rules and the requirement to capitalize interest and carrying charges may
apply.
Some of the non-U.S. dollar denominated investments that a Fund may make,
such as foreign securities, European Depository Receipts, Global Depository
Receipts and foreign currency contracts, may be subject to the provisions of
Subpart J of the Code, which govern the federal income tax treatment of certain
transactions denominated in terms of a currency other than the U.S. dollar or
determined by reference to the value of one or more currencies other than the
U.S. dollar. The types of transactions covered by these provisions include the
following: (1) the acquisition of, or becoming the obligor under, a bond or
other debt instrument (including, to the extent provided in Treasury
regulations, preferred stock); (2) the accruing of certain trade receivables and
payables; and (3) the entering into or acquisition of any forward contract,
futures contract, option and similar financial instrument. The disposition of a
currency other than the U.S. dollar by a U.S. taxpayer also is treated as a
transaction subject to the special currency rules. However, foreign
currency-related regulated futures contracts and non-equity options are
generally not subject to the special currency rules if they are or would be
treated as sold for their fair market value at year-end under the mark-to-market
rules, unless an election is made to have such currency rules apply. With
respect to transactions covered by the special rules, foreign currency gain or
loss is calculated separately from any gain or loss on the underlying
transaction and is normally taxable as ordinary gain or loss. A taxpayer may
elect to treat as capital gain or loss foreign currency gain or loss arising
from certain identified forward contracts, futures contracts and options that
are capital assets in the hands of the taxpayer and which are not part of a
straddle. In accordance with Treasury regulations, certain transactions that
are part of a "Section 988 hedging transaction" (as defined in the Code and
Treasury regulations) may be integrated and treated as a single transaction or
otherwise treated consistently for purposes of the Code. "Section 988 hedging
transactions" are not subject to the mark-to-market or loss deferral rules under
the Code. Gain or loss attributable to the foreign currency component of
transactions engaged in by the Equity Funds, which is not subject to the special
currency rules (such as foreign equity investments other than certain preferred
stocks), is treated as capital gain or loss and is not segregated from the gain
or loss on the underlying transaction.
A Fund may be subject to U.S. federal income tax on a portion of any
"excess distribution" or a gain from the disposition of stock in a passive
foreign investment company even if the Fund distributes the income to its
shareholders. To avoid such tax, a Fund may instead elect to treat such a
company as a "qualified electing fund" or to mark such stock to market as of the
end of the year; under either of these alternative approaches the Fund may
recognize taxable income in a year without receiving any corresponding amount of
cash.
STATE TAXATION
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
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<PAGE>
treatment of a Fund and its shareholders under such laws may differ from their
treatment under federal income tax laws. Under state or local law,
distributions of net investment income may be taxable to shareholders as
dividend income even though a substantial portion of such distributions may be
derived from interest on U.S. Government obligations which, if realized
directly, would be exempt from such income taxes. Shareholders are advised to
consult their tax advisers concerning the application of state and local taxes.
TRUSTEES AND OFFICERS
The trustees and executive officers of Galaxy, their addresses, principal
occupations during the past five years, and other affiliations are as follows:
<TABLE>
<CAPTION>
Positions Principal Occupation
with The During Past 5 Years
Name and Address Galaxy Fund and Other Affiliations
---------------- ----------- ------------------------------------------
<S> <C> <C>
Dwight E. Vicks, Jr. Chairman & Trustee President & Director, Vicks Lithograph & Printing
Vicks Lithograph & Corporation (book manufacturing and commercial
Printing Corporation printing); Director, Utica Fire Insurance Company;
Commercial Drive Trustee, Savings Bank of Utica; Director, Monitor
P.O. Box 270 Life Insurance Company; Director, Commercial
Yorkville, NY 13495 Travelers Mutual Insurance Company; Trustee, The
Age 64 Galaxy VIP Fund; Trustee, Galaxy Fund II.
John T. O'Neill(1) President, Treasurer & Trustee Executive Vice President and CFO, Hasbro, Inc. (toy
Hasbro, Inc. and game manufacturer); Trustee, The Galaxy VIP
1027 Newport Avenue Fund; Trustee, Galaxy Fund II.
Pawtucket, RI 02862
Age 53
Louis DeThomasis Trustee President, Saint Mary's College of Minnesota;
Saint Mary's College Director, Bright Day Travel, Inc.; Trustee,
of Minnesota Religious Communities Trust; Trustee, The Galaxy
Winona, MN 55987 VIP Fund; Trustee, Galaxy Fund II.
Age 57
-20-
<PAGE>
<CAPTION>
Positions Principal Occupation
with The During Past 5 Years
Name and Address Galaxy Fund and Other Affiliations
---------------- ----------- ------------------------------------------
<S> <C> <C>
Donald B. Miller Trustee Chairman, Horizon Media, Inc. (broadcast services);
10725 Quail Covey Road Director/Trustee, Lexington Funds; Chairman,
Boynton Beach, FL 33436 Executive Committee, Compton International, Inc.
Age 72 (advertising agency); Trustee, Keuka College;
Trustee, The Galaxy VIP Fund; Trustee, Galaxy Fund
II.
James M. Seed Trustee Chairman and President, The Astra Projects,
The Astra Ventures, Incorporated (land development); President, The
Inc. Astra Ventures, Incorporated (previously, Buffinton
One Citizens Plaza Box Company - manufacturer of cardboard boxes);
Providence, RI 02903 Commissioner, Rhode Island Investment Commission;
Age 56 Trustee, The Galaxy VIP Fund; Trustee, Galaxy Fund
II.
Bradford S. Wellman(1) Trustee Private Investor; Vice President and Director,
2468 Ohio Street Acadia Management Company (investment services),
Bangor, ME 04401 from 1974 until 1990; Director, Essex County Gas
Age 66 Company, until January 1994; Director, Maine Mutual
Fire Insurance Co.; Member, Maine Finance
Authority; Trustee, The Galaxy VIP Fund; Trustee,
Galaxy Fund II.
W. Bruce McConnel, III Secretary Partner of the law firm Drinker Biddle & Reath LLP,
Philadelphia National Philadelphia, Pennsylvania.
Bank Building
1345 Chestnut Street
Philadelphia, PA 19107
Age 54
-21-
<PAGE>
<CAPTION>
Positions Principal Occupation
with The During Past 5 Years
Name and Address Galaxy Fund and Other Affiliations
---------------- ----------- ------------------------------------------
<S> <C> <C>
Jylanne Dunne Vice President Vice President, First Data Investor Services Group,
First Data Services and Assistant Inc., 1990 to present.
Group, Inc. Treasurer
4400 Computer Drive
Westboro, MA 01581-5108
Age 38
</TABLE>
- -------------------
(1). May be deemed to be an "interested" person within the definition set forth
in Section 2(a)(19) of the 1940 Act.
Effective March 5, 1998, each trustee receives an annual aggregate fee of
$40,000 for his services as a trustee of Galaxy, The Galaxy VIP Fund ("Galaxy
VIP") and Galaxy Fund II ("Galaxy II") (collectively, the "Trusts"), plus an
additional $2,500 for each in-person Galaxy Board meeting attended and $1,500
for each in-person Galaxy VIP or Galaxy II Board meeting attended not held
concurrently with an in-person Galaxy meeting, and is reimbursed for expenses
incurred in attending all meetings. Each trustee also receives $750 for each
telephone Board meeting in which the trustee participates, $1,000 for each
in-person Board committee meeting attended and $500 for each telephone Board
committee meeting in which the trustee participates. The Chairman of the Boards
of the Trusts is entitled to an additional annual aggregate fee in the amount of
$4,000, and the President and Treasurer of the Trusts is entitled to an
additional annual aggregate fee of $2,500 for their services in these respective
capacities. The foregoing trustees' and officers' fees are allocated among the
portfolios of the Trusts based on their relative net assets. Prior to March 5,
1998, (i) each trustee received an annual aggregate fee of $29,000 for his
services as a trustee of the Trusts, plus an additional $2,250 for each
in-person Galaxy Board meeting attended and $1,500 for each in-person Galaxy VIP
or Galaxy II Board meeting attended not held concurrently with an in-person
Galaxy Board meeting, and (ii) the President and Treasurer of the Trusts
received the same fees as they are currently paid for their services in these
capacities.
Effective March 1, 1996, each trustee became entitled to participate in The
Galaxy Fund, The Galaxy VIP Fund and Galaxy Fund II Deferred Compensation Plans
(the "Original Plans"). Effective January 1, 1997, the Original Plans were
merged into The Galaxy Fund/The Galaxy VIP Fund/Galaxy Fund II Deferred
Compensation Plan (together with the Original Plans, the "Plan"). Under the
Plan, a trustee may elect to have his deferred fees treated as if they had been
invested by the Trusts in the shares of one or more portfolios in the Trusts, or
other types of investment options, and the amount paid to the trustees under the
Plan will be determined based upon the performance of such investments.
Deferral of trustees' fees will have no effect on a portfolio's assets,
liabilities, and net income per share, and will not obligate the Trusts to
retain the services of any trustee or obligate a portfolio to any level of
compensation to the trustee. The Trusts may invest in underlying securities
without shareholder approval.
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<PAGE>
No employee of First Data Investor Services Group, Inc. ("Investor Services
Group"), receives any compensation from Galaxy for acting as an officer. No
person who is an officer, director or employee of Fleet, or any of its
affiliates, serves as a trustee, officer or employee of Galaxy. The trustees
and officers of Galaxy own less than 1% of its outstanding shares.
The following chart provides certain information about the fees received by
Galaxy's trustees for the fiscal year ended October 31, 1997:
<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Benefits from Galaxy and
Accrued as Fund
Name of Aggregate Part of Fund Complex* Paid to
Person/Position Compensation from Expenses Trustees
--------------- Galaxy -------- --------
------
<S> <C> <C> <C>
Bradford S. Wellman $34,591 None $38,500
Trustee
Dwight E. Vicks, Jr. $38,184 None $42,500
Chairman and Trustee
Donald B. Miller** $34,574 None $38,500
Trustee
Rev. Louis DeThomasis $34,591 None $38,500
Trustee
John T. O'Neill $36,837 None $41,000
President, Treasurer
and Trustee
James M. Seed** $34,574 None $38,500
Trustee
</TABLE>
- ---------------------
* The "Fund Complex" consists of Galaxy, The Galaxy VIP Fund and Galaxy Fund
II.
** Deferred compensation (including interest) in the amounts of $35,777 and
$40,992 accrued during Galaxy's fiscal year ended October 31, 1997 for
Messrs. Miller and Seed, respectively.
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<PAGE>
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. However, Galaxy's Declaration of Trust provides that shareholders
shall not be subject to any personal liability for the acts or obligations of
Galaxy, and that every note, bond, contract, order or other undertaking made by
Galaxy shall contain a provision to the effect that the shareholders are not
personally liable thereunder. The Declaration of Trust provides for
indemnification out of the trust property of any shareholder held personally
liable solely by reason of his or her being or having been a shareholder and not
because of his or her acts or omissions outside such capacity or some other
reason. The Declaration of Trust also provides that Galaxy shall, upon
request, assume the defense of any claim made against any shareholder for any
act or obligation of Galaxy, and shall satisfy any judgment thereon. Thus, the
risk of shareholder liability is limited to circumstances in which Galaxy itself
would be unable to meet its obligations.
The Declaration of Trust states further that no trustee, officer or agent
of Galaxy shall be personally liable for or on account of any contract, debt,
claim, damage, judgment or decree arising out of or connected with the
administration or preservation of the trust estate or the conduct of any
business of Galaxy; nor shall any trustee be personally liable to any person for
any action or failure to act except by reason of his own bad faith, willful
misfeasance, gross negligence or reckless disregard of his duties as trustee.
The Declaration of Trust also provides that all persons having any claim against
the trustees or Galaxy shall look solely to the trust property for payment.
With the exceptions stated, the Declaration of Trust provides that a
trustee is entitled to be indemnified against all liabilities and expenses
reasonably incurred by him in connection with the defense or disposition of any
proceeding in which he may be involved or with which he may be threatened by
reason of his being or having been a trustee, and that the Board of Trustees
shall indemnify representatives and employees of Galaxy to the same extent to
which they themselves are entitled to indemnification.
ADVISORY, ADMINISTRATION, CUSTODIAN AND
TRANSFER AGENCY AGREEMENTS
Fleet serves as investment adviser to the Funds. In its advisory
agreement, Fleet has agreed to provide investment advisory services to the Funds
as described in the Prospectus. Fleet has also agreed to pay all expenses
incurred by it in connection with its activities under the advisory agreement
other than the cost of securities (including brokerage commissions) purchased
for the Funds. See "Expenses" in the Prospectus.
For the fiscal year ended October 31, 1997, Fleet received advisory fees
(net of reimbursements) of $1,370,449 and $2,361,898 with respect to the
Small Cap Value Fund and Growth and Income Fund,
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<PAGE>
respectively, and reimbursed expenses of $103,101 and $306,295 with respect to
the Small Cap Value Fund and Growth and Income Fund, respectively.
For the period from December 4, 1995 to October 31, 1996, Fleet received
advisory fees (net of reimbursements) of $1,079,665 and $1,690,599 with
respect to the Small Cap Value Fund and Growth and Income Fund, respectively,
and reimbursed expenses of $63,394 and $99,656 with respect to the Small Cap
Value Fund and Growth and Income Fund, respectively.
For the period from November 1, 1995 to December 3, 1995, Shawmut Bank,
N.A. ("Shawmut"), the investment adviser for the Predecessor Funds, earned the
following advisory fees: $128,152 and $207,833 with respect to the Predecessor
Small Cap Value Fund and Predecessor Growth and Income Fund, respectively.
For the fiscal year ended October 31, 1995, Shawmut earned the following
advisory fees: Predecessor Growth and Income Fund, $2,067,505, of which $365,382
was voluntarily waived; and Predecessor Small Cap Value Fund, $1,304,952, of
which $304,915 was voluntarily waived.
The advisory agreement provides that Fleet shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Funds in
connection with the performance of its duties under the advisory agreement,
except a loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of Fleet in the
performance of its duties or from reckless disregard by it of its duties and
obligations thereunder. Unless sooner terminated, the advisory agreement will
continue in effect with respect to a particular Fund until August 10, 1998, and
thereafter from year to year as long as such continuance is approved at least
annually (i) by the vote of a majority of trustees who are not parties to such
advisory agreement or interested persons (as defined in the 1940 Act) of any
such party, cast in person at a meeting called for the purpose of voting on such
approval; and (ii) by Galaxy's Board of Trustees, or by a vote of a majority of
the outstanding shares of such Fund. The term "majority of the outstanding
shares of such Fund" means, with respect to approval of an advisory agreement,
the vote of the lesser of (i) 67% or more of the shares of the Fund present at a
meeting, if the holders of more than 50% of the outstanding shares of the Fund
are present or represented by proxy, or (ii) more than 50% of the outstanding
shares of the Fund. The advisory agreement may be terminated by Galaxy or by
Fleet on sixty days' written notice, and will terminate immediately in the event
of its assignment.
Investor Services Group serves as Galaxy's administrator. Under the
administration agreement, Investor Services Group has agreed to maintain office
facilities for Galaxy, furnish Galaxy with statistical and research data,
clerical, accounting, and bookkeeping services, certain other services such as
internal auditing services required by Galaxy, and compute the net asset value
and net income of the Funds. Investor Services Group prepares the Funds' annual
and semi-annual reports to the SEC, federal and state tax returns, and filings
with state securities commissions, arranges for and bears the cost of processing
share purchase and redemption orders, maintains the Funds' financial accounts
and records and generally assists in all aspects of Galaxy's operations.
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<PAGE>
Prior to March 31, 1995, Galaxy's administrator and transfer agent was 440
Financial Group of Worcester, Inc., a wholly-owned subsidiary of State Mutual
Life Assurance Company of America. On March 31, 1995, Investor Services Group,
a wholly-owned subsidiary of First Data Corporation, acquired all of the assets
of 440 Financial Group of Worcester, Inc.
For the fiscal year ended October 31, 1997, Investor Services Group
received administration fees of $160,350 and $290,324 with respect to the Small
Cap Value Fund and Growth and Income Fund, respectively.
For the period December 4, 1995 through October 31, 1996, Investor Services
Group received administration fees of $129,101 and $203,187 with respect to the
Small Cap Value Fund and Growth and Income Fund, respectively.
For the period from November 1, 1995 to December 3, 1995, Federated
Administrative Services ("Federated"), a subsidiary of Federated Investors,
served as administrator of the Predecessor Funds and earned the following
administrative fees: Predecessor Small Cap Value Fund, $19,223, none of which
was voluntarily waived; and Predecessor Growth and Income Fund, $31,175, none of
which was voluntarily waived.
For the fiscal year ended October 31, 1995, Federated earned the following
administrative fees: Predecessor Small Cap Value Fund, $131,149, none of which
was voluntarily waived; and Predecessor Growth and Income Fund, $207,280, none
of which was voluntarily waived.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase Manhattan") serves as custodian to the
Funds pursuant to a Global Custody Agreement. Under its custody agreement,
Chase Manhattan has agreed to: (i) maintain a separate account or accounts in
the name of each Fund; (ii) hold and disburse portfolio securities on account of
each Fund; (iii) collect and make disbursements of money on behalf of each Fund;
(iv) collect and receive all income and other payments and distributions on
account of each Fund's portfolio securities; (v) respond to correspondence from
security brokers and others relating to its duties; and (vi) make periodic
reports to the Board of Trustees concerning the Funds' operations. Chase
Manhattan is authorized to select one or more banks or trust companies to serve
as sub-custodian for the Funds, provided that Chase Manhattan shall remain
responsible for the performance of all of its duties under the custodian
agreement and shall be liable to the Funds for any loss which shall occur as a
result of the failure of a sub-custodian to exercise reasonable care with
respect to the safekeeping of the Funds' assets. In addition, Chase Manhattan
may employ sub-custodians for the Funds upon prior approval by the Board of
Trustees in accordance with the regulations of the SEC, for the purpose of
providing custodial services for the foreign assets of those Funds held outside
the United States. The assets of the Funds are held under bank custodianship in
compliance with the 1940 Act.
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<PAGE>
Investor Services Group also serves as Galaxy's transfer agent and dividend
disbursing agent pursuant to a Transfer Agency and Services Agreement ("Transfer
Agency Agreement"). Under the Transfer Agency Agreement, Investor Services
Group has agreed to: (i) issue and redeem shares of each Fund; (ii) transmit all
communications by each Fund to its shareholders of record, including reports to
shareholders, dividend and distribution notices and proxy materials for meetings
of shareholders; (iii) respond to correspondence by security brokers and others
relating to its duties; (iv) maintain shareholder accounts; and (v) make
periodic reports to the Board of Trustees concerning Galaxy's operations.
PORTFOLIO TRANSACTIONS
Transactions in equity securities on U.S. stock exchanges involve the
payment of negotiated brokerage commissions. On U.S. stock exchanges on which
commissions are negotiated, the cost of transactions may vary among different
brokers. Transactions in the over-the-counter market are generally principal
transactions with dealers and the costs of such transactions involve dealer
spreads rather than brokerage commissions. With respect to over-the-counter
transactions, Fleet will normally deal directly with the dealers who make a
market in the securities involved except in those circumstances where better
prices and execution are available elsewhere or as described below.
For the fiscal year ended October 31, 1997, the Growth and Income and Small
Cap Value Funds paid $851,919 and $173,335, respectively, in brokerage
commissions on brokerage transactions.
For the period December 4, 1995 through October 31, 1996, the Growth and
Income and Small Cap Value Funds paid $398,181 and $118,396, respectively, in
brokerage commissions on brokerage transactions. For the fiscal year ended
October 31, 1995, the Predecessor Growth and Income and Predecessor Small Cap
Value Funds paid $250,125 and $58,543, respectively, in brokerage commissions on
brokerage transactions.
The Funds may engage in short-term trading to achieve their investment
objectives. Portfolio turnover may vary greatly from year to year as well as
within a particular year.
In purchasing or selling securities for the Funds, Fleet will seek to
obtain the best net price and the most favorable execution of orders. To the
extent that the execution and price offered by more than one broker/dealer are
comparable, Fleet may effect transactions in portfolio securities with
broker/dealers who provide research, advice or other services such as market
investment literature.
Except as permitted by the SEC or applicable law, the Funds will not
acquire portfolio securities from, make savings deposits in, enter into
repurchase or reverse repurchase agreements with, or sell securities to, Fleet,
Investor Services Group, or their affiliates, and will not give preference to
affiliates and correspondent banks of Fleet with respect to such transactions.
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<PAGE>
Galaxy is required to identify any securities of its "regular brokers or
dealers" that the Funds have acquired during Galaxy's most recent fiscal year.
At October 31, 1997, the Growth and Income Fund held 42,000 shares of common
stock of Chase Manhattan Corp. (value $4,845,750) and 39,000 shares of common
stock of J.P. Morgan & Co. Inc. (value $4,280,250), Chase Manhattan & J.P.
Morgan are considered "regular broker dealers" of Galaxy. Chase Manhattan Corp.
and J.P. Morgan & Co., Inc. are the parents of Chase Securities, Inc. and J.P.
Morgan respectively.
Investment decisions for each Fund are made independently from those for
the other Funds and portfolios of Galaxy and for any other investment companies
and accounts advised or managed by Fleet. When a purchase or sale of the same
security is made at substantially the same time on behalf of a Fund, another
portfolio of Galaxy, and/or another investment company or account, the
transaction will be averaged as to price, and available investments allocated as
to amount, in a manner which Fleet believes to be equitable to the Fund and such
other portfolio, investment company or account. In some instances, this
investment procedure may adversely affect the price paid or received by a Fund
or the size of the position obtained or sold by such Fund. To the extent
permitted by law, Fleet may aggregate the securities to be sold or purchased for
a Fund with those to be sold or purchased for Galaxy's other Funds and
portfolios, or other investment companies or accounts in order to obtain best
execution.
SHAREHOLDER SERVICES PLAN
As stated in the Prospectus for the Funds, Galaxy may enter into agreements
("Servicing Agreements") pursuant to its Shareholder Services Plan ("Services
Plan") with Institutions and other organizations (including Fleet Bank and its
affiliates) (collectively, "Service Organizations") pursuant to which Service
Organizations will be compensated by Galaxy for offering to provide certain
administrative and support services to Customers who are the beneficial owners
of Retail A Shares and Trust Shares of the Funds. As of October 31, 1997,
Galaxy had entered into Servicing Agreements only with Fleet Bank and
affiliates.
Each Servicing Agreement between Galaxy and a Service Organization relating
to the Services Plan described above requires that, with respect to those Funds
which declare dividends on a daily basis, the Service Organization agrees to
waive a portion of the servicing fee payable to it under the Services Plan to
the extent necessary to ensure that the fees required to be accrued with respect
to the Retail A Shares of such Funds on any day do not exceed the income to be
accrued to such shares on that day.
For the fiscal year ended October 31, 1997, payments to Service
Organizations totaled $324,069 with respect to Retail A Shares of the Growth and
Income Fund, and $130,739 with respect to Retail A Shares of the Small Cap Value
Fund.
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<PAGE>
For the period December 4, 1995 through October 31, 1996, payments to
Service Organizations totaled $154,838 with respect to Retail A Shares of the
Growth and Income Fund, and $79,503 with respect to Retail A Shares of the Small
Cap Value Fund.
Galaxy's Servicing Agreements are governed by the Services Plan that has
been adopted by Galaxy's Board of Trustees in connection with the offering of
Retail A Shares of the Funds. Pursuant to the Plan, the Board of Trustees
reviews, at least quarterly, a written report of the amounts paid under the
Servicing Agreements and the purposes for which the expenditures were made. In
addition, the arrangements with Service Organizations must be approved annually
by a majority of Galaxy's trustees, including a majority of the trustees who are
not "interested persons" of Galaxy as defined in the 1940 Act and who have no
direct or indirect financial interest in such arrangements (the "Disinterested
Trustees").
The Board of Trustees has approved Galaxy's arrangements with Service
Organizations based on information provided by Galaxy's service contractors that
there is a reasonable likelihood that the arrangements will benefit the Funds
and their shareholders by affording Galaxy greater flexibility in connection
with the efficient servicing of the accounts of the beneficial owners of Retail
A Shares of the Funds. Any material amendment to Galaxy's arrangements with
Service Organizations must be approved by a majority of Galaxy's Board of
Trustees (including a majority of the Disinterested Trustees). So long as
Galaxy's arrangements with Service Organizations are in effect, the selection
and nomination of the members of Galaxy's Board of Trustees who are not
"interested persons" (as defined in the 1940 Act) of Galaxy will be committed to
the discretion of such Disinterested Trustees.
DISTRIBUTION AND SERVICES PLAN
Galaxy has adopted a Distribution and Services Plan (the "12b-1 Plan")
pursuant to Rule 12b-1 under the 1940 Act with respect to Retail B Shares of the
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 .65% (annualized) of the average daily net assets attributable to
each Fund's outstanding Retail B Shares, (ii) to an Institution for shareholder
liaison services and/or administrative support services may not exceed .25%
(annualized) and .25% (annualized), respectively, of the average daily net
assets attributable to each Fund's outstanding Retail B Shares which are owned
of record or beneficially by that Institution's Customers for whom the
Institution is the dealer of record or shareholder of record or with whom it has
a servicing relationship. As of the date of this Statement of Additional
Information, Galaxy intends to limit each Fund's payments for shareholder
liaison and administrative support services under the 12b-1 Plan to an aggregate
fee of not more than .30% (on an annualized basis) of the average daily net
asset value of Retail B Shares owned of record or beneficially by Customers of
Institutions.
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<PAGE>
Payments for distribution expenses under the 12b-1 Plan are subject to Rule
12b-1 (the "Rule") under the 1940 Act. The Rule defines distribution expenses
to include the cost of "any activity which is primarily intended to result in
the sale of Galaxy shares." The Rule provides, among other things, that an
investment company may bear such expenses only pursuant to a plan adopted in
accordance with the Rule. In accordance with the Rule, the 12b-1 Plan provides
that a report of the amounts expended under the 12b-1 Plan, and the purposes for
which such expenditures were incurred, will be made to the Board of Trustees for
its review at least quarterly. The 12b-1 Plan provides that it may not be
amended to increase materially the costs which Retail B Shares of a Fund may
bear for distribution pursuant to the 12b-1 Plan without shareholder approval,
and that any other type of material amendment must be approved by a majority of
the Board of Trustees, and by a majority of the trustees who are neither
"interested persons" (as defined in the 1940 Act) of Galaxy nor have any direct
or indirect financial interest in the operation of the 12b-1 Plan or in any
related agreements, by vote cast in person at a meeting called for the purpose
of considering such amendments (the "Disinterested Trustees").
For the fiscal year ended October 31, 1997, Retail B Shares of the Growth
and Income Fund bore $122,300 in distribution fees and $54,046 in shareholder
servicing fees under the 12b-1 Plan. For the fiscal year ended October 31,
1997, all amounts paid under the 12b-1 Plan were attributable to payments to
broker-dealers.
For the period from March 4, 1996 (date of initial public offering of
Retail B Shares) through October 31, 1996, Retail B Shares of the Growth and
Income Fund bore $7,070 in distribution fees and $3,263 in shareholder servicing
fees under the 12b-1 Plan. For the fiscal year ended October 31, 1996, all
amounts paid under the 12b-1 Plan were attributable to payments to
broker-dealers.
Galaxy's Board of Trustees has concluded that there is a reasonable
likelihood that the 12b-1 Plan will benefit the Funds and holders of Retail B
Shares. The 12b-1 Plan is subject to annual reapproval by a majority of the
Disinterested Trustees and is terminable at any time with respect to a Fund by a
vote of a majority of such Trustees or by vote of the holders of a majority of
the Retail B Shares of the Fund. Any agreement entered into pursuant to the
12b-1 Plan with a Service Organization is terminable with respect to the Fund
without penalty, at any time, by vote of a majority of the Disinterested
Trustees, by vote of the holders of a majority of the Retail B Shares of a Fund,
by FD Distributors or by the Service Organization. An agreement will also
terminate automatically in the event of its assignment.
As long as the 12b-1 Plan is in effect, the nomination of the trustees who
are not interested persons of Galaxy (as defined in the 1940 Act) must be
committed to the discretion of such Disinterested Trustees.
Investment Shares of the Predecessor Funds were subject to a Plan adopted
pursuant to Rule 12b-1 under the 1940 Act (the "Shawmut Plan"). The Shawmut
Plan permitted the payment of fees to administrators (including broker/dealers
and depository institutions such as commercial banks and savings and loan
associations) for distribution and administrative services.
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<PAGE>
The Shawmut Plan was designed to stimulate administrators to provide
distribution and administrative support services to the Predecessor Funds and
their shareholders.
For the fiscal year ended October 31, 1995, the Predecessor Growth and
Income and Predecessor Small Cap Value Funds paid $166,932 and $111,535,
respectively, in 12b-1 fees, of which $83,466 and $55,768, respectively, was
voluntarily waived.
DISTRIBUTOR
First Data Distributors, Inc., a wholly-owned subsidiary of Investor
Services Group, serves as Galaxy's Distributor. On March 31, 1995, Investor
Services Group acquired all of the issued and outstanding stock of FD
Distributors. Prior to that time, FD Distributors was a wholly-owned subsidiary
of 440 Financial Group of Worcester, Inc. and an indirect subsidiary of State
Mutual Life Assurance Company of America.
Unless otherwise terminated, the Distribution Agreement between Galaxy and
FD Distributors, remains in effect until May 31, 1999, and will continue from
year to year upon annual approval by Galaxy's Board of Trustees, or by the vote
of a majority of the outstanding shares of Galaxy and by the vote of a majority
of the Board of Trustees of Galaxy who are not parties to the Agreement or
interested persons of any such party, cast in person at a meeting called for the
purpose of voting on such approval. The Agreement will terminate in the event
of its assignment, as defined in the 1940 Act.
FD Distributors is entitled to the payment of a front-end sales charge on
the sale of Retail A Shares of the Funds as described in the Prospectus. For
the fiscal year ended October 31, 1997, FD Distributors received front-end sales
charges in connection with Retail A Share purchases as follows: Growth and
Income Fund -- $988,216; and Small Cap Value Fund -- $300,152. For the period
December 4, 1995 through October 31, 1996, FD Distributors received front-end
sales charges in connection with Retail A Share purchases as follows: Growth
and Income Fund -- $279,670; and Small Cap Value Fund -- $34,022. During these
periods, FD Distributors and affiliates of Fleet retained fees of $0 and
$988,216 for the Growth and Income Fund and $0 and $300,152 for the Small Cap
Value Fund, respectively.
FD Distributors is also entitled to the payment of contingent deferred
sales charges upon the redemption of Retail B Shares of the Funds. For the
fiscal year ended October 31, 1997, FD Distributors received $49,278 in
contingent deferred sales charges in connection with redemptions of Retail B
Shares of the Growth and Income Fund. All such amounts were paid over to
affiliates of Fleet. For the period from March 4, 1996 (date of the initial
public offering of Retail B Shares) through October 31, 1996, FD Distributors
received $2,815 in contingent deferred sales charges in connection with
redemptions of Retail B Shares of the Growth and Income Fund. All such amounts
were paid over to affiliates of Fleet.
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<PAGE>
The following table shows all sales charges, commissions and other
compensation received by FD Distributors directly or indirectly from the Funds
during the fiscal year ended October 31, 1997:
<TABLE>
<CAPTION>
Fund Net Underwriting Compensation on Brokerage Commissions Other Compensation(3)
---- Discounts and Redemption and in Connection with Fund ---------------------
Commissions(1) Repurchase(2) Transactions
-------------- ------------- ------------
<S> <C> <C> <C> <C>
Growth and Income $1,037,494 $49,278 $0 $122,722
Small Cap Value $ 300,152 N/A $458,524
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents amounts received from front-end sales charges on Retail A Shares
and commissions received in connection with sales of Retail B Shares.
(2) Represents amounts received from contingent deferred sales charges on
Retail B Shares. The basis on which such sales charges are paid is
described in the Prospectus relating to Retail B Shares. All such amounts
were paid to affiliates of Fleet.
(3) Represents payments made under the Shareholder Services Plan and
Distribution and Services Plan during the fiscal year ended October 31,
1997, which includes fees accrued in the fiscal year ended October 31, 1996
which were paid in 1997 (see "Shareholder Services Plan" and "Distribution
and Services Plan" above).
AUDITORS
PricewaterhouseCoopers LLP, independent certified public accountants, with
offices at One Post Office Square, Boston, Massachusetts 02109, serve as
auditors to Galaxy. The financial highlights for the Funds for the fiscal year
ended October 31, 1997 included in the Prospectus and the financial statements
for the fiscal year ended October 31, 1997 contained in Galaxy's Annual Report
to Shareholders and incorporated by reference into the Statement of Additional
Information have been audited by PricewaterhouseCoopers LLP for the periods
included in their report which appears therein
COUNSEL
Drinker Biddle & Reath LLP (of which W. Bruce McConnel III, Secretary of
Galaxy, is a partner), 1345 Chestnut Street, Suite 1100, Philadelphia, PA
19107, are counsel to Galaxy and will pass upon certain legal matters on its
behalf.
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<PAGE>
PERFORMANCE AND YIELD INFORMATION
The Growth and Income and Small Cap Value Funds' 30-day (or one month)
standard yields described in the Prospectus are calculated separately for each
series of shares in each Fund in accordance with the method prescribed by the
SEC for mutual funds:
6
YIELD = 2[((a+b) + 1) -1]
Where: a = dividends and interest earned by a Fund during the period;
b = expenses accrued for the period (net of
reimbursements);
c = average daily number of shares outstanding during the
period, entitled to receive dividends; and
d = maximum offering price per share on the last day of the
period.
For the purpose of determining net investment income earned during the period
(variable "a" in the formula), dividend income on equity securities held by a
Fund is recognized by accruing 1/360 of the stated dividend rate of the security
each day that the security is in the Fund. Except as noted below, interest
earned on debt obligations held by a Fund is calculated by computing the yield
to maturity of each obligation based on the market value of the obligation
(including actual accrued interest) at the close of business on the last
business day of each month, or, with respect to obligations purchased during the
month, the purchase price (plus actual accrued interest) and dividing the result
by 360 and multiplying the quotient by the market value of the obligation
(including actual accrued interest) in order to determine the interest income on
the obligation for each day of the subsequent month that the obligation is held
by the Fund. For purposes of this calculation, it is assumed that each month
contains 30 days. The maturity of an obligation with a call provision is the
next call date on which the obligation reasonably may be expected to be called
or, if none, the maturity date. With respect to debt obligations purchased at a
discount or premium, the formula generally calls for amortization of the
discount or premium. The amortization schedule will be adjusted monthly to
reflect changes in the market value of such debt obligations. Expenses accrued
for the period (variable "b" in the formula) include all recurring fees charged
by a Fund to all shareholder accounts and to the particular series of shares in
proportion to the length of the base period and the Fund's mean (or median)
account size. Undeclared earned income will be subtracted from the offering
price per share (variable "d" in the formula). The Funds' maximum offering
price per Retail A Share for purposes of the formula will include the maximum
sales load imposed by the Funds -- currently 3.75% of the per share offering
price.
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<PAGE>
Interest earned on tax-exempt obligations that are issued without original
issue discount and have a current market discount is calculated by using the
coupon rate of interest instead of the yield to maturity. In the case of
tax-exempt obligations that are issued with original issue discount but which
have discounts based on current market value that exceed the then-remaining
portion of the original issue discount (market discount), the yield to maturity
is the imputed rate based on the original issue discount calculation. On the
other hand, in the case of tax-exempt obligations that are issued with original
issue discount but which have discounts based on current market value that are
less than the then-remaining portion of the original issue discount (market
premium), the yield to maturity is based on the market value.
With respect to mortgage or other receivables-backed obligations that are
expected to be subject to monthly payments of principal and interest
("pay-downs"), (i) gain or loss attributable to actual monthly pay downs are
accounted for as an increase or decrease to interest income during the period,
and (ii) each Fund may elect either (a) to amortize the discount and premium on
the remaining security, based on the cost of the security, to the weighted
average maturity date, if such information is available, or to the remaining
term of the security, if any, if the weighted average date is not available or
(b) not to amortize discount or premium on the remaining security.
Based on the foregoing calculations, for the 30-day period ended April 30,
1998, (i) the yields for Retail A Shares of the Growth and Income and Small Cap
Value Funds were ____% and ____%, respectively, and (ii) the yield for Retail B
Shares of the Growth and Income Fund was ____%.
Each Fund that advertises its "average annual total return" computes such
return separately for each series of shares by determining the average annual
compounded rate of return during specified periods that equates the initial
amount invested to the ending redeemable value of such investment according to
the following formula:
1/n
T = [(ERV/P) - 1]
Where: T = average annual total return;
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the l, 5 or 10 year
(or other) periods at the end of the applicable
period (or a fractional portion thereof);
P = hypothetical initial payment of $1,000 less any
applicable sales charge; and
n = period covered by the computation, expressed in
years.
Each Fund that advertises its "aggregate total return" computes such
returns separately for each series of shares by determining the aggregate
compounded rates of return during specified
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<PAGE>
periods that likewise equate the initial amount invested to the ending
redeemable value of such investment. The formula for calculating aggregate
total return is as follows:
Aggregate Total Return = [(ERV/P) - l]
The calculations are made assuming that (1) all dividends and capital gain
distributions are reinvested on the reinvestment dates at the price per share
existing on the reinvestment date (reflecting any sales load charged upon such
reinvestment), (2) all recurring fees charged to all shareholder accounts are
included, and (3) for any account fees that vary with the size of the account, a
mean (or median) account size in the Fund during the periods is reflected. The
ending redeemable value (variable "ERV" in the formula) is determined by
assuming complete redemption of the hypothetical investment after deduction of
all nonrecurring charges at the end of the measuring period. In addition, the
Funds' Retail A Shares average annual total return and aggregate total return
quotations will reflect the deduction of the maximum sales load charged in
connection with the purchase of Retail A Shares or redemptions of Retail B
Shares.
The average annual total returns for the one-year and five-year periods
ended April 30, 1998 and for the period from February 12, 1993 (date of
initial public offering) to April 30, 1998 were 32.58% and 19.75%, and 19.43%
respectively, for Retail A Shares of the Growth and Income Fund and 43.64%,
21.64% and 20.11% respectively, for Retail A Shares of the Small Cap Value Fund.
The aggregate total returns for Retail A Shares of the Growth and Income
Fund and Small Cap Value Fund for the period from February 12, 1993 (date of
initial public offering) to April 30, 1998 were 152.31% and 159.88%,
respectively.
The average annual total return for the one-year period ended April 30,
1998 and for the period from March 4, 1996 (date of initial public offering) to
April 30, 1998 were 31.71% and 24.67%, respectively, for Retail B Shares of the
Growth and Income Fund. The aggregate total return for Retail B Shares of the
Growth and Income Fund for the period from March 4, 1996 (date of initial public
offering) to April 30, 1998 was 60.87%.
As stated in the Funds' Prospectuses, the Funds may also calculate total
return quotations without deducting the maximum sales charge imposed on
purchases of Retail A Shares or redemptions of Retail B Shares. The effect of
not deducting the sales charge will be to increase the total return reflected.
MISCELLANEOUS
As used in the Prospectus, "assets belonging to a Fund" or "assets
belonging to a particular series of a Fund" means the consideration received by
Galaxy upon the issuance of shares in that particular Fund or that particular
series of the Fund, together with all income, earnings, profits, and proceeds
derived from the investment thereof, including any proceeds from the sale of
such investments, any funds or payments derived from any reinvestment of such
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<PAGE>
proceeds and a portion of any general assets of Galaxy not belonging to a
particular series or Fund. In determining the net asset value of a particular
Fund or series of a Fund, assets belonging to the particular Fund or series of
the Fund are charged with the direct liabilities in respect of that Fund or
series and with a share of the general liabilities of Galaxy, which are
allocated in proportion to the relative asset values of the respective series
and Funds at the time of allocation. Subject to the provisions of Galaxy's
Declaration of Trust, determinations by the Board of Trustees as to the direct
and allocable liabilities, and the allocable portion of any general assets with
respect to a particular series or Fund, are conclusive.
As of September 8, 1998, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding Trust
Shares of each of Galaxy's investment portfolios (including shares of the
Institutional Treasury Money Market Fund) were as follows: Money Market
Fund -- Fleet New York, Fleet Investment Services, 159 East Main Street,
NY/RO/TO3C, Rochester, NY 14638, Account 00000150286 (99.79%); Tax-Exempt Money
Market Fund -- Fleet New York, Fleet Investment Services, 159 East Main Street,
NY/RO/TO3C, Rochester, NY 14638, Account 00000007717 (100.00%); Government Money
Market Fund -- Fleet New York, Fleet Investment Services, 159 East Main Street,
NY/RO/TO3C, Rochester, NY 14368, Account 00000012621 (98.18%); U.S. Treasury
Money Market Fund -- Fleet New York, Fleet Investment Services, 159 East Main
Street, NY/RO/TO3C, Rochester, NY 14638, Account 00000015922 (91.26%);
Institutional Treasury Money Market Fund -- Fleet New York, Fleet Investment
Services, 159 East Main Street, NY/RO/TO3C, Rochester, NY 14638, Account
00000000019 (88.02%); Luitpold Pharmaceuticals, Inc., Kirk Sobecki, CFO, One
Luitpold Drive, Shirley, NY 11967, (12.66%); Equity Value Fund -- Gales & Co.,
Fleet Investment Services, Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A,
Rochester, NY 14683, Account 00000000064 (76.76%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY
14683, Account 00000003294 (17.27%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit, 159 East Main Street, NY/RO/T04A, Rochester, NY 14683,
Account 00000011551 (5.88%); Equity Growth Fund -- Gales & Co., Fleet Investment
Services, Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY
14683, Account 00000000082 (69.69%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14683,
Account 00000010017 (15.72%); Gales & Co., Fleet Investment Services, Mutual
Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14683, Account
00000030718 (14.66%); Equity Income Fund -- Gales & Co., Fleet Investment
Services, Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY
14683, Account 00000015771 (49.58%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14683,
Account 00000003748 (35.00%); Gales & Co., Fleet Investment Services, Mutual
Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14683, Account
00000000037 (14.37%); International Equity Fund -- Gales & Co., Fleet Investment
Services, Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY
14638, Account 00000000073 (43.72%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638,
Account 00000000876 (39.22%); Gales & Co., Fleet Investment Services, Mutual
Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638, Account
00000004088 (13.60%); Growth and Income Fund -- Gales & Co., Fleet Investment
Services, Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY
14638, Account 05000503793 (66.29%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638,
Account 05000503873 (27.27%); Gales & Co., Fleet Investment Services, Mutual
Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account
0500503837 (6.43%); Asset Allocation Fund -- Gales & Co., Fleet Investment
Services, Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY
14638, Account 00000000073 (91.42%). Gales & Co., Fleet Investment Services,
Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638,
Account 00000002598 (6.73%); Small Company Equity -- Gales & Co., Fleet
Investment
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Services, Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY
14638, Account 00000000046 (66.17%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit, 159 Main Street, NY/RO/TO4A, Rochester, NY 14638, Account
00000001492 (24.19%); Gales & Co., Fleet Investment Services, Mutual Funds Unit,
159 East Main Street, NY/RO/TO4A, Rochester, NY 14638, Account 00000006102
(7.06%); Small Cap Value Fund -- Gales & Co., Fleet Investment Services, Mutual
Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638, Account
05000503999 (62.82%); Gales & Co., Fleet Investment Services, Mutual Funds Unit,
159 East Main Street, NY/RO/TO4A, Rochester, NY 14638, Account 05000503917
(18.99%); Gales & Co., Fleet Investment Services, Mutual Funds Unit, 159 East
Main Street, NY/RO/TO4A, Rochester, NY 14638, Account 05000503953 (17.64%);
Intermediate Government Income Fund -- Gales & Co., Fleet Investment Services,
Mutual Funds Unit, NY/RO/TO4A, Rochester, NY 14638, Account 00000038408
(39.89%); Gales & Co., Fleet Investment Services, Mutual Funds Unit, 159 East
Main Street, NY/RO/TO4A, Rochester, NY 14638, Account 00000007183 (33.03%);
Gales & Co., Fleet Investment Services, Mutual Funds Unit, 159 East Main Street,
NY/RO/TO4A, Rochester, NY 14638, Account 00000000037 (27.08%); High Quality Bond
Fund -- Gales & Co., Fleet Investment Services, Mutual Funds Unit, 159 East Main
Street, NY/RO/TO4A, Rochester, NY 14638, Account 00000000037 (66.15%); Gales &
Co., Fleet Investment Services, Mutual Funds Unit, 159 East Main Street,
NY/RO/TO4A, Rochester, NY 14638, Account 00000001465 (21.14%); Gales & Co.,
Fleet Investment Services, Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A,
Rochester, NY 14638, Account 00000006095 (12.18%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638 (66.67%); Short-Term Bond Fund -- Gales & Co., Fleet Investment Services,
Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638,
Account 00000008627 (34.17%); Gales & Co., Fleet Investment Services, Mutual
Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638, Account
00000000064 (47.52%); Gales & Co., Fleet Investment Services, Mutual Funds Unit,
159 East Main Street, NY/RO/TO4A, Rochester, NY 14638, Account 00000001090
(18.17%); Tax-Exempt Bond Fund -- Gales & Co., Fleet Investment Services,
Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638,
Account 00000005899 (39.27%); Gales & Co, Fleet Investment Services, Mutual
Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638, Account
00000000028 (38.05%); Gales and Co., Fleet Investment Services, Mutual Funds
Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638, Account 00000000670
(22.68%); Connecticut Municipal Bond Fund -- Gales & Co., Fleet Investment
Services, Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY
14638, Account 00000000019 (77.47%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638,
Account 00000000037 (21.91%); Massachusetts Municipal Bond Fund -- Gales & Co.,
Fleet Investment Services, Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A,
Rochester, NY 14638, Account 00000000019 (53.36%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY
14638, Account 00000000073 (46.64%); Corporate Bond Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit, NY/RO/TO4A, Rochester, NY 14638, Account
00000000046 (47.32%); Gales & Co., Fleet Investment Services, Mutual Funds Unit,
159 East Main Street, NY/RO/TO4A, Rochester, NY 14638, Account 00000006102
(39.21%); Gales & Co., Fleet Investment Services, Mutual Funds Unit, 159 East
Main Street, NY/RO/TO4A, Rochester, NY 14638, Account 00000001492 (6.30%); New
York
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Municipal Bond Fund -- Gales & Co., Fleet Investment Services, Mutual Funds
Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638, Account 00000000019
(13.68%); Gales & Co., Fleet Investment Services, Mutual Fund Unit, 159 East
Main Street, NY/RO/TO4A, Rochester, NY 14638, Account 00000001107 (75.01%);
Gales & Co., Fleet Investment Services, Mutual Fund Unit, 159 East Main Street,
NY/RO/TO4A, Rochester, NY 14638, Account 00000005292 (11.32%); 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
(56.67%); Gales & Co., Fleet Investment Services, Mutual Funds Unit, 159 East
Main Street, NY/RO/TO4A, Rochester, NY 14638, Account 05100115504 (43.33%); and
Strategic Equity Fund -- Gales & Co., Fleet Investment Services, Mutual Funds
Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638, Account 05100115522
(95.86%).
As of September 8, 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
Securities Inc., 26 Broadway, New York, NY 10004, Account 05100115684 (5.23%);
Tax-Exempt Money Market Fund -- Hope H. Van Beuren, P.O. Box 4098, Middletown,
RI 02842, Account 00000025010 (7.61%); U.S. Treasury Money Market Fund -- US
Clearing, a Division of Fleet Securities Inc., 26 Broadway, New York, NY 10004,
Account 5100115684 (10.77%); Massachusetts Municipal Money Market Fund -- Fleet
New York, Fleet Investment Services, 159 East Main St., NY/RO/TO3C, Rochester,
NY 14638, Account 05100058503 (47.76%); Connecticut Municipal Money Market Fund
- -- Fleet New York, Fleet Investment Services, 159 East Main St., NY/RO/TO3C,
Rochester, NY 14638, Account 05100058521 (29.67%); Massachusetts Municipal Bond
Fund -- New England Realty Associates, Robert Blank, Ronald Brown, Howard Brown
& Carl Valeri, 39 Brighton Ave., Boston, MA 02128, Account 05100587013 (5.78%);
Lawrence Levine & Susan Levine (JTWROS), 40 Southpoint, Ipswich, MA 01938,
(5.08%); Rhode Island Municipal Bond Fund - Gales & Co.. Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A. 159 East Main Street, Rochester, NY
14638, Account 00000001492 (38.33%); James R. McCulloch, c/o Microfibre, PO Box
1208, Pawtucket, RI 02860, Account 05000414933 (7.45%); New York Municipal Bond
Fund - Marilyn J. Brantley, PO Box 65, 7276 Ramsey Road, Belfast, NY 14711,
Account 5100977627 (10.77%); and New Jersey Municipal Bond Fund -- Jeffery W
Golden, 7 Hampton Ridge CT, Old Tappan, NJ 07675, Account 05100780704 (23.40%);
NFSC FEBO # BHN-183671, Finley G. Auld, Virginia Auld, 25 Normandy Court, Ho Ho
Kus, NJ 07423, (55.63%).
As of September 8, 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 -- Richard Bothwell & Kyra Bothwell (JTWROS) 558 Hoyt St., Darien, CT,
06820, Account 5100588904 (17.40%); Steven R. Schwartz, 2393 Lake Elmo Avenue N,
Lake Elmo, MN 55042-8407, Account 5100583213 (6.77%); Thomas A. Dowd, Myrna L.
Dowd (JTWROS), 9 Cypress Ave., Shrewsbury, MA 01545, Account 05100563501
(6.21%); Paul Dworkin & Barbara C. Dworkin (JTWROS), 884 Meadow Lane, Niskayuna,
NY 12309, (6.80%); High Quality Bond Fund -- E.L. Bradley and
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Co., Inc., 18 Meadow Brook Lane, Unit 3, Easton, MA 02375, Account 05100649206,
(5.06%); Short-Term Bond Fund - Michael J. Palmer, 79 Candlewood Road, Groton,
CT 06340, Account 5100969967 (8.41%); Gabriella Dulac & Alain Dulac (JTWROS) 40
Dix Road, Wethersfield, CT 06109, Account 5100818032, (6.31%); Elizabeth Mugar,
10 Chestnut St. Apt. 1808, Springfield, MA 01103, Account 5100760012 (5.34%);
Tax-Exempt Bond Fund -- David Fendler & Sylvia Fendler (JTWROS), 72 Brinkerhoff
Ave., Stamford, CT 06905, Account 05100255354, (9.88%); Doris M. Peloguin, 43
Keene Street, Providence, RI 02906-1520, Account 05100506413, (6.70%); NFSC FEBO
# AAD-181030, Carol & Ali E. Guy, 14 Thomas Street, Scarsdale, NY 10583, Account
7000076164, (5.38%); and Strategic Equity Fund -- Yuet Kum Ku, 7 Mason Street,
Malden, MA 02148, Account 05100918601, (5.16%); Claire M. Dileone & Susan F.
Torre (JTWROS), 260 Waybosset Street, New Haven, CT 06513, (6.71%); Betsey Tan,
7 Donovan's Lane, Natiek, MA 01760, (13.68%).
As of September 8, the name, address and share ownership of the entities or
persons that held beneficially more than 5% of the outstanding Trust Shares of
each of Galaxy's investment portfolios were as follows: Money Market
Fund--Stable Asset Fund, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (8.21%); Tax-Exempt Money Fund--Robert W. Doyle Irrevocable
Trust, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638,
(5.20%); Government Money Fund--Brown University Non- Exp. Fund, c/o Norstar
Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638, (5.93%); U.S.
Treasury Money Fund, Loring Walcott Client Sweep Acct., c/o Norstar Trust Co.,
Gales & Co., 159 East Main, Rochester, NY 14638, (19.60%); Equity Value
Fund--Fleet Savings Plus Equity Value, c/o Norstar Trust Co., Gales & Co., 159
East Main, Rochester, NY 14638, (18.77%); Equity Growth Fund--Fleet Savings Plus
Equity Growth, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY
14638, (23.20%); Nusco Retiree Health VEBA Trust, c/o Norstar Trust Co., Gales &
Co., 159 East Main, Rochester, NY 14638, (7.22%); International Equity Fund--FFG
International Equity Fund, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (14.27%); Fleet Savings Plus-Intl Equity, c/o Norstar Trust
Co., Gales & Co., 159 East Main, Rochester, NY 14638, (9.77%); Intermediate
Govt. Inc.--Nusco Retiree Health VEBA Trust, c/o Norstar Trust Co., Gales & Co.,
159 East Main, Rochester, NY 14638, (5.82%); Strategic Equity Fund--FFG
Retirement & Pension VDG, c/o Fleet Financial Group, 159 East Main, Rochester,
NY 14638, (79.15%); Perstorp Retirement Trust, c/o Norstar Trust Co., Gales &
Co., 159 East Main, Rochester, NY 14638, (16.71%); High Quality Bond
Trust--Fleet Savings Plus Plan-HQ Bond, c/o Norstar Trust Co., Gales & Co., 159
East Main, Rochester, NY 14638, (23.06%); Short Term Bond Fund--Swarovski North
America Ret. Plan, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester,
NY 14638, (6.50%); Asset Allocation Fund--Fleet Savings Plus-Asset Allocation,
c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638,
(27.07%); Small Company Equity Fund--Fleet Savings Plus-Small Company, c/o
Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638, (31.07%);
Tax Exempt Fund Bond-- Nusco Retiree Health VEBA Trust, c/o Norstar Trust Co.,
Gales & Co., 159 East Main, Rochester, NY 14638, (36.11%); Connecticut Municipal
Bond Fund--Florence M. Roberts, IMA Agency, c/o Norstar Trust Co., Gales & Co.,
159 East Main, Rochester, NY 14638, (5.25%); Corporate Bond Fund--Cole Hersee
Pension Plan, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY
14638, (7.41%); Growth Income Fund--Fleet Savings Plus-Growth Income, c/o
Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638,
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(44.30%); Small Cap Value Fund--FFG Emp. Ret. Misc. Assets SNC, c/o Norstar
Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638, (30.74%);
Institutional Government Fund--Aeroflex Inc. CAPFOC, c/o Norstar Trust, c/o
Gales & Co., 159 East Main, Rochester, NY 14638, (7.43%); New Jersey Municipal
Bond Fund--Perillo Tours, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (27.60%); Royal Chambord IMA, c/o Norstar Trust Co., Gales
& Co., 159 East Main, Rochester, NY, 14638, (13.80%); McKee Wendell A. Marital
Trust, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638,
(13.70%); Varco Inc. IMA, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (6.90%); Tiernan Diana V IA, c/o Norstar Trust Co., Gales &
Co., 159 East Main, Rochester, NY 14638, (5.93%); and Dunnington, Ruth U., c/o
Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638, (5.51%).
FINANCIAL STATEMENTS
Galaxy's Annual Report to Shareholders with respect to the Funds for the
fiscal year ended October 31, 1997 and Semi-Annual Report to Shareholders with
respect to the Funds for the period ended April 30, 1998 have been filed with
the Securities and Exchange Commission. The financial statements in such Annual
Report and Semi-Annual Report (the "Financial Statements") are incorporated by
reference into this Statement of Additional Information. The Financial
Statements included in the Annual Report for the Funds for the fiscal year ended
October 31, 1997 have been audited by Galaxy's independent accountants,
PricewaterhouseCoopers LLP, whose report thereon also appear in such Annual
Report and is incorporated herein by reference. The Financial Statements in
such Annual Report have been incorporated herein by reference in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing. The Financial Statements included in the Semi-Annual Report for the
period ended April 30, 1998 are unaudited.
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<PAGE>
APPENDIX A
DESCRIPTION OF SECURITIES RATINGS
The following is a description of the securities ratings of Duff & Phelps
Credit Rating Co. ("D&P"), Fitch IBCA, Inc. ("Fitch IBCA"), Standard & Poor's
Ratings Group, ("S&P"), Moody's Investors Service, Inc. ("Moody's") and Thomson
BankWatch ("Thomson").
CORPORATE AND TAX-EXEMPT BOND RATINGS
The five highest ratings of D&P for tax-exempt and corporate fixed-income
securities are AAA, AA, A, BBB and BB. Securities rated AAA are of the highest
credit quality. The risk factors are considered to be negligible, being only
slightly more than for risk-free U.S. Treasury debt. Securities rated AA are of
high credit quality. Protection factors are strong. Risk is modest but may
vary slightly from time to time because of economic conditions. Securities that
are rated "A" have protection factors that are average but adequate. However,
risk factors are more variable and greater in periods of economic stress.
Securities that are rated "BBB" have below average protection factors but are
still considered sufficient for prudent investment. Considerable variability in
risk is present during economic cycles. Securities that are rated BB are
considered to be below investment grade but are deemed likely to meet
obligations when due. The AA, A, BBB and BB ratings may be modified by an
addition of a plus (+) or minus (-) sign to show relative standing within these
major rating categories.
The five highest ratings of Fitch IBCA for tax-exempt and corporate bonds
are AAA, AA, A, BBB and BB. Plus (+) and minus (-) signs are used with a rating
symbol to indicate the relative position of a credit within the rating category.
AAA bonds are considered to be investment grade and of the highest credit
quality. The obligor is judged to have an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events. AA bonds are considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated F-1+. A bonds are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings. BBB bonds
are considered to be investment grade and of satisfactory credit quality. The
obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however,
are more likely to have an adverse impact on these bonds, and therefore, impair
timely payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings. BB bonds are
considered to be speculative investments and represent the likelihood of timely
payment of principal and interest in accordance with the terms of obligation for
issues not in default.
A-1
<PAGE>
The five highest ratings of S&P for tax-exempt and corporate bonds are AAA,
AA, A, BBB and BB. Bonds rated AAA bear the highest rating assigned by S&P to a
debt obligation and the AAA rating indicates in its opinion an extremely strong
capacity to pay interest and repay principal. Bonds rated AA by S&P are judged
by it to have a very strong capacity to pay interest and repay principal, and
they differ from AAA issues only in small degree. Bonds rated A are considered
to have a strong capacity to pay interest and repay principal although they are
somewhat more susceptible to the adverse effects of changes in circumstances and
economic conditions than bonds of a higher rated category. Bonds rated BBB are
regarded as having an adequate capacity to pay interest and repay principal.
Whereas such bonds normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in this category
than for higher rated categories. Bonds rated BB have less near-term
vulnerability to default than other speculative issues. However, such bonds
face major ongoing uncertainties or exposure to adverse business, financial or
economic conditions which could lend to inadequate capacity to meet timely
interest and principal payments. The AA, A, BBB and BB ratings may be modified
by an addition of a plus (+) or minus (-) sign to show relative standing within
these major rating categories.
The five highest ratings of Moody's for tax-exempt and corporate bonds are
Aaa, Aa, A, Baa and Ba. Tax-exempt and corporate bonds rated Aaa are judged to
be of the "best quality." The rating of Aa is assigned to bonds which are of
"high quality by all standards." Aa bonds are rated lower than Aaa bonds
because margins of protection may not be as large or fluctuations of protective
elements may be of greater amplitude or there may be other elements which make
the long-term risks appear somewhat larger. Bonds that are rated A possess many
favorable investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are considered
adequate but elements may be present that suggest a susceptibility to impairment
sometime in the future. Bonds that are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as well.
Bonds rated Ba provide questionable protection of interest and principal and
indicate some speculative elements. Moody's may modify a rating of Aa, A, Baa
or Ba by adding numerical modifiers of 1, 2 or 3 to show relative standing
within these categories. The foregoing ratings are sometimes presented in
parentheses preceded with a "con" indicating the bonds are rated conditionally.
Such parenthetical rating denotes the probable credit stature upon completion of
construction or elimination of the basis of the condition.
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
A-2
<PAGE>
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
Duff 1 minus indicates high certainty of timely payment. Liquidity factors are
strong and supported by good fundamental protection factors. Risk factors are
very small. Duff 2 indicates good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small. Duff 3 indicates satisfactory liquidity and other protection
factors qualify such issues as to investment grade. Risk factors are larger and
subject to more variation. Nevertheless, timely payment is expected. Duff 4
indicates speculative investment characteristics.
Fitch IBCA's short-term ratings apply to tax-exempt and corporate debt
obligations that are payable on demand or have original maturities of up to
three years. The four highest ratings of Fitch for short-term securities are
F-1+, F-1, F-2 and F-3. F-1+ securities possess exceptionally strong credit
quality. Issues assigned this rating are regarded as having the strongest
degree of assurance for timely payment. F-1 securities possess very strong
credit quality. Issues assigned this rating reflect an assurance of timely
payment only slightly less in degree than issues rated F-1+. F-2 securities
possess good credit quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as great
as the F-1+ and F-1 categories. F-3 securities possess fair credit quality.
Issues assigned this rating have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
S&P's commercial paper ratings are current assessments of the likelihood of
timely payment of debt considered short-term in the relevant market. Issues
assigned A-1 ratings, in S&P's opinion, indicate that the degree of safety
regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics will be denoted with a plus (+)
designation. Issues rated A-2 by S&P indicate that capacity for timely payment
on these issues is satisfactory. However, the relative degree of safety is not
as high as for issues designated A-1. Issues rated A-3 have an adequate
capacity for timely payment. They are, however, somewhat more vulnerable to the
adverse effects of changes and circumstances than obligations carrying the
higher designations. Issues rated B are regarded as having only a speculative
capacity for timely payment.
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Issuers rated Prime-1 (or related supporting
institutions) in the opinion of Moody's "have a superior capacity for repayment
of short-term promissory obligations." Principal repayment capacity will
normally be evidenced by the following characteristics: leading market positions
in well established industries; high rates of return on funds employed;
conservative capitalization structures with moderate reliance on debt and ample
asset protection; broad margins in earning coverage of fixed financial charges
and high internal cash generation; and well established access to a range of
financial markets and assured sources of alternate liquidity. Issuers rated
Prime-2 (or related supporting institutions) have a strong capacity for
repayment of short-term promissory obligations. This capacity will normally be
evidenced by many of the characteristics of Prime-1
A-3
<PAGE>
rated issues, but to a lesser degree. Earnings trends and coverage ratios,
while sound, will be more subject to variation. Capitalization characteristics,
while still appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained. Issuers rated Prime-3 (or related supporting
institutions) have an acceptable capacity for repayment of short-term promissory
obligations. Issuers rated Not Prime do not fall within any of the Prime rating
categories.
Thomson commercial paper ratings assess the likelihood of an untimely or
incomplete payment of principal or interest of debt having a maturity of one
year or less, which is issued by a bank holding company or an entity within the
holding company structure. The designation TBW-1 represents the highest rating
category and indicates a very high degree of likelihood that principal and
interest will be paid on a timely basis. The designation TBW-2 represents the
second highest rating category and indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated TBW-1. The designation
TBW-3 represents the lowest investment grade category and indicates that while
more susceptible to adverse developments (both internal and external) than
obligations with higher ratings, the capacity to service principal and interest
in a timely fashion is considered adequate.
TAX-EXEMPT NOTE RATINGS
A S&P rating reflects the liquidity concerns and market access risks unique
to notes due in three years or less. Notes rated SP-1 are issued by issuers
that exhibit very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics are given
a plus (+) designation. Notes rated SP-2 are issued by issuers that exhibit
satisfactory capacity to pay principal and interest. Notes rated SP-3 are
issued by issuers that exhibit speculative capacity to pay principal and
interest.
Moody's ratings for state and municipal notes and other short-term loans
are designated MIG and variable rate demand obligations are designated VMIG.
Such ratings recognize the differences between short-term credit risk and
long-term risk. Loans bearing the designation MIG-1 or VMIG-1 are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing. Loans bearing the designation MIG-2 or VMIG-2 are of high quality,
with margins of protection ample although not so large as with loans rated MIG-1
or VMIG-1. Loans bearing the designation MIG-3 or VMIG-3 are of favorable
quality with all security elements accounted for but lacking the undeniable
strength of the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less well established.
Loans bearing the designation MIG-4 or VMIG-4 are of adequate quality, carrying
specific risk but having protection commonly regarded as required of an
investment security and not distinctly or predominantly speculative.
Fitch IBCA uses its short-term ratings described above under "Corporate and
Tax-Exempt Commercial Paper Ratings" for tax-exempt notes.
A-4
<PAGE>
APPENDIX B
As stated Prospectus, the Growth and Income and Small Cap Value Funds may
enter into futures transactions for hedging purposes. The following is a
description of such transactions.
I. INTEREST RATE FUTURES CONTRACTS
USE OF INTEREST RATE FUTURES CONTRACTS. Bond prices are established in
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the future
for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, the Funds may use interest rate futures
contracts as a defense, or hedge, against anticipated interest rate changes and
not for speculation. As described below, this would include the use of futures
contract sales to protect against expected increases in interest rates and
futures contract purchases to offset the impact of interest rate declines.
The Funds presently could accomplish a similar result to that which they
hope to achieve through the use of futures contracts by selling bonds with long
maturities and investing in bonds with short maturities when interest rates are
expected to increase, or conversely, selling short-term bonds and investing in
long-term bonds when interest rates are expected to decline. However, because
of the liquidity that is often available in the futures market, the protection
is more likely to be achieved, perhaps at a lower cost and without changing the
rate of interest being earned by the Funds, through using futures contracts.
DESCRIPTION OF INTEREST RATE FUTURES CONTRACTS. An interest rate futures
contract sale would create an obligation by a Fund, as seller, to deliver the
specific type of financial instrument called for in the contract at a specific
future time for a specified price. A futures contract purchase would create an
obligation by the Fund, as purchaser, to take delivery of the specific type of
financial instrument at a specific future time at a specific price. The specific
securities delivered or taken, respectively, at settlement date, would not be
determined until at or near that date. The determination would be in accordance
with the rules of the exchange on which the futures contract sale or purchase
was made.
Although interest rate futures contracts by their terms call for actual
delivery or acceptance of securities, in most cases the contracts are closed out
before the settlement date without the making or taking of delivery of
securities. Closing out a futures contract sale is effected by a Fund's
entering into a futures contract purchase for the same aggregate amount of the
specific type of financial instrument and the same delivery date. If the price
of the sale exceeds the price of the offsetting purchase, the Fund immediately
is paid the difference and thus realizes a gain. If the offsetting purchase
price exceeds the sale price, the Fund pays the difference and realizes a loss.
Similarly, the closing out of a futures contract purchase is effected by a Fund
entering into a futures contract sale. If the offsetting sale price exceeds the
purchase
B-1
<PAGE>
price, the Fund realizes a gain, and if the purchase price exceeds the
offsetting sale price, the Fund realizes a loss.
Interest rate futures contracts are traded in an auction environment on the
floors of several exchanges -- principally, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Futures Exchange. The Funds would
deal only in standardized contracts on recognized exchanges. Each exchange
guarantees performance under contract provisions through a clearing corporation,
a nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various financial
instruments including long-term United States Treasury Bonds and Notes;
Government National Mortgage Association (GNMA) modified pass-through mortgage
backed securities; three-month United States Treasury Bills; and ninety-day
commercial paper. The Funds may trade in any interest rate futures contracts
for which there exists a public market, including, without limitation, the
foregoing instruments.
EXAMPLE OF FUTURES CONTRACT SALE. The Funds would engage in an interest
rate futures contract sale to maintain the income advantage from continued
holding of a long-term bond while endeavoring to avoid part or all of the loss
in market value that would otherwise accompany a decline in long-term securities
prices. Assume that the market value of a certain security held by a particular
Fund tends to move in concert with the futures market prices of long-term United
States Treasury bonds ("Treasury bonds"). Fleet wishes to fix the current
market value of this portfolio security until some point in the future. Assume
the portfolio security has a market value of 100, and Fleet believes that,
because of an anticipated rise in interest rates, the value will decline to 95.
The Fund might enter into futures contract sales of Treasury bonds for an
equivalent of 98. If the market value of the portfolio security does indeed
decline from 100 to 95, the equivalent futures market price for the Treasury
bonds might also decline from 98 to 93.
In that case, the five point loss in the market value of the portfolio
security would be offset by the five point gain realized by closing out the
futures contract sale. Of course, the futures market price of Treasury bonds
might well decline to more than 93 or to less than 93 because of the imperfect
correlation between cash and futures prices mentioned below.
Fleet could be wrong in its forecast of interest rates, and the equivalent
futures market price could rise above 98. In this case, the market value of the
portfolio securities, including the portfolio security being protected, would
increase. The benefit of this increase would be reduced by the loss realized on
closing out the futures contract sale.
If interest rate levels did not change, the Fund in the above example might
incur a loss of 2 points (which might be reduced by an offsetting transaction
prior to the settlement date). In each transaction, transaction expenses would
also be incurred.
EXAMPLE OF FUTURES CONTRACT PURCHASE. A Fund would engage in an interest
rate futures contract purchase when it is not fully invested in long-term bonds
but wishes to defer for a time
B-2
<PAGE>
the purchase of long-term bonds in light of the availability of advantageous
interim investments, e.g., shorter term securities whose yields are greater than
those available on long-term bonds. A Fund's basic motivation would be to
maintain for a time the income advantage from investing in the short-term
securities; the Fund would be endeavoring at the same time to eliminate the
effect of all or part of an expected increase in market price of the long-term
bonds that the Fund may purchase.
For example, assume that the market price of a long-term bond that the Fund
may purchase, currently yielding 10%, tends to move in concert with futures
market prices of Treasury bonds. Fleet wishes to fix the current market price
(and thus 10% yield) of the long-term bond until the time (four months away in
this example) when it may purchase the bond. Assume the long-term bond has a
market price of 100, and Fleet believes that, because of an anticipated fall in
interest rates, the price will have risen to 105 (and the yield will have
dropped to about 9 1/2%) in four months. The Fund might enter into futures
contracts purchases of Treasury bonds for an equivalent price of 98. At the
same time, the Fund would assign a pool of investments in short-term securities
that are either maturing in four months or earmarked for sale in four months,
for purchase of the long-term bond at an assumed market price of 100. Assume
these short-term securities are yielding 15%. If the market price of the
long-term bond does indeed rise from 100 to 105, the equivalent futures market
price for Treasury bonds might also rise from 98 to 103. In that case, the 5
point increase in the price that the Fund pays for the long-term bond would be
offset by the 5 point gain realized by closing out the futures contract
purchase.
Fleet could be wrong in its forecast of interest rates; long-term interest
rates might rise to above 10%; and the equivalent futures market price could
fall below 98. If short-term rates at the same time fall to 10% or below, it is
possible that the Fund would continue with its purchase program for long-term
bonds. The market price of available long-term bonds would have decreased. The
benefit of this price decrease, and thus yield increase, will be reduced by the
loss realized on closing out the futures contract purchase.
If, however, short-term rates remained above available long-term rates, it
is possible that the Fund would discontinue its purchase program for long-term
bonds. The yield on short-term securities in the portfolio, including those
originally in the pool assigned to the particular long-term bond, would remain
higher than yields on long-term bonds. The benefit of this continued
incremental income will be reduced by the loss realized on closing out the
futures contract purchase. In each transaction, expenses would also be
incurred.
II. MARGIN PAYMENTS
Unlike purchases or sales of portfolio securities, no price is paid or
received by a Fund upon the purchase or sale of a futures contract. Initially,
the Fund will be required to deposit with the broker or in a segregated account
with Galaxy's custodian an amount of cash or liquid portfolio securities, known
as initial margin, based on the value of the contract. The nature of initial
margin in futures transactions is different from that of margin in security
transactions in that futures contract margin does not involve the borrowing of
funds by the customer to finance
B-3
<PAGE>
the transactions. Rather, the initial margin is in the nature of a performance
bond or good faith deposit on the contract which is returned to the Fund upon
termination of the futures contract assuming all contractual obligations have
been satisfied. Subsequent payments, called variation margin, to and from the
broker, will be made on a daily basis as the price of the underlying instruments
fluctuates making the long and short positions in the futures contract more or
less valuable, a process known as marking-to-the-market. For example, when a
particular Fund has purchased a futures contract and the price of the contract
has risen in response to a rise in the underlying instruments, that position
will have increased in value and the Fund will be entitled to receive from the
broker a variation margin payment equal to that increase in value. Conversely,
where the Fund has purchased a futures contract and the price of the future
contract has declined in response to a decrease in the underlying instruments,
the position would be less valuable and the Fund would be required to make a
variation margin payment to the broker. At any time prior to expiration of the
futures contract, Fleet may elect to close the position by taking an opposite
position, subject to the availability of a secondary market, which will operate
to terminate the Fund's position in the futures contract. A final determination
of variation margin is then made, additional cash is required to be paid by or
released to the Fund, and the Fund realizes a loss or gain.
III. RISKS OF TRANSACTIONS IN FUTURES CONTRACTS
There are several risks in connection with the use of futures by the Funds
as hedging devices. One risk arises because of the imperfect correlation
between movements in the price of the futures and movements in the price of the
instruments that are the subject of the hedge. The price of the futures may
move more than or less than the price of the instruments being hedged. If the
price of the futures moves less than the price of the instruments which are the
subject of the hedge, the hedge will not be fully effective but, if the price of
the instruments being hedged has moved in an unfavorable direction, a Fund would
be in a better position than if it had not hedged at all. If the price of the
instruments being hedged has moved in a favorable direction, this advantage will
be partially offset by the loss on the futures. If the price of the futures
moves more than the price of the hedged instruments, the Funds involved will
experience either a loss or gain on the futures, which will not be completely
offset by movements in the price of the instruments which are the subject of the
hedge. To compensate for the imperfect correlation of movements in the price of
instruments being hedged and movements in the price of futures contracts, a Fund
may buy or sell futures contracts in a greater dollar amount than the dollar
amount of instruments being hedged if the volatility over a particular time
period of the prices of such instruments has been greater than the volatility
over such time period of the futures, or if otherwise deemed to be appropriate
by the investment adviser. Conversely, a Fund may buy or sell fewer futures
contracts if the volatility over a particular time period of the prices of the
instruments being hedged is less than the volatility over such time period of
the futures contract being used, or if otherwise deemed to be appropriate by
Fleet. It is also possible that, where a Fund had sold futures to hedge its
portfolio against a decline in the market, the market may advance and the value
of instruments held in the Fund may decline. If this occurred, the Fund would
lose money on the futures and also experience a decline in value in its
portfolio securities.
B-4
<PAGE>
Where futures are purchased to hedge against a possible increase in the
price of securities before a Fund is able to invest its cash (or cash
equivalents) in an orderly fashion, it is possible that the market may decline
instead; if the Fund then concludes not to invest its cash at that time because
of concern as to possible further market decline or for other reasons, the Fund
will realize a loss on the futures contract that is not offset by a reduction in
the price of the instruments that were to be purchased.
In instances involving the purchase of futures contracts by a Fund, an
amount of cash and liquid portfolio securities, equal to the market value of the
futures contracts, will be deposited in a segregated account with Galaxy's
custodian and/or in a margin account with a broker to collateralize the position
and thereby insure that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between movements in the futures and the instruments
being hedged, the price of futures may not correlate perfectly with movement in
the cash market due to certain market distortions. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through off-setting transactions that could distort the normal relationship
between the cash and futures markets. Second, with respect to financial futures
contracts, the liquidity of the futures market depends on participants entering
into off-setting transactions rather than making or taking delivery. To the
extent participants decide to make or take delivery, liquidity in the futures
market could be reduced thus producing distortions. Third, from the point of
view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may also cause temporary
price distortions. Due to the possibility of price distortion in the futures
market, and because of the imperfect correlation between the movements in the
cash market and movements in the price of futures, a correct forecast of general
market trends or interest rate movements by the adviser may still not result in
a successful hedging transaction over a short time frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Funds
intend to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance that a liquid
secondary market on any exchange or board of trade will exist for any particular
contract or at any particular time. In such event, it may not be possible to
close a futures investment position, and in the event of adverse price
movements, a Fund would continue to be required to make daily cash payments of
variation margin. However, in the event futures contracts have been used to
hedge portfolio securities, such securities will not be sold until the futures
contract can be terminated. In such circumstances, an increase in the price of
the securities, if any, may partially or completely offset losses on the futures
contract. However, as described above, there is no guarantee that the price of
the securities will in fact correlate with the price movements in the futures
contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary market in a
futures contract may be adversely affected by "daily price fluctuation limits"
established by commodity exchanges which limit the amount of fluctuation in a
futures contract price during a single
B-5
<PAGE>
trading day. Once the daily limit has been reached in the contract, no trades
may be entered into at a price beyond the limit, thus preventing the liquidation
of open futures positions. The trading of futures contracts is also subject to
the risk of trading halts, suspensions, exchange or clearing house equipment
failures, government intervention, insolvency of a brokerage firm or clearing
house or other disruptions of normal activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.
Successful use of futures by the Funds is also subject to Fleet's ability
to predict correctly movements in the direction of the market. For example, if
a particular Fund has hedged against the possibility of a decline in the market
adversely affecting securities held by it and securities prices increase
instead, the Fund will lose part or all of the benefit to the increased value of
its securities which it has hedged because it will have offsetting losses in its
futures positions. In addition, in such situations, if the Fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements. Such sales of securities may be, but will not necessarily be, at
increased prices which reflect the rising market. The Funds may have to sell
securities at a time when it may be disadvantageous to do so.
B-6
<PAGE>
THE GALAXY FUND
FORM N-1A
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Short-Term Bond Fund for the period December 30, 1991 (commencement of
operations) through October 31, 1992, for the fiscal years ended
October 31, 1993 through October 31, 1997 and for the six-month period
ended April 30, 1998 (unaudited), Intermediate Government Income Fund
for the period September 1, 1988 (commencement of operations) through
October 31, 1988, for the fiscal years ended October 31, 1989 through
October 31, 1997 and for the six-month period ended April 30, 1998
(unaudited), High Quality Bond Fund for the period December 14, 1990
(commencement of operations) through October 31, 1991, for the fiscal
years ended October 31, 1992 through October 31, 1997 and for the
six-month period ended April 30, 1998 (unaudited), Equity Value Fund
for the period September 1, 1988 (commencement of operations) through
October 31, 1988, for the fiscal years ended October 31, 1989 through
October 31, 1997 and for the six-month period ended April 30, 1998
(unaudited), Equity Growth and Equity Income Funds for the period
December 14, 1990 (commencement of operations) through October 31,
1991, for the fiscal years ended October 31, 1992 through October 31,
1997 and for the six-month period ended April 30, 1998 (unaudited),
International Equity, Small Company Equity and Asset Allocation Funds
for the period December 30, 1991 (commencement of operations) through
October 31, 1992, for the fiscal years ended October 31, 1993 through
October 31, 1997 and for the six-month period ended April 30, 1998
(unaudited), Small Cap Value and Growth and Income Funds for the
fiscal years ended October 31, 1996 and October 31, 1997 and for the
six-month period ended April 30, 1998 (unaudited) and Predecessor
Small Cap Value and Predecessor Growth and Income Funds for the period
December 14, 1992 (commencement of
<PAGE>
operations) through October 31, 1993 and for the fiscal years ended
October 31, 1994 and October 31, 1995, and Strategic Equity Fund for
the period March 2, 1998 (commencement of operations) through
April 30, 1998 (unaudited).
(2) Incorporated by reference into Part B:
The unaudited financial statements for Registrant's Short-Term
Bond, Intermediate Government Income, High Quality Bond, Equity
Value, Equity Growth, Equity Income, International Equity, Small
Company Equity, Asset Allocation, Small Cap Value, Growth and
Income and Strategic Equity Funds contained in Registrant's
Semi-Annual Reports to Shareholders dated April 30, 1998, copies
of which have been filed with the Commission.
The audited financial statements for Registrant's Short-Term
Bond, Intermediate Government Income, High Quality Bond, Equity
Value, Equity Growth, Equity Income, International Equity, Small
Company Equity, Asset Allocation, Small Cap Value, Growth and
Income and Strategic Equity Funds contained in Registrant's
Annual Reports to Shareholders dated October 31, 1997, copies of
which have been filed with the Commission.
(3) All required financial statements are included in or incorporated
by reference into Parts A and B hereof. All other financial
statements and schedules are inapplicable.
(b) Exhibits:
(1) (a) Declaration of Trust dated March 31, 1986.(4)
(b) Amendment No. 1 to the Declaration of Trust dated as of
April 26, 1988.(4)
(c) Certificate pertaining to Classification of Shares dated May
5, 1986 pertaining to Class A and Class B shares.(4)
(d) Certificate of Classification of Shares dated December 9,
1987 pertaining to Class C, Class D and Class E shares.(4)
-2-
<PAGE>
(e) Certificate of Classification of Shares dated November 8,
1989 pertaining to Class C - Special Series 1 and Class D
- Special Series 1 shares.(4)
(f) Certificate of Classification of Shares dated August 16,
1990 pertaining to Class F shares; Class G - Series 1
shares; Class G - Series 2 shares; Class H - Series 1
shares; Class H - Series 2 shares; Class I - Series 1
shares; Class I - Series 2 shares; Class J - Series 1
shares; and Class J - Series 2 shares.(4)
(g) Certificate of Classification of Shares dated December 10,
1991 pertaining to Class K - Series 1 shares; Class K -
Series 2 shares; Class L - Series 1 shares; Class L -
Series 2 shares; Class M - Series 1 shares; Class M -
Series 2 shares; Class N - Series 1 shares; Class N -
Series 2 shares; Class O - Series 1 shares; and Class O -
Series 2 shares.(4)
(h) Certificate of Classification of Shares dated February 22,
1993 pertaining to Class P - Series 1 shares; Class P -
Series 2 shares; Class Q - Series 1 shares; Class Q -
Series 2 shares; Class R - Series 1 shares; Class R -
Series 2 shares; and Class S shares.(4)
(i) Certificate of Classification of Shares dated December 7,
1994 pertaining to Class T - Series 1 shares and Class T -
Series 2 shares.(4)
(j) Form of Certificate of Classification of Shares pertaining
to Class U - Series 1 shares and Class U - Series 2
shares; Class V shares; Class W shares; and Class X -
Series 1 shares and Class X - Series 2 shares.(4)
(k) Form of Certificate of Classification of Shares pertaining
to Class C - Special Series 2 shares; Class H - Series 3
shares; Class J - Series 3 shares; Class K - Series 3
shares; Class L - Series 3 shares; Class M - Series 3
shares; Class N - Series 3 shares; and Class U - Series 3
shares.(4)
(l) Form of Certificate of Classification of Shares pertaining
to Class A - Special Series 2 shares.(2)
-3-
<PAGE>
(m) Form of Certificate of Classification of Shares pertaining
to Class Y - Series 1 shares and Class Y - Series 2
shares; Class Z - Series 1 shares, Class Z - Series 2
shares and Class Z - Series 3 shares; and Class AA -
Series 1 shares, Class AA - Series 2 shares and Class AA -
Series 3 shares.(3)
(n) Form of Certificate of Classification of Shares pertaining
to Class BB; Class CC and Class DD shares.(5)
(o) Form of Certificate of Classification of Shares
pertaining to Class C - Special Series 3 shares; Class
C - Special Series 4 shares; Class D - Special Series 3
shares; Class D - Special Series 4 shares; Class G -
Series 4 shares; Class G - Series 5 shares; Class H -
Series 4 shares; Class H - Series 5 shares; Class I -
Series 4 shares; Class I - Series 5 shares; Class J -
Series 4 shares; Class J - Series 5 shares; Class K -
Series 4 shares; Class K - Series 5 shares; Class L -
Series 4 shares; Class L - Series 5 shares; Class M -
Series 4 shares; Class M - Series 5 shares; Class N -
Series 4 shares; Class N - Series 5 shares; Class U -
Series 4 shares; Class U - Series 5 shares; Class X -
Series 4 shares; Class X - Series 5 shares; Class AA -
Series 4 shares; and Class AA - Series 5 shares.(6)
(p) Form of Certificate of Classification of Shares pertaining
to Class D - Special Series 2 shares; Class G - Series 3
shares; Class I - Series 3 shares; and Class X - Series 3
shares.
(2) Code of Regulations.(4)
(3) None.
(4) None.
(5) (a) Advisory Agreement between the Registrant and Fleet
Investment Advisors Inc. with respect to the Money Market,
Government, U.S. Treasury, Tax-Exempt, Institutional
Government Money Market (formerly Institutional Treasury
Money Market), Short-Term Bond, Intermediate Government
Income (formerly Intermediate Bond), Corporate Bond, High
Quality Bond, Tax-Exempt Bond, New York Municipal Bond,
Connecticut Municipal Bond, Massachusetts Municipal Bond,
Rhode Island Municipal Bond, Equity Value, Equity Growth,
Equity Income, International Equity, Small Company Equity
and Asset Allocation Funds dated as of May 19, 1994.(2)
(b) Addendum No. 1 to Advisory Agreement between the
Registrant and Fleet Investment Advisors Inc. with respect
to the Connecticut Municipal Money Market, Massachusetts
Municipal Money Market, Growth and Income and Small Cap
Value Funds dated as of December 1, 1995.(1)
(c) Addendum No. 2 to Advisory Agreement between the
Registrant and Fleet Investment Advisors Inc. with respect
to the New Jersey Municipal
-4-
<PAGE>
Bond Fund, MidCap Equity Fund and Strategic Equity Fund
dated as of March 3, 1998.(5)
(d) Form of Addendum No. 3 to Advisory Agreement between the
Registrant and Fleet Investment Advisors Inc. with respect
to the Prime Reserves, Government Reserves and Tax-Exempt
Reserves.(5)
(e) Sub-Advisory Agreement between Fleet Investment Advisors
Inc. and Oechsle International Advisors, L.P. with respect
to the International Equity Fund dated as of August 12,
1996.(2)
(f) Form of Sub-Advisory Agreement between Fleet Investment
Advisors Inc. and Oechsle International Advisors, LLC with
respect to the International Equity Fund.(6)
(6) (a) Distribution Agreement between the Registrant and First
Data Distributors, Inc. dated as of June 1, 1997.(3)
(b) Amendment No. 1 dated March 3, 1998 to Distribution
Agreement between the Registrant and First Data
Distributors, Inc. with respect to the New Jersey
Municipal Bond Fund, MidCap Equity Fund and Strategic
Equity Fund.(5)
(c) Form of Amendment No. 2 to Distribution Agreement between
the Registrant and First Data Distributors, Inc. with
respect to the Prime Reserves, Government Reserves and
Tax-Exempt Reserves.(5)
(7) The Galaxy Fund/The Galaxy VIP Fund/Galaxy Fund II
Deferred Compensation Plan and Related Agreement effective
as of January 1, 1997.(2)
(8) (a) Global Custody Agreement between the Registrant and The
Chase Manhattan Bank dated as of November 1, 1991.(4)
(b) Form of Amendment to Global Custody Agreement between the
Registrant and The Chase Manhattan Bank with respect to
the New Jersey Municipal Bond, MidCap Equity and Strategic
Equity Funds.(3)
-5-
<PAGE>
(c) Form of Amendment to Global Custody Agreement between the
Registrant and The Chase Manhattan Bank with respect to
the Prime Reserves, Government Reserves and Tax-Exempt
Reserves.(5)
(d) Consent to Assignment of Global Custody Agreement between
the Registrant, The Chase Manhattan Bank, N.A. and 440
Financial Group of Worcester, Inc. to The Shareholder
Services Group, Inc. d/b/a 440 Financial dated March 31,
1995.(4)
(9) (a) Administration Agreement between the Registrant and First
Data Investor Services Group, Inc. dated as of June 1,
1997.(3)
(b) Amendment No. 1 dated March 3, 1998 to Administration
Agreement between the Registrant and First Data Investor
Services Group, Inc. with respect to the New Jersey
Municipal Bond Fund, MidCap Equity Fund and Strategic
Equity Fund.(5)
(c) Amendment No. 2 dated as of March 5, 1998 to
Administration Agreement between the Registrant and First
Data Investor Services Group, Inc.(6)
(d) Form of Amendment No. 3 to Administration Agreement
between the Registrant and First Data Investor Services
Group, Inc. with respect to the Prime Reserves, Government
Reserves and Tax-Exempt Reserves Fund.(5)
(e) Form of Amendment No. 4 to Administration Agreement
between the Registrant and First Data Investor Services
Group, Inc.(6)
(f) Transfer Agency and Services Agreement between the
Registrant and First Data Investor Services Group, Inc.
dated as of June 1, 1997.(3)
(g) Amendment No. 1 dated March 3, 1998 to Transfer Agency and
Services Agreement between the Registrant and First Data
Investor Services Group, Inc. with respect to the New
Jersey Municipal Bond Fund, MidCap Equity Fund and
Strategic Equity Fund.(5)
(h) Amendment No. 2 dated as of March 5, 1998 to Transfer
Agency and Services Agreement between the Registrant and
First Data Investor Services Group, Inc.(6)
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<PAGE>
(i) Form of Amendment No. 3 to Transfer Agency and Services
Agreement between the Registrant and First Data Investor
Services Group, Inc. with respect to the Prime Reserves,
Government Reserves and Tax-Exempt Reserves Fund.(5)
(j) Form of Amendment No. 4 to Transfer Agency and Services
Agreement between Registrant and First Data Investor
Services Group, Inc.(6)
(k) Shareholder Services Plan for Trust Shares and Retail A
Shares and Related Forms of Servicing Agreements.(3)
(10) (a) Opinion of counsel dated February 27, 1998 that shares
will be validly issued, fully paid and
non-assessable.(4)
(b) Opinion of counsel dated June 30, 1998 that shares will
be validly issued, fully paid and non-assessable.(5)
(c) Opinion of counsel dated September 11, 1998 that shares
will be validly issued, fully paid and
non-assessable.(6)
(d) Opinion of counsel dated October 5, 1998 that shares
will be validly issued, fully paid and non-assessable.
(11) (a) Consent of PricewaterhouseCoopers LLP.
(b) Consent of Drinker Biddle & Reath LLP.
(12) None.
(13) (a) Purchase Agreement between the Registrant and Shearson
Lehman Brothers Inc. dated July 24, 1986.(4)
(b) Purchase Agreement between the Registrant and Shearson
Lehman Brothers Inc. dated October 11, 1990 with respect
to the Treasury, Equity Growth, Equity Income,
International Equity and High Quality Bond Funds.(4)
(c) Purchase Agreement between the Registrant and SMA
Equities, Inc. dated December 30, 1991 with respect to
the Small Company Equity Fund, Short-Term Bond Fund,
Tax-Exempt Bond Fund, Asset Allocation Fund, and New York
Municipal Bond Fund.(4)
(d) Purchase Agreement between the Registrant and Allmerica
Investments, Inc. dated February 22, 1993 with respect to
the Connecticut Municipal Bond, Massachusetts Municipal
Bond, Rhode Island Municipal Bond and Institutional
-7-
<PAGE>
Government Money Market (formerly Institutional Treasury
Money Market) Funds.(4)
(e) Purchase Agreement between the Registrant and 440
Financial Distributors, Inc. dated May 19, 1994 with
respect to the Corporate Bond Fund.(4)
(f) Purchase Agreement between the Registrant and First Data
Investor Services, Inc. dated February 28, 1996 with
respect to the Connecticut Municipal Money Market,
Massachusetts Municipal Money Market Money, Growth and
Income and Small Cap Value Funds.(4)
(g) Purchase Agreement between the Registrant and First Data
Distributors, Inc. with respect to the New Jersey
Municipal Bond Fund.(5)
(h) Form of Purchase Agreement between the Registrant and
First Data Distributors, Inc. with respect to the MidCap
Equity Fund.(3)
(i) Purchase Agreement between the Registrant and First Data
Distributors, Inc. with respect to the Strategic Equity
Fund.(5)
(j) Form of Purchase Agreement between the Registrant and
First Data Distributors, Inc. with respect to the Prime
Reserves, Government Reserves and Tax-Exempt
Reserves.(5)
(14) Individual Retirement Account Custodial Agreement and
Accompanying Disclosure Statement with Adoption Agreement
and New Account Application.(4)
(15) (a) Distribution and Services Plan for Retail B Shares and
Related Form of Servicing Agreement.(6)
(b) Distribution and Services Plan and Related Form of
Servicing Agreement with respect to the Prime Reserves,
Government Reserves and Tax-Exempt Reserves.(5)
(c) Distribution Plan for A Prime Shares.(6)
(d) Distribution and Services Plan for B Prime Shares and
Related Form of Servicing Agreement.(6)
(16) (a) Schedules for computation of performance quotations for
the Money Market and Government Funds.(4)
-8-
<PAGE>
(b) Schedules for computation of performance quotations for the
Intermediate Government Income and Equity Value Funds.(4)
(c) Schedule for computation of performance quotations for the
Tax-Exempt Fund.(4)
(d) Schedule for computation of performance quotations - Equity
Growth Fund.(4)
(e) Schedule for computation of performance quotations - Equity
Income Fund.(4)
(f) Schedule for computation of performance quotations - High
Quality Bond Fund.(4)
(g) Schedule for computation of performance quotations -
International Equity Fund.(4)
(h) Schedule for computation of performance quotations - Small
Company Equity Fund.(4)
(i) Schedule for computation of performance quotations - Asset
Allocation Fund.(4)
(j) Schedule for computation of performance quotations -
Short-Term Bond Fund.(4)
(k) Schedule for computation of performance quotations -
Tax-Exempt Bond Fund.(4)
(l) Schedule for computation of performance quotations - New
York Municipal Bond Fund.(4)
(m) Schedule for computation of performance quotations -
Connecticut Municipal Bond Fund.(4)
(n) Schedule for computation of performance quotations -
Massachusetts Municipal Bond Fund.(4)
(o) Schedule for computation of performance quotations -
Institutional Government Money Market (formerly
Institutional Treasury Money Market) Fund.(4)
(p) Schedule for computation of performance quotations - Rhode
Island Municipal Bond Fund.(4)
(q) Schedule for computation of performance quotations -
Corporate Bond Fund.(4)
-9-
<PAGE>
(r) Schedule for computation of performance quotations - U.S.
Treasury Fund.(1)
(s) Schedule for computation of performance quotations -
Connecticut Municipal Money Market Fund.(1)
(t) Schedule for computation of performance quotations -
Massachusetts Municipal Money Market Fund.(1)
(u) Schedule for computation of performance quotations - Small
Cap Value Fund.(1)
(v) Schedule for computation of performance quotations - Growth
and Income Fund.(1)
(18) Amended and Restated Plan Pursuant to Rule 18f-3 for
Operation of a Multi-Class System.(6)
(27) Financial Data Schedules for the six-month period ended
April 30, 1998 for Retail A and/or Retail B Shares of the
Short-Term Bond, Intermediate Government Income, High
Quality Bond, Equity Value, Equity Growth, Equity Income,
International Equity, Small Company Equity, Asset
Allocation, Small Cap Value, Growth and Income and Strategic
Equity Funds.
- ------------------------------------
(1) Filed electronically as an Exhibit and incorporated herein by reference to
Post-Effective Amendment No. 27 to the Registrant's Registration Statement
on Form N-1A (File Nos. 33-4806 and 811-4636) on March 4, 1996.
(2) Filed electronically as an Exhibit and incorporated herein by reference to
Post-Effective Amendment No. 29 to the Registrant's Registration Statement
on Form N-1A as filed with the Commission on December 30, 1996.
(3) Filed electronically as an Exhibit and incorporated herein by reference to
Post-Effective Amendment No. 31 to the Registrant's Registration Statement
on Form N-1A as filed with the Commission on December 15, 1997.
(4) Filed electronically as an Exhibit and incorporated herein by reference to
Post-Effective Amendment No. 32 to the
-10-
<PAGE>
Registrant's Registration Statement on Form N-1A as filed with the
Commission on February 27, 1998.
(5) Filed electronically as an Exhibit and incorporated herein by reference to
Post-Effective Amendment No. 33 to the Registrant's Registration Statement
on Form N-1A as filed with the Commission on June 30, 1998.
(6) Filed electronically as an Exhibit and incorporated by reference to
Post-Effective Amendment No. 34 to the Registrant's Registration
Statement on Form N-1A as filed with the Commission on
September 11, 1998.
-11-
<PAGE>
Item 25. Persons Controlled By or Under Common Control with
Registrant
Registrant is controlled by its Board of Trustees.
Item 26. Number of Holders of Securities
The following is as of September 8, 1998:
<TABLE>
<CAPTION>
Title of Class Number of Record Holders
-------------- ------------------------
<S> <C>
Class A Shares 113,592
Class A -
Special Series 1 Shares 22
Class A -
Special Series 2 Shares 71
Class B Shares 18,503
Class B -
Special Series 1 Shares 75
Class C Shares 12
Class C-
Special Series 1 Shares 24,492
Class C -
Special Series 2 Shares 3,411
Class D Shares 4
Class D -
Special Series 1 Shares 4,575
Class D -
Special Series 2 Shares 0
Class E Shares 3,291
Class E -
Special Series 1 Shares 2
Class F Shares 22,617
Class F -
Special Series 1 Shares 17
Class G - Series 1 Shares 13
Class G - Series 2 Shares 1,711
Class G - Series 3 Shares 0
Class H - Series 1 Shares 11
Class H - Series 2 Shares 30,738
Class H - Series 3 Shares 4,614
Class I - Series 1 Shares 6
Class I - Series 2 Shares 16,532
Class I - Series 3 Shares 0
Class J - Series 1 Shares 4
Class J - Series 2 Shares 2,653
Class J - Series 3 Shares 266
Class K - Series 1 Shares 12
Class K - Series 2 Shares 18,254
Class K - Series 3 Shares 3,150
Class L - Series 1 Shares 4
Class L - Series 2 Shares 1,609
</TABLE>
-12-
<PAGE>
<TABLE>
<CAPTION>
Title of Class Number of Record Holders
-------------- ------------------------
<S> <C>
Class L - Series 3 Shares 74
Class M - Series 1 Shares 3
Class M - Series 2 Shares 899
Class M - Series 3 Shares 78
Class N - Series 1 Shares 7
Class N - Series 2 Shares 21,643
Class N - Series 3 Shares 4,594
Class O - Series 1 Shares 3
Class O - Series 2 Shares 1,225
Class P - Series 1 Shares 4
Class P - Series 2 Shares 791
Class Q - Series 1 Shares 3
Class Q - Series 2 Shares 949
Class R - Series 1 Shares 0
Class R - Series 2 Shares 214
Class S Shares 0
Class T - Series 1 Shares 688
Class T - Series 2 Shares 0
Class U - Series 1 Shares 7
Class U - Series 2 Shares 22,472
Class U - Series 3 Shares 6,517
Class V Shares 1,433
Class W Shares 919
Class X - Series 1 Shares 40
Class X - Series 2 Shares 15,625
Class X - Series 3 Shares 0
Class Y - Series 1 Shares 3
Class Y - Series 2 Shares 11
Class Z - Series 1 Shares 0
Class Z - Series 2 Shares 0
Class Z - Series 3 Shares 0
Class AA - Series 1 Shares 4
Class AA - Series 2 Shares 669
Class AA - Series 3 Shares 86
Class BB Shares 0
Class CC Shares 0
Class DD Shares 0
</TABLE>
Item 27. Indemnification
Indemnification of the Registrant's principal underwriter, custodian and
transfer agent against certain losses is provided for, respectively, in Section
1.19 of the Distribution Agreement incorporated herein by reference as Exhibit
(6)(a), in Section 12 of the Global Custody Agreement incorporated herein by
reference as Exhibit (8)(a) and in Article 10 of the Transfer Agency and
Services Agreement incorporated herein by reference as Exhibit 9(c). The
Registrant has obtained from a major insurance carrier a directors' and
officers' liability policy covering certain types of errors and omissions. In
addition, Section 9.3 of the Registrant's Declaration of Trust dated March 31,
1986,
-13-
<PAGE>
incorporated herein by reference as Exhibit (1)(a) hereto, provides as follows:
9.3 Indemnification of Trustees, Representatives and Employees. The Trust
shall indemnify each of its Trustees against all liabilities and
expenses (including amounts paid in satisfaction of judgments, in
compromise, as fines and penalties, and as counsel fees) reasonably
incurred by him in connection with the defense or disposition of any
action, suit or other proceeding, whether civil or criminal, in which
he may be involved or with which he may be threatened, while as a
Trustee or thereafter, by reason of his being or having been such a
Trustee except with respect to any matter as to which he shall have
been adjudicated to have acted in bad faith, willful misfeasance,
gross negligence or reckless disregard of his duties, provided that as
to any matter disposed of by a compromise payment by such person,
pursuant to a consent decree or otherwise, no indemnification either
for said payment or for any other expenses shall be provided unless
the Trust shall have received a written opinion from independent legal
counsel approved by the Trustees to the effect that if either the
matter of willful misfeasance, gross negligence or reckless disregard
of duty, or the matter of bad faith had been adjudicated, it would in
the opinion of such counsel have been adjudicated in favor of such
person. The rights accruing to any person under these provisions
shall not exclude any other right to which he may be lawfully
entitled, provided that no person may satisfy any right of indemnity
or reimbursement hereunder except out of the property of the Trust.
The Trustees may make advance payments in connection with the
indemnification under this Section 9.3, provided that the indemnified
person shall have given a written undertaking to reimburse the Trust
in the event it is subsequently determined that he is not entitled to
such indemnification.
The Trustees shall indemnify representatives and employees of the
Trust to the same extent that Trustees are entitled to indemnification
pursuant to this Section 9.3.
Insofar as indemnification for liability arising under the Securities
Act of 1933, as amended, may be permitted to trustees, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as
-14-
<PAGE>
expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a
trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by
such trustee, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of
such issue.
Item 28. (a) Business and Other Connections of Investment Adviser
Fleet Investment Advisors Inc. ("Fleet") is an investment adviser
registered under the Investment Advisers Act of 1940 (the
"Advisers Act").
The list required by this Item 28 of officers and directors of
Fleet, together with information as to any business profession,
vocation or employment of a substantial nature engaged in by such
officers and directors during the past two years is incorporated
herein by reference to Schedules A and D of Form ADV filed by
Fleet pursuant to the Advisers Act (SEC File No. 801-20312).
(b) Business and Other Connections of Sub-Adviser
Oechsle International Advisors, LLC ("Oechsle") is an investment
adviser registered under the Investment Advisers Act of 1940 (the
"Advisers Act").
The list required by this Item 28 of the officers of Oechsle,
together with information as to any business profession, vocation
or employment of a substantial nature engaged in by such officers
during the past two years, is incorporated herein by reference to
Schedules A and D of Form ADV filed by Oechsle pursuant to the
Advisers Act (SEC File No. 801-28111).
-15-
<PAGE>
Item 29. Principal Underwriter
(a) In addition to The Galaxy Fund, First Data Distributors, Inc.
(the "Distributor") currently acts as distributor for The Galaxy
VIP Fund, Galaxy Fund II, Alleghany Funds, Wilshire Target Funds,
Inc., Panorama Trust, Undiscovered Managers Funds, LKCM Funds,
ABN Amro Funds, First Choice Funds Trust, Forward Funds, Inc.,
IBJ Funds Trust, ICM Series Trust, Light Revolution Funds, Inc.
and BT Insurance Funds Trust. The Distributor is registered with
the Securities and Exchange Commission as a broker-dealer and is
a member of the National Association of Securities Dealers. The
Distributor is a wholly-owned subsidiary of First Data Investor
Services Group, Inc., 4400 Computer Drive, Westboro, MA
01581-5108.
(b) The information required by this Item 29 (b) with respect to each
director, officer, or partner of the Distributor, is incorporated
by reference to Schedule A of Form BD filed by the Distributor,
with the Securities and Exchange Commission pursuant to the
Securities Act of 1934 (File No. 8-45467).
(c) The Distributor receives no compensation from the Registrant for
distribution of its shares other than payments for distribution
assistance pursuant to Registrant's Distribution and Services
Plan for Retail B Shares, Distribution and Services Plan for
the Prime Reserves, Government Reserves and Tax-Exempt
Reserves, Distribution Plan for A Prime Shares and Distribution
and Services Plan for B Prime Shares. The Distributor is an
affiliated person of First Data Investor Services Group, Inc.,
the Registrant's administrator, which receives administration,
fund accounting and transfer agency fees as described in parts
A and B.
Item 30. Location of Accounts and Records
(1) Fleet Investment Advisors Inc., 75 State Street, Boston,
Massachusetts 02109 (records relating to its functions as
investment adviser to all of the Registrant's Funds).
(2) Oechsle International Advisors, LLC, One International Place,
Boston, Massachusetts 02210 (records relating to its functions as
sub-investment adviser to the International Equity Fund).
-16-
<PAGE>
(3) First Data Distributors, Inc., 4400 Computer Drive, Westboro,
Massachusetts 01581-5108 (records relating to its functions as
distributor).
(4) First Data Investor Services Group, Inc. 53 State Street, Mail
Stop BOS 425, Boston, MA 02109 (records relating to its
functions as administrator).
(5) First Data Investor Services Group, Inc. 4400 Computer Drive,
Westboro, MA 01581-5108 (records relating to its functions as
transfer agent).
(6) Drinker Biddle & Reath LLP, Philadelphia National Bank Building,
1345 Chestnut Street, Philadelphia, Pennsylvania 19107
(Registrant's Declaration of Trust, Code of Regulations and
Minute Books).
(7) The Chase Manhattan Bank, 1211 Avenue of the Americas, New York,
New York 10036 (records relating to its functions as custodian).
Item 31. Management Services
Inapplicable.
Item 32. Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest available Annual
Reports to Shareholders which includes Management's Discussion of the
Registrant's performance, upon request and without charge.
-17-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, Registrant
certifies that it meets all of the requirements for effectiveness of this
Registration Statement pursuant to Rule 485(b) under the Securities Act of
1933 and has duly caused this Post-Effective Amendment No. 35 to be signed on
its behalf by the undersigned, thereto duly authorized, in the City of
Pawtucket, State of Rhode Island, on the 5th day of October, 1998.
THE GALAXY FUND
Registrant
/s/ John T. O'Neill
---------------------
President
John T. O'Neill
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 33 to the Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/John T. O'Neill Trustee, President October 5, 1998
- -------------------------- and Treasurer
John T. O'Neill
*/s/Dwight E. Vicks, Jr. Chairman of the Board October 5, 1998
- -------------------------- of Trustees
Dwight E. Vicks, Jr.
*/s/Donald B. Miller Trustee October 5, 1998
- --------------------------
Donald B. Miller
*/s/Louis DeThomasis Trustee October 5, 1998
- --------------------------
Louis DeThomasis
*/s/Bradford S. Wellman Trustee October 5, 1998
- --------------------------
Bradford S. Wellman
*/s/James M. Seed Trustee October 5, 1998
- --------------------------
James M. Seed
*By:/s/John T. O'Neill
- --------------------------
John T. O'Neill
Attorney-In-Fact
-18-
<PAGE>
THE GALAXY FUND
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints
John T. O'Neill and W. Bruce McConnel, III, and either of them, his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
trustee or officer, or both, of The Galaxy Fund (the "Trust"), to execute any
and all amendments to the Trust's Registration Statement on Form N-1A pursuant
to the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended (the "Acts"), and all instruments necessary or incidental in
connection therewith pursuant to said Acts and any rules, regulations, or
requirements of the Securities and Exchange Commission in respect thereof, and
to file the same with the Securities and Exchange Commission, and either of said
attorneys shall have full power and authority, to do and perform in the name and
on behalf of the undersigned in any and all capacities, every act whatsoever
requisite or necessary to be done, as fully and to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorneys, or either of them, may lawfully do or cause to be done by virtue
hereof.
Dated: December 4, 1996 /s/Dwight E. Vicks, Jr.
---------------------------
Dwight E. Vicks, Jr.
<PAGE>
THE GALAXY FUND
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints
John T. O'Neill and W. Bruce McConnel, III, and either of them, his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
trustee or officer, or both, of The Galaxy Fund (the "Trust"), to execute any
and all amendments to the Trust's Registration Statement on Form N-1A pursuant
to the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended (the "Acts"), and all instruments necessary or incidental in
connection therewith pursuant to said Acts and any rules, regulations, or
requirements of the Securities and Exchange Commission in respect thereof, and
to file the same with the Securities and Exchange Commission, and either of said
attorneys shall have full power and authority, to do and perform in the name and
on behalf of the undersigned in any and all capacities, every act whatsoever
requisite or necessary to be done, as fully and to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorneys, or either of them, may lawfully do or cause to be done by virtue
hereof.
Dated: December 5, 1996 /s/Donald B. Miller
---------------------------
Donald B. Miller
<PAGE>
THE GALAXY FUND
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints
John T. O'Neill and W. Bruce McConnel, III, and either of them, his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
trustee or officer, or both, of The Galaxy Fund (the "Trust"), to execute any
and all amendments to the Trust's Registration Statement on Form N-1A pursuant
to the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended (the "Acts"), and all instruments necessary or incidental in
connection therewith pursuant to said Acts and any rules, regulations, or
requirements of the Securities and Exchange Commission in respect thereof, and
to file the same with the Securities and Exchange Commission, and either of said
attorneys shall have full power and authority, to do and perform in the name and
on behalf of the undersigned in any and all capacities, every act whatsoever
requisite or necessary to be done, as fully and to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorneys, or either of them, may lawfully do or cause to be done by virtue
hereof.
Dated: December 5, 1996 /s/Brother Louis DeThomasis
---------------------------
Brother Louis DeThomasis
<PAGE>
THE GALAXY FUND
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints
John T. O'Neill and W. Bruce McConnel, III, and either of them, his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
trustee or officer, or both, of The Galaxy Fund (the "Trust"), to execute any
and all amendments to the Trust's Registration Statement on Form N-1A pursuant
to the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended (the "Acts"), and all instruments necessary or incidental in
connection therewith pursuant to said Acts and any rules, regulations, or
requirements of the Securities and Exchange Commission in respect thereof, and
to file the same with the Securities and Exchange Commission, and either of said
attorneys shall have full power and authority, to do and perform in the name and
on behalf of the undersigned in any and all capacities, every act whatsoever
requisite or necessary to be done, as fully and to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorneys, or either of them, may lawfully do or cause to be done by virtue
hereof.
Dated: December 5, 1996 /s/Bradford S. Wellman
---------------------------
Bradford S. Wellman
<PAGE>
THE GALAXY FUND
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints
John T. O'Neill and W. Bruce McConnel, III, and either of them, his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
trustee or officer, or both, of The Galaxy Fund (the "Trust"), to execute any
and all amendments to the Trust's Registration Statement on Form N-1A pursuant
to the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended (the "Acts"), and all instruments necessary or incidental in
connection therewith pursuant to said Acts and any rules, regulations, or
requirements of the Securities and Exchange Commission in respect thereof, and
to file the same with the Securities and Exchange Commission, and either of said
attorneys shall have full power and authority, to do and perform in the name and
on behalf of the undersigned in any and all capacities, every act whatsoever
requisite or necessary to be done, as fully and to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorneys, or either of them, may lawfully do or cause to be done by virtue
hereof.
Dated: December 5, 1996 /s/James M. Seed
---------------------------
James M. Seed
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Description
----------- -----------
(1)(p) Form of Certificate of Classification
of Shares pertaining to Class D -
Special Series 2 shares; Class G -
Series 3 shares; Class I - Series 3
shares; and Class X - Series 3 shares.
(10)(d) Opinion of counsel dated October 5,
1998 that shares will be validly
issued, fully paid and non-assessable.
(11)(a) Consent of PricewaterhouseCoopers LLP.
(11)(b) Consent of Drinker Biddle & Reath LLP.
(27) Financial Data Schedules for the six-
month period ended April 30, 1998 for
Retail A and/or Retail B Shares of the
Short-Term Bond, Intermediate
Government Income, High Quality Bond,
Equity Value, Equity Growth, Equity
Income, International Equity, Small
Company Equity, Asset Allocation,
Small Cap Value, Growth and Income and
Strategic Equity Funds.
<PAGE>
THE GALAXY FUND
(A Massachusetts Business Trust)
CERTIFICATE OF CLASSIFICATION OF SHARES
I, W. Bruce McConnel, III, do hereby certify as follows:
(1) That I am the duly elected Secretary of The Galaxy Fund (the
"Trust");
(2) That in such capacity I have examined the records of actions
taken by the Board of Trustees of the Trust at the regular meeting of the Board
held on May 28, 1998;
(3) That the following resolutions were duly adopted at the
meeting by the Board of Trustees of the Trust:
CLASSIFICATION OF SHARES
RESOLVED, that pursuant to Section 5.1 of Galaxy's Declaration of
Trust, an unlimited number of authorized, unissued and unclassified
shares of beneficial interest of Galaxy be, and hereby are, classified
into each of four additional separate series of shares which shall be
designated, respectively, Class D-Special Series 2, Class G-Series 3,
Class I-Series 3 and Class X-Series 3;
FURTHER RESOLVED, that (a) Class D-Special Series 2 shares of
beneficial interest shall represent interests in the Intermediate
Government Income Fund, (b) Class G-Series 3 shares of beneficial
interest shall represent interests in the International Equity Fund,
(c) Class I-Series 3 shares of beneficial interest shall represent
interests in the Equity Income Fund and (d) Class X-Series 3 shares of
beneficial interest shall represent interests in the Small Cap Value
Fund;
FURTHER RESOLVED, that each share of Class D-Special Series 2,
Class G-Series 3, Class I-Series 3 and Class X-Series 3 newly
classified hereby shall have all of the following preferences,
conversion and other rights, voting powers, restrictions, limitations,
qualifications and terms and conditions of redemption:
(1) ASSETS BELONG TO A CLASS. All consideration received by Galaxy
for the issue or sale of shares of Class D-Special Series 2, Class
G-Series 3, Class I-Series 3 and Class X-Series 3 shall be invested
and reinvested with the consideration received by Galaxy for the issue
and sale of all other shares now or
<PAGE>
hereafter classified as shares of Class D, Class G, Class I and Class
X, respectively (irrespective of whether said shares have been
classified as part of a series of said Class and if so classified as
part of a series, irrespective of the particular series
classification), together with all income, earnings, profits, and
proceeds derived from the investment thereof, including any proceeds
derived from the sale, exchange, or liquidation of such investment,
any funds or payments derived from any reinvestment of such proceeds
in whatever form the same may be, and any general assets of Galaxy
allocated to Class D, Class G, Class I and Class X (including the
Class D, Class G, Class I and Class X shares formerly classified,
Class D-Special Series 2, Class G-Series 3, Class I-Series 3 and Class
X-Series 3 shares herein classified or such other shares with respect
to such Class D, Class G, Class I and Class X) by the Board of
Trustees in accordance with Galaxy's Declaration of Trust. All
income, earnings, profits, and proceeds, including any profits derived
from the sale, exchange or liquidation of such shares of Class D,
Class G, Class I and Class X and any assets derived from any
reinvestment of such proceeds in whatever form shall be allocated to
the Class D-Special Series 2 shares, Class G-Series 3 shares, Class
I-Series 3 shares and Class X-Series 3 shares in the proportion that
the net asset value of such Special Series 2 shares or Series 3
shares, as the case may be, of such Class bears to the total net asset
value of all shares of such Class D, Class G, Class I and Class X
(irrespective of whether said shares have been classified as part of a
series of said Class and, if so classified as part of a series,
irrespective of the particular series classification).
(2) LIABILITIES BELONGING TO A CLASS. All the liabilities
(including expenses) of Galaxy in respect of Class D, Class G, Class I
and Class X shall be allocated to the Class D-Special Series 2 shares,
Class G-Series 3 shares, Class I-Series 3 shares and Class X-Series 3
shares hereby classified of such Class D, Class G, Class I and Class X
in the proportion that the net asset value of such Special Series 2
shares or Series 3 shares, as the case may be, of such Class bears to
the total net asset value of all shares of such Class D, Class G,
Class I and Class X (irrespective of whether said shares have been
classified as a part of a series of said Class and, if so classified
as a part of a series, irrespective of the particular series
classification), except that to the extent that may be from time to
time determined by the Board of Trustees to allocate the following
expenses to such Class D-Special Series 2 shares, Class G-Series 3
shares, Class I-Series 3 shares and Class X-
-2-
<PAGE>
Series 3 shares (or any other series of shares of such Class):
(a) only the Special Series 2 shares of Class D and
the Series 3 shares of Class G, Class I and Class X shall bear:
(i) the expenses and liabilities of payments to institutions
under any agreements entered into by or on behalf of Galaxy which
provide for services by the institutions exclusively for their
customers who own of record or beneficially such Special Series 2
shares or Series 3 shares, as the case may be; and (ii) such
other expenses and liabilities as the Board of Trustees may from
time to time determine are directly attributable to such shares
and which therefore should be borne solely by the Special Series
2 shares of Class D and the Series 3 shares of Class G, Class I
and Class X; and
(b) no Special Series 2 shares of Class D or Series 3
shares of Class G, Class I and Class X shall bear (i) the
expenses and liabilities of payments to institutions under any
agreements entered into by or on behalf of Galaxy which provide
for services by the institutions exclusively for their customers
who own of record or beneficially shares of Class D other than
Special Series 2 shares of such Class D or shares of Class G,
Class I and Class X other than Series 3 shares of such Class G,
Class I and Class X; and (ii) such other expenses and liabilities
as the Board of Trustees may from time to time determine are
directly attributable to shares of Class D other than the Special
Series 2 shares of such Class D or shares of Class G, Class I and
Class X other than Series 3 shares of such Class G, Class I and
Class X and which therefore should be borne solely by such other
shares of Class D, Class G, Class I and Class X and not the
Special Series 2 shares of such Class D or Series 3 shares of
such Class G, Class I and Class X.
(3) PREFERENCES, CONVERSION AND OTHER RIGHTS, VOTING POWERS,
RESTRICTIONS, LIMITATIONS, QUALIFICATIONS, AND TERMS AND
CONDITIONS OF REDEMPTION. Except as provided hereby, each
Special Series 2 share of Class D and each Series 3 share of
Class G, Class I and Class X shall have the same preferences,
conversion, and other rights, voting powers, restrictions,
limitations, qualifications, and terms and conditions of
redemption applicable to all other shares as set forth in
Galaxy's Declaration of Trust and shall also have the same
preferences, conversion, and other rights, voting
-3-
<PAGE>
powers, restrictions, limitations, qualifications, and terms and
conditions of redemption as each other share formerly, now or
hereafter classified as a share of Class D, Class G, Class I and
Class X (irrespective of whether said share has been classified
as a part of a series of said Class and, if so classified as a
part of a series, irrespective of the particular series
classification) except that:
(a) On any matter that pertains to the agreements or expenses
and liabilities described under Section (2), clause (a) above (or
to any plan or other document adopted by Galaxy relating to said
agreements, expenses, or liabilities) and is submitted to a vote
of shareholders of Galaxy, only the Special Series 2 shares of
Class D and the Series 3 shares of Class G, Class I and Class X
(excluding the other shares classified as a series of such Class
other than Special Series 2 or Series 3, as the case may be)
shall be entitled to vote, except that:
(i) if said matter affects shares in Galaxy other than the
Special Series 2 shares of Class D and the Series 3 shares
of Class G, Class I and Class X, such other affected shares
in Galaxy shall also be entitled to vote, and in such case,
such Special Series 2 shares of such Class D and such Series
3 shares of such Class G, Class I and Class X shall be voted
in the aggregate together with such other affected shares
and not by class or series except where otherwise required
by law or permitted by the Board of Trustees of Galaxy; and
(ii) if said matter does not affect the Special Series 2
shares of Class D and Series 3 shares of Class G, Class I
and Class X, such shares shall not be entitled to vote
(except where required by law or permitted by the Board of
Trustees) even though the matter is submitted to a vote of
the holders of shares in Galaxy other than said Special
Series 2 shares of Class D and said Series 3 shares of Class
G, Class I and Class X.
(b) With respect to each such series of shares, the first
sentence of Section 5.1B(9) shall not apply, and the following
shall apply instead:
To the extent of the assets of the Trust legally available
for such redemptions, a
-4-
<PAGE>
Shareholder of the Trust shall have the right to require the
Trust to redeem his full and fractional Shares of any class
out of assets belonging to the classes with the same
alphabetical designation as such class at a redemption price
equal to the net asset value per Share for such Shares being
redeemed next determined after receipt of a request to
redeem in proper form as determined by the Trustees, less
such deferred sales charge, redemption fee or other charge,
if any, as may be fixed by the Trustees, subject to the
right of the Trustees to suspend the right of redemption of
Shares or postpone the date of payment of such redemption
price in accordance with the provisions of applicable law.
(c) Class D-Special Series 2, Class G-Series 3, Class I-Series 3
and Class X-Series 3 shares shall be convertible into Class D
-Special Series 1, Class G-Series 2, Class I-Series 2 and Class
X-Series 2 shares, respectively, on the basis of the relative net
asset values of the shares converted and the shares into which
such shares are converted, and otherwise after such time or
times, and upon such conditions and pursuant to such procedures,
as shall be determined by the Trustees from time to time in
connection with the sale and issuance of such shares,
-5-
<PAGE>
(4) That the foregoing resolutions remain in full force and effect on
the date hereof.
--------------------------
W. Bruce McConnel, III
Dated: October 1998
Commonwealth of Pennsylvania :
: ss
County of Philadelphia :
Subscribed and sworn to
before me this ____ day
of October 1998
- ---------------------------
Notary Public
My Commission Expires:
-6-
<PAGE>
LAW OFFICES
DRINKER BIDDLE & REATH LLP
PHILADELPHIA NATIONAL BANK BUILDING
1345 CHESTNUT STREET
PHILADELPHIA, PA 19107-3496
TELEPHONE: (215) 988-2700
FAX: (215) 988-2757
October 5, 1998
The Galaxy Fund
4400 Computer Drive
Westboro, MA 01581-5108
RE: SHARES REGISTERED BY POST-EFFECTIVE AMENDMENT NO. 35 TO REGISTRATION
STATEMENT ON FORM N-1A (FILE NOS. 33-4806 AND 811-4636)
Ladies and Gentlemen:
We have acted as counsel to The Galaxy Fund (the "Trust") in connection
with the preparation and filing with the Securities and Exchange Commission of
Post-Effective Amendment No. 35 (the "Amendment") to the Trust's Registration
Statement on Form N-1A under the Securities Act of 1933, as amended, registering
Class D - Special Series 2, Class G - Series 3 , Class I - Series 3 and Class X
- - Series 3 shares of beneficial interest (collectively, the "Shares")
representing interests in the Intermediate Government Income Fund, International
Equity Fund, Equity Income Fund and Small Cap Value Fund, respectively. The
Amendment seeks to register an indefinite number of the Shares.
We have reviewed the Trust's Declaration of Trust, its Code of Regulations,
resolutions adopted by its Board of Trustees and shareholders and such other
legal and factual matters as we have deemed appropriate.
This opinion is based exclusively on the laws of the Commonwealth of
Massachusetts and the federal laws of the United States of America. We have
relied upon an opinion of Ropes & Gray, special Massachusetts counsel to the
Trust, insofar as our opinion relates to matters arising under the laws of the
Commonwealth of Massachusetts.
Based upon the foregoing, it is our opinion that the Shares, when issued
for payment as described in the Trust's prospectus relating to the Shares and
for not less than $.001 per share, will be validly issued, fully paid and non-
assessable by the Trust.
We note that under certain circumstances, the shareholders of a
Massachusetts business trust may be subject to assessment at the instance of
creditors to pay the obligations of such trust
<PAGE>
The Galaxy Fund
October 5, 1998
Page 2
in the event that such trust's assets are insufficient for that purpose.
However, the Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each note, bond, contract, order or other undertaking issued by or on behalf of
the Trust or the Trustees relating to the Trust or any class of shares of
beneficial interest of the Trust. The Declaration of Trust provides for
indemnification out of the assets of the particular class of shares for all loss
and expense of any shareholder of that class held personally liable solely by
reason of his being or having been a shareholder. Thus, the risk of a
shareholder's incurring financial loss on account of shareholder liability is
limited to circumstances in which that class of shares itself would be unable to
meet its obligations.
We hereby consent to the filing of this opinion as an exhibit to the
Amendment.
Very truly yours,
/s/ DRINKER BIDDLE & REATH LLP
------------------------------
DRINKER BIDDLE & REATH LLP
-2-
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of
The Galaxy Fund:
We hereby consent to the following with respect to Post-Effective
Amendment No. 35 to the Registration Statement on Form N-1A (File No. 33-4806)
under the Securities Act of 1933, as amended, of The Galaxy Fund:
1. The incorporation by reference of our report dated December 19,
1997 accompanying the financial statements of the Asset Allocation Fund, Equity
Income Fund, Growth and Income Fund, Equity Value Fund, Equity Growth Fund,
Small Cap Value Fund, Small Company Equity Fund and International Equity Fund
(eight series of The Galaxy Fund) as of October 31, 1997 into the applicable
Statement of Additional Information.
2. The incorporation by reference of our report dated December 19,
1997 accompanying the financial statements of the Short-Term Bond Fund,
Intermediate Government Income Fund, Corporate Bond Fund and High Quality Bond
Fund (four series of The Galaxy Fund) as of October 31, 1997 into the applicable
Statement of Additional Information.
3. The reference to our firm under the heading "Financial
Highlights" in the Prospectuses.
4. The reference to our firm under the headings "Auditors" and
"Financial Statements" in the Statements of Additional Information.
/s/ PricewaterhouseCoopers LLP
------------------------------
Boston, Massachusetts PricewaterhouseCoopers LLP
October 5, 1998
<PAGE>
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the references to our
Firm under the caption "Counsel" in the Statements of Additional Information
that are included in Post-Effective Amendment No. 35 to the Registration
Statement (No. 33-4806) on Form N-1A under the Securities Act of 1933, as
amended, of The Galaxy Fund. This consent does not constitute a consent under
Section 7 of the Securities Act of 1933, and in consenting to the use of our
name and the references to our Firm under such caption we have not certified any
part of the Registration Statement and do not otherwise come within the
categories of persons whose consent is required under Section 7 or the rules and
regulations of the Securities and Exchange Commission thereunder.
/s/Drinker Biddle & Reath LLP
------------------------------
Philadelphia, Pennsylvania Drinker Biddle & Reath LLP
October 5, 1998
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<NAME> GALAXY TAX EXEMPT MM RETAIL A
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<NAME> GALAXY US TREASURY MM RETAIL
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<NAME> GALAXY EQUITY VALUE RETAIL A
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<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 558,170,567
<DIVIDEND-INCOME> 3,347,688
<INTEREST-INCOME> 868,082
<OTHER-INCOME> 0
<EXPENSES-NET> 2,849,074
<NET-INVESTMENT-INCOME> 1,366,696
<REALIZED-GAINS-CURRENT> 32,290,937
<APPREC-INCREASE-CURRENT> 53,771,546
<NET-CHANGE-FROM-OPS> 87,429,180
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 440,409
<DISTRIBUTIONS-OF-GAINS> 32,768,242
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 40,825,951
<NUMBER-OF-SHARES-REDEEMED> 13,681,805
<SHARES-REINVESTED> 32,667,827
<NET-CHANGE-IN-ASSETS> 119,039,245
<ACCUMULATED-NII-PRIOR> 11,330
<ACCUMULATED-GAINS-PRIOR> 77,863,018
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,801,298
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,849,074
<AVERAGE-NET-ASSETS> 208,257,679
<PER-SHARE-NAV-BEGIN> 18.21
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 2.92
<PER-SHARE-DIVIDEND> (0.04)
<PER-SHARE-DISTRIBUTIONS> (3.20)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 17.93
<EXPENSE-RATIO> 1.34
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> GALAXY EQUITY VALUE RETAIL B
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 441,846,292
<INVESTMENTS-AT-VALUE> 557,961,701
<RECEIVABLES> 2,820,670
<ASSETS-OTHER> 50
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 560,782,421
<PAYABLE-FOR-SECURITIES> 1,126,068
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,485,786
<TOTAL-LIABILITIES> 2,611,854
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 409,830,002
<SHARES-COMMON-STOCK> 1,257,989
<SHARES-COMMON-PRIOR> 820,173
<ACCUMULATED-NII-CURRENT> 11,520
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 32,223,116
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 116,105,929
<NET-ASSETS> 558,170,567
<DIVIDEND-INCOME> 3,347,688
<INTEREST-INCOME> 868,082
<OTHER-INCOME> 0
<EXPENSES-NET> 2,849,074
<NET-INVESTMENT-INCOME> 1,366,696
<REALIZED-GAINS-CURRENT> 32,290,938
<APPREC-INCREASE-CURRENT> 53,771,546
<NET-CHANGE-FROM-OPS> 87,429,180
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 2,708,059
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,123,610
<NUMBER-OF-SHARES-REDEEMED> 742,020
<SHARES-REINVESTED> 2,698,279
<NET-CHANGE-IN-ASSETS> 119,039,245
<ACCUMULATED-NII-PRIOR> 11,330
<ACCUMULATED-GAINS-PRIOR> 77,863,018
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,801,298
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,849,074
<AVERAGE-NET-ASSETS> 18,097,146
<PER-SHARE-NAV-BEGIN> 18.24
<PER-SHARE-NII> (0.02)
<PER-SHARE-GAIN-APPREC> 2.92
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (3.20)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 17.93
<EXPENSE-RATIO> 2.01
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> GALAXY EQUITY GROWTH RETAIL A
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 798,191,210
<INVESTMENTS-AT-VALUE> 1,228,059,909
<RECEIVABLES> 9,337,937
<ASSETS-OTHER> 3
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,237,397,849
<PAYABLE-FOR-SECURITIES> 20,357,607
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,257,913
<TOTAL-LIABILITIES> 23,615,520
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 720,632,888
<SHARES-COMMON-STOCK> 12,066,975
<SHARES-COMMON-PRIOR> 9,001,376
<ACCUMULATED-NII-CURRENT> 380,145
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 62,894,597
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 429,874,899
<NET-ASSETS> 1,213,782,329
<DIVIDEND-INCOME> 5,807,038
<INTEREST-INCOME> 2,127,345
<OTHER-INCOME> 0
<EXPENSES-NET> 5,627,169
<NET-INVESTMENT-INCOME> 2,307,214
<REALIZED-GAINS-CURRENT> 62,969,380
<APPREC-INCREASE-CURRENT> 130,532,641
<NET-CHANGE-FROM-OPS> 195,809,235
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 255,943
<DISTRIBUTIONS-OF-GAINS> 35,424,489
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 52,537,695
<NUMBER-OF-SHARES-REDEEMED> 17,355,849
<SHARES-REINVESTED> 35,118,108
<NET-CHANGE-IN-ASSETS> 221,552,622
<ACCUMULATED-NII-PRIOR> 473,268
<ACCUMULATED-GAINS-PRIOR> 152,554,380
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,999,427
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,627,169
<AVERAGE-NET-ASSETS> 256,917,648
<PER-SHARE-NAV-BEGIN> 25.14
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> 4.20
<PER-SHARE-DIVIDEND> (0.02)
<PER-SHARE-DISTRIBUTIONS> (3.84)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 25.50
<EXPENSE-RATIO> 1.32
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 9
<NAME> GALAXY EQUITY GROWTH RETAIL B
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 798,191,210
<INVESTMENTS-AT-VALUE> 1,228,059,909
<RECEIVABLES> 9,337,937
<ASSETS-OTHER> 3
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,237,397,849
<PAYABLE-FOR-SECURITIES> 20,357,607
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,257,913
<TOTAL-LIABILITIES> 23,615,520
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 720,632,888
<SHARES-COMMON-STOCK> 1,218,949
<SHARES-COMMON-PRIOR> 817,350
<ACCUMULATED-NII-CURRENT> 380,145
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 62,894,597
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 429,874,699
<NET-ASSETS> 1,213,782,329
<DIVIDEND-INCOME> 5,807,038
<INTEREST-INCOME> 2,127,345
<OTHER-INCOME> 0
<EXPENSES-NET> 5,627,169
<NET-INVESTMENT-INCOME> 2,307,214
<REALIZED-GAINS-CURRENT> 62,969,380
<APPREC-INCREASE-CURRENT> 130,532,641
<NET-CHANGE-FROM-OPS> 195,809,235
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 3,245,295
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,986,464
<NUMBER-OF-SHARES-REDEEMED> 1,106,823
<SHARES-REINVESTED> 3,228,334
<NET-CHANGE-IN-ASSETS> 221,552,622
<ACCUMULATED-NII-PRIOR> 473,268
<ACCUMULATED-GAINS-PRIOR> 152,554,380
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,999,427
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,627,169
<AVERAGE-NET-ASSETS> 24,586,461
<PER-SHARE-NAV-BEGIN> 24.91
<PER-SHARE-NII> (0.03)
<PER-SHARE-GAIN-APPREC> 4.12
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (3.84)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 25.16
<EXPENSE-RATIO> 2.01
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 10
<NAME> GALAXY EQUITY INCOME RETAIL A
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 254,904,922
<INVESTMENTS-AT-VALUE> 350,586,754
<RECEIVABLES> 1,673,179
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 352,259,933
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 483,346
<TOTAL-LIABILITIES> 483,346
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 234,988,745
<SHARES-COMMON-STOCK> 10,598,146
<SHARES-COMMON-PRIOR> 8,993,619
<ACCUMULATED-NII-CURRENT> 462,896
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 20,643,114
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 95,681,832
<NET-ASSETS> 351,776,587
<DIVIDEND-INCOME> 2,783,277
<INTEREST-INCOME> 1,322,033
<OTHER-INCOME> 0
<EXPENSES-NET> 1,841,236
<NET-INVESTMENT-INCOME> 2,264,074
<REALIZED-GAINS-CURRENT> 20,645,159
<APPREC-INCREASE-CURRENT> 30,833,803
<NET-CHANGE-FROM-OPS> 53,743,036
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,235,061
<DISTRIBUTIONS-OF-GAINS> 14,397,057
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 27,579,675
<NUMBER-OF-SHARES-REDEEMED> 12,730,986
<SHARES-REINVESTED> 15,084,335
<NET-CHANGE-IN-ASSETS> 62,996,088
<ACCUMULATED-NII-PRIOR> 505,696
<ACCUMULATED-GAINS-PRIOR> 24,382,637
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,182,439
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,841,236
<AVERAGE-NET-ASSETS> 190,551,479
<PER-SHARE-NAV-BEGIN> 18.82
<PER-SHARE-NII> 0.12
<PER-SHARE-GAIN-APPREC> 1.67
<PER-SHARE-DIVIDEND> (0.13)
<PER-SHARE-DISTRIBUTIONS> (0.14)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 20.34
<EXPENSE-RATIO> 1.34
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> GALAXY INTERNATIONAL EQ RET A
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 306,196,168
<INVESTMENTS-AT-VALUE> 395,502,404
<RECEIVABLES> 5,194,682
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 400,697,086
<PAYABLE-FOR-SECURITIES> 345
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,978,079
<TOTAL-LIABILITIES> 1,978,424
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 296,770,549
<SHARES-COMMON-STOCK> 3,710,396
<SHARES-COMMON-PRIOR> 3,728,334
<ACCUMULATED-NII-CURRENT> 1,023,445
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 10,524,675
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 90,399,993
<NET-ASSETS> 398,718,662
<DIVIDEND-INCOME> 1,985,555
<INTEREST-INCOME> 255,906
<OTHER-INCOME> 0
<EXPENSES-NET> 1,805,149
<NET-INVESTMENT-INCOME> 436,312
<REALIZED-GAINS-CURRENT> 10,526,955
<APPREC-INCREASE-CURRENT> 58,371,717
<NET-CHANGE-FROM-OPS> 69,334,984
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 239,531
<DISTRIBUTIONS-OF-GAINS> 1,235,651
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 97,408,184
<NUMBER-OF-SHARES-REDEEMED> 99,888,954
<SHARES-REINVESTED> 1,450,467
<NET-CHANGE-IN-ASSETS> 77,003,146
<ACCUMULATED-NII-PRIOR> 2,371,603
<ACCUMULATED-GAINS-PRIOR> 7,499,148
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,548,608
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,231,453
<AVERAGE-NET-ASSETS> 57,632,918
<PER-SHARE-NAV-BEGIN> 15.18
<PER-SHARE-NII> (0.01)
<PER-SHARE-GAIN-APPREC> 3.11
<PER-SHARE-DIVIDEND> (0.07)
<PER-SHARE-DISTRIBUTIONS> (0.36)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 17.85
<EXPENSE-RATIO> 1.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> GALAXY INT GOVT INCOME RET A
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 290,730,362
<INVESTMENTS-AT-VALUE> 293,154,502
<RECEIVABLES> 21,333,972
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 314,488,474
<PAYABLE-FOR-SECURITIES> 25,351,680
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,317,795
<TOTAL-LIABILITIES> 26,669,475
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 311,446,954
<SHARES-COMMON-STOCK> 6,337,533
<SHARES-COMMON-PRIOR> 6,443,770
<ACCUMULATED-NII-CURRENT> 678,088
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 26,730,185
<ACCUM-APPREC-OR-DEPREC> 2,424,140
<NET-ASSETS> 287,818,999
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 10,061,185
<OTHER-INCOME> 0
<EXPENSES-NET> 1,116,698
<NET-INVESTMENT-INCOME> 8,944,487
<REALIZED-GAINS-CURRENT> 535,245
<APPREC-INCREASE-CURRENT> (1,525,661)
<NET-CHANGE-FROM-OPS> 7,954,071
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 774,148
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,797,964
<NUMBER-OF-SHARES-REDEEMED> 8,356,510
<SHARES-REINVESTED> 1,473,641
<NET-CHANGE-IN-ASSETS> 12,978,670
<ACCUMULATED-NII-PRIOR> 678,013
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 27,265,428
<GROSS-ADVISORY-FEES> 1,042,106
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,394,593
<AVERAGE-NET-ASSETS> 64,827,437
<PER-SHARE-NAV-BEGIN> 10.18
<PER-SHARE-NII> 0.31
<PER-SHARE-GAIN-APPREC> (0.03)
<PER-SHARE-DIVIDEND> (0.31)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.15
<EXPENSE-RATIO> 1.22
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 13
<NAME> GALAXY HIGH QUALITY BOND RET
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 229,160,586
<INVESTMENTS-AT-VALUE> 234,627,599
<RECEIVABLES> 12,214,739
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 246,842,388
<PAYABLE-FOR-SECURITIES> 9,592,219
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,300,407
<TOTAL-LIABILITIES> 10,892,526
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 231,445,790
<SHARES-COMMON-STOCK> 3,286,441
<SHARES-COMMON-PRIOR> 2,611,095
<ACCUMULATED-NII-CURRENT> 202,761
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 1,165,852
<ACCUM-APPREC-OR-DEPREC> 5,467,013
<NET-ASSETS> 235,949,712
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,205,700
<OTHER-INCOME> 0
<EXPENSES-NET> 1,007,287
<NET-INVESTMENT-INCOME> 6,198,413
<REALIZED-GAINS-CURRENT> 1,745,822
<APPREC-INCREASE-CURRENT> (841,700)
<NET-CHANGE-FROM-OPS> 7,102,535
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 837,428
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11,834,560
<NUMBER-OF-SHARES-REDEEMED> 5,264,933
<SHARES-REINVESTED> 892,741
<NET-CHANGE-IN-ASSETS> 23,603,137
<ACCUMULATED-NII-PRIOR> 204,729
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 2,911,674
<GROSS-ADVISORY-FEES> 836,060
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,230,236
<AVERAGE-NET-ASSETS> 31,124,547
<PER-SHARE-NAV-BEGIN> 10.70
<PER-SHARE-NII> 0.29
<PER-SHARE-GAIN-APPREC> 0.05
<PER-SHARE-DIVIDEND> (0.29)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.75
<EXPENSE-RATIO> 1.22
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 14
<NAME> GALAXY HIGH QUALITY BOND RET B
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 229,160,586
<INVESTMENTS-AT-VALUE> 234,627,599
<RECEIVABLES> 12,214,739
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 246,842,338
<PAYABLE-FOR-SECURITIES> 9,592,219
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,300,407
<TOTAL-LIABILITIES> 10,892,626
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 231,445,790
<SHARES-COMMON-STOCK> 314,750
<SHARES-COMMON-PRIOR> 186,672
<ACCUMULATED-NII-CURRENT> 202,761
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 1,165,852
<ACCUM-APPREC-OR-DEPREC> 5,467,013
<NET-ASSETS> 235,949,712
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,205,700
<OTHER-INCOME> 0
<EXPENSES-NET> 1,007,287
<NET-INVESTMENT-INCOME> 6,198,413
<REALIZED-GAINS-CURRENT> 1,745,822
<APPREC-INCREASE-CURRENT> (841,700)
<NET-CHANGE-FROM-OPS> 7,102,535
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 65,191
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,484,374
<NUMBER-OF-SHARES-REDEEMED> 163,823
<SHARES-REINVESTED> 56,505
<NET-CHANGE-IN-ASSETS> 23,603,137
<ACCUMULATED-NII-PRIOR> 204,729
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 2,911,674
<GROSS-ADVISORY-FEES> 836,060
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,230,236
<AVERAGE-NET-ASSETS> 2,748,828
<PER-SHARE-NAV-BEGIN> 10.70
<PER-SHARE-NII> 0.26
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 15
<NAME> GALAXY SHORT TERM BOND RET A
<S> <C>
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<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> APR-30-1998
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<PER-SHARE-NII> 0.24
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 16
<NAME> GALAXY SHORT TERM BOND RET B
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> APR-30-1998
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<NET-INVESTMENT-INCOME> 2,119,342
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<APPREC-INCREASE-CURRENT> (351,278)
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<SHARES-REINVESTED> 21,544
<NET-CHANGE-IN-ASSETS> (7,323,810)
<ACCUMULATED-NII-PRIOR> 190,129
<ACCUMULATED-GAINS-PRIOR> 0
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<PER-SHARE-NAV-BEGIN> 10.01
<PER-SHARE-NII> 0.21
<PER-SHARE-GAIN-APPREC> (0.04)
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<PER-SHARE-NAV-END> 9.97
<EXPENSE-RATIO> 1.99
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 17
<NAME> GALAXY ASSET ALLOCATION RET A
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 442,166,266
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<RECEIVABLES> 11,432,094
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<SHARES-COMMON-STOCK> 15,976,364
<SHARES-COMMON-PRIOR> 10,768,088
<ACCUMULATED-NII-CURRENT> 1,557,417
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<ACCUMULATED-NET-GAINS> 14,054,558
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<NET-ASSETS> 527,383,216
<DIVIDEND-INCOME> 1,221,702
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<EXPENSES-NET> 2,803,883
<NET-INVESTMENT-INCOME> 5,589,742
<REALIZED-GAINS-CURRENT> 14,065,913
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<NUMBER-OF-SHARES-SOLD> 86,088,315
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<NET-CHANGE-IN-ASSETS> 147,695,465
<ACCUMULATED-NII-PRIOR> 1,372,678
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<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 1,638,569
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<GROSS-EXPENSE> 2,803,883
<AVERAGE-NET-ASSETS> 213,087,433
<PER-SHARE-NAV-BEGIN> 16.46
<PER-SHARE-NII> 0.20
<PER-SHARE-GAIN-APPREC> 1.60
<PER-SHARE-DIVIDEND> (0.21)
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<EXPENSE-RATIO> 1.31
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 18
<NAME> GALAXY ASSET ALLOCATION RET B
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 442,166,266
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<RECEIVABLES> 11,432,094
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<ACCUMULATED-NET-GAINS> 14,054,558
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<NET-ASSETS> 527,363,216
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<NUMBER-OF-SHARES-SOLD> 14,577,356
<NUMBER-OF-SHARES-REDEEMED> 2,057,276
<SHARES-REINVESTED> 2,623,062
<NET-CHANGE-IN-ASSETS> 147,695,465
<ACCUMULATED-NII-PRIOR> 1,372,678
<ACCUMULATED-GAINS-PRIOR> 28,895,845
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<GROSS-ADVISORY-FEES> 1,638,569
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<GROSS-EXPENSE> 2,803,883
<AVERAGE-NET-ASSETS> 37,419,242
<PER-SHARE-NAV-BEGIN> 16.43
<PER-SHARE-NII> 0.16
<PER-SHARE-GAIN-APPREC> 1.58
<PER-SHARE-DIVIDEND> (0.16)
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<EXPENSE-RATIO> 1.99
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 19
<NAME> GALAXY SMALL COMPANY EQ RET A
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 424,328,709
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<NET-ASSETS> 501,097,480
<DIVIDEND-INCOME> 275,753
<INTEREST-INCOME> 540,331
<OTHER-INCOME> 0
<EXPENSES-NET> 2,726,533
<NET-INVESTMENT-INCOME> (1,910,449)
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<SHARES-REINVESTED> 13,427,430
<NET-CHANGE-IN-ASSETS> 40,020,073
<ACCUMULATED-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 1,700,931
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,727,315
<AVERAGE-NET-ASSETS> 131,638,107
<PER-SHARE-NAV-BEGIN> 20.94
<PER-SHARE-NII> (0.10)
<PER-SHARE-GAIN-APPREC> 0.92
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (2.26)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 19.50
<EXPENSE-RATIO> 1.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 20
<NAME> GALAXY SMALL COMPANY EQ RET B
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 424,328,709
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<SHARES-COMMON-PRIOR> 710,574
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<OVERDISTRIBUTION-NII> 1,910,449
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<DIVIDEND-INCOME> 275,753
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<OTHER-INCOME> 0
<EXPENSES-NET> 2,726,533
<NET-INVESTMENT-INCOME> (1,910,449)
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<ACCUMULATED-NII-PRIOR> 0
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<PER-SHARE-NII> (0.15)
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<EXPENSE-RATIO> 2.08
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 21
<NAME> GALAXY TAX EXEMPT BOND RET A
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
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<PER-SHARE-NAV-BEGIN> 11.06
<PER-SHARE-NII> 0.25
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 22
<NAME> GALAXY TAX EXEMPT BOND RET B
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> APR-30-1998
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<REALIZED-GAINS-CURRENT> 1,024,483
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<PER-SHARE-NAV-BEGIN> 11.06
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 23
<NAME> GALAXY MY MUNI BOND RETAIL A
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 68,298,756
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<PAID-IN-CAPITAL-COMMON> 69,770,054
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<SHARES-COMMON-PRIOR> 3,585,161
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<OVERDISTRIBUTION-NII> 3,733
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 1,031,512
<ACCUM-APPREC-OR-DEPREC> 2,624,218
<NET-ASSETS> 71,359,027
<DIVIDEND-INCOME> 18,179
<INTEREST-INCOME> 1,774,855
<OTHER-INCOME> 0
<EXPENSES-NET> 276,662
<NET-INVESTMENT-INCOME> 1,516,372
<REALIZED-GAINS-CURRENT> 301,768
<APPREC-INCREASE-CURRENT> (357,183)
<NET-CHANGE-FROM-OPS> 1,460,957
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 850,957
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,687,453
<NUMBER-OF-SHARES-REDEEMED> 2,946,894
<SHARES-REINVESTED> 613,602
<NET-CHANGE-IN-ASSETS> 5,363,185
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 4,150
<OVERDIST-NET-GAINS-PRIOR> 1,333,280
<GROSS-ADVISORY-FEES> 256,486
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 385,321
<AVERAGE-NET-ASSETS> 39,384,608
<PER-SHARE-NAV-BEGIN> 11.09
<PER-SHARE-NII> 0.24
<PER-SHARE-GAIN-APPREC> 0.01
<PER-SHARE-DIVIDEND> (0.24)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.10
<EXPENSE-RATIO> 1.22
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 24
<NAME> GALAXY MASS MUNI BOND RET A
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 55,913,451
<INVESTMENTS-AT-VALUE> 56,996,407
<RECEIVABLES> 2,593,888
<ASSETS-OTHER> 11,866
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 59,602,161
<PAYABLE-FOR-SECURITIES> 2,912,109
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 166,894
<TOTAL-LIABILITIES> 3,079,003
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 56,098,200
<SHARES-COMMON-STOCK> 3,792,932
<SHARES-COMMON-PRIOR> 3,250,152
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 44,868
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 613,130
<ACCUM-APPREC-OR-DEPREC> 1,082,956
<NET-ASSETS> 56,523,158
<DIVIDEND-INCOME> 14,661
<INTEREST-INCOME> 1,303,459
<OTHER-INCOME> 0
<EXPENSES-NET> 176,904
<NET-INVESTMENT-INCOME> 1,141,216
<REALIZED-GAINS-CURRENT> 96,068
<APPREC-INCREASE-CURRENT> (213,009)
<NET-CHANGE-FROM-OPS> 1,024,275
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<DISTRIBUTIONS-OF-INCOME> 788,144
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,074,283
<NUMBER-OF-SHARES-REDEEMED> 3,821,060
<SHARES-REINVESTED> 360,333
<NET-CHANGE-IN-ASSETS> 9,218,366
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 45,590
<OVERDIST-NET-GAINS-PRIOR> 709,198
<GROSS-ADVISORY-FEES> 192,696
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 296,103
<AVERAGE-NET-ASSETS> 36,283,884
<PER-SHARE-NAV-BEGIN> 10.25
<PER-SHARE-NII> 0.23
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.23)
<PER-SHARE-DISTRIBUTIONS> 0.00
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<PER-SHARE-NAV-END> 10.25
<EXPENSE-RATIO> 1.21
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 25
<NAME> GALAXY CONN MUNI BOND RET A
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 35,415,152
<INVESTMENTS-AT-VALUE> 36,490,466
<RECEIVABLES> 862,656
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 163
<TOTAL-ASSETS> 37,353,285
<PAYABLE-FOR-SECURITIES> 0
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<OTHER-ITEMS-LIABILITIES> 155,589
<TOTAL-LIABILITIES> 155,589
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 37,017,155
<SHARES-COMMON-STOCK> 2,387,086
<SHARES-COMMON-PRIOR> 2,230,405
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 14,615
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 880,158
<ACCUM-APPREC-OR-DEPREC> 1,075,314
<NET-ASSETS> 37,197,695
<DIVIDEND-INCOME> 10,629
<INTEREST-INCOME> 868,711
<OTHER-INCOME> 0
<EXPENSES-NET> 142,668
<NET-INVESTMENT-INCOME> 736,672
<REALIZED-GAINS-CURRENT> 148,672
<APPREC-INCREASE-CURRENT> (137,480)
<NET-CHANGE-FROM-OPS> 747,864
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<DISTRIBUTIONS-OF-INCOME> 496,180
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,297,231
<NUMBER-OF-SHARES-REDEEMED> 3,986,825
<SHARES-REINVESTED> 365,460
<NET-CHANGE-IN-ASSETS> 3,976,412
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 14,293
<OVERDIST-NET-GAINS-PRIOR> 1,028,830
<GROSS-ADVISORY-FEES> 133,325
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 225,402
<AVERAGE-NET-ASSETS> 24,579,210
<PER-SHARE-NAV-BEGIN> 10.47
<PER-SHARE-NII> 0.21
<PER-SHARE-GAIN-APPREC> 0.03
<PER-SHARE-DIVIDEND> (0.21)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.50
<EXPENSE-RATIO> 1.34
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 26
<NAME> GALAXY RI MUNI BOND RETAIL A
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 19,003,708
<INVESTMENTS-AT-VALUE> 19,630,397
<RECEIVABLES> 352,102
<ASSETS-OTHER> 133
<OTHER-ITEMS-ASSETS> 5,163
<TOTAL-ASSETS> 19,987,795
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 62,811
<TOTAL-LIABILITIES> 62,811
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 19,253,192
<SHARES-COMMON-STOCK> 1,822,318
<SHARES-COMMON-PRIOR> 1,571,137
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 24,875
<ACCUMULATED-NET-GAINS> 69,978
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 626,689
<NET-ASSETS> 19,924,984
<DIVIDEND-INCOME> 6,038
<INTEREST-INCOME> 478,916
<OTHER-INCOME> 0
<EXPENSES-NET> 70,607
<NET-INVESTMENT-INCOME> 414,347
<REALIZED-GAINS-CURRENT> 56,207
<APPREC-INCREASE-CURRENT> (17,166)
<NET-CHANGE-FROM-OPS> 453,388
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 413,915
<DISTRIBUTIONS-OF-GAINS> 23,370
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,791,909
<NUMBER-OF-SHARES-REDEEMED> 2,221,815
<SHARES-REINVESTED> 204,372
<NET-CHANGE-IN-ASSETS> 2,790,569
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 37,141
<OVERDISTRIB-NII-PRIOR> 25,307
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 67,611
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 112,427
<AVERAGE-NET-ASSETS> 18,178,959
<PER-SHARE-NAV-BEGIN> 10.91
<PER-SHARE-NII> 0.25
<PER-SHARE-GAIN-APPREC> 0.04
<PER-SHARE-DIVIDEND> (0.25)
<PER-SHARE-DISTRIBUTIONS> (0.02)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.93
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 27
<NAME> GALAXY GROWTH & INCOME RET A
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 452,995,731
<INVESTMENTS-AT-VALUE> 561,833,534
<RECEIVABLES> 5,499,029
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 567,332,563
<PAYABLE-FOR-SECURITIES> 4,072,227
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,590,444
<TOTAL-LIABILITIES> 6,662,671
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 418,765,461
<SHARES-COMMON-STOCK> 13,162,340
<SHARES-COMMON-PRIOR> 8,734,857
<ACCUMULATED-NII-CURRENT> 143,957
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 32,922,671
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 108,837,803
<NET-ASSETS> 560,669,892
<DIVIDEND-INCOME> 4,396,598
<INTEREST-INCOME> 1,002,840
<OTHER-INCOME> 0
<EXPENSES-NET> 2,848,412
<NET-INVESTMENT-INCOME> 2,551,026
<REALIZED-GAINS-CURRENT> 33,529,685
<APPREC-INCREASE-CURRENT> 49,877,125
<NET-CHANGE-FROM-OPS> 85,957,836
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 893,452
<DISTRIBUTIONS-OF-GAINS> 24,191,677
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<NUMBER-OF-SHARES-SOLD> 56,466,916
<NUMBER-OF-SHARES-REDEEMED> 15,129,211
<SHARES-REINVESTED> 24,779,372
<NET-CHANGE-IN-ASSETS> 136,954,488
<ACCUMULATED-NII-PRIOR> 325,489
<ACCUMULATED-GAINS-PRIOR> 71,001,802
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,806,606
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,898,808
<AVERAGE-NET-ASSETS> 170,176,991
<PER-SHARE-NAV-BEGIN> 16.24
<PER-SHARE-NII> 0.07
<PER-SHARE-GAIN-APPREC> 2.63
<PER-SHARE-DIVIDEND> (0.08)
<PER-SHARE-DISTRIBUTIONS> (2.68)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 16.18
<EXPENSE-RATIO> 1.38
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 28
<NAME> GALAXY GROWTH & INCOME RET B
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 452,995,731
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<RECEIVABLES> 5,499,029
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<TOTAL-LIABILITIES> 6,662,671
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<PAID-IN-CAPITAL-COMMON> 418,765,461
<SHARES-COMMON-STOCK> 3,195,757
<SHARES-COMMON-PRIOR> 2,167,788
<ACCUMULATED-NII-CURRENT> 143,957
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 32,922,671
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 108,837,803
<NET-ASSETS> 560,669,892
<DIVIDEND-INCOME> 4,396,598
<INTEREST-INCOME> 1,002,840
<OTHER-INCOME> 0
<EXPENSES-NET> 2,848,412
<NET-INVESTMENT-INCOME> 2,551,028
<REALIZED-GAINS-CURRENT> 33,529,685
<APPREC-INCREASE-CURRENT> 49,877,125
<NET-CHANGE-FROM-OPS> 85,957,836
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<DISTRIBUTIONS-OF-INCOME> 893,452
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<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11,186,013
<NUMBER-OF-SHARES-REDEEMED> 1,985,320
<SHARES-REINVESTED> 5,978,776
<NET-CHANGE-IN-ASSETS> 136,954,488
<ACCUMULATED-NII-PRIOR> 325,489
<ACCUMULATED-GAINS-PRIOR> 71,001,802
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,806,606
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,898,808
<AVERAGE-NET-ASSETS> 42,306,106
<PER-SHARE-NAV-BEGIN> 16.23
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> 2.62
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> (2.68)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 16.16
<EXPENSE-RATIO> 1.99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 29
<NAME> GALAXY SMALL CAP VALUE RET A
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 262,984,549
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<RECEIVABLES> 4,005,619
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<PAYABLE-FOR-SECURITIES> 9,585,722
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<OTHER-ITEMS-LIABILITIES> 524,180
<TOTAL-LIABILITIES> 10,109,902
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<PAID-IN-CAPITAL-COMMON> 237,126,573
<SHARES-COMMON-STOCK> 5,718,287
<SHARES-COMMON-PRIOR> 3,480,451
<ACCUMULATED-NII-CURRENT> 103,327
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 19,650,366
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 69,043,137
<NET-ASSETS> 325,923,403
<DIVIDEND-INCOME> 1,514,837
<INTEREST-INCOME> 1,006,317
<OTHER-INCOME> 0
<EXPENSES-NET> 1,405,258
<NET-INVESTMENT-INCOME> 1,115,896
<REALIZED-GAINS-CURRENT> 19,650,454
<APPREC-INCREASE-CURRENT> 5,189,350
<NET-CHANGE-FROM-OPS> 25,955,700
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<DISTRIBUTIONS-OF-INCOME> 286,953
<DISTRIBUTIONS-OF-GAINS> 9,778,431
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<NUMBER-OF-SHARES-SOLD> 54,992,609
<NUMBER-OF-SHARES-REDEEMED> 29,540,108
<SHARES-REINVESTED> 10,017,687
<NET-CHANGE-IN-ASSETS> 73,007,931
<ACCUMULATED-NII-PRIOR> 374,156
<ACCUMULATED-GAINS-PRIOR> 37,785,570
<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 1,020,684
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,433,906
<AVERAGE-NET-ASSETS> 75,315,428
<PER-SHARE-NAV-BEGIN> 18.29
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> 1.28
<PER-SHARE-DIVIDEND> (0.07)
<PER-SHARE-DISTRIBUTIONS> (2.68)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 16.88
<EXPENSE-RATIO> 1.38
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 30
<NAME> GALAXY MASS MUNI MM RETAIL A
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 91,046,559
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<RECEIVABLES> 715,835
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<TOTAL-ASSETS> 91,762,394
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<OTHER-ITEMS-LIABILITIES> 144,922
<TOTAL-LIABILITIES> 144,922
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 91,630,172
<SHARES-COMMON-STOCK> 91,617,472
<SHARES-COMMON-PRIOR> 80,977,987
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 120
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 12,580
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 91,617,472
<DIVIDEND-INCOME> 19,318
<INTEREST-INCOME> 1,542,688
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<EXPENSES-NET> 279,460
<NET-INVESTMENT-INCOME> 1,282,546
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<NUMBER-OF-SHARES-SOLD> 123,793,617
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<SHARES-REINVESTED> 709,093
<NET-CHANGE-IN-ASSETS> 10,651,901
<ACCUMULATED-NII-PRIOR> 0
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<OVERDISTRIB-NII-PRIOR> 0
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<PER-SHARE-NAV-BEGIN> 1.00
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<PER-SHARE-NAV-END> 1.00
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 31
<NAME> GALAXY CONN MUNI MM RETAIL A
<S> <C>
<PERIOD-TYPE> 6-MOS
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<OVERDISTRIBUTION-NII> 5,089
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<OVERDISTRIBUTION-GAINS> 7,436
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 150,940,220
<DIVIDEND-INCOME> 35,532
<INTEREST-INCOME> 2,572,528
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<EXPENSES-NET> 460,734
<NET-INVESTMENT-INCOME> 2,147,326
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<DISTRIBUTIONS-OF-INCOME> 2,147,326
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<NUMBER-OF-SHARES-SOLD> 220,989,117
<NUMBER-OF-SHARES-REDEEMED> 208,661,913
<SHARES-REINVESTED> 1,518,356
<NET-CHANGE-IN-ASSETS> 13,845,560
<ACCUMULATED-NII-PRIOR> 0
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<NAME> GALAXY NJ MUNI BOND RETAIL A
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<NAME> GALAXY STRATEGIC EQUITY RET A
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<PAGE>
<ARTICLE> 6
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<NUMBER> 34
<NAME> GALAXY STRATEGIC EQUITY RET B
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