<PAGE>
As filed with the Securities and Exchange Commission on December 3, 1999
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
PRE-EFFECTIVE AMENDMENT NO. /X/
POST-EFFECTIVE AMENDMENT NO. 40
and /X/
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
/X/
Amendment No. 41
/X/
The Galaxy Fund
(Exact Name of Registrant as Specified in Charter)
4400 Computer Drive
Westborough, Massachusetts 01581-5108
(Address of Principal Executive Officers)
Registrant's Telephone Number:
(877) 289-4252
W. Bruce McConnel, III
DRINKER BIDDLE & REATH LLP
One Logan Square
18th & Cherry Streets
Philadelphia, Pennsylvania 19103-6996
(Name and Address of Agent for Service)
Copy to:
Jylanne Dunne, Vice President
PFPC Inc.
4400 Computer Drive
Westborough, Massachusetts 01581-5108
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[X] 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: Shares of Beneficial Interest.
<PAGE>
[Front cover page]
Galaxy Equity Funds
The Galaxy Fund
Prospectus
_____________, 2000
Galaxy Asset Allocation Fund
Galaxy Equity Income Fund
Galaxy Growth and Income Fund
Galaxy Strategic Equity Fund
Galaxy Equity Value Fund
Galaxy Equity Growth Fund
Galaxy International Equity Fund
Galaxy Small Cap Value Fund
Galaxy Small Company Equity Fund
Retail A Shares and Retail B Shares
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved any shares of these Funds or determined if this
prospectus is accurate or complete. Anyone who tells you otherwise is committing
a crime.
<PAGE>
<TABLE>
<CAPTION>
Contents
<S> <C>
1 Risk/Return Summary
1 Introduction
3 Galaxy Asset Allocation Fund
8 Galaxy Equity Income Fund
12 Galaxy Growth and Income Fund
16 Galaxy Strategic Equity Fund
20 Galaxy Equity Value Fund
25 Galaxy Equity Growth Fund
30 Galaxy International Equity Fund
35 Galaxy Small Cap Value Fund
40 Galaxy Small Company Equity Fund
44 Additional information about risk
45 Investor guidelines
46 Fund management
48 How to invest in the Funds
48 How sales charges work
51 Buying, selling and exchanging shares
52 How to buy shares
54 How to sell shares
55 How to exchange shares
56 Other transaction policies
58 Dividends, distributions and taxes
60 Galaxy investor programs
60 Retirement plans
60 Other programs
62 How to reach Galaxy
63 Financial highlights
</TABLE>
<PAGE>
RISK/RETURN SUMMARY
INTRODUCTION
This prospectus describes the Galaxy Equity Funds. Each Fund invests primarily
or to a significant degree in equity securities, such as common stock, preferred
stock and securities that are convertible into common stock.
On the following pages, you'll find important information about each Fund,
including:
- - the Fund's investment objective (sometimes called the Fund's goal) and the
main investment strategies used by the Fund's investment adviser in trying
to achieve that objective
- - the main risks associated with an investment in the Fund
- - the Fund's past performance measured on both a year-by-year and long-term
basis
- - the fees and expenses that you will pay as an investor in the Fund
WHICH FUND IS RIGHT FOR YOU?
Not all mutual funds are for everyone. Your investment goals and tolerance for
risk will determine which fund is right for you.
Equity funds are generally best suited to investors seeking growth of their
investment over time and who are prepared to accept the risks associated with
equity securities. Equity funds have the potential for higher returns than other
funds, such as bond funds or money market funds, but also carry more risk.
Different equity funds have different levels of risk. They have varying
objectives and investment styles, and some are considered more aggressive than
others. Generally, a fund's objective and the types of investments it makes can
help you gauge its level of risk. On page ___, you'll find a table that gives a
general overview of the risk spectrum of the Galaxy Equity Funds.
THE FUNDS' INVESTMENT ADVISER
Fleet Investment Advisors Inc. (the "Adviser") is the investment adviser for all
of these Funds. The Adviser, an indirect wholly-owned subsidiary of FleetBoston
Corporation, was established in 1984 and has its main office at 75 State Street,
Boston, Massachusetts 02109. The Adviser also provides investment management and
advisory services to individual and institutional clients and manages the other
Galaxy investment portfolios. As of December 31, 1999, the Adviser managed over
$___ billion in assets.
-1-
<PAGE>
AN INVESTMENT IN THE FUNDS ISN'T A FLEET BANK DEPOSIT AND IT ISN'T INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. YOU COULD LOSE MONEY BY INVESTING IN THE FUNDS.
-2-
<PAGE>
Galaxy Asset Allocation Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks 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.
[Sidenote:]
CURRENT INCOME
Current income includes both dividends from stocks and interest income from
fixed income securities, after deducting Fund expenses.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund aims to provide income that is higher than that provided by the popular
stock market averages. The Adviser interprets this to mean the Dow Jones
Industrial Average of 30 major companies and the Standard & Poor's 500 Composite
Stock Price Index (commonly referred to as the S&P 500). Due to the Fund's
expenses, however, net income paid to you may be less than that. The Fund also
seeks long-term growth in the value of its assets. The Adviser attempts to
achieve these goals and reduce risk by allocating the Fund's assets among
short-term debt securities, common stocks, preferred stocks and bonds.
The Fund seeks a mix of stocks and bonds that will produce both income and
long-term capital growth. This mix will change from time to time as a result of
economic and market conditions. However, the Fund keeps at least 25% of its
total assets in fixed income investments, including debt securities and
preferred stocks, at all times.
Debt securities purchased by the Fund will be of investment grade quality, which
means that they will have one of the top four ratings assigned by Standard &
Poor's Ratings Group (S&P) or Moody's Investor Services, Inc. (Moody's) or will
be unrated securities determined by the Adviser to be of comparable quality.
Occasionally, the rating of a security held by the Fund may be downgraded below
investment grade. If that happens, the Fund doesn't have to sell the security
unless the Adviser determines that under the circumstances the security is no
longer an appropriate investment for the Fund. However, the Fund will sell
promptly any securities that are not rated investment grade by either S&P or
Moody's if the securities exceed 5% of the Fund's net assets.
In selecting portfolio securities for the Fund, the Adviser's investment
policy committee develops an economic outlook and sets guidelines for the
industries and sectors in which the Fund should invest. In selecting equity
securities, the Adviser favors stocks with long-term growth potential that
are expected to outperform their peers over time. The Adviser also forecasts
the direction and degree of change in long-term interest rates to help in the
selection of fixed income securities.
-3-
<PAGE>
The Fund will sell a security when, as a result of changes in the economy, the
Adviser determines it appropriate to revise the allocation of the Fund's assets
between stocks and bonds. A security may also be sold as a result of a
deterioration in the performance of the security or in the financial condition
of the issuer of the security.
The Fund may trade its investments frequently in trying to achieve its
investment goal.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The value of fixed income investments such as bonds
are affected by movements in interest rates. Bond prices tend to fall when
interest rates rise and to rise when interest rates fall.
- - CREDIT RISK - The value of fixed income investments also depends on the
ability of an issuer to make principal and interest payments. If an issuer
can't meet its payment obligations or if its credit rating is lowered, the
value of its securities will decline. Debt securities which have the lowest
of the top four ratings assigned by S&P or Moody's have speculative
characteristics. Changes in the economy are more likely to affect the
ability of the issuers of these securities to make payments of principal
and interest than is the case with higher-rated securities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
fixed income investments held by the Fund to be paid off much sooner or
later than expected, which could adversely affect the Fund's value. In the
event that a security is paid off sooner than expected because of a decline
in interest rates, the Fund may be unable to recoup all of its initial
investment and may also suffer from having to reinvest in lower-yielding
securities. In the event of a later than expected payment because of a rise
in interest rates, the value of the obligation will decrease and the Fund
may suffer from the inability to invest in higher-yielding securities.
- - PORTFOLIO COMPOSITION - The level of risk could increase if a larger
percentage of the Fund is invested in one particular asset class, such as
stocks or bonds. However, asset allocation funds are generally less
volatile than portfolios that contain only stocks.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
-4-
<PAGE>
- - FREQUENT TRADING - Frequent trading of investments usually increases the
chance that the Fund will pay investors short-term capital gains. These
gains are taxable at higher rates than long-term capital gains. Frequent
trading could also mean higher brokerage commissions and other transaction
costs, which could reduce the Fund's returns.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares has varied from
year to year. The returns for Retail B Shares were different than the figures
shown because each class of shares has different expenses. The figures don't
include any sales charges that investors pay when buying or selling shares of
the Fund. If sales charges were included, the returns would be lower.
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
[bar chart goes here]
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
6.58% 8.08% -2.47% 30.29% 15.11% 19.76% 17.73% %
---- ---- ---- ---- ---- ---- ---- ----
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1999, as compared
to broad-based market indices. The returns for Retail A Shares of the Fund for
periods prior to December 1, 1995 have been restated to include the effect of
the maximum 3.75% front-end sales charge which went into effect on that date.
<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares % % % (12/30/91)
- -------------------------------------------------------------------------------------------------------------
-5-
<PAGE>
Retail B Shares % % % (3/4/96)
- -------------------------------------------------------------------------------------------------------------
S&P 500 % % % (since 12/31/91)
% (since 2/29/96)
- -------------------------------------------------------------------------------------------------------------
DJIA % % % (since 12/31/91)
% (since 2/29/96)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The S&P 500 is an unmanaged index that tracks the performance of 500 widely held
common stocks listed on the New York Stock Exchange, the American Stock Exchange
and NASDAQ. The S&P 500 is heavily weighted with the stocks of large companies.
[Sidenote:]
The Dow Jones Industrial Average (DJIA) is an unmanaged price-weighted average
based on the "price only" performance of 30 blue chip stocks.
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
MAXIMUM SALES CHARGE MAXIMUM DEFERRED SALES CHARGE
(LOAD) ON PURCHASES SHOWN (LOAD) SHOWN AS A % OF THE
AS A % OF THE OFFERING OFFERING PRICE OR SALE PRICE,
PRICE WHICHEVER IS LESS
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
- ------------------------------------------------------------------------------------------
Retail B Shares None 5.00%(3)
- ------------------------------------------------------------------------------------------
</TABLE>
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
DISTRIBUTION TOTAL FUND
MANAGEMENT AND SERVICE OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.75% None % %
- ------------------------------------------------------------------------------------------
Retail B Shares 0.75% 0.95% % %
- ------------------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds -
How sales charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the Funds
- How sales charges work."
-6-
<PAGE>
(3) This amount applies if you sell your shares in the first year after
purchase and gradually declines to 1% in the sixth year after purchase.
After six years, your Retail B Shares will automatically convert to Retail
A Shares. See "How to invest in the Funds - How sales charges work."
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your Retail B Shares convert to Retail A Shares after six years
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
Retail B Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
If you hold Retail B Shares, you would pay the following expenses if you didn't sell your shares:
- -------------------------------------------------------------------------------------------------------------
Retail B Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGERS
The Fund's portfolio managers are Donald Jones, a Vice President of the Adviser
since 1991, and David Lindsay, CFA, a Senior Vice President of the Adviser since
1992. They are primarily responsible for the day-to-day management of the Fund's
investment portfolio. Mr. Jones has managed the equity portion of the Fund's
portfolio, including determining the allocation of the Fund's assets between
equities and fixed income investments, since May of 1995. He has been with the
Adviser and its predecessors since 1977. Mr. Lindsay has managed the fixed
income portion of the Fund since January of 1997. He has been with the Adviser
and its predecessors since 1986.
-7-
<PAGE>
Galaxy Equity Income Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks current income and capital appreciation.
[Sidenote:]
CURRENT INCOME
Current income includes both dividends from stocks and interest income from
fixed income securities, after deducting Fund expenses.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 75% of its total assets in a diversified
portfolio of income-producing (dividend-paying) equity securities, primarily
common stocks. The Adviser looks for investments that offer dividends,
prospects for dividend growth and capital appreciation. However, the Fund's
portfolio may include securities that offer only growth potential or only
income potential.
The Fund will sell a portfolio security when, as a result of changes in the
economy, the Adviser believes that holding the security is no longer consistent
with the Fund's investment objective. A security may also be sold as a result of
a deterioration in the performance of the security or in the financial condition
of the issuer of the security.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risk:
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations will
prove to be inaccurate.
-8-
<PAGE>
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
Retail A Shares of the Fund were first issued during the fiscal year ending
October 31, 1992. The returns for Retail A Shares of the Fund for prior
periods represent the returns for Trust Shares of the Fund which are offered
in a separate prospectus. Prior to November 1, 1993, Retail A Shares and
Trust Shares of the Fund had the same returns because each class of shares
had the same expenses.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares has varied from
year to year. The returns for Retail B Shares would have been different than
the figures shown because each class of shares has different expenses. The
figures don't include any sales charges that investors pay when buying or
selling shares of the Fund. If sales charges were included, the returns would
be lower.
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
[bar chart goes here]
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
22.37% 7.43% 8.05% 0.75% 32.96% 16.53% 25.51% 15.63% %
---- ---- ---- ---- ---- ---- ---- ---- ----
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1999, as compared
to a broad-based market index. The returns for Retail A Shares of the Fund for
periods prior to December 1, 1995 have been
-9-
<PAGE>
restated to include the effect of the maximum 3.75% front-end sales charge which
went into effect on that date.
<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares % % % (12/14/90)
- -------------------------------------------------------------------------------------------------------------
Retail B Shares % % % (11/1/98)
- -------------------------------------------------------------------------------------------------------------
S&P 500 % % %(since 1/31/90)
% (since 10/31/98)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The S&P 500 is an unmanaged index that tracks the performance of 500 widely held
common stocks listed on the New York Stock Exchange, the American Stock Exchange
and NASDAQ. The S&P 500 is heavily weighted with the stocks of large companies.
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
MAXIMUM DEFERRED SALES CHARGE
MAXIMUM SALES CHARGE (LOAD) (LOAD) SHOWN AS A %
ON PURCHASES SHOWN AS A % OF OF THE OFFERING PRICE OR
OF THE OFFERING PRICE SALE PRICE, WHICHEVER IS LESS
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
- ------------------------------------------------------------------------------------------
Retail B Shares None 5.00%(3)
- ------------------------------------------------------------------------------------------
</TABLE>
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
DISTRIBUTION TOTAL FUND
MANAGEMENT AND SERVICE OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.75% None % %
- ------------------------------------------------------------------------------------------
Retail B Shares 0.75% 0.95% % %
- ------------------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds -
How sales charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the Funds
- How sales charges work."
-10-
<PAGE>
(3) This amount applies if you sell your shares in the first year after
purchase and gradually declines to 1% in the sixth year after purchase.
After six years, your Retail B Shares will automatically convert to Retail
A Shares. See "How to invest in the Funds - How sales charges work."
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your Retail B Shares convert to Retail A Shares after six years
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
Retail B Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
If you hold Retail B Shares, you would pay the following expenses if you didn't
sell your shares:
- -------------------------------------------------------------------------------------------------------------
Retail B Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is J. Edward Klisiewicz, a Senior Vice President of
the Adviser. He's primarily responsible for the day-to-day management of the
Fund's investment portfolio. Mr. Klisiewicz has been the Fund's portfolio
manager since it began operations in 1990. He has been with the Adviser and its
predecessors since 1970.
-11-
<PAGE>
Galaxy Growth and Income Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks to provide a relatively high total return through long-term
capital appreciation and current income.
[Sidenote:]
CURRENT INCOME
Current income includes both dividends from stocks and interest income from
fixed income securities, after deducting Fund expenses.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its total assets in the common
stocks of U.S. companies with large market capitalizations (generally over $2
billion) that the Adviser believes offer above-average growth and dividends.
The Adviser focuses on stocks which are believed to be attractively priced
relative to expectations for the future performance of the issuing company.
The Adviser also seeks a current yield greater than that of the S&P 500,
although not all Fund investments will pay dividends.
The Fund will sell a portfolio security when, as a result of changes in the
economy, the Adviser believes that holding the security is no longer consistent
with the Fund's investment objective. A security may also be sold as a result of
a deterioration in the performance of the security or in the financial condition
of the issuer of the security.
[Sidenote:]
MARKET CAPITALIZATION
A company's market capitalization is the price of a share of its stock,
multiplied by the number of shares held by investors.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
-12-
<PAGE>
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risk:
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares has varied from
year to year. The returns for Retail B Shares were different than the figures
shown because each class of shares has different expenses. The figures don't
include any sales charges that investors pay when buying or selling shares of
the Fund. If sales charges were included, the returns would be lower.
The Fund began operations on December 14, 1992 as a separate portfolio (the
Predecessor Fund) of The Shawmut Funds. 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 classes of shares, Investment Shares
(which were first offered on February 12, 1993) and Trust Shares (which were
first offered on December 14, 1992), that were similar to the Fund's Retail A
Shares and Trust Shares. In connection with the reorganization, shareholders of
the Predecessor Fund exchanged their Investment Shares and Trust Shares for
Retail A Shares and Trust Shares of the Fund. The returns for periods prior to
December 4, 1995 are for Investment Shares of the Predecessor Fund.
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
-13-
<PAGE>
[bar chart goes here]
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
4.83% 29.34% 19.85% 29.19% 15.71% %
- -------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1999, as compared
to a broad-based market index. The returns for Retail A Shares of the Fund for
periods prior to December 1, 1995 have been restated to include the effect of
the maximum 3.75% front-end sales charge which went into effect on that date.
<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares % % % (2/12/93)
- -------------------------------------------------------------------------------------------------------------
Retail B Shares % % % (3/4/96)
- -------------------------------------------------------------------------------------------------------------
S&P 500 % % % (since 1/31/93)
% (since 2/29/96)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The S&P 500 is an unmanaged index that tracks the performance of 500 widely held
common stocks listed on the New York Stock Exchange, the American Stock Exchange
and NASDAQ. The S&P 500 is heavily weighted with the stocks of large companies.
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
MAXIMUM SALES CHARGE MAXIMUM DEFERRED SALES
(LOAD)ON PURCHASES SHOWN CHARGE (LOAD) SHOWN AS A %
AS A % OF THE OF THE OFFERING PRICE OR
OFFERING PRICE SALE PRICE, WHICHEVER IS LESS
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
- ------------------------------------------------------------------------------------------
Retail B Shares None 5.00%(3)
- ------------------------------------------------------------------------------------------
</TABLE>
-14-
<PAGE>
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
DISTRIBUTION TOTAL FUND
MANAGEMENT AND SERVICE OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.75% None %(4) %(4)
- ------------------------------------------------------------------------------------------
Retail B Shares 0.75% 0.95% % %
- ------------------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds -
How sales charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the Funds
- How sales charges work."
(3) This amount applies if you sell your shares in the first year after
purchase and gradually declines to 1% in the sixth year after purchase.
After six years, your Retail B Shares will automatically convert to Retail
A Shares. See "How to invest in the Funds - How sales charges work."
(4) Affiliates of the Adviser are waiving a portion of the shareholder
servicing fees (that are included in Other expenses) for Retail A Shares so
that Other expenses for Retail A Shares are expected to be ____%. Total
Fund operating expenses for Retail A Shares after these fee waivers are
expected to be ____%. These fee waivers may be revised or discontinued at
any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your Retail B Shares convert to Retail A Shares after six years
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
Retail B Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
If you hold Retail B Shares, you would pay the following expenses if you didn't
sell your shares:
- -------------------------------------------------------------------------------------------------------------
Retail B Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
</TABLE>
-15-
<PAGE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Gregory M. Miller, a Vice President of the
Adviser since 1996. He's been primarily responsible for the day-to-day
management of the Fund's investment portfolio since July 1998. Before that, Mr.
Miller assisted his predecessor in managing the Fund for seven years. He joined
the Adviser in 1985.
-16-
<PAGE>
Galaxy Strategic Equity Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests at least 65% of its total assets in U.S. equity securities,
primarily common stock and securities that can be converted into common
stock. The Fund's "Value Driven Growth" investment process emphasizes
securities believed to have the potential for the best one- to two-year
returns. These securities are generally selected from a universe of large and
medium size companies representative of the S&P 500, although the universe of
stocks monitored by the Adviser is not limited to stocks of companies
included in the S&P 500. The Fund may invest up to 20% of its total assets in
foreign equity securities. In selecting individual stocks, the Adviser looks
at the current price, projected earnings growth, and historical valuations to
derive an estimate of return potential. The Fund may give emphasis to growth
stocks, value stocks or particular industries, depending upon the Adviser's
assessment of a stock's return potential relative to its price in the broader
market.
The Fund will sell a portfolio security when, as a result of a decline in the
security's return potential relative to that of other securities, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
[Sidenote:]
VALUE STOCKS AND GROWTH STOCKS
Value stocks are ones that appear to be underpriced based on measures such as
lower price-to-earnings and price-to-book value ratios. Growth stocks offer
strong revenue and earnings potential, and accompanying capital growth, with
generally less dividend income than value stocks.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
-17-
<PAGE>
In addition, the Fund also carries the following main risks:
- - CONVERTIBLE SECURITIES - Securities that can be converted into common
stock, such as certain debt securities and preferred stock, are subject to
the usual risks associated with fixed income investments, such as interest
rate risk and credit risk. In addition, because they react to changes in
the value of the equity securities into which they will convert,
convertible securities are also subject to stock market risk.
- - FOREIGN INVESTMENTS - Foreign investments may be riskier than U.S.
investments because of factors such as foreign government restrictions,
changes in currency exchange rates, incomplete financial information about
the issuers of securities, and political or economic instability. Foreign
stocks may be more volatile and less liquid than U.S. stocks.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows the performance of Retail A Shares during the last
calendar year. The return for Retail B Shares were different than the figure
shown because each class of shares has different expenses. The figure don't
include any sales charges that investors pay when buying or selling shares of
the Fund. If sales charges were included, the returns would be lower.
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
[bar chart goes here]
<TABLE>
<CAPTION>
1999
- -----------------
<S><C>
%
- -----------------
</TABLE>
-18-
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1999, as compared
to a broad-based market index. The returns for Retail A Shares of the Fund for
periods prior to December 1, 1995 have been restated to include the effect of
the maximum 3.75% front-end sales charge which went into effect on that date.
<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares % % (3/4/98)
- ----------------------------------------------------------------------------------------
Retail B Shares % % (3/4/98)
- ----------------------------------------------------------------------------------------
S&P 500 % % (since 2/28/98)
- ----------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The S&P 500 is an unmanaged index that tracks the performance of 500 widely held
common stocks listed on the New York Stock Exchange, the American Stock Exchange
and NASDAQ. The S&P 500 is heavily weighted with the stocks of large companies.
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
MAXIMUM DEFERRED SALES
MAXIMUM SALES CHARGE (LOAD) CHARGE (LOAD) SHOWN AS A %
ON PURCHASES SHOWN OF THE OFFERING PRICE OR
AS A % OF THE OFFERING PRICE SALE PRICE, WHICHEVER IS LESS
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
- ------------------------------------------------------------------------------------------
Retail B Shares None 5.00%(3)
- ------------------------------------------------------------------------------------------
</TABLE>
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
DISTRIBUTION TOTAL FUND
MANAGEMENT AND SERVICE OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.75%(4) None % %(4)
- ------------------------------------------------------------------------------------------
Retail B Shares 0.75%(4) 0.95% % %(4)
- ------------------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds -
How sales charges work."
-19-
<PAGE>
(2) Except for investments of $500,000 or more. See "How to invest in the Funds
- How sales charges work."
(3) This amount applies if you sell your shares in the first year after
purchase and gradually declines to 1% in the sixth year after purchase.
After six years, your Retail B Shares will automatically convert to Retail
A Shares. See "How to invest in the Funds - How sales charges work."
(4) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be ____%. Total Fund operating expenses after this waiver
are expected to be ____% for Retail A Shares and ____% for Retail B Shares.
This fee waiver may be revised or discontinued at any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your Retail B Shares convert to Retail A Shares after six years
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
Retail B Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
If you hold Retail B Shares, you would pay the following expenses if you didn't
sell your shares:
- -------------------------------------------------------------------------------------------------------------
Retail B Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Peter B. Hathaway, CFA, a Senior Vice President
of the Adviser. He's primarily responsible for the day-to-day management of the
Fund's investment portfolio. Mr. Hathaway has been the Fund's portfolio manager
since it began operations in March 1998. He has been in the investment
management business with the Adviser and its predecessors since 1965 and has
been responsible for the Adviser's "Value Driven Growth" investment process
since 1991.
-20-
<PAGE>
Galaxy Equity Value Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation. Income is secondary to the
objective of capital appreciation.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 75% of its total assets in equity securities,
mainly common stocks, that the Adviser believes are undervalued. The Fund
invests most of its assets in companies that have a market capitalization of
more than $1.5 billion.
The Adviser uses proprietary computer models to compare share price and company
value, both compared to the market and over time. This helps the Adviser to
identify out-of-favor, undervalued securities (often called value stocks) which
may subsequently increase in value. These models focus on fundamental aspects
such as earnings and dividend growth, reinvestment of returns and the ability of
companies to finance their own growth. The models also take into account factors
such as how easily the stocks may be traded. The Adviser then reviews the
results and looks for risks that may account for a stock's low price. It
evaluates factors the computer models can't measure, such as the quality of a
company's management and the impact of technological change. Stocks which pass
all tests are eligible to be included in the Fund's portfolio. Fund holdings are
frequently reviewed and are sold automatically when the computer models show
they are overvalued.
[Sidenote:]
MARKET CAPITALIZATION
A company's market capitalization is the price of a share of its stock,
multiplied by the number of shares held by investors.
[Sidenote:]
VALUE STOCKS
Value stocks are ones that appear to be underpriced based on measures such as
lower price-to-earnings and price-to-book value ratios.
-21-
<PAGE>
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risk:
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance
the Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
Retail A Shares of the Fund were first issued during the fiscal year ended
October 31, 1991. The returns for Retail A Shares of the Fund for prior
periods represent the returns for Trust Shares of the Fund which are offered
in a separate prospectus. Prior to November 1, 1993, Retail A Shares and
Trust Shares of the Fund had the same returns because each class of shares
had the same expenses.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares has varied from
year to year. The returns for Retail B Shares were different than the figures
shown because each class of shares has different expenses. The figures don't
include any sales charges that investors pay when buying or selling shares of
the Fund. If sales charges were included, the returns would be lower.
-22-
<PAGE>
[Sidenote:]
BEST QUARTER:
% FOR THE QUARTER ENDING ,
WORST QUARTER:
% FOR THE QUARTER ENDING ,
[bar chart goes here]
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-3.20% 23.36% 8.21% 14.75% 3.51% 27.78% 21.09% 27.66% 23.75% %
- -------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1999, as compared
to broad-based market indices. The returns for Retail A Shares of the Fund for
periods prior to December 1, 1995 have been restated to include the effect of
the maximum 3.75% front-end sales charge which went into effect on that date.
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares % % % % (9/1/88)
- -----------------------------------------------------------------------------------------------------------------
Retail B Shares % % (3/4/96)
- -----------------------------------------------------------------------------------------------------------------
S&P 500 % % % % (since 9/1/88)
% (since 2/29/96)
- -----------------------------------------------------------------------------------------------------------------
Lipper Growth and Income % % % % (since 9/1/88)
Funds Average % (since 2/29/96)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The S&P 500 is an unmanaged index that tracks the performance of 500 widely held
common stocks listed on the New York Stock Exchange, the American Stock Exchange
and NASDAQ. The S&P 500 is heavily weighted with the stocks of large companies.
[Sidenote:]
The Lipper Growth and Income Funds Average is an unmanaged index that measures
the performance of a select group of mutual funds with investment objectives
similar to that of the Fund.
-23-
<PAGE>
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
MAXIMUM DEFERRED SALES
MAXIMUM SALES CHARGE (LOAD) CHARGE (LOAD) SHOWN AS A %
ON PURCHASES SHOWN OF THE OFFERING PRICE OR
AS A % OF THE OFFERING PRICE SALE PRICE, WHICHEVER IS LESS
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
- ------------------------------------------------------------------------------------------
Retail B Shares None 5.00%(3)
- ------------------------------------------------------------------------------------------
</TABLE>
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
DISTRIBUTION TOTAL FUND
MANAGEMENT AND SERVICE OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.75% None % %
- ------------------------------------------------------------------------------------------
Retail B Shares 0.75% 0.95% % %
- ------------------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds -
How sales charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the Funds
- How sales charges work."
(3) This amount applies if you sell your shares in the first year after
purchase and gradually declines to 1% in the sixth year after purchase.
After six years, your Retail B Shares will automatically convert to Retail
A Shares. See "How to invest in the Funds - How sales charges work."
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your Retail B Shares convert to Retail A Shares after six years
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
-24-
<PAGE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
Retail B Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
If you hold Retail B Shares, you would pay the following expenses if you didn't
sell your shares:
- -------------------------------------------------------------------------------------------------------------
Retail B Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is G. Jay Evans, CFA, a Senior Vice President of
the Adviser since 1994. He's primarily responsible for the day-to-day management
of the Fund's investment portfolio. Mr. Evans has been the Fund's portfolio
manager since 1993. He has been with the Adviser and its predecessors since
1978.
-25-
<PAGE>
Galaxy Equity Growth Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 75% of its total assets in a broadly
diversified portfolio of equity securities, primarily common stocks and
securities that can be converted into common stocks. The Fund invests mainly in
the securities of U.S. issuers, but may invest up to 20% of its total assets in
foreign securities.
The Fund invests mainly in companies which the Adviser believes will have faster
earnings growth than the economy in general. The Adviser looks for
large-capitalization companies (generally over $2 billion) in growing
industries, focusing on technological advances, good product development, strong
management and other factors which support future growth. The Adviser seeks out
companies that have a history of strong earnings growth and are projected to
continue a similar pattern of growth over the next three to five years.
The Fund will sell a security if there is an adverse change in the projected
earnings growth of the company issuing the security. A security will also be
sold when, as a result of changes in the economy or the performance of the
security or other circumstances, the Adviser believes that holding the security
is no longer consistent with the Fund's investment objective.
[Sidenote:]
GROWTH STOCKS
Growth stocks offer strong revenue and earnings potential, and accompanying
capital growth, with generally less dividend income than value stocks.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
-26-
<PAGE>
In addition, the Fund also carries the following main risks:
- - CONVERTIBLE SECURITIES - Securities that can be converted into common
stock, such as certain debt securities and preferred stock, are subject to
the usual risks associated with fixed income investments, such as interest
rate risk and credit risk. In addition, because they react to changes in
the value of the equity securities into which they will convert,
convertible securities are also subject to stock market risk.
- - FOREIGN INVESTMENTS - Foreign investments may be riskier than U.S.
investments because of factors such as foreign government restrictions,
changes in currency exchange rates, incomplete financial information about
the issuers of securities, and political or economic instability. Foreign
stocks may be more volatile and less liquid than U.S. stocks.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
Retail A Shares of the Fund were first issued during the fiscal year ended
October 31, 1991. The returns for Retail A Shares of the Fund for prior
periods represent the returns for Trust Shares of the Fund which are offered
in a separate prospectus. Prior to November 1, 1993, Retail A Shares and
Trust Shares of the Fund had the same returns because each class of shares
had the same expenses.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares has varied from
year to year. The returns for Retail B Shares were different than the figures
shown because each class of shares has different expenses. The figures don't
include any sales charges that investors pay when buying or selling shares of
the Fund. If sales charges were included, the returns would be lower.
-27-
<PAGE>
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
[bar chart goes here]
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996 1997 1998 1999
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
30.40% 6.11% 5.37% 0.60% 33.66% 20.46% 30.43% 25.66% %
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1999, as compared
to a broad-based market index. The returns for Retail A Shares of the Fund for
periods prior to December 1, 1995 have been restated to include the effect of
the maximum 3.75% front-end sales charge which went into effect on that date.
<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares % % % (12/14/90)
- -------------------------------------------------------------------------------------------------------------
Retail B Shares % % % (3/4/96)
- -------------------------------------------------------------------------------------------------------------
S&P 500 % % % (since 11/30/90)
% since (2/29/96)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The S&P 500 is an unmanaged index that tracks the performance of 500 widely held
common stocks listed on the New York Stock Exchange, the American Stock Exchange
and NASDAQ. The S&P 500 is heavily weighted with the stocks of large companies.
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
-28-
<PAGE>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
MAXIMUM DEFERRED SALES
MAXIMUM SALES CHARGE (LOAD) CHARGE (LOAD) SHOWN AS A %
ON PURCHASES SHOWN OF THE OFFERING PRICE OR
AS A % OF THE OFFERING PRICE SALE PRICE, WHICHEVER IS LESS
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
- ------------------------------------------------------------------------------------------
Retail B Shares None 5.00%(3)
- ------------------------------------------------------------------------------------------
</TABLE>
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
DISTRIBUTION TOTAL FUND
MANAGEMENT AND SERVICE OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.75% None % %
- ------------------------------------------------------------------------------------------
Retail B Shares 0.75% 0.95% % %
- ------------------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds -
How sales charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the Funds
- How sales charges work."
(3) This amount applies if you sell your shares in the first year after
purchase and gradually declines to 1% in the sixth year after purchase.
After six years, your Retail B Shares will automatically convert to Retail
A Shares. See "How to invest in the Funds - How sales charges work."
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your Retail B Shares convert to Retail A shares after six years
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
Retail B Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
If you hold Retail B Shares, you would pay the following expenses if you didn't
sell your shares:
- -------------------------------------------------------------------------------------------------------------
Retail B Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
</TABLE>
-29-
<PAGE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Robert G. Armknecht, CFA, an Executive Vice
President of the Adviser since 1988. He's primarily responsible for the
day-to-day management of the Fund's investment portfolio. Mr. Armknecht has been
with the Adviser and its predecessors since 1988 and has been the Fund's
portfolio manager since it began operations in 1990.
-30-
<PAGE>
Galaxy International Equity Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 75% of its total assets in the equity
securities of foreign issuers. At all times, the Fund's assets will be invested
in companies located in at least three different foreign countries. Normally, no
more than 20% of the Fund's total assets will be invested in companies located
in countries with emerging economies or emerging securities markets. The Fund
emphasizes larger established companies, although it may invest in companies of
any size. The Fund may engage in transactions for the purpose of hedging its
portfolio, such as options, futures and foreign currencies.
The Sub-Adviser determines how much to invest in each country and region by
looking at factors such as prospects for economic growth, expected inflation
levels, government policies and the range of investment opportunities available.
Decisions as to particular investments are made with the guidance of the
Sub-Adviser's Investment Strategy Committee under the supervision of the
Adviser. The Sub-Adviser looks at the potential return of each investment over a
one- to two-year period.
The Fund will sell a security if, as a result of changes in the economy of a
particular country or region, the Sub-Adviser believes that holding the security
is no longer consistent with the Fund's investment objective. A security may
also be sold as a result of a deterioration in the performance of the security
or in the financial condition of the company that issued the security.
[Sidenote:]
SUB-ADVISER
The Adviser has appointed Oechsle International Advisors, LLC as Sub-Adviser to
assist it in the day-to-day management of the Fund's investment portfolio.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. U.S. and foreign stock markets tend to move in cycles, with
periods of rising prices and periods of falling prices.
-31-
<PAGE>
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risks:
- - FOREIGN INVESTMENTS - Foreign investments may be riskier than U.S.
investments because of factors such as foreign government restrictions,
changes in currency exchange rates, incomplete financial information about
the issuers of securities, and political or economic instability. Foreign
stocks may be more volatile and less liquid than U.S. stocks.
- - EMERGING MARKETS - The risks associated with foreign investments are
heightened when investing in emerging markets. The governments and
economies of emerging market countries feature greater instability than
those of more developed countries. Such investments tend to fluctuate in
price more widely and to be less liquid than other foreign investments.
- - COUNTRY RISK - The Fund may invest 25% or more of its assets in the
securities of companies located in one country. When the Fund invests a
high percentage of its assets in a particular country, the Fund will be
especially susceptible to factors affecting that country.
- - CURRENCY EXCHANGE - Although the Fund usually makes investments that are
sold in foreign currencies, it values its holdings in U.S. dollars. If the
U.S. dollar rises compared to a foreign currency, the Fund loses on the
currency exchange.
- - HEDGING - The Fund may invest in derivatives, such as options, futures and
foreign currencies, to hedge against market risk or the currency risk of
its foreign investments. There's no guarantee hedging will always work. It
can also prevent the Fund from making a gain if markets move in the
opposite direction to the hedge.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
[Sidenote:]
DERIVATIVES
A derivative is an investment whose value is based on or DERIVED from the
performance of other securities or interest or currency exchange rates or
indices. Derivatives are considered to carry a higher degree of risk than other
types of securities.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
-32-
<PAGE>
YEAR-BY-YEAR TOTAL RETURNS-CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares has varied from year
to year, thereby giving some indication of the risk of investing in the Fund.
The returns for Retail B Shares would have been different than the figures shown
because each class of shares has different expenses. The figures don't include
any sales charges that investors pay when buying or selling shares of the Fund.
If sales charges were included, the returns would be lower.
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
[bar chart goes here]
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997 1998 1999
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
-2.29% 31.62% -2.54% 11.04% 10.03% 13.59% 21.24% %
- ---------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1999, as compared
to a broad-based market index. The returns for Retail A Shares of the Fund for
periods prior to December 1, 1995 have been restated to include the effect of
the maximum 3.75% front-end sales charge which went into effect on that date.
<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares % % % (12/30/91)
- -------------------------------------------------------------------------------------------------------------
Retail B Shares % % % (11/1/98)
- -------------------------------------------------------------------------------------------------------------
MSCI EAFE Index % % % (since 12/31/91)
% (since 10/31/98)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The Morgan Stanley Capital International Europe, Australasia and Far East (MSCI
EAFE) Index is an unmanaged index which tracks the performance of selected
equity securities in Europe, Australia and the Far East.
-33-
<PAGE>
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
MAXIMUM DEFERRED SALES
MAXIMUM SALES CHARGE (LOAD) CHARGE (LOAD) SHOWN AS A %
ON PURCHASES SHOWN OF THE OFFERING PRICE OR
AS A % OF THE OFFERING PRICE SALE PRICE, WHICHEVER IS LESS
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
- ------------------------------------------------------------------------------------------
Retail B Shares None 5.00%(3)
- ------------------------------------------------------------------------------------------
</TABLE>
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
DISTRIBUTION TOTAL FUND
MANAGEMENT AND SERVICE OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.90%(4) None % %(4)
- ------------------------------------------------------------------------------------------
Retail B Shares 0.90%(4) 0.95% % %(4)
- ------------------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds -
How sales charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the Funds
- How sales charges work."
(3) This amount applies if you sell your shares in the first year after
purchase and gradually declines to 1% in the sixth year after purchase.
After six years, your Retail B Shares will automatically convert to Retail
A Shares. See "How to invest in the Funds - How sales charges work."
(4) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be ____%. Total Fund operating expenses after this waiver
are expected to be ____% for Retail A Shares and ____% for Retail B Shares.
This fee waiver may be revised or discontinued at any time.
-34-
<PAGE>
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your Retail B Shares convert to Retail A Shares after six years
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
Retail B Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
If you hold Retail B Shares, you would pay the following expenses if you didn't
sell your shares:
- -------------------------------------------------------------------------------------------------------------
Retail B Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGERS
The Fund's portfolio managers are Singleton Dewey Keesler, Jr. and Kathleen
Harris, CFA. They're primarily responsible for the day-to-day management of the
Fund's investment portfolio. Mr. Keesler is Chief Investment Officer and
portfolio manager/research analyst with the Sub-Adviser. He has been associated
with the Sub-Adviser and its predecessor since 1986. Ms. Harris has been a
portfolio manager at the Sub-Adviser and its predecessor since January of 1995.
She was previously portfolio manager and investment director for the State of
Wisconsin Investment Board. Mr. Keesler and Ms. Harris have co-managed the Fund
since August of 1996.
-35-
<PAGE>
Galaxy Small Cap Value Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks to provide long-term capital appreciation.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests mainly in the common stocks of small companies that the Adviser
believes are undervalued. Under normal market conditions, the Fund invests at
least 65% of its total assets in the common stocks of companies that have market
capitalizations of $1.5 billion or less. The Fund invests primarily in the
common stock of U.S. issuers, but may invest up to 20% of its total assets in
foreign equity securities.
In selecting portfolio securities for the Fund, the Adviser looks at the
underlying strength of companies, their products, their competitive positions
and the quality of their management. It also does research to attempt to
identify companies likely to benefit from emerging industry trends and potential
market recoveries.
A portfolio security may be sold if the Adviser determines that it is no longer
undervalued or if there has been a deterioration in the performance of the
security or in the financial condition of the company that issued the security.
[Sidenote:]
MARKET CAPITALIZATION
A company's market capitalization is the price of a share of its stock,
multiplied by the number of shares held by investors.
[Sidenote:]
VALUE STOCKS
Value stocks are ones that appear to be underpriced based on measures such as
lower price-to-earnings and price-to-book value ratios.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
-36-
<PAGE>
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
In addition, the Fund also carries the following risks:
- - SMALL COMPANIES RISK - Smaller companies tend to have limited resources,
product lines and market share. As a result, their share prices tend to
fluctuate more than those of larger companies. Their shares may also trade
less frequently and in limited volume, making them potentially less liquid.
The price of small company stocks might fall regardless of trends in the
broader market.
- - FOREIGN INVESTMENTS - Foreign investments may be riskier than U.S.
investments because of factors such as foreign government restrictions,
changes in currency exchange rates, incomplete financial information about
the issuers of securities, and political or economic instability. Foreign
stocks may be more volatile and less liquid than U.S. stocks.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares has varied from
year to year. The returns for Retail B Shares would have been different than
the figures shown because each class of shares has different expenses. The
figures don't include any sales charges that investors pay when buying or
selling shares of the Fund. If sales charges were included, the returns would
be lower.
The Fund began operations on December 14, 1992 as a separate portfolio (the
Predecessor Fund) of The Shawmut Funds. 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 classes of shares, Investment Shares
(which were first offered on February 12, 1993) and Trust Shares (which were
first offered on December 14, 1992), that were similar to the Fund's Retail A
Shares and Trust Shares. In connection with the reorganization, shareholders of
the Predecessor Fund exchanged their Investment Shares and Trust Shares for
Retail A Shares and Trust Shares of the Fund. The returns for the periods prior
to December 4, 1995 are for Investment Shares of the Predecessor Fund.
-37-
<PAGE>
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
[bar chart goes here]
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
0.32% 31.49% 26.74% 31.23% -5.66% %
- --------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1999, as compared
to broad-based market indices. The returns for Retail A Shares of the Fund for
periods prior to December 1, 1995 have been restated to include the effect of
the maximum 3.75% front-end sales charge which went into effect on that date.
<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares % % % (2/12/93)
- -------------------------------------------------------------------------------------------------------------
Retail B Shares % % % (11/1/98)
- -------------------------------------------------------------------------------------------------------------
Russell 2000 Index % % % (since 1/31/93)
% since 10/31/98)
- -------------------------------------------------------------------------------------------------------------
S&P 600 % % % (since 1/31/93)
% (since 10/31/98)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The Russell 2000 Index is an unmanaged index that tracks the performance of
the 2,000 smallest of the 3,000 largest U.S. companies, based on market
capitalization. Companies included in the Russell 2000 Index have market
capitalizations that range between $30 million and $1.4 billion.
[Sidenote:]
The Standard & Poor's SmallCap 600 Composite Index (S&P 600) is an unmanaged
index that tracks the performance of 600 domestic companies traded on the New
York Stock Exchange, the American Stock Exchange and NASDAQ. The S&P 600 is
heavily weighted with the stocks of small companies with market
capitalizations that currently range between $32.9 million and $2.9 billion.
-38-
<PAGE>
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
MAXIMUM DEFERRED SALES
MAXIMUM SALES CHARGE (LOAD) CHARGE (LOAD) SHOWN AS A %
ON PURCHASES SHOWN OF THE OFFERING PRICE OR
AS A % OF THE OFFERING PRICE SALE PRICE, WHICHEVER IS LESS
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
- ------------------------------------------------------------------------------------------
Retail B Shares None 5.00%(3)
- ------------------------------------------------------------------------------------------
</TABLE>
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
DISTRIBUTION TOTAL FUND
MANAGEMENT AND SERVICE OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.75% None %(4) %(4)
- ------------------------------------------------------------------------------------------
Retail B Shares 0.75% 0.95% % %
- ------------------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds -
How sales charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the Funds
- How sales charges work."
(3) This amount applies if you sell your shares in the first year after
purchase and gradually declines to 1% in the sixth year after purchase.
After six years, your Retail B Shares will automatically convert to Retail
A Shares. See "How to invest in the Funds - How sales charges work."
(4) Affiliates of the Adviser are waiving a portion of the shareholder
servicing fees (that are included in Other expenses) for Retail A Shares so
that Other expenses are expected to be ____%. Total Fund operating expenses
for Retail A Shares after these fee waivers are expected to be ____%. These
fee waivers may be revised or discontinued at any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your Retail B Shares convert to Retail A Shares after six years
-39-
<PAGE>
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
Retail B Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
If you hold Retail B Shares, you would pay the following expenses if you didn't
sell your shares:
- -------------------------------------------------------------------------------------------------------------
Retail B Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Peter Larson, a Vice President of the Adviser.
He's primarily responsible for the day-to-day management of the Fund's
investment portfolio. Mr. Larson has been with the Adviser and its predecessors
since 1963 and has managed the Fund, including the Predecessor Fund, since it
began operations in 1992.
-40-
<PAGE>
Galaxy Small Company Equity Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks capital appreciation.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its total assets in the equity
securities, primarily common stocks, of small companies that have market
capitalizations of $1.5 billion or less. The Fund invests primarily in the
common stock of U.S. companies, but may invest up to 20% of its total assets in
foreign equity securities.
In selecting investments for the Fund, the Adviser looks for promising
industries. It then looks within those industries for what are judged to be
reasonably priced companies that have above-average growth potential. The
Adviser consults a wide range of sources, including management, competitors,
other industry sources and regional brokerage analysts.
The Fund will sell a portfolio security when, as a result of changes in the
economy, the Adviser believes that holding the security is no longer consistent
with the Fund's investment objective. A security may also be sold as a result of
a deterioration in the performance of the security or in the financial condition
of the issuer of the security.
[Sidenote:]
MARKET CAPITALIZATION
A company's market capitalization is the price of a share of its stock,
multiplied by the number of shares held by investors.
[Sidenote:]
GROWTH STOCKS
Growth stocks offer strong revenue and earnings potential, and accompanying
capital growth, with generally less dividend income than value stocks.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
-41-
<PAGE>
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risks:
- - SMALL COMPANIES RISK - Smaller companies tend to have limited resources,
product lines and market share. As a result, their share prices tend to
fluctuate more than those of larger companies. Their shares may also trade
less frequently and in limited volume, making them potentially less liquid.
The price of small company stocks might fall regardless of trends in the
broader market.
- - FOREIGN INVESTMENTS - Foreign investments may be riskier than U.S.
investments because of factors such as foreign government restrictions,
changes in currency exchange rates, incomplete financial information about
the issuers of securities, and political or economic instability. Foreign
stocks may be more volatile and less liquid than U.S. stocks.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares has varied from year
to year, thereby giving some indication of the risk of investing in the Fund.
The returns for Retail B Shares were different than the figures shown because
each class of shares has different expenses. The figures don't include any sales
charges that investors pay when buying or selling shares of the Fund. If sales
charges were included, the returns would be lower.
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
[bar chart goes here]
-42-
<PAGE>
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997 1998 1999
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1.20% 22.75% -0.06% 38.80% 20.84% 14.17% -10.94% %
- ---------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1999, as compared
to a broad-based market index. The returns for Retail A Shares of the Fund for
periods prior to December 1, 1995 have been restated to include the effect of
the maximum 3.75% front-end sales charge which went into effect on that date.
<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares % % % (12/30/91)
- -------------------------------------------------------------------------------------------------------------
Retail B Shares % % % (3/4/96)
- -------------------------------------------------------------------------------------------------------------
Russell 2000 Index % % % (since 12/31/91)
% (since 2/29/96)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The Russell 2000 Index is an unmanaged index that tracks the performance of
the 2,000 smallest of the 3,000 largest U.S. companies, based on market
capitalization. Companies included in the Russell 2000 Index have market
capitalizations that currently range between $30 million and $1.4 billion.
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
MAXIMUM DEFERRED SALES
MAXIMUM SALES CHARGE (LOAD) CHARGE (LOAD) SHOWN AS A %
ON PURCHASES SHOWN OF THE OFFERING PRICE OR
AS A % OF THE OFFERING PRICE SALE PRICE, WHICHEVER IS LESS
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
- ------------------------------------------------------------------------------------------
Retail B Shares None 5.00%(3)
- ------------------------------------------------------------------------------------------
</TABLE>
-43-
<PAGE>
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
DISTRIBUTION TOTAL FUND
MANAGEMENT AND SERVICE OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.75% None %(4) %(4)
- ------------------------------------------------------------------------------------------
Retail B Shares 0.75% 0.95%(4) % %(4)
- ------------------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds -
How sales charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the Funds
- How sales charges work."
(3) This amount applies if you sell your shares in the first year after
purchase and gradually declines to 1% in the sixth year after purchase.
After six years, your Retail B Shares will automatically convert to Retail
A Shares. See "How to invest in the Funds - How sales charges work."
(4) Affiliates of the Adviser are waiving a portion of the shareholder
servicing fees (that are included in Other expenses) for Retail A Shares so
that Other expenses for Retail A Shares are expected to be ____%.
Affiliates of the Adviser are also waiving a portion of the Distribution
and service (12b-1) fees for Retail B Shares so that such fees are expected
to be ____%. Total Fund operating expenses after these fee waivers are
expected to be ____% for Retail A Shares and ____% for Retail B Shares.
These fee waivers may be revised or discontinued at any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your Retail B Shares convert to Retail A Shares after six years
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
Retail B Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
If you hold Retail B Shares, you would pay the following expenses if you didn't
sell your shares:
- -------------------------------------------------------------------------------------------------------------
Retail B Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
</TABLE>
-44-
<PAGE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Stephen D. Barbaro, CFA, a Senior Vice
President of the Adviser since 1996. He's primarily responsible for the
day-to-day management of the Fund's investment portfolio. Mr. Barbaro has
been the Fund's portfolio manager since it began operations in 1991. He has
been with the Adviser and its predecessors since 1976.
-45-
<PAGE>
ADDITIONAL INFORMATION ABOUT RISK
The main risks associated with an investment in each of the Galaxy Equity Funds
have been described above. The following supplements that discussion.
TEMPORARY DEFENSIVE POSITIONS
Each Fund may temporarily hold up to 100% of its total assets in investments
that are not part of its principal investment strategy to try to avoid losses
during unfavorable market conditions. These investments may include cash (which
will not earn any income), money market instruments, debt securities issued or
guaranteed by the U.S. Government or its agencies and, in the case of the
International Equity Fund, foreign money market instruments, debt securities of
foreign national governments and their agencies, and the securities of U.S.
issuers. This strategy could prevent a Fund from achieving its investment
objective and could reduce the Fund's return and affect its performance during a
market upswing.
OTHER TYPES OF INVESTMENTS
This prospectus describes each Fund's main investment strategies and the
particular types of securities in which each Fund mainly invests. Each Fund
may, from time to time, pursue other investment strategies and make other
types of investments in support of its overall investment goal. These
supplemental investment strategies, which are not considered to be main
investment strategies of the Fund - and the risks involved - are described in
detail in the Statement of Additional Information (SAI) which is referred to
on the back cover of this prospectus.
-46-
<PAGE>
INVESTOR GUIDELINES
The following table gives you a general overview of the risk spectrum for the
Galaxy Equity Funds. This is a guide only. It shows the Adviser's current
assessment of the potential risk of the Funds relative to one another, but this
can change over time. It should not be used to compare the Funds with other
mutual funds or other types of investments. Consult your financial professional
to help you decide which Fund is right for you.
<TABLE>
<CAPTION>
RISK SPECTRUM FUND PRIMARY INVESTMENTS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Asset Allocation Common stocks and fixed income
securities of domestic companies
----------------------------------------------------------------------------
Conservative Equity Income Common stocks of domestic companies
selected primarily for their income
potential
----------------------------------------------------------------------------
Growth and Income Common stocks of companies selected for
their growth and income potential
----------------------------------------------------------------------------
Strategic Equity Equity securities of large and medium
sized growth companies that exhibit above-
average return potential relative to their
market price.
----------------------------------------------------------------------------
Moderate Equity Value Common stocks of large and medium sized
companies believed to be undervalued
----------------------------------------------------------------------------
Equity Growth Equity securities of growth-oriented
companies
----------------------------------------------------------------------------
International Equity Equity securities of foreign companies
----------------------------------------------------------------------------
Aggressive Small Cap Value Common stocks of smaller companies
believed to be undervalued
----------------------------------------------------------------------------
Small Company Equity Common stocks of smaller
growth-oriented companies
- -------------------------------------------------------------------------------------------------------------
</TABLE>
-47-
<PAGE>
FUND MANAGEMENT
ADVISER
The Adviser, subject to the general supervision of Galaxy's Board of Trustees,
manages each Fund in accordance with its investment objective and policies,
makes decisions with respect to and places orders for all purchases and sales of
its portfolio securities, and maintains related records.
The management fees paid to the Adviser by the Funds during the last fiscal year
are set forth below.
<TABLE>
<CAPTION>
MANAGEMENT FEE AS
FUND A % OF AVERAGE NET ASSETS
- ----------------------------------------------
<S> <C>
Asset Allocation %
- ----------------------------------------------
Equity Income %
- ----------------------------------------------
Growth and Income %
- ----------------------------------------------
Strategic Equity %
- ----------------------------------------------
Equity Value %
- ----------------------------------------------
Equity Growth %
- ----------------------------------------------
International Equity %
- ----------------------------------------------
Small Cap Value %
- ----------------------------------------------
Small Company Equity %
- ----------------------------------------------
</TABLE>
SUB-ADVISER
The Adviser has delegated some of its advisory responsibilities with respect to
the International Equity Fund to Oechsle International Advisors, LLC as
Sub-Adviser. The Sub-Adviser determines which securities will be purchased,
retained or sold for the Fund, places orders for the Fund and provides the
Adviser with information on international investment and economic developments.
The Adviser assists and consults with the Sub-Adviser as to the Fund's
investment program, approves the list of foreign countries recommended by the
Sub-Adviser for investment and manages the Fund's daily cash position. The
Sub-Adviser's fees are paid by the Adviser.
The Sub-Adviser has its main office at One International Place, Boston,
Massachusetts 02210. The Sub-Adviser is the successor to Oechsle International
Advisors, L.P., an international investment firm founded in 1986. At December
31, 1999, the Sub-Adviser had discretionary management authority over
approximately $__ billion in assets. The Adviser's parent company, FleetBoston
Corporation, owns an interest in the Sub-Adviser.
-48-
<PAGE>
ALLOCATION OF ORDERS FOR PORTFOLIO SECURITIES
The Adviser and Sub-Adviser may allocate orders for the purchase and sale of
portfolio securities to certain financial institutions, including those that are
affiliated with the Adviser or Sub-Adviser or that have sold shares of the
Funds, to the extent permitted by law or by order of the Securities and Exchange
Commission. The Adviser and Sub-Adviser will allocate orders to such
institutions only if they believe that the quality of the transaction and the
commission are comparable to what they would be with other qualified brokerage
firms.
-49-
<PAGE>
HOW TO INVEST IN THE FUNDS
HOW SALES CHARGES WORK
You will normally pay a sales charge to invest in the Funds. If you buy Retail A
Shares, you'll usually pay a sales charge (sometimes called a front-end load) at
the time you buy your shares. If you buy Retail B Shares, you may have to pay a
contingent deferred sales charge (sometimes called a back-end load or CDSC) when
you sell your shares. This section explains these two options.
[Sidenote:]
NET ASSET VALUE
The price you pay for your shares is based on the net asset value per share
(NAV). It's the value of a Fund's assets attributable to Retail A Shares or
Retail B Shares, minus the value of the Fund's liabilities attributable to
Retail A Shares or Retail B Shares, divided by the number of Retail A Shares or
Retail B Shares held by investors.
RETAIL A SHARES
The table below shows the sales charge you'll pay if you buy Retail A Shares of
the Funds. The offering price is the NAV of the shares purchased, plus any
applicable sales charge.
TOTAL SALES CHARGE
----------------------------------------------
AS A % OF AS A % OF
AMOUNT OF THE OFFERING PRICE YOUR
YOUR INVESTMENT PER SHARE INVESTMENT
- --------------------------------------------------------------------
Less than $50,000 3.75% 3.90%
- --------------------------------------------------------------------
$50,000 but less
than $100,000 3.50% 3.63%
- --------------------------------------------------------------------
$100,000 but less
than $250,000 3.00% 3.09%
- --------------------------------------------------------------------
$250,000 but less
than $500,000 2.50% 2.56%
- --------------------------------------------------------------------
$500,000 and over 0.00%(1) 0.00%(1)
- --------------------------------------------------------------------
(1) There is no front-end sales charge on investments in Retail A Shares of
$500,000 or more. However, if you sell the shares within one year after
buying them, you'll pay a CDSC of 1% of the offering price or 1% of the net
asset value of your shares, whichever is less, unless the shares were sold
because of the death or disability of the shareholder. In addition, Galaxy
will waive the 1% CDSC on your initial sale of shares. This waiver will not
apply to amounts reinvested within one year following your initial sale of
shares.
-50-
<PAGE>
Galaxy's distributor may, from time to time, implement programs under which a
broker-dealer's sales force may be eligible to win nominal awards for certain
sales efforts. If any such program is made available to any broker-dealer, it
will be made available to all broker-dealers on the same terms. Payments made
under such programs are made by Galaxy's distributor 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.
Certain affiliates of the Adviser may, at their own expense, provide additional
compensation to affiliated broker-dealers whose customers purchase significant
amounts of Retail A Shares of one or more Funds and to unaffiliated
broker-dealers whose customers purchase Retail A Shares of one or more of the
Funds. Such compensation will not represent an additional expense to the Funds
or their shareholders, since it will be paid from the assets of the Adviser's
affiliates.
There's no sales charge when you buy Retail A Shares if:
- - you buy shares by reinvesting your dividends and distributions
- - you were a Galaxy shareholder before December 1, 1995
- - you buy shares for a 401(k) or SIMPLE IRA retirement account
- - you buy shares for any retirement account provided that you held Retail A
Shares in a retirement account prior to January 1, 1999
- - you buy shares for any retirement account and your total cumulative Retail
A Share retirement account balance was $30,000 or more between January 1,
1999 and June 30, 1999
- - you buy shares with money from another Galaxy Fund on which you've already
paid a sales charge (as long as you buy the new shares within 90 days after
selling your other shares)
- - you previously paid a sales charge for the shares of another mutual fund
company (as long as you buy the Galaxy shares within 60 days of selling
your other shares)
- - you're an investment professional who places trades for your clients and
charges them a fee
- - you buy shares under an all-inclusive fee program (sometimes called a "wrap
fee program") offered by a broker-dealer or other financial institution
[Sidenote:]
Ask your investment professional or Galaxy's distributor, or consult the SAI for
other instances in which the sales load on Retail A Shares is waived. When you
buy your shares, you must tell your investment professional or Galaxy's
distributor that you qualify for a sales load waiver. To contact Galaxy's
distributor, call 1-877-BUY- GALAXY (1-877-289-4252).
-51-
<PAGE>
RETAIL B SHARES
If you buy Retail B Shares of the Funds, you won't pay a CDSC unless you sell
your shares within six years of buying them. The following table shows the
schedule of CDSC charges:
<TABLE>
<CAPTION>
IF YOU SELL
YOUR SHARES YOU'LL PAY A CDSC OF
- ----------------------------------------------
<S> <C>
During the first year 5.00%
- ----------------------------------------------
During the second year 4.00%
- ----------------------------------------------
During the third year 3.00%
- ----------------------------------------------
During the fourth year 3.00%
- ----------------------------------------------
During the fifth year 2.00%
- ----------------------------------------------
During the sixth year 1.00%
- ----------------------------------------------
After the sixth year None
- ----------------------------------------------
</TABLE>
For purposes of calculating the CDSC, all purchases made during a calendar month
are considered to be made on the first day of that month. The CDSC is based on
the value of the Retail B Shares on the date that they are sold or the original
cost of the shares, whichever is lower. To keep your CDSC as low as possible
each time you sell shares, Galaxy will first sell any shares in your account
that are not subject to a CDSC. If there are not enough of these, Galaxy will
sell those shares that have the lowest CDSC. There is no CDSC on Retail B Shares
that you acquire by reinvesting your dividends and distributions.
In addition, there's no CDSC when Retail B Shares are sold because of the death
or disability of a shareholder and in certain other circumstances such as
exchanges. Ask your investment professional or Galaxy's distributor, or consult
the SAI, for other instances in which the CDSC is waived. To contact Galaxy's
distributor, call 1-877-BUY-GALAXY (1-877-289-4252).
DISTRIBUTION AND SHAREHOLDER SERVICE FEES
Retail A Shares of the Funds can pay shareholder service fees at an annual rate
of up to 0.50% of each Fund's Retail A Share assets. The Funds do not intend to
pay more than 0.30% in shareholder service fees with respect to Retail A Shares
during the current fiscal year.
Retail B Shares of the Funds can pay distribution and shareholder service
(12b-1) fees at an annual rate of up to 1.15% of each Fund's Retail B Share
assets. The Funds do not intend to pay more than 0.95% in distribution and
shareholder service (12b-1) fees during the current fiscal year. Galaxy has
adopted a plan under Rule 12b-1 that allows each Fund to pay fees from its
Retail B Share assets for selling and distributing Retail B Shares and for
services provided to shareholders. Because 12b-1 fees are paid on an ongoing
basis, over time they increase the cost of your investment and may cost more
than paying other sales charges.
-52-
<PAGE>
CONVERTING RETAIL B SHARES TO RETAIL A SHARES
Six years after you buy Retail B Shares of a Fund, they will automatically
convert to Retail A Shares of the Fund. This allows you to benefit from the
lower annual expenses of Retail A Shares.
CHOOSING BETWEEN RETAIL A SHARES AND RETAIL B SHARES
Retail B Shares are subject to higher fees than Retail A Shares. For this
reason, Retail A Shares can be expected to pay higher dividends than Retail B
Shares. However, because Retail A Shares are subject to an initial sales
charge which is deducted at the time you purchase Retail A Shares (unless you
qualify for a sales load waiver), you will have less of your purchase price
invested in a particular Fund if you purchase Retail A Shares than if you
purchase Retail B Shares of the Fund.
In deciding whether to buy Retail A Shares or Retail B Shares, you should
consider how long you plan to hold the shares. Over time, the higher fees on
Retail B Shares may equal or exceed the initial sales charge and fees for Retail
A Shares. Retail A Shares may be a better choice if you qualify to have the
sales charge reduced or eliminated or if you plan to sell your shares within one
or two years. Consult your financial professional for help in choosing the
appropriate share class.
BUYING, SELLING AND EXCHANGING SHARES
You can buy and sell Retail A Shares and Retail B Shares of the Funds on any day
that the Funds are open for business, which is any day that the New York Stock
Exchange is open. The New York Stock Exchange is generally open for trading
every Monday through Friday, except for national holidays.
Retail A Shares and Retail B Shares have different prices. The price at which
you buy shares is the NAV next determined after your order is accepted, plus any
applicable sales charge. The price at which you sell shares is the NAV next
determined, after receipt of your order in proper form as described below, less
any applicable CDSC. NAV is determined on each day the New York Stock Exchange
is open for trading at the close of regular trading that day (usually 4:00 p.m.
Eastern time). If market prices are readily available for securities owned by
the Fund, they're valued at those prices. If market prices are not readily
available for some securities, they are valued at fair value under the
supervision of Galaxy's Board of Trustees.
Sometimes, the price of a security trading on a foreign stock exchange may be
affected by events that happen after that exchange closes. If this happens, the
fair value of the security may be determined using other factors and may not
reflect the security's last quoted price. In addition, foreign securities may
trade on days when shares of the Funds are not priced. As a result, the net
asset value per share of a Fund holding these securities may change on days when
you won't be able to buy or sell Fund shares.
-53-
<PAGE>
[Sidenote:]
MINIMUM INVESTMENT AMOUNTS
The minimum initial investment to open a Fund account is:
- - $2,500 for regular accounts
- - $500 for retirement plan accounts, such as IRA, SEP and Keogh Plan accounts
- - $100 for college savings accounts, including Education IRA accounts
There is generally no minimum initial investment if you participate in the
Automatic Investment Program or in a salary reduction retirement plan such as a
SIMPLE IRA or 401(k). You generally can make additional investments for as
little as $100. See GALAXY investor programs below for information on other
minimums for initial and additional investments.
Usually, you must keep at least $250 in your account other than retirement plan
accounts. If your account falls below $250 because you sell or exchange shares,
Galaxy may redeem your shares and close your account. Galaxy will give you 60
days' notice in writing before closing your account.
HOW TO BUY SHARES
You can buy shares through your financial institution or directly from Galaxy's
distributor by calling 1-877-BUY-GALAXY (1-877-289-4252). A broker or agent who
places orders on your behalf may charge you a separate fee for their services.
BUYING BY MAIL
Complete an account application and mail it, together with a check payable to
each Fund in which you want to invest, to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
To make additional investments, send your check to the address above along with
one of the following:
- - The detachable form that's included with your Galaxy statement or your
confirmation of a prior transaction
- - A letter stating the amount of your investment, the name of the Fund you
want to invest in, and your account number
If your check is returned because of insufficient funds, Galaxy will cancel your
order.
-54-
<PAGE>
BUYING BY WIRE
To make an initial or additional investment by wire, send U.S. funds through the
Federal Reserve System to Fleet National Bank as agent for Galaxy's distributor.
You should wire money and registration instructions to:
Fleet National Bank
75 State Street
Boston, MA 02109
ABA #0110-0013-8
DDA #79673-5702
Ref: The Galaxy Fund
(Account number)
(Account registration)
Before making an initial investment by wire, you must complete an account
application and send it to The Galaxy Fund, P.O. Box 6520, Providence, RI
02940-6520. Your order will not be effected until the completed account
application is received by Galaxy. Call Galaxy's distributor at 1-877-BUY-GALAXY
(1-877-289-4252) for an account application.
Your financial institution may charge you a fee for sending funds by wire.
CUSTOMERS OF FINANCIAL INSTITUTIONS
If you are a customer of a financial institution such as a bank, savings and
loan association or broker-dealer, including a financial institution affiliated
with the Adviser, you should place your order through your financial
institution. Your financial institution is responsible for sending your order to
Galaxy's distributor and wiring the money to Galaxy's custodian. For details,
please contact your financial institution.
DISCOUNT PLANS
You may have the sales charges on purchases of Retail A Shares reduced or waived
completely through the discount plans described below:
- - RIGHTS OF ACCUMULATION - You can add the value of the Retail A Shares that
you already own in any Galaxy Fund that charges a sales load to your next
investment in Retail A Shares for purposes of calculating the sales charge.
- - LETTER OF INTENT - You can purchase Retail A Shares of any Galaxy Fund that
charges a sales load over a 13-month period and receive the same sales
charge as if all of the shares had been purchased at the same time. To
participate, complete the Letter of Intent section on the account
application.
-55-
<PAGE>
- - REINVESTMENT PRIVILEGE - You can reinvest some or all of the money that you
receive when you sell Retail A Shares of the Funds in Retail A Shares of
any Galaxy Fund within 90 days without paying a sales charge.
- - GROUP SALES - If you belong to a qualified group with 50,000 or more
members, you can buy Retail A Shares at a reduced sales charge, based on
the number of qualified group members.
[Sidenote:]
You must tell your investment professional or Galaxy's distributor when you buy
your shares that you want to take advantage of any of these discount plans. See
the SAI for additional requirements that may apply. To contact Galaxy's
distributor, call 1-877-BUY-GALAXY (1-877-289-4252).
HOW TO SELL SHARES
You can sell your shares in several ways: by mail, by telephone, by wire, or
through your financial institution.
SELLING BY MAIL
Send your request in writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
You must include the following:
- - The name of the Fund
- - The number of shares or the dollar amount you want to sell
- - Your account number
- - Your Social Security number or tax identification number
- - The signatures of each registered owner of the account (the signatures must
match the names on the account registration)
Additional documents may be required for certain types of shareholders, such as
corporations, partnerships, executors, trustees, administrators or guardians.
-56-
<PAGE>
[Sidenote:]
SIGNATURE GUARANTEES
When selling your shares by mail or by phone, you must have your signature
guaranteed if:
- - you're selling shares worth more than $50,000
- - you want Galaxy to send your money to an address other than the address on
your account, unless your assets are transferred to a successor custodian
- - you want Galaxy to send your money to the address on your account that's
changed within the last 30 days
- - you want Galaxy to make the check payable to someone else
Your signature must be guaranteed by a bank that's a member of the FDIC, a trust
company, a member firm of a national securities exchange or any other eligible
institution. A notarized signature is not sufficient.
SELLING BY PHONE
You can sell shares by calling Galaxy's distributor at 1-877-BUY-GALAXY
(1-877-289-4252) unless you tell Galaxy on the account application or in writing
that you don't want this privilege. If you have difficulty getting through to
Galaxy because of unusual market conditions, consider selling your shares by
mail or wire.
SELLING BY WIRE
Notify Galaxy's distributor by phone or wire that you wish to sell shares and
have the sale proceeds wired to your account at any financial institution in the
U.S. To be eligible to use this privilege, you must complete the appropriate
section on the account application or notify Galaxy in writing (with a signature
guarantee). Your sale proceeds must be more than $1,000.
The sale proceeds must be paid to the same bank and account you named on your
application or in your written instructions.
CUSTOMERS OF FINANCIAL INSTITUTIONS
Please contact your financial institution for information on how to sell your
shares. The financial institution is responsible for sending your order to
Galaxy's distributor and for crediting your account with the proceeds. Galaxy
doesn't charge a fee for wiring sale proceeds to your financial institution, but
your financial institution may charge you a fee.
HOW TO EXCHANGE SHARES
You may exchange Retail A Shares of a Fund having a value of at least $100 for
Retail A Shares of any other Galaxy Fund or for shares of any other Fund that's
managed by the Adviser or any of its affiliates in which you have an existing
account. You won't pay a sales charge for exchanging your Retail A Shares.
-57-
<PAGE>
You may exchange Retail B Shares of a Fund for Retail B Shares of any other
Galaxy Fund. You won't pay a CDSC when you exchange your Retail B Shares.
However, when you sell the Retail B Shares you acquired in the exchange, you'll
pay a contingent deferred sales charge based on the date you bought the Retail B
Shares which you exchanged.
TO EXCHANGE SHARES:
- - call Galaxy's distributor or use the InvestConnect voice response line at
1-877-BUY-GALAXY (1-877-289-4252)
- - send your request in writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
- - ask your financial institution
Galaxy doesn't charge any fee for making exchanges but your financial
institution might do so. You are generally limited to three exchanges per year.
Galaxy may change or cancel the exchange privilege with 60 days' advance written
notice to shareholders.
OTHER TRANSACTION POLICIES
If Galaxy doesn't receive full payment for your order to buy shares within three
business days of the order date, Galaxy won't accept your order. Galaxy will
advise you if this happens and return any payment it may eventually receive. You
can only invest in shares of the Funds that are legally available in your state.
Galaxy may refuse any order to buy shares. Galaxy doesn't issue a certificate
when you buy shares but it does keep a record of shares issued to investors.
Galaxy may refuse your order to sell or exchange shares by wire or telephone if
it believes it is advisable to do so. Galaxy or its distributor may change or
cancel the procedures for selling or exchanging shares by wire or telephone at
any time without notice.
If you sell or exchange shares by telephone, you may be responsible for any
fraudulent telephone orders as long as Galaxy has taken reasonable precautions
to verify your identity, such as requesting information about the way in which
your account is registered or about recent transactions in your account.
-58-
<PAGE>
Galaxy normally pays you cash when you sell your shares, but it has the right to
deliver securities owned by a Fund instead of cash. When you sell these
securities, you'll pay brokerage charges.
Sales proceeds are normally sent to you within three business days but Galaxy
reserves the right to send sales proceeds within seven days if sending proceeds
earlier could adversely affect a Fund.
If any shares that you're selling are part of an investment you've paid for with
a personal check, Galaxy will delay sending your sales proceeds until the check
clears, which can take up to 15 days from the purchase date.
Galaxy reserves the right to vary or waive any minimum investment requirement.
-59-
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Each Fund, except the International Equity Fund, pays any dividends from net
investment income each quarter. The International Equity Fund pays any dividends
from net investment income annually. Each Fund pays any net capital gains at
least once a year. It's expected that the Funds' annual distributions will
normally -- but not always -- consist primarily of capital gains rather than
ordinary income. Dividends and distributions are paid in cash unless you
indicate in the account application or in a letter to Galaxy that you want to
have dividends and distributions reinvested in additional shares.
FEDERAL TAXES
Each Fund contemplates declaring as dividends each year all or substantially all
of its taxable income, including its net capital gain (the excess of long-term
capital gain over short-term capital loss). Distributions attributable to the
net capital gain of a Fund will be taxable to you as long-term capital gain,
regardless of how long you have held your shares. Other Fund distributions will
generally be taxable as ordinary income. You will be subject to income tax on
these distributions regardless of whether they are paid in cash or reinvested in
additional shares. You will be notified annually of the tax status of
distributions to you.
You should note that if you purchase shares just before a distribution, the
purchase price will reflect the amount of the upcoming distribution, but you
will be taxed on the entire amount of the distribution received, even though, as
an economic matter, the distribution simply constitutes a return of capital.
This is known as "buying into a dividend."
You will recognize taxable gain or loss on a sale, exchange or redemption of
your shares, including an exchange for shares of another Fund, based on the
difference between your tax basis in the shares and the amount you receive for
them. (To aid in computing your tax basis, you generally should retain your
account statements for the periods during which you held shares.) Generally,
this gain or loss will be long-term or short-term depending on whether your
holding period for the shares exceeds 12 months, except that any loss realized
on shares held for six months or less will be treated as a long-term capital
loss to the extent of any capital gain dividends that were received on the
shares.
The one major exception to these tax principles is that distributions on, and
sales, exchanges and redemptions of, shares held in an IRA (or other
tax-qualified plan) will not be currently taxable.
A Fund's dividends that are paid to its corporate shareholders and are
attributable to qualifying dividends the Fund receives from U.S. corporations
may be eligible, in the hands of the corporate
-60-
<PAGE>
shareholders, for the corporate dividends-received deduction, subject to certain
holding period requirements and debt financing limitations.
It is expected that the International Equity Fund will be subject to foreign
withholding taxes with respect to dividends or interest received from sources in
foreign countries. The Fund may make an election to treat a proportionate amount
of these taxes as constituting a distribution to each shareholder, which would
allow each shareholder either (1) to credit this proportionate amount of taxes
against U.S. federal income tax liability or (2) to take this amount as an
itemized deduction.
STATE AND LOCAL TAXES
Shareholders may also be subject to state and local taxes on distributions,
redemptions and exchanges. State income taxes may not apply however to the
portions of each Fund's distributions, if any, that are attributable to interest
on U.S. Government securities or on securities of the particular state, its
agencies or municipalities.
MISCELLANEOUS
The foregoing is only a summary of certain tax considerations under current law,
which may be subject to change in the future. You should consult your tax
adviser for further information regarding federal, state, local and/or foreign
tax consequences relevant to your specific situation.
-61-
<PAGE>
GALAXY INVESTOR PROGRAMS
RETIREMENT PLANS
Retail A Shares and Retail B Shares of the Funds are available for purchase in
connection with any of the following retirement plans:
- - Individual Retirement Arrangements (IRAs), including Traditional, Roth,
Rollover and Education IRAs
- - Simplified Employee Pension Plans (SEPs)
- - Keogh money purchase and profit sharing plans
- - Salary reduction retirement plans set up by employers for their employees,
which are qualified under Section 401(k) and 403(b) of the Internal Revenue
Code
- - SIMPLE IRA plans which are qualified under Section 408(p) of the Internal
Revenue Code
For information about eligibility requirements and other matters concerning
these plans and to obtain an application, call Galaxy's distributor at
1-877-BUY-GALAXY (1-877-289-4252).
OTHER PROGRAMS
It's also easy to buy or sell shares of the Funds by using one of the programs
described below. Just tell Galaxy the amount and how frequently you want to buy
or sell shares and Galaxy does the rest. For further information on any of these
programs, call Galaxy's distributor at 1-877-BUY-GALAXY (1-877-289-4252) or your
financial institution.
AUTOMATIC INVESTMENT PROGRAM
You can make automatic investments from your bank account every month or every
quarter. You can choose to make your investment on any day of the month or
quarter. The minimum investment is $50 a month or $150 a quarter except for
Education IRAs, in which case the minimum investment is $40 a month or $125 a
quarter.
PAYROLL DEDUCTION PROGRAM
You can make regular investments from your paycheck. The minimum investment is
$25 per pay period. Send a completed Galaxy Payroll Deduction Application to
your employer's payroll department. They'll arrange to have your investment
deducted from your paycheck.
COLLEGE INVESTMENT PROGRAM
The minimum for initial and additional investments through the College
Investment Program is $100 unless you participate in the Automatic Investment
Program, in which case the minimum
-62-
<PAGE>
for initial and additional investments is $50. You can also save for college by
opening an Education IRA account. The minimum for initial and additional
investments in an Education IRA is $100 unless you participate in the Automatic
Investment Program, in which case the minimum for initial and additional
investments is $40.
DIRECT DEPOSIT PROGRAM
This program lets you deposit your social security payments in your Fund account
automatically. There's no minimum deposit. You can cancel the program by
notifying the Social Security Administration in writing.
SYSTEMATIC WITHDRAWAL PLAN
You can make regular withdrawals from your investment account every month, every
quarter, every six months or once a year. You need a minimum account balance of
$10,000 to participate in the plan. No CDSC will be charged on withdrawals of
Retail B Shares made through the plan that don't annually exceed 12% of your
account's value.
You may cancel your participation in any of these programs, other than the
Direct Deposit Program, by writing to Galaxy at:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
Please allow at least five days for the cancellation to be processed.
-63-
<PAGE>
HOW TO REACH GALAXY
THROUGH YOUR FINANCIAL INSTITUTION
Your financial institution can help you buy, sell or exchange shares and can
answer questions about your account.
GALAXY SHAREHOLDER SERVICES
Call Galaxy's distributor at 1-877-BUY-GALAXY (1-877-289-4252), Monday through
Friday, 8 a.m. to 6 p.m. (Eastern time) for help from a Galaxy representative.
INVESTCONNECT
InvestConnect is Galaxy's shareholder voice response system. Call
1-877-BUY-GALAXY (1-877-289-4252) from any touch-tone phone for automated access
to account information and current Fund prices and performance, or to place
orders to sell or exchange shares. It's available 24 hours a day, seven days a
week.
If you live outside the United States, you can contact Galaxy by calling
1-508-871-4121.
THE INTERNET
Please visit Galaxy's website at: www.galaxyfunds.com
[Sidenote:]
Galaxy also offers a TDD service for the hearing impaired. Just call
1-800-696-6515, 24 hours a day, seven days a week.
-64-
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables shown below will help you understand the
financial performance for the Funds' Retail A Shares and Retail B Shares for the
past five years (or the period since a particular Fund began operations or a
particular class of shares was first offered). Certain information reflects the
financial performance of a single Retail A Share or Retail B Share. The total
returns in the tables represent the rate that an investor would have earned (or
lost) on an investment in Retail A Shares and Retail B Shares of each Fund,
assuming all dividends and distributions were reinvested. The information for
the fiscal year ended October 31, 1999 has been audited by ____________,
independent auditors, whose report, along with the Funds' financial statements,
are included in the Funds' Annual Report and are incorporated by reference into
the SAI. The Annual Report and SAI are available free of charge upon request.
The information for the fiscal years ended October 31, 1995, 1996, 1997 and 1998
was audited by Galaxy's former auditors, ____________.
-65-
<PAGE>
Galaxy Asset Allocation Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
-----------------------------------------------------
1999 1998
--------------------- ---------------------
Retail Retail Retail Retail
A Shares B Shares A Shares B Shares
<S> <C> <C> <C> <C>
Net asset value,
beginning of period .......................... $ 16.46 $ 16.43
Income from investment operations:
Net investment income(2) ..................... 0.38 0.29
Net realized and unrealized gain
(loss) on investments .................... 1.72 1.71
Total from investment operations .................. 2.10 2.00
Less dividends:
Dividends from net investment income ......... (0.40) (0.30)
Dividends from net realized capital gains ... (1.21) (1.21)
Total dividends ................................... (1.61) (1.51)
Net increase (decrease) in net asset value ........ 0.49 0.49
Net asset value, end of period .................... $ 16.95 $ 16.92
------- -------
Total return(5) ................................... 13.85% 13.14%
Ratios/supplemental data:
Net assets, end of period (000's) ............ $323,498 $57,876
Ratios to average net assets:
Net investment income including
reimbursement/waiver ..................... 2.43% 1.77%
Operating expenses including
reimbursement/waiver ..................... 1.33% 1.99%
Operating expenses excluding
reimbursement/waiver ..................... 1.33% 1.99%
Portfolio turnover rate ........................... 108% 108%
<CAPTION>
For the year ending October 31,
--------------------------------------------------------------------
1997 1996 1995
--------------------- ---------------------- -------------
Retail Retail Retail Retail Retail
A Shares B Shares A Shares B Shares(1) A Shares
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period .......................... $ 14.52 $ 14.51 $ 12.82 $ 13.59 $ 10.67
Income from investment operations:
Net investment income(2) ..................... 0.40 0.29 0.30 0.13 0.30
Net realized and unrealized gain
(loss) on investments .................... 2.43 2.42 1.83 0.91 2.16
Total from investment operations .................. 2.83 2.71 2.13 1.04 2.46
Less dividends:
Dividends from net investment income ......... (0.38) (0.28) (0.30) (0.12) (0.31)
Dividends from net realized capital gains ... (0.51) (0.51) (0.13) -- --
Total dividends ................................... (0.89) (0.79) (0.43) (0.12) (0.31)
Net increase (decrease) in net asset value ........ 1.94 1.92 1.70 0.92 2.15
Net asset value, end of period .................... $ 16.46 $ 16.43 $ 14.52 $14.51 $ 12.82
------- ------- ------- ------- -------
Total return(5) ................................... 20.23% 19.34% 16.92% 7.71%(3) 23.42%
Ratios/supplemental data:
Net assets, end of period (000's) ............ $177,239 $30,688 $116,852 $3,557 $76,368
Ratios to average net assets:
Net investment income including
reimbursement/waiver ..................... 2.66% 1.95% 2.29% 1.73%(4) 2.52%
Operating expenses including
reimbursement/waiver ..................... 1.37% 2.10% 1.42% 1.95%(4) 1.48%
Operating expenses excluding
reimbursement/waiver ..................... 1.37% 2.19% 1.42% 2.15%(4) 1.50%
Portfolio turnover rate ........................... 58% 58% 48% 48% 41%
</TABLE>
- ------------------------------
(1) The Fund began issuing Retail B Shares on March 4, 1996.
(2) Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for Retail A Shares for the years
ended October 31, 1999, 1998, 1997, 1996 and 1995 was $____, $0.38, $0.40,
$0.30 and $0.30, respectively. Net investment income per share before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for Retail B Shares for the years ended October 31, 1999, 1998 and 1997 and
for the period ended October 31, 1996 was $___, $0.29, $0.28 and $0.12,
respectively.
(3) Not Annualized.
(4) Annualized.
(5) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares.
-66-
<PAGE>
Galaxy Equity Income Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
--------------------------------------------------
1999 1999 1998
------ ------- ------
Retail Retail Retail
A Shares B Shares(1) A Shares
<S> <C> <C> <C>
Net asset value, beginning of period.................. $ 18.82
Income from investment operations:
Net investment income(2)......................... 0.25
Net realized and unrealized gain
on investments............................... 2.43
Total from investment operations...................... 2.68
Less dividends:
Dividends from net investment income........... (0.25)
Dividends from net realized capital gains (1.58)
Total dividends................................... (1.83)
Net increase (decrease) in net asset value.......... 0.85
Net asset value, end of period........................ $ 19.67
--------
Total return(4).................................... 15.23%
Ratios/supplemental data:
Net assets, end of period (000's)................ $207,850
Ratios to average net assets:
Net investment income including
reimbursement/waiver......................... 1.30%
Operating expenses including
reimbursement/waiver......................... 1.34%
Operating expenses excluding
reimbursement/waiver......................... 1.34%
Portfolio turnover rate............................... 46%
<CAPTION>
For the year ending October 31,
------------------------------------------------------------
1997 1996 1995
------ ------ ------
Retail Retail Retail
A Shares A Shares A Shares
<S> <C> <C> <C>
Net asset value, beginning of period.................. $ 16.91 $ 14.98 $ 12.74
Income from investment operations:
Net investment income(2)......................... 0.30 0.30 0.28
Net realized and unrealized gain
on investments............................... 3.35 2.47 2.47
Total from investment operations...................... 3.65 2.77 2.75
Less dividends:
Dividends from net investment income........... (0.30) (0.30) (0.30)
Dividends from net realized capital gains (1.44) (0.54) (0.21)
Total dividends................................... (1.74) (0.84) (0.51)
Net increase (decrease) in net asset value.......... 1.91 1.93 2.24
Net asset value, end of period........................ $ 18.82 $ 16.91 $ 14.98
-------- -------- --------
Total return(4).................................... 23.28% 19.01% 22.23%
Ratios/supplemental data:
Net assets, end of period (000's)................ $169,276 $126,952 $81,802
Ratios to average net assets:
Net investment income including
reimbursement/waiver......................... 1.70% 1.86% 2.08%
Operating expenses including
reimbursement/waiver......................... 1.39% 1.40% 1.49%
Operating expenses excluding
reimbursement/waiver......................... 1.41% 1.40% 1.51%
Portfolio turnover rate............................... 37% 45% 21%
</TABLE>
- -----------------------------
(1) The Fund began issuing Retail B Shares on November 1, 1998.
(2) Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for Retail A Shares for the years
ended October 31, 1999, 1998, 1997, 1996 and 1995 was $____, $0.25, $0.30,
$0.30 and $0.28, respectively. Net investment income per share before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for Retail B Shares for the year ended October 31, 1999 was $_______.
(3) The selected per share data was calculated using the weighted average
shares outstanding method for the period.
(4) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares.
-67-
<PAGE>
Galaxy Growth and Income Fund(1)
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
--------------------------------------------------
1999 1998
---------------------- ----------------------
Retail Retail Retail Retail
A Shares B Shares A Shares B Shares
<S> <C> <C> <C> <C>
Net asset value,
beginning of period .................................... $16.24 $16.23
Income from investment operations:
Net investment income(3) ............................... 0.12 --(7)
Net realized gain on investments ....................... 1.32 1.31
Total from investment operations ............................ 1.44 1.31
Less dividends:
Dividends from net investment income) .................. (0.13) (0.03)
Dividends from net realized gains) ..................... (2.68) (2.68)
Total dividends ............................................. (2.81) (2.71)
Net increase (decrease) in net asset value) ................. (1.37) (1.40)
Net asset value, end of period .............................. $14.87 $14.83
------ ------
Total return(4) ............................................. 9.93% 9.09%
Ratios/supplemental data:
Net assets, end of period (000's) ...................... $214,110 $53,216
Ratios to average net assets:
Net investment income including
reimbursement/waiver ............................... 0.75% 0.01%
Operating expenses including
reimbursement/waiver ............................... 1.28% 2.02%
Operating expenses excluding
reimbursement/waiver ............................... 1.35% 2.02%
Portfolio turnover rate ..................................... 38% 38%
<CAPTION>
For the year ending October 31,
--------------------------------------------------
1997 1996(2)
---------------------- ----------------------
Retail Retail Retail Retail
A Shares B Shares A Shares B Shares
<S> <C> <C> <C> <C>
Net asset value,
beginning of period .................................... $13.78 $13.77 $12.35 $12.97
Income from investment operations:
Net investment income(3) ............................... 0.18 0.10 0.21 0.07
Net realized gain on investments ....................... 3.67 3.65 2.16 0.81
Total from investment operations ............................ 3.85 3.75 2.37 0.88
Less dividends:
Dividends from net investment income) .................. (0.20) (0.10) (0.21) (0.08)
Dividends from net realized gains) ..................... (1.19) (0.19) (0.73) --
Total dividends ............................................. (1.39) (1.29) (0.94) (0.08)
Net increase (decrease) in net asset value) ................. 2.46 2.46 1.43 0.80
Net asset value, end of period .............................. $16.24 $16.23 $13.78 $13.77
------ ------ ------ ------
Total return(4) ............................................. 30.10% 29.11% 20.25% 6.83%(5)
Ratios/supplemental data:
Net assets, end of period (000's) ...................... $141,884 $35,178 $77,776 $4,562
Ratios to average net assets:
Net investment income including
reimbursement/waiver ............................... 1.18% 0.31% 1.65% 0.79%(6)
Operating expenses including
reimbursement/waiver ............................... 1.27% 2.05% 1.34% 1.96%(6)
Operating expenses excluding
reimbursement/waiver ............................... 1.45% 2.28% 1.45% 2.11%(6)
Portfolio turnover rate ..................................... 93% 93% 59% 59%
<CAPTION>
For the year ending October 31,
--------------------------------------------------
1995
------------
Retail
A Shares
<S> <C>
Net asset value,
beginning of period .................................... $11.15
Income from investment operations:
Net investment income(3) ............................... 0.24
Net realized gain on investments ....................... 1.70
Total from investment operations ............................ 1.94
Less dividends:
Dividends from net investment income) .................. (0.25)
Dividends from net realized gains) ..................... (0.49)
Total dividends ............................................. (0.74)
Net increase (decrease) in net asset value) ................. 1.20
Net asset value, end of period .............................. $12.35
------
Total return(4) ............................................. 18.52%
Ratios/supplemental data:
Net assets, end of period (000's) ...................... $51,078
Ratios to average net assets:
Net investment income including
reimbursement/waiver ............................... 2.10%
Operating expenses including
reimbursement/waiver ............................... 1.32%
Operating expenses excluding
reimbursement/waiver ............................... 1.77%
Portfolio turnover rate ..................................... 51%
</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. 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 Shares 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.
(2) The Fund began issuing Retail B Shares on March 4, 1996.
(3) Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for Retail A Shares for the years
ended October 31, 1999, 1998, 1997 and 1996 was $____, $0.10, $0.18 and
$0.19, respectively. Net investment income per share before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for Retail B Shares for the years ended October 31, 1999, 1998 and 1997 and
for the period ended October 31, 1996 was $____, $0.00, $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 year ended October 31,
1995 was $0.22 (unaudited).
(4) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares.
(5) Not annualized.
(6) Annualized.
(7) Net investment income per share is less than $0.005.
-68-
<PAGE>
Galaxy Strategic Equity Fund
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
For the period ending October 31,
----------------------------------------------------
1999 1998(1)
---- ----
Retail Retail Retail Retail
A Shares B Shares A Shares B Shares
<S> <C> <C> <C> <C>
Net asset value, beginning of period ................. $10.00 $10.00
Income from investment operations:
Net investment income (loss)(2).................. --(3) (0.02)
Net realized and unrealized (loss) on investments (0.38) (0.37)
Total from investment operations...................... (0.38) (0.39)
Less dividends:
Dividends from net investment income............. -- --
Dividends from net realized capital gains........ -- --
Total dividends....................................... -- --
Net (decrease) in net asset value..................... (0.38) (0.39)
Net asset value, end of period........................ $9.62 $9.61
------ ------
Total return(4)....................................... (3.75)%(5) 4.76%(5)
Ratios/supplemental data:
Net assets, end of period (000's)................ $4,051 $583
Ratios to average net assets:
Net investment income including
reimbursement/waiver.................................. 0.06%(6) (0.55)%(6)
Operating expenses including reimbursement/waiver 1.40%(6) 2.01%(6)
Operating expenses excluding reimbursement/waiver 2.41%(6) 3.05%(6)
Portfolio turnover rate............................... 30%(5) 30%(5)
</TABLE>
- ------------------------------
1 The Fund commenced operations on March 4, 1998.
2 Net investment income (loss) per share before reimbursement/waiver of fees
by the Adviser and/or the Fund's administrator for Retail A Shares for the
periods ended October 31, 1999 and 1998 were $____ and $0.00, respectively.
Net investment income (loss) per share before reimbursement/waiver of fees
by the Adviser and/or the Fund's administrator for Retail B Shares for the
periods ended October 31, 1999 and 1998 were $____ and $(0.06),
respectively.
3 Net investment income per share is less than $0.00.
4 Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares.
5 Not annualized.
6 Annualized.
-69-
<PAGE>
Galaxy Equity Value Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
------------------------------------------------------
1999 1998
----------------------- ------------------------
Retail Retail Retail Retail
A Shares B Shares A Shares B Shares
<S> <C> <C> <C> <C>
Net asset value,
beginning of period.................. $ 18.21 $ 18.24
Income from investment operations:
Net investment income (loss)(2)...... 0.03 (0.08)
Net realized and unrealized gain
on investments................... 1.50 1.48
Total from investment operations....... 1.53 1.40
Less dividends:
Dividends from net investment income. (0.04) --
Dividends from net realized capital gains (3.20) (3.20)
Total dividends........................... (3.24) (3.20)
Net increase (decrease) in net asset value (1.71) (1.80)
Net asset value, end of period............ $ 16.50 $ 16.44
-------- --------
Total return(3)........................... 9.88% 9.07%
Ratios/supplemental data:
Net assets, end of period (000's).... $234,730 $23,103
Ratios to average net assets:
Net investment income including
reimbursement/waiver............. 0.15% (0.54)%
Operating expenses including
reimbursement/waiver............. 1.37% 2.06%
Operating expenses excluding
reimbursement/waiver............. 1.37% 2.06%
Portfolio turnover rate................ 82% 82%
<CAPTION>
For the year ending October 31,
------------------------------------------------------------
1997 1996 1995
-------------------- ---------------------- ----------
Retail Retail Retail Retail Retail
A Shares B Shares A Shares B Shares(1) A Shares
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.................. $ 15.96 $ 15.99 $ 14.33 $ 14.74 $ 13.31
Income from investment operations:
Net investment income (loss)(2)...... 0.11 -- 0.14 0.04 0.22
Net realized and unrealized gain
on investments................... 4.16 4.17 2.74 1.25 2.24
Total from investment operations.......... 4.27 4.17 2.88 1.29 2.46
Less dividends:
Dividends from net investment income. (0.12) (0.02) (0.14) (0.04) (0.23)
Dividends from net realized capital gains (1.90) (1.90) (1.11) -- (1.21)
Total dividends........................... (2.02) (1.92) (1.25) (0.04) (1.44)
Net increase (decrease) in net asset value 2.25 2.25 1.63 1.25 1.02
Net asset value, end of period............ $ 18.21 $ 18.24 $ 15.96 $ 15.99 $ 14.33
-------- -------- -------- -------- --------
Total return(3)........................... 29.48% 28.60% 21.49% 8.80%(4) 20.81%
Ratios/supplemental data:
Net assets, end of period (000's).... $182,641 $14,958 $131,998 $ 1,916 $96,555
Ratios to average net assets:
Net investment income including
reimbursement/waiver............. 0.63% (0.13)% 1.00% 0.43%(5) 1.62%
Operating expenses including
reimbursement/waiver............. 1.38% 2.07% 1.45% 1.94%(5) 1.49%
Operating expenses excluding
reimbursement/waiver............. 1.38% 2.38% 1.45% 2.24%(5) 1.50%
Portfolio turnover rate................ 111% 111% 116% 116% 76%
</TABLE>
------------------------------
(1) The Fund began issuing Retail B Shares on March 4, 1996.
(2) Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for Retail A Shares for the years
ended October 31, 1999, 1998, 1997, 1996 and 1995 was $____, $0.03, $0.11,
$0.14 and $0.22 , respectively. Net investment income (loss) per share
before reimbursement/waiver of fees by the Adviser and/or the Fund's
administrator for Retail B Shares for the years ended October 31, 1999,
1998 and 1997 and for the period ended October 31, 1996 was $____, $(0.08),
$(0.03) and $0.01, respectively.
(3) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares.
(4) Not annualized.
(5) Annualized.
-70-
<PAGE>
Galaxy Equity Growth Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
---------------------------------------------------------
1999 1998
----------------------- ------------------------
Retail Retail Retail Retail
A Shares B Shares A Shares B Shares
<S> <C> <C> <C> <C>
Net asset value,
beginning of period ........................ $25.14 $24.91
Income from investment operations: 0.01 (0.16)(2)
Net investment income (loss)(2) ............
Net realized and unrealized gain
on investments ......................... 3.19 3.16
Total from investment operations ................ 3.20 3.00
Less dividends:
Dividends from net investment income ....... (0.03) --
Dividends in excess of net investment ...... --(5) --
Dividends from net realized capital gains .. (3.84) (3.84)
Total dividends ................................. (3.87) (3.84)
Net increase (decrease) in net asset value ...... (0.67) (0.84)
Net asset value, end of period .................. $24.47 $24.07
------ ------
Total return(3) ................................. 14.73% 13.98%
Ratios/supplemental data:
Net assets, end of period (000's) .......... $312,951 $34,693
Ratios to average net assets:
Net investment income including
reimbursement/waiver ................... 0.02% (0.68)%
Operating expenses including
reimbursement/waiver ................... 1.34% 2.04%
Operating expenses excluding
reimbursement/waiver ................... 1.34% 2.04%
Portfolio turnover rate ......................... 60% 60%
<CAPTION>
For the year ending October 31,
--------------------------------------------------------------
1997 1996 1995
-------------------- ---------------------- ----------
Retail Retail Retail Retail Retail
A Shares B Shares A Shares B Shares(1) A Shares
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ........................ $20.37 $20.26 $17.29 $18.77 $14.18
Income from investment operations:
Net investment income (loss)(2) ............ 0.07 (0.09)(4) 0.10 (0.01) 0.14
Net realized and unrealized gain
on investments ......................... 6.05 6.02 3.39 1.50 3.28
Total from investment operations ................ 6.12 5.93 3.49 1.49 3.42
Less dividends:
Dividends from net investment income ....... (0.07) -- (0.11) -- (0.14)
Dividends in excess of net investment ...... -- -- -- -- --
Dividends from net realized capital gains .. (1.28) (1.28) (0.30) -- (0.17)
Total dividends ................................. (1.35) (1.28) (0.41) -- (0.31)
Net increase (decrease) in net asset value ...... 4.77 4.65 3.08 1.49 3.11
Net asset value, end of period .................. $25.14 $24.91 $20.37 $20.26 $17.29
------ ------ ------ ------ ------
Total return(3) ................................. 31.61% 30.78% 20.51% 7.95%(6) 24.54%
Ratios/supplemental data:
Net assets, end of period (000's) .......... $226,330 $20,363 $160,800 $3,995 $98,911
Ratios to average net assets:
Net investment income including
reimbursement/waiver ................... 0.30% (0.40)% 0.50% (0.16)%(7) 0.85%
Operating expenses including
reimbursement/waiver ................... 1.37% 2.07% 1.40% 1.92%(7) 1.45%
Operating expenses excluding
reimbursement/waiver ................... 1.37% 2.30% 1.40% 2.29%(7) 1.47%
Portfolio turnover rate ......................... 66% 66% 36% 36% 14%
</TABLE>
- ------------------------------------
(1) The Fund began issuing Retail B Shares on March 4, 1996.
(2) Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for Retail A Shares for the years
ended October 31, 1999, 1998, 1997, 1996 and 1995 was $____, $0.01, $0.07,
$0.10 and $0.13 , respectively. Net investment income (loss) per share
before reimbursement/waiver of fees by the Adviser and/or the Fund's
administrator for Retail B Shares for the years ended October 31, 1999,
1998 and 1997 and for the period ended October 31, 1996 was $____,
$(0.16)4, $(0.14)4 and $(0.03), respectively.
(3) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares.
(4) The selected per share data was calculated using the weighted average
shares outstanding method for the year.
(5) Dividends in excess of net investment income per share were less than
$0.005.
(6) Not annualized.
(7) Annualized.
-71-
<PAGE>
Galaxy International Equity Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
-----------------------------------------------------------------------------------
1999 1999 1998 1997 1996 1995
--------- ---------- ----------- ----------- ------------ ----------
Retail Retail Retail Retail Retail Retail
A Shares B Shares(1) A Shares A Shares A Shares A Shares
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ........... $ 15.18 $ 13.94 $ 12.92 $ 13.20
Income from investment operations:
Net investment income(2).................... 0.07 0.01 0.11 0.11
Net realized and unrealized gain (loss)
on investments.......................... 1.93 2.09 1.27 (0.21)
Total from investment operations............... 2.00 2.10 1.38 (0.10)
Less dividends:
Dividends from net investment income........ (0.07) (0.18) (0.12) (0.02)
Dividends from net realized capital gains.. (0.36) (0.68) (0.24) (0.16)
Total dividends................................. (0.43) (0.86) (0.36) (0.18)
Net increase (decrease) in net asset value...... 1.57 1.24 1.02 (0.28)
Net asset value, end of period.................. $ 16.75 $ 15.18 $ 13.94 $ 12.92
-------- -------- -------- --------
Total return(3)................................. 13.64% 15.88% 10.86% (0.64)%
Ratios/supplemental data:
Net assets, end of period (000's)............ $66,541 $56,592 $35,144 $30,104
Ratios to average net assets:
Net investment income including
reimbursement/waiver..................... 0.39% 0.03% 0.78% 0.84%
Operating expenses including
reimbursement/waiver..................... 1.48% 1.60% 1.70% 1.76%
Operating expenses excluding
reimbursement/waiver..................... 1.73% 1.85% 1.98% 2.03%
Portfolio turnover rate......................... 49% 45% 146% 48%
</TABLE>
- -----------------------------
(1) The Fund began issuing Retail B Shares on November 1, 1998.
(2) The selected per share data was calculated using the weighted average
shares outstanding method for the year. Net investment income (loss) per
share before reimbursement/waiver of fees by the Adviser and/or the Fund's
administrator for Retail A Shares for the years ended October 31, 1999,
1998, 1997, 1996 and 1995 was $____, $0.03, $(0.01), $0.07 and $0.08,
respectively. Net investment income per share before reimbursement/waiver
of fees by the Adviser and/or the Fund's administrator for Retail B Shares
for the year ended October 31, 1999 was $_______.
(3) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares.
-72-
<PAGE>
Galaxy Small Cap Value Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
-----------------------------------------------------------------------------------
1999 1999 1998 1997 1996 1995
--------- ---------- ----------- ----------- ------------ ----------
Retail Retail Retail Retail Retail Retail
A Shares B Shares(2) A Shares A Shares A Shares A Shares
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period........... $ 18.29 $ 14.75 $ 12.68 $ 11.06
Income from investment operations:
Net investment income (loss)3 0.08 (0.04)(5) 0.01 (0.02)
Net realized gain (loss) on investments..... (2.08) 5.72 2.95 2.21
Total from investment operations............... (2.00) 5.68 2.96 2.19
Less dividends:
Dividends from net investment income........ (0.08) -- (0.02) --
Dividends in excess of net investment
income.................................. -- -- -- --
Dividends from net realized gains........... (2.68) (2.14) (0.87) (0.57)
Total dividends................................ (2.76) (2.14) (0.89) (0.57)
Net increase (decrease) in net asset value..... (4.76) 3.54 2.07 1.62
Net asset value, end of period................. $ 13.53 $ 18.29 $ 14.75 $ 12.68
-------- -------- -------- --------
Total return(4)................................ (12.52)% 43.58% 24.77% 21.27%
Ratios/supplemental data:
Net assets, end of period (000's............. $87,781 $63,658 $34,402 $27,546
Ratios to average net assets:
Net investment income including
reimbursement/waiver..................... 0.38% (0.25)% 0.08% (0.19)%
Operating expenses including
reimbursement/waiver..................... 1.31% 1.30% 1.40% 1.35%
Operating expenses excluding
reimbursement/waiver..................... 1.45% 1.52% 1.55% 1.85%
Portfolio turnover rate........................ 33% 52% 39% 32%
</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. 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.
(2) The Fund began offering Retail B Shares on November 1, 1998.
(3) Net investment income (loss) per share before reimbursement/waiver of fees
by the Adviser and/or the Fund's administrator for Retail A Shares for the
years ended October 31, 1999, 1998, 1997 and 1996 was $____, $0.05, $
(0.02) and $0.01, respectively. Net investment income (loss) per share
before reimbursement/waiver of fees by other parties for Retail A Shares
for the year ended October 31, 1995 was $(0.08) (unaudited). Net investment
income (loss) per share before reimbursement/waiver of fees by the Adviser
and/or the Fund's administrator for Retail B Shares for the year ended
October 31, 1999 was $_______.
(4) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares.
(5) The selected per share data was calculated using the weighted average
shares outstanding method for the year.
-73-
<PAGE>
Galaxy Small Company Equity Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
-----------------------------------------------------
1999 1998 1997
--------------------- --------------------- --------------------
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>
Net asset value,
beginning of period.............. $ 20.94 $ 20.73 $ 19.96 $ 19.91
Income from investment operations:
Net investment income (loss)2 (0.19) (0.30) (0.18) (0.21)
Net realized and unrealized gain
(loss) on investments........ (4.86) (4.78) 3.54 3.41
Total from investment operations...... (5.05) (5.08) 3.36 3.20
Less dividends:
Dividends from net investment income -- -- -- --
Dividends from net realized capital gains... (2.26) (2.26) (2.38) (2.38)
Total dividends..................... (2.26) (2.26) (2.38) (2.38)
Net increase (decrease) in net asset value.... (7.31) (7.34) 0.98 0.82
Net asset value, end of period........ $ 13.63 $ 13.39 $ 20.94 $ 20.73
------- ------- -------- --------
Total return(4)...................... (26.26)% (26.72)% 19.08% 18.23%
Ratios/supplemental data:
Net assets, end of period (000's) $95,831 $12,565 $135,593 $14,731
Ratios to average net assets:
Net investment income including
reimbursement/waiver......... (1.13)% (1.78)% (1.02)% (1.76)%
Operating expenses including
reimbursement/waiver......... 1.46% 2.11% 1.46% 2.20%
Operating expenses excluding
reimbursement/waiver......... 1.47% 2.16% 1.48% 2.44%
Portfolio turnover rate............ 78% 78% 69% 69%
<CAPTION>
For the year ending October 31,
-----------------------------------------------------
1996 1995
-------------------------- ----------
Retail Retail Retail
A Shares(1) B Shares(1) A Shares
<S> <C> <C> <C>
Net asset value,
beginning of period.............. $ 16.28 $ 17.27 $ 12.35
Income from investment operations:
Net investment income (loss)2 (0.14) (0.19)(3) (0.09)
Net realized and unrealized gain
(loss) on investments........ 3.99 2.83 4.21
Total from investment operations...... 3.85 2.64 4.12
Less dividends:
Dividends from net investment income -- -- --
Dividends from net realized capital gains... (0.17) -- (0.19)
Total dividends..................... (0.17) -- (0.19)
Net increase (decrease) in net asset value.... 3.68 2.64 3.93
Net asset value, end of period........ $ 19.96 $ 19.91 $ 16.28
-------- -------- --------
Total return(4)...................... 23.97% 15.34%(5) 34.01%
Ratios/supplemental data:
Net assets, end of period (000's) $111,101 $3,659 $ 45,668
Ratios to average net assets:
Net investment income including
reimbursement/waiver......... (1.03)% (1.50)%(6) (0.85)%
Operating expenses including
reimbursement/waiver......... 1.57% 2.04%(6) 1.60%
Operating expenses excluding
reimbursement/waiver......... 1.57% 2.44%(6) 1.64%
Portfolio turnover rate............ 82% 82% 54%
</TABLE>
- -----------------------------
(1) The Fund began issuing Retail B Shares on March 4, 1996.
(2) Net investment income (loss) per share before reimbursement/waiver of fees
by the Adviser and/or the Fund's administrator for Retail A Shares for the
years ended October 31, 1999, 1998, 1997, 1996 and 1995 was $____, $(0.19),
$(0.18), $(0.14) and $(0.09), respectively. Net investment income (loss)
per share before reimbursement/waiver of fees by the Adviser and/or the
Fund's administrator for Retail B Shares for the years ended October 31,
1999, 1998 and 1997 and for the period ended October 31, 1996 was $____,
$-0.30, $ (0.24) and $ (0.24), respectively.
(3) The selected per share data was calculated using the weighted average
shares outstanding method for the period.
(4) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares.
(5) Not annualized.
(6) Annualized.
-74-
<PAGE>
[Back Cover Page]
Where to find more information
You'll find more information about the Funds in the following documents:
ANNUAL AND SEMI-ANNUAL REPORTS
Galaxy's annual and semi-annual reports contain more information about each Fund
and a discussion about the market conditions and investment strategies that had
a significant effect on each Fund's performance during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains detailed information about the Funds and their policies. By
law, it's incorporated by reference into (considered to be part of) this
prospectus.
You can get a free copy of these documents, request other information about the
Funds and make shareholder inquiries by calling Galaxy at 1-877-BUY-GALAXY
(1-877-289-4252) or by writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
If you buy your shares through a financial institution, you may contact your
institution for more information.
You can write to the Securities and Exchange Commission (SEC) Public Reference
Section and ask them to mail you information about the Funds, including the SAI.
They'll charge you a fee for this service. You can also visit the SEC Public
Reference Room and copy the documents while you're there. For information about
the operation of the Public Reference Room, call the SEC.
Public Reference Section of the SEC
Washington, DC 20549-0102
1-202-942-8090.
Reports and other information about the Funds are also available on the EDGAR
Database on the SEC's website at http://www.sec.gov. Copies of this information
may also be obtained, after paying a duplicating fee, by electronic request to
SEC's e-mail address at [email protected].
Galaxy's Investment Company Act File No. is 811-4636.
[Fleet assigned code]
<PAGE>
[Front cover page]
Galaxy Equity Funds
The Galaxy Fund
Prospectus
, 2000
- ----------------------
Galaxy Asset Allocation Fund
Galaxy Equity Income Fund
Galaxy Growth and Income Fund
Galaxy Strategic Equity Fund
Galaxy Equity Value Fund
Galaxy Equity Growth Fund
Galaxy International Equity Fund
Galaxy Small Cap Value Fund
Galaxy Small Company Equity Fund
Trust Shares
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved any shares of these Funds or determined if this
prospectus is accurate or complete. Anyone who tells you otherwise is committing
a crime.
<PAGE>
Contents
1 Risk/return summary
1 Introduction
3 Galaxy Asset Allocation Fund
8 Galaxy Equity Income Fund
11 Galaxy Growth and Income Fund
15 Galaxy Strategic Equity Fund
19 Galaxy Equity Value Fund
23 Galaxy Equity Growth Fund
27 Galaxy International Equity Fund
31 Galaxy Small Cap Value Fund
35 Galaxy Small Company Equity Fund
39 Additional information about risk
40 Investor guidelines
41 Fund management
43 How to invest in the Funds
43 Buying and selling shares
44 How to buy shares
44 How to sell shares
44 Other transaction policies
46 Dividends, distributions and taxes
48 Financial highlights
<PAGE>
RISK/RETURN SUMMARY
INTRODUCTION
This prospectus describes the Galaxy Equity Funds. Each Fund invests primarily
or to a significant degree in equity securities, such as common stock, preferred
stock and securities that are convertible into common stock.
On the following pages, you'll find important information about each Fund,
including:
- - the Fund's investment objective (sometimes called the Fund's goal) and the
main investment strategies used by the Fund's investment adviser in trying
to achieve that objective
- - the main risks associated with an investment in the Fund
- - the Fund's past performance measured on both a year-by-year and long-term
basis
- - the fees and expenses that you will pay as an investor in the Fund
WHICH FUND IS RIGHT FOR YOU?
Not all mutual funds are for everyone. Your investment goals and tolerance for
risk will determine which fund is right for you.
Equity funds are generally best suited to investors seeking growth of their
investment over time and who are prepared to accept the risks associated with
equity securities. Equity funds have the potential for higher returns than other
funds, such as bond funds or money market funds, but also carry more risk.
Different equity funds have different levels of risk. They have varying
objectives and investment styles, and some are considered more aggressive than
others. Generally, a fund's objective and the types of investments it makes can
help you gauge its level of risk. On page , you'll find a table that gives a
general overview of the risk spectrum of the Galaxy Equity Funds.
THE FUNDS' INVESTMENT ADVISER
Fleet Investment Advisors Inc. (the "Adviser") is the investment adviser for all
of these Funds. The Adviser, an indirect wholly-owned subsidiary of FleetBoston
Corporation, was established in 1984 and has its main office at 75 State Street,
Boston, Massachusetts 02109. The Adviser also provides investment management and
advisory services to individual and institutional clients and manages the other
Galaxy investment portfolios. As of December 31, 1999, the Adviser managed over
$ billion in assets.
-1-
<PAGE>
AN INVESTMENT IN THE FUNDS ISN'T A FLEET BANK DEPOSIT AND IT ISN'T INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. YOU COULD LOSE MONEY BY INVESTING IN THE FUNDS.
-2-
<PAGE>
Galaxy Asset Allocation Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks 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.
[Sidenote:]
CURRENT INCOME
Current income includes both dividends from stocks and interest income from
fixed income securities, after deducting Fund expenses.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund aims to provide income that is higher than that provided by the popular
stock market averages. The Adviser interprets this to mean the Dow Jones
Industrial Average of 30 major companies and the Standard & Poor's 500 Composite
Stock Price Index (commonly referred to as the S&P 500). Due to the Fund's
expenses, however, net income paid to you may be less than that. The Fund also
seeks long-term growth in the value of its assets. The Adviser attempts to
achieve these goals and reduce risk by allocating the Fund's assets among
short-term debt securities, common stocks, preferred stocks and bonds.
The Fund seeks a mix of stocks and bonds that will produce both income and
long-term capital growth. This mix will change from time to time as a result of
economic and market conditions. However, the Fund keeps at least 25% of its
total assets in fixed income investments, including debt securities and
preferred stocks, at all times.
Debt securities purchased by the Fund will be of investment grade quality, which
means that they will have one of the top four ratings assigned by Standard &
Poor's Ratings Group (S&P) or Moody's Investor Services, Inc. (Moody's), or will
be unrated securities determined by the Adviser to be of comparable quality.
Occasionally, the rating of a security held by the Fund may be downgraded below
investment grade. If that happens, the Fund doesn't have to sell the security,
unless the Adviser determines that under the circumstances, the security is no
longer an appropriate investment for the Fund. However, the Fund will sell
promptly any securities that are not rated investment grade by either S&P or
Moody's if the securities exceed 5% of the Fund's net assets.
In selecting portfolio securities for the Fund, the Adviser's investment policy
committee develops an economic outlook and sets guidelines for the industries
and sectors in which the
-3-
<PAGE>
Fund should invest. In selecting equity securities, the Adviser favors stocks
with long-term growth potential that are expected to outperform their peers
over time. The Adviser also forecasts the direction and degree of change in
long-term interest rates to help in the selection of fixed income securities.
The Fund will sell a security when, as a result of changes in the economy, the
Adviser determines it appropriate to revise the allocation of the Fund's assets
between stocks and bonds. A security may also be sold as a result of a
deterioration in the performance of the security or in the financial condition
of the issuer of the security.
The Fund may trade its investments frequently in trying to achieve its
investment goal.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The value of fixed income investments such as bonds
are affected by movements in interest rates. Bond prices tend to fall when
interest rates rise and to rise when interest rates fall.
- - CREDIT RISK - The value of fixed income investments also depends on the
ability of an issuer to make principal and interest payments. If an issuer
can't meet its payment obligations or if its credit rating is lowered, the
value of its securities will decline. Debt securities which have the lowest
of the top four ratings assigned by S&P or Moody's have speculative
characteristics. Changes in the economy are more likely to affect the
ability of the issuers of these securities to make payments of principal
and interest than is the case with higher-rated securities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
fixed income investments held by the Fund to be paid off much sooner or
later than expected, which could adversely affect the Fund's value. In the
event that a security is paid off sooner than expected because of a decline
in interest rates, the Fund may be unable to recoup all of its initial
investment and may also suffer from having to reinvest in lower-yielding
securities. In the event of a later than expected payment because of a rise
in interest rates, the value of the obligation will decrease and the Fund
may suffer from the inability to invest in higher-yielding securities.
- - PORTFOLIO COMPOSITION - The level of risk could increase if a larger
percentage of the Fund is invested in one particular asset class, such as
stocks or bonds. However, asset allocation funds are generally less
volatile than portfolios that contain only stocks.
-4-
<PAGE>
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
- - FREQUENT TRADING - Frequent trading of investments usually increases the
chance that the Fund will pay investors short-term capital gains. These
gains are taxable at higher rates than long-term capital gains. Frequent
trading could also mean higher brokerage commissions and other
transaction costs, which could reduce the Fund's returns.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares has varied from year to
year.
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
[bar chart goes here]
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997 1998 1999
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
6.58% 8.08% -2.29% 30.54% 15.36% 19.86% 17.89% %
- ---------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999, as compared to a broad-based market index.
-5-
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
1 year 5 years Since inception
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Trust Shares % % % (12/30/91)
- ---------------------------------------------------------------------------------------------------------
S&P 500 % % % (since 12/31/91)
- ---------------------------------------------------------------------------------------------------------
DJIA % % % (since 12/31/91)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The S&P 500 is an unmanaged index that tracks the performance of 500 widely held
common stocks listed on the New York Stock Exchange, the American Stock Exchange
and NASDAQ. The S&P 500 is heavily weighted with the stocks of large companies.
[Sidenote:]
The Dow Jones Industrial Average (DJIA) is an unmanaged price-weighted average
based on the "price only" performance of 30 blue chip stocks.
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
TOTAL
FUND
Management Distribution Other OPERATING
fees (12b-1) fees expenses EXPENSES
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75% None % %
- ------------------------------------------------------------------------------------------
</TABLE>
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
</TABLE>
-6-
<PAGE>
[Sidenote:]
PORTFOLIO MANAGERS
The Fund's portfolio managers are Donald Jones, a Vice President of the Adviser
since 1991, and David Lindsay, CFA, a Senior Vice President of the Adviser since
1992. They are primarily responsible for the day-to-day management of the Fund's
investment portfolio. Mr. Jones has managed the equity portion of the Fund's
portfolio, including determining the allocation of the Fund's assets between
equities and fixed income investments, since May of 1995. He has been with the
Adviser and its predecessors since 1977. Mr. Lindsay has managed the fixed
income portion of the Fund since January of 1997. He has been with the Adviser
and its predecessors since 1986.
-7-
<PAGE>
Galaxy Equity Income Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks current income and capital appreciation.
[Sidenote:]
CURRENT INCOME
Current income includes both dividends from stocks and interest income from
fixed income securities, after deducting Fund expenses.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 75% of its total assets in a diversified
portfolio of income-producing (dividend-paying) equity securities, primarily
common stocks. The Adviser looks for investments that offer dividends,
prospects for dividend growth and capital appreciation. However, the Fund's
portfolio may include securities that offer only growth potential or only
income potential.
The Fund will sell a portfolio security when, as a result of changes in the
economy, the Adviser believes that holding the security is no longer consistent
with the Fund's investment objective. A security may also be sold as a result of
a deterioration in the performance of the security or in the financial condition
of the issuer of the security.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risk:
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
-8-
<PAGE>
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares has varied from year to
year.
[Sidenote:]
Best quarter: % for the quarter ending ,
- ------------ -----------------------------------------------------
Worst quarter: % for the quarter ending ,
- ------------ -----------------------------------------------------
[bar chart goes here]
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
1991 1992 1993 1994 1995 1996 1997 1998 1999
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
22.37% 7.43% 8.05% 0.88% 33.73% 17.06% 26.01% 16.10% %
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999, as compared to a broad-based market index.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1 year 5 years Since inception
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Trust Shares % % % (12/14/90)
- ------------------------------------------------------------------------------------------------------
S&P 500 % % % (since 12/1/90)
- ------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The S&P 500 is an unmanaged index that tracks the performance of 500 widely held
common stocks listed on the New York Stock Exchange, the American Stock Exchange
and NASDAQ. The S&P 500 is heavily weighted with the stocks of large companies.
-9-
<PAGE>
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you pay when you buy and hold
shares of the Fund.
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Total
Fund
Management Distribution Other operating
fees (12b-1) fees expenses expenses
- ------------------------------------------------------------------------------------------
<S> <C> <S> <S> <S>
Trust Shares 0.75% None % %
- ------------------------------------------------------------------------------------------
</TABLE>
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $ $ $ $
- -----------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is J. Edward Klisiewicz, a Senior Vice President of
the Adviser. He's primarily responsible for the day-to-day management of the
Fund's investment portfolio. Mr. Klisiewicz has been the Fund's portfolio
manager since it began operations in 1990. He has been with the Adviser and its
predecessors since 1970.
-10-
<PAGE>
Galaxy Growth and Income Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks to provide a relatively high total return through long-term
capital appreciation and current income.
[Sidenote:]
CURRENT INCOME
Current income includes both dividends from stocks and interest income from
fixed income securities, after deducting Fund expenses.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its total assets in the common stocks
of U.S. companies with large market capitalizations (generally over $2 billion)
that the Adviser believes offer above-average growth and dividends. The
Adviser focuses on stocks which are believed to be attractively priced
relative to expectations for the future performance of the issuing company.
The Adviser also seeks a current yield greater than that of the S&P 500,
although not all Fund investments will pay dividends.
The Fund will sell a portfolio security when, as a result of changes in the
economy, the Adviser believes that holding the security is no longer consistent
with the Fund's investment objective. A security may also be sold as a result of
a deterioration in the performance of the security or in the financial condition
of the issuer of the security.
[Sidenote:]
MARKET CAPITALIZATION
A company's market capitalization is the price of a share of its stock,
multiplied by the number of shares held by investors.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
-11-
<PAGE>
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risk:
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares has varied from year to
year.
The Fund began operations on December 14, 1992 as a separate portfolio (the
Predecessor Fund) of The Shawmut Funds. 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 classes of shares, Investment Shares
(which were first offered on February 12, 1993) and Trust Shares (which were
first offered on December 14, 1992), that were similar to the Fund's Retail A
Shares and Trust Shares. In connection with the reorganization, shareholders of
the Predecessor Fund exchanged their Investment Shares and Trust Shares for
Retail A Shares and Trust Shares of the Fund. The returns for periods prior to
December 4, 1995 are for Trust Shares of the Predecessor Fund.
[Sidenote:]
Best quarter: % for the quarter ending ,
- ------------ -----------------------------------------------------
Worst quarter: % for the quarter ending ,
- ------------ -----------------------------------------------------
[bar chart goes here]
-12-
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
1993 1994 1995 1996 1997 1998 1999
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
9.56% 5.12% 29.67% 20.20% 29.66% 15.96% %
- -------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999, as compared to a broad-based market index.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 5 years Since inception
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Trust Shares % % % (12/14/92)
- -------------------------------------------------------------------------------------------------------------
S&P 500 % % % (since 12/1/92)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The S&P 500 is an unmanaged index that tracks the performance of 500 widely held
common stocks listed on the New York Stock Exchange, the American Stock Exchange
and NASDAQ. The S&P 500 is heavily weighted with the stocks of large companies.
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Total
Fund
Management Distribution Other operating
fees (12b-1) fees expenses expenses
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75% None % %
- ------------------------------------------------------------------------------------------
</TABLE>
-13-
<PAGE>
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Gregory M. Miller, a Vice President of the
Adviser since 1996. He's been primarily responsible for the day-to-day
management of the Fund's investment portfolio since July 1998. Before that, Mr.
Miller assisted his predecessor in managing the Fund for seven years. He joined
the Adviser in 1985.
-14-
<PAGE>
Galaxy Strategic Equity Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests at least 65% of its total assets in U.S. equity securities,
primarily common stock and securities that can be converted into common stock.
The Fund's "Value Driven Growth" investment process emphasizes securities
believed to have the potential for the best one- to two-year returns. These
securities are generally selected from a universe of large and medium size
companies representative of the S&P 500, although the universe of stocks
monitored by the Adviser is not limited to stocks of companies included in the
S&P 500. The Fund may invest up to 20% of its total assets in foreign equity
securities. In selecting individual stocks, the Adviser looks at the current
price, projected earnings growth, and historical valuations to derive an
estimate of return potential. The Fund may give emphasis to growth stocks,
value stocks or particular industries, depending upon the Adviser's assessment
of a stock's return potential relative to its price in the broader market.
The Fund will sell a portfolio security when, as a result of a decline in the
security's return potential relative to that of other securities, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
[Sidenote:]
VALUE STOCKS AND GROWTH STOCKS
Value stocks are ones that appear to be underpriced based on measures such as
lower price-to-earnings and price-to-book value ratios. Growth stocks offer
strong revenue and earnings potential, and accompanying capital growth, with
generally less dividend income than value stocks.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
-15-
<PAGE>
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risks:
- - CONVERTIBLE SECURITIES - Securities that can be converted into common
stock, such as certain debt securities and preferred stock, are subject to
the usual risks associated with fixed income investments, such as interest
rate risk and credit risk. In addition, because they react to changes in
the value of the equity securities into which they will convert,
convertible securities are also subject to stock market risk.
- - FOREIGN INVESTMENTS - Foreign investments may be riskier than U.S.
investments because of factors such as foreign government restrictions,
changes in currency exchange rates, incomplete financial information about
the issuers of securities, and political or economic instability. Foreign
stocks may be more volatile and less liquid than U.S. stocks.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows the performance of Trust Shares during the last calendar
year.
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
[bar chart goes here]
- ---------------
1999
- ---------------
%
- ---------------
-16-
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999, as compared to a broad-based market index.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
1 year Since inception
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Trust Shares % % (3/4/98)
- ----------------------------------------------------------------------------------------
S&P 500 % % (since 3/ /98)
- ----------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The S&P 500 is an unmanaged index that tracks the performance of 500 widely held
common stocks listed on the New York Stock Exchange, the American Stock Exchange
and NASDAQ. The S&P 500 is heavily weighted with the stocks of large companies.
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Total
Fund
Management Distribution Other operating
fees (12b-1) fees expenses expenses
- ------------------------------------------------------------------------------------------
<S> <C> <S> <S> <S>
Trust Shares 0.75%(1) None % %(1)
- ------------------------------------------------------------------------------------------
</TABLE>
(1)The Adviser is waiving a portion of the Management fees so that such fees are
expected to be %. Total Fund operating expenses after this waiver are
expected to be %. This fee waiver may be revised or discontinued at any
time.
-17-
<PAGE>
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Peter B. Hathaway, CFA, a Senior Vice President
of the Adviser. He's primarily responsible for the day-to-day management of the
Fund's investment portfolio. Mr. Hathaway has been the Fund's portfolio manager
since it began operations in March 1998. He has been in the investment
management business with the Adviser and its predecessors since 1965 and has
been responsible for the Adviser's "Value Driven Growth" investment process
since 1991.
-18-
<PAGE>
Galaxy Equity Value Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation. Income is secondary to the
objective of capital appreciation.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 75% of its total assets in equity securities,
mainly common stocks, that the Adviser believes are undervalued. The Fund
invests most of its assets in companies that have a market capitalization of
more than $1.5 billion.
The Adviser uses proprietary computer models to compare share price and company
value, both compared to the market and over time. This helps the Adviser to
identify out-of-favor, undervalued securities (often called value stocks) which
may subsequently increase in value. These models focus on fundamental aspects
such as earnings and dividend growth, reinvestment of returns and the ability of
companies to finance their own growth. The models also take into account factors
such as how easily the stocks may be traded. The Adviser then reviews the
results and looks for risks that may account for a stock's low price. It
evaluates factors the computer models can't measure, such as the quality of a
company's management and the impact of technological change. Stocks which pass
all tests are eligible to be included in the Fund's portfolio. Fund holdings are
frequently reviewed and are sold automatically when the computer models show
they are overvalued.
[Sidenote:]
MARKET CAPITALIZATION
A company's market capitalization is the price of a share of its stock,
multiplied by the number of shares held by investors.
[Sidenote:]
VALUE STOCKS
Value stocks are ones that appear to be underpriced based on measures such as
lower price-to-earnings and price-to-book value ratios.
-19-
<PAGE>
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risk:
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares has varied from year to
year.
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
[bar chart goes here]
-20-
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- ----------------------------------------------------------------------------------------------------------------------
- -3.20% 23.36% 8.21% 14.75% 3.56% 28.45% 21.61% 28.08% 24.15% %
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999, as compared to broad-based market indices.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
1 year 5 years 10 years Since inception
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares % % % % (9/1/88)
- ---------------------------------------------------------------------------------------------------------------------
S&P 500 % % % % (since 9/1/88)
- ---------------------------------------------------------------------------------------------------------------------
Lipper Growth and
Income Funds Average % % % % (since 9/1/88)
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The S&P 500 is an unmanaged index that tracks the performance of 500 widely
held common stocks listed on the New York Stock Exchange, the American Stock
Exchange and NASDAQ. The S&P 500 is heavily weighted with the stocks of large
companies.
[Sidenote:]
The Lipper Growth and Income Funds Average is an unmanaged index that measures
the performance of a select group of mutual funds with investment objectives
similar to that of the Fund.
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Total
Fund
Management Distribution Other operating
fees (12b-1) fees expenses expenses
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75% None % %
- ------------------------------------------------------------------------------------------
</TABLE>
-21-
<PAGE>
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is G. Jay Evans, CFA, a Senior Vice President of
the Adviser since 1994. He's primarily responsible for the day-to-day management
of the Fund's investment portfolio. Mr. Evans has been the Fund's portfolio
manager since 1993. He has been with the Adviser and its predecessors since
1978.
-22-
<PAGE>
Galaxy Equity Growth Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 75% of its total assets in a broadly
diversified portfolio of equity securities, primarily common stocks and
securities that can be converted into common stocks. The Fund invests mainly in
the securities of U.S. issuers, but may invest up to 20% of its total assets in
foreign securities.
The Fund invests mainly in companies which the Adviser believes will have faster
earnings growth than the economy in general. The Adviser looks for
large-capitalization companies (generally over $2 billion) in growing
industries, focusing on technological advances, good product development, strong
management and other factors which support future growth. The Adviser seeks out
companies that have a history of strong earnings growth and are projected to
continue a similar pattern of growth over the next three to five years.
The Fund will sell a security if there is an adverse change in the projected
earnings growth of the company issuing the security. A security will also be
sold when, as a result of changes in the economy or the performance of the
security or other circumstances, the Adviser believes that holding the security
is no longer consistent with the Fund's investment objective.
[Sidenote:]
GROWTH STOCKS
Growth stocks offer strong revenue and earnings potential, and accompanying
capital growth, with generally less dividend income than value stocks.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
-23-
<PAGE>
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risks:
- - CONVERTIBLE SECURITIES - Securities that can be converted into common
stock, such as certain debt securities and preferred stock, are subject to
the usual risks associated with fixed income investments, such as interest
rate risk and credit risk. In addition, because they react to changes in
the value of the equity securities into which they will convert,
convertible securities are also subject to stock market risk.
- - FOREIGN INVESTMENTS - Foreign investments may be riskier than U.S.
investments because of factors such as foreign government restrictions,
changes in currency exchange rates, incomplete financial information about
the issuers of securities, and political or economic instability. Foreign
stocks may be more volatile and less liquid than U.S. stocks.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares has varied from year to
year.
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
[bar chart goes here]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1991 1992 1993 1994 1995 1996 1997 1998 1999
- --------------------------------------------------------------------------------------------------------------------
30.40% 6.11% 5.37% 0.72% 34.29% 20.95% 30.97% 26.15% %
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
-24-
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999 as compared to a broad-based market index.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 5 years Since inception
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Trust Shares % % % (12/14/90)
- -------------------------------------------------------------------------------------------------------------
S&P 500 % % % (since 12/1/90)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The S&P 500 is an unmanaged index that tracks the performance of 500 widely held
common stocks listed on the New York Stock Exchange, the American Stock Exchange
and NASDAQ. The S&P 500 is heavily weighted with the stocks of large companies.
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Management Distribution Other Total Fund operating
fees (12b-1) fees expenses expenses
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75% None % %
- ---------------------------------------------------------------------------------------------------------
</TABLE>
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
</TABLE>
-25-
<PAGE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Robert G. Armknecht, CFA, an Executive Vice
President of the Adviser since 1988. He's primarily responsible for the
day-to-day management of the Fund's investment portfolio. Mr. Armknecht has been
with the Adviser and its predecessors since 1988 and has been the Fund's
portfolio manager since it began operations in 1990.
-26-
<PAGE>
Galaxy International Equity Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 75% of its total assets in the equity
securities of foreign issuers. At all times, the Fund's assets will be invested
in companies located in at least three different foreign countries. Normally, no
more than 20% of the Fund's total assets will be invested in companies located
in countries with emerging economies or emerging securities markets. The Fund
emphasizes larger established companies, although it may invest in companies of
any size. The Fund may engage in transactions for the purpose of hedging its
portfolio, such as options, futures and foreign currencies.
The Sub-Adviser determines how much to invest in each country and region by
looking at factors such as prospects for economic growth, expected inflation
levels, government policies and the range of investment opportunities available.
Decisions as to particular investments are made with the guidance of the
Sub-Adviser's Investment Strategy Committee under the supervision of the
Adviser. The Sub-Adviser looks at the potential return of each investment over a
one- to two-year period.
The Fund will sell a security if, as a result of changes in the economy of a
particular country or region, the Sub-Adviser believes that holding the security
is no longer consistent with the Fund's investment objective. A security may
also be sold as a result of a deterioration in the performance of the security
or in the financial condition of the company that issued the security.
[Sidenote:]
SUB-ADVISER
The Adviser has appointed Oechsle International Advisors, LLC as Sub-Adviser to
assist it in the day-to-day management of the Fund's investment portfolio.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. U.S. and
-27-
<PAGE>
foreign stock markets tend to move in cycles, with periods of rising prices and
periods of falling prices.
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risks:
- - FOREIGN INVESTMENTS - Foreign investments may be riskier than U.S.
investments because of factors such as foreign government restrictions,
changes in currency exchange rates, incomplete financial information about
the issuers of securities, and political or economic instability. Foreign
stocks may be more volatile and less liquid than U.S. stocks.
- - EMERGING MARKETS - The risks associated with foreign investments are
heightened when investing in emerging markets. The governments and
economies of emerging market countries feature greater instability than
those of more developed countries. Such investments tend to fluctuate in
price more widely and to be less liquid than other foreign investments.
- - COUNTRY RISK - The Fund may invest 25% or more of its assets in the
securities of companies located in one country. When the Fund invests a
high percentage of its assets in a particular country, the Fund will be
especially susceptible to factors affecting that country.
- - CURRENCY EXCHANGE - Although the Fund usually makes investments that are
sold in foreign currencies, it values its holdings in U.S. dollars. If the
U.S. dollar rises compared to a foreign currency, the Fund loses on the
currency exchange.
- - HEDGING - The Fund may invest in derivatives, such as options, futures and
foreign currencies, to hedge against market risk or the currency risk of
its foreign investments. There's no guarantee hedging will always work. It
can also prevent the Fund from making a gain if markets move in the
opposite direction to the hedge.
- - SELECTION OF INVESTMENTS: The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
[Sidenote:]
DERIVATIVES
A derivative is an investment whose value is based on or DERIVED from the
performance of other securities or interest or currency exchange rates or
indices. Derivatives are considered to carry a higher degree of risk than other
types of securities.
-28-
<PAGE>
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares has varied from year to
year.
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
[bar chart goes here]
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997 1998 1999
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- -2.29% 31.62% -2.39% 11.74% 10.74% 14.09% 21.99% %
- ---------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999 as compared to a broad-based market index.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
1 year 5 years Since inception
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Trust Shares % % % (12/30/91)
- ---------------------------------------------------------------------------------------------------------
MSCI EAFE Index % % % (since 12/31/91)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The Morgan Stanley Capital International Europe, Australasia and Far East
(MSCI EAFE) Index is an unmanaged index which tracks the performance of selected
equity securities in Europe, Australia, Asia and the Far East.
-29-
<PAGE>
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Management Distribution Other Total Fund operating
fees (12b-1) fees expenses expenses
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.90%(1) None % %(1)
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be %. Total Fund operating expenses after this waiver
are expected to be %. This fee waiver may be revised or discontinued
at any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGERS
The Fund's portfolio managers are Singleton Dewey Keesler, Jr. and Kathleen
Harris, CFA. They're primarily responsible for the day-to-day management of the
Fund's investment portfolio. Mr. Keesler is Chief Investment Officer and
portfolio manager/research analyst with the Sub-Adviser. He has been associated
with the Sub-Adviser and its predecessor since 1986. Ms. Harris has been a
portfolio manager at the Sub-Adviser and its predecessor since January 1995. She
was previously portfolio manager and investment director for the State of
Wisconsin Investment Board. Mr. Keesler and Ms. Harris have co-managed the Fund
since August 1996.
-30-
<PAGE>
Galaxy Small Cap Value Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks to provide long-term capital appreciation.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests mainly in the common stocks of small companies that the Adviser
believes are undervalued. Under normal market conditions, the Fund invests at
least 65% of its total assets in the common stocks of companies that have market
capitalizations of $1.5 billion or less. The Fund invests primarily in the
common stock of U.S. issuers, but may invest up to 20% of its total assets in
foreign equity securities.
In selecting portfolio securities for the Fund, the Adviser looks at the
underlying strength of companies, their products, their competitive positions
and the quality of their management. It also does research to attempt to
identify companies likely to benefit from emerging industry trends and potential
market recoveries.
A portfolio security may be sold if the Adviser determines that it is no longer
undervalued or if there has been a deterioration in the performance of the
security or in the financial condition of the company that issued the security.
[Sidenote:]
MARKET CAPITALIZATION
A company's market capitalization is the price of a share of its stock,
multiplied by the number of shares held by investors.
[Sidenote:]
VALUE STOCKS
Value stocks are ones that appear to be underpriced based on measures such as
lower price-to-earnings and price-to-book value ratios.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
-31-
<PAGE>
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
In addition, the Fund also carries the following risks:
- - SMALL COMPANIES RISK - Smaller companies tend to have limited resources,
product lines and market share. As a result, their share prices tend to
fluctuate more than those of larger companies. Their shares may also trade
less frequently and in limited volume, making them potentially less liquid.
The price of small company stocks might fall regardless of trends in the
broader market.
- - FOREIGN INVESTMENTS - Foreign investments may be riskier than U.S.
investments because of factors such as foreign government restrictions,
changes in currency exchange rates, incomplete financial information about
the issuers of securities, and political or economic instability. Foreign
stocks may be more volatile and less liquid than U.S. stocks.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares has varied from year to
year.
The Fund began operations on December 14, 1992 as a separate portfolio (the
Predecessor Fund) of The Shawmut Funds. 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 classes of shares, Investment Shares
(which were first offered on February 12, 1993) and Trust Shares (which were
first offered on December 14, 1992), that were similar to the Fund's Retail A
Shares and Trust Shares. In connection with the reorganization, shareholders of
the Predecessor Fund exchanged their Investment Shares and Trust Shares for
Retail A Shares and Trust Shares of the Fund. The returns for the periods prior
to December 4, 1995 are for Trust Shares of the Predecessor Fund.
-32-
<PAGE>
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
[bar chart goes here]
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
1993 1994 1995 1996 1997 1998 1999
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
7.83% 0.53% 31.78% 27.19% 31.67% -5.22% %
- -----------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999 as compared to broad-based market indices.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
1 year 5 years Since inception
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Trust Shares % % % (12/14/92)
- -----------------------------------------------------------------------------------------------------
Russell 2000 Index % % % (since 12/1/92)
- -----------------------------------------------------------------------------------------------------
S&P 600 % % % (since 12/1/92)
- -----------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The Russell 2000 Index is an unmanaged index that tracks the performance of the
2,000 smallest of the 3,000 largest U.S. companies, based on market
capitalization. Companies included in the Russell 2000 Index have market
capitalizations that currently range between $30 million and $1.4 billion.
[Sidenote:]
The Standard & Poor's SmallCap 600 Composite Index (S&P 600) is an unmanaged
index that tracks the performance of 600 domestic companies traded on the New
York Stock Exchange, the American Stock Exchange and NASDAQ. The S&P 600 is
heavily weighted with the stocks of small companies with market
capitalizations that currently range between $32.9 million and $2.9 billion.
-33-
<PAGE>
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold Trust Shares of the Fund.
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Management Distribution Other Total Fund operating
fees (12b-1) fees expenses expenses
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75% None % %
- ---------------------------------------------------------------------------------------------------------
</TABLE>
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Peter Larson, a Vice President of the Adviser.
He's primarily responsible for the day-to-day management of the Fund's
investment portfolio. Mr. Larson has been with the Adviser and its predecessors
since 1963 and has managed the Fund, including the Predecessor Fund, since it
began operations in 1992.
-34-
<PAGE>
Galaxy Small Company Equity Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks capital appreciation.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its total assets in the equity
securities, primarily common stocks, of small companies that have market
capitalizations of $1.5 billion or less. The Fund invests primarily in the
common stock of U.S. companies, but may invest up to 20% of its total assets in
foreign equity securities.
In selecting investments for the Fund, the Adviser looks for promising
industries. It then looks within those industries for what are judged to be
reasonably priced companies that have above-average growth potential. The
Adviser consults a wide range of sources, including management, competitors,
other industry sources and regional brokerage analysts.
The Fund will sell a portfolio security when, as a result of changes in the
economy, the Adviser believes that holding the security is no longer consistent
with the Fund's investment objective. A security may also be sold as a result of
a deterioration in the performance of the security or in the financial condition
of the issuer of the security.
[Sidenote:]
MARKET CAPITALIZATION
A company's market capitalization is the price of a share of its stock,
multiplied by the number of shares held by investors.
[Sidenote:]
GROWTH STOCKS
Growth stocks offer strong revenue and earnings potential, and accompanying
capital growth, with generally less dividend income than value stocks.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
-35-
<PAGE>
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risks:
- - SMALL COMPANIES RISK - Smaller companies tend to have limited resources,
product lines and market share. As a result, their share prices tend to
fluctuate more than those of larger companies. Their shares may also trade
less frequently and in limited volume, making them potentially less liquid.
The price of small company stocks might fall regardless of trends in the
broader market.
- - FOREIGN INVESTMENTS - Foreign investments may be riskier than U.S.
investments because of factors such as foreign government restrictions,
changes in currency exchange rates, incomplete financial information about
the issuers of securities, and political or economic instability. Foreign
stocks may be more volatile and less liquid than U.S. stocks.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares has varied from year to
year.
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
[bar chart goes here]
-36-
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997 1998 1999
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1.20% 22.75% 0.02% 36.67% 21.59% 14.64% -10.66% %
- --------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999, as compared to a broad-based market index.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
1 year 5 years Since inception
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Trust Shares % % % (12/30/91)
- ------------------------------------------------------------------------------------------------------------
Russell 2000 Index % % % (since 12/31/91)
- ------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The Russell 2000 Index is an unmanaged index that tracks the performance of the
2,000 smallest of the 3,000 largest U.S. companies, based on market
capitalization. Companies included in the Russell 2000 Index have market
capitalizations that currently range between $30 million and $1.4 billion.
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you may buy and
hold shares of the Fund.
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
Management Distribution Other Total Fund operating
fees (12b-1) fees expenses expenses
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75% None % %
- ------------------------------------------------------------------------------------------------------------
</TABLE>
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
-37-
<PAGE>
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Stephen D. Barbaro, CFA, a Senior Vice President
of the Adviser since 1996. He's primarily responsible for the day-to-day
management of the Fund's investment portfolio. Mr. Barbaro has been the Fund's
portfolio manager since it began operations in 1991. He has been with the
Adviser and its predecessors since 1976.
-38-
<PAGE>
ADDITIONAL INFORMATION ABOUT RISK
The main risks associated with an investment in each of the Galaxy Equity Funds
have been described above. The following supplements that discussion.
TEMPORARY DEFENSIVE POSITIONS
Each Fund may temporarily hold up to 100% of its total assets in investments
that are not part of its principal investment strategy to try to avoid losses
during unfavorable market conditions. These investments may include cash (which
will not earn any income), money market instruments, debt securities issued or
guaranteed by the U.S. Government or its agencies and, in the case of the
International Equity Fund, foreign money market instruments, debt securities of
foreign national governments and their agencies, and the securities of U.S.
issuers. This strategy could prevent a Fund from achieving its investment
objective and could reduce the Fund's return and affect its performance during a
market upswing.
OTHER TYPES OF INVESTMENTS
This prospectus describes each Fund's main investment strategies and the
particular types of securities in which each Fund mainly invests. Each Fund may,
from time to time, pursue other investment strategies and make other types of
investments in support of its overall investment goal. These supplemental
investment strategies, which are not considered to be main investment
strategies of the Fund - and the risks involved - are described in detail in the
Statement of Additional Information (SAI) which is referred to on the back cover
of this prospectus.
-39-
<PAGE>
INVESTOR GUIDELINES
The following table gives you a general overview of the risk spectrum for the
Galaxy Equity Funds. This is a guide only. It shows the Adviser's current
assessment of the potential risk of the Funds relative to one another, but this
can change over time. It should not be used to compare the Funds with other
mutual funds or other types of investments. Consult your financial professional
to help you decide which Fund is right for you.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Risk spectrum Fund Primary investments
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Asset Allocation Common stocks and fixed income securities
of domestic companies
------------------------------------------------------------------------------
Conservative Equity Income Common stocks of domestic companies
selected primarily for their income
potential
------------------------------------------------------------------------------
Growth and Income Common stocks of companies selected for
their growth and income potential
------------------------------------------------------------------------------
Strategic Equity Equity securities of large and medium sized
growth companies that exhibit above-average
return potential relative to their market
price
------------------------------------------------------------------------------
Moderate Equity Value Common stock of large and medium sized
companies believed to be undervalued
------------------------------------------------------------------------------
Equity Growth Equity securities of growth-oriented
companies
------------------------------------------------------------------------------
International Equity Equity securities of foreign companies
------------------------------------------------------------------------------
Aggressive Small Cap Value Common stock of smaller companies believed
to be undervalued
------------------------------------------------------------------------------
Small Company Equity Common stock of smaller growth-oriented
companies
- -------------------------------------------------------------------------------------------------------------
</TABLE>
-40-
<PAGE>
FUND MANAGEMENT
ADVISER
The Adviser, subject to the general supervision of Galaxy's Board of Trustees,
manages each Fund in accordance with its investment objective and policies,
makes decisions with respect to and places orders for all purchases and sales of
its portfolio securities, and maintains related records.
The management fees paid to the Adviser by the Funds during the last fiscal year
are set forth below.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Fund Management fee as a % of average net assets
- --------------------------------------------------------------------------------------------------------------
<S> <C>
Asset Allocation %
- --------------------------------------------------------------------------------------------------------------
Equity Income %
- --------------------------------------------------------------------------------------------------------------
Growth and Income %
- --------------------------------------------------------------------------------------------------------------
Strategic Equity %
- --------------------------------------------------------------------------------------------------------------
Equity Value %
- --------------------------------------------------------------------------------------------------------------
Equity Growth %
- --------------------------------------------------------------------------------------------------------------
International Equity %
- --------------------------------------------------------------------------------------------------------------
Small Cap Value %
- --------------------------------------------------------------------------------------------------------------
Small Company Equity %
- --------------------------------------------------------------------------------------------------------------
</TABLE>
SUB-ADVISER
The Adviser has delegated some of its advisory responsibilities with respect to
the International Equity Fund to Oechsle International Advisors, LLC as
Sub-Adviser. The Sub-Adviser determines which securities will be purchased,
retained or sold for the Fund, places orders for the Fund and provides the
Adviser with information on international investment and economic developments.
The Adviser assists and consults with the Sub-Adviser as to the Fund's
investment program, approves the list of foreign countries recommended by the
Sub-Adviser for investment and manages the Fund's daily cash position. The
Sub-Adviser's fees are paid by the Adviser.
The Sub-Adviser has its main office at One International Place, Boston,
Massachusetts 02210. The Sub-Adviser is the successor to Oechsle International
Advisors, L.P., an international investment firm founded in 1986. At December
31, 1999, the Sub-Adviser had discretionary management authority over
approximately $ billion in assets. The Adviser's parent company,
FleetBoston Corporation, owns an interest in the Sub-Adviser.
-41-
<PAGE>
ALLOCATION OF ORDERS FOR PORTFOLIO SECURITIES
The Adviser and Sub-Adviser may allocate orders for the purchase and sale of
portfolio securities to certain financial institutions, including those that are
affiliated with the Adviser or Sub-Adviser or that have sold shares of the
Funds, to the extent permitted by law or by order of the Securities and Exchange
Commission. The Adviser and Sub-Adviser will allocate orders to such
institutions only if they believe that the quality of the transaction and the
commission are comparable to what they would be with other qualified brokerage
firms.
SUB-ACCOUNT SERVICES
Affiliates of the Adviser and certain other parties may receive fees from
Galaxy's transfer agent for providing certain sub-accounting and administrative
services to participant sub-accounts with respect to Trust Shares of the Funds
held by defined contribution plans. The transfer agency fees payable by Trust
Shares of the Funds have been increased by an amount equal to these fees, so
that the holders of Trust Shares indirectly bear these fees.
-42-
<PAGE>
HOW TO INVEST IN THE FUNDS
BUYING AND SELLING SHARES
Trust Shares of the Funds are available for purchase by the following types of
investors:
- - Investors maintaining a qualified account at a bank or trust institution,
including subsidiaries of FleetBoston Corporation.
- - Participants in employer-sponsored defined contribution plans
Qualified accounts include discretionary investment management accounts,
custodial accounts, agency accounts and different types of tax-advantaged
accounts. Your financial institution can provide more information about which
types of accounts are eligible.
You can buy and sell Trust Shares of the Funds on any business day. A business
day is any day that Galaxy's distributor, Galaxy's custodian and your
institution or employer-sponsored plan are open for business.
The price at which you buy shares is the net asset value (NAV) per share next
determined after your order is accepted. The price at which you sell shares is
the NAV per share next determined after receipt of your order. NAV is determined
on each day the New York Stock Exchange is open for trading at the close of
regular trading that day (usually 4:00 p.m. Eastern time). The New York Stock
Exchange is generally open for trading every Monday through Friday, except for
national holidays.
If market prices are readily available for securities owned by the Fund, they're
valued at those prices. If market prices are not readily available for some
securities, they are valued at fair value under the supervision of Galaxy's
Board of Trustees.
Sometimes, the price of a security trading on a foreign stock exchange may be
affected by events that happen after that exchange closes. If this happens, the
fair value of the security may be determined using other factors and may not
reflect the security's last quoted price. In addition, foreign securities may
trade on days when shares of the Funds are not priced. As a result, the net
asset value per share of a Fund holding these securities may change on days when
you won't be able to buy or sell Fund shares.
-43-
<PAGE>
[Sidenote:]
NET ASSET VALUE
The price you pay for your shares is based on the net asset value per share
(NAV). It's the value of a Fund's assets attributable to Trust Shares, minus the
value of the Fund's liabilities attributable to Trust Shares, divided by the
number of Trust Shares held by investors.
HOW TO BUY SHARES
You can buy Trust Shares by following the procedures established by your
financial institution or your employer-sponsored plan. Your financial
institution or plan administrator is responsible for sending your order to
Galaxy's distributor and wiring payment to Galaxy's custodian. The financial
institution or employer-sponsored plan holds the shares in your name and
receives all confirmations of purchases and sales.
Clients, members and employees of the Sub-Adviser also may buy Trust Shares of
the International Equity Fund by contacting Galaxy's distributor at
1-877-BUY-GALAXY (1-877-289-4252).
[Sidenote:]
INVESTMENT MINIMUMS
Galaxy does not have any minimum investment requirements for initial or
additional investments in Trust Shares but financial institutions and
employer-sponsored plans may. They may also require you to maintain a minimum
account balance.
HOW TO SELL SHARES
You can sell Trust Shares by following the procedures established by your
financial institution or your employer-sponsored plan. Your financial
institution or plan administrator is responsible for sending your order to
Galaxy's distributor and for crediting your account with the proceeds. Galaxy
doesn't charge for wiring the proceeds, but your financial institution or
employer-sponsored plan may do so. Contact your financial institution or plan
administrator for more information.
OTHER TRANSACTION POLICIES
If Galaxy doesn't receive full payment for your order to buy shares by 4:00 p.m.
on the next business day, Galaxy won't accept your order. Galaxy will advise
your financial institution or plan administrator if this happens.
-44-
<PAGE>
Galaxy may refuse any order to buy shares. Galaxy doesn't issue a certificate
when you buy shares but it does keep a record of shares issued to investors.
Sales proceeds are normally wired to your financial institution or plan
administrator on the next business day but Galaxy reserves the right to send
sales proceeds within seven days if sending proceeds earlier could adversely
affect a Fund.
Galaxy may ask for any information it might reasonably need to make sure that
you've authorized a sale of shares.
Galaxy may close any account after 60 days' written notice if the value of the
account drops below $250 as a result of selling shares.
-45-
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Each Fund, except the International Equity Fund, pays any dividends from net
investment income each quarter. The International Equity Fund pays any dividends
from net investment income annually. Each Fund pays any net capital gains at
least once a year. It's expected that the Funds' annual distributions will
normally -- but not always -- consist primarily of capital gains rather than
ordinary income. Dividends and distributions are paid in cash unless you tell
your financial institution or plan administrator in writing that you want to
have dividends and distributions reinvested in additional shares.
FEDERAL TAXES
Each Fund contemplates declaring as dividends each year all or substantially all
of its taxable income, including its net capital gain (the excess of long-term
capital gain over short-term capital loss). Distributions attributable to the
net capital gain of a Fund will be taxable to you as long-term capital gain,
regardless of how long you have held your shares. Other Fund distributions will
generally be taxable as ordinary income. You will be subject to income tax on
these distributions regardless of whether they are paid in cash or reinvested in
additional shares. You will be notified annually of the tax status of
distributions to you.
You should note that if you purchase shares just before a distribution, the
purchase price will reflect the amount of the upcoming distribution, but you
will be taxed on the entire amount of the distribution received, even though, as
an economic matter, the distribution simply constitutes a return of capital.
This is known as "buying into a dividend."
You will recognize taxable gain or loss on a sale or redemption of your shares,
including an exchange for shares of another Fund, based on the difference
between your tax basis in the shares and the amount you receive for them. (To
aid in computing your tax basis, you generally should retain your account
statements for the periods during which you held shares.)
Generally, this gain or loss will be long-term or short-term depending on
whether your holding period for the shares exceeds 12 months, except that any
loss realized on shares held for six months or less will be treated as a
long-term capital loss to the extent of any capital gain dividends that were
received on the shares.
A Fund's dividends that are paid to its corporate shareholders and are
attributable to qualifying dividends the Fund receives from U.S. corporations
may be eligible, in the hands of the corporate
-46-
<PAGE>
shareholders, for the corporate dividends-received deduction, subject to certain
holding period requirements and debt financing limitations.
It is expected that the International Equity Fund will be subject to foreign
withholding taxes with respect to dividends or interest received from sources in
foreign countries. The Fund may make an election to treat a proportionate amount
of these taxes as constituting a distribution to each shareholder, which would
allow each shareholder either (1) to credit this proportionate amount of taxes
against U.S. federal income tax liability or (2) to take this amount as an
itemized deduction.
STATE AND LOCAL TAXES
Shareholders may also be subject to state and local taxes on distributions,
redemptions and exchanges. State income taxes may not apply however to the
portions of each Fund's distributions, if any, that are attributable to interest
on U.S. Government securities, or on securities of the particular state, its
agencies or municipalities.
MISCELLANEOUS
The foregoing is only a summary of certain tax considerations under current law,
which may be subject to change in the future. You should consult your tax
adviser for further information regarding federal, state, local and/or foreign
tax consequences relevant to your specific situation.
-47-
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables shown below will help you understand the
financial performance for the Funds' Trust Shares for the past five years (or
the period since a particular Fund began operations). Certain information
reflects the financial performance of a single Trust Share. The total returns in
the tables represent the rate that an investor would have earned (or lost) on an
investment in Trust Shares of each Fund, assuming all dividends and
distributions were reinvested. The information for the fiscal year ended
October 31, 1999 has been audited by , independent auditors,
whose report, along with the Funds' financial statements, are included in the
Funds' Annual Report and are incorporated by reference into the SAI. The Annual
Report and SAI are available free of charge upon request. The information for
the fiscal years ended October 31, 1995, 1996, 1997 and 1998 was audited by
Galaxy's former auditors, .
-48-
<PAGE>
Galaxy Asset Allocation Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
-----------------------------------------------------------
1999 1998 1997 1996 1995
-----------------------------------------------------------
Trust Shares
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ...................... $ 16.47 $ 14.53 $ 12.83 $ 10.68
Income from investment operations:
Net investment income(1) ................................ 0.42 0.43 0.33 0.32
Net realized and unrealized gain (loss) on investments .. 1.71 2.42 1.83 2.16
Total from investment operations .......................... 2.13 2.85 2.16 2.48
Less dividends:
Dividends from net investment income .................... (0.43) (0.40) (0.33) (0.33)
Dividends from net realized capital gains ............. (1.21) (0.51) (0.13) --
Total dividends ......................................... (1.64) (0.91) (0.46) (0.33)
Net increase (decrease) in net asset value .............. 0.49 1.94 1.70 2.15
Net asset value, end of period ............................ $ 16.96 $ 16.47 $ 14.53 $ 12.83
--------- -------- -------- --------
Total return ........................................... 14.05% 20.42% 17.19% 23.68%
Ratios/supplemental data:
Net assets, end of period (000's) ....................... $ 218,666 $171,741 $123,603 $76,771
Ratios to average net assets:
Net investment income including reimbursement/waiver .... 2.63% 2.82% 2.52% 2.74%
Operating expenses including reimbursement/waiver .. 1.13% 1.21% 1.19% 1.26%
Operating expenses excluding reimbursement/waiver .. 1.13% 1.22% 1.21% 1.30%
Portfolio turnover rate ................................... 108% 58% 48% 41%
</TABLE>
(1) Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for Trust Shares for the years
ended October 31, 1999, 1998, 1997, 1996 and 1995 was $ , $0.42,
$0.43, $0.33, and $0.32, respectively.
-49-
<PAGE>
Galaxy Equity Income Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
-------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------------------------------------------------------------
Trust Shares
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ............... $ 18.84 $ 16.93 $ 14.99 $ 12.75
Income from investment operations:
Net investment income(1) ......................... 0.34 0.38 0.37 0.36
Net realized and unrealized gain on investments .. 2.42 3.35 2.48 2.45
Total from investment operations ................... 2.76 3.73 2.85 2.81
Less dividends
Dividends from net investment income ............. (0.33) (0.38) (0.37) (0.36)
Dividends from net realized capital gains ...... (1.58) (1.44) (0.54) (0.21)
Total dividends .................................. (1.91) (1.82) (0.91) (0.57)
Net increase (decrease) in net asset value ......... 0.85 1.91 1.94 2.24
Net asset value, end of period ..................... $ 19.69 $ 18.84 $ 16.93 $ 14.99
--------- --------- --------- -------
Total return .................................... 15.67% 23.80% 19.65% 22.81%
Ratios/supplemental data:
Net assets, end of period (000's) ................ $ 127,367 $ 119,505 $ 106,094 $87,819
Ratios to average net assets:
Net investment income including
reimbursement/waiver ............................ 1.72% 2.14% 2.32% 2.60%
Operating expenses including
reimbursement/ waiver ........................... 0.92% 0.95% 0.94% 0.98%
Operating expenses excluding
reimbursement/waiver ............................ 0.92% 0.97% 0.94% 1.00%
Portfolio turnover rate .......................... 46% 37% 45% 21%
</TABLE>
(1) Net investment income per share before reimbursement/waiver of fees by
the Adviser and/or the Fund's administrator for Trust Shares for the
years ended October 31, 1999, 1998, 1997, 1996, and 1995 was $ ,
$0.34, $0.38, $0.37, and $0.36, respectively.
-50-
<PAGE>
Galaxy Growth and Income Fund(1)
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
--------------------------------------------------------------------
1999 1998 1997 1996(1) 1995
--------------------------------------------------------------------
Trust Shares
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ................ $ 16.28 13.80 $ 12.35 $ 11.15
Income from investment operations:
Net investment income(2) ....................... 0.15 0.22 0.27 0.28
Net realized and unrealized
gain on investments .......................... 1.31 3.68 2.16 1.69
Total from investment operations .................... 1.46 3.90 2.43 1.97
Less dividends:
Dividends from net investment income ...... (0.16) (0.23) (0.25) (0.28)
Dividends from net realized capital gains .. (2.68) (1.19) (0.73) (0.49)
Total dividends ................................... (2.84) (1.42) (0.98) (0.77)
Net increase (decrease) in net asset value .......... (1.38) 2.48 1.45 1.20
Net asset value, end of period ...................... $ 14.90 $ 16.28 $ 13.80 $ 12.35
--------- ---------- --------- ----------
Total return ..................................... 10.10% 30.43% 20.77% 18.80%
Ratios/supplemental data:
Net assets, end of period (000's) ............ $ 254,060 $ 246,654 $ 186,708 $ 189,011
Ratios to average net assets:
Net investment income including
reimbursement/waiver ...................... 1.00% 1.44% 2.01% 2.42%
Operating expenses including
reimbursement/waiver ...................... 1.03% 1.03% 1.02% 1.07%
Operating expenses excluding
reimbursement/waiver ...................... 1.03% 1.06% 1.03% 1.27%
Portfolio turnover rate .......................... 38% 93% 59% 51%
</TABLE>
(1) The Fund commenced operations on December 14, 1992 as a separate
investment portfolio (the "Predecessor Fund") of The Shawmut Funds. 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.
(2) Net investment income per share before reimbursement/waiver of fees by
the Adviser and/or the Fund's administrator for the years ended October
31, 1999, 1998, 1997 and 1996 was $ , $0.15, $0.21 and $0.27,
respectively. Net investment income per share before reimbursement/waiver
of fees by other parties for the year ended October 31, 1995 was
$0.25.
-51-
<PAGE>
Galaxy Strategic Equity Fund
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
For the year For the period
ended October 31, ended October 31,
1999 1998(1)
---------------------------------------
Trust Shares
---------------------------------------
<S> <C> <C>
Net asset value, beginning of period................................. $ 10.00
Income from investment operations:
Net investment income(2)........................................ 0.01
Net realized and unrealized (loss) on investments............... (0.37)
Total from investment operations.............................. (0.36)
Less dividends:
Dividends from net investment income.......................... (0.01)
Dividends from net realized capital gains.....................
Total dividends...................................................... (0.01)
Net decrease in net asset value...................................... (0.37)
Net asset value, end of period....................................... $9.63
------
Total return......................................................... (3.62)%(3)
Ratios/supplemental data:
Net assets, end of period (000's)............................... $63,061
Ratios to average net assets:
Net investment income including reimbursement/waiver............ 0.19%(4)
Operating expenses including reimbursement/waiver............... 1.27%(4)
Operating expenses excluding reimbursement/waiver............... 1.47%(4)
Portfolio turnover rate.............................................. 30%(3)
</TABLE>
(1) The Fund commenced operations on March 4, 1998.
(2) Net investment income per share before reimbursement/waiver of fees by
the Adviser and the Fund's administrator for Trust Shares for the
periods ended October 31, 1999 and 1998 was $ and $0.00,
respectively.
(3) Not annualized.
(4) Annualized.
-52-
<PAGE>
Galaxy Equity Value Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
---------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------------------------------------------------------------------------
Trust Shares
---------------------------------------------------------------------------
<S> <S> <C> <C> <C> <C>
Net asset value, beginning of period..... $ 18.21 $ 15.96 $ 14.33 $ 13.32
Income from investment operations:
Net investment income(1)............ 0.08 0.17 0.21 0.28
Net realized and unrealized
gain on investments............... 1.49 4.16 2.74 2.24
Total from investment operations......... 1.57 4.33 2.95 2.52
Less dividends:
Dividends from net investment
income............................ (0.07) (0.18) (0.21) (0.30)
Dividends from net realized
capital gains..................... (3.20) (1.90) (1.11) (1.21)
Total dividends.......................... (3.27) (2.08) (1.32) (1.51)
Net increase (decrease) in net
asset value......................... (1.70) 2.25 1.63 1.01
Net asset value, end of period........... $ 16.51 $ 18.21 $ 15.96 $ 14.33
-------- -------- ------- --------
Total return.......................... 10.27% 29.87% 22.05% 21.31%
Ratios/supplemental data:
Net assets, end of period (000's)... $254,432 $241,532 $194,827 $165,330
Ratios to average net assets:
Net investment income
including reimbursement/
waiver............................ 0.49% 0.98% 1.42% 2.10%
Operating expenses
including reimbursement/
waiver............................ 1.03% 1.04% 1.03% 1.02%
Operating expenses
excluding reimbursement/
waiver............................ 1.03% 1.04% 1.03% 1.02%
Portfolio turnover rate.................. 82% 111% 116% 76%
</TABLE>
(1) Net investment income per share before reimbursement/waiver of fees by
the Adviser and/or the Fund's administrator for Trust Shares for the
years ended October 31, 1999, 1998, 1997, 1996 and 1995 was $ ,
$0.08, $0.17, $0.21 and $0.28, respectively.
-53-
<PAGE>
Galaxy Equity Growth Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
-------------------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------------------------------------------------------------------------
Trust Shares
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period..... $ 25.17 $ 20.39 $ 17.30 $ 14.19
Income from investment operations:
Net investment income(1)............ 0.09 0.16 0.17 0.20
Net realized and unrealized
gain on investments............... 3.20 6.06 3.40 3.28
Total from investment operations......... 3.29 6.22 3.57 3.48
Less dividends:
Dividends from net investment
income............................ (0.09) (0.16) (0.18) (0.20)
Dividends in excess of net
investment income................. (0.01) -- -- --
Dividends from net realized
capital gains..................... (3.84) (1.28) (0.30) (0.17)
Total dividends.......................... (3.94) (1.44) (0.48) (0.37)
Net increase (decrease) in net
asset value......................... (0.65) 4.78 3.09 3.11
Net asset value, end of period........... $ 24.52 $ 25.17 $ 20.39 $ 17.30
------- ------- ------- -------
Total return.......................... 15.17% 32.16% 21.03% 25.08%
Ratios/supplemental data:
Net assets, end of period (000's)... $815,756 $ 745,537 $562,419 $ 420,016
Ratios to average net assets:
Net investment income
including reimbursement/
waiver............................ 0.40% 0.72% 0.92% 1.31%
Operating expenses
including reimbursement/
waiver............................ 0.96% 0.95% 0.98% 1.00%
Operating expenses
excluding reimbursement/
waiver............................ 0.96% 0.95% 0.98% 1.00%
Portfolio turnover rate.................. 60% 66% 36% 14%
</TABLE>
(1) Net investment income per share before reimbursement/waiver of fees by
the Adviser and/or the Fund's administrator for Trust Shares for the
years ended October 31, 1999, 1998, 1997, 1996 and 1995 was $ ,
$0.09, $0.16, $0.17 and $0.20, respectively.
-54-
<PAGE>
Galaxy International Equity Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------------------------------------------------------------------
Trust Shares
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period..... $ 15.33 $14.01 $12.98 $13.20
Income from investment operations:
Net investment income(1)............... 0.14 0.08 0.17 0.16
Net realized and unrealized
gain (loss) on investments............ 1.98 2.12 1.30 (0.18)
Total from investment operations......... 2.12 2.20 1.47 (0.02)
Less dividends:
Dividends from net investment
income................................ (0.09) (0.20) (0.20) (0.04)
Dividends from net realized
capital gains......................... (0.36) (0.68) (0.24) (0.16)
Total dividends.......................... (0.45) (0.88) (0.44) (0.20)
Net increase (decrease) in net
asset value............................ 1.67 1.32 1.03 (0.22)
Net asset value, end of period........... $ 17.00 $ 15.33 $ 14.01 $ 12.98
------- ------- ------- -------
Total return.......................... 14.32% 16.60% 11.51% (0.02)%
Ratios/supplemental data:
Net assets, end of period
(000's)............................... $345,692 $265,124 $172,561 $89,614
Ratios to average net assets:
Net investment income
including reimbursement/
waiver................................ 0.91% 0.57% 1.40% 1.36%
Operating expenses
including reimbursement/
waiver................................ 0.96% 1.06% 1.08% 1.22%
Operating expenses
excluding reimbursement/
waiver................................ 1.21% 1.32% 1.36% 1.48%
Portfolio turnover rate.................. 49% 45% 146% 48%
</TABLE>
(1) Net investment income per share before reimbursement/waiver of fees by
the Adviser and/or the Fund's administrator for Trust Shares for the
years ended October 31, 1999, 1998, 1997, 1996 and 1995 was $ ,
$0.10, $0.04, $0.13 and $0.13, respectively.
-55-
<PAGE>
Galaxy Small Cap Value Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
-------------------------------------------------------------------------
1999 1998 1997 1996(1) 1995
-------------------------------------------------------------------------
Trust Shares
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........... $ 18.37 $ 14.76 $ 12.71 $ 11.07
Income from investment operations:
Net investment income(2).................. 0.11 0.01(3) 0.05 0.01
Net realized and unrealized
gain (loss) on investments.............. (2.06) 5.74 2.97 2.21
Total from investment operations............... (1.95) 5.75 3.02 2.22
Less dividends:
Dividends from net investment income.... (0.13) -- (0.05) (0.01)
Dividends in excess of net
investment income....................... -- -- (0.01) --
Dividends from net realized
capital gains........................... (2.68) (2.14) (0.91) (0.57)
Total dividends............................... (2.81) (2.14) (0.97) (0.58)
Net increase (decrease) in net asset value... (4.76) 3.61 2.05 1.64
Net asset value, end of period................. $ 13.61 $ 18.37 $ 14.76 $ 12.71
------- ------- ------- -------
Total return................................ (12.07)% 44.08% 25.22% 21.52%
Ratios/supplemental data:
Net assets, end of period (000's)....... $ 202,385 $189,257 $137,341 $121,364
Ratios to average net assets:
Net investment income
including reimbursement/waiver.......... 0.73% 0.09% 0.45% 0.07%
Operating expenses
including reimbursement/waiver.......... 0.96% 0.96% 1.05% 1.10%
Operating expenses
excluding reimbursement/waiver.......... 0.96% 0.96% 1.06% 1.35%
Portfolio turnover rate........................ 33% 52% 39% 32%
</TABLE>
(1) The Fund commenced operations on December 14, 1992 as a separate
investment portfolio (the "Predecessor Fund") of The Shawmut Funds. 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.
(2) Net investment income per share before reimbursement/waiver of fees by
the Adviser and/or the Fund's administrator for the years ended October
31, 1999, 1998, 1997 and 1996 was $ , $(0.11), $0.05 and $0.05,
respectively. Net investment (loss) per share before reimbursement/waiver
of fees by other parties for the year ended October 31, 1995 was
$(0.03).
(3) The selected per share data was calculated using the weighted average
shares outstanding method for the year.
-56-
<PAGE>
Galaxy Small Company Equity Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
---------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------------------------------------------------------------------------
Trust Shares
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period................................. $21.32 $20.20 $16.38 $12.36
Income from investment operations:
Net investment income (loss)(1)........ (0.14) (0.11) (0.09) (0.04)
Net realized and unrealized
gain (loss) on investments............ (4.96) 3.61 4.08 4.25
Total from investment operations......... (5.10) 3.50 3.99 4.21
Less dividends:
Dividends from net investment
income................................ -- -- -- --
Dividends from net realized
capital gains......................... (2.26) (2.38) (0.17) (0.19)
Total dividends.......................... (2.26) (2.38) (0.17) (0.19)
Net increase (decrease) in net
asset value............................ (7.36) 1.12 3.82 4.02
Net asset value, end of period........... $ 13.96 $ 21.32 $ 20.20 $ 16.38
------- ------- ------- -------
Total return.......................... (26.00)% 19.59% 24.69% 34.73%
Ratios/supplemental data:
Net assets, end of period (000's)...... $222,675 $310,751 $174,990 $94,831
Ratios to average net assets:
Net investment income (loss)
including reimbursement/waiver........ (0.76)% (0.65)% (0.60)% (0.37)%
Operating expenses
including reimbursement/waiver........ 1.09% 1.09% 1.14% 1.12%
Operating expenses
excluding reimbursement/waiver........ 1.09% 1.12% 1.14% 1.12%
Portfolio turnover rate.................. 78% 69% 82% 54%
</TABLE>
(1) Net investment income (loss) per share before reimbursement/waiver of
fees by the Adviser and/or the Fund's administrator for Trust Shares for
the years ended October 31, 1999, 1998, 1997, 1996 and 1995 was
$ , ($0.14), ($0.11), ($0.09) and ($0.04), respectively.
-57-
<PAGE>
[Back Cover Page]
Where to find more information
You'll find more information about the Funds in the following documents:
ANNUAL AND SEMI-ANNUAL REPORTS
Galaxy's annual and semi-annual reports contain more information about each Fund
and a discussion about the market conditions and investment strategies that had
a significant effect on each Fund's performance during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains detailed information about the Funds and their policies. By
law, it's incorporated by reference into (considered to be part of) this
prospectus.
You can get a free copy of these documents, request other information about the
Funds and make shareholder inquiries by calling Galaxy at 1-877-BUY-GALAXY
(1-877-289-4252) or by writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
If you buy your shares through a financial institution, you may contact your
institution for more information.
You can write to the Securities and Exchange Commission (SEC) Public Reference
Section and ask them to mail you information about the Funds, including the SAI.
They'll charge you a fee for this service. You can also visit the SEC Public
Reference Room and copy the documents while you're there. For information about
the operation of the Public Reference Room, call the SEC.
Public Reference Section of the SEC
Washington, DC 20549- 0102
1-202-942-8090.
Reports and other information about the Funds are also available on the EDGAR
Database on the SEC's website at http://www.sec.gov. Copies of this information
may also be obtained, after paying a duplicating fee, by electronic request to
the SEC's e-mail address at [email protected].
Galaxy's Investment Company Act File No. is 811-4636.
[Fleet assigned code]
<PAGE>
[Front cover page]
Galaxy Taxable Bond Funds
The Galaxy Fund
Prospectus
_______________, 2000
Galaxy Short-Term Bond Fund
Galaxy Intermediate Government Income Fund
Galaxy High Quality Bond Fund
Retail A Shares and Retail B Shares
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved any shares of these Funds or determined if this
prospectus is accurate or complete. Anyone who tells you otherwise is committing
a crime.
<PAGE>
Contents
1 Risk/return summary
1 Introduction
2 Galaxy Short-Term Bond Fund
7 Galaxy Intermediate Government Income Fund
12 Galaxy High Quality Bond Fund
17 Additional information about risk
18 Investor guidelines
19 Fund management
20 How to invest in the Funds
20 How sales charges work
23 Buying, selling and exchanging shares
24 How to buy shares
26 How to sell shares
27 How to exchange shares
28 Other transaction policies
29 Dividends, distributions and taxes
31 Galaxy investor programs
31 Retirement plans
31 Other programs
33 How to reach Galaxy
34 Financial highlights
<PAGE>
RISK/RETURN SUMMARY
INTRODUCTION
This prospectus describes the Galaxy Taxable Bond Funds. Each Fund invests
primarily in debt obligations, such as bonds, notes and commercial paper.
On the following pages, you'll find important information about each Fund,
including:
- - the Fund's investment objective (sometimes called the Fund's goal) and
the main investment strategies used by the Fund's investment adviser in
trying to achieve that objective
- - the main risks associated with an investment in the Fund
- - the Fund's past performance measured on both a year-by-year and long-term
basis
- - the fees and expenses that you will pay as an investor in the Fund
WHICH FUND IS RIGHT FOR YOU?
Not all mutual funds are for everyone. Your investment goals and tolerance
for risk will determine which fund is right for you. On page 18, you'll find
a table that provides a general guide to help you decide which of the Galaxy
Taxable Bond Funds is best suited to you.
THE FUNDS' INVESTMENT ADVISER
Fleet Investment Advisors Inc. (the "Adviser") is the investment adviser for
all of these Funds. The Adviser, an indirect wholly-owned subsidiary of
FleetBoston Corporation, was established in 1984 and has its main office at
75 State Street, Boston, Massachusetts 02109. The Adviser also provides
investment management and advisory services to individual and institutional
clients and manages the other Galaxy investment portfolios. As of
December 31, 1999, the Adviser managed over $__ billion in assets.
AN INVESTMENT IN THE FUNDS ISN'T A FLEET BANK DEPOSIT AND IT ISN'T INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. YOU COULD LOSE MONEY BY INVESTING IN THE FUNDS.
-1-
<PAGE>
Galaxy Short-Term Bond Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks a high level of current income consistent with preservation of
capital.
[Sidenote:]
PRESERVATION OF CAPITAL
Preservation of capital means protecting the amount of money you invest in a
fund. If a fund seeks to preserve capital, it will try to maintain a relatively
stable share price so your investment is protected.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests primarily in debt obligations of U.S. and foreign corporations,
including bonds and notes, and in debt obligations issued or guaranteed by the
U.S. Government and its agencies or instrumentalities or by foreign governments
or their political subdivisions and instrumentalities. It also invests in
asset-backed and mortgage-backed securities and in money market instruments,
such as commercial paper and the obligations of U.S. and foreign banks. The Fund
normally invests at least 65% of its total assets in bonds and debentures.
In selecting portfolio securities for the Fund, the Adviser monitors and
evaluates economic trends. It establishes duration targets, ranges of interest
payments on bonds of various maturities and determines the appropriate
allocation of the Fund's assets among various market sectors.
In selecting portfolio securities for the Fund, the Adviser evaluates the
suitability of available bonds according to such factors as creditworthiness,
maturity, liquidity and interest rates. It also determines the appropriate
allocation of the Fund's assets among various geographic regions, issuers and
industry sectors.
Nearly all Fund investments will be of investment grade quality. These are
securities which have one of the top four ratings assigned by Standard &
Poor's Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or
are unrated securities determined by the Adviser to be of comparable quality.
Under normal market conditions, the Fund will invest at least 65% of its
total assets in securities that have one of the top three ratings assigned by
S&P or Moody's, or unrated securities determined by the Adviser to be of
comparable quality. Occasionally, the rating of a security held by the Fund
may be downgraded to below investment grade. If that happens, the Fund
doesn't have to sell the security unless the Adviser determines that under
the circumstances the security is no longer an appropriate investment for the
Fund. However, the Fund will sell promptly any securities that are not rated
investment grade by either S&P or Moody's if the securities exceed 5% of the
Fund's net assets.
The Fund's average weighted maturity will be less than three years under
normal cicumstances.
-2-
<PAGE>
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
[Sidenote:]
AVERAGE WEIGHTED MATURITY
Average weighted maturity gives you the average time until all debt obligations
in a fund come due or MATURE. It is calculated by averaging the time to maturity
of all debt obligations held by a fund with each maturity "weighted" according
to the percentage of assets it represents.
DURATION
Duration is an approximate measure of the price sensitivity of a fund to
changes in interest rates. Unlike maturity which measures only the time
until final payment, duration gives you the average time it takes to receive
all expected cash flows (including interest payments, prepayments and final
payments) on the debt obligations held by a fund.
[Sidenote:]
DEBT OBLIGATION
When a Fund buys a debt obligation such as a bond, it is in effect lending money
to the company, government or other entity that issued the bond. In return, the
issuer has an obligation to make regular interest payments and to repay the
original amount of the loan on a given date, known as the maturity date. A bond
MATURES when it reaches its maturity date. Bonds usually have fixed interest
rates, although some have rates that fluctuate based on market conditions and
other factors.
The Fund may trade its investments frequently in trying to achieve its
investment goal.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets. These can occur within or outside the U.S. or worldwide, and may affect
only particular companies or industries.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities generally tend to move
in the opposite direction to interest rates. When rates are rising, the
prices of debt securities tend to fall. When rates are falling, the prices
of debt securities tend to rise. Generally, the longer the time until
maturity, the more sensitive the price of a debt security is to interest
rate changes.
- - CREDIT RISK - The value of debt securities also depends on the ability of
issuers to make principal and interest payments. If an issuer can't meet
its payment obligations or if its credit rating is lowered, the value of
its debt securities may fall. Debt securities which have the lowest of the
top four ratings assigned by S&P or Moody's are considered to have
speculative characteristics. Changes in the economy are more likely to
affect the ability of the issuers of these securities to make payments of
principal and interest than is the case with higher-rated securities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
debt securities held by the Fund, particularly asset-backed and
mortgage-backed securities, to be paid off much sooner or later than
expected, which could adversely affect the Fund's value. In the event that
a security is paid off sooner than expected because of a decline in
interest rates, the Fund
-3-
<PAGE>
may be unable to recoup all of its initial investment and may also suffer
from having to reinvest in lower-yielding securities. In the event of a
later than expected payment because of a rise in interest rates, the value
of the obligation will decrease and the Fund may suffer from the inability
to invest in higher-yielding securities.
- - FOREIGN INVESTMENTS - Foreign investments may be riskier than U.S.
investments because of factors such as foreign government restrictions,
changes in currency exchange rates, incomplete financial information about
the issuers of securities, and political or economic instability. Foreign
securities may be more volatile and less liquid than U.S. securities.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
- - FREQUENT TRADING - Frequent trading of investments usually increases the
chance that the Fund will pay investors short-term capital gains. These
gains are taxable at higher rates than long-term capital gains. Frequent
trading could also mean higher brokerage commissions and other transaction
costs, which could reduce the Fund's returns.
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume
that all dividends and distributions are reinvested in the Fund. How the Fund
has performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares of the Fund has
varied from year to year. The returns for Retail B Shares were different
than the figures shown because each class of shares has different expenses.
The figures don't include any sales charges that investors pay when buying or
selling shares of the Fund. If sales charges were included, the returns would
be lower.
[Sidenote:]
BEST QUARTER:
% for the quarter ending ,
WORST QUARTER:
% for the quarter ending ,
[bar chart goes here]
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C> <C>
5.81% 6.41% -0.37% 10.96% 3.38% 5.68% 6.07% %
</TABLE>
-4-
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1999, as
compared to a broad-based market index. The returns for Retail A Shares of the
Fund for periods prior to December 1, 1995 have been restated to include the
effect of the maximum 3.75% front-end sales charge which went into effect on
that date.
<TABLE>
<CAPTION>
1 year 5 years Since inception
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares % % % (12/30/91)
- -----------------------------------------------------------------------------
Retail B Shares % % % (3/4/96)
- -----------------------------------------------------------------------------
Lehman Brothers One to % % % (since 12/31/91)
Three Year Government Bond % (since 2/29/96)
Index
- -----------------------------------------------------------------------------
</TABLE>
For current yield information, please call 1-877-BUY-GALAXY (1-877-289-4252).
[Sidenote:]
The Lehman Brothers One to Three Year Government Bond Index is an unmanaged
index which tracks the performance of short-term U.S. Government bonds.
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
Shareholder fees (fees paid directly from your investment)
<TABLE>
<CAPTION>
Maximum sales charge (load) on purchases Maximum deferred sales charge (load)
shown as a % of the offering price shown as a % of the offering price or
sale price, whichever is less
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
- ------------------------------------------------------------------------------------------------------------
Retail B Shares None 5.00%(3)
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
Management fees Distribution and Other expenses Total Fund operating
service (12b-1) fees expenses
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.75%(4) None % %(4)
- --------------------------------------------------------------------------------------------------------------
Retail B Shares 0.75%(4) 0.80% % %(4)
- --------------------------------------------------------------------------------------------------------------
</TABLE>
-5-
<PAGE>
(1) Reduced sales charges may be available. See "How to invest in the Funds -
How sales charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the
Funds -- How sales charges work."
(3) This amount applies if you sell your shares in the first year after purchase
and gradually declines to 1% in the sixth year after purchase. After six
years, your Retail B Shares will automatically convert to Retail A Shares.
See "How to invest in the Funds -- How sales charges work."
(4) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be %. Affiliates of the Adviser are waiving a portion of
the Distribution and service (12b-1) fees for Retail B Shares so that such
fees are expected to be %. Total Fund operating expenses after these
waivers are expected to be % for Retail A Shares and % for Retail B
Shares. These fee waivers may be revised or discontinued at any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your Retail B Shares convert to Retail A Shares after six years
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $ $ $ $
- --------------------------------------------------------------------------------
Retail B Shares $ $ $ $
- --------------------------------------------------------------------------------
If you hold Retail B Shares, you would pay the following expenses if you didn't
sell your shares:
- --------------------------------------------------------------------------------
Retail B Shares $ $ $ $
- --------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Adviser's Taxable Fixed Income Strategy Committee is responsible for the
day-to-day management of the Fund's investment portfolio.
-6-
<PAGE>
Galaxy Intermediate Government Income Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks the highest level of current income consistent with prudent risk
of capital.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its total assets in debt obligations
issued or guaranteed by the U.S. Government or its agencies and
instrumentalities. It also invests in debt obligations of U.S. corporations,
asset-backed and mortgage-backed securities and money market instruments, such
as commercial paper and obligations of U.S. banks and U.S. branches of foreign
banks.
In selecting portfolio securities for the Fund, the Adviser monitors and
evaluates economic trends. It establishes duration targets, ranges of interest
rates on bonds of various maturities and determines the appropriate allocation
of the Fund's investments among various market sectors.
In selecting portfolio securities for the Fund, the Adviser evaluates the
suitability of available bonds according to such factors as creditworthiness,
maturity, liquidity and interest rates. It also determines the appropriate
allocation of the Fund's assets among various geographic regions, issuers and
industry sectors.
Nearly all Fund investments will be of investment grade quality and will have
one of the top three ratings assigned by Standard & Poor's Ratings Group
("S&P") or Moody's Investors Service, Inc. ("Moody's"), or will be unrated
securities determined by the Adviser to be of comparable quality.
Occasionally, the rating of a security held by the Fund may be downgraded to
below the minimum required rating. If that happens, the Fund doesn't have to
sell the security unless the Adviser determines that under the circumstances
the security is no longer an appropriate investment for the Fund. However,
the Fund will sell promptly any securities that are not rated investment
grade by either S&P or Moody's if the securities exceed 5% of the Fund's net
assets.
The Fund's average weighted maturity will be between three and ten years
under normal circumstances.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
[Sidenote:]
U.S. GOVERNMENT OBLIGATIONS
U.S. Government obligations are debt obligations issued or guaranteed by the
U.S. Government or one of its agencies or instrumentalities. U.S. Government
obligations generally have less credit risk than other debt obligations.
-7-
<PAGE>
The Fund may trade its investments frequently in trying to achieve its
investment goal.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets. These can occur within or outside the U.S. or worldwide, and may affect
only particular companies or industries.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities generally tend to move in
the opposite direction to interest rates. When rates are rising, the prices
of debt securities tend to fall. When rates are falling, the prices of debt
securities tend to rise. Generally, the longer the time until maturity, the
more sensitive the price of a debt security is to interest rate changes.
- - CREDIT RISK - The value of debt securities also depends on the ability of
issuers to make principal and interest payments. If an issuer can't meet its
payment obligations or if its credit rating is lowered, the value of its
debt securities may fall.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
debt securities held by the Fund, particularly asset-backed and
mortgage-backed securities, to be paid off much sooner or later than
expected, which could adversely affect the Fund's value. In the event that a
security is paid off sooner than expected because of a decline in interest
rates, the Fund may be unable to recoup all of its initial investment and
may also suffer from having to reinvest in lower-yielding securities. In the
event of a later than expected payment because of a rise in interest rates,
the value of the obligation will decrease and the Fund may suffer from the
inability to invest in higher-yielding securities.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
- - FREQUENT TRADING - Frequent trading of investments usually increases the
chance that the Fund will pay investors short-term capital gains. These
gains are taxable at higher rates than long-term capital gains. Frequent
trading could also mean higher brokerage commissions and other transaction
costs, which could reduce the Fund's returns.
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume
that all dividends and distributions are reinvested in the Fund. How the Fund
has performed in the past doesn't necessarily show how it will perform in the
future.
Retail A Shares of the Fund were first issued during the fiscal year ended
October 31, 1992. The returns for Retail A Shares of the Fund for prior periods
represent the returns for Trust Shares of the Fund which are offered in a
separate prospectus. Prior to November 1, 1993, the returns for Retail A Shares
and Trust Shares of the Fund were the same because each class of shares had the
same expenses.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
-8-
<PAGE>
The bar chart shows how the performance of Retail A Shares of the Fund has
varied from year to year. The returns for Retail B Shares were different than
the figures shown because each class of shares has different expenses. The
figures don't include any sales charges that investors pay when buying or
selling shares of the Fund. If sales charges were included, the returns would
be lower.
[Sidenote:]
BEST QUARTER:
% for the quarter ending ,
WORST QUARTER:
% for the quarter ending ,
[bar chart goes here]
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5.87% 15.77% 7.11% 5.57% -3.77% 15.67% 1.75% 7.83% 8.32% %
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1999, as
compared to broad-based market indices. The returns for Retail A Shares of the
Fund for periods prior to December 1, 1995 have been restated to include the
effect of the maximum 3.75% front-end sales charge which went into effect on
that date.
<TABLE>
<CAPTION>
1 year 5 years 10 years Since inception
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares % % % % (9/1/88)
- -------------------------------------------------------------------------------------------------------------------
Retail B Shares(1) % % % % (11/1/98)
- -------------------------------------------------------------------------------------------------------------------
Lehman Brothers Intermediate
Government/ % (since 9/1/88)
Corporate Bond Index % % % % (since 11/1/98)
- -------------------------------------------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index % (since 9/1/88)
% % % % (since 11/1/98)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Retail B shares were first offered on November 1, 1998.
For current yield information, please call 1-877-BUY-GALAXY (1-877-289-4252).
[Sidenote:]
The Lehman Brothers Intermediate Government/Corporate Bond Index is an unmanaged
index which tracks the performance of intermediate U.S. Government and corporate
bonds.
[Sidenote:]
-9-
<PAGE>
The Lehman Brothers Aggregate Bond Index is on unmanaged index made up of the
Lehman Brothers Government/Corporate Bond Index, its Mortgage Backed Securities
Index and its Asset Backed Securities Index.
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
Shareholder fees (fees paid directly from your investment)
<TABLE>
<CAPTION>
Maximum sales charge (load) on purchases Maximum deferred sales of the
shown as a % of the offering price charge (load) shown as a %
of the offering price or sale
price, whichever is less
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
- ---------------------------------------------------------------------------------------------------
Retail B Shares None 5.00%(3)
- ---------------------------------------------------------------------------------------------------
</TABLE>
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
Management fees Distribution and Other expenses Total Fund operating
service (12b-1) fees expenses
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.75%(4) None % %(4)
- ----------------------------------------------------------------------------------------------------------------------
Retail B Shares 0.75%(4) 0.80% % %(4)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds -
How sales charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the
Funds -- How sales charges work."
(3) This amount applies if you sell your shares in the first year after purchase
and gradually declines to 1% in the sixth year after purchase. After six
years, your Retail B Shares will automatically convert to Retail A Shares.
See "How to invest in the Funds -- How sales charges work."
(4) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be %. Total Fund operating expenses after this waiver
are expected to be % for Retail A Shares and % for Retail B
Shares. This fee waiver may be revised or discontinued at any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
-10-
<PAGE>
- - your investment has a 5% return each year
- - your Retail B Shares convert to Retail A Shares after six years
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $ $ $ $
- ------------------------------------------------------------------------------------------------------------------
Retail B Shares $ $ $ $
- ------------------------------------------------------------------------------------------------------------------
If you hold Retail B Shares, you would pay the following expenses if you didn't
sell your shares:
- ------------------------------------------------------------------------------------------------------------------
Retail B Shares $ $ $ $
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Marie M. Schofield, CFA, a Senior Vice President
of the Adviser. She's primarily responsible for the day-to-day management of the
Fund's investment portfolio. Ms. Schofield, who has over 20 years of investment
experience, has been with the Adviser since 1990 and served as a Vice President
and Manager of Fixed Income Investments until February 1999. She has managed the
Fund since December 1996.
-11-
<PAGE>
Galaxy High Quality Bond Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks a high level of current income consistent with prudent risk of
capital.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests primarily in obligations issued or guaranteed by the U.S.
Government, its agencies and instrumentalities, as well as in corporate debt
obligations such as notes and bonds. The Fund also invests in asset-backed and
mortgage-backed securities and in money market instruments, such as commercial
paper and bank obligations.
In selecting portfolio securities for the Fund, the Adviser monitors and
evaluates economic trends. It establishes duration targets, ranges of interest
rates on bonds of various maturities and determines the appropriate allocation
of the Fund's investments among various market sectors.
In selecting portfolio securities for the Fund, the Adviser evaluates the
suitability of available bonds according to such factors as creditworthiness,
maturity, liquidity and interest rates. It also determines the appropriate
allocation of the Fund's assets among various geographic regions, issuers and
industry sectors.
Nearly all Fund investments will be of investment grade quality. These are
securities which have one of the top four ratings assigned by Standard &
Poor's Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or
are unrated securities determined by the Adviser to be of comparable quality.
Under normal market conditions, the Fund will invest at least 65% of its
total assets in high quality securities that have one of the top two ratings
assigned by S&P or Moody's or unrated securities determined by the Adviser to
be of comparable quality. High quality securities tend to pay less income
than lower-rated securities. Occasionally, the rating of a security held by
the Fund may be downgraded to below investment grade. If that happens, the
Fund doesn't have to sell the security unless the Adviser determines that
under the circumstances the security is no longer an appropriate investment
for the Fund. However, the Fund will sell promptly any securities that are
not rated investment grade by either S&P or Moody's if the securities exceed
5% of the Fund's net assets.
The Fund's average weighted maturity will vary from time to time depending on
current market and economic conditions and the Adviser's assessment of probable
changes in interest rates.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
The Fund may trade its investments frequently in trying to achieve its
investment goal.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets. These can occur within or outside the U.S. or worldwide, and may affect
only particular companies or industries.
-12-
<PAGE>
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities generally tend to move in
the opposite direction to interest rates. When rates are rising, the prices
of debt securities tend to fall. When rates are falling, the prices of debt
securities tend to rise. Generally, the longer the time until maturity, the
more sensitive the price of a debt security is to interest rate changes.
- - CREDIT RISK - The value of debt securities also depends on the ability of
issuers to make principal and interest payments. If an issuer can't meet its
payment obligations or if its credit rating is lowered, the value of its
debt securities may fall. Debt securities which have the lowest of the top
four ratings assigned by S&P or Moody's are considered to have speculative
characteristics. Changes in the economy are more likely to affect the
ability of the issuers of these securities to make payments of principal and
interest than is the case with higher-rated securities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain debt
securities held by the Fund, particularly asset-backed and mortgage-backed
securities, to be paid off much sooner or later than expected, which could
adversely affect the Fund's value. In the event that a security is paid off
sooner than expected because of a decline in interest rates, the Fund may be
unable to recoup all of its initial investment and may also suffer from
having to reinvest in lower-yielding securities. In the event of a later
than expected payment because of a rise in interest rates, the value of the
obligation will decrease and the Fund may suffer from the inability to
invest in higher-yielding securities.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
- - FREQUENT TRADING - Frequent trading of investments usually increases the
chance that the Fund will pay investors short-term capital gains. These
gains are taxable at higher rates than long-term capital gains. Frequent
trading could also mean higher brokerage commissions and other transaction
costs, which could reduce the Fund's returns.
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume
that all dividends and distributions are reinvested in the Fund. How the Fund
has performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares of the Fund has
varied from year to year. The returns for Retail B Shares were different than
the figures shown because each class of shares has different expenses. The
figures don't include any sales charges that investors pay when buying or
selling shares of the Fund. If sales charges were included, the returns would
be lower.
-13-
<PAGE>
[Sidenote:]
BEST QUARTER:
% for the quarter ending ,
WORST QUARTER:
% for the quarter ending ,
[bar chart goes here]
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C>
15.12% 6.77% 12.81% -6.48% 21.20% 1.37% 9.11% 9.27% %
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1999, as
compared to a broad-based market index. The returns for Retail A Shares of the
Fund for periods prior to December 1, 1995 have been restated to include the
effect of the maximum 3.75% front-end sales charge which went into effect on
that date.
<TABLE>
<CAPTION>
1 year 5 years Since inception
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares % % % (12/14/90)
- -----------------------------------------------------------------------------------------
Retail B Shares % % % (3/4/96)
- -----------------------------------------------------------------------------------------
Lehman Brothers Intermediate
Government/ % (since 12/31/90)
Corporate Bond Index % % % (since 2/29/96)
- -----------------------------------------------------------------------------------------
</TABLE>
For current yield information, please call 1-877-BUY-GALAXY (1-877-289-4252).
[Sidenote:]
The Lehman Brothers Intermediate Government/Corporate Bond Index is an unmanaged
index which tracks the performance of intermediate-term U.S. Government and
corporate bonds.
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
Shareholder fees (fees paid directly from your investment)
<TABLE>
<CAPTION>
Maximum sales charge (load) on purchases Maximum deferred sales of the
shown as a % of the offering price charge (load) shown as a %
of the offering price or sale
price, whichever is less
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
- ---------------------------------------------------------------------------------------------------
Retail B Shares None 5.00%(3)
- ---------------------------------------------------------------------------------------------------
</TABLE>
-14-
<PAGE>
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
Distribution and Other Total Fund
Management fees service (12b-1) fees expenses operating expenses
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.75%(4) None % %(4)
- ---------------------------------------------------------------------------------------------------
Retail B Shares 0.75%(4) 0.80% % %(4)
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds -
How sales charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the
Funds -- How sales charges work."
(3) This amount applies if you sell your shares in the first year after purchase
and gradually declines to 1% in the sixth year after purchase. After six
years, your Retail B Shares will automatically convert to Retail A Shares.
See "How to invest in the Funds -- How sales charges work."
(4) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be %. Total Fund operating expenses after this waiver
are expected to be % for Retail A Shares and % for Retail B
Shares. This fee waiver may be revised or discontinued at any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your Retail B Shares convert to Retail A Shares after six years
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $ $ $ $
- --------------------------------------------------------------------------------------------------------
Retail B Shares $ $ $ $
- --------------------------------------------------------------------------------------------------------
If you hold Retail B Shares, you would pay the following expenses if you didn't
sell your shares:
- ---------------------------------------------------------------------------------------------------------
Retail B Shares $ $ $ $
- ---------------------------------------------------------------------------------------------------------
</TABLE>
-15-
<PAGE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Marie M. Schofield, CFA, a Senior Vice President
of the Adviser. She's primarily responsible for the day-to-day management of the
Fund's investment portfolio. Ms. Schofield, who has over 20 years of investment
experience, has been with the Adviser since 1990 and served as a Vice President
and Manager of Fixed Income Investments until February 1999. She has managed the
Fund since December 1996.
-16-
<PAGE>
ADDITIONAL INFORMATION ABOUT RISK
The main risks associated with an investment in each of the Galaxy Taxable
Bond Funds have been described above. The following supplements that discussion.
TEMPORARY DEFENSIVE POSITIONS
Under unusual market conditions, each Fund may hold uninvested cash (which will
not earn any income) and invest without limit in money market instruments,
including short-term U.S. Government securities. This strategy could prevent a
Fund from achieving its investment objective.
OTHER TYPES OF INVESTMENTS
This prospectus describes each Fund's main investment strategies and the
particular types of securities in which each Fund mainly invests. Each Fund
may, from time to time, pursue other investment strategies and make other
types of investments in support of its overall investment goal. These
supplemental investment strategies, which are not considered to be main
investment strategies of the Fund - and the risks involved - are described in
detail in the Statement of Additional Information (SAI) which is referred to on
the back cover of this prospectus.
-17-
<PAGE>
INVESTOR GUIDELINES
The table below provides information as to which type of investor might want to
invest in each of the Galaxy Taxable Bond Funds. It's meant as a general guide
only. Consult your financial professional to help you decide which Fund is right
for you.
<TABLE>
<CAPTION>
Galaxy Fund May be best suited for...
- ------------------------------------------------------------------------------------------------
<S> <C>
Galaxy Short-Term Bond Fund investors who want current income greater
than that normally provided by a money market
fund
investors who want less change in the value
of their investment than normally associated
with long-term funds
- ------------------------------------------------------------------------------------------------
Galaxy Intermediate Government Income Fund investors who want current income
investors who want the extra margin of
safety associated with U.S. Government
securities
investors who can accept fluctuations in
price and yield
- ------------------------------------------------------------------------------------------------
Galaxy High Quality Bond Fund investors who want current income
investors who want the added safety
associated with bonds with lower credit risk
than other debt securities
investors who can accept fluctuations in
price and yield
- ------------------------------------------------------------------------------------------------
</TABLE>
-18-
<PAGE>
FUND MANAGEMENT
ADVISER
The Adviser, subject to the general supervision of Galaxy's Board of Trustees,
manages each Fund in accordance with its investment objective and policies,
makes decisions with respect to and places orders for all purchases and sales of
portfolio securities, and maintains related records.
ALLOCATION OF ORDERS FOR PORTFOLIO SECURITIES
The Adviser may allocate orders for the purchase and sale of portfolio
securities to certain financial institutions, including those that are
affiliated with the Adviser or that have sold shares of the Funds, to the extent
permitted by law or by order of the Securities and Exchange Commission. The
Adviser will allocate orders to such institutions only if it believes that the
quality of the transaction and the commission are comparable to what they would
be with other qualified brokerage firms.
MANAGEMENT FEES
The management fees paid to the Adviser by the Funds during the last fiscal year
are set forth below.
<TABLE>
<CAPTION>
Fund Management fee as a % of average net assets
- ---------------------------------------------------------------------------------
<S> <C>
Short-Term Bond Fund %
- ---------------------------------------------------------------------------------
Intermediate Government Income Fund %
- ---------------------------------------------------------------------------------
High Quality Bond Fund %
- ---------------------------------------------------------------------------------
</TABLE>
-19-
<PAGE>
HOW TO INVEST IN THE FUNDS
HOW SALES CHARGES WORK
You will normally pay a sales charge to invest in the Funds. If you buy Retail A
Shares, you'll usually pay a sales charge (sometimes called a front-end load) at
the time you buy your shares. If you buy Retail B Shares, you may have to pay a
contingent deferred sales charge (sometimes called a back-end load or CDSC) when
you sell your shares. This section explains these two options.
[Sidenote:]
NET ASSET VALUE
The price you pay for your shares is based on the net asset value per share
(NAV). It's the value of a Fund's assets attributable to Retail A Shares or
Retail B Shares, minus the value of the Fund's liabilities attributable to
Retail A Shares or Retail B Shares, divided by the number of Retail A Shares or
Retail B Shares held by investors.
RETAIL A SHARES
The table below shows the sales charge you'll pay if you buy Retail A Shares of
the Funds. The offering price is the NAV of the shares purchased, plus any
applicable sales charge.
<TABLE>
<CAPTION>
Total sales charge
- --------------------------------------------------------------------------------------------------------------------
As a % of the offering price per
Amount of your investment share As a % of your investment
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Less than $50,000 3.75% 3.90%
- --------------------------------------------------------------------------------------------------------------------
$50,000 but less than $100,000
3.50% 3.63%
- --------------------------------------------------------------------------------------------------------------------
$100,000 but less than $250,000
3.00% 3.09%
- --------------------------------------------------------------------------------------------------------------------
$250,000 but less than $500,000
2.50% 2.56%
- --------------------------------------------------------------------------------------------------------------------
$500,000 and over 0.00%(1) 0.00%(1)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) There is no front-end sales charge on investments in Retail A Shares of
$500,000 or more. However, if you sell the shares within one year after
buying them, you'll pay a CDSC of 1% of the offering price or 1% of the net
asset value of your shares, whichever is less, unless the shares were sold
because of the death or disability of the shareholder. In addition, Galaxy
will waive the 1% CDSC on your initial sale of shares. This waiver will not
apply to amounts reinvested within one year following your initial sale of
shares.
-20-
<PAGE>
Galaxy's distributor may from time to time implement programs under which a
broker-dealer's sales force may be eligible to win nominal awards for certain
sales efforts. If any such program is made available to any broker-dealer, it
will be made available to all broker-dealers on the same terms. Payments made
under such programs are made by Galaxy's distributor 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.
Certain affiliates of the Adviser may, at their own expense, provide additional
compensation to affiliated broker-dealers whose customers purchase significant
amounts of Retail A Shares of one or more Funds and to unaffiliated
broker-dealers whose customers purchase Retail A Shares of one or more of the
Funds. Such compensation will not represent an additional expense to the Funds
or their shareholders, since it will be paid from the assets of the Adviser's
affiliates.
There's no sales charge when you buy Retail A Shares if:
- - you buy shares by reinvesting your dividends and distributions
- - you were a Galaxy shareholder before December 1, 1995
- - you buy shares for a 401(k) or SIMPLE IRA retirement account
- - you buy shares for any retirement account provided that you held Retail
A Shares in a retirement account prior to January 1, 1999
- - you buy shares for any retirement account and your total cumulative
Retail A Share retirement account balance was $30,000 or more between
January 1, 1999 and June 30, 1999
- - you buy shares with money from another Galaxy Fund on which you've already
paid a sales charge (as long as you buy the new shares within 90 days after
selling your other shares)
- - you previously paid a sales charge for the shares of another mutual fund
company (as long as you buy the Galaxy shares within 60 days of selling your
other shares)
- - you're an investment professional who places trades for your clients and
charges them a fee
- - you buy shares under an all-inclusive fee program (sometimes called a
"wrap fee program") offered by a broker-dealer or other financial
institution
[Sidenote:]
Ask your investment professional or Galaxy's distributor, or consult the SAI,
for other instances in which the sales load on Retail A Shares is waived. When
you buy your shares, you must tell your investment professional or Galaxy's
distributor that you qualify for a sales load waiver. To contact Galaxy's
distributor call 1-877-BUY- GALAXY (1-877-289-4252).
RETAIL B SHARES
If you buy Retail B Shares of the Funds, you won't pay a CDSC unless you sell
your shares within six years of buying them. The following table shows the
schedule of CDSC charges:
-21-
<PAGE>
<TABLE>
<CAPTION>
If you sell your shares You'll pay a CDSC of
- --------------------------------------------------------------------------------
<S> <C>
during the first year 5.00%
- --------------------------------------------------------------------------------
during the second year 4.00%
- --------------------------------------------------------------------------------
during the third year 3.00%
- --------------------------------------------------------------------------------
during the fourth year 3.00%
- --------------------------------------------------------------------------------
during the fifth year 2.00%
- --------------------------------------------------------------------------------
during the sixth year 1.00%
- --------------------------------------------------------------------------------
after the sixth year None
- --------------------------------------------------------------------------------
</TABLE>
For purposes of calculating the CDSC, all purchases made during a calendar month
are considered to be made on the first day of that month. The CDSC is based on
the value of the Retail B Shares on the date that they are sold or the original
cost of the shares, whichever is lower. To keep your CDSC as low as possible
each time you sell shares, Galaxy will first sell any shares in your account
that are not subject to a CDSC. If there are not enough of these, Galaxy will
sell those shares that have the lowest CDSC. There is no CDSC on Retail B Shares
that you acquire by reinvesting your dividends and distributions.
In addition, there's no CDSC when Retail B Shares are sold because of the death
or disability of a shareholder and in certain other circumstances such as
exchanges. Ask your investment professional or Galaxy's distributor, or consult
the SAI, for other instances in which the CDSC is waived. To contact Galaxy's
distributor, call 1-877-BUY-GALAXY (1-877-289-4252).
DISTRIBUTION AND SHAREHOLDER SERVICE FEES
Retail A Shares of the Funds can pay shareholder service fees at an annual rate
of up to 0.50% of each Fund's Retail A Share assets. The Funds do not intend to
pay more than 0.15% in shareholder service fees with respect to Retail A Shares
during the current fiscal year.
Retail B Shares of the Funds can pay distribution and shareholder service
(12b-1) fees at an annual rate of up to 1.15% of each Fund's Retail B Share
assets. The Funds do not intend to pay more than 0.80% in distribution and
service (12b-1) fees during the current fiscal year. Galaxy has adopted a plan
under Rule 12b-1 that allows each Fund to pay fees from its Retail B Share
assets for selling and distributing Retail B Shares and for services provided to
shareholders. Because 12b-1 fees are paid on an ongoing basis, over time they
increase the cost of your investment and may cost more than paying other sales
charges.
CONVERTING RETAIL B SHARES TO RETAIL A SHARES
Six years after you buy Retail B Shares of a Fund, they will automatically
convert to Retail A Shares of the Fund. This allows you to benefit from the
lower annual expenses of Retail A Shares.
-22-
<PAGE>
CHOOSING BETWEEN RETAIL A SHARES AND RETAIL B SHARES
Retail B Shares are subject to higher fees than Retail A Shares. For this
reason, Retail A Shares can be expected to pay higher dividends than Retail B
Shares. However, because Retail A Shares are subject to an initial sales
charge which is deducted at the time you purchase Retail A Shares (unless you
qualify for a sales load waiver), you will have less of your purchase price
invested in a particular Fund if you purchase Retail A Shares than if you
purchase Retail B Shares of the Fund.
In deciding whether to buy Retail A Shares or Retail B Shares, you should
consider how long you plan to hold the shares. Over time, the higher fees on
Retail B Shares may equal or exceed the initial sales charge and fees for Retail
A Shares. Retail A Shares may be a better choice if you qualify to have the
sales charge reduced or eliminated or if you plan to sell your shares within one
or two years. Consult your financial professional for help in choosing the
appropriate share class.
BUYING, SELLING AND EXCHANGING SHARES
You can buy and sell Retail A Shares and Retail B Shares of the Funds on any day
that the Funds are open for business, which is any day that the New York Stock
Exchange is open. The New York Stock Exchange is generally open for trading
every Monday through Friday, except for national holidays.
Retail A Shares and Retail B Shares have different prices. The price at which
you buy shares is the NAV next determined after your order is accepted, plus any
applicable sales charge. The price at which you sell shares is the NAV next
determined after receipt of your order in proper form, as described below, less
any applicable CDSC. NAV is determined on each day the New York Stock Exchange
is open for trading at the close of regular trading that day (usually 4:00 p.m.
Eastern time). If market prices are readily available for securities owned by
the Fund, they're valued at those prices. If market prices are not readily
available for some securities, they are valued at fair value under the
supervision of Galaxy's Board of Trustees.
Sometimes, the price of a security trading on a foreign stock exchange may be
affected by events that happen after that exchange closes. If this happens, the
fair value of the security may be determined using other factors and may not
reflect the security's last quoted price. In addition, foreign securities may
trade on days when shares of the Funds are not priced. As a result, the net
asset value per share of a Fund holding these securities may change on days when
you won't be able to buy or sell Fund shares.
[Sidenote:]
MINIMUM INVESTMENT AMOUNTS
The minimum initial investment to open a Fund account is:
- - $2,500 for regular accounts
- - $500 for retirement plan accounts such as IRA, SEP and Keogh Plan accounts
- - $100 for college savings accounts, including Education IRA accounts
There is generally no minimum initial investment if you participate in the
Automatic Investment Program or in a salary reduction retirement plan such as a
SIMPLE IRA or 401(k). You generally can make additional investments for as
little as $100. See GALAXY INVESTOR PROGRAMS below for information on other
minimums for initial and additional investments.
-23-
<PAGE>
Usually, you must keep at least $250 in your account other than retirement plan
accounts. If your account falls below $250 because you sell or exchange shares,
Galaxy may redeem your shares and close your account. Galaxy will give you 60
days' notice in writing before closing your account.
HOW TO BUY SHARES
You can buy shares through your financial institution or directly from Galaxy's
distributor by calling 1-877-BUY-GALAXY (1-877-289-4252). A broker or agent who
places orders on your behalf may charge you a separate fee for their services.
BUYING BY MAIL
Complete an account application and mail it, together with a check payable to
each Fund in which you want to invest, to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
To make additional investments, send your check to the address above along with
one of the following:
- - The detachable form that's included with your Galaxy statement or your
confirmation of a prior transaction
- - A letter stating the amount of your investment, the name of the Fund you
want to invest in, and your account number
If your check is returned because of insufficient funds, Galaxy will cancel your
order.
BUYING BY WIRE
To make an initial or additional investment by wire, send U.S. funds through the
Federal Reserve System to Fleet National Bank as agent for Galaxy's distributor.
You should wire money and registration instructions to:
Fleet National Bank
75 State Street
Boston, MA 02109
ABA #0110-0013-8
DDA #79673-5702
Ref: The Galaxy Fund
(Account number)
(Account registration)
Before making an initial investment by wire, you must complete an account
application and send it to The Galaxy Fund, P.O. Box 6520, Providence, RI
02940-6520. Your order will not be
-24-
<PAGE>
effected until the completed account application is received by Galaxy. Call
Galaxy's distributor at 1-877-BUY-GALAXY (1-877-289-4252) for an account
application.
Your financial institution may charge you a fee for sending funds by wire.
CUSTOMERS OF FINANCIAL INSTITUTIONS
If you are a customer of a financial institution such as a bank, savings and
loan association or broker-dealer, including a financial institution affiliated
with the Adviser, you should place your order through your financial
institution. Your financial institution is responsible for sending your order to
Galaxy's distributor and wiring the money to Galaxy's custodian. For details,
please contact your financial institution.
DISCOUNT PLANS
You may have the sales charges on purchases of Retail A Shares reduced or waived
completely through the discount plans described below:
- - RIGHTS OF ACCUMULATION - You can add the value of the Retail A Shares that
you already own in any Galaxy Fund that charges a sales load to your next
investment in Retail A Shares for purposes of calculating the sales charge.
- - LETTER OF INTENT - You can purchase Retail A Shares of any Galaxy Fund that
charges a sales load over a 13-month period and receive the same sales
charge as if all of the shares had been purchased at the same time. To
participate, complete the Letter of Intent section on the account
application.
- - REINVESTMENT PRIVILEGE - You can reinvest some or all of the money that you
receive when you sell Retail A Shares of the Funds in Retail A Shares of
any Galaxy Fund within 90 days without paying a sales charge.
- - GROUP SALES - If you belong to a qualified group with 50,000 or more
members, you can buy Retail A Shares at a reduced sales charge, based on
the number of qualified group members.
[Sidenote:]
You must tell your investment professional or Galaxy's distributor when you buy
your shares that you want to take advantage of any of these discount plans. See
the SAI for additional requirements that may apply. To contact Galaxy's
distributor, call 1-877-BUY-GALAXY (1-877-289-4252).
HOW TO SELL SHARES
You can sell your shares in several ways: by mail, by telephone, by wire, or
through your financial institution.
-25-
<PAGE>
SELLING BY MAIL
Send your request in writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
You must include the following:
- - The name of the Fund
- - The number of shares or the dollar amount you want to sell
- - Your account number
- - Your Social Security number or tax identification number
- - The signatures of each registered owner of the account (the signatures must
match the names on the account registration)
Additional documents may be required for certain types of shareholders, such as
corporations, partnerships, executors, trustees, administrators or guardians.
[Sidenote:]
SIGNATURE GUARANTEES
When selling your shares EITHER by mail or by phone, you must have your
signature guaranteed if:
- - you're selling shares worth more than $50,000
- - you want Galaxy to send your money to an address other than the address on
your account, unless your assets are transferred to a successor custodian
- - you want Galaxy to send your money to the address on your account that's
changed within the last 30 days
- - you want Galaxy to make the check payable to someone else
Your signature must be guaranteed by a bank that's a member of the FDIC, a trust
company, a member firm of a national securities exchange or any other eligible
institution. A notarized signature is not sufficient.
SELLING BY PHONE
You can sell shares by calling Galaxy's distributor at 1-877-BUY-GALAXY
(1-877-289-4252) unless you tell Galaxy on the account application or in writing
that you don't want this privilege. If you have difficulty getting through to
Galaxy because of unusual market conditions, consider selling your shares by
mail or wire.
SELLING BY WIRE
Notify Galaxy's distributor by phone or wire that you wish to sell shares and
have the sale proceeds wired to your account at any financial institution in the
U.S. To be eligible to use this privilege, you must complete the appropriate
section on the account application or notify Galaxy in writing (with a signature
guarantee). Your sale proceeds must be more than $1,000.
-26-
<PAGE>
The sale proceeds must be paid to the same bank and account you named on your
application or in your written instructions.
CUSTOMERS OF FINANCIAL INSTITUTIONS
Please contact your financial institution for information on how to sell your
shares. The financial institution is responsible for sending your order to
Galaxy's distributor and for crediting your account with the proceeds. Galaxy
doesn't charge a fee for wiring sale proceeds to your financial institution, but
your financial institution may charge you a fee.
HOW TO EXCHANGE SHARES
You may exchange Retail A Shares of a Fund having a value of at least $100 for
Retail A Shares of any other Galaxy Fund or for shares of any other Fund that's
managed by the Adviser or any of its affiliates in which you have an existing
account. You won't pay a sales charge for exchanging your Retail A Shares.
You may exchange Retail B Shares of a Fund for Retail B Shares of any other
Galaxy Fund. You won't pay a CDSC when you exchange your Retail B Shares.
However, when you sell the Retail B Shares you acquired in the exchange, you'll
pay a contingent deferred sales charge based on the date you bought the Retail B
Shares which you exchanged.
TO EXCHANGE SHARES:
- - call Galaxy's distributor or use the InvestConnect voice response line at
1-877-BUY-GALAXY (1-877-289-4252)
- - send your request in writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
- - ask your financial institution
Galaxy doesn't charge any fee for making exchanges but your financial
institution might do so. You are generally limited to three exchanges per year.
Galaxy may change or cancel the exchange privilege by giving 60 days' advance
written notice to shareholders.
-27-
<PAGE>
OTHER TRANSACTION POLICIES
If Galaxy doesn't receive full payment for your order to buy shares within three
business days of the order date, Galaxy won't accept your order. Galaxy will
advise you if this happens and return any payment it may eventually receive. You
can only invest in shares of the Funds that are legally available in your state.
Galaxy may refuse any order to buy shares. Galaxy doesn't issue a certificate
when you buy shares but it does keep a record of shares issued to investors.
Galaxy may refuse your order to sell or exchange shares by wire or telephone if
it believes it is advisable to do so. Galaxy or its distributor may change or
cancel the procedures for selling or exchanging shares by wire or telephone at
any time without notice.
If you sell or exchange shares by telephone you may be responsible for any
fraudulent telephone orders as long as Galaxy has taken reasonable precautions
to verify your identify, such as requesting information about the way in which
your account is registered or about recent transactions in your account.
Galaxy normally pays you cash when you sell your shares, but it has the right to
deliver securities owned by a Fund instead of cash. When you sell these
securities, you'll pay brokerage charges.
Sales proceeds are normally sent to you within three business days but Galaxy
reserves the right to send sales proceeds within seven days if sending proceeds
earlier could adversely affect a Fund.
If any shares that you're selling are part of an investment you've paid for with
a personal check, Galaxy will delay sending your sales proceeds until the check
clears, which can take up to 15 days from the purchase date.
Galaxy reserves the right to vary or waive any minimum investment requirement.
-28-
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Each Fund declares any dividends from net investment income daily and pays them
monthly. Each Fund pays any net capital gains at least once a year. It's
expected that the Funds' annual distributions will normally -- but not always --
consist primarily of ordinary income rather than capital gains. Dividends and
distributions are paid in cash unless you indicate in the account application or
in a letter to Galaxy that you want to have dividends and distributions
reinvested in additional shares.
FEDERAL TAXES
Each Fund contemplates declaring as dividends each year all or substantially all
of its taxable income, including its net capital gain (the excess of long-term
capital gain over short-term capital loss). Distributions attributable to the
net capital gain of a Fund will be taxable to you as long-term capital gain,
regardless of how long you have held your shares. Other Fund distributions will
generally be taxable as ordinary income. You will be subject to income tax on
these distributions regardless of whether they are paid in cash or reinvested in
additional shares. You will be notified annually of the tax status of
distributions to you.
You should note that if you purchase shares just before a distribution, the
purchase price will reflect the amount of the upcoming distribution, but you
will be taxed on the entire amount of the distribution received, even though, as
an economic matter, the distribution simply constitutes a return of capital.
This is known as "buying into a dividend."
You will recognize taxable gain or loss on a sale, exchange or redemption of
your shares, including an exchange for shares of another Fund, based on the
difference between your tax basis in the shares and the amount you receive for
them. (To aid in computing your tax basis, you generally should retain your
account statements for the periods during which you held shares.) Generally,
this gain or loss will be long-term or short-term depending on whether your
holding period for the shares exceeds 12 months, except that any loss realized
on shares held for six months or less will be treated as a long-term capital
loss to the extent of any capital gain dividends that were received on the
shares.
The one major exception to these tax principles is that distributions on, and
sales, exchanges and redemptions of, shares held in an IRA (or other
tax-qualified plan) will not be currently taxable.
The foregoing is only a summary of certain tax considerations under current law,
which may be subject to change in the future. You should consult your tax
adviser for further information regarding federal, state, local and/or foreign
tax consequences relevant to your specific situation.
-29-
<PAGE>
STATE AND LOCAL TAXES
Shareholders may also be subject to state and local taxes on distributions,
redemptions and exchanges. State income taxes may not apply however to the
portions of each Fund's distributions, if any, that are attributable to interest
on U.S. Government securities or on securities of a particular state, its
agencies or municipalities.
-30-
<PAGE>
GALAXY INVESTOR PROGRAMS
RETIREMENT PLANS
Retail A Shares and Retail B Shares of the Funds are available for purchase in
connection with any of the following retirement plans:
- - Individual Retirement Arrangements (IRAs), including Traditional, Roth,
Rollover and Education IRAs
- - Simplified Employee Pension Plans (SEPs)
- - Keogh money purchase and profit sharing plans
- - Salary reduction retirement plans set up by employers for their employees
which are qualified under Section 401(k) and 403(b) of the Internal Revenue
Code
- - SIMPLE IRA plans which are qualified under Section 408(p) of the Internal
Revenue Code
For information about eligibility requirements and other matters concerning
these plans and to obtain an application, call Galaxy's distributor at
1-877-BUY-GALAXY (1-877-289-4252).
OTHER PROGRAMS
It's also easy to buy or sell shares of the Funds by using one of the programs
described below. Just tell Galaxy the amount and how frequently you want to buy
or sell shares and Galaxy does the rest. For further information on any of these
programs, call Galaxy's distributor at 1-877-BUY-GALAXY (1-877-289-4252) or your
financial institution.
AUTOMATIC INVESTMENT PROGRAM
You can make automatic investments from your bank account every month or every
quarter. You can choose to make your investment on any day of the month or
quarter. The minimum investment is $50 a month or $150 a quarter except for
Education IRAs, in which case the minimum investment is $40 a month or $125 a
quarter.
PAYROLL DEDUCTION PROGRAM
You can make regular investments from your paycheck. The minimum investment is
$25 per pay period. Send a completed Galaxy Payroll Deduction Application to
your employer's payroll department. They'll arrange to have your investment
deducted from your paycheck.
COLLEGE INVESTMENT PROGRAM
The minimum for initial and additional investments through the College
Investment Program is $100 unless you participate in the Automatic Investment
Program, in which case the minimum for initial and additional investments is
$50. You can also save for college by opening an Education IRA account. The
minimum for initial and additional investments in an Education
-31-
<PAGE>
IRA is $100 unless you participate in the Automatic Investment Program, in which
case the minimum for initial and additional investments is $40.
DIRECT DEPOSIT PROGRAM
This program lets you deposit your social security payments in your Fund account
automatically. There's no minimum deposit. You can cancel the program by
notifying the Social Security Administration in writing.
SYSTEMATIC WITHDRAWAL PLAN
You can make regular withdrawals from your investment account every month, every
quarter, every six months or once a year. You need a minimum account balance of
$10,000 to participate in the plan. No CDSC will be charged on withdrawals of
Retail B Shares made through the plan that don't annually exceed 12% of your
account's value.
You may cancel your participation in any of these programs, other than the
Direct Deposit Program, by writing to Galaxy at:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
Please allow at least five days for the cancellation to be processed.
-32-
<PAGE>
HOW TO REACH GALAXY
THROUGH YOUR FINANCIAL INSTITUTION
Your financial institution can help you buy, sell or exchange shares and can
answer questions about your account.
GALAXY SHAREHOLDER SERVICES
Call Galaxy's distributor at 1-877-BUY-GALAXY (1-877-289-4252), Monday through
Friday, 8 a.m. to 6 p.m. (Eastern time) for help from a Galaxy representative.
INVESTCONNECT
InvestConnect is Galaxy's shareholder voice response system. Call
1-877-BUY-GALAXY (1-877-289-4252) from any touch-tone phone for automated access
to account information and current Fund prices and performance, or to place
orders to sell or exchange shares. It's available 24 hours a day, seven days a
week.
If you live outside the United States, you can contact Galaxy by calling
1-508-871-4121.
THE INTERNET
Please visit Galaxy's website at: www.galaxyfunds.com
[Sidenote:]
Galaxy also offers a TDD service for the hearing impaired. Just call
1-800-696-6515, 24 hours a day, seven days a week.
-33-
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables shown below will help you understand the
financial performance for the Funds' Retail A Shares and Retail B Shares for the
past five years (or the period since a particular Fund began operations or a
particular class of shares was first offered). Certain information reflects the
financial performance of a single Retail A Share or Retail B Share. The total
returns in the tables represent the rate that an investor would have earned (or
lost) on an investment in Retail A Shares and Retail B Shares of each Fund,
assuming all dividends and distributions were reinvested. The information for
the fiscal year ended October 31, 1999 has been audited by _________________,
independent auditors, whose report, along with the Funds' financial
statements, are included in the Funds' Annual Report and are incorporated by
reference into the SAI. The Annual Report and SAI are available free of charge
upon request. The information for the fiscal years ended October 31, 1995,
1996, 1997 and 1998 was audited by Galaxy's former auditors, _______________.
-34-
<PAGE>
Galaxy Short-Term Bond Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
-------------------------------------------------
1999 1998
--------------------- ---------------------
Retail Retail Retail Retail
A Shares B Shares A Shares B Shares
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period................. $10.01 $10.01
Income from investment operations:
Net investment income(2)....................... 0.51 0.45
Net realized and unrealized gain (loss) on 0.11 0.11
investments....................................
Total from investment operations..................... 0.62 0.56
Less dividends:
Dividends from net investment income........... (0.53) (0.47)
Dividends from net realized capital gains...... -- --
Dividends in excess of net realized capital gains -- --
Total dividends...................................... (0.53) (0.47)
Net increase (decrease) in net asset value........... 0.09 0.09
Net asset value, end of period..................... $ 10.10 $ 10.10
------ ------
Total return(3)........................................ 6.42% 5.73%
Ratios/supplemental data:
Net assets, end of period (000's).............. $29,067 $1,087
Ratios to average net assets:
Net investment income including 5.07% 4.40%
reimbursement/waiver...........................
Operating expenses including reimbursement/waiver 1.11% 1.78%
Operating expenses excluding reimbursement/waiver 1.31% 1.99%
Portfolio turnover rate........................... 133% 133%
<CAPTION>
For the year ending October 31,
-----------------------------------------------------------
1997 1996 1995
---------------------- ---------------------- ---------
Retail Retail Retail Retail Retail
A Shares B Shares A Shares B Shares(1) A Shares
--------- ------------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period................. $ 9.99 $ 9.99 $ 10.06 $ 10.09 $ 9.73
Income from investment operations:
Net investment income(2)....................... 0.53 0.46 0.52 0.31 0.55
Net realized and unrealized gain (loss) on 0.02 0.03 (0.07) (0.10) 0.33
investments....................................
Total from investment operations..................... 0.55 0.49 0.45 0.21 0.88
Less dividends:
Dividends from net investment income........... (0.53) (0.47) (0.52) (0.31) (0.55)
Dividends from net realized capital gains...... -- -- -- -- --
Dividends in excess of net realized capital gains -- -- -- -- --
Total dividends.................................... (0.53) (0.47) (0.52) (0.31) (0.55)
Net increase (decrease) in net asset value........... 0.02 0.02 (0.07) (0.10) 0.33
Net asset value, end of period..................... $ 10.01 $ 10.01 $ 9.99 $ 9.99 $10.06
------- -------- -------- -------- --------
Total return(3)...................................... 5.64% 4.99% 4.63% 2.12%(4) 9.28%
Ratios/supplemental data:
Net assets, end of period (000's).............. $27,961 $ 905 $33,388 $ 260 $31,542
Ratios to average net assets:
Net investment income including 5.29% 4.56% 5.22% 4.73%(5) 5.54%
reimbursement/waiver...........................
Operating expenses including reimbursement/waiver 1.00% 1.75% 1.11% 1.77%(5) 0.99%
Operating expenses excluding reimbursement/waiver 1.21% 2.01% 1.35% 1.98%(5) 1.32%
Portfolio turnover rate........................... 173% 173% 214% 214% 289%
</TABLE>
- -------------------------------
(1) The Fund began offering Retail B Shares on March 4, 1996.
(2) Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for Retail A Shares for the years
ended October 31, 1999, 1998, 1997, 1996 and 1995 was $ , $0.49,
$0.51, $0.50 and $0.52, respectively. Net investment income per share
before reimbursement/waiver of fees by the Adviser and/or the Fund's
administrator for Retail B Shares for the years ended October 31, 1999, 1998
and 1997 and for the period ended October 31, 1996 was $ , $0.42, $0.44 and
$0.29, respectively.
(3) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares.
(4) Not annualized.
(5) Annualized.
-35-
<PAGE>
Galaxy Intermediate Government Income Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
-----------------------------------------------------------------
1999 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ----
Retail Retail Retail Retail Retail Retail
A
A Shares B Shares(1) A Shares A Shares A Shares Shares
--------- ----------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period......... $10.18 $ 10.06 $ 10.28 $ 9.68
Income from investment operations:
Net investment income(2).............. 0.57 0.59 0.57 0.61
Net realized and unrealized gain (loss)
on investments......................... 0.34 0.12 (0.22) 0.60
Total from investment operations............. 0.91 0.71 0.35 1.21
Less dividends:
Dividends from net investment income... (0.59) (0.59) (0.57) (0.61)
Dividends in excess of net investment income -- -- -- --
Dividends from net realized capital gains -- -- -- --
Dividends in excess of net realized
capital gains.......................... -- -- -- --
Total dividends.............................. (0.59) (0.59) (0.57) (0.61)
Net increase (decrease) in net asset value. 0.32 0.12 (0.22) 0.60
Net asset value, end of period............... $ 10.50 $ 10.18 $ 10.06 $ 10.28
------- -------- -------- --------
Total return(3)............................. 9.22% 7.33% 3.58% 12.85%
Ratios/supplemental data:
Net assets, end of period (000's)...... $66,865 $65,626 $79,741 $79,558
Ratios to average net assets:
Net investment income including reimbursement/waiver 5.49% 5.90% 5.69% 6.10%
Operating expenses including reimbursement/waiver 1.01% 1.02% 1.04% 1.02%
Operating expenses excluding reimbursement/waiver 1.21% 1.22% 1.24% 1.26%
Portfolio turnover rate...................... 210% 128% 235% 145%
</TABLE>
- ----------------------------------
(1) The Fund began offering Retail B Shares on November 1, 1998.
(2) Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for Retail A Shares for the years
ended October 31, 1999, 1998, 1997, 1996 and 1995 was $ , $0.55, $0.57,
$0.55 and $0.58, respectively. Net investment income per share before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for Retail B Shares for the year ended October 31, 1999 was $ .
Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for the year ended October 31, 1999
was $ .
(3) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares
-36-
<PAGE>
Galaxy High Quality Bond Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
-------------------------------------------
1999 1998
---- ----
Retail Retail Retail Retail
A Shares B Shares A Shares B Shares
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net asset value, beginning of period......... $10.70 $10.70
Income from investment operations:
Net investment income(2)............... 0.58 0.51
Net realized and unrealized gain (loss) on
investments............................ 0.50 0.51
Total from investment operations............. 1.08 1.02
Less dividends:
Dividends from net investment income... (0.58) (0.52)
Dividends from net realized capital gains -- --
Dividends in excess of net realized
capital gains.......................... -- --
Total dividends.............................. (0.58) (0.52)
Net increase (decrease) in net asset value... 0.50 0.50
Net asset value, end of period............... $ 11.20 $ 11.20
------ ------
Total return(3).............................. 10.35% 9.73%
Ratios/supplemental data:
Net assets, end of period (000's)...... $45,879 $5,420
Ratios to average net assets:
Net investment income including reimbursement/waiver 5.30% 4.69%
Operating expenses including reimbursement/waiver 1.00% 1.61%
Operating expenses excluding reimbursement/waiver 1.20% 1.81%
Portfolio turnover rate...................... 253% 253%
<CAPTION>
For the year ending October 31,
--------------------------------------------------------
1997 1996 1995
---- ---- ------
Retail Retail Retail Retail Retail
A Shares B Shares A Shares B Shares(1) A Shares
-------- ----------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period......... $ 10.47 $ 10.47 $ 10.63 $ 10.72 $ 9.54
Income from investment operations:
Net investment income(2)............... 0.60 0.53 0.59 0.36 0.62
Net realized and unrealized gain (loss) on
investments............................ 0.23 0.24 (0.16) (0.25) 1.09
Total from investment operations............. 0.83 0.77 0.43 0.11 1.71
Less dividends:
Dividends from net investment income... (0.60) (0.54) (0.59) (0.36) (0.62)
Dividends from net realized capital gains -- -- -- -- --
Dividends in excess of net realized
capital gains.......................... -- -- -- -- --
Total dividends.............................. (0.60) (0.54) (0.59) (0.36) (0.62)
Net increase (decrease) in net asset value... 0.23 0.23 (0.16) (0.25) 1.09
Net asset value, end of period............... $ 10.70 $ 10.70 $ 10.47 $ 10.47 $ 10.63
-------- -------- -------- -------- --------
Total return(3).............................. 8.22% 7.59% 4.24% 1.14%(4) 18.46%
Ratios/supplemental data:
Net assets, end of period (000's)...... $27,950 $1,998 $30,984 $ 646 $30,093
Ratios to average net assets:
Net investment income including reimbursement/waiver 5.73% 5.07% 5.66% 5.34%(5) 6.16%
Operating expenses including reimbursement/waiver 1.01% 1.69% 1.07% 1.60%(5) 1.02%
Operating expenses excluding reimbursement/waiver 1.21% 1.95% 1.28% 1.81%(5) 1.26%
Portfolio turnover rate................... 182% 182% 163% 163% 110%
</TABLE>
- ----------------------------------
(1) The Fund began offering Retail B Shares on March 4, 1996.
(2) Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for Retail A Shares for the years
ended October 31, 1999, 1998, 1997, 1996 and 1995 was $ , $0.56, $0.58,
$0.57 and $0.59, respectively. Net investment income per share before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for Retail B Shares for the years ended October 31, 1999, 1998, 1997 and for
the period ended October 31, 1996 was $ , $0.49, $0.51 and $0.34,
respectively.
(3) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares.
(4) Not annualized.
(5) Annualized.
-37-
<PAGE>
[Back Cover Page]
Where to find more information
You'll find more information about the Funds in the following documents:
ANNUAL AND SEMI-ANNUAL REPORTS
Galaxy's annual and semi-annual reports contain more information about each Fund
and a discussion about the market conditions and investment strategies that had
a significant effect on each Fund's performance during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains detailed information about the Funds and their policies. By
law, it's incorporated by reference into (considered to be part of) this
prospectus.
You can get a free copy of these documents, request other information about the
Funds and make shareholder inquiries by calling Galaxy at 1-877-BUY-GALAXY
(1-877-289-4252) or writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
If you buy your shares through a financial institution, you may contact your
institution for more information.
You can write to the Securities and Exchange Commission (SEC) Public Reference
Section and ask them to mail you information about the Funds, including the SAI.
They'll charge you a fee for this service. You can also visit the SEC Public
Reference Room and copy the documents while you're there. For information about
the operation of the Public Reference Room, call the SEC.
Public Reference Section of the SEC
Washington, DC 20549-0102
1-202-942-8090.
Reports and other information about the Funds are also available on the EDGAR
Database on the SEC's website at http://www.sec.gov. Copies of this information
may also be obtained, after paying a duplicating fee, by electronic request to
the SEC's e-mail address at [email protected].
Galaxy's Investment Company Act File No. is 811-4636.
[Fleet assigned Code]
<PAGE>
[Front cover page]
Galaxy Taxable Bond Funds
The Galaxy Fund
Prospectus
, 2000
- ---------------------
Galaxy Short-Term Bond Fund
Galaxy Intermediate Government Income Fund
Galaxy High Quality Bond Fund
Galaxy Corporate Bond Fund
Trust Shares
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved any shares of these Funds or determined if this
prospectus is accurate or complete. Anyone who tells you otherwise is committing
a crime.
<PAGE>
Contents
1 Introduction
2 Galaxy Short-Term Bond Fund
7 Galaxy Intermediate Government Income Fund
11 Galaxy High Quality Bond Fund
15 Galaxy Corporate Bond Fund
19 Additional information about risk
20 Investor guidelines
21 Fund management
22 How to invest in the Funds
22 Buying and selling shares
23 How to buy shares
24 How to sell shares
25 Other transaction policies
27 Dividends, distributions and taxes
29 How to reach Galaxy
30 Financial highlights
<PAGE>
INTRODUCTION
This prospectus describes the Galaxy Taxable Bond Funds. Each Fund invests
primarily in debt obligations, such as bonds, notes and commercial paper.
On the following pages, you'll find important information about each Fund,
including:
- - the Fund's investment objective (sometimes called the Fund's goal) and the
main investment strategies used by the Fund's investment adviser in trying
to achieve that objective
- - the main risks associated with an investment in the Fund
- - the Fund's past performance measured on both a year-by-year and long-term
basis
- - the fees and expenses that you will pay as an investor in the Fund
WHICH FUND IS RIGHT FOR YOU?
Not all mutual funds are for everyone. Your investment goals and tolerance for
risk will determine which fund is right for you. On page __, you'll find a table
that provides a general guide to help you decide which of the Galaxy Taxable
Bond Funds is best suited to you.
THE FUNDS' INVESTMENT ADVISER
Fleet Investment Advisors Inc. (the "Adviser") is the investment adviser for all
of these Funds. The Adviser, an indirect wholly-owned subsidiary of FLeetBoston
Corporation, was established in 1984 and has its main office at 75 State Street,
Boston, Massachusetts 02109. The Adviser also provides investment management and
advisory services to individual and institutional clients and manages the other
Galaxy investment portfolios. As of December 31, 1999, the Adviser managed over
$___ billion in assets.
AN INVESTMENT IN THE FUNDS ISN'T A FLEET BANK DEPOSIT AND IT ISN'T INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. YOU COULD LOSE MONEY BY INVESTING IN THE FUNDS.
-1-
<PAGE>
Galaxy Short-Term Bond Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks a high level of current income consistent with preservation of
capital.
[Sidenote:]
PRESERVATION OF CAPITAL
Preservation of capital means protecting the amount of money you invest in a
fund. If a fund seeks to preserve capital, it will try to maintain a relatively
stable share price so your investment is protected.
[Sidenote:]
DURATION
Duration is an approximate measure of the price sensitivity of a fund to
changes in interest rates. Unlike maturity which measures only the time until
final payment, duration gives you the average time it takes to receive all
expected cash flows (including interest payments, prepayments and final
payments) on the debt obligations held by a fund.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests primarily in debt obligations of U.S. and foreign corporations,
including bonds and notes, and in debt obligations issued or guaranteed by the
U.S. Government and its agencies or instrumentalities or by foreign governments
or their political subdivisions and instrumentalities. It also invests in
asset-backed and mortgage-backed securities and in money market instruments,
such as commercial paper and the obligations of U.S. and foreign banks. The Fund
normally invests at least 65% of its total assets in bonds and debentures.
In selecting portfolio securities for the Fund, the Adviser monitors and
evaluates economic trends. It establishes duration targets, ranges of interest
payments on bonds of various maturities and determines the appropriate
allocation of the Fund's assets among various market sectors.
In selecting portfolio securities for the Fund, the Adviser evaluates the
suitability of available bonds according to such factors as creditworthiness,
maturity, liquidity and interest rates. It also determines the appropriate
allocation of the Fund's assets among various geographic regions, issuers and
industry sectors.
Nearly all Fund investments will be of investment grade quality. These are
securities which have one of the top four ratings assigned by Standard & Poor's
Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or are unrated
securities determined by the Adviser to be of comparable quality. Under normal
market conditions, the Fund will invest at least 65% of its total assets in
securities that have one of the top three ratings assigned by S&P or Moody's, or
unrated securities determined by the Adviser to be of comparable quality.
Occasionally, the rating of a security held by the Fund may be downgraded to
below investment grade. If that happens, the Fund doesn't have to sell the
security unless the Adviser determines that under the circumstances the security
is no longer an appropriate investment for the Fund. However, the Fund will
sell promptly any securities that are not rated investment grade by either
S&P or Moody's if the securities exceed 5% of the Fund's net assets.
The Fund's average weighted maturity will be less than three years under
normal circumstances.
-2-
<PAGE>
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
The Fund may trade its investments frequently in trying to achieve its
investment goal.
[Sidenote:]
AVERAGE WEIGHTED MATURITY
Average weighted maturity gives you the average time until all debt obligations
in a fund come due or mature. It is calculated by averaging the time to maturity
of all debt obligations held by a fund with each maturity "weighted" according
to the percentage of assets it represents.
[Sidenote:]
DEBT OBLIGATION
When a Fund buys a debt obligation such as a bond, it is in effect lending money
to the company, government or other entity that issued the bond. In return, the
issuer has an obligation to make regular interest payments and to repay the
original amount of the loan on a given date, known as the maturity date. A bond
MATURES when it reaches its maturity date. Bonds usually have fixed interest
rates, although some have rates that fluctuate based on market conditions and
other factors.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets. These can occur within or outside the U.S. or worldwide, and may affect
only particular companies or industries.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities generally tend to move
in the opposite direction to interest rates. When rates are rising, the
prices of debt securities tend to fall. When rates are falling, the prices
of debt securities tend to rise. Generally, the longer the time until
maturity, the more sensitive the price of a debt security is to interest
rate changes.
- - CREDIT RISK - The value of debt securities also depends on the ability of
issuers to make principal and interest payments. If an issuer can't meet
its payment obligations or if its credit rating is lowered, the value of
its debt securities may fall. Debt securities which have the lowest of the
top four ratings assigned by S&P or Moody's are considered to have
speculative characteristics. Changes in the economy are more likely to
affect the ability of THE issuers of these securities to make payments of
principal and interest than is the case with higher-rated securities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
debt securities held by the Fund, particularly asset-backed and
mortgage-backed securities, to be paid off much sooner or later than
expected, which could adversely affect the Fund's value. In the event that
a security is paid off sooner than expected because of a decline in
interest rates, the Fund
-3-
<PAGE>
may be unable to recoup all of its initial investment and may also suffer
from having to reinvest in lower-yielding securities. In the event of a
later than expected payment because of a rise in interest rates, the value
of the obligation will decrease and the Fund may suffer from the inability
to invest in higher-yielding securities.
- - FOREIGN INVESTMENTS - Foreign investments may be riskier than U.S.
investments because of factors such as foreign government restrictions,
changes in currency exchange rates, incomplete financial information about
the issuers of securities, and political or economic instability. Foreign
securities may be more volatile and less liquid than U.S. securities.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
- - FREQUENT TRADING - Frequent trading of investments usually increases the
chance that the Fund will pay investors short-term capital gains. These
gains are taxable at higher rates than long-term capital gains. Frequent
trading could also mean higher brokerage commissions and other transaction
costs, which could reduce the Fund's returns.
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume
that all dividends and distributions are reinvested in the Fund. How the Fund
has performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares has varied from year to
year.
[SIDENOTE:]
Best quarter: % for the quarter ending ,
worst quarter: % for the quarter ending ,
[bar chart goes here]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1996 1997 1998 1999
5.81% 6.41% -0.33% 11.26% 3.65% 5.82% 6.34% %
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
-4-
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999, as compared to a broad-based market index.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
1 year 5 years Since inception
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Trust Shares % % % (12/30/91)
- ---------------------------------------------------------------------------------------------------------------
Lehman Brothers One to
Three Year Government Bond
Index % % % (since 12/31/91)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
For current yield information, please call 1-877-BUY-GALAXY (1-877-289-4252).
[Sidenote:]
The Lehman Brothers One to Three Year Government Bond Index is an unmanaged
index which tracks the performance of short-term U.S. Government bonds.
FEES AND EXPENSES OF THE FUND
The following Table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Total Fund
Management Distribution Other operating
fees (12b-1) fees expenses expenses
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75%(1) None % %(1)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be ____%. Total Fund operating expenses after this waiver
are expected to be ____%. This fee waiver may be revised or discontinued at
any time.
-5-
<PAGE>
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $ $ $ $
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Adviser's Taxable Fixed Income Strategy Committee is responsible for the
day-to-day management of the Fund's investment portfolio.
-6-
<PAGE>
Galaxy Intermediate Government Income Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks the highest level of current income consistent with prudent risk
of capital.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its total assets in debt obligations
issued or guaranteed by the U.S. Government or its agencies and
instrumentalities. It also invests in debt obligations of U.S. corporations,
asset-backed and mortgage-backed securities and money market instruments, such
as commercial paper and obligations of U.S. banks and U.S. branches of foreign
banks.
In selecting portfolio securities for the Fund, the Adviser monitors and
evaluates economic trends. It establishes duration targets, ranges of interest
rates on bonds of various maturities and determines the appropriate allocation
of the Fund's investments among various market sectors.
In selecting portfolio securities for the Fund, the Adviser evaluates the
suitability of available bonds according to such factors as creditworthiness,
maturity, liquidity and interest rates. It also determines the appropriate
allocation of the Fund's assets among various geographic regions, issuers and
industry sectors.
Nearly all Fund investments will be of investment grade quality and will have
one of the top three ratings assigned by Standard & Poor's Ratings Group ("S&P")
or Moody's Investors Service, Inc. ("Moody's"), or will be unrated securities
determined by the Adviser to be of comparable quality. Occasionally, the rating
of a security held by the Fund may be downgraded to below minimum required
rating. If that happens, the Fund doesn't have to sell the security unless the
Adviser determines that under the circumstances the security is no longer an
appropriate investment for the Fund. However, the Fund will sell promptly
any securities that are not rated investment grade by either S&P or Moody's
if the securities exceed 5% of the Fund's net assets.
The Fund's average weighted maturity will be between three and ten
years under normal circumstances.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
The Fund may trade its investments frequently in trying to achieve its
investment goal.
[Sidenote:]
U.S. GOVERNMENT OBLIGATIONS
U.S. Government obligations are debt obligations issued or guaranteed by the
U.S. Government or one of its agencies or instrumentalities. U.S. Government
obligations generally have less credit risk than other debt obligations.
-7-
<PAGE>
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets. These can occur within or outside the U.S. or worldwide, and may affect
only particular companies or industries.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities generally tend to move
in the opposite direction to interest rates. When rates are rising, the
prices of debt securities tend to fall. When rates are falling, the prices
of debt securities tend to rise. Generally, the longer the time until
maturity, the more sensitive the price of a debt security is to interest
rate changes.
- - CREDIT RISK - The value of debt securities also depends on the ability of
issuers to make principal and interest payments. If an issuer can't meet
its payment obligations or if its credit rating is lowered, the value of
its debt securities may fall.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
debt securities held by the Fund, particularly asset-backed and
mortgage-backed securities, to be paid off much sooner or later than
expected, which could adversely affect the Fund's value. In the event that
a security is paid off sooner than expected because of a decline in
interest rates, the Fund may be unable to recoup all of its initial
investment and may also suffer from having to reinvest in lower-yielding
securities. in the event of a later than expected payment because of a rise
in interest rates, the value of the obligation will decrease and the Fund
may suffer from the inability to invest in higher-yielding securities.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
- - FREQUENT TRADING - Frequent trading of investments usually increases the
chance that the Fund will pay investors short-term capital gains. These
gains are taxable at higher rates than long-term capital gains. Frequent
trading could also mean higher brokerage commissions and other transaction
costs, which could reduce the Fund's returns.
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume
that all dividends and distributions are reinvested in the Fund. How the Fund
has performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares has varied from year to
year.
-8-
<PAGE>
[SIDENOTE:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
[bar chart goes here]
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
5.87% 15.77% 7.11% 5.58% -3.70% 16.01% 2.05% 8.12% 8.62% %
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999 as compared to broad-based market indices.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
1 year 5 years 10 years Since inception
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares % % % % (9/1/88)
- ---------------------------------------------------------------------------------------------------------------
Lehman Brothers
Intermediate Government/
Corporate Bond Index % % % % (since 9/1/88)
- ---------------------------------------------------------------------------------------------------------------
Lehman Brothers Aggregate
Bond Index % % % % (since 9/1/88)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
For current yield information, please call 1-877-BUY-GALAXY (1-877-289-4252).
[Sidenote:]
The Lehman Brothers Intermediate Government/Corporate Bond Index is an unmanaged
index which tracks the performance of intermediate U.S. Government and corporate
bonds.
[SIDENOTE:]
The Lehman Brothers Aggregate Bond Index is on unmanaged index made up of the
Lehman Brothers Government/Corporate Bond Index, its Mortgage Backed Securities
Index and its Asset Backed Securities Index.
-9-
<PAGE>
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
Annual Fund operating expenses (fees deducted from the Fund's assets)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Total Fund
Management Distribution Other operating
fees (12b-1) fees expenses expenses
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75%(1) None % %(1)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be ____%. Total Fund operating expenses after this waiver
are expected to be ____%. This fee waiver may be revised or discontinued at
any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year o the Fund's operating expenses
remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $ $ $ $
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Marie M. Schofield, CFA, a Senior Vice President
of the Adviser. She's primarily responsible for the day-to-day management of the
Fund's investment portfolio. Ms. Schofield, who has over 20 years of investment
experience, has been with the Adviser since 1990 and served as a Vice President
and Manager of Fixed Income Investments until February 1999. She has managed the
Fund since December 1996.
-10-
<PAGE>
Galaxy High Quality Bond Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks a high level of current income consistent with prudent risk of
capital.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests primarily in obligations issued or guaranteed by the U.S.
Government, its agencies and instrumentalities, as well as in corporate debt
obligations such as notes and bonds. The Fund also invests in asset-backed and
mortgage-backed securities and in money market instruments, such as commercial
paper and bank obligations.
In selecting portfolio securities for the Fund, the Adviser monitors and
evaluates economic trends. It establishes duration targets, ranges of interest
rates on bonds of various maturities and determines the appropriate allocation
of the Fund's investments among various market sectors.
In selecting portfolio securities for the Fund, the Adviser evaluates the
suitability of available bonds according to such factors as creditworthiness,
maturity, liquidity and interest rates. It also determines the appropriate
allocation of the Fund's assets among various geographic regions, issuers and
industry sectors.
Nearly all Fund investments will be of investment grade quality. These are
securities which have one of the top four ratings assigned by Standard & Poor's
Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or are unrated
securities determined by the Adviser to be of comparable quality. Under normal
market conditions, the Fund will invest at least 65% of its total assets in high
quality securities that have one of the top two ratings assigned by S&P or
Moody's, or unrated securities determined by the Adviser to be of comparable
quality. High quality securities tend to pay less income than lower-rated
securities. Occasionally, the rating of a security held by the Fund may be
downgraded to below investment grade. If that happens, the Fund doesn't have to
sell the security unless the Adviser determines that under the circumstances the
security is no longer an appropriate investment for the Fund. However, the
Fund will promptly sell any securities that are not rated investment grade
by S&P or Moody's if the securities exceed 5% of the Fund's net assets.
The Fund's average weighted maturity will vary from time to time depending on
current market and economic conditions and the Adviser's assessment of probable
changes in interest rates.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
The Fund may trade its investments frequently in trying to achieve its
investment goal.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets. These can occur within or outside the U.S. or worldwide, and may affect
only particular companies or industries.
-11-
<PAGE>
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities generally tend to move
in the opposite direction to interest rates. When rates are rising, the
prices of debt securities tend to fall. When rates are falling, the prices
of debt securities tend to rise. Generally, the longer the time until
maturity, the more sensitive the price of a debt security is to interest
rate changes.
- - CREDIT RISK - The value of debt securities also depends on the ability of
issuers to make principal and interest payments. If an issuer can't meet
its payment obligations or if its credit rating is lowered, the value of
its debt securities may fall. Debt securities which have the lowest of the
top four ratings assigned by S&P or Moody's are considered to have
speculative characteristics. Changes in the economy are more likely to
affect the ability of THE issuers of these securities to make payments of
principal and interest than is the case with higher-rated securities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
debt securities held by the Fund, particularly asset-backed and
mortgage-backed securities, to be paid off much sooner or later than
expected, which could adversely affect the Fund's value. In the event that
a security is paid off sooner than expected because of a decline in
interest rates, the Fund may be unable to recoup all of its initial
investment and may also suffer from having to reinvest in lower-yielding
securities. In the event of a later than expected payment because of a rise
in interest rates, the value of the obligation will decrease and the Fund
may suffer from the inability to invest in higher-yielding securities.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
- - FREQUENT TRADING - Frequent trading of investments usually increases the
chance that the Fund will pay investors short-term capital gains. These
gains are taxable at higher rates than long-term capital gains. Frequent
trading could also mean higher brokerage commissions and other transaction
costs, which could reduce the Fund's returns.
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume
that all dividends and distributions are reinvested in the Fund. How the Fund
has performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares has varied from year to
year.
-12-
<PAGE>
[SIDENOTE:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
[bar chart goes here]
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
1991 1992 1993 1994 1995 1996 1997 1998 1999
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
15.12% 6.77% 12.81% -6.43% 21.41% 1.59% 9.23% 9.42% %
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999, as compared to a broad-based market index.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
1 year 5 years Since inception
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Trust Shares % % % (12/14/90)
- ---------------------------------------------------------------------------------------------------------------
Lehman Brothers
Intermediate Government/
Corporate Bond Index % % % (since 11/30/90)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
For current yield information, please call 1-877-BUY-GALAXY (1-877-289-4252).
[Sidenote:]
The Lehman Brothers Intermediate Government/Corporate Bond Index is an unmanaged
index which tracks the performance of intermediate-term U.S. Government and
corporate bonds.
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Total Fund
Management Distribution Other operating
fees (12b-1) fees expenses expenses
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75%(1) None % %(1)
- --------------------------------------------------------------------------------------------
</TABLE>
-13-
<PAGE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be _____%. Total Fund operating expenses after this waiver
are expected to be ____%. This fee waiver may be revised or discontinued at
any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $ $ $ $
- --------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Marie M. Schofield, CFA, a Senior Vice President
of the Adviser. She's primarily responsible for the day-to-day management of the
Fund's investment portfolio. Ms. Schofield, who has over 20 years of investment
experience, has been with the Adviser since 1990 and served as a Vice President
and Manager of Fixed Income Investments until February 1999. She has managed the
Fund since December 1996.
-14-
<PAGE>
Galaxy Corporate Bond Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks a high level of current income.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its total assets in corporate debt
obligations. These include obligations that are issued by U.S. and foreign
business corporations and obligations issued by agencies, instrumentalities or
authorities that are organized as corporations by the U.S., by states or
political subdivisions of the U.S., or by foreign governments or political
subdivisions. The Fund also invests in obligations issued or guaranteed by U.S.
or foreign governments, their agencies or instrumentalities, asset-backed and
mortgage-backed securities and money market instruments, such as commercial
paper and obligations of U.S. and foreign banks.
In selecting portfolio securities for the Fund, the Adviser monitors and
evaluates economic trends. It establishes duration targets, ranges of interest
payments on bonds of various maturities and determines the appropriate
allocation of the Fund's assets among various market sectors.
In selecting portfolio securities for the Fund, the Adviser evaluates the
suitability of available bonds according to such factors as creditworthiness,
maturity, liquidity and interest rates. It also determines the appropriate
allocation of the Fund's assets among various geographic regions, issuers and
industry sectors.
Substantially all of the Fund's investments will be of investment grade quality.
These are securities which have one of the top four ratings assigned by Standard
& Poor's Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or
are unrated securities determined by the Adviser to be of comparable quality.
Occasionally, the rating of a security held by the Fund may be downgraded to
below investment grade. If that happens, the Fund doesn't have to sell the
security unless the Adviser determines that under the circumstances the security
is no longer an appropriate investment for the Fund. However, the Fund will
promptly sell any securities that are not rated investment grade by S&P or
Moody's if the securities exceed 5% of the Fund's net assets.
The Fund's average weighted maturity will be three to ten years under normal
circumstances.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective. A portfolio security may also be sold if the Adviser
determines that a more attractive security is available for purchase by the
Fund.
The Fund may trade its investments frequently in trying to achieve its
investment goal.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets. These can occur within or outside the U.S. or worldwide, and may affect
only particular companies or industries.
-15-
<PAGE>
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities generally tend to move
in the opposite direction to interest rates. When rates are rising, the
prices of debt securities tend to fall. When rates are falling, the prices
of debt securities tend to rise. Generally, the longer the time until
maturity, the more sensitive the price of a debt security is to interest
rate changes.
- - CREDIT RISK - The value of debt securities also depends on the ability of
issuers to make principal and interest payments. If an issuer can't meet
its payment obligations or if its credit rating is lowered, the value of
its debt securities may fall. Debt securities which have the lowest of the
top four ratings assigned by S&P or Moody's have speculative
characteristics. Changes in the economy are more likely to affect the
ability of issuers of these securities to make payments of principal and
interest than is the case with higher-rated securities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
debt securities held by the Fund, particularly asset-backed and
mortgage-backed securities, to be paid off much sooner or later than
expected, which could adversely affect the Fund's value. In the event that
a security is paid off sooner than expected because of a decline in
interest rates, the Fund may be unable to recoup all of its initial
investment and may also suffer from having to reinvest in lower-yielding
securities. In the event of a later than expected payment because of a rise
in interest rates, the value of the obligation will decrease and the Fund
may suffer from the inability to invest in higher-yielding securities.
- - FOREIGN INVESTMENTS - Foreign investments may be riskier than U.S.
investments because of factors such as foreign government restrictions,
changes in currency exchange rates, incomplete financial information about
the issuers of securities, and political or economic instability. Foreign
securities may be more volatile and less liquid than U.S. securities.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
- - FREQUENT TRADING - Frequent trading of investments usually increases the
chance that the Fund will pay investors short-term capital gains. These
gains are taxable at higher rates than long-term capital gains. Frequent
trading could also mean higher brokerage commissions and other transaction
costs, which could reduce the Fund's returns.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares has varied from year to
year.
-16-
<PAGE>
[SIDENOTE:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
[bar chart goes here]
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
1995 1996 1997 1998 1999
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
15.91% 3.10% 8.13% 8.18% %
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
For current yield information, please call 1-877-BUY-GALAXY (1-877-289-4252).
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999, as compared to a broad-based market index.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
1 year 5 YEARS Since Inception
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Trust Shares % % % (12/12/94)
- ---------------------------------------------------------------------------------------------------------------
Lehman Brothers
Intermediate Government/
Corporate Bond Index % % % (since 11/30/94)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The Lehman Brothers Intermediate Government/Corporate Bond Index is an unmanaged
index which tracks the performance of intermediate-term U.S. Government and
corporate bonds.
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Total
Fund
Management Distribution Other operating
fees (12b-1) fees expenses expenses
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75%(1) None % %(1)
- --------------------------------------------------------------------------------------
</TABLE>
-17-
<PAGE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be ____%. Total Fund operating expenses after this waiver
are expected to be ____%. This fee waiver may be revised or discontinued at
any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is David Lindsay, CFA, a Senior Vice President of
the Adviser since 1992. He's primarily responsible for the day-to-day management
of the Fund's investment portfolio. Mr. Lindsay has managed the Fund since it
began operations in 1994. He has been with the Adviser and its predecessors
since 1986.
-18-
<PAGE>
ADDITIONAL INFORMATION ABOUT RISK
The main risks associated with an investment in each of the Galaxy Taxable Bond
Funds have been described above. The following supplements that discussion.
TEMPORARY DEFENSIVE POSITIONS
Under unusual market conditions, each Fund may hold uninvested cash (which will
not earn any income) and invest without limit in money market instruments,
including short-term U.S. Government securities. This strategy could prevent a
Fund from achieving its investment objective.
OTHER TYPES OF INVESTMENTS
This prospectus describes each Fund's main investment strategies and the
particular types of securities in which each Fund mainly invests. Each Fund may,
from time to time, pursue other investment strategies and make other types of
investments in support of its overall investment goal. These supplemental
investment strategies, which are not considered to be main investment
strategies of the Fund - and the risks involved - are described in detail in the
Statement of Additional Information (SAI) which is referred to on the back cover
of this prospectus.
-19-
<PAGE>
INVESTOR GUIDELINES
The table below provides information as to which type of investor might want to
invest in each of the Galaxy Taxable Bond Funds. It's meant as a general guide
only. Consult your financial professional to help you decide which Fund is right
for you.
Galaxy Fund May be best suited for...
- -----------------------------------------------------------------------
Galaxy Short-Term Bond Fund investors who want current income
greater than that normally provided by a
money market fund
investors who want less change in the
value of their investment than normally
associated with long-term funds
- -----------------------------------------------------------------------
Galaxy Intermediate Government investors who want current income
Income Fund investors who want the extra margin of
safety associated with U.S. Government
securities
investors who can accept fluctuations in
price and yield
- -----------------------------------------------------------------------
Galaxy High Quality Bond Fund investors who want current income
investors who want the added
safety associated with bonds
with lower credit risk than
other debt securities
investors who can accept fluctuations in
price and yield
- -----------------------------------------------------------------------
Galaxy Corporate Bond Fund investors who want current income from
corporate debt securities
investors who can accept
fluctuations in price and yield
- -----------------------------------------------------------------------
-20-
<PAGE>
FUND MANAGEMENT
ADVISER
The Adviser, subject to the general supervision of Galaxy's Board of Trustees,
manages each Fund in accordance with its investment objective and policies,
makes decisions with respect to and places orders for all purchases and sales of
portfolio securities, and maintains related records.
ALLOCATION OF ORDERS FOR PORTFOLIO SECURITIES
The Adviser may allocate orders for the purchase and sale of portfolio
securities to certain financial institutions, including those that are
affiliated with the Adviser or that have sold shares of the Funds, to the extent
permitted by law or by order of the Securities and Exchange Commission. The
Adviser will allocate orders to such institutions only if it believes that the
quality of the transaction and the commission are comparable to what they would
be with other qualified brokerage firms.
MANAGEMENT FEES
The management fees paid to the Adviser by the Funds during the last fiscal year
are set forth below.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Fund Management fee as a % of average net assets
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
Short-Term Bond Fund %
- --------------------------------------------------------------------------------------------------------------------
Intermediate Government Income Fund %
- --------------------------------------------------------------------------------------------------------------------
High Quality Bond Fund %
- --------------------------------------------------------------------------------------------------------------------
Corporate Bond Fund %
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
SUB-ACCOUNT SERVICES
Affiliates of the Adviser and certain other parties may receive fees from
Galaxy's transfer agent for providing certain sub-accounting and administrative
services to participant sub-accounts with respect to Trust Shares of the Funds
held by defined contribution plans. The transfer agency fees payable by Trust
Shares of the Funds have been increased by an amount equal to these fees, so
that the holders of Trust Shares indirectly bear these fees.
-21-
<PAGE>
HOW TO INVEST IN THE FUNDS
BUYING AND SELLING SHARES
Trust Shares of the Funds are available for purchase by the following types of
investors:
- - Investors maintaining a qualified account at a bank or trust institution,
including subsidiaries of FleetBoston Corporation
- - Participants in employer-sponsored defined contribution plans
Qualified accounts include discretionary investment management accounts,
custodial accounts, agency accounts and different types of tax-advantaged
accounts. Your institution can provide more information about which types of
accounts are eligible.
In addition to the above types of investors, Trust Shares of the Corporate Bond
Fund are also available for purchase by:
- - customers of financial institutions, such as banks, savings and loan
associations and broker-dealers, including financial institutions
affiliated with the Adviser
- - investors purchasing shares directly from Galaxy's distributor
You can buy and sell Trust Shares of the Funds on any business day. For
customers of financial institutions (including customers maintaining qualified
accounts) and participants in employer-sponsored plans, a business day is any
day that Galaxy's distributor, Galaxy's custodian and your financial institution
or employer-sponsored plan are open for business. For investors purchasing
shares directly from Galaxy's distributor, a business day is any day that
Galaxy's distributor, Galaxy's custodian and Galaxy's transfer agent are open
for business.
The price at which you buy shares is the net asset value (NAV) per share next
determined after your order is accepted. The price at which you sell shares is
the NAV per share next determined after receipt of your order. NAV is determined
on each day the New York Stock Exchange is open for trading at the close of
regular trading that day (usually 4:00 p.m. Eastern time). The New York Stock
Exchange is generally open for trading every Monday through Friday, except for
national holidays.
If market prices are readily available for securities owned by the Fund, they're
valued at those prices. If market prices are not readily available for some
securities, they are valued at fair value under the supervision of Galaxy's
Board of Trustees.
Sometimes, the price of a security trading on a foreign stock exchange may be
affected by events that happen after that exchange closes. If this happens, the
fair value of the security may be determined using other factors and may not
reflect the security's last quoted price. In addition, foreign securities may
trade on days when shares of the Funds are not priced. As a result, the net
asset value per share of a Fund holding these securities may change on days when
you won't be able to buy or sell Fund shares.
-22-
<PAGE>
[Sidenote:]
NET ASSET VALUE
The price you pay for your shares is based on the net asset value per share
(NAV). It's the value of a Fund's assets attributable to Trust Shares, minus the
value of the Fund's liabilities attributable to Trust Shares, divided by the
number of Trust Shares held by investors.
HOW TO BUY SHARES
If you are a customer of a financial institution (including a customer who
maintains a qualified account) or a participant in an employer-sponsored plan,
you can buy Trust Shares by following the procedures established by your
financial institution or your employer-sponsored plan. Your financial
institution or plan administrator is responsible for sending your order and
payment to Galaxy's distributor and wiring payments to Galaxy's custodian. The
financial institution or employer-sponsored plan holds the shares in your name
and receives all confirmations of purchases and sales.
You can also buy Trust Shares of the Corporate Bond Fund directly from Galaxy's
distributor in any of the following ways:
BUYING BY MAIL
Complete an account application and mail it, together with a check payable to
the Galaxy Corporate Bond Fund, to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
To make additional investments, send your check to the address above along with
one of the following:
- - The detachable form that's included with your Galaxy statement or your
confirmation of a prior transaction
- - A letter stating the amount of your investment, the name of the Fund and
your account number
If your check is returned because of insufficient funds, Galaxy will cancel your
order.
BUYING BY WIRE
To make an initial or additional investment by wire, send U.S. funds through the
Federal Reserve System to Fleet National Bank as agent for Galaxy's distributor.
You should wire money and registration instructions to:
Fleet National Bank
75 State Street
Boston, MA 02109
-23-
<PAGE>
ABA #0110-0013-8
DDA #79673-5702
Ref: The Galaxy Fund
(Account number)
(Account registration)
Before making an initial investment by wire, you must complete an account
application and send it to The Galaxy Fund, P.O. Box 6520, Providence, RI
02940-6520. Your order will not be effective until the completed account
application is received by Galaxy. Call Galaxy's distributor at 1-877-BUY-GALAXY
(1-877-289-4252) for an account application.
Your financial institution may charge you a fee for sending funds by wire.
[Sidenote:]
INVESTMENT MINIMUMS
Galaxy does not have any minimum investment requirements for initial or
additional investments in Trust Shares but financial institutions and
employer-sponsored plans may do so. They may also require you to maintain a
minimum account balance.
HOW TO SELL SHARES
If you are a customer of a financial institution (including a customer who
maintains a qualified account) or a participant in an employer-sponsored plan,
you can sell Trust Shares by following the procedures established by your
financial institution or your employer-sponsored plan. Your financial
institution or plan administrator is responsible for sending your order to
Galaxy's distributor and for crediting your account with the proceeds. Galaxy
doesn't charge for wiring the proceeds, but your financial institution or
employer-sponsored plan may do so. Contact your financial institution or plan
administrator for more information.
You can also sell Trust Shares of the Corporate Bond Fund directly through
Galaxy's distributor in any of the following ways:
SELLING BY MAIL
Send your request in writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
You must include the following:
- - The name of the Fund
- - The number of shares or the dollar amount you want to sell
- - Your account number
- - Your Social Security number or tax identification number
-24-
<PAGE>
- - The signatures of each registered owner of the account (the signatures
must match the names on the account registration)
Additional documents may be required for certain types of shareholders, such as
corporations, partnerships, executors, trustees, administrators or guardians.
[Sidenote:]
SIGNATURE GUARANTEES
When selling your shares either by mail or by phone, you must have your
signature guaranteed if:
- - you're selling shares worth more than $50,000
- - you want Galaxy to send your money to an address other than the address on
your account, unless your assets are transferred to a successor custodian
- - you want Galaxy to send your money to the address on your account that's
changed within the last 30 days
- - you want Galaxy to make the check payable to someone else
Your signature must be guaranteed by a bank that's a member of the FDIC, a trust
company, a member firm of a national securities exchange or any other eligible
institution. A notarized signature is not sufficient.
SELLING BY PHONE
You can sell shares by calling Galaxy's distributor at 1-877-BUY-GALAXY
(1-877-289-4252) unless you tell Galaxy on the account application or in writing
that you don't want this privilege. If you have difficulty getting through to
Galaxy because of unusual market conditions, consider selling your shares by
mail or wire.
SELLING BY WIRE
Notify Galaxy's distributor by phone or wire that you wish to sell shares and
have the sale proceeds wired to your account at any financial institution in the
U.S. To be eligible to use this privilege, you must complete the appropriate
section on the account application or notify Galaxy in writing (with a signature
guarantee). Your sale proceeds must be more than $1,000.
The sale proceeds must be paid to the same bank and account you named on your
application or in your written instructions.
OTHER TRANSACTION POLICIES
If you purchased your shares through a financial institution or
employer-sponsored plan and Galaxy doesn't receive full payment for your order
to buy shares by 4:00 p.m. on the next business day, Galaxy won't accept your
order. Galaxy will advise your financial institution or plan administrator if
this happens.
-25-
<PAGE>
If you purchased shares directly from Galaxy's distributor and Galaxy doesn't
receive full payment for your order to buy shares within three business days of
the order date, Galaxy won't accept your order. Galaxy will advise you if this
happens and return any payment it may eventually receive.
Galaxy may refuse any order to buy shares. Galaxy doesn't issue a certificate
when you buy shares but it does keep a record of shares issued to investors.
Galaxy may refuse your order to sell shares by wire or telephone if it believes
it is advisable to do so. Galaxy may change or cancel the procedures for selling
or exchanging shares by wire or telephone at any time without notice.
If you purchased your shares directly from Galaxy's distributor and you sell
your shares by telephone, you may be responsible for any fraudulent telephone
orders as long as Galaxy has taken reasonable precautions to verify your
identity, such as requesting information about the way in which your account is
registered or about recent transactions on your account.
If you sell your shares through a financial institution or employer-sponsored
plan, sales proceeds are normally wired to your financial institution or plan
administrator on the next business day. If you sell your shares directly through
Galaxy's distributor, sales proceeds are normally sent to you within three
business days. In each case, Galaxy reserves the right to send sales proceeds
within seven days if sending proceeds earlier could adversely affect a Fund.
Galaxy may ask for any information it might reasonably need to make sure that
you've authorized a sale of shares.
Galaxy may close any account after 60 days' written notice if the value of the
account drops below $250 as a result of selling shares.
-26-
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Each Fund declares any dividends from net investment income daily and pays them
monthly. Each Fund pays any net capital gains at least once a year. It's
expected that the Funds' annual distributions will normally -- but not always --
consist primarily of ordinary income rather than capital gains. Dividends and
distributions are paid in cash unless you tell your financial institution or
plan administrator in writing or, if you purchased your shares directly from
Galaxy's distributor, you indicate in the account application or in a letter to
Galaxy that you want to have dividends and distributions reinvested in
additional shares.
FEDERAL TAXES
Each Fund contemplates declaring as dividends each year all or substantially all
of its taxable income, including its net capital gain (the excess of long-term
capital gain over short-term capital loss). Distributions attributable to the
net capital gain of a Fund will be taxable to you as long-term capital gain,
regardless how long you have held your shares. Other Fund distributions will
generally be taxable as ordinary income. You will be subject to income tax on
these distributions whether they are paid in cash or reinvested in additional
shares. You will be notified annually of the tax status of distributions to you.
You should note that if you purchase shares just before a distribution, the
purchase price will reflect the amount of the upcoming distribution, but you
will be taxed on the entire amount of the distribution received, even though, as
an economic matter, the distribution simply constitutes a return of capital.
This is known as "buying into a dividend."
You will recognize taxable gain or loss on a sale, exchange or redemption of
your shares, based on the difference between your tax basis in the shares and
the amount you receive for them. (To aid in computing your tax basis, you
generally should retain your account statements for the periods during which you
held shares.) Generally, this gain or loss will be long-term or short-term
depending on whether your holding period for the shares exceeds 12 months,
except that any loss realized on shares held for six months or less will be
treated as a long-term capital loss to the extent of any capital gain dividends
that were received on the shares.
The one major exception to these tax principles is that distributions on, and
sales, exchanges and redemptions of, shares held in an IRA (or other
tax-qualified plan) will not be currently taxable.
The foregoing is only a summary of certain tax considerations under current law,
which may be subject to change in the future. You should consult your tax
adviser for further information regarding federal, state, local and/or foreign
tax consequences relevant to your specific situation.
-27-
<PAGE>
STATE AND LOCAL TAXES
Shareholders may also be subject to state and local taxes on distributions,
redemptions and exchanges. State income taxes may not apply however to the
portions of each Fund's distributions, if any, that are attributable to interest
on U.S. Government securities or on securities of the particular state, its
agencies or municipalities. Shareholders should consult their tax advisers
regarding the tax status of distributions in their state and locality.
-28-
<PAGE>
HOW TO REACH GALAXY
If you purchased your shares directly from Galaxy's distributor, you can reach
Galaxy in any of the following ways:
GALAXY SHAREHOLDER SERVICES
Call Galaxy's distributor at 1-877-BUY-GALAXY (1-877-289-4252), Monday through
Friday, 8 a.m. to 6 p.m. (Eastern time) for help from a Galaxy representative.
INVESTCONNECT
InvestConnect is Galaxy's shareholder voice response system. Call
1-877-BUY-GALAXY (1-877-289-4252) from any touch-tone phone for automated access
to account information and current Fund prices and performance, or to place
orders to sell or exchange shares. It's available 24 hours a day, seven days a
week.
If you live outside the United States, you can contact Galaxy by calling
1-508-871-4121.
THE INTERNET
Please visit Galaxy's website at: www.galaxyfunds.com
[Sidenote:]
Galaxy also offers a TDD service for the hearing impaired. Just call
1-800-696-6515, 24 hours a day, seven days a week.
-29-
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables shown below will help you understand the
financial performance for the Funds' Trust Shares for the past five years (or
the period since a particular Fund began operations). Certain information
reflects the financial performance of a single Trust Share. The total returns in
the tables represent the rate that an investor would have earned (or lost) on an
investment in Trust Shares of each Fund, assuming all dividends and
distributions were reinvested. The information for the fiscal year ended October
31, 1999 has been audited by ______________, independent auditors, whose report,
along with the Funds' financial statements, are included in the Funds' Annual
Report and are incorporated by reference into the SAI. The Annual Report and SAI
are available free of charge upon request. The information for the fiscal years
ended October 31, 1995, 1996, 1997 and 1998 was audited by Galaxy's former
auditors, ____________________.
-30-
<PAGE>
Galaxy Short-Term Bond Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
----------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Trust Shares
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........ $10.01 $ 9.99 $10.06 $ 9.73
Income from investment operations:
Net investment income(1).................. 0.54 0.54 0.55 0.57
Net realized and unrealized gain (loss)
on investments........................... 0.11 0.02 (0.07) 0.33
Total from investment operations........... 0.65 0.56 0.48 0.90
Less dividends:
Dividends from net investment income....... ( 0.56) (0.54) (0.55) (0.57)
Dividends from net realized capital
gains..................................... -- -- -- --
Dividends in excess of net realized capital
gains..................................... -- -- -- --
Total dividends........................... (0.56) (0.54) (0.55) (0.57)
Net increase (decrease)
in net asset value........................ 0.09 0.02 (0.07) 0.33
Net asset value, end of period.............. $10.10 $10.01 $ 9.99 $10.06
------- ------- ------- -------
Total return.............................. 6.68% 5.77% 4.91% 9.55%
Ratios/supplemental data:
Net assets, end of period (000's).......... $38,071 $49,837 $58,227 $35,088
Ratios to average net assets:
Net investment income including
reimbursement/waiver...................... 5.33% 5.43% 5.49% 5.79%
Operating expenses including
reimbursement/waiver...................... 0.85% 0.86% 0.84% 0.74%
Operating expenses excluding
reimbursement/waiver...................... 1.05% 1.07% 1.08% 1.02%
Portfolio turnover rate................... 133% 173% 214% 289%
</TABLE>
- ------------------------------
(1) Net investment income per share for Trust Shares before reimbursement/waiver
of fees by the Adviser and/or the Fund's administrator for the years ended
October 31, 1999, 1998, 1997, 1996 and 1995 was $____, $0.52, $0.52, $0.53
AND $0.54, respectively.
-31-
<PAGE>
Galaxy Intermediate Government Income Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
-------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Trust Shares
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period....................... $10.18 $10.06 $10.28 $ 9.68
Income from investment operations:
Net investment income(1) 0.59 0.62 0.60 0.64
Net realized and
unrealized gain (loss)
on investments................. 0.35 0.12 (0.22) 0.60
Total from investment
operations...................... 0.94 0.74 0.38 1.24
Less dividends:
Dividends from net
investment income............... (0.62) (0.62) (0.60) (0.64)
Dividends in excess of
net investment income.......... -- -- -- --
--
Dividends from net
realized capital
Gains.......................... -- -- -- --
Dividends in excess of
Net realized capital
Gains.......................... -- -- -- --
Total dividends................ (0.62) (0.62) (0.60) (0.64)
Net increase (decrease)
IN net asset value............ 0.32 0.12 (0.22) 0.60
Net asset value, end of
period......................... $10.50 $10.18 $10.06 $10.28
------- ------- ------- -------
Total return..................... 9.52% 7.63% 3.88% 13.18%
Ratios/supplemental data:
Net assets, end of
period (000's)................ $239,763 $209,215 $213,750 $186,037
Ratios to average net assets:
Net investment
income including
reimbursement/waiver........... 5.77% 6.19% 5.98% 6.39%
Operating expenses
including
reimbursement/waiver........... 0.73% 0.74% 0.75% 0.73%
Operating expenses
excluding
reimbursement/waiver........... 0.93% 0.94% 0.95% 0.94%
Portfolio turnover rate........ 210% 128% 235% 145%
--------------------
</TABLE>
(1) Net investment income per share for Trust Shares before reimbursement/waiver
of fees by the Adviser and/or the Fund's administrator for the years ended
October 31, 1999, 1998, 1997, 1996 and 1995 was $______, $0.57, $0.60, $0.58
and $0.62, respectively.
-32-
<PAGE>
Galaxy High Quality Bond Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
-------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Trust Shares
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period......................... $10.70 $10.47 $10.63 $ 9.54
Income from investment operations:
Net investment income(1).......... 0.59 0.61 0.62 0.64
Net realized and
unrealized gain (loss)
on investments................... 0.50 0.23 (0.16) 1.09
Total from investment
operations..................... 1.09 0.84 0.46 1.73
Less dividends:
Dividends from net
investment income.................. (0.59) (0.61) (0.62) (0.64)
Dividends from net
realized capital
gains............................. -- -- -- --
Dividends in excess of
net realized capital
gains............................ -- -- -- --
Total dividends................... (0.59) (0.61) (0.62) (0.64)
Net increase (decrease)
in net asset value................ 0.50 0.23 (0.16) 1.09
Net asset value, end of
period............................ $11.20 $10.70 $10.47 $10.63
------- ------- ------- -------
Total return........................ 10.50% 8.36% 4.46% 18.66%
Ratios/supplemental data:
Net assets, end of
period (000's)..................... $217,143 $182,398 $149,075 $134,631
Ratios to average net assets:
Net investment
income including
reimbursement/waiver.............. 5.43% 5.88% 5.88% 6.33%
Operating expenses
including
reimbursement/waiver.............. 0.87% 0.87% 0.85% 0.85%
Operating expenses
excluding
reimbursement/waiver.............. 1.07% 1.09% 1.06% 1.07%
Portfolio turnover rate........... 253% 182% 163% 110%
--------------------
</TABLE>
(1) Net investment income per share for Trust Shares before reimbursement/waiver
of fees by the Adviser and/or the Fund's administrator for the years ended
October 31, 1999, 1998, 1997, 1996 and 1995 was $_____, $0.56, $0.59, $0.60
and $0.62, respectively.
-33-
<PAGE>
Galaxy Corporate Bond Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
-------------------------------------------------------------------------------
period ended
October 31,
1999 1998 1997 1996 1995(1)
---- ---- ---- ---- ----
Trust Shares
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period....................... $10.63 $10.53 $10.74 $10.00
Income from investment
operations:
Net investment income(2) 0.62 0.66 0.64 0.61
Net realized and
unrealized gain (loss)
on investments................. 0.30 0.11 (0.13) 0.74
Total from investment
operations.................... 0.92 0.77 0.51 1.35
Less dividends:
Dividends from net
investment income.............. (0.65) (0.66) (0.64) (0.61)
Dividends from net
realized capital
gains.......................... -- (0.01) (0.08) --
Total dividends.................. (0.65) (0.67) (0.72) (0.61)
Net increase (decrease)
in net asset value.............. 0.27 0.10 (0.21) 0.74
Net asset value, end of
period......................... $10.90 $10.63 $10.53 $10.74
------- ------- ------- -------
Total return..................... 8.96% 7.56% 5.00% 13.85%(3)
Ratios/supplemental data:
Net assets, end of
period (000's)................. $83,565 $91,728 $107,728 $37,391
Ratios to average net assets:
Net investment
income including
reimbursement/waiver........... 5.80% 6.27% 6.13% 6.61%(4)
Operating expenses
including
reimbursement/waiver........ 0.82% 0.80% 0.85% 1.06%(4)
Operating expenses
excluding
reimbursement/waiver........ 1.02% 1.00% 1.05% 1.26%(4)
Portfolio turnover rate.......... 155% 37% 84% 41%(3)
</TABLE>
(1) The Fund commenced operations on December 30, 1994.
(2) Net investment income per share before reimbursement/waiver of fees by
the Adviser and/or the Fund's administrator for the fiscal years ended
October 31, 1999, 1998, 1997 and 1996 and for the period ended October
31, 1995 was $____, $0.60, $0.64, $0.62 and $0.57, respectively.
(3) Not annualized.
(4) Annualized.
-34-
<PAGE>
[Back Cover Page]
Where to find more information
You'll find more information about the Funds in the following documents:
ANNUAL AND SEMI-ANNUAL REPORTS
Galaxy's annual and semi-annual reports contain more information about each Fund
and a discussion about the market conditions and investment strategies that had
a significant effect on each Fund's performance during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains detailed information about the Funds and their policies. By
law, it's incorporated by reference into (considered to be part of) this
prospectus.
You can get a free copy of these documents, request other information about the
Funds and make shareholder inquiries by calling Galaxy at 1-877-BUY-GALAXY
(1-877-289-4252) or writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
If you buy your shares through a financial institution, you may contact your
institution for more information.
You can write to the Securities and Exchange Commission (SEC) Public Reference
Section and ask them to mail you information about the Funds, including the SAI.
They'll charge you a fee for this service. You can also visit the Public
Reference Room and copy the documents while you're there. For information about
the operation of the Public Reference Room, call the SEC.
Public Reference Section of the SEC
Washington, DC 20549-0102
1-202-942-8090
Reports and other information about the Funds are also available on the EDGAR
Database on the SEC's website at http://www.sec.gov. Copies of this information
may also be obtained, after paying a duplicating fee, by electronic request to
the SEC's e-mail address at [email protected].
Galaxy's Investment Company Act File No. is 811-4636.
[FLEET ASSIGNED CODE]
<PAGE>
[Front cover page]
Galaxy Tax-Exempt Bond Funds
The Galaxy Fund
Prospectus
___________, 2000
Galaxy Tax-Exempt Bond Fund
Galaxy New Jersey Municipal Bond Fund
Galaxy New York Municipal Bond Fund
Galaxy Connecticut Municipal Bond Fund
Galaxy Massachusetts Municipal Bond Fund
Galaxy Rhode Island Municipal Bond Fund
Retail A Shares and Retail B Shares
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved any shares of these Funds or determined if this
prospectus is accurate or complete. Anyone who tells you otherwise is committing
a crime.
<PAGE>
Contents
Contents
- --------
1 Introduction
3 Galaxy Tax-Exempt Bond Fund
8 Galaxy New Jersey Municipal Bond Fund
13 Galaxy New York Municipal Bond Fund
18 Galaxy Connecticut Municipal Bond Fund
23 Galaxy Massachusetts Municipal Bond Fund
29 Galaxy Rhode Island Municipal Bond Fund
33 Additional information about risk
34 Fund management
35 How to invest in the Funds
35 How sales charges work
38 Buying, selling and exchanging shares
39 How to buy shares
40 How to sell shares
42 How to exchange shares
42 Other transaction policies
44 Dividends, distributions and taxes
46 Galaxy investor programs
48 How to reach Galaxy
49 Financial highlights
<PAGE>
RISK/RETURN SUMMARY
INTRODUCTION
This prospectus describes the Galaxy Tax-Exempt Bond Funds. The Funds invest
primarily in municipal securities, which are debt obligations of state and local
governments and other political or public bodies or agencies. The interest paid
on municipal securities is generally exempt from federal income tax and, in some
cases, from state and local income tax.
On the following pages, you'll find important information about each of the
Galaxy Tax-Exempt Bond Funds, including:
- - the Fund's investment objective (sometimes called the Fund's goal) and
the main investment strategies used by the Fund's investment adviser in
trying to achieve that objective
- - the main risks associated with an investment in the Fund
- - the Fund's past performance measured on both a year-by-year and long-term
basis
- - the fees and expenses that you will pay as an investor in the Fund
[Sidenote:]
TAX-EQUIVALENT YIELD
One way to understand the tax advantages of a tax-exempt fund is to compare its
after-tax return to that of a taxable investment. For example, suppose a taxable
fund pays a return of 10%. If you're in the 36% federal income tax bracket, the
fund's return after taxes is 6.4%. When a tax-exempt fund pays a return of 10%,
you don't pay tax. So if you're in the 36% tax bracket, that's the equivalent of
earning about 15.6% on a taxable fund. If you're in a low tax bracket, however,
it may not be helpful to invest in a tax-exempt fund if you can achieve a higher
after-tax return from a taxable investment.
WHICH FUND IS RIGHT FOR YOU?
The Funds are designed for investors who are looking for income that's free of
federal income tax and who can accept fluctuations in price and yield. A Fund
that specializes in a particular state is best suited to residents of that state
who are also looking for income that is free of the state's income tax.
TAX-EXEMPT FUNDS ARE NOT APPROPRIATE INVESTMENTS FOR TAX-DEFERRED RETIREMENT
ACCOUNTS, SUCH AS IRAS, BECAUSE THEIR RETURNS BEFORE TAXES ARE GENERALLY LOWER
THAN THOSE OF TAXABLE FUNDS.
THE FUNDS' INVESTMENT ADVISER
Fleet Investment Advisors Inc. (the "Adviser") is the investment adviser for all
of these Funds. The Adviser, an indirect wholly-owned subsidiary of FleetBoston
Corporation, was
-1-
<PAGE>
established in 1984 and has its main office at 75 State Street, Boston,
Massachusetts 02109. The Adviser also provides investment management and
advisory services to individual and institutional clients and manages the other
Galaxy investment portfolios. As of December 31, 1999, the Adviser managed over
$__ billion in assets.
AN INVESTMENT IN THE FUNDS ISN'T A FLEET BANK DEPOSIT AND IT ISN'T INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. YOU COULD LOSE MONEY BY INVESTING IN THE FUNDS.
-2-
<PAGE>
Galaxy Tax-Exempt Bond Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks to provide shareholders with as high a level of current interest
income free of federal income tax as is consistent with preservation of capital.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities that pay interest which is exempt from regular federal income tax,
primarily bonds (normally 65% of total assets). Under normal conditions, the
Fund will invest no more than 20% of its total assets in taxable obligations,
such as U.S. Government obligations, money market instruments and repurchase
agreements.
Municipal securities purchased by the Fund may include general obligation
securities, revenue securities and private activity bonds. The interest on
private activity bonds may be subject to the federal alternative minimum tax.
Investments in private activity bonds will not be treated as investments in
municipal securities for purposes of the 80% requirement stated above.
In selecting portfolio securities for the Fund, the Adviser evaluates the
suitability of available bonds according to such factors as creditworthiness,
maturity, liquidity and interest rates. It also determines the appropriate
allocation of the Fund's assets among various geographic regions, issuers,
and industry sectors.
Nearly all of the Fund's investments will be of investment grade quality. These
are securities which have one of the top four ratings assigned by Standard &
Poor's Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or are
unrated securities determined by the Adviser to be of comparable quality. Under
normal market conditions, the Fund will invest at least 65% of its total assets
in securities that have one of the top three ratings assigned by S&P or Moody's
or unrated securities determined by the Adviser to be of comparable quality.
Occasionally, the rating of a security held by the Fund may be downgraded to
below investment grade. If that happens, the Fund doesn't have to sell the
security unless the Adviser determines that under the circumstances the security
is no longer an appropriate investment for the Fund. However, the Fund will
sell promptly any securities that are not rated investment grade by either
S&P or Moody's if the securities exceed 5% of the Fund's net assets.
The Fund's average weighted maturity will vary from time to time depending on
current economic and market conditions and the Adviser's assessment of probable
changes in interest rates.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
[Sidenote:]
MUNICIPAL SECURITIES
State and local governments issue municipal securities to raise money to finance
public works, to repay outstanding obligations, to raise funds for general
operating expenses and to make loans to other public institutions. Some
municipal securities, known as private activity bonds, are backed
-3-
<PAGE>
by private entities and are used to finance various non-public projects.
Municipal securities, which can be issued as bonds, notes or commercial paper,
usually have fixed interest rates, although some have interest rates that change
from time to time.
[Sidenote:]
TYPES OF MUNICIPAL SECURITIES
GENERAL OBLIGATION securities are secured by the issuer's full faith, credit and
taxing power. REVENUE OBLIGATION securities are usually payable only from
revenues derived from specific facilities or revenue sources. PRIVATE ACTIVITY
BONDS are usually revenue obligations since they are typically payable by the
private user of the facilities financed by the bonds.
[Sidenote:]
AVERAGE WEIGHTED MATURITY
Average weighted maturity gives you the average time until all debt securities
in a Fund come due or MATURE. It is calculated by averaging the time to maturity
of all debt securities held by a Fund with each maturity "weighted" according to
the percentage of assets it represents.
[Sidenote:]
DURATION
Duration is an approximate measure of the price sensitivity of a fund to
changes in interest rates. Unlike maturity which measures only the time until
final payment, duration gives you the average time it takes to receive all
expected cash flows (including interest payments, prepayments and final
payments) on the debt obligations held by a fund.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities, including municipal
securities, tend to move in the opposite direction to interest rates.
When rates are rising, the prices of debt securities tend to fall. When
rates are falling, the prices of debt securities tend to rise. Generally,
the longer the time until maturity, the more sensitive the price of a
debt security is to interest rate changes.
- - CREDIT RISK - The value of debt securities, including municipal
securities, also depends on the ability of issuers to make principal and
interest payments. If an issuer can't meet its payment obligations or if
its credit rating is lowered, the value of its debt securities will fall.
Debt securities which have the lowest of the top four ratings assigned by
S&P or Moody's have speculative characteristics. Changes in the economy
are more likely to affect the ability of issuers of these securities to
make payments of principal and interest than is the case with
higher-rated securities. The ability of a state or local government
issuer to make payments can be affected by many factors, including
economic conditions, the flow of tax revenues and changes in the level of
federal, state or local aid. Some municipal obligations are payable only
from limited revenue sources or private entities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
municipal securities held by the Fund to be paid off much sooner or later
than expected, which could adversely affect the Fund's value. In the
event that a security is paid off sooner than expected because of a
decline in interest rates, the Fund may be unable to recoup all of its
initial investment and may also suffer from having to reinvest in
lower-yielding securities. In the event of a later than expected payment
because of a rise in interest rates, the value of the obligation will
decrease and the Fund may suffer from the inability to invest in
higher-yielding securities.
-4-
<PAGE>
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance
the Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume
that all dividends and distributions are reinvested in the Fund. How the Fund
has performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares has varied from
year to year.The returns for Retail B Shares were different than the figures
shown because each class of shares has different expenses. The figures don't
include any sales charges that investors pay when buying or selling shares of
the Fund. If sales charges were included, the returns would be lower.
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
[bar chart goes here]
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997 1998 1999
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
9.25% 11.95% -5.37% 15.79% 3.31% 8.72% 5.73% %
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1999, as compared
to a broad-based market index. The returns for Retail A Shares of the Fund for
periods prior to December 1, 1995 have been restated to include the effect of
the maximum 3.75% front-end sales charge which went into effect on that date.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
1 year 5 years Since inception
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares % % % (12/30/91)
- -----------------------------------------------------------------------------------------------------------------
Retail B Shares % % % (3/4/96)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
-5-
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Lehman Brothers Municipal % (since 12/31/91)
Bond Index % % % (since 2/29/96)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
For current yield information, please call 1-877-BUY-GALAXY (1-877-289-4252).
[Sidenote:]
The Lehman Brothers Municipal Bond Index is an unmanaged index which tracks the
performance of municipal bonds.
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
Shareholder fees (fees paid directly from your investment)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Maximum sales charge Maximum deferred
(load) on purchases sales charge (load)
shown as a % of the shown as a % of the
offering price offering price or sale
price, whichever is
less
- ------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
- ------------------------------------------------------------------------------------
Retail B Shares None 5.00%(3)
- ------------------------------------------------------------------------------------
</TABLE>
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Total
Distribution Fund
Management and service Other operating
fees (12b-1) fees expenses expenses
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.75%(4) None % %(4)
- ------------------------------------------------------------------------------------------
Retail B Shares 0.75%(4) 0.80% % %(4)
- ------------------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds -
How sales charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the Funds
- How sales charges work."
(3) This amount applies if you sell your shares in the first year after
purchase and gradually declines to 1% in the sixth year after purchase.
After six years, your Retail B Shares will automatically convert to Retail
A Shares. See "How to invest in the Funds - How sales charges work."
(4) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be %. Total Fund operating expenses after this waiver
are expected to be % for
-6-
<PAGE>
Retail A Shares and % for Retail B Shares. This fee waiver may be
revised or discontinued at any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your Retail B Shares convert to Retail A Shares after six years
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
Retail B Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
</TABLE>
If you hold Retail B Shares, you would pay the following expenses if you didn't
sell your shares:
<TABLE>
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail B Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Adviser's Tax-Exempt Investment Policy Committee is responsible for the
day-to-day management of the Fund's investment portfolio.
-7-
<PAGE>
Galaxy New Jersey Municipal Bond Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current interest income exempt from federal
income tax and, to the extent possible, from New Jersey personal income tax, as
is consistent with relative stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities that pay interest which is exempt from regular federal income tax,
and at least 65% of its total assets in New Jersey municipal securities, which
are securities issued by the State of New Jersey and other government issuers
and that pay interest which is exempt from both federal income tax and New
Jersey personal income tax. Under normal conditions, the Fund will invest no
more than 20% of its total assets in taxable obligations, such as U.S.
Government obligations, money market instruments and repurchase agreements.
Municipal securities purchased by the Fund may include general obligation
securities, revenue securities and private activity bonds. The interest on
private activity bonds may be subject to the federal alternative minimum tax.
Investments in private activity bonds will not be treated as investments in
municipal securities for purposes of the 80% requirement stated above.
In selecting portfolio securities for the Fund, the Adviser evaluates the
suitability of available bonds according to such factors as creditworthiness,
maturity, liquidity and interest rates. It also determines the appropriate
allocation of the Fund's assets among various issuers and industry sectors.
Nearly all of the Fund's investments will be of investment grade quality.
These are securities which have one of the top four ratings assigned by
Standard & Poor's Ratings Group (S&P) or Moody's Investors Service, Inc.
(Moody's), or are unrated securities determined by the Adviser to be of
comparable quality. Under normal market conditions, the Fund will invest at
least 65% of its total assets in securities that have one of the top three
ratings assigned by S&P or Moody's or unrated securities determined by the
Adviser to be of comparable quality. Occasionally, the rating of a security
held by the Fund may be downgraded to below investment grade. If that
happens, the Fund doesn't have to sell the security, unless the Adviser
determines that under the circumstances the security is no longer an
appropriate investment for the Fund. However, the Fund will sell promptly any
securities that are not rated investment grade by S&P or Moody's if the
securities exceed 5% of the Fund's net assets. The Fund's average weighted
maturity will vary from time to time depending on current economic and market
conditions and the Adviser's assessment of probable changes in interest rates.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
-8-
<PAGE>
[Sidenote:]
AVERAGE WEIGHTED MATURITY
Average weighted maturity gives you the average time until all debt securities
in a fund come due or mature. It is calculated by averaging the time to maturity
of all debt securities held by a fund with each maturity "weighted" according to
the percentage of assets it represents.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and by swings in
investment markets.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities, including municipal
securities, tend to move in the opposite direction to interest rates.
When rates are rising, the prices of debt securities tend to fall. When
rates are falling, the prices of debt securities tend to rise. Generally,
the longer the time until maturity, the more sensitive the price of a
debt security is to interest rate changes.
- - CREDIT RISK - The value of debt securities, including municipal
securities, also depends on the ability of issuers to make principal and
interest payments. If an issuer can't meet its payment obligations or if
its credit rating is lowered, the value of its debt securities will fall.
Debt securities which have the lowest of the top four ratings assigned by
S&P or Moody's have speculative characteristics. Changes in the economy
are more likely to affect the ability of issuers of these securities to
make payments of principal and interest than is the case with
higher-rated securities. The ability of a state or local government
issuer to make payments can be affected by many factors, including
economic conditions, the flow of tax revenues and changes in the level of
federal, state or local aid. Some municipal obligations are payable only
from limited revenue sources or private entities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
municipal securities held by the Fund to be paid off much sooner or later
than expected, which could adversely affect the Fund's value. In the
event that a security is paid off sooner than expected because of a
decline in interest rates, the Fund may be unable to recoup all of its
initial investment and may also suffer from having to reinvest in
lower-yielding securities. In the event of a later than expected payment
because of a rise in interest rates, the value of the obligation will
decrease and the Fund may suffer from the inability to invest in
higher-yielding securities.
- - LACK OF DIVERSIFICATION - The Fund is not diversified, which means that
it can invest a large percentage of its assets in a small number of
issuers. As a result, a change in the value of any one investment held by
the Fund may affect the overall value of the Fund more than it would
affect a diversified fund which holds more investments.
- - SINGLE STATE RISK - Because the Fund invests primarily in New Jersey
municipal securities, it is likely to be especially susceptible to
economic, political and regulatory events that affect New Jersey. Other
considerations affecting the Fund's investments in New Jersey municipal
securities are summarized in the Statement of Additional Information.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance
the Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
-9-
<PAGE>
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume
that all dividends and distributions are reinvested in the Fund. How the Fund
has performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows the performance of Retail A Shares during the last
calendar year. The figures don't include any sales charges that investors pay
when buying or selling shares of the Fund. If sales charges were included,
the returns would be lower.
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
[bar chart goes here]
- --------------
1999
- --------------
%
- --------------
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1999, as compared
to a broad-based market index.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
1 year Since inception
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares % % (4/3/98)
- -------------------------------------------------------------------------------------------
Lehman Brothers Municipal
Bond Index % % (since 3/31/98)
- -------------------------------------------------------------------------------------------
</TABLE>
For current yield information, please call 1-877-BUY-GALAXY (1-877-289-4252).
[Sidenote:]
Lehman Brothers Municipal Bond Index is an unmanaged index which tracks the
performance of municipal bonds.
-10-
<PAGE>
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
Shareholder fees (fees paid directly from your investment)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Maximum sales charge Maximum deferred
(load) on purchases sales charge (load)
shown as a % of the shown as a % of the
offering price offering price or sale
price, whichever is
less
- ------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
- ------------------------------------------------------------------------------------
</TABLE>
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Total
Fund
Management Distribution Other operating
fees (12b-1) fees expenses expenses
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.75%(3) None %(3) %(3)
- ------------------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds -
How sales charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the Funds
- How sales charges work."
(3) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be %. The Fund's administrator is waiving a portion of
the administration fees and reimbursing certain expenses so that Other
expenses are expected to be %. Total Fund operating expenses after
these waivers and reimbursements are expected to be %. These fee
waivers and expense reimbursements may be revised or discontinued at any
time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
-11-
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Adviser's Tax-Exempt Investment Policy Committee is responsible for the
day-to-day management of the Fund's investment portfolio.
-12-
<PAGE>
Galaxy New York Municipal Bond Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current interest income exempt from federal
income tax and, to the extent possible, from New York State and New York City
personal income tax, as is consistent with relative stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities that pay interest which is exempt from regular federal income tax,
and at least 65% of its total assets in New York municipal securities, which are
securities issued by the State of New York and other government issuers and that
pay interest which is exempt from federal income tax and New York State and New
York City personal income tax. Under normal conditions, the Fund will invest no
more than 20% of its total assets in taxable obligations, such as U.S.
Government obligations, money market instruments and repurchase agreements.
Municipal securities purchased by the Fund may include general obligation
securities and private activity bonds. The interest on private activity bonds
may be subject to the federal alternative minimum tax. Investments in private
activity bonds will not be treated as investments in municipal securities for
purposes of the 80% requirement stated above.
In selecting portfolio securities for the Fund, the Adviser evaluates the
suitability of available bonds according to such factors as creditworthiness,
maturity, liquidity, and interest rates. It also determines the appropriate
allocation of the Fund's assets among various issuers and industry sectors.
Nearly all of the Fund's investments will be of investment grade quality. These
are securities which have one of the top four ratings assigned by Standard &
Poor's Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or are
unrated securities determined by the Adviser to be of comparable quality. Under
normal market conditions, the Fund will invest at least 65% of its total assets
in securities that have one of the top three ratings assigned by S&P or Moody's
or unrated securities determined by the Adviser to be of comparable quality.
Occasionally, the rating of a security held by the Fund may be downgraded to
below investment grade. If that happens, the Fund doesn't have to sell the
security unless the Adviser determines that under the circumstances the security
is no longer an appropriate investment for the Fund. However, the Fund will
sell promptly any securities that are not rated investmetn grade by S&P or
Moody's if the securities exceed 5% of the Fund's net assets.
The Fund's average weighted maturity will vary from time to time depending on
current economic and market conditions and the Adviser's assessment of probable
changes in interest rates.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
-13-
<PAGE>
[Sidenote:]
AVERAGE WEIGHTED MATURITY
Average weighted maturity gives you the average time until all debt securities
in a fund come due or mature. It is calculated by averaging the time to maturity
of all debt securities held by a fund with each maturity "weighted" according to
the percentage of assets it represents.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities, including municipal
securities, tend to move in the opposite direction to interest rates.
When rates are rising, the prices of debt securities tend to fall. When
rates are falling, the prices of debt securities tend to rise. Generally,
the longer the time until maturity, the more sensitive the price of a
debt security is to interest rate changes.
- - CREDIT RISK - The value of debt securities, including municipal
securities, also depends on the ability of issuers to make principal and
interest payments. If an issuer can't meet its payment obligations or if
its credit rating is lowered, the value of its debt securities will fall.
Debt securities which have the lowest of the top four ratings assigned by
S&P or Moody's have speculative characteristics. Changes in the economy
are more likely to affect the ability of issuers of these securities to
make payments of principal and interest than is the case with
higher-rated securities. The ability of a state or local government
issuer to make payments can be affected by many factors, including
economic conditions, the flow of tax revenues and changes in the level of
federal, state or local aid. Some municipal obligations are payable only
from limited revenue sources or private entities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
municipal securities held by the Fund to be paid off much sooner or later
than expected, which could adversely affect the Fund's value. In the
event that a security is paid off sooner than expected because of a
decline in interest rates, the Fund may be unable to recoup all of its
initial investment and may also suffer from having to reinvest in
lower-yielding securities. In the event of a later than expected payment
because of a rise in interest rates, the value of the obligation will
decrease and the Fund may suffer from the inability to invest in
higher-yielding securities.
- - LACK OF DIVERSIFICATION - The Fund is not diversified, which means that
it can invest a large percentage of its assets in a small number of
issuers. As a result, a change in the value of any one investment held by
the Fund may affect the overall value of the Fund more than it would
affect a diversified fund which holds more investments.
- - SINGLE STATE RISK - Because the Fund invests primarily in New York
municipal securities, the Fund's ability to achieve its investment
objective is dependent upon the ability of the issuers of New York
municipal securities to meet their continuing obligations for the payment
of principal and interest. New York State and New York City face
long-term economic problems that could seriously affect their ability and
that of other issuers of New York municipal securities to meet their
financial obligations. Other considerations affecting the
-14-
<PAGE>
Fund's investments in New York municipal securities are summarized in the
Statement of Additional Information.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance
the Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume
that all dividends and distributions are reinvested in the Fund. How the Fund
has performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares has varied from
year to year. The figures don't include any sales charges that investors pay
when buying or selling shares of the Fund. If sales charges were included,
the returns would be lower.
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
[bar chart goes here]
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997 1998 1999
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
8.29% 12.30% -7.26% 16.85% 3.38% 8.66% 5.96% %
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1999, as compared
to a broad-based market index. The returns for Retail A Shares of the Fund for
periods prior to December 1, 1995 have been restated to include the effect of
the maximum 3.75% front-end sales charge which went into effect on that date.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
1 year 5 years Since inception
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares % % % (12/31/91)
- ------------------------------------------------------------------------------------------------------------------
Lehman Brothers
Municipal Bond
Index % % % (since 12/31/91)
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
-15-
<PAGE>
For current yield information, please call 1-877-BUY-GALAXY (1-877-289-4252).
[Sidenote:]
The Lehman Brothers Municipal Bond Index is an unmanaged index which tracks the
performance of municipal bonds.
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
Shareholder fees (fees paid directly from your investment)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Maximum sales charge Maximum deferred
(load) on purchases sales charge (load)
shown as a % of the shown as a % of the
offering price offering price or sale
price, whichever is
less
- ------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
- ------------------------------------------------------------------------------------
</TABLE>
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Total
Fund
Management Distribution Other operating
fees (12b-1) fees expenses expenses
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.75%(3) None % %(3)
- ------------------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the
Funds - How sales charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the
Funds - How sales charges work."
(3) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be %. Total Fund operating expenses after this waiver
are expected to be %. This fee waiver may be revised or discontinued
at any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
-16-
<PAGE>
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Adviser's Tax-Exempt Investment Policy Committee is responsible for the
day-to-day management of the Fund's investment portfolio.
-17-
<PAGE>
Galaxy Connecticut Municipal Bond Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current interest income exempt from federal
income tax and, to the extent possible, from Connecticut personal income tax, as
is consistent with relative stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities that pay interest which is exempt from regular federal income tax,
and at least 65% of its total assets in Connecticut municipal securities, which
are securities issued by the State of Connecticut and other government issuers
and that pay interest which is exempt from both federal income tax and
Connecticut state income tax on individuals, trusts and estates. Under normal
conditions, the Fund will invest no more than 20% of its total assets in taxable
obligations, such as U.S. Government obligations, money market instruments and
repurchase agreements.
Municipal securities purchased by the Fund may include general obligation
securities, revenue securities and private activity bonds. The interest on
private activity bonds may be subject to the federal alternative minimum tax.
Investments in private activity bonds will not be treated as investments in
municipal securities for purposes of the 80% requirement stated above.
In selecting portfolio securities for the Fund, the Adviser evaluates the
suitability of available bonds according to such factors as creditworthiness,
maturity, liquidity, and interest rates. It also determines the appropriate
allocation of the Fund's assets among various issuers and industry sectors.
Nearly all of the Fund's investments will be of investment grade quality. These
are securities which have one of the top four ratings assigned by Standard &
Poor's Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or are
unrated securities determined by the Adviser to be of comparable quality. Under
normal market conditions, the Fund will invest at least 65% of its total assets
in securities that have one of the top three ratings assigned by S&P or Moody's
or unrated securities determined by the Adviser to be of comparable quality.
Occasionally, the rating of a security held by the Fund may be downgraded to
below investment grade. If that happens, the Fund doesn't have to sell the
security unless the Adviser determines that under the circumstances the security
is no longer an appropriate investment for the Fund. However, the Fund will
sell promptly any securities that are not rated investment grade by S&P or
Moody's if the securities exceed 5% of the Fund's net assets.
The Fund's average weighted maturity will vary from time to time depending on
current market conditions and the Adviser's assessment of probable changes in
interest rates.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
-18-
<PAGE>
[Sidenote:]
AVERAGE WEIGHTED MATURITY
Average weighted maturity gives you the average time until all debt securities
in a fund come due or mature. It is calculated by averaging the time to maturity
of all debt securities held by a fund with each maturity "weighted" according to
the percentage of assets it represents.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities, including municipal
securities, tend to move in the opposite direction to interest rates.
When rates are rising, the prices of debt securities tend to fall. When
rates are falling, the prices of debt securities tend to rise. Generally,
the longer the time until maturity, the more sensitive the price of a
debt security is to interest rate changes.
- - CREDIT RISK - The value of debt securities, including municipal
securities, also depends on the ability of issuers to make principal and
interest payments. If an issuer can't meet its payment obligations or if
its credit rating is lowered, the value of its debt securities will fall.
Debt securities which have the lowest of the top four ratings assigned by
S&P or Moody's have speculative characteristics. Changes in the economy
are more likely to affect the ability of issuers of these securities to
make payments of principal and interest than is the case with
higher-rated securities. The ability of a state or local government
issuer to make payments can be affected by many factors, including
economic conditions, the flow of tax revenues and changes in the level of
federal, state or local aid. Some municipal obligations are payable only
from limited revenue sources or by private entities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
municipal securities held by the Fund to be paid off much sooner or later
than expected, which could adversely affect the Fund's value. In the
event that a security is paid off sooner than expected because of a
decline in interest rates, the Fund may be unable to recoup all of its
initial investment and may also suffer from having to reinvest in
lower-yielding securities. In the event of a later than expected payment
because of a rise in interest rates, the value of the obligation will
decrease and the Fund may suffer from the inability to invest in
higher-yielding securities.
- - LACK OF DIVERSIFICATION - The Fund is not diversified, which means that
it can invest a large percentage of its assets in a small number of
issuers. As a result, a change in the value of any one investment held by
the Fund may affect the overall value of the Fund more than it would
affect a diversified fund which holds more investments.
- - SINGLE STATE RISK - Because the Fund invests primarily in Connecticut
municipal securities, it is likely to be especially susceptible to
economic, political and regulatory events that affect Connecticut. Other
considerations affecting the Fund's investments in Connecticut municipal
securities are summarized in the Statement of Additional Information.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance
the Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
-19-
<PAGE>
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume
that all dividends and distributions are reinvested in the Fund. How the Fund
has performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares has varied from
year to year. The figures don't include any sales charges that investors pay
when buying or selling shares of the Fund. If sales charges were included,
the returns would be lower.
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
[bar chart goes here]
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
-8.07% 18.02% 3.35% 8.61% 5.84% %
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1999, as compared
to a broad-based market index. The returns for Retail A Shares of the Fund for
periods prior to December 1, 1995 have been restated to include the effect of
the maximum 3.75% front-end sales charge which went into effect on that date.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
1 year 5 years Since inception
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares % % % (3/16/93)
- ---------------------------------------------------------------------------------------------------------------
Lehman Brothers
Municipal Bond
Index % % % (since 3/31/93)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
For current yield information, please call 1-877-BUY-GALAXY (1-877-289-4252).
-20-
<PAGE>
[Sidenote:]
The Lehman Brothers Municipal Bond Index is an unmanaged index which tracks the
performance of municipal bonds.
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
Shareholder fees (fees paid directly from your investment)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Maximum sales charge Maximum deferred
(load) on purchases sales charge (load)
shown as a % of the shown as a % of the
offering price offering price or sale
price, whichever is
less
- ------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None (2)
- ------------------------------------------------------------------------------------
</TABLE>
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Total
Fund
Management Distribution Other operating
fees (12b-1) fees expenses expenses
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.75%(3) None % %(3)
- ------------------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the
Funds - How sales charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the
Funds - How sales charges work."
(3) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be %. Total Fund operating expenses after this waiver
are expected to be %. This fee waiver may be revised or discontinued
at any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
-21-
<PAGE>
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
Adviser's Tax-Exempt Investment Policy Committee is responsible for the
day-to-day management of the Fund's investment portfolio.
-22-
<PAGE>
Galaxy Massachusetts Municipal Bond Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current interest income exempt from federal
income tax and, to the extent possible, from Massachusetts personal income tax,
as is consistent with relative stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities that pay interest which is exempt from regular federal income tax,
and at least 65% of its total assets in Massachusetts municipal securities,
which are securities issued by the Commonwealth of Massachusetts and other
government issuers and that pay interest which is exempt from both federal
income tax and Massachusetts personal income tax. Under normal conditions, the
Fund will invest no more than 20% of its total assets in taxable obligations,
such as U.S. Government obligations, money market instruments and repurchase
agreements.
Municipal securities purchased by the Fund may include general obligation
securities, revenue securities and private activity bonds. The interest on
private activity bonds may be subject to the federal alternative minimum tax.
Investments in private activity bonds will not be treated as investments in
municipal securities for purposes of the 80% requirement stated above.
In selecting portfolio securities for the Fund, the Adviser evaluates the
suitability of available bonds according to such factors as creditworthiness,
maturity, liquidity, and interest rates. It also determines the appropriate
allocation of the Fund's assets among various issuers and industry sectors.
Nearly all of the Fund's investments will be of investment grade quality. These
are securities which have one of the top four ratings assigned by Standard &
Poor's Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or are
unrated securities determined by the Adviser to be of comparable quality. Under
normal market conditions, the Fund will invest at least 65% of its total assets
in securities that have one of the top three ratings assigned by S&P or Moody's
or unrated securities determined by the Adviser to be of comparable quality.
Occasionally, the rating of a security held by the Fund may be downgraded to
below investment grade. If that happens, the Fund doesn't have to sell the
security unless the Adviser determines that under the circumstances the security
is no longer an appropriate investment for the Fund. However, the Fund will
sell promptly any securities that are not rated investment grade by S&P or
Moody's if the securities exceed 5% of the Fund's net assets.
The Fund's average weighted maturity will vary from time to time depending on
current economic and market conditions and the Adviser's assessment of probable
changes in interest rates.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
-23-
<PAGE>
[Sidenote:]
AVERAGE WEIGHTED MATURITY
Average weighted maturity gives you the average time until all debt securities
in a fund come due or mature. It is calculated by averaging the time to maturity
of all debt securities held by a fund with each maturity "weighted" according to
the percentage of assets it represents.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities, including municipal
securities, tend to move in the opposite direction to interest rates.
When rates are rising, the prices of debt securities tend to fall. When
rates are falling, the prices of debt securities tend to rise. Generally,
the longer the time until maturity, the more sensitive the price of a
debt security is to interest rate changes.
- - CREDIT RISK - The value of debt securities, including municipal
securities, also depends on the ability of issuers to make principal and
interest payments. If an issuer can't meet its payment obligations or if
its credit rating is lowered, the value of its debt securities will fall.
Debt securities which have the lowest of the top four ratings assigned by
S&P or Moody's have speculative characteristics. Changes in the economy
are more likely to affect the ability of issuers of these securities to
make payments of principal and interest than is the case with
higher-rated securities. The ability of a state or local government
issuer to make payments can be affected by many factors, including
economic conditions, the flow of tax revenues and changes in the level of
federal, state or local aid. Some municipal obligations are payable only
from limited revenue sources or by private entities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
municipal securities held by the Fund to be paid off much sooner or later
than expected, which could adversely affect the Fund's value. In the
event that a security is paid off sooner than expected because of a
decline in interest rates, the Fund may be unable to recoup all of its
initial investment and may also suffer from having to reinvest in
lower-yielding securities. In the event of a later than expected payment
because of a rise in interest rates, the value of the obligation will
decrease and the Fund may suffer from the inability to invest in
higher-yielding securities.
- - LACK OF DIVERSIFICATION - The Fund is not diversified, which means that
it can invest a large percentage of its assets in a small number of
issuers. As a result, a change in the value of any one investment held by
the Fund may affect the overall value of the Fund more than it would
affect a diversified fund which holds more investments.
- - SINGLE STATE RISK - Because the Fund invests primarily in Massachusetts
municipal securities, it is likely to be especially susceptible to
economic, political and regulatory events that affect Massachusetts.
Other considerations affecting the Fund's investments in Massachusetts
municipal securities are summarized in the Statement of Additional
Information.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance
the Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
-24-
<PAGE>
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume
that all dividends and distributions are reinvested in the Fund. How the Fund
has performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares has varied from
year to year. The figures don't include any sales charges that investors pay
when buying or selling shares of the Fund. If sales charges were included,
the returns would be lower than shown.
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
[bar chart goes here]
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
-7.71% 17.15% 3.04% 8.95% 5.63% %
- -----------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1999, as compared
to a broad-based market index. The returns for Retail A Shares of the Fund for
periods prior to December 1, 1995 have been restated to include the effect of
the maximum 3.75% front-end sales charge which went into effect on that date.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 5 years Since inception
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares % % (3/12/93)
- -------------------------------------------------------------------------------------------------------------
Lehman Brothers Municipal
Bond Index
% % % (since 2/28/93)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
For current yield information, please call 1-877-BUY-GALAXY (1-877-289-4252).
-25-
<PAGE>
[Sidenote:]
The Lehman Brothers Municipal Bond Index is an unmanaged index which tracks the
performance of municipal bonds.
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
-26-
<PAGE>
Shareholder fees (fees paid directly from your investment)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Maximum sales charge Maximum deferred
(load) on purchases sales charge (load)
shown as a % of the shown as a % of the
offering price offering price or sale
price, whichever is
less
- ------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
- ------------------------------------------------------------------------------------
</TABLE>
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Total
Fund
Management Distribution Other operating
fees (12b-1) fees expenses expenses
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.75%(3) None % %(3)
- ------------------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the
Funds - How sales charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the
Funds - How sales charges work."
(3) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be %. Total Fund operating expenses after this waiver
are expected to be %. This fee waiver may be revised or discontinued
at any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
</TABLE>
-27-
<PAGE>
[Sidenote:]
PORTFOLIO MANAGER
The Adviser's Tax-Exempt Investment Policy Committee is responsible for the
day-to-day management of the Fund's investment portfolio.
-28-
<PAGE>
Galaxy Rhode Island Municipal Bond Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current interest income exempt from federal
income tax and, to the extent possible, from Rhode Island personal income tax,
as is consistent with relative stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities that pay interest which is exempt from regular federal income tax,
and at least 65% of its total assets in Rhode Island municipal securities, which
are securities issued by the State of Rhode Island and other government issuers
and that pay interest which is exempt from both federal income tax and Rhode
Island personal income tax. Under normal conditions, the Fund will invest no
more than 20% of its total assets in taxable obligations, such as U.S.
Government obligations, money market instruments and repurchase agreements.
Municipal securities purchased by the Fund may include general obligation
securities, revenue securities and private activity bonds. The interest on
private activity bonds may be subject to the federal alternative minimum tax.
Investments in private activity bonds will not be treated as investments in
municipal securities for purposes of the 80% requirement stated above.
In selecting portfolio securities for the Fund, the Adviser evaluates the
suitability of available bonds according to such factors as creditworthiness,
maturity, liquidity, and interest rates. It also determines the appropriate
allocation of the Fund's assets among various issuers and industry sectors.
Nearly all of the Fund's investments will be of investment grade quality. These
are securities which have one of the top four ratings assigned by Standard &
Poor's Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or are
unrated securities determined by the Adviser to be of comparable quality. Under
normal market conditions, the Fund will invest at least 65% of its total assets
in securities that have one of the top three ratings assigned by S&P or Moody's
or unrated securities determined by the Adviser to be of comparable quality.
Occasionally, the rating of a security held by the Fund may be downgraded to
below investment grade. If that happens, the Fund doesn't have to sell the
security unless the Adviser determines that under the circumstances the security
is no longer an appropriate investment for the Fund. However, the Fund will
sell promptly any securities that are not rated investmetn grade by S&P or
Moody's if the securities exceed 5% of the Fund's net assets.
The Fund's average weighted maturity will vary from time to time depending on
economic and market conditions and the Adviser's assessment of probable changes
in interest rates.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
-29-
<PAGE>
[Sidenote:]
AVERAGE WEIGHTED MATURITY:
Average weighted maturity gives you the average time until all debt securities
in a fund come due or mature. It is calculated by averaging the time to maturity
of all debt securities held by a fund with each maturity "weighted" according to
the percentage of assets it represents.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities, including municipal
securities, tend to move in the opposite direction to interest rates.
When rates are rising, the prices of debt securities tend to fall. When
rates are falling, the prices of debt securities tend to rise. Generally,
the longer the time until maturity, the more sensitive the price of a
debt security is to interest rate changes.
- - CREDIT RISK - The value of debt securities, including municipal
securities, also depends on the ability of issuers to make principal and
interest payments. If an issuer can't meet its payment obligations or if
its credit rating is lowered, the value of its debt securities will fall.
Debt securities which have the lowest of the top four ratings assigned by
S&P or Moody's have speculative characteristics. Changes in the economy
are more likely to affect the ability of issuers of these securities to
make payments of principal and interest than is the case with
higher-rated securities. The ability of a state or local government
issuer to make payments can be affected by many factors, including
economic conditions, the flow of tax revenues and changes in the level of
federal, state or local aid. Some municipal obligations are payable only
from limited revenue sources or by private entities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
municipal securities held by the Fund to be paid off much sooner or later
than expected, which could adversely affect the Fund's value. In the
event that a security is paid off sooner than expected because of a
decline in interest rates, the Fund may be unable to recoup all of its
initial investment and may also suffer from having to reinvest in
lower-yielding securities. In the event of a later than expected payment
because of a rise in interest rates, the value of the obligation will
decrease and the Fund may suffer from the inability to invest in
higher-yielding securities.
- - LACK OF DIVERSIFICATION - The Fund is not diversified, which means that
it can invest a large percentage of its assets in a small number of
issuers. As a result, a change in the value of any one investment held by
the Fund may affect the overall value of the Fund more than it would
affect a diversified fund which holds more investments.
- - SINGLE STATE RISK - Because the Fund invests primarily in Rhode Island
municipal securities, it is likely to be especially susceptible to
economic, political and regulatory events that affect Rhode Island. Other
considerations affecting the Fund's investments in Rhode Island municipal
securities are summarized in the Statement of Additional Information.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance
the Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
-30-
<PAGE>
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume
that all dividends and distributions are reinvested in the Fund. How the Fund
has performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares has varied from
year to year. The figures don't include any sales charges that investors pay
when buying or selling shares of the Fund. If sales charges were included,
the returns would be lower.
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
[bar chart goes here]
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
1995 1996 1997 1998 1999
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
14.32% 3.63% 8.54% 5.87% %
- ---------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1999, as compared
to a broad-based market index. The returns for Retail A Shares of the Fund for
periods prior to December 1, 1995 have been restated to include the effect of
the maximum 3.75% front-end sales charge which went into effect on that date.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
1 year 5 years Since inception
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares % % % (12/20/94)
- ------------------------------------------------------------------------------------------------------------------------
Lehman Brothers
Municipal Bond
Index % % % (since 12/31/94)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The Lehman Brothers Municipal Bond Index is an unmanaged index which tracks the
performance of municipal bonds.
-31-
<PAGE>
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
Shareholder fees (fees paid directly from your investment)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Maximum sales charge Maximum deferred
(load) on purchases sales charge (load)
shown as a % of the shown as a % of the
offering price offering price or sale
price, whichever is
less
- ------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
- ------------------------------------------------------------------------------------
</TABLE>
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Total
Fund
Management Distribution Other operating
fees (12b-1) fees expenses expenses
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares 0.75%(3) None % %(3)
- ------------------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in
Funds - How sales charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the
Funds - How sales charges work."
(3) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be %. Total Fund operating expenses after this waiver
are expected to be %. This fee waiver may be revised or discontinued
at any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------------------
-32-
<PAGE>
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Adviser's Tax-Exempt Investment Policy Committee is responsible for the
day-to-day management of the Fund's investment portfolio.
-33-
<PAGE>
ADDITIONAL INFORMATION ABOUT RISK
The main risks associated with an investment in each of the Galaxy Tax-Exempt
Bond Funds have been described above. The following supplements that discussion.
TEMPORARY DEFENSIVE POSITIONS
Each Fund may temporarily hold up to 100% of its total assets in investments
that are not part of its main investment strategy to try to avoid losses during
unfavorable market conditions. These investments may include cash (which will
not earn any income) and taxable investments, such as money market instruments
and debt securities issued or guaranteed by the U.S. Government or its agencies,
in excess of 20% of its total assets. This strategy could prevent a Fund from
achieving its investment objective.
OTHER TYPES OF INVESTMENTS
This prospectus describes each Fund's main investment strategies and the
particular types of securities in which the Fund mainly invests. Each Fund
may, from time to time, pursue other investment strategies and make other
types of investments in support of its overall investment goal. These
supplemental investment strategies which are not considered to be main
investment strategies by the Fund - and the risks involved - are described in
detail in the Statement of Additional Information (SAI) which is referred to
on the back cover of this prospectus.
-34-
<PAGE>
FUND MANAGEMENT
ADVISER
The Adviser, subject to the general supervision of Galaxy's Board of Trustees,
manages each Fund in accordance with its investment objective and policies,
makes decisions with respect to, and places orders for, all purchases and sales
of portfolio securities, and maintains related records.
ALLOCATION OF ORDERS FOR PORTFOLIO SECURITIES
The Adviser may allocate orders for the purchase and sale of portfolio
securities to certain financial institutions, including those that are
affiliated with the Adviser or that have sold shares of the Funds, to the extent
permitted by law or by order of the Securities and Exchange Commission. The
Adviser will allocate orders to such institutions only if it believes that the
quality of the transaction and the commission are comparable to what they would
be with other qualified brokerage firms.
MANAGEMENT FEES
The management fees paid to the Adviser by the Funds during the last fiscal year
are set forth below.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Fund Management fee as a % of average net assets
- --------------------------------------------------------------------------------------------------------------
<S> <C>
Tax-Exempt Bond %
- --------------------------------------------------------------------------------------------------------------
New Jersey Municipal Bond %
- --------------------------------------------------------------------------------------------------------------
New York Municipal Bond %
- --------------------------------------------------------------------------------------------------------------
Connecticut Municipal Bond %
- --------------------------------------------------------------------------------------------------------------
Massachusetts Municipal Bond %
- --------------------------------------------------------------------------------------------------------------
Rhode Island Municipal Bond %
- --------------------------------------------------------------------------------------------------------------
</TABLE>
-35-
<PAGE>
HOW TO INVEST IN THE FUNDS
All of the Funds offer Retail A Shares. The Tax-Exempt Bond Fund also offers
Retail B Shares.
HOW SALES CHARGES WORK
You will normally pay a sales charge to invest in the Funds. If you buy Retail A
Shares of a Fund, you'll usually pay a sales charge (sometimes called a
front-end load) at the time you buy your shares. If you buy Retail B Shares of
the Tax-Exempt Bond Fund, you may have to pay a contingent deferred sales charge
(sometimes called a back-end load or CDSC) when you sell your shares. This
section explains these two options.
[Sidenote:]
NET ASSET VALUE
The price you pay for your shares is based on the net asset value per share
(NAV). It's the value of a Fund's assets attributable to Retail A Shares or
Retail B Shares, minus the value of the Fund's liabilities attributable to
Retail A Shares or Retail B Shares, divided by the number of Retail A Shares or
Retail B Shares held by investors.
RETAIL A SHARES
The table below shows the sales charge you'll pay if you buy Retail A Shares of
the Funds. The offering price is the NAV of the shares purchased, plus any
applicable sales charge.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Total sales charge
- ------------------------------------------------------------------------------------------------
Amount of your investment As a % of the offering As a % of your
price per share investment
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Less than $50,000 3.75% 3.90%
- ------------------------------------------------------------------------------------------------
$50,000 but less than
$100,000 3.50% 3.63%
- ------------------------------------------------------------------------------------------------
$100,000 but less than
$250,000 3.00% 3.09%
- ------------------------------------------------------------------------------------------------
$250,000 but less than
$500,000 2.50% 2.56%
- ------------------------------------------------------------------------------------------------
$500,000 and over 0.00%(1) 0.00%(1)
- ------------------------------------------------------------------------------------------------
</TABLE>
(1) There is no front-end sales charge on investments in Retail A Shares of
$500,000 or more. However, if you sell the shares within one year after
buying them, you'll pay a CDSC of 1% of the offering price or 1% of the net
asset value of your shares, whichever is less, unless the shares were sold
because of the death or disability of the shareholder. In addition, Galaxy
will
-36-
<PAGE>
waive the 1% CDSC on your initial sale of shares. This waiver will not
apply to amounts reinvested within one year following your initial sale of
shares.
Galaxy's distributor may from time to time implement programs under which a
broker-dealer's sales force may be eligible to win nominal awards for certain
sales efforts. If any such program is made available to any broker-dealer, it
will be made available to all broker-dealers on the same terms. Payments made
under such programs are made by Galaxy's distributor 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.
Certain affiliates of the Adviser may, at their own expense, provide additional
compensation to affiliated broker-dealers whose customers purchase significant
amounts of Retail A Shares of one or more Funds and to unaffiliated
broker-dealers whose customers purchase Retail A Shares of one or more of the
Funds. Such compensation will not represent an additional expense to the Funds
or their shareholders, since it will be paid from the assets of the Adviser's
affiliates.
There's no sales charge when you buy Retail A Shares if:
- - you buy shares by reinvesting your dividends and distributions
- - you buy shares with money from another Galaxy Fund on which you've
already paid a sales charge (as long as you buy the new shares within 90
days after selling your other shares)
- - you're an investment professional who places trades for your clients and
charges them a fee.
- - you buy shares under an all-inclusive fee program (sometimes called a
"wrap fee program") offered by a broker-dealer or other financial
institution
- - you were a Galaxy shareholder before December 1, 1995
- - you previously paid a sales charge for the shares of another mutual fund
company (as long as you buy the Galaxy shares within 60 days of selling
your other shares)
[Sidenote:]
Ask your investment professional or Galaxy's distributor, or consult the SAI,
for other instances in which the sales load on Retail A Shares is waived. When
you buy your shares, you must tell your investment professional or Galaxy's
distributor that you qualify for a sales load waiver. To contact Galaxy's
distributor call 1-877-BUY- GALAXY (1-877-289-4252).
RETAIL B SHARES
If you buy Retail B Shares of the Tax-Exempt Bond Fund, you won't pay a CDSC
unless you sell your shares within six years of buying them. The following table
shows the schedule of CDSC charges:
-37-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
If you sell all your shares You'll pay a CDSC of
- ------------------------------------------------------------------------------------------------------------
<S> <C>
during the first year 5.00%
- ------------------------------------------------------------------------------------------------------------
during the second year 4.00%
- ------------------------------------------------------------------------------------------------------------
during the third year 3.00%
- ------------------------------------------------------------------------------------------------------------
during the fourth year 3.00%
- ------------------------------------------------------------------------------------------------------------
during the fifth year 2.00%
- ------------------------------------------------------------------------------------------------------------
during the sixth year 1.00%
- ------------------------------------------------------------------------------------------------------------
after the sixth year None
- ------------------------------------------------------------------------------------------------------------
</TABLE>
For purposes of calculating the CDSC, all purchases made during a calendar month
are considered to be made on the first day of that month. The CDSC is based on
the value of the Retail B Shares on the date that they are sold or the original
cost of the shares, whichever is lower. To keep your CDSC as low as possible
each time you sell shares, Galaxy will first sell any shares in your account
that are not subject to a CDSC. If there are not enough of these, Galaxy will
sell those shares that have the lowest CDSC. There is no CDSC on Retail B Shares
that you acquire by reinvesting your dividends and distributions. In addition,
there's no CDSC when Retail B Shares are sold because of the death or disability
of a shareholder and in certain other circumstances such as exchanges. Ask your
investment professional or Galaxy's distributor, or consult the SAI, for other
instances in which the CDSC is waived. To contact Galaxy's distributor, call
1-877-BUY-GALAXY (1-877-289-4252).
DISTRIBUTION AND SHAREHOLDER SERVICE FEES
Retail A Shares of the Funds can pay shareholder service fees at an annual rate
of up to 0.50% of each Fund's Retail A Share assets. The Fund does not intend to
pay more than 0.15% in shareholder service fees with respect to Retail A Shares
during the current fiscal year.
Retail B Shares of the Tax-Exempt Bond Fund pay distribution and shareholder
service (12b-1) fees at an annual rate of up to 1.15% of the Fund's Retail B
Share assets. The Fund does not intend to pay more than 0.80% in distribution
and shareholder service (12b-1) fees during the current fiscal year. Galaxy has
adopted a plan under Rule 12b-1 that allows the Tax-Exempt Bond Fund to pay fees
from its Retail B Share assets for selling and distributing Retail B Shares and
for services provided to shareholders. Because 12b-1 fees are paid on an ongoing
basis, over time they increase the cost of your investment and may cost more
than paying other sales charges.
CONVERTING RETAIL B SHARES TO RETAIL A SHARES
Six years after you buy Retail B Shares of the Tax-Exempt Bond Fund, they will
automatically convert to Retail A Shares of the Fund. This allows you to benefit
from the lower annual expenses of Retail A Shares.
-38-
<PAGE>
CHOOSING BETWEEN RETAIL A SHARES AND RETAIL B SHARES
Retail B Shares are subject to higher fees than Retail A Shares. For this
reason, Retail A Shares can be expected to pay higher dividends than Retail B
Shares. However, because Retail A Shares are subject to an initial sales
charge which is deducted at the time you purchase Retail A Shares (unless you
qualify for a sales load waiver), you will have less of your purchase price
invested in a particular Fund if you purchase Retail A Shares than if you
purchase Retail B Shares of the Fund.
In deciding whether to buy Retail A Shares or Retail B Shares of the Tax-Exempt
Bond Fund, you should consider how long you plan to hold the shares. Over time,
the higher fees on Retail B Shares may equal or exceed the initial sales charge
and fees for Retail A Shares. Retail A Shares may be a better choice if you
qualify to have the sales charge reduced or eliminated or if you plan to sell
your shares within one or two years. Consult your financial professional for
help in choosing the appropriate share class.
BUYING, SELLING AND EXCHANGING SHARES
You can buy and sell Retail A Shares and Retail B Shares of the Funds on any day
that the Funds are open for business, which is any day that the New York Stock
Exchange is open. The New York Stock Exchange is generally open for trading
every Monday through Friday, except for national holidays.
Retail A Shares and Retail B Shares have different prices. The price at which
you buy shares is the NAV next determined after your order is accepted, plus any
applicable sales charge. The price at which you sell shares is the NAV next
determined after receipt of your order in proper form as described below, less
any applicable CDSC in the case of Retail B Shares of the Tax-Exempt Bond Fund.
NAV is determined on each day the New York Stock Exchange is open for trading at
the close of regular trading that day (usually 4:00 p.m. Eastern time). If
market prices are readily available for securities owned by the Fund, they're
valued at those prices. If market prices are not readily available for some
securities, they are valued at fair value under the supervision of Galaxy's
Board of Trustees.
[Sidenote:]
MINIMUM INVESTMENT AMOUNTS
The minimum initial investment to open a Fund account is:
- - $2,500 for regular accounts
- - $100 for college savings accounts
There is generally no minimum initial investment if you participate in the
Automatic Investment Program. You generally can make additional investments for
as little as $100. See GALAXY INVESTOR PROGRAMS below for information on other
minimums for initial and additional investments.
Usually, you must keep at least $250 in your account. If your account falls
below $250 because you sell or exchange shares, Galaxy may redeem your shares
and close your account. Galaxy will give you 60 days' notice in writing before
closing your account.
HOW TO BUY SHARES
-39-
<PAGE>
You can buy shares through your financial institution or directly from Galaxy's
distributor by calling 1-877-BUY-GALAXY (1-877-289-4252). A broker or agent who
places orders on your behalf may charge you a separate fee for their services.
BUYING BY MAIL
Complete an account application and mail it, together with a check payable to
each Fund in which you want to invest, to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
To make additional investments, send your check to the address above along with
one of the following:
- - The detachable form that's included with your Galaxy statement or your
confirmation of a prior transaction
- - A letter stating the amount of your investment, the name of the Fund you
want to invest in, and your account number
If your check is returned because of insufficient funds, Galaxy will cancel your
order.
BUYING BY WIRE
To make an initial or additional investment by wire, send U.S. funds through the
Federal Reserve System to Fleet National Bank as agent for Galaxy's distributor.
You should wire money and registration instructions to:
Fleet National Bank
75 State Street
Boston, MA 02109
ABA #0110-0013-8
DDA #79673-5702
Ref: The Galaxy Fund
(Account number)
(Account registration)
Before making an initial investment by wire, you must complete an account
application and send it to The Galaxy Fund, P.O. Box 6520, Providence, RI
02940-6520. Your order will not be effected until the completed account
application is received by Galaxy. Call Galaxy's distributor at 1-877-BUY-GALAXY
(1-877-289-4252) for an account application.
Your financial institution may charge you a fee for sending funds by wire.
CUSTOMERS OF FINANCIAL INSTITUTIONS
If you are a customer of a financial institution such as a bank, savings and
loan association or broker-dealer, including a financial institution affiliated
with the Adviser, you should place your order through your financial
institution. Your financial institution is responsible for sending your
-40-
<PAGE>
order to Galaxy's distributor and wiring the money to Galaxy's custodian. For
details, please contact your financial institution.
DISCOUNT PLANS
You may have the sales charges on purchases of Retail A Shares reduced or waived
completely through the discount plans described below:
- - RIGHTS OF ACCUMULATION - You can add the value of the Retail A Shares
that you already own in any Galaxy Fund that charges a sales load to your
next investment in Retail A Shares for purposes of calculating the sales
charge.
- - LETTER OF INTENT - You can purchase Retail A Shares of any Galaxy Fund
that charges a sales load over a 13-month period and receive the same
sales charge as if all of the shares had been purchased at the same time.
To participate, complete the Letter of Intent section on the account
application.
- - REINVESTMENT PRIVILEGE - You can reinvest some or all of the money that
you receive when you sell Retail A Shares of the Funds in Retail A Shares
of any Galaxy Fund within 90 days without paying a sales charge.
- - GROUP SALES - If you belong to a qualified group with 50,000 or more
members, you can buy Retail A Shares at a reduced sales charge, based on
the number of qualified group members.
[Sidenote:]
You must tell your investment professional or Galaxy's distributor when you buy
your shares that you want to take advantage of any of these discount plans. See
the SAI for additional requirements that may apply. To contact Galaxy's
distributor call 1-877-BUY-GALAXY (1-877-289-4252).
HOW TO SELL SHARES
You can sell your shares in several ways: by mail, by telephone, by wire, or
through your financial institution.
SELLING BY MAIL
Send your request in writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
You must include the following:
- - The name of the Fund
- - The number of shares or the dollar amount you want to sell
-41-
<PAGE>
- - Your account number
- - Your Social Security number or tax identification number
- - The signatures of each registered owner of the account (the signatures
must match the names on the account registration)
Additional documents may be required for certain types of shareholders, such as
corporations, partnerships, executors, trustees, administrators or guardians.
[Sidenote:]
SIGNATURE GUARANTEES
When selling your shares by mail or by phone, you must have your signature
guaranteed if:
- - you're selling shares worth more than $50,000
- - you want Galaxy to send your money to an address other than the address
on your account, unless your assets are transferred to a successor
custodian
- - you want Galaxy to send your money to the address on your account that's
changed within the last 30 days
- - you want Galaxy to make the check payable to someone else
Your signature must be guaranteed by a bank that's a member of the FDIC, a trust
company, a member firm of a national securities exchange or any other eligible
institution. A notarized signature is not sufficient.
SELLING BY PHONE
You can sell shares by calling Galaxy's distributor at 1-877-BUY-GALAXY
(1-877-289-4252) unless you tell Galaxy on the account application or in writing
that you don't want this privilege. If you have difficulty getting through to
Galaxy because of unusual market conditions, consider selling your shares by
mail or wire.
SELLING BY WIRE
Notify Galaxy's distributor by phone or wire that you wish to sell shares and
have the sale proceeds wired to your account at any financial institution in the
U.S. To be eligible to use this privilege, you must complete the appropriate
section on the account application or notify Galaxy in writing (with a signature
guarantee). Your sale proceeds must be more than $1,000.
The sale proceeds must be paid to the same bank and account you named on your
application or in your written instructions.
CUSTOMERS OF FINANCIAL INSTITUTIONS
Please contact your financial institution for information on how to sell your
shares. The financial institution is responsible for sending your order to
Galaxy's distributor and for crediting your account with the proceeds. Galaxy
doesn't charge a fee for wiring sale proceeds to your financial institution, but
your financial institution may charge you a fee.
-42-
<PAGE>
HOW TO EXCHANGE SHARES
You may exchange Retail A Shares of a Fund having a value of at least $100 for
Retail A Shares of any other Galaxy Fund or for shares of any other Fund that's
managed by the Adviser or any of its affiliates in which you have an existing
account. You won't pay a sales charge for exchanging your Retail A Shares.
You may exchange Retail B Shares of the Tax-Exempt Bond Fund for Retail B Shares
of any other Galaxy Fund. You won't pay a CDSC when you exchange your Retail B
Shares. However, when you sell the Retail B Shares you acquired in the exchange,
you'll pay a contingent deferred sales charge based on the date you bought the
Retail B Shares which you exchanged.
TO EXCHANGE SHARES:
- - call Galaxy's distributor or use the InvestConnect voice response line at
1-877-BUY-GALAXY (1-877-289-4252)
- - send your request in writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
- - ask your financial institution
Galaxy doesn't charge any fee for making exchanges but your financial
institution might do so. You are generally limited to three exchanges per year.
Galaxy may change or cancel the exchange privilege with 60 days' advance written
notice to shareholders.
OTHER TRANSACTION POLICIES
If Galaxy doesn't receive full payment for your order to buy shares within three
business days of the order date, Galaxy won't accept your order. Galaxy will
advise you if this happens and return any payment it may eventually receive. You
can only invest in shares of the Funds that are legally available in your state.
Galaxy may refuse any order to buy shares. Galaxy doesn't issue a certificate
when you buy shares but it does keep a record of shares issued to investors.
Galaxy may refuse your order to sell or exchange shares by wire or telephone if
it believes it is advisable to do so. Galaxy or its distributor may change or
cancel the procedures for selling or exchanging shares by wire or telephone at
any time without notice.
If you sell or exchange shares by telephone, you may be responsible for any
fraudulent telephone orders as long as Galaxy has taken reasonable precautions
to verify your identity, such as
-43-
<PAGE>
requesting information about the way in which your account is registered or
about recent transactions in your account.
Galaxy normally pays you cash when you sell your shares, but it has the right to
deliver securities owned by a Fund instead of cash. When you sell these
securities, you'll pay brokerage charges.
Sales proceeds are normally sent to you within three business days but Galaxy
reserves the right to send sales proceeds within seven days if sending proceeds
earlier could adversely affect a Fund.
If any shares that you're selling are part of an investment you've paid for with
a personal check, Galaxy will delay sending your sales proceeds until the check
clears, which can take up to 15 days from the purchase date.
Galaxy reserves the right to vary or waive any minimum investment requirement.
-44-
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
The Funds generally declare dividends from net investment income daily and pay
them monthly. They normally distribute net capital gains annually. It's expected
that the Funds' annual distributions will be mainly income dividends. Dividends
and distributions are paid in cash unless you indicate in the account
application or in a letter to Galaxy that you want to have dividends and
distributions reinvested in additional shares.
FEDERAL TAXES
It is expected that the Funds will distribute dividends derived from interest
earned on exempt securities, and these "exempt-interest dividends" will be
exempt income for shareholders for federal income tax purposes. However,
distributions, if any, derived from net capital gains of each Fund will
generally be taxable to you as capital gains. Dividends, if any, derived from
short-term capital gains or taxable interest income will be taxable to you as
ordinary income. You will be notified annually of the tax status of
distributions to you.
You should note that if you purchase shares just prior to a capital gain
distribution, the purchase price will reflect the amount of the upcoming
distribution, but you will be taxed on the entire amount of the distribution
received, even though, as an economic matter, the distribution simply
constitutes a return of capital. This is known as "buying into a dividend."
You will recognize taxable gain or loss on a sale, exchange or redemption of
your shares, including an exchange for shares of another Fund, based on the
difference between your tax basis in the shares and the amount you receive
for them. (To aid in computing your tax basis, you generally should retain
your account statements for the periods during which you held shares.)
Generally, this gain or loss will be long-term or short-term depending on
whether your holding period for the shares exceeds 12 months except that any
loss realized on shares held for six months or less will be treated as a
long-term capital loss to the extent of any capital gain dividends that were
received on the shares. If you receive an exempt-interest dividend with
respect to any share and the share is held by you for six months or less, any
loss on the sale or exchange of the share will be disallowed to the extent of
such dividend amount.
Interest on indebtedness incurred by a shareholder to purchase or carry shares
of a Fund generally will not be deductible for federal income tax purposes.
You should note that a portion of the exempt-interest dividends paid by each
Fund may constitute an item of tax preference for purposes of determining
federal alternative minimum tax liability. Exempt-interest dividends will also
be considered along with other adjusted gross income in determining whether any
Social Security or railroad retirement payments received by you are subject to
federal income taxes.
-45-
<PAGE>
STATE AND LOCAL TAXES
Dividends paid by the Tax-Exempt Bond Fund that are attributable to interest
earned by the Fund may be taxable to shareholders under state or local law. Each
state-specific Fund intends to comply with certain state and/or local tax
requirements so that its income and dividends will be exempt from the applicable
state and/or local taxes described above in the description for such Fund.
Dividends, if any, derived from interest on securities other than the
state-specific municipal securities in which each Fund primarily invests will be
subject to the particular state's taxes.
MISCELLANEOUS
The foregoing is only a summary of certain tax considerations under current law,
which may be subject to change in the future. You should consult your tax
adviser for further information regarding federal, state, local and/or foreign
tax consequences relevant to your specific situation.
-46-
<PAGE>
GALAXY INVESTOR PROGRAMS
It's also easy to buy or sell shares of the Funds by using one of the programs
described below. Just tell Galaxy the amount and how frequently you want to buy
or sell shares and Galaxy does the rest. For further information on any of these
programs, call Galaxy's distributor at 1-877-BUY-GALAXY (1-877-289-4252) or your
financial institution.
AUTOMATIC INVESTMENT PROGRAM
You can make automatic investments from your bank account every month or every
quarter. You can choose to make your investment on any day of the month or
quarter. The minimum investment is $50 a month or $150 a quarter.
PAYROLL DEDUCTION PROGRAM
You can make regular investments from your paycheck. The minimum investment is
$25 per pay period. Send a completed Galaxy Payroll Deduction Application to
your employer's payroll department. They'll arrange to have your investment
deducted from your paycheck.
COLLEGE INVESTMENT PROGRAM
The minimum for initial and additional investments through the College
Investment Program is $100 unless you participate in the Automatic Investment
Program, in which case the minimum for initial and additional investments is
$50.
DIRECT DEPOSIT PROGRAM
This program lets you deposit your social security payments in your Fund account
automatically. There's no minimum deposit. You can cancel the program by
notifying the Social Security Administration in writing.
SYSTEMATIC WITHDRAWAL PLAN
You can make regular withdrawals from your investment account every month, every
quarter, every six months or once a year. You need a minimum account balance of
$10,000 to participate in the plan. No CDSC will be charged on withdrawals of
Retail B Shares of the Tax-Exempt Bond Fund made through the plan that don't
annually exceed 12% of your account's value.
You may cancel your participation in any of these programs, other than the
Direct Deposit Program, by writing to Galaxy at:
-47-
<PAGE>
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
Please allow at least five days for the cancellation to be processed.
-48-
<PAGE>
HOW TO REACH GALAXY
THROUGH YOUR FINANCIAL INSTITUTION
Your financial institution can help you buy, sell or exchange shares and can
answer questions about your account.
GALAXY SHAREHOLDER SERVICES
Call Galaxy's distributor at 1-877-BUY-GALAXY (1-877-289-4252), Monday through
Friday, 8 a.m. to 6 p.m. (Eastern time) for help from a Galaxy representative.
INVESTCONNECT
InvestConnect is Galaxy's Shareholder Voice Response System. Call
1-877-BUY-GALAXY (1-877-289-4252) from any touch-tone phone for automated access
to account information and current Fund prices and performance, or to place
orders to sell or exchange shares. It's available 24 hours a day, seven days a
week.
If you live outside the United States, you can contact Galaxy by calling
1-508-871-4121.
THE INTERNET
Please visit Galaxy's website at: www.galaxyfunds.com
[Sidenote:]
Galaxy also offer a TDD service for the hearing impaired. Just call
1-800-696-6515, 24 hours a day, seven days a week.
-49-
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables shown below will help you understand the
financial performance for the Funds' Retail A and Retail B Shares for the past
five years (or the period since a particular Fund began operations or a
particular class of shares was first offered). Certain information reflects the
financial performance of a single Retail A Share or Retail B Share. The total
returns in the tables represent the rate that an investor would have earned (or
lost) on an investment in Retail A Shares and/or Retail B Shares of each Fund,
assuming all dividends and distributions were reinvested. The information for
the fiscal year ended October 31, 1999 has been audited by _________________,
independent auditors, whose report, along with the Funds' financial statements,
are included in the Funds' Annual Report and are incorporated by reference into
the SAI. The Annual Report and SAI are available free of charge upon request.
The information for the fiscal years ended October 31, 1995, 1996, 1997 and 1998
was audited by Galaxy's former auditors, _________________.
-50-
<PAGE>
Galaxy Tax-Exempt Bond Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
------------------------------------------------------------------------------------
1999 1998 1997
------------------- ------------------- -------------------
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>
Net asset value, beginning of period ......... $ 11.06 $ 11.06 $ 10.78 $ 10.78
Income from investment operations: 0.48 0.42 0.50 0.43
Net investment income(2) ..................
Net realized and unrealized gain 0.34 0.33 0.29 0.29
(loss) on investments ...................
Total from investment operations ............. 0.82 0.75 0.79 0.72
(0.49) (0.42) (0.50) (0.43)
Less dividends:
Dividends from net investment
income ....................................
Dividends from net realized
capital gains ......................... (0.09) (0.09) (0.01) (0.01)
Dividends in excess of
net realized capital gains ............ -- -- -- --
Total dividends .............................. (0.58) (0.51) (0.51) (0.44)
0.24 0.24 0.28 0.28
Net increase (decrease) in net asset
value ...................................
Net asset value, end of period ............... $ 11.30 $ 11.30 $ 11.06 $ 11.06
-------- -------- -------- --------
Total return(3) ............................ 7.60% 6.95% 7.49% 6.83%
Ratios/supplemental data: $ 24,764 $ 2,715 $ 25,465 $ 1,690
Net assets, end of period (000's) ..........
Ratios to average net assets: 4.32% 3.71% 4.60% 3.95%
Net investment income including
Reimbursement/waiver ....................
Operating expenses including 0.94% 1.55% 0.95% 1.60%
Reimbursement/waiver ...................
Operating expenses excluding 1.15% 1.76% 1.18% 1.83%
Reimbursement/waiver ....................
Portfolio turnover rate ................... 59% 59% 78% 78%
<CAPTION>
1996 1995
------------------- ------
Retail Retail Retail
A Shares B Shares(1) A Shares
-------- ----------- --------
<S> <C> <C> <C>
Net asset value, beginning of period ......... $ 10.78 $ 10.94 $ 9.99
Income from investment operations: 0.50 0.27 0.52
Net investment income(2) ..................
Net realized and unrealized gain -- (0.16) 0.79
(loss) on investments ...................
Total from investment operations ............. 0.50 0.11 1.31
(0.50) (0.27) (0.52)
Less dividends:
Dividends from net investment
income ....................................
Dividends from net realized
capital gains ......................... -- -- --
Dividends in excess of
net realized capital gains ............ -- -- --
Total dividends .............................. (0.50) (0.27) (0.52)
-- (0.16) 0.79
Net increase (decrease) in net asset
value ...................................
Net asset value, end of period ............... $ 10.78 $ 10.78 $ 10.78
Total return(3) ............................ 4.77% 1.08%(4) 13.40%
-------- -------- --------
Ratios/supplemental data: $ 28,339 $ 787 $ 31,609
Net assets, end of period (000's) ..........
Ratios to average net assets: 4.68% 4.08%(5) 4.99%
Net investment income including
Reimbursement/waiver ....................
Operating expenses including 0.93% 1.57%(5) 0.91%
Reimbursement/waiver ...................
Operating expenses excluding 1.18% 1.77%(5) 1.24%
Reimbursement/waiver ....................
Portfolio turnover rate ................... 15% 15% 11%
</TABLE>
- -------------------------------------
(1) The Fund began offering Retail B Shares on March 4, 1996.
(2) Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for Retail A Shares for the years
ended October 31, 1999, 1998, 1997, 1996 and 1995 was $___, $0.46, $0.47,
$0.48 and $0.48 , respectively. Net investment income per share before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for Retail B Shares for the years ended October 31, 1999, 1998 and 1997 and
the period ended October 31, 1996 was $___, $0.40, $0.40 and $0.25,
respectively.
(3) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares.
(4) Not annualized.
(5) Annualized.
-51-
<PAGE>
Galaxy New Jersey Municipal Bond Fund
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
For the year ending For the period ending
October 31, 1999 October 31,1998(1)
---------------- ----------------
Retail A Shares
---------------
<S> <C> <C> <C>
Net asset value, beginning of period........................ $10.00
Income from investment operations:
Net investment income(2)................................. 0.20
Net realized and unrealized gain on investments.......... 0.24
Total from investment operations......................... 0.44
Less dividends:
Dividends from net investment income..................... (0.20)
Dividends from net realized capital gains................ --
Total dividends............................................ (0.20)
Net increase in net asset value............................. 0.24
Net asset value, end of period.............................. $10.24
------
Total return(3)............................................. 4.34%
Ratios/supplemental data:
Net assets, end of period (000's)........................ $815
Ratios to average net assets:
Net investment income including reimbursement/waiver..... 3.62%(5)
Operating expenses including reimbursement/waiver........ 1.09%(5)
Operating expenses excluding reimbursement/waiver........ 3.65%(5)
Portfolio turnover rate..................................... 53%(4)
</TABLE>
- ---------------------------
(1) The Fund commenced operations on April 3, 1998.
(2) Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for Retail A Shares for the periods
ended October 31, 1999 and 1998 was $___ and $0.06, respectively.
(3) Calculation does not include the effect of any sales charge for Retail A
Shares.
(4) Not annualized.
(5) Annualized.
-52-
<PAGE>
Galaxy New York Municipal Bond Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
-------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
Retail Retail Retail Retail Retail
A Shares A Shares A Shares A Shares A Shares
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .............. $ 11.09 $ 10.75 $ 10.78 $ 9.89
Income from investment operations: 0.48 0.49 0.48 0.49
Net investment income(1) .......................
Net realized and unrealized gain 0.35 0.34 (0.03) 0.89
(loss) on investments ........................
0.83 0.83 0.45 1.38
Total from investment operations .................
(0.48) (0.49) (0.48) (0.49)
Less dividends:
Dividends from net investment
Income .......................................
Dividends from net realized capital gains ...... -- -- -- --
Total dividends .................................. (0.48) (0.49) (0.48) (0.49)
0.35 0.34 (0.03) 0.89
Net increase (decrease) in net asset
value ........................................
Net asset value, end of period ................... $ 11.44 $ 11.09 $ 10.75 $ 10.78
---------- ---------- ---------- ----------
Total return(2) ................................. 7.65% 7.93% 4.31% 14.03%
Ratios/supplemental data: $ 48,218 $ 38,434 $ 40,154 $ 42,870
Net assets, end of period (000's) ..............
Ratios to average net assets: 4.27% 4.52% 4.50% 4.73%
Net investment income including
Reimbursement/waiver .........................
Operating expenses including 0.87% 0.94% 0.95% 0.92%
Reimbursement/waiver .........................
Operating expenses excluding 1.20% 1.26% 1.35% 1.31%
Reimbursement/waiver .........................
Portfolio turnover rate ......................... 27% 61% 12% 5%
</TABLE>
- -----------------------------------------
1 Net investment income per share for Retail A Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for the years ended October 31, 1999, 1998, 1997, 1996 and 1995 was $___,
$0.45, $0.45, $0.44 and $0.44 , respectively.
2 Calculation does not include the effect of any sales charge for Retail A
Shares.
-53-
<PAGE>
Galaxy Connecticut Municipal Bond Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
-------------------------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- --------
Retail Retail Retail Retail Retail
A Shares A Shares A Shares A Shares A Shares
--------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ....... $ 10.47 $ 10.14 $ 10.13 $ 9.22
Income from investment operations: 0.43 0.45 0.42 0.44
Net investment income(1) ................
Net realized and unrealized gain 0.35 0.33 0.01 0.91
(loss) on investments .................
0.78 0.78 0.43 1.35
Total from investment operations ..........
(0.43) (0.45) (0.42) (0.44)
Less dividends:
Dividends from net investment
Income ................................
Dividends from net realized capital gains -- -- -- --
Total dividends ........................... (0.43) (0.45) (0.42) (0.44)
0.35 0.33 (0.01) 0.91
Net increase (decrease) in net asset
Value .................................
Net asset value, end of period ............. $ 10.82 $ 10.47 $ 10.14 $ 10.13
--------- ---------- --------- ---------
Total return(2) ........................... 7.58% 7.86% 4.32% 14.94%
Ratios/supplemental data: $ 24,856 $ 23,355 $ 23,244 $ 18,066
Net assets, end of period (000's) .......
Ratios to average net assets: 4.02% 4.30% 4.13% 4.53%
Net investment income including
Reimbursement/waiver ..................
Operating expenses including 0.88% 0.70% 0.70% 0.68%
Reimbursement/waiver ..................
Operating expenses excluding 1.31% 1.31% 1.38% 1.48%
Reimbursement/waiver ..................
Portfolio turnover rate .................. 46% 42% 3% 7%
</TABLE>
- -----------------------------------
(1) Net investment income per share for Retail A Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for the years ended October 31, 1999, 1998, 1997, 1996 and 1995 was $___,
$0.38, $0.38, $0.35 and $0.37 , respectively.
(2) Calculation does not include the effect of any sales charge for Retail A
Shares.
-54-
<PAGE>
Galaxy Massachusetts Municipal Bond Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
-------------------------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- --------
Retail Retail Retail Retail Retail
A Shares A Shares A Shares A Shares A Shares
--------- --------- --------- --------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of period......... $ 10.25 $ 9.94 $ 9.98 $ 9.12
Income from investment operations: 0.46 0.45 0.43 0.44
Net investment income(1) .................
Net realized and unrealized gain 0.27 0.32 (0.04) 0.86
(loss) on investments...................
0.73 0.77 0.39 1.30
Total from investment operations............
(0.45) (0.46) (0.43) (0.44)
Less dividends:
Dividends from net investment
income..................................
Dividends from net realized capital gains. -- -- -- --
Total dividends............................. (0.45) (0.46) (0.43) (0.44)
0.28 0.31 (0.04) 0.86
Net increase (decrease) in net asset
value...................................
Net asset value, end of period............... $ 10.53 $ 10.25 $ 9.94 $ 9.98
--------- --------- --------- --------
Total return(2) ............................ 7.22% 7.92% 4.05% 14.52%
Ratios/supplemental data: $ 44,189 $ 33,318 $ 26,275 $ 16,113
Net assets, end of period (000's).........
Ratios to average net assets: 4.30% 4.38% 4.42% 4.56%
Net investment income including
Reimbursement/waiver....................
Operating expenses including 0.78% 0.63% 0.66% 0.70%
Reimbursement/waiver....................
Operating expenses excluding 1.21% 1.20% 1.32% 1.58%
Reimbursement/waiver....................
Portfolio turnover rate.................... 44% 48% 16% 19%
</TABLE>
- ----------------------------------
1 Net investment income per share for Retail A Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for the years ended October 31, 1999, 1998, 1997, 1996 and 1995 was $___,
$0.41, $0.39, $0.37 and $0.36 , respectively.
2 Calculation does not include the effect of any sales charge for Retail A
Shares.
-55-
<PAGE>
Galaxy Rhode Island Municipal Bond Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
----------------------------------------------------------------------------
1999 1998 1997 1996 For the period ending
--------- --------- --------- --------- October 31, 1995(1)
Retail Retail Retail Retail ---------------------
A Shares A Shares A Shares A Shares Retail A Shares
--------- --------- --------- --------- ---------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.......... $ 10.91 $ 10.65 $ 10.67 $ 10.00
Income from investment operations: 0.50 0.48 0.51 0.44
Net investment income(2)...................
Net realized and unrealized gain 0.29 0.32 0.03 0.67
on investments...........................
0.79 0.80 0.54 1.11
Total from investment operations..............
(0.50) (0.50) (0.51) (0.44)
Less dividends:
Dividends from net investment
income...................................
Dividends from net realized capital gains.. (0.02) (0.04) (0.05) --
Total dividends............................... (0.52) (0.54) (0.56) (0.44)
0.27 0.26 (0.02) 0.67
Net increase (decrease) in net asset
value....................................
Net asset value, end of period................ $ 11.18 $ 10.91 $ 10.65 $ 10.67
--------- --------- --------- --------
Total return3 7.35% 7.78% 5.22% 11.29%(4)
Ratios/supplemental data: $ 20,210 $ 17,134 $ 14,900 $ 10,850
Net assets, end of period (000's)..........
Ratios to average net assets: 4.52% 4.50% 4.78% 5.13%(5)
Net investment income including
Reimbursement/waiver.....................
Operating expenses including 0.81% 0.83% 0.77% 0.40%(5)
Reimbursement/waiver.....................
Operating expenses excluding 1.23% 1.34% 1.34% 2.25%(5)
Reimbursement/waiver.....................
Portfolio turnover rate....................... 41% 19% 13% 34%(4)
</TABLE>
- -------------------------------------
(1) The Fund commenced operations on December 20, 1994.
(2) Net investment income per share for Retail A Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for the years ended October 31, 1999, 1998, 1997 and 1996 and for the
period ended October 31, 1995 was $___, $0.45, $0.43, $0.45 and $0.28,
respectively.
(3) Calculation does not include the effect of any sales charge for Retail A
Shares.
(4) Not annualized.
(5) Annualized.
-56-
<PAGE>
[Back Cover Page]
Where to find more information
You'll find more information about the Funds in the following documents:
ANNUAL AND SEMI-ANNUAL REPORTS
Galaxy's annual and semi-annual reports contain more information about each Fund
and a discussion about the market conditions and investment strategies that had
a significant effect on each Fund's performance during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains detailed information about the Funds and their policies. By
law, it's incorporated by reference into (considered to be part of) this
prospectus.
You can get a free copy of these documents, request other information about the
Funds and make shareholder inquiries by calling Galaxy at 1-877-BUY-GALAXY
(1-877-289-4252) or writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
If you buy your shares through a financial institution, you may contact your
institution for more information.
You can write to the Securities and Exchange Commission (SEC) Public Reference
Section and ask them to mail you information about the Funds, including the SAI.
They'll charge you a fee for this service. You can also visit the SEC Public
Reference Room and copy the documents while you're there. For information about
the operation of the Public Reference Room, call the SEC.
Public Reference Section of the SEC
Washington, DC 20549-0102
1-202-942-8090.
Reports and other information about the Funds are also available on the EDGAR
Database on the SEC's website at http://www.sec.gov. Copies of this information
may also be obtained, after paying a duplicating fee, by electronic request to
the SEC's e-mail address at [email protected].
Galaxy's Investment Company Act File No. is 811-4636.
<PAGE>
[Front cover page]
Galaxy Tax-Exempt Bond Funds
The Galaxy Fund
Prospectus
_________, 2000
Galaxy Tax-Exempt Bond Fund
Galaxy New Jersey Municipal Bond Fund
Galaxy New York Municipal Bond Fund
Galaxy Connecticut Municipal Bond Fund
Galaxy Massachusetts Municipal Bond Fund
Galaxy Rhode Island Municipal Bond Fund
Trust Shares
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved any shares of these Funds or determined if this
prospectus is accurate or complete. Anyone who tells you otherwise is committing
a crime.
<PAGE>
Contents
CONTENTS
1 Risk/return summary
1 Introduction
3 Galaxy Tax-Exempt Bond Fund
7 Galaxy New Jersey Municipal Bond Fund
11 Galaxy New York Municipal Bond Fund
15 Galaxy Connecticut Municipal Bond Fund
19 Galaxy Massachusetts Municipal Bond Fund
23 Galaxy Rhode Island Municipal Bond Fund
28 Additional information about risk
29 Fund Management
30 How to invest in the funds
30 Buying and selling shares
31 How to buy shares
31 How to sell shares
31 Other transaction policies
32 Dividends, distributions and taxes
34 Financial highlights
<PAGE>
RISK/RETURN SUMMARY
INTRODUCTION
This prospectus describes the Galaxy Tax-Exempt Bond Funds. The Funds invest
primarily in municipal securities, which are debt obligations of state and local
governments and other political or public bodies or agencies. The interest paid
on municipal securities is generally exempt from federal income tax and, in some
cases, from state and local income tax.
On the following pages, you'll find important information about each of the
Galaxy Tax-Exempt Bond Funds, including:
- - the Fund's investment objective (sometimes called the Fund's goal) and the
main investment strategies used by the Fund's investment adviser in trying
to achieve that objective
- - the main risks associated with an investment in the Fund
- - the Fund's past performance measured on both a year-by-year and long-term
basis
- - the fees and expenses that you will pay as an investor in the Fund
[Sidenote:]
TAX-EQUIVALENT YIELD
One way to understand the tax advantages of a tax-exempt fund is to compare its
after-tax return to that of a taxable investment. For example, suppose a taxable
fund pays a return of 10%. If you're in the 36% federal income tax bracket, the
fund's return after taxes is 6.4%. When a tax-exempt fund pays a return of 10%,
you don't pay tax. So if you're in the 36% tax bracket, that's the equivalent of
earning about 15.6% on a taxable fund. If you're in a low tax bracket, however,
it may not be helpful to invest in a tax-exempt fund if you can achieve a higher
after-tax return from a taxable investment.
WHICH FUND IS RIGHT FOR YOU?
The Funds are designed for investors who are looking for income that's free of
federal income tax and who can accept fluctuations in price and yield. A Fund
that specializes in a particular state is best suited to residents of that state
who are also looking for income that is free of the state's income tax.
TAX-EXEMPT FUNDS ARE NOT APPROPRIATE INVESTMENTS FOR TAX-DEFERRED RETIREMENT
ACCOUNTS, SUCH AS IRAS, BECAUSE THEIR RETURNS BEFORE TAXES ARE GENERALLY LOWER
THAN THOSE OF TAXABLE FUNDS.
-1-
<PAGE>
THE FUNDS' INVESTMENT ADVISER
Fleet Investment Advisors Inc. (the "Adviser") is the investment adviser for all
of these Funds. The Adviser, an indirect wholly-owned subsidiary of FLEETBOSTON
Corporation, was established in 1984 and has its main office at 75 State Street,
Boston, Massachusetts 02109. The Adviser also provides investment management and
advisory services to individual and institutional clients and manages the other
Galaxy investment portfolios. As of December 31, 1999, the Adviser managed over
$______ billion in assets.
AN INVESTMENT IN THE FUNDS ISN'T A FLEET BANK DEPOSIT AND IT ISN'T INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. YOU COULD LOSE MONEY BY INVESTING IN THE FUNDS.
-2-
<PAGE>
Galaxy Tax-Exempt Bond Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks to provide shareholders with as high a level of current interest
income free of federal income tax as is consistent with preservation of capital.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities that pay interest which is exempt from regular federal income tax,
primarily bonds (normally 65% of total assets). Under normal conditions, the
Fund will invest no more than 20% of its total assets in taxable obligations,
such as U.S. Government obligations, money market instruments and repurchase
agreements.
Municipal securities purchased by the Fund may include general obligation
securities, revenue securities and private activity bonds. The interest on
private activity bonds may be subject to the federal alternative minimum tax.
Investments in private activity bonds will not be treated as investments in
municipal securities for purposes of the 80% requirement stated above.
In selecting portfolio securities for the Fund, the Adviser evaluates the
suitability of available bonds according to such factors as creditworthiness,
maturity, liquidity and interest rates. It also determines the appropriate
allocation of the Fund's assets among various geographic regions, issuers and
industry sectors.
Nearly all of the Fund's investments will be of investment grade quality. These
are securities which have one of the top four ratings assigned by Standard &
Poor's Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or are
unrated securities determined by the Adviser to be of comparable quality. Under
normal market conditions, the Fund will invest at least 65% of its total assets
in securities that have one of the top three ratings assigned by S&P or Moody's,
or unrated securities determined by the Adviser to be of comparable quality.
Occasionally, the rating of a security held by the Fund may be downgraded below
investment grade. If that happens, the Fund doesn't have to sell the security,
unless the Adviser determines that under the circumstances the security is no
longer an appropriate investment for the Fund. However, the Fund will sell
promptly any securities that are not rated investment grade by S&P or Moody's
if the securities exceed 5% of the Fund's net assets.
The Fund's average weighted maturity will vary from time to time depending on
current economic and market conditions and the Adviser's assessment of probable
changes in interest rates.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
[Sidenote:]
MUNICIPAL SECURITIES
State and local governments issue municipal securities to raise money to finance
public works, to repay outstanding obligations, to raise funds for general
operating expenses and to make loans to other public institutions. Some
municipal securities, known as private activity bonds, are backed
-3-
<PAGE>
by private entities and are used to finance various non-public projects.
Municipal securities, which can be issued as bonds, notes or commercial paper,
usually have fixed interest rates, although some have interest rates that change
from time to time.
[Sidenote:]
TYPES OF MUNICIPAL SECURITIES
GENERAL OBLIGATION securities are secured by the issuer's full faith, credit and
taxing power. REVENUE OBLIGATION securities are usually payable only from
revenues derived from specific facilities or revenue sources. PRIVATE ACTIVITY
BONDS are usually revenue obligations since they are typically payable by the
private user of the facilities financed by the bonds.
[Sidenote:]
AVERAGE WEIGHTED MATURITY
average weighted maturity gives you the average time until all debt securities
in a fund come due or MATURE. It is calculated by averaging the time to maturity
of all debt securities held by a Fund with each maturity "weighted" according to
the percentage of assets it represents.
[Sidenote:]
DURATION
Duration is an approximate measure of the price sensitivity of a fund to
changes in interest rates. Unlike maturity which measures only the time
until final payment, duration gives you the average time it takes to receive
all expected cash flows (including interest payments, prepayments and final
payments) on the debt obligations held by a fund.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets.
In addition, the Fund also carries the following Main risks:
- - INTEREST RATE RISK - The prices of debt securities, including municipal
securities, tend to move in the opposite direction to interest rates. When
rates are rising, the prices of debt securities tend to fall. When rates
are falling, the prices of debt securities tend to rise. Generally, the
longer the time until maturity, the more sensitive the price of a debt
security is to interest rate changes.
- - CREDIT RISK - The value of debt securities, including municipal securities,
also depends on the ability of issuers to make principal and interest
payments. If an issuer can't meet its payment obligations or if its credit
rating is lowered, the value of its debt securities will fall. Debt
securities which have the lowest of the top four ratings assigned by S&P or
Moody's have speculative characteristics. Changes in the economy are more
likely to affect the ability of issuers of these securities to make
payments of principal and interest than is the case with higher-rated
securities. The ability of a state or local government issuer to make
payments can be affected by many factors, including economic conditions,
the flow of tax revenues and changes in the level of federal, state or
local aid. Some municipal obligations are payable only from limited revenue
sources or private entities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
municipal securities held by the Fund to be paid off much sooner or later
than expected, which could adversely affect the Fund's value. In the event
that a security is paid off sooner than expected because of a decline in
interest rates, the Fund may be unable to recoup all of its initial
investment and may also suffer from having to reinvest in lower-yielding
securities. In the event of a later than expected payment because of a rise
in interest rates, the value of the obligation will decrease and the Fund
may suffer from the inability to invest in higher-yielding securities.
-4-
<PAGE>
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume
that all dividends and distributions are reinvested in the Fund. How the
Fund has performed in the past doesn't necessarily show how it will perform
in the future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares has varied from year to
year.
[SIDENOTE:]
<TABLE>
<CAPTION>
<S> <C>
BEST QUARTER: % FOR THE QUARTER ENDING ,
- ------------- ------------------------------------------------
WORST QUARTER: % FOR THE QUARTER ENDING ,
- -------------- ------------------------------------------------
</TABLE>
[bar chart goes here]
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997 1998 1999
- -------------- ----------- ----------- ------------ ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
9.25% 11.95% -5.35% 16.04% 3.57% 8.99% 5.96% %
- -------------- ----------- ----------- ------------ ----------- ----------- ------------ -----------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999, as compared to a broad-based market index.
<TABLE>
<CAPTION>
- ----------------------------------- ------------------ ------------------- ------------------------------
1 year 5 years Since inception
- ----------------------------------- ------------------ ------------------- ------------------------------
<S> <C> <C> <C>
Trust Shares % % % (12/30/91)
- ----------------------------------- ------------------ ------------------- ------------------------------
Lehman Brothers Municipal Bond
Index % % % (since 12/31/91)
- ----------------------------------- ------------------ ------------------- ------------------------------
</TABLE>
For current yield information, please call 1-877-BUY-GALAXY (1-877-289-4252).
-5-
<PAGE>
[Sidenote:]
The Lehman Brothers Municipal Bond Index is an unmanaged index which tracks the
performance of municipal bonds.
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- ----------------------- ------------------- ------------------- -------------- -----------------------------
Management Distribution Other Total Fund operating
fees (12b-1) fees expenses expenses
- ----------------------- ------------------- ------------------- -------------- -----------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75%(1) None % %(1)
- ----------------------- ------------------- ------------------- -------------- -----------------------------
</TABLE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be ____%. Total Fund operating expenses after this waiver
are expected to be ____%. This fee waiver may be revised or discontinued at
any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- ----------------------- --------------------- -------------------- --------------------- --------------------
1 year 3 years 5 years 10 years
- ----------------------- --------------------- -------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Trust Shares $ $ $ $
- ----------------------- --------------------- -------------------- --------------------- --------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Adviser's Tax-Exempt Investment Policy Committee is responsible for the
day-to-day management of the Fund's investment portfolio.
-6-
<PAGE>
Galaxy New Jersey Municipal Bond Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current interest income exempt from federal
income tax and, to the extent possible, from New Jersey personal income tax, as
is consistent with relative stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities that pay interest which is exempt from regular federal income tax,
and at least 65% of its total assets in New Jersey municipal securities, which
are securities issued by the State of New Jersey and other government issuers
and that pay interest which is exempt from both federal income tax and New
Jersey personal income tax. Under normal conditions, the Fund will invest no
more than 20% of its total assets in taxable obligations, such as U.S.
Government obligations, money market instruments and repurchase agreements.
Municipal securities purchased by the Fund may include general obligation
securities, revenue securities and private activity bonds. The interest on
private activity bonds may be subject to the federal alternative minimum tax.
Investments in private activity bonds will not be treated as investments in
municipal securities for purposes of the 80% requirement stated above.
In selecting portfolio securities for the Fund, the Adviser evaluates the
suitability of available bonds according to such factors as creditworthiness,
maturity, liquidity and interest rates. It also determines the appropriate
allocation of the Fund's assets among various issuers and industry sectors.
Nearly all of the Fund's investments will be of investment grade quality.
These are securities which have one of the top four ratings assigned by
Standard & Poor's Ratings Group (S&P) or Moody's Investors Service, Inc.
(Moody's), or unrated securities determined by the Adviser to be of
comparable quality. Under normal market conditions, the Fund will invest at
least 65% of its total assets in securities that have one of the top three
ratings assigned by S&P or Moody's or ARE unrated securities determined by
the Adviser to be of comparable quality. Occasionally, the rating of a
security held by the Fund may be downgraded TO below investment grade. If
that happens, the Fund doesn't have to sell the security, unless the Adviser
determines that under the circumstances the security is no longer an
appropriate investment for the Fund. However, the Fund will sell promptly any
securities that are not rated investment grade by S&P or Moody's if the
securities exceed 5% of the Fund's net assets.
The Fund's average weighted maturity will vary from time to time depending on
current economic and market conditions and the Adviser's assessment of probable
changes in interest rates.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
-7-
<PAGE>
[Sidenote:]
AVERAGE WEIGHTED MATURITY
Average weighted maturity gives you the average time until all debt securities
in a fund come due or MATURE. It is calculated by averaging the time to maturity
of all debt securities held by a fund with each maturity "weighted" according to
the percentage of assets it represents.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and by swings in
investment markets.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities, including municipal
securities, tend to move in the opposite direction to interest rates. When
rates are rising, the prices of debt securities tend to fall. When rates
are falling, the prices of debt securities tend to rise. Generally, the
longer the time until maturity, the more sensitive the price of a debt
security is to interest rate changes.
- - CREDIT RISK - The value of debt securities, including municipal securities,
also depends on the ability of issuers to make principal and interest
payments. If an issuer can't meet its payment obligations or if its credit
rating is lowered, the value of its debt securities will fall. Debt
securities which have the lowest of the top four ratings assigned by S&P or
Moody's have speculative characteristics. Changes in the economy are more
likely to affect the ability of issuers of these securities to make
payments of principal and interest than is the case with higher-rated
securities. The ability of a state or local government issuer to make
payments can be affected by many factors, including economic conditions,
the flow of tax revenues and changes in the level of federal, state or
local aid. Some municipal obligations are payable only from limited revenue
sources or private entities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
municipal securities held by the Fund to be paid off much sooner or later
than expected, which could adversely affect the Fund's value. IN THE EVENT
THAT A SECURITY IS PAID OFF SOONER THAN EXPECTED BECAUSE OF A DECLINE IN
INTEREST RATES, THE FUND MAY BE UNABLE TO RECOUP ALL OF ITS INITIAL
INVESTMENT AND MAY ALSO SUFFER FROM HAVING TO REINVEST IN LOWER-YIELDING
SECURITIES. IN THE EVENT OF A LATER THAN EXPECTED PAYMENT BECAUSE OF A RISE
IN INTEREST RATES, THE VALUE OF THE OBLIGATION WILL DECREASE AND THE FUND
MAY SUFFER FROM THE INABILITY TO INVEST IN HIGHER-YIELDING SECURITIES.
- - LACK OF DIVERSIFICATION - The Fund is not diversified, which means that it
can invest a large percentage of its assets in a small number of issuers.
As a result, a change in the value of any one investment held by the Fund
may affect the overall value of the Fund more than it would affect a
diversified fund which holds more investments.
- - SINGLE STATE RISK - Because the Fund invests primarily in New Jersey
municipal securities, it is likely to be especially susceptible to
economic, political and regulatory events that affect New Jersey. Other
considerations affecting the Fund's investments in New Jersey municipal
securities are summarized in the Statement of Additional Information.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
-8-
<PAGE>
HOW THE FUND HAS PERFORMED
The Bar Chart and the Table Below Show How the Fund has Performed in the
Past and give some indication of the risk of investing in the Fund. Both
Assume That All Dividends and Distributions are Reinvested in the Fund How
the fund has performed in the past doesn't necessarily show how it will
perform in the future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
THE BAR CHART SHOWS THE PERFORMANCE OF TRUST SHARES DURING THE LAST CALENDAR
YEAR.
[SIDENOTE:]
<TABLE>
<S> <C>
BEST QUARTER: % FOR THE QUARTER ENDING ,
- ------------- ------------------------------------------------
WORST QUARTER: % FOR THE QUARTER ENDING ,
- -------------- ------------------------------------------------
</TABLE>
[BAR CHART GOES HERE]
- --------------
1999
- --------------
%
- --------------
AVERAGE ANNUAL TOTAL RETURNS
The table shows the fund's average annual total returns for the periods ended
December 31, 1999, as compared to a broad-based market index.
<TABLE>
<CAPTION>
- ----------------------------------- ------------------ ------------------------------
1 YEAR SINCE INCEPTION
- ----------------------------------- ------------------ ------------------------------
<S> <C> <C>
TRUST SHARES % % (4/3/98)
- ----------------------------------- ------------------ ------------------------------
LEHMAN BROTHERS
MUNICIPAL BOND INDEX % % (SINCE 3/31/98)
- ----------------------------------- ------------------ ------------------------------
</TABLE>
For current yield information, PLEASE call 1-877-BUY-GALAXY (1-877-289-4252).
[Sidenote:]
THE LEHMAN BROTHERS MUNICIPAL BOND INDEX IS AN UNMANAGED INDEX WHICH TRACKS THE
PERFORMANCE OF MUNICIPAL BONDS.
-9-
<PAGE>
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- ----------------------- ------------------- ------------------- -------------- -----------------------------
Management Distribution Other Total Fund operating
fees (12b-1) fees expenses expenses
- ----------------------- ------------------- ------------------- -------------- -----------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75%(1) None %(1) %(1)
- ----------------------- ------------------- ------------------- -------------- -----------------------------
</TABLE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be ____%. The Fund's administrator is waiving a portion of
the administration fees and reimbursing certain expenses so that Other
expenses are expected to be ____%. Total Fund operating expenses after
these waivers and reimbursements are expected to be ____%. These fee
waivers and expense reimbursements may be revised or discontinued at any
time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- ----------------------- --------------------- -------------------- --------------------- --------------------
1 year 3 years 5 years 10 years
- ----------------------- --------------------- -------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Trust Shares $ $ $ $
- ----------------------- --------------------- -------------------- --------------------- --------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Adviser's Tax-Exempt Investment Policy Committee is responsible for the
day-to-day management of the Fund's investment portfolio.
-10-
<PAGE>
Galaxy New York Municipal Bond Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current interest income exempt from federal
income tax and, to the extent possible, from New York State and New York City
personal income tax, as is consistent with relative stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities that pay interest which is exempt from regular federal income tax,
and at least 65% of its total assets in New York municipal securities, which are
securities issued by the State of New York and other government issuers and that
pay interest which is exempt from federal income tax and New York State and New
York City personal income tax. Under normal conditions, the Fund will invest no
more than 20% of its total assets in taxable obligations, such as U.S.
Government obligations, money market instruments and repurchase agreements.
Municipal securities purchased by the Fund may include general obligation
securities and private activity bonds. The interest on private activity bonds
may be subject to the federal alternative minimum tax. Investments in private
activity bonds will not be treated as investments in municipal securities for
purposes of the 80% requirement stated above.
In selecting portfolio securities for the Fund, the Adviser evaluates the
suitability of available bonds according to such factors as creditworthiness,
maturity, liquidity and interest rates. It also determines the appropriate
allocation of the Fund's assets among various issuers and industry sectors.
Nearly all of the Fund's investments will be of investment grade quality.
These are securities which have one of the top four ratings assigned by
Standard & Poor's Ratings Group (S&P) or Moody's Investors Service, Inc.
(Moody's), or are unrated securities determined by the Adviser to be of
comparable quality. Under normal market conditions, the Fund will invest at
least 65% of its total assets in securities that have one of the top three
ratings assigned by S&P or Moody's or unrated securities determined by the
Adviser to be of comparable quality. Occasionally, THE RATING OF a security
held by the Fund may be downgraded to below investment grade. If that
happens, the Fund doesn't have to sell the security, unless the Adviser
determines that under the circumstances the security is no longer an
appropriate investment for the Fund. However, the Fund will sell promptly any
securities that are not rated investment grade by S&P or Moody's if the
securities exceed 5% of the Fund's net assets.
The Fund's average weighted maturity will vary from time to time depending on
current economic and market conditions and the Adviser's assessment of probable
changes in interest rates.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
-11-
<PAGE>
[Sidenote:]
AVERAGE WEIGHTED MATURITY
Average weighted maturity gives you the average time until all debt securities
in a fund come due or MATURE. It is calculated by averaging the time to maturity
of all debt securities held by a fund with each maturity "weighted" according to
the percentage of assets it represents.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities, including municipal
securities, tend to move in the opposite direction to interest rates. When
rates are rising, the prices of debt securities tend to fall. When rates
are falling, the prices of debt securities tend to rise. Generally, the
longer the time until maturity, the more sensitive the price of a debt
security is to interest rate changes.
- - CREDIT RISK - The value of debt securities, including municipal securities,
also depends on the ability of issuers to make principal and interest
payments. If an issuer can't meet its payment obligations or if its credit
rating is lowered, the value of its debt securities will fall. Debt
securities which have the lowest of the top four ratings assigned by S&P or
Moody's have speculative characteristics. Changes in the economy are more
likely to affect the ability of issuers of these securities to make
payments of principal and interest than is the case with higher-rated
securities. The ability of a state or local government issuer to make
payments can be affected by many factors, including economic conditions,
the flow of tax revenues and changes in the level of federal, state or
local aid. Some municipal obligations are payable only from limited revenue
sources or private entities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
municipal securities held by the Fund to be paid off much sooner or later
than expected, which could adversely affect the Fund's value. IN THE EVENT
THAT A SECURITY IS PAID OFF SOONER THAN EXPECTED BECAUSE OF A DECLINE IN
INTEREST RATES, THE FUND MAY BE UNABLE TO RECOUP ALL OF ITS INITIAL
INVESTMENT AND MAY ALSO SUFFER FROM HAVING TO REINVEST IN LOWER-YIELDING
SECURITIES. IN THE EVENT OF A LATER THAN EXPECTED PAYMENT BECAUSE OF A RISE
IN INTEREST RATES, THE VALUE OF THE OBLIGATION WILL DECREASE AND THE FUND
MAY SUFFER FROM THE INABILITY TO INVEST IN HIGHER-YIELDING SECURITIES.
- - LACK OF DIVERSIFICATION - The Fund is not diversified, which means that it
can invest a large percentage of its assets in a small number of issuers.
As a result, a change in the value of any one investment held by the Fund
may affect the overall value of the Fund more than it would affect a
diversified fund which holds more investments.
- - SINGLE STATE RISK - Because the Fund invests primarily in New York
municipal securities, the Fund's ability to achieve its investment
objective is dependent upon the ability of the issuers of New York
municipal securities to meet their continuing obligations for the payment
of principal and interest. New York State and New York City face long-term
economic problems that could seriously affect their ability and that of
other issuers of New York municipal securities to meet their financial
obligations. Other considerations affecting the
-12-
<PAGE>
Fund's investments in New York municipal securities are summarized in
the Statement of Additional Information.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares has varied from year to
year.
[SIDENOTE:]
<TABLE>
<S> <C>
BEST QUARTER: % FOR THE QUARTER ENDING ,
- ------------- ---------------------------------------------
WORST QUARTER: % FOR THE QUARTER ENDING ,
- -------------- ---------------------------------------------
</TABLE>
[bar chart goes here]
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997 1998 1999
- -------------- ----------- ----------- ------------ ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
8.29% 12.30% -7.26% 17.09% 3.62% 8.89% 6.13% %
- -------------- ----------- ----------- ------------ ----------- ----------- ------------ -----------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
DECEMBER 31, 1999, as compared to a broad-based market index.
<TABLE>
<CAPTION>
- ----------------------------------- ------------------ ------------------- ------------------------------
1 year 5 years Since inception
- ----------------------------------- ------------------ ------------------- ------------------------------
<S> <C> <C> <C>
Trust Shares % % % (12/31/91)
- ---------------------------------- ------------------ ------------------- ------------------------------
Lehman Brothers
Municipal Bond Index % % % (since
12/31/91)
- ----------------------------------- ------------------ ------------------- ------------------------------
</TABLE>
FOR CURRENT YIELD INFORMATION, PLEASE CALL 1-877-BUY-GALAXY (1-877-289-4252).
-13-
<PAGE>
[Sidenote:]
THE LEHMAN BROTHERS MUNICIPAL BOND INDEX IS AN UNMANAGED INDEX WHICH TRACKS THE
PERFORMANCE OF MUNICIPAL BONDS.
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
Annual Fund operating expenses (expenses from the Fund's assets)
<TABLE>
<CAPTION>
- ----------------------- ------------------- ------------------- -------------- -----------------------------
Management Distribution Other Total Fund operating
fees (12b-1) fees expenses expenses
- ----------------------- ------------------- ------------------- -------------- -----------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75%(1) None % %(1)
- ----------------------- ------------------- ------------------- -------------- -----------------------------
</TABLE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be ____%. Total Fund operating expenses after this waiver
are expected to be ____%. This fee waiver may be revised or discontinued at
any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- ----------------------- --------------------- -------------------- --------------------- --------------------
1 year 3 years 5 years 10 years
- ----------------------- --------------------- -------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Trust Shares $ $ $ $
- ----------------------- --------------------- -------------------- --------------------- --------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Adviser's Tax-Exempt Investment Policy Committee is responsible for the
day-to-day management of the Fund's investment portfolio.
-14-
<PAGE>
Galaxy Connecticut Municipal Bond Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current interest income exempt from federal
income tax and, to the extent possible, from Connecticut personal income tax, as
is consistent with relative stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities that pay interest which is exempt from regular federal income tax,
and at least 65% of its total assets in Connecticut municipal securities, which
are securities issued by the State of Connecticut and other government issuers
and that pay interest which is exempt from both federal income tax and
Connecticut state income tax on individuals, trusts and estates. Under normal
conditions, the Fund will invest no more than 20% of its total assets in taxable
obligations, such as U.S. Government obligations, money market instruments and
repurchase agreements.
Municipal securities purchased by the Fund may include general obligation
securities, revenue securities and private activity bonds. The interest on
private activity bonds may be subject to the federal alternative minimum tax.
Investments in private activity bonds will not be treated as investments in
municipal securities for purposes of the 80% requirement stated above.
In selecting portfolio securities for the Fund, the Adviser evaluates the
suitability of available bonds according to such factors as creditworthiness,
maturity, liquidity and interest rates. It also determines the appropriate
allocation of the Fund's assets among various issuers and industry sectors.
Nearly all of the Fund's investments will be of investment grade quality. These
are securities which have one of the top four ratings assigned by Standard &
Poor's Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or are
unrated securities determined by the Adviser to be of comparable quality. Under
normal market conditions, the Fund will invest at least 65% of its total assets
in securities that have one of the top three ratings assigned by S&P or Moody's
or unrated securities determined by the Adviser to be of comparable quality.
Occasionally, THE RATING OF a security held by the Fund may be downgraded below
investment grade. If that happens, the Fund doesn't have to sell the security,
unless the Adviser determines that under the circumstances the security is no
longer an appropriate investment for the Fund. However, the Fund will sell
promptly any securities that are not rated investment grade by S&P or Moody's
if the securities exceed 5% of the Fund's net assets.
The Fund's average weighted maturity will vary from time to time depending on
current market conditions and the Adviser's assessment of probable changes in
interest rates.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
-15-
<PAGE>
[Sidenote:]
AVERAGE WEIGHTED MATURITY
Average weighted maturity gives you the average time until all debt securities
in a fund come due or MATURE. It is calculated by averaging the time to maturity
of all debt securities held by a fund with each maturity "weighted" according to
the percentage of assets it represents.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets.
In addition, the Fund also carries the following MAIN risks:
- - INTEREST RATE RISK - The prices of debt securities, including municipal
securities, tend to move in the opposite direction to interest rates. When
rates are rising, the prices of debt securities tend to fall. When rates
are falling, the prices of debt securities tend to rise. Generally, the
longer the time until maturity, the more sensitive the price of a debt
security is to interest rate changes.
- - CREDIT RISK - The value of debt securities, including municipal securities,
also depends on the ability of issuers to make principal and interest
payments. If an issuer can't meet its payment obligations or if its credit
rating is lowered, the value of its debt securities will fall. Debt
securities which have the lowest of the top four ratings assigned by S&P or
Moody's have speculative characteristics. Changes in the economy are more
likely to affect the ability of issuers of these securities to make
payments of principal and interest than is the case with higher-rated
securities. The ability of a state or local government issuer to make
payments can be affected by many factors, including economic conditions,
the flow of tax revenues and changes in the level of federal, state or
local aid. Some municipal obligations are payable only from limited revenue
sources or by private entities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
municipal securities held by the Fund to be paid off much sooner or later
than expected, which could adversely affect the Fund's value. In the event
that a security is paid off sooner than expected because of a decline in
interest rates, the Fund may be unable to recoup all of its initial
investment and may also suffer from having to reinvest in lower-yielding
securities. In the event of a later than expected payment because of a rise
in interest rates, the value of the obligation will decrease and the Fund
may suffer from the inability to invest in higher-yielding securities.
- - LACK OF DIVERSIFICATION - The Fund is not diversified, which means that it
can invest a large percentage of its assets in a small number of issuers.
As a result, a change in the value of any one investment held by the Fund
may affect the overall value of the Fund more than it would affect a
diversified fund which holds more investments.
- - SINGLE STATE RISK - Because the Fund invests primarily in Connecticut
municipal securities, it is likely to be especially susceptible to
economic, political and regulatory events that affect Connecticut. Other
considerations AFFECTING the Fund's investments in Connecticut municipal
securities are summarized in the Statement of Additional Information.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
-16-
<PAGE>
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume
that all dividends and distributions are reinvested in the Fund. How the Fund
has performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares has varied from year to
year.
[SIDENOTE:]
<TABLE>
<S> <C>
BEST QUARTER: % FOR THE QUARTER ENDING ,
- ------------- --------------------------------------------
WORST QUARTER: % FOR THE QUARTER ENDING ,
- -------------- --------------------------------------------
</TABLE>
[bar chart goes here]
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999
- -------------- ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
-8.01% 18.29% 3.56% 8.81% 6.07% %
- -------------- ----------- ----------- ------------ ----------- -----------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999, as compared to a broad-based market index.
<TABLE>
<CAPTION>
- ----------------------------------- ------------------ ------------------- ------------------------------
1 year 5 years Since inception
- ----------------------------------- ------------------ ------------------- ------------------------------
<S> <C> <C> <C>
Trust Shares % % % (3/16/93)
- ----------------------------------- ------------------ ------------------- ------------------------------
Lehman Brothers
Municipal Bond Index % % % (Since 3/31/93)
- ----------------------------------- ------------------ ------------------- ------------------------------
</TABLE>
FOR CURRENT YIELD INFORMATION, PLEASE CALL 1-877-BUY-GALAXY (1-877-289-4252).
[SIDENOTE:]
THE LEHMAN BROTHERS MUNICIPAL BOND INDEX IS AN UNMANAGED INDEX WHICH TRACKS THE
PERFORMANCE OF MUNICIPAL BONDS.
FEES AND EXPENSES OF THE FUND
-17-
<PAGE>
The following TABLE SHOWS the fees and expenses you may pay when you buy and
hold shares of the Fund.
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- ----------------------- ------------------- ------------------- -------------- -----------------------------
Management fees Distribution Other Total Fund operating
(12b-1) fees expenses expenses
- ----------------------- ------------------- ------------------- -------------- -----------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75%(1) None % %(1)
- ----------------------- ------------------- ------------------- -------------- -----------------------------
</TABLE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be ____%. Total Fund operating expenses after this waiver
are expected to be ____%. This fee waiver may be revised or discontinued
at any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- ----------------------- --------------------- -------------------- --------------------- --------------------
1 year 3 years 5 years 10 years
- ----------------------- --------------------- -------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Trust Shares $ $ $ $
- ----------------------- --------------------- -------------------- --------------------- --------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Adviser's Tax-Exempt Investment Policy Committee is responsible for the
day-to-day management of the Fund's investment portfolio.
-18-
<PAGE>
Galaxy Massachusetts Municipal Bond Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current interest income exempt from federal
income tax and, to the extent possible, from Massachusetts personal income tax,
as is consistent with relative stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities that pay interest which is exempt from regular federal income tax,
and at least 65% of its total assets in Massachusetts municipal securities,
which are securities issued by the Commonwealth of Massachusetts and other
government issuers and that pay interest which is exempt from both federal
income tax and Massachusetts personal income tax. Under normal conditions,
the Fund will invest no more than 20% of its total assets in taxable
obligations, such as U.S. Government obligations, money market instruments
and repurchase agreements.
Municipal securities purchased by the Fund may include general obligation
securities, revenue securities and private activity bonds. The interest on
private activity bonds may be subject to the federal alternative minimum tax.
Investments in private activity bonds will not be treated as investments in
municipal securities for purposes of the 80% requirement stated above.
In selecting portfolio securities for the Fund, the Adviser evaluates the
suitability of available bonds according to such factors as creditworthiness,
maturity, liquidity and interest rates. It also determines the appropriate
allocation of the Fund's assets among various issuers and industry sectors.
Nearly all of the Fund's investments will be of investment grade quality. These
are securities which have one of the top four ratings assigned by Standard &
Poor's Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), ARE or
unrated securities determined by the Adviser to be of comparable quality. Under
normal market conditions, the Fund will invest at least 65% of its total assets
in securities that have one of the top three ratings assigned by S&P or Moody's
or unrated securities determined by the Adviser to be of comparable quality.
Occasionally, THE RATING OF a security held by the Fund may be downgraded below
investment grade. If that happens, the Fund doesn't have to sell the security,
unless the Adviser determines that under the circumstances the security is no
longer an appropriate investment for the Fund. However, the Fund will sell
promptly any securities that are noted rated investment grade by S&P or
Moody's if the securities exceed 5% of the Fund's net assets.
The Fund's average weighted maturity will vary from time to time depending on
current economic and market conditions and the Adviser's assessment of probable
changes in interest rates.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
-19-
<PAGE>
[Sidenote:]
AVERAGE WEIGHTED MATURITY
Average weighted maturity gives you the average time until all debt securities
in a fund come due or MATURE. It is calculated by averaging the time to maturity
of all debt securities held by a fund with each maturity "weighted" according to
the percentage of assets it represents.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities, including municipal
securities, tend to move in the opposite direction to interest rates. When
rates are rising, the prices of debt securities tend to fall. When rates
are falling, the prices of debt securities tend to rise. Generally, the
longer the time until maturity, the more sensitive the price of a debt
security is to interest rate changes.
- - CREDIT RISK - The value of debt securities, including municipal securities,
also depends on the ability of issuers to make principal and interest
payments. If an issuer can't meet its payment obligations or if its credit
rating is lowered, the value of its debt securities will fall. Debt
securities which have the lowest of the top four ratings assigned by S&P or
Moody's have speculative characteristics. Changes in the economy are more
likely to affect the ability of issuers of these securities to make
payments of principal and interest than is the case with higher-rated
securities. The ability of a state or local government issuer to make
payments can be affected by many factors, including economic conditions,
the flow of tax revenues and changes in the level of federal, state or
local aid. Some municipal obligations are payable only from limited revenue
sources or by private entities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
municipal securities held by the Fund to be paid off much sooner or later
than expected, which could adversely affect the Fund's value. In the event
that a security is paid off sooner than expected because of a decline in
interest rates, the Fund may be unable to recoup all of its initial
investment and may also suffer from having to reinvest in lower-yielding
securities. In the event of a later than expected payment because of a rise
in interest rates, the value of the obligation will decrease and the Fund
may suffer from the inability to invest in higher-yielding securities.
- - LACK OF DIVERSIFICATION - The Fund is not diversified, which means that it
can invest a large percentage of its assets in a small number of issuers.
As a result, a change in the value of any one investment held by the Fund
may affect the overall value of the Fund more than it would affect a
diversified fund which holds more investments.
- - SINGLE STATE RISK - Because the Fund invests primarily in Massachusetts
municipal securities, it is likely to be especially susceptible to
economic, political and regulatory events that affect Massachusetts. Other
considerations AFFECTING the Fund's investments in Massachusetts municipal
securities are summarized in the Statement of Additional Information.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
-20-
<PAGE>
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume
that all dividends and distributions are reinvested in the Fund. How the
Fund has performed in the past doesn't necessarily show how it will perform
in the future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares has varied from year to
year.
[SIDENOTE:]
<TABLE>
<S> <C>
BEST QUARTER: % FOR THE QUARTER ENDING ,
- ------------- ---------------------------------------------
WORST QUARTER: % FOR THE QUARTER ENDING ,
- -------------- ---------------------------------------------
</TABLE>
[bar chart goes here]
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999
- -------------- ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
-7.71% 17.40% 3.26% 9.09% 5.83% %
- -------------- ----------- ----------- ------------ ----------- -----------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999, as compared to a broad-based market index.
<TABLE>
<CAPTION>
- ----------------------------------- ------------------ ------------------- ------------------------------
1 year 5 years Since inception
- ----------------------------------- ------------------ ------------------- ------------------------------
<S> <C> <C> <C>
Trust Shares % % % (3/12/93)
- ----------------------------------- ------------------ ------------------- ------------------------------
Lehman Brothers
Municipal Bond Index % % % (since 2/28/93)
- ----------------------------------- ------------------ ------------------- ------------------------------
</TABLE>
FOR CURRENT YIELD INFORMATION, PLEASE CALL 1-877-BUY-GALAXY (1-877-289-4252).
[SIDENOTE:]
THE LEHMAN BROTHERS MUNICIPAL BOND INDEX IS AN UNMANAGED INDEX WHICH TRACKS THE
PERFORMANCE OF MUNICIPAL BONDS.
FEES AND EXPENSES OF THE FUND
-21-
<PAGE>
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- ----------------------- ------------------- ------------------- -------------- -----------------------------
Management Distribution Other Total Fund operating
fees (12b-1) fees expenses expenses
- ----------------------- ------------------- ------------------- -------------- -----------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75%(1) None % %(1)
- ----------------------- ------------------- ------------------- -------------- -----------------------------
</TABLE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be _____%. Total Fund operating expenses after this waiver
are expected to be _____%. This fee waiver may be revised or discontinued
at any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- ----------------------- --------------------- -------------------- --------------------- --------------------
1 year 3 years 5 years 10 years
- ----------------------- --------------------- -------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Trust Shares $ $ $ $
- ----------------------- --------------------- -------------------- --------------------- --------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Adviser's Tax-Exempt Investment Policy Committee is responsible for the
day-to-day management of the Fund's investment portfolio.
-22-
<PAGE>
Galaxy Rhode Island Municipal Bond Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current interest income exempt from federal
income tax and, to the extent possible, from Rhode Island personal income tax,
as is consistent with relative stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities that pay interest which is exempt from regular federal income tax,
and at least 65% of its total assets in Rhode Island municipal securities, which
are securities issued by the State of Rhode Island and other government issuers
and that pay interest which is exempt from both federal income tax and Rhode
Island personal income tax. Under normal conditions, the Fund will invest no
more than 20% of its total assets in taxable obligations, such as U.S.
Government obligations, money market instruments and repurchase agreements.
Municipal securities purchased by the Fund may include general obligation
securities, revenue securities and private activity bonds. The interest on
private activity bonds may be subject to the federal alternative minimum tax.
Investments in private activity bonds will not be treated as investments in
municipal securities for purposes of the 80% requirement stated above.
In selecting portfolio securities for the Fund, the Adviser evaluates the
suitability of available bonds according to such factors as creditworthiness,
maturity, liquidity and interest rates. It also determines the appropriate
allocation of the Fund's assets among various issuers and industry sectors.
Nearly all of the Fund's investments will be of investment grade quality. These
are securities which have one of the top four ratings assigned by Standard &
Poor's Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or ARE
unrated securities determined by the Adviser to be of comparable quality. Under
normal market conditions, the Fund will invest at least 65% of its total assets
in securities that have one of the top three ratings assigned by S&P or Moody's
or unrated securities determined by the Adviser to be of comparable quality.
Occasionally, the rating of a security held by the Fund may be downgraded below
investment grade. If that happens, the Fund doesn't have to sell the security,
unless the Adviser determines that under the circumstances the security is no
longer an appropriate investment for the Fund. However, the Fund will sell
promptly any securities that are not rated investment grade by S&P or Moody's
if the securities exceed 5% of the Fund's net assets.
The Fund's average weighted maturity will vary from time to time depending on
economic and market conditions and the Adviser's assessment of probable changes
in interest rates.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
-23-
<PAGE>
[Sidenote:]
AVERAGE WEIGHTED MATURITY
Average weighted maturity gives you the average time until all debt securities
in a fund come due or MATURE. It is calculated by averaging the time to maturity
of all debt securities held by a fund with each maturity "weighted" according to
the percentage of assets it represents.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities, including municipal
securities, tend to move in the opposite direction to interest rates. When
rates are rising, the prices of debt securities tend to fall. When rates
are falling, the prices of debt securities tend to rise. Generally, the
longer the time until maturity, the more sensitive the price of a debt
security is to interest rate changes.
- - CREDIT RISK - The value of debt securities, including municipal securities,
also depends on the ability of issuers to make principal and interest
payments. If an issuer can't meet its payment obligations or if its credit
rating is lowered, the value of its debt securities will fall. Debt
securities which have the lowest of the top four ratings assigned by S&P or
Moody's have speculative characteristics. Changes in the economy are more
likely to affect the ability of issuers of these securities to make
payments of principal and interest than is the case with higher-rated
securities. The ability of a state or local government issuer to make
payments can be affected by many factors, including economic conditions,
the flow of tax revenues and changes in the level of federal, state or
local aid. Some municipal obligations are payable only from limited revenue
sources or by private entities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
municipal securities held by the Fund to be paid off much sooner or later
than expected, which could adversely affect the Fund's value. In the event
that a security is paid off sooner than expected because of a decline in
interest rates, the Fund may be unable to recoup all of its initial
investment and may also suffer from having to reinvest in lower-yielding
securities. In the event of a later than expected payment because of a rise
in interest rates, the value of the obligation will decrease and the Fund
may suffer from the inability to invest in higher-yielding securities.
- - LACK OF DIVERSIFICATION - The Fund is not diversified, which means that it
can invest a large percentage of its assets in a small number of issuers.
As a result, a change in the value of any one investment held by the Fund
may affect the overall value of the Fund more than it would affect a
diversified fund which holds more investments.
- - SINGLE STATE RISK - Because the Fund invests primarily in Rhode Island
municipal securities, it is likely to be especially susceptible to
economic, political and regulatory events that affect Rhode Island. Other
considerations AFFECTING the Fund's investments in Rhode Island municipal
securities are summarized in the Statement of Additional Information.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the RISKS and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
-24-
<PAGE>
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume
that all dividends and distributions are reinvested in the Fund. How the Fund
has performed in the past doesn't necessarily show how it will perform in the
future.
As of the date of this prospectus, the Fund had not offered Trust Shares to
investors. The returns below represent the returns for Retail A Shares of the
Fund which are offered in a separate prospectus. Retail A Shares and Trust
Shares of the Fund have returns that are substantially the same because they
represent interests in the same portfolio securities and differ only to the
extent that they bear separate expenses. Unlike Trust Shares, Retail A Shares of
the Fund are also subject to a front-end sales charge on purchases and, in
certain cases, to a contingent deferred sales charge at the time shares are
sold.
YEAR-BY-YEAR RETURNS
The bar chart shows how the performance of Retail A Shares has varied from
year to year. The figures don't include any sales charges that investors pay
when buying or selling Retail A Shares of the Fund. If sales charges were
included, the returns would be lower.
[SIDENOTE:]
<TABLE>
<CAPTION>
<S> <C>
BEST QUARTER: % FOR THE QUARTER ENDING ,
- ------------- --------------------------------------------
WORST QUARTER: % FOR THE QUARTER ENDING ,
- -------------- --------------------------------------------
</TABLE>
[bar chart goes here]
<TABLE>
<CAPTION>
- -------------- ----------- ----------- ------------ -----------
1995 1996 1997 1998 1999
---- ---- ---- ---- ---
- -------------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
14.32% 3.63% 8.54% 5.87% %
- -------------- ----------- ----------- ------------ -----------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1999, as compared
to a broad-based market index.
<TABLE>
<CAPTION>
- ----------------------------------- ------------------------ ------------------------- -------------------------------
1 year 5 YEARS Since inception
- ----------------------------------- ------------------------ ------------------------- -------------------------------
<S> <C> <C> <C>
Retail A Shares % % % (12/20/94)
- ----------------------------------- ------------------------ ------------------------- -------------------------------
Lehman Brothers
Municipal Bond Index % % % (since 12/31/94)
- ----------------------------------- ------------------------ ------------------------- -------------------------------
</TABLE>
-25-
<PAGE>
[SIDENOTE:]
The Lehman Brothers Municipal Bond Index is an unmanaged index which tracks the
performance of municipal bonds.
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- ----------------------- ------------------- ------------------- -------------- -----------------------------
Management Distribution Other Total Fund operating
fees (12b-1) fees expenses expenses
- ----------------------- ------------------- ------------------- -------------- -----------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75%(1) None % %(1)
- ----------------------- ------------------- ------------------- -------------- -----------------------------
</TABLE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be ____%. Total Fund operating expenses after this waiver
are expected to be ____%. This fee waiver may be revised or discontinued
at any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year o the Fund's operating expenses
remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- ----------------------- --------------------- -------------------- --------------------- --------------------
1 year 3 years 5 years 10 years
- ----------------------- --------------------- -------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Trust Shares $ $ $ $
- ----------------------- --------------------- -------------------- --------------------- --------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The adviser's tax-exempt investment policy committee is responsible for the
day-to-day management of the fund's investment portfolio.
-26-
<PAGE>
ADDITIONAL INFORMATION ABOUT RISK
The main risks associated with an investment in each of the Galaxy Tax-Exempt
Bond Funds have been described above. The following supplements that discussion.
TEMPORARY DEFENSIVE POSITIONS
Each Fund may temporarily hold up to 100% of its total assets in investments
that are not part of its main investment strategy to try to avoid losses during
unfavorable market conditions. These investments may include cash (which will
not earn any income) and taxable investments, such as money market instruments
and debt securities issued or guaranteed by the U.S. Government or its agencies,
in excess of 20% of its total assets.
This strategy could prevent a Fund from achieving its investment objective.
OTHER TYPES OF INVESTMENTS
This prospectus describes each Fund's main investment strategies and the
particular types of securities in which each Fund mainly invests. Each Fund
may, from time to time, pursue other investment strategies and make other
types of investments in support of its overall investment goal. These
supplemental investment strategies, which are not considered to be main
investment strategies of the Fund - and the risks involved - are described in
detail in the Statement of Additional Information (SAI) which is referred to
on the back cover of this prospectus.
-27-
<PAGE>
FUND MANAGEMENT
ADVISER
The Adviser, subject to the general supervision of Galaxy's Board of Trustees,
manages each Fund in accordance with its investment objective and policies,
makes decisions with respect to, and places orders for, all purchases and sales
of portfolio securities, and maintains related records.
ALLOCATION OF ORDERS FOR PORTFOLIO SECURITIES
The Adviser may allocate orders for the purchase and sale of portfolio
securities to certain financial institutions, including those that are
affiliated with the Adviser or that have sold shares of the Funds, to the extent
permitted by law or by order of the Securities and Exchange Commission. The
Adviser will allocate orders to such institutions only if it believes that the
quality of the transaction and the commission are comparable to what they would
be with other qualified brokerage firms.
MANAGEMENT FEES
The management fees paid to the Adviser by the Funds during the last fiscal year
are set forth below.
<TABLE>
<CAPTION>
- ------------------------------------------------------- -----------------------------------------------------------
Fund Management fee as a % of average net assets
- ------------------------------------------------------- -----------------------------------------------------------
<S> <C>
Tax-Exempt Bond %
- ------------------------------------------------------- -----------------------------------------------------------
New Jersey Municipal Bond %
- ------------------------------------------------------- -----------------------------------------------------------
New York Municipal Bond %
- ------------------------------------------------------- -----------------------------------------------------------
Connecticut Municipal Bond %
- ------------------------------------------------------- -----------------------------------------------------------
Massachusetts Municipal Bond %
- ------------------------------------------------------- -----------------------------------------------------------
Rhode Island Municipal Bond %
- ------------------------------------------------------- -----------------------------------------------------------
</TABLE>
-28-
<PAGE>
HOW TO INVEST IN THE FUNDS
BUYING AND SELLING SHARES
Trust Shares of the Funds are available for purchase by investors maintaining a
qualified account at a bank or trust institution, including subsidiaries of
FleetBoston Corporation. Qualified accounts include discretionary investment
management accounts, custodial accounts and agency accounts. Your institution
can provide more information about which types of accounts are eligible.
You can buy and sell Trust Shares of the Funds on any business day. A business
day is any day that Galaxy's distributor, Galaxy's custodian and your
institution are open for business.
The price at which you buy shares is the net asset value (NAV) per share next
determined after your order is accepted. The price at which you sell shares is
the NAV per share next determined after receipt of your order. NAV is determined
on each day the New York Stock Exchange is open for trading at the close of
regular trading that day (usually 4:00 p.m. Eastern time). The New York Stock
Exchange is generally open for trading every Monday through Friday, except for
national holidays.
If market prices are readily available for securities owned by the Fund, they're
valued at those prices. If market prices are not readily available for some
securities, they are valued at fair value under the supervision of Galaxy's
Board of Trustees.
[Sidenote:]
NET ASSET VALUE
The price you pay for your shares is based on the net asset value per share
(NAV). It's the value of a Fund's assets attributable to Trust Shares, minus the
value of the Fund's liabilities attributable to Trust Shares, divided by the
number of Trust Shares held by investors.
[Sidenote:]
INVESTMENT MINIMUMS
Galaxy does not have any minimum investment requirements for initial or
additional investments in Trust Shares but financial institutions may . They may
also require you to maintain a minimum account balance.
HOW TO BUY SHARES
You can buy Trust Shares by following the procedures established by your
financial institution. Your financial institution is responsible for sending
your order to Galaxy's distributor and wiring payment to Galaxy's custodian. The
institution holds the shares in your name and receives all confirmations of
purchases and sales.
-29-
<PAGE>
HOW TO SELL SHARES
You can sell Trust Shares by following the procedures established by your
financial institution. Your financial institution is responsible for sending
your order to Galaxy's distributor and for crediting your account with the
proceeds. Galaxy doesn't charge for wiring sale proceeds to your financial
institution, but your financial institution may do so. Contact your financial
institution for more information.
OTHER TRANSACTION POLICIES
If Galaxy doesn't receive full payment for your order to buy shares by 4:00 p.m.
on the next business day, Galaxy won't accept your order. Galaxy will advise
your institution if this happens.
Galaxy may refuse any order to buy shares. Galaxy doesn't issue a certificate
when you buy shares but it does keep a record of shares issued to investors.
Sales proceeds are normally wired to your institution on the next business day
but Galaxy reserves the right to send sales proceeds within seven days if
sending proceeds earlier could adversely affect a Fund.
Galaxy may ask for any information it might reasonably need to make sure that
you've authorized a sale of shares.
Galaxy may close any account after 60 days' written notice if the value of the
account drops below $250 as a result of selling shares.
-30-
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
The Funds generally declare dividends from net investment income daily and pay
them monthly. They normally distribute net capital gains annually. It's expected
that the Funds' annual distributions will be mainly income dividends. Dividends
and distributions are paid in cash unless you indicate in the account
application or in a letter to Galaxy that you want to have dividends and
distributions reinvested in additional shares.
FEDERAL TAXES
It is expected that the Funds will distribute dividends derived from interest
earned on exempt securities, and these "exempt-interest dividends" will be
exempt income for shareholders for federal income tax purposes. However,
distributions, if any, derived from net capital gains of each Fund will
generally be taxable to you as capital gains. Dividends, if any, derived from
short-term capital gains or taxable interest income will be taxable to you as
ordinary income. You will be notified annually of the tax status of
distributions to you.
You should note that if you purchase shares just prior to a capital gain
distribution, the purchase price will reflect the amount of the upcoming
distribution, but you will be taxed on the entire amount of the distribution
received, even though, as an economic matter, the distribution simply
constitutes a return of capital. This is known as "buying into a dividend."
You will recognize taxable gain or loss on a sale or redemption of your shares,
based on the difference between your tax basis in the shares and the amount you
receive for them. (To aid in computing your tax basis, you generally should
retain your account statements for the periods during which you held shares.)
Generally, this gain or loss will be long-term or short-term depending on
whether your holding period for the shares exceeds 12 months, except that any
loss realized on shares held for six months or less will be treated as a
long-term capital loss to the extent of any capital gain dividends that were
received on the shares. Moreover, if you receive an exempt-interest dividend
with respect to any share and the share is held by you for six months or less,
any loss on the sale or exchange of the share will be disallowed to the extent
of such dividend amount.
Interest on indebtedness incurred by a shareholder to purchase or carry shares
of a Fund generally will not be deductible for federal income tax purposes.
You should note that a portion of the exempt-interest dividends paid by each
Fund may constitute an item of tax preference for purposes of determining
federal alternative minimum tax liability. Exempt-interest dividends will also
be considered along with other adjusted gross income in determining whether any
Social Security or railroad retirement payments received by you are subject to
federal income taxes.
-31-
<PAGE>
STATE AND LOCAL TAXES
Dividends paid by the Tax-Exempt Bond Fund that are attributable to interest
earned by the Fund may be taxable to shareholders under state or local law. Each
state-specific Fund intends to comply with certain state and/or local tax
requirements so that its dividends will be exempt from the applicable state
and/or local taxes described above in the description for such Fund. Dividends,
if any, derived from interest on securities other than the state-specific
municipal securities in which each Fund primarily invests or from any capital
gains, will be subject to the particular state's taxes.
MISCELLANEOUS
The foregoing is only a summary of certain tax considerations under current law,
which may be subject to change in the future. You should consult your tax
adviser for further information regarding federal, state, local and/or foreign
tax consequences relevant to your specific situation.
-32-
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables shown below will help you understand the
financial performance for the Funds' Trust Shares for the past five years (or
the period since a particular Fund began operations). As of the date of this
Prospectus, Trust Shares of the Rhode Island Municipal Bond Fund had not been
offered to investors. The financial highlights table shown below with respect to
the Rhode Island Municipal Bond Fund reflects the financial performance of the
Fund's Retail A Shares and is intended to provide you with a long-term
perspective as to the Fund's financial history. Certain information in the
financial highlights tables reflects the financial performance of a single Trust
Share or, in the case of the Rhode Island Municipal Bond Fund, a single Retail A
Share. The total returns in the tables represent the rate that an investor would
have earned (or lost) on an investment in Trust Shares (Retail A Shares in the
case of the Rhode Island Municipal Bond Fund) of each Fund, assuming all
dividends and distributions were reinvested. The information for the fiscal year
ended October 31, 1999 has been audited by _______________, independent
auditors, whose report, along with the Funds' financial statements, are included
in the Funds' Annual Report and are incorporated by reference into the SAI. The
Annual Report and SAI are available free of charge upon request. The information
for the fiscal years ended october 31, 1995, 1996, 1997 and 1998 was audited by
Galaxy's former auditors, ___________________.
-33-
<PAGE>
Galaxy Tax-Exempt Bond Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
------------------------------------------------------------------------------
1998 1998 1997 1996 1995
---- ---- ---- ---- -----
Trust Shares
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period............... $11.06 $10.78 $10.78 $9.99
------ ------ ------ ------
Income from investment operations:
Net investment income(1)........................ 0.50 0.53 0.53 0.54
Net realized and unrealized gain (loss)
on investments................................ 0.34 0.29 -- 0.79
---- ---- ---- -----
Total from investment operations................... 0.84 0.82 0.53 1.33
---- ---- ---- ----
Less dividends:
Dividends from net investment income............. (0.51) (0.53) (0.53) (0.54)
Dividends from net realized capital gains........ (0.09) (0.01) -- --
Dividends in excess of net realized capital gains -- -- -- --
------ ------ ------ -----
Total dividends.................................... (0.60) (0.54) (0.53) (0.54)
------ ------ ------ ------
Net increase (decrease) in net asset value......... 0.24 0.28 -- 0.79
------ ------ ------- ------
Net asset value, end of period..................... $11.30 $11.06 $10.78 $10.78
------ ------ ------- ------
Total return.................................... 7.85% 7.75% 5.03% 13.62%
Ratios/supplemental data:
Net assets, end of period (000's)................ $135,664 $122,218 $103,163 $91,740
------
Ratios to average net assets:
Net investment income including
reimbursement/waiver.......................... 4.55% 4.85% 4.91% 5.18%
Operating expenses including
reimbursement/waiver.......................... 0.71% 0.70% 0.70% 0.72%
Operating expenses excluding
reimbursement/waiver.......................... 0.92% 0.96% 0.95% 0.97%
Portfolio turnover rate............................ 59% 78% 15% 11%
------
</TABLE>
- -----------------------------
(1) Net investment income per share for Trust Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's
administrator for the years ended October 31, 1999, 1998, 1997, 1996
and 1995 was $____, $0.48, 0.51, $0.51 and $0.51, respectively.
-34-
<PAGE>
Galaxy New Jersey Municipal Bond Fund
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE PERIOD
ENDING OCTOBER ENDING OCTOBER
31, 31,
---------------- ----------------
1999 1998(1)
---- -----
TRUST SHARES
------------
<S> <C>
Net asset value, beginning of period............................................ $10.00
Income from investment operations:
Net investment income(2)...................................................... 0.21
Net realized and unrealized gain on investments............................... 0.24
Total from investment operations................................................ 0.45
Less dividends:
Dividends from net investment income.......................................... (0.21)
Dividends from net realized capital gains.....................................
Total dividends................................................................ (0.21)
Net increase in net asset value................................................. 0.24
Net asset value, end of period.................................................. $10.24
Total return.................................................................... 4.48%(3)
Ratios/supplemental data:
Net assets, end of period (000's)............................................. $7,701
Ratios to average net assets:
Net investment income including reimbursement/waiver.......................... 3.79%(4)
Operating expenses including reimbursement/waiver............................. 0.92%(4)
Operating expenses excluding reimbursement/waiver............................. 2.07%(4)
Portfolio turnover rate......................................................... 53%(3)
</TABLE>
---------------------
(1) The Fund commenced operations on April 3, 1998.
(2) Net investment income per share before reimbursement/waiver of
fees by the Adviser and the Fund's administrator for Trust
Shares for the periods ended October 31, 1999 and 1998 was
$_____ and $0.15, respectively.
(3) Not annualized.
(4) Annualized.
-35-
<PAGE>
Galaxy New York Municipal Bond Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
-------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- -----
Trust Shares
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period............. $11.09 $10.75 $10.78 $9.89
------ ------ ------ -----
Income from investment operations:
Net investment income(1)....................... 0.50 0.52 0.51 0.51
Net realized and unrealized gain (loss)
on investments.............................. 0.35 0.34 (0.03) 0.89
------ ------ ------ -----
Total from investment operations................. 0.85 0.86 0.48 1.40
------ ------ ------ -----
Less dividends:
Dividends from net investment income........... (0.50) (0.52) (0.51) (0.51)
Dividends from net realized capital gains...... -- -- -- --
------ ------ ------ -----
Total dividends.................................. (0.50) (0.52) (0.51) (0.51)
------ ------ ------ -----
Net increase (decrease) in net asset value....... 0.35 0.34 (0.03) 0.89
------ ------ ------ -----
Net asset value, end of period................... $11.44 $11.09 $10.75 $10.78
------ ------ ------ -----
Total return................................... 7.82% 8.17% 4.55% 14.23%
Ratios/supplemental data:
Net assets, end of period (000's).............. $34,801 $27,562 $23,762 $23,077
Ratios to average net assets:
Net investment income including
reimbursement/waiver........................ 4.42% 4.75% 4.75% 4.91%
Operating expenses including
reimbursement/waiver........................ 0.72% 0.71% 0.70% 0.74%
Operating expenses excluding
reimbursement/waiver........................ 0.99% 1.02% 1.10% 1.07%
Portfolio turnover rate.......................... 27% 61% 12% 5%
</TABLE>
- -----------------------------
(1) Net investment income per share for Trust Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's
administrator for the years ended October 31, 1999, 1998, 1997, 1996
and 1995 was $____, $0.47, $0.49, $0.47 and $0.48 , respectively.
-36-
<PAGE>
Galaxy Connecticut Municipal Bond Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- -----
Trust Shares
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period............... $10.47 $10.14 $10.13 $9.22
------ ------ ------ ------
Income from investment operations:
Net investment income(1)......................... 0.45 0.47 0.44 0.46
Net realized and unrealized gain (loss)
on investments................................ 0.35 0.33 0.01 0.91
------ ------ ------ ------
Total from investment operations................... 0.80 0.80 0.45 1.37
------ ------ ------ ------
Less dividends:
Dividends from net investment income............. (0.45) (0.47) (0.44) (0.46)
Dividends from net realized capital gains........ -- -- -- --
------ ------ ------ ------
Total dividends.................................... (0.45) (0.47) (0.44) (0.46)
------ ------ ------ ------
Net increase (decrease) in net asset value......... 0.35 0.33 0.01 0.91
------ ------ ------ ------
Net asset value, end of period..................... $10.82 $10.47 $10.14 $10.13
------ ------ ------ ------
Total return.................................... 7.81% 8.06% 4.54% 15.21%
Ratios/supplemental data:
Net assets, end of period (000's)................ $13,913 $9,866 $6,348 $4,083
Ratios to average net assets:
Net investment income including
reimbursement/waiver.......................... 4.24% 4.51% 4.34% 4.76%
Operating expenses including
reimbursement/waiver.......................... 0.67% 0.49% 0.49% 0.45%
Operating expenses excluding
reimbursement/waiver.......................... 1.10% 1.10% 1.17% 1.24%
Portfolio turnover rate............................ 46% 42% 3% 7%
</TABLE>
- -----------------------------
(1) Net investment income per share for Trust Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's
administrator for the years ended October 31, 1999, 1998, 1997, 1996
and 1995 was $____ $0.40, $0.41, $0.37 and $0.38 , respectively.
-37-
<PAGE>
Galaxy Massachusetts Municipal Bond Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- -----
Trust Shares
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period............... $10.25 $ 9.94 $ 9.98 $9.12
------ ------ ------ -----
Income from investment operations:
Net investment income(1)......................... 0.47 0.46 0.46 0.45
Net realized and unrealized gain (loss)
on investments................................ 0.27 0.32 (0.04) 0.86
------ ------ ------ -----
Total from investment operations................... 0.74 0.78 0.42 1.31
------ ------ ------ -----
Less dividends:
Dividends from net investment income............. (0.46) (0.47) (0.46) (0.45)
Dividends from net realized capital gains........ -- -- -- --
------ ------ ------ -----
Total dividends.................................... (0.46) (0.47) (0.46) (0.45)
------ ------ ------ -----
Net increase (decrease) in net asset value......... 0.28 0.31 (0.04) 0.86
------ ------ ------ -----
Net asset value, end of period..................... $10.53 $10.25 $ 9.94 $9.98
------ ------ ------ -----
Total return.................................... 7.42% 8.06% 4.27% 14.72%
Ratios/supplemental data:
Net assets, end of period (000's)................ $23,371 $13,986 $11,047 $7,607
Ratios to average net assets:
Net investment income including
reimbursement/waiver.......................... 4.49% 4.57% 4.60% 4.73%
Operating expenses including
reimbursement/waiver.......................... 0.60% 0.44% 0.48% 0.52%
Operating expenses excluding
reimbursement/waiver.......................... 1.03% 1.01% 1.14% 1.31%
Portfolio turnover rate............................ 44% 48% 16% 19%
</TABLE>
- -----------------------------
(1) Net investment income per share for Trust Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's
administrator for the years ended October 31, 1999, 1998, 1997, 1996
and 1995 was $____, $0.42, $0.40, $0.40 and $0.38, respectively.
-38-
<PAGE>
Galaxy Rhode Island Municipal Bond Fund
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
For the year ending October 31, Period ended
----------------------------------------------------------------
October 31,
1999 1998 1997 1996 1995(1)
---- ---- ---- ---- -------
Retail A Shares
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period............ $10.91 $10.65 $10.67 $10.00
------ ------ ------ ------
Income from investment operations:
Net investment income(2)...................... 0.50 0.48 0.51 0.44
Net realized and unrealized gain
on investments............................. 0.29 0.32 0.03 0.67
------ ------ ------ ------
Total from investment operations................ 0.79 0.80 0.54 1.11
------ ------ ------ ------
Less dividends:
Dividends from net investment income.......... (0.50) (0.50) (0.51) (0.44)
Dividends from net realized capital gains..... (0.02) (0.04) (0.05) --
------ ------ ------ ------
Total dividends................................. (0.52) (0.54) (0.56) (0.44)
------ ------ ------ ------
Net increase (decrease) in net asset value...... 0.27 0.26 (0.02) 0.67
------ ------ ------ ------
Net asset value, end of period.................. $11.18 $10.91 $10.65 $10.67
------ ------ ------ ------
Total return(3)................................. 7.35% 7.78% 5.22% 11.29%(4)
Ratios/supplemental data:
Net assets, end of period (000's)............. $20,210 $17,134 $14,900 $10,850
Ratios to average net assets:
Net investment income including
reimbursement/waiver....................... 4.52% 4.50% 4.78% 5.13%(5)
Operating expenses including
reimbursement/waiver....................... 0.81% 0.83% 0.77% 0.40%(5)
Operating expenses excluding
reimbursement/waiver....................... 1.23% 1.34% 1.34% 2.25%(5)
Portfolio turnover rate......................... 41% 19% 13% 34%(4)
</TABLE>
------------------------
(1) The Fund commenced operations on December 20, 1994.
(2) Net investment income per share before reimbursement/waiver of fees by
the Adviser and/or the Fund's administrator for the fiscal years ended
October 31, 1999, 1998, 1997 and 1996 and for the period ended October
31, 1995 was $____, $0.45, $0.43, $0.45, and $0.28, respectively.
(3) Calculation does not include the effect of any sales charge for Retail
A Shares.
(4) Not annualized.
(5) Annualized.
-39-
<PAGE>
[Back Cover Page]
Where to find more information
You'll find more information about the Funds in the following documents:
ANNUAL AND SEMI-ANNUAL REPORTS
Galaxy's annual and semi-annual reports contain more information about each Fund
and a discussion about the market conditions and investment strategies that had
a significant effect on each Fund's performance during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains detailed information about the Funds and their policies. By
law, it's incorporated by reference into (considered to be part of) this
prospectus.
You can get a free copy of these documents, request other information about the
Funds and make shareholder inquiries by calling Galaxy at 1-877-BUY-GALAXY
(1-877-289-4252) or writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
If you buy your shares through a financial institution, you may contact your
institution for more information.
You can write to the Securities and Exchange Commission (SEC) Public Reference
Section and ask them to mail you information about the Funds, including the SAI.
They'll charge you a fee for this service. You can also visit the SEC Public
Reference Room and copy the documents while you're there. For information about
the operation of the Public Reference Room, call the SEC.
Public Reference Section of the SEC
Washington, DC 20549- 0102
1-202-942-8090.
Reports and other information about the Funds are also available ON THE EDGAR
DATABASE on the SEC's website at http://www.sec.gov. COPIES OF THIS INFORMATION
MAY ALSO BE OBTAINED, AFTER PAYING A DUPLICATING FEE, BY ELECTRONIC REQUEST TO
THE SEC'S E-MAIL ADDRESS AT [email protected].
Galaxy's Investment Company Act File No. is 811-4636.
[FLEET ASSIGNED CODE]
<PAGE>
[Front cover page]
Galaxy Money Market Funds
The Galaxy Fund
Prospectus
__________________, 2000
Galaxy Money Market Fund
Galaxy Government Fund
Galaxy U.S. Treasury Fund
Galaxy Tax-Exempt Fund
Galaxy Connecticut Municipal Money Market Fund
Galaxy Massachusetts Municipal Money Market Fund
Galaxy New York Municipal Money Market Fund
Retail A Shares and Retail B Shares
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved any shares of these Funds or determined if this
prospectus is accurate or complete. Anyone who tells you otherwise is committing
a crime.
<PAGE>
<TABLE>
<CAPTION>
Contents
<S> <C>
1 Risk/return summary
1 Introduction
3 Galaxy Money Market Fund
7 Galaxy Government Fund
10 Galaxy U.S. Treasury Fund
13 Galaxy Tax-Exempt Fund
17 Galaxy Connecticut Municipal Money Market Fund
20 Galaxy Massachusetts Municipal Money Market Fund
24 Galaxy New York Municipal Money Market Fund
27 Additional information about risk
28 Investor guidelines
29 Fund management
30 How to invest in the Funds
30 About sales charges
31 Buying, selling and exchanging shares
32 How to buy shares
34 How to sell shares
35 How to exchange shares
36 Other transaction policies
37 Dividends, distributions and taxes
39 Galaxy investor programs
39 Retirement plans
39 Other programs
41 How to reach Galaxy
43 Financial highlights
</TABLE>
<PAGE>
RISK/RETURN SUMMARY
INTRODUCTION
This prospectus describes the Galaxy Money Market Funds. The Funds invest
primarily in short-term debt obligations, commonly known as money market
instruments, that are determined by the Funds' investment adviser to carry very
little risk. Money market instruments purchased by the Funds must meet strict
requirements as to investment quality, maturity and diversification. The Funds
don't invest in securities with remaining maturities of more than 397 days
(subject to certain exceptions) and the average maturity of all securities held
by a particular Fund must be 90 days or less. Each Fund tries to maintain its
share price at $1.00 to protect your investment from loss.
On the following pages, you'll find important information about each Galaxy
Money Market Fund including:
- - the Fund's investment objective (sometimes called the Fund's goal) and the
main investment strategies used by the Fund's investment adviser in trying
to achieve that objective
- - the main risks associated with an investment in the Fund
- - the Fund's past performance measured on both a year-by-year and long-term
basis
- - the fees and expenses that you will pay as an investor in the Fund
[Sidenote:]
MATURITY
The maturity of a security is the date when the issuer must repay the security's
entire principal amount to an investor, such as a Fund.
WHICH FUND IS RIGHT FOR YOU?
Not all mutual funds are right for all investors. Your investment goals and
tolerance for risk will determine which fund is right for you. On page ,
you'll find a table which sets forth general guidelines to help you decide which
of the Galaxy Money Market Funds is best suited to you.
THE FUNDS' INVESTMENT ADVISER
Fleet Investment Advisors Inc. (the "Adviser") is the investment adviser for all
of these Funds. The Adviser, an indirect wholly-owned subsidiary of FleetBoston
Corporation, was established in 1984 and has its main office at 75 State Street,
Boston, Massachusetts 02109. The
-1-
<PAGE>
Adviser also provides investment management and advisory services to
individual and institutional clients and manages the other Galaxy investment
portfolios. As of December 31, 1999, the Adviser managed over $ billion in
assets.
AN INVESTMENT IN THE FUNDS ISN'T A FLEET BANK DEPOSIT AND IT ISN'T INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. ALTHOUGH THE FUNDS SEEK TO PRESERVE THE VALUE OF YOUR INVESTMENT AT
$1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUNDS.
[Sidenote:]
TAX-EQUIVALENT YIELD
One way to understand the tax advantages of a tax-exempt fund is to compare its
after-tax return to that of a taxable investment. For example, suppose a taxable
fund pays a return of 10%. If you're in the 36% federal income tax bracket, the
fund's return after taxes is 6.4%. When a tax-exempt fund pays a return of 10%,
you don't pay tax. So if you're in the 36% tax bracket that's the equivalent of
earning about 15.6% on a taxable fund. If you're in a low tax bracket, however,
it may not be helpful to invest in a tax-exempt fund if you can achieve a higher
after-tax return from a taxable investment.
-2-
<PAGE>
Galaxy Money Market Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current income as is consistent with liquidity
and stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests in a diversified portfolio of money market instruments,
including commercial paper, notes and bonds issued by U.S. corporations,
obligations issued by the U.S. Government and its agencies and
instrumentalities, and obligations issued by U.S. and foreign banks, such as
certificates of deposit. The Fund also invests in repurchase agreements backed
by U.S. Government obligations.
The Fund will only buy a security if it has the highest short-term rating from
at least two nationally recognized statistical rating organizations, or one such
rating if only one organization has rated the security. If the security is not
rated, it must be determined by the Adviser to be of comparable credit quality.
[Sidenote:]
REPURCHASE AGREEMENTS
Repurchase agreements are transactions in which a fund buys securities from a
seller (usually a bank or broker-dealer) who agrees to buy them back from the
fund on a certain date and at a certain price.
THE MAIN RISKS OF INVESTING IN THE FUND
While money market funds are considered to be among the safest of all
investments, they are not risk free. Here are the main risks associated with an
investment in the Fund:
- - INTEREST RATE RISK - The yield paid by the Fund will vary with changes in
short-term interest rates.
- - CREDIT RISK - Although credit risk is very low because the Fund only
invests in high quality obligations, if an issuer fails to pay interest or
repay principal, the value of your investment could decline.
- - REPURCHASE AGREEMENTS - Repurchase agreements carry the risk that the other
party may not fulfill its obligations under the agreement. This could cause
the value of your investment to decline.
-3-
<PAGE>
- - SHARE PRICE - There's no guarantee the Fund will be able to preserve the
value of your investment at $1.00 per share.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares of the Fund has
varied from year to year. The returns for Retail B Shares of the Fund were
different than the figures shown because each class of shares has different
expenses. The figures don't include any sales charges that investors may pay
when selling Retail B Shares of the Money Market Fund.
[Sidenote:]
BEST QUARTER: % for the quarter ending ,
WORST QUARTER: % for the quarter ending ,
[bar chart goes here]
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8.01% 6.13% 3.54% 2.73% 3.68% 5.29% 4.73% 4.99% 4.96% %
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999, after taking into account any sales charges.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
1 Year 5 Years 10 Years Since Inception
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares % % % % (11/17/86)
- -------------------------------------------------------------------------------------------------------------------------------
Retail B Shares % % % % (3/6/97)
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
To obtain the Fund's current 7-day yield, please call 1-877-BUY-GALAXY
(1-877-289-4252).
-4-
<PAGE>
FEES AND EXPENSES OF THE FUND
The Fund offers both Retail A Shares and Retail B Shares. There are no sales
charges (sometimes called front-end loads) when you buy Retail A Shares or
Retail B Shares of the Fund. However, if you buy Retail B Shares of the Fund,
you may have to pay a contingent deferred sales charge (sometimes called a
back-end load or CDSC) when you sell your shares.
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
Shareholder fees (fees paid directly from your investment)
<TABLE>
<CAPTION>
Maximum sales charge (load) on Maximum deferred sales charge (load)
purchases shown as a % of the shown as a % of the offering price
offering price or share price, whichever is less
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares None None
- ----------------------------------------------------------------------------------------------------------------------
Retail B Shares None 5.00%(1)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
Distribution and Total Fund
Management fees service (12b-1) fees Other Expenses operating expenses
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.40%(2) None % %(2)
- ----------------------------------------------------------------------------------------------------------------------
Retail B Shares 0.40%(2) 0.75% % %(2)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) This amount applies if you sell your shares in the first year after
purchase and gradually declines to 1% in the sixth year after purchase.
After six years, your Retail B Shares will automatically convert to Retail
A Shares. See "How to invest in the Funds - About sales charges."
(2) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be %. Total Fund operating expenses after this waiver
are expected to be % for Retail A Shares and % for Retail B Shares.
This fee waiver may be revised or discontinued at any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
-5-
<PAGE>
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your Retail B Shares convert to Retail A Shares after six years
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- ----------------------- --------------------- -------------------- --------------------- --------------------
1 year 3 years 5 years 10 years
- ----------------------- --------------------- -------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Retail A Shares $ $ $ $
- ----------------------- --------------------- -------------------- --------------------- --------------------
Retail B Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
If you hold Retail B Shares, you would pay the following expenses if you didn't
sell your shares:
- ----------------------- --------------------- -------------------- --------------------- --------------------
Retail B Shares $ $ $ $
- ----------------------- --------------------- -------------------- --------------------- --------------------
</TABLE>
-6-
<PAGE>
Galaxy Government Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current income as is consistent with liquidity
and stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests primarily in U.S. Government obligations, including U.S.
Treasury obligations and obligations of U.S. Government agencies and
instrumentalities. The Fund also invests in repurchase agreements backed by
these obligations.
[Sidenote:]
U.S. GOVERNMENT OBLIGATIONS
U.S. Government obligations are debt obligations issued or guaranteed by the
U.S. Government or one of its agencies or instrumentalities. U.S. Government
obligations generally have less credit risk than other debt obligations.
THE MAIN RISKS OF INVESTING IN THE FUND
While money market funds are considered to be among the safest of all
investments, they are not risk free. Here are the main risks associated with an
investment in the Fund:
- - INTEREST RATE RISK - The yield paid by the Fund will vary with changes in
short-term interest rates.
- - CREDIT RISK - Although U.S. Government securities have historically
involved little credit risk, if an issuer fails to pay interest or repay
principal, the value of your investment could decline.
- - REPURCHASE AGREEMENTS - Repurchase agreements carry the risk that the other
party may not fulfill its obligations under the agreement. This could cause
the value of your investment to decline.
- - SHARE PRICE - There's no guarantee the Fund will be able to preserve the
value of your investment at $1.00 per share.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
-7-
<PAGE>
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares of the Fund has
varied from year to year.
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
[bar chart goes here]
<TABLE>
<CAPTION>
- ------------- ----------- ---------- ----------- ----------- ----------- ---------- ----------- ----------- ----------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- ------------- ----------- ---------- ----------- ----------- ----------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
7.96% 6.23% 3.45% 2.88% 3.73% 5.25% 4.67% 4.89% 4.85% %
- ------------- ----------- ---------- ----------- ----------- ----------- ---------- ----------- ----------- ----------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999.
<TABLE>
<CAPTION>
- ----------------------- ---------------------- ----------------------- --------------------- -------------------------
1 year 5 years 10 years Since inception
- ----------------------- ---------------------- ----------------------- --------------------- -------------------------
<S> <C> <C> <C> <C>
Retail A Shares % % % % (11/17/86)
- ----------------------- ---------------------- ----------------------- --------------------- -------------------------
</TABLE>
To obtain the Fund's current 7-day yield, please call 1-877-BUY-GALAXY
(1-877-289-4252).
FEES AND EXPENSES OF THE FUND
There are no sales charges when you buy or sell Retail A Shares of the Fund. The
following table shows the fees and expenses you MAY pay when you buy and hold
shares of the Fund.
-8-
<PAGE>
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- ------------------------- ---------------------- ---------------------- ----------------------- ----------------------
Distribution Total Fund operating
Management fees (12b-1) fees Other expenses expenses
- ------------------------- ---------------------- ---------------------- ----------------------- ----------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.40%(1) None % %(1)
- ------------------------- ---------------------- ---------------------- ----------------------- ----------------------
</TABLE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be %. Total Fund operating expenses after this waiver
are expected to be %. This fee waiver may be revised or discontinued at
any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown o your investment
has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- ----------------------- --------------------- -------------------- --------------------- --------------------
1 year 3 years 5 years 10 years
- ----------------------- --------------------- -------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Retail A Shares $ $ $ $
- ----------------------- --------------------- -------------------- --------------------- --------------------
</TABLE>
-9-
<PAGE>
Galaxy U.S. Treasury Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks current income with liquidity and stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests primarily in securities issued or guaranteed by the U.S.
Treasury and certain U.S. Government agencies and instrumentalities that provide
income that is generally not subject to state income tax.
[Sidenote:]
U.S. TREASURY OBLIGATIONS
U.S. Treasury obligations are among the safest of all investments because they
are backed by the "full faith and credit" of the U.S. Government.
THE MAIN RISKS OF INVESTING IN THE FUND
While money market funds are considered to be among the safest of all
investments, they are not risk free. Here are the main risks associated with an
investment in the Fund:
- - INTEREST RATE RISK - The yield paid by the Fund will vary with changes in
short-term interest rates.
- - CREDIT RISK - Although U.S. Government securities, particularly U.S.
Treasury securities, have historically involved little credit risk, if an
issuer fails to pay interest or repay principal, the value of your
investment could decline.
- - SHARE PRICE - There's no guarantee the Fund will be able to preserve the
value of your investment at $1.00 per share.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
-10-
<PAGE>
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares of the Fund has
varied from year to year.
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
[bar chart goes here]
<TABLE>
<CAPTION>
- ---------------- -------------- ------------- -------------- ------------- -------------- -------------- -------------
1992 1993 1994 1995 1996 1997 1998 1999
- ---------------- -------------- ------------- -------------- ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
3.39% 2.74% 3.58% 5.05% 4.59% 4.70% 4.63% %
- ---------------- -------------- ------------- -------------- ------------- -------------- -------------- -------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999.
<TABLE>
<CAPTION>
- --------------------------- ------------------------ ------------------------ ------------------------
1 year 5 years Since inception
- --------------------------- ------------------------ ------------------------ ------------------------
<S> <C> <C> <C>
Retail A Shares % % % (1/22/91)
- --------------------------- ------------------------ ------------------------ ------------------------
</TABLE>
To obtain the Fund's current 7-day yield, please call 1-877-BUY-GALAXY
(1-877-289-4252).
FEES AND EXPENSES OF THE FUND
There are no sales charges when you buy or sell Retail A Shares of the Fund. The
following table shows the fees and expenses you may pay when you buy and hold
shares of the Fund.
-11-
<PAGE>
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
Distribution Total Fund operating
Management fees (12b-1) fees Other expenses expenses
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.39% None % %
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
</TABLE>
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- ----------------------- --------------------- -------------------- --------------------- --------------------
1 year 3 years 5 years 10 years
- ----------------------- --------------------- -------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Retail A Shares $ $ $ $
- ----------------------- --------------------- -------------------- --------------------- --------------------
</TABLE>
-12-
<PAGE>
Galaxy Tax-Exempt Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current interest income exempt from federal
income tax as is consistent with stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities, which are securities issued by state and local governments and other
political or public bodies or agencies and that pay interest which is exempt
from regular federal income tax. Under normal conditions, the Fund will invest
no more than 20% of its total assets in taxable obligations, such as U.S.
Government obligations, money market instruments and repurchase agreements.
Municipal securities purchased by the Fund may include general obligation
securities, revenue securities and private activity bonds. The interest on
private activity bonds may be subject to the federal alternative minimum tax.
Investments in private activity bonds will not be treated as investments in
municipal securities for purposes of the 80% requirement stated above.
The Fund will only buy a security if it has one of the two highest short-term
ratings from at least two nationally recognized statistical rating
organizations, or one such rating if only one organization has rated the
security. If the security is not rated, it must be determined by the Adviser to
be of comparable credit quality.
[Sidenote:]
MUNICIPAL SECURITIES
State and local governments issue municipal securities to raise money to finance
public works, to repay outstanding obligations, to raise funds for general
operating expenses and to make loans to other public institutions. Some
municipal securities, known as private activity bonds, are issued to finance
projects for private companies. Municipal securities, which can be issued as
bonds, notes or commercial paper, usually have fixed interest rates, although
some have interest rates that change from time to time.
-13-
<PAGE>
[Sidenote:]
TYPES OF MUNICIPAL SECURITIES
GENERAL OBLIGATION securities are secured by the issuer's full faith, credit and
taxing power. REVENUE OBLIGATION securities are usually payable only from
revenues derived from specific facilities or revenue sources. PRIVATE ACTIVITY
BONDS are usually revenue obligations since they are typically payable by the
private user of the facilities financed by the bonds.
THE MAIN RISKS OF INVESTING IN THE FUND
While money market funds are considered to be among the safest of all
investments, they are not risk free. Here are the main risks associated with an
investment in the Fund:
- - INTEREST RATE RISK - The yield paid by the Fund will vary with changes in
short-term interest rates.
- - CREDIT RISK - Although credit risk is very low because the Fund only
invests in high quality obligations, if an issuer fails to pay interest
or repay principal, the value of your investment could decline.
The ability of a state or local government issuer to make payments can be
affected by many factors, including economic conditions, the flow of tax
revenues and changes in the level of federal, state or local aid.
- - SHARE PRICE - There's no guarantee the Fund will be able to preserve the
value of your investment at $1.00 per share.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares of the Fund has
varied from year to year.
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
-14-
<PAGE>
[bar chart goes here]
<TABLE>
<CAPTION>
- ------------- ----------- ---------- ----------- ----------- ----------- ---------- ----------- ----------- ----------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- ------------- ----------- ---------- ----------- ----------- ----------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
5.52% 4.18% 2.46% 2.01% 2.27% 3.19% 2.78% 2.99% 2.81% %
- ------------- ----------- ---------- ----------- ----------- ----------- ---------- ----------- ----------- ----------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999.
<TABLE>
<CAPTION>
- --------------------------- ------------------ ------------------ -------------------- -----------------------------
1 year 5 years 10 years Since inception
- --------------------------- ------------------ ------------------ -------------------- -----------------------------
<S> <C> <C> <C> <C>
Retail A Shares % % % % (6/23/88)
- --------------------------- ------------------ ------------------ -------------------- -----------------------------
</TABLE>
To obtain the Fund's current 7-day yield, please call 1-877-BUY-GALAXY
(1-877-289-4252).
FEES AND EXPENSES OF THE FUND
There are no sales charges when you buy or sell Retail A Shares of the Fund. The
following table shows the fees and expenses you may pay when you buy and hold
shares of the Fund.
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- ----------------------- ----------------------- ----------------------- ---------------------- -----------------------
Distribution Total Fund operating
Management fees (12b-1) fees Other expenses expenses
- ----------------------- ----------------------- ----------------------- ---------------------- -----------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.40% None % %
- ----------------------- ----------------------- ----------------------- ---------------------- -----------------------
</TABLE>
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
-15-
<PAGE>
<TABLE>
<CAPTION>
- ----------------------- --------------------- -------------------- --------------------- --------------------
1 year 3 years 5 years 10 years
- ----------------------- --------------------- -------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Retail A Shares $ $ $ $
- ----------------------- --------------------- -------------------- --------------------- --------------------
</TABLE>
-16-
<PAGE>
Galaxy Connecticut Municipal Money Market Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks to provide current income exempt from federal regular income tax
and the Connecticut state income tax on individuals, trusts and estates,
consistent with relative stability of principal and liquidity.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities that pay interest which is exempt from federal regular income tax,
and at least 65% of its total assets in Connecticut municipal securities, which
are securities issued by or on behalf of the State of Connecticut and other
government issuers and that pay interest which is exempt from both federal
regular income tax and the Connecticut state income tax on individuals, trusts
and estates. Under normal conditions, the Fund will invest no more than 20% of
its total assets in taxable obligations, such as U.S. Government obligations,
money market instruments and repurchase agreements.
Municipal securities purchased by the Fund may include general obligation
securities, revenue securities and private activity bonds. The interest on
private activity bonds may be subject to the federal alternative minimum tax.
Investments in private activity bonds will not be treated as investments in
municipal securities for purposes of the 80% requirement stated above.
The Fund will only buy a security if it has one of the two highest short-term
ratings from at least two nationally recognized statistical rating
organizations, or one such rating if only one organization has rated the
security. If the security is not rated, it must be determined by the Adviser to
be of comparable credit quality.
THE MAIN RISKS OF INVESTING IN THE FUND
While money market funds are considered to be among the safest of all
investments, they are not risk free. Here are the main risks associated with an
investment in the Fund:
- - INTEREST RATE RISK - The yield paid by the Fund will vary with changes in
short-term interest rates.
- - CREDIT RISK - Although credit risk is very low because the Fund only
invests in high quality obligations, if an issuer fails to pay interest or
repay principal, the value of your investment could decline. The ability
of a state or local government issuer to make payments can be
-17-
<PAGE>
affected by many factors, including economic conditions, the flow of tax
revenues and changes in the level of federal, state or local aid.
- - LACK OF DIVERSIFICATION - The Fund is not diversified, which means that it
can invest a large percentage of its assets in a small number of issuers.
As a result, a change in the value of any one investment held by the Fund
may affect the overall value of the Fund more than it would affect a
diversified fund which holds more investments.
- - SINGLE STATE RISK - Since the Fund invests primarily in Connecticut
municipal securities, it is likely to be especially susceptible to
economic, political and regulatory events that affect Connecticut.
- - SHARE PRICE - There's no guarantee the Fund will be able to preserve the
value of your investment at $1.00 per share.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
The Fund began operations on October 4, 1993 as a separate portfolio (the
Predecessor Fund) of The Shawmut Funds. 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 classes of shares, Investment Shares
and Trust Shares. In connection with the reorganization, shareholders of the
Predecessor Fund exchanged their Investment Shares and Trust Shares for Retail A
Shares of the Fund. The return for periods prior to December 4, 1995 are for
Investment Shares of the Predecessor Fund.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of the Fund has varied from year to
year.
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
-18-
<PAGE>
[bar chart goes here]
<TABLE>
<CAPTION>
- --------------------- ------------------ ------------------- ------------------ ------------------- ------------------
1994 1995 1996 1997 1998 1999
- --------------------- ------------------ ------------------- ------------------ ------------------- ------------------
<S> <C> <C> <C> <C> <C>
1.99% 2.97% 2.78% 2.98% 2.77% %
- --------------------- ------------------ ------------------- ------------------ ------------------- ------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999, after taking into account any sales charges on Investment
Shares of the Predecessor Fund.
<TABLE>
<CAPTION>
- --------------------------- ------------------------ ------------------------ ------------------------
1 year 5 years Since inception
- --------------------------- ------------------------ ------------------------ ------------------------
<S> <C> <C> <C>
Retail A Shares % % % (10/4/93)
- --------------------------- ------------------------ ------------------------ ------------------------
</TABLE>
To obtain the Fund's current 7-day yield, please call 1-877-BUY-GALAXY
(1-877-289-4252).
FEES AND EXPENSES OF THE FUND
There are no sales charges when you buy or sell Retail A Shares of the Fund. The
following table shows the fees and expenses you pay when you buy and hold shares
of the Fund.
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- ----------------------- ----------------------- ----------------------- ---------------------- -----------------------
Distribution Total Fund operating
Management fees (12b-1) fees Other expenses expenses
- ----------------------- ----------------------- ----------------------- ---------------------- -----------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.40%(1) None % %(1)
- ----------------------- ----------------------- ----------------------- ---------------------- -----------------------
</TABLE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be %. Total Fund operating expenses after this waiver
are expected to be %. This fee waiver may be revised or discontinued at
any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
-19-
<PAGE>
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- ----------------------- --------------------- -------------------- --------------------- --------------------
1 year 3 years 5 years 10 years
- ----------------------- --------------------- -------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Retail A Shares $ $ $ $
- ----------------------- --------------------- -------------------- --------------------- --------------------
</TABLE>
Galaxy Massachusetts Municipal Money Market Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks to provide current income exempt from federal regular income tax
and the income taxes imposed by the Commonwealth of Massachusetts, consistent
with relative stability of principal and liquidity.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities that pay interest which is exempt from federal regular income tax,
and at least 65% of its total assets in Massachusetts municipal securities,
which are securities issued by or on behalf of the Commonwealth of Massachusetts
and other government issuers and that pay interest which is exempt from both
federal regular income tax and Massachusetts personal income tax. Under normal
conditions, the Fund will invest no more than 20% of its total assets in taxable
obligations, such as U.S. Government obligations, money market instruments and
commercial paper.
Municipal securities purchased by the Fund may include general obligation
securities, revenue securities and private activity bonds. The interest on
private activity bonds may be subject to the federal alternative minimum tax.
Investments in private activity bonds will not be treated as investments in
municipal securities for purposes of the 80% requirement stated above.
The Fund will only buy a security if it has one of the two highest short-term
ratings from at least two nationally recognized statistical rating
organizations, or one such rating if only one organization has rated the
security. If the security is not rated, it must be determined by the Adviser to
be of comparable credit quality.
THE MAIN RISKS OF INVESTING IN THE FUND
While money market funds are considered to be among the safest of all
investments, they are not risk free. Here are the main risks associated with an
investment in the Fund:
-20-
<PAGE>
- - INTEREST RATE RISK - The yield paid by the Fund will vary with changes in
short-term interest rates.
- - CREDIT RISK - Although credit risk is very low because the Fund only
invests in high quality obligations, if an issuer fails to pay interest or
repay principal, the value of your investment could decline. The ability of
a state or local government issuer to make payments can be affected by
many factors, including economic conditions, the flow of tax revenues and
changes in the level of federal, state or local aid.
- - LACK OF DIVERSIFICATION - The Fund is not diversified, which means that it
can invest a large percentage of its assets in a small number of issuers.
As a result, a change in the value of any one investment held by the Fund
may affect the overall value of the Fund more than it would affect a
diversified fund which holds more investments.
- - SINGLE STATE RISK - Since the Fund invests primarily in Massachusetts
municipal securities, it is likely to be especially susceptible to
economic, political and regulatory events that affect Massachusetts.
- - SHARE PRICE - There's no guarantee the Fund will be able to preserve the
value of your investment at $1.00 per share.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
The Fund began operations on October 5, 1993 as a separate portfolio (the
Predecessor Fund) of The Shawmut Funds. 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 a single class of shares. In connection
with the reorganization, shareholders of the Predecessor Fund exchanged their
shares for Retail A Shares of the Fund. The returns for periods prior to
December 4, 1995 are for shares of the Predecessor Fund.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of the Fund has varied from year to
year.
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
-21-
<PAGE>
[bar chart goes here]
<TABLE>
<CAPTION>
- ------------------ ------------------ --------------------- --------------------- ---------------------- ----------------------
1994 1995 1996 1997 1998 1999
- ------------------ ------------------ --------------------- --------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C>
2.15% 3.23% 2.78% 2.96% 2.79% %
- ------------------ ------------------ --------------------- --------------------- ---------------------- ----------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999.
<TABLE>
<CAPTION>
- --------------------------- ------------------------ ------------------------ ------------------------
1 year 5 years Since inception
- --------------------------- ------------------------ ------------------------ ------------------------
<S> <C> <C> <C>
Retail A Shares % % % (10/05/93)
- --------------------------- ------------------------ ------------------------ ------------------------
</TABLE>
To obtain the Fund's current 7-day yield, please call 1-877-BUY-GALAXY
(1-877-289-4252).
FEES AND EXPENSES OF THE FUND
There are no sales charges when you buy or sell Retail A Shares of the Fund. The
following table shows the fees and expenses you pay when you buy and hold shares
of the Fund.
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- ----------------------- ----------------------- ----------------------- ---------------------- -----------------------
Distribution (12b-1) Total Fund operating
Management fees fees Other expenses expenses
- ----------------------- ----------------------- ----------------------- ---------------------- -----------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.40%(1) None % %(1)
- ----------------------- ----------------------- ----------------------- ---------------------- -----------------------
</TABLE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be %. Total Fund operating expenses after this waiver
are expected to be %. This fee waiver may be revised or discontinued at
any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
-22-
<PAGE>
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- ----------------------- --------------------- -------------------- --------------------- --------------------
1 year 3 years 5 years 10 years
- ----------------------- --------------------- -------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Retail A Shares $ $ $ $
- ----------------------- --------------------- -------------------- --------------------- --------------------
</TABLE>
-23-
<PAGE>
Galaxy New York Municipal Money Market Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks to provide current income exempt from federal regular income tax
and New York State and New York City personal income tax, consistent with
relative stability of principal and liquidity.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities that pay interest which is exempt from federal regular income tax,
and at least 65% of its total assets in New York municipal securities, which are
securities issued by or on behalf of the State of New York and other government
issuers and that pay interest which is exempt from federal regular income tax
and New York State and New York City personal income tax. Under normal
conditions, the Fund will invest no more than 20% of its total assets in taxable
obligations, such as U.S. Government obligations, money market instruments and
repurchase agreements.
Municipal securities purchased by the Fund may include general obligation
securities, revenue securities and private activity bonds. The interest on
private activity bonds may be subject to the federal alternative minimum tax.
Investments in private activity bonds will not be treated as investments in
municipal securities for purposes of the 80% requirement stated above.
The Fund will only buy a security if it has one of the two highest short-term
ratings from at least two nationally recognized statistical rating
organizations, or one such rating if only one organization has rated the
security. If the security is not rated, it must be determined by the Adviser to
be of comparable credit quality.
THE MAIN RISKS OF INVESTING IN THE FUND
While money market funds are considered to be among the safest of all
investments, they are not risk free. Here are the main risks associated with an
investment in the Fund:
- - INTEREST RATE RISK - The yield paid by the Fund will vary with changes in
short-term interest rates.
- - CREDIT RISK - Although credit risk is very low because the Fund only invests
in high quality obligations, if an issuer fails to pay interest or repay
principal, the value of your investment could decline. The ability of a
state or local government issuer to make payments can be affected by many
factors, including economic conditions, the flow of tax revenues and changes
in the level of federal, state or local aid.
-24-
<PAGE>
- - LACK OF DIVERSIFICATION - The Fund is not diversified, which means that it
can invest a large percentage of its assets in a small number of issuers.
As a result, a change in the value of any one investment held by the Fund
may affect the overall value of the Fund more than it would affect a
diversified fund which holds more investments.
- - SINGLE STATE RISK - Because the Fund invests primarily in New York
municipal securities, the Fund's ability to achieve its investment
objective is dependent upon the ability of the issuers of New York
municipal securities to meet their continuing obligations for the payment
of principal and interest. New York State and New York City face long-term
economic problems that could seriously affect their ability and that of
other issuers of New York municipal securities to meet their financial
obligations. Other considerations affecting the Fund's investments in New
York municipal securities are summarized in the Statement of Additional
Information.
- - SHARE PRICE - There's no guarantee the Fund will be able to preserve the
value of your investment at $1.00 per share.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The Fund had not commenced operations prior to the date of this prospectus. No
performance information is presented because the Fund has less than one full
calendar year of performance history.
FEES AND EXPENSES OF THE FUND
There are no sales charges when you buy or sell Retail A Shares of the Fund. The
following table shows the fees and expenses you may pay when you buy and hold
shares of the Fund.
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- ----------------------- ----------------- ------------------- ------------- --------------
Total Fund
Distribution Other operating
Management fees (12b-1) fees expenses expenses
- ----------------------- ----------------- ------------------- ------------- --------------
<S> <C> <C> <C> <C>
Retail A Shares 0.40%(1) None %(2) %(1)
- ----------------------- ----------------- ------------------- ------------- --------------
</TABLE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be . Total Fund operating expenses after this waiver
are expected to be . This fee waiver may be revised or discontinued at
any time.
-25-
<PAGE>
(2) Other expenses are based on estimated amounts for the current fiscal year.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- ----------------------- --------------------- --------------------
1 year 3 years
- ----------------------- --------------------- --------------------
<S> <C> <C>
Retail A Shares $ $
- ----------------------- --------------------- --------------------
</TABLE>
-26-
<PAGE>
ADDITIONAL INFORMATION ABOUT RISK
The main risks associated with an investment in each of the Galaxy Money Market
Funds have been described above. The following supplements that discussion.
TEMPORARY DEFENSIVE POSITIONS
Each Fund may temporarily hold up to 100% of its total assets in investments
that aren't part of its main investment strategy during unfavorable market
conditions. These investments may include cash (which will not earn any income)
and, in the case of the Tax-Exempt Fund, Connecticut Municipal Money Market
Fund, Massachusetts Municipal Money Market Fund, and New York Municipal Money
Market Fund, short-term taxable investments, such as money market instruments
and debt securities issued or guaranteed by the U.S. Government or its agencies,
in excess of 20% of each Fund's assets. This strategy could prevent a Fund from
achieving its investment objective.
OTHER TYPES OF INVESTMENTS
This prospectus describes each Fund's main investment strategies and the
particular types of securities in which each Fund mainly invests. Each Fund
may, from time to time, pursue other investment strategies and make other
types of investments in support of its overall investment goal. These
supplemental investment strategies, which are not considered to be main
investment strategies of the Fund - and the risks involved - are described in
detail in the Statement of Additional Information (SAI) which is referred to
on the back cover of this prospectus.
-27-
<PAGE>
INVESTOR GUIDELINES
The table below provides information as to which type of investor might want to
invest in each of the Galaxy Money Market Funds. It's meant as a general guide
only. TAX-EXEMPT FUNDS ARE GENERALLY NOT APPROPRIATE INVESTMENTS FOR
TAX-DEFERRED RETIREMENT ACCOUNTS, SUCH AS IRAS, BECAUSE THEIR RETURNS BEFORE
TAXES ARE GENERALLY LOWER THAN THOSE OF TAXABLE FUNDS. Consult your investment
professional for help in deciding which Fund is right for you.
<TABLE>
<CAPTION>
- ------------------------------------------------------- -----------------------------------------------------
Galaxy Fund May be best suited for...
- ------------------------------------------------------- -----------------------------------------------------
<S> <C>
Galaxy Money Market Fund investors who want a flexible and convenient way to
manage cash while earning money market returns
- ------------------------------------------------------- -----------------------------------------------------
Galaxy Government Fund investors who want a way to earn money market
returns with the extra margin of safety associated
with U.S. Government obligations
- ------------------------------------------------------- -----------------------------------------------------
Galaxy U.S. Treasury Fund investors who want a way to earn money market
returns from U.S. Treasury obligations that are
generally free from state and local taxes
- ------------------------------------------------------- -----------------------------------------------------
Galaxy Tax-Exempt Fund investors who want a way to earn money market
returns that are free from federal income tax
- ------------------------------------------------------- -----------------------------------------------------
Galaxy Connecticut Municipal Money Market Fund investors who want a way to earn money market
returns that are free from both regular federal
income tax and the Connecticut state income tax on
individuals, trusts and estates
- ------------------------------------------------------- -----------------------------------------------------
Galaxy Massachusetts Municipal Money Market Fund investors who want a way to earn money market returns
that are free from both regular federal income tax
and Massachusetts personal income tax
- ------------------------------------------------------- -----------------------------------------------------
Galaxy New York Municipal Money Market Fund investors who want a way to earn money market
returns that are free from both regular federal
income tax and New York State and New York City
personal income tax
- ------------------------------------------------------- -----------------------------------------------------
</TABLE>
-28-
<PAGE>
FUND MANAGEMENT
ADVISER
The Adviser, subject to the general supervision of Galaxy's Board of Trustees,
manages each Fund in accordance with its investment objective and policies,
makes decisions with respect to and places orders for, all purchases and sales
of portfolio securities, and maintains related records.
ALLOCATION OF ORDERS FOR PORTFOLIO SECURITIES
The Adviser may allocate orders for the purchase and sale of portfolio
securities to certain financial institutions, including those that are
affiliated with the Adviser or that have sold shares of the Funds, to the extent
permitted by law or by order of the Securities and Exchange Commission. The
Adviser will allocate orders to such institutions only if it believes that the
quality of the transaction and the commission are comparable to what they would
be with other qualified brokerage firms.
MANAGEMENT FEES
The management fees paid to the Adviser by the Funds during the last fiscal year
are set forth below. The New York Municipal Money Market Fund had not commenced
operations prior to the date of this prospectus, and the fee shown is that which
is currently in effect.
<TABLE>
<CAPTION>
- --------------------------------------------------------- ----------------------------------
Management fee as a
Fund % of average net assets
- --------------------------------------------------------- ----------------------------------
<S> <C>
Money Market %
- --------------------------------------------------------- ----------------------------------
Government %
- --------------------------------------------------------- ----------------------------------
U.S. Treasury %
- --------------------------------------------------------- ----------------------------------
Tax-Exempt %
- --------------------------------------------------------- ----------------------------------
Connecticut Municipal Money Market %
- --------------------------------------------------------- ----------------------------------
Massachusetts Municipal Money Market %
- --------------------------------------------------------- ----------------------------------
New York Municipal Money Market %
- --------------------------------------------------------- ----------------------------------
</TABLE>
-29-
<PAGE>
HOW TO INVEST IN THE FUNDS
All of the Funds offer Retail A Shares. The Money Market Fund also offers
Retail B Shares.
ABOUT SALES CHARGES
There are no sales charges (sometimes called front-end loads) when you buy
either Retail A Shares or Retail B Shares of a Fund. If you buy Retail B Shares
of the Money Market Fund, you may have to pay a contingent deferred sales charge
(sometimes called a back-end load or CDSC) if you sell your shares within six
years of buying them. The following table shows the schedule of CDSC charges:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------ -------------------
You'll pay a
If you sell your shares CDSC of
- ------------------------------------------------------------------------------------------------ -------------------
<S> <C>
during the first year 5.00%
- ------------------------------------------------------------------------------------------------ -------------------
during the second year 4.00%
- ------------------------------------------------------------------------------------------------ -------------------
during the third year 3.00%
- ------------------------------------------------------------------------------------------------ -------------------
during the fourth year 3.00%
- ------------------------------------------------------------------------------------------------ -------------------
during the fifth year 2.00%
- ------------------------------------------------------------------------------------------------ -------------------
during the sixth year 1.00%
- ------------------------------------------------------------------------------------------------ -------------------
after the sixth year None
- ------------------------------------------------------------------------------------------------ -------------------
</TABLE>
For purposes of calculating the CDSC, all purchases made during a calendar month
are considered to be made on the first day of that month. The CDSC is based on
the value of the Retail B Shares on the date that they are sold or the original
cost of the shares, whichever is lower. To keep your CDSC as low as possible
each time you sell shares, Galaxy will first sell any shares in your account
that are not subject to a CDSC. If there are not enough of these, Galaxy will
sell those shares that have the lowest CDSC. There is no CDSC on Retail B Shares
that you acquire by reinvesting your dividends and distributions.
There's no CDSC when Retail B Shares of the Money Market Fund are sold because
of the death or disability of a shareholder and in certain other circumstances
such as exchanges. Ask your investment professional or Galaxy's distributor, or
consult the SAI, for other instances in which the CDSC is waived. To contact
Galaxy's distributor, call 1-877-BUY-GALAXY (1-877-289-4252).
-30-
<PAGE>
DISTRIBUTION AND SHAREHOLDER SERVICE FEES
Retail A Shares of the Funds can pay shareholder service fees at an annual rate
of up to 0.50% of each Fund's Retail A Share assets. The Funds do not intend to
pay more than 0.10% in shareholder service fees with respect to Retail A Shares
during the current fiscal year.
Retail B Shares of the Money Market Fund can pay distribution and shareholder
service (12b-1) fees at an annual rate of up to 1.15% of the Fund's Retail B
Share assets. The Fund does not intend to pay more than 0.75% in distribution
and shareholder service (12b-1) fees during the current fiscal year. Galaxy has
adopted a plan under Rule 12b-1 that allows the Money Market Fund to pay fees
from its Retail B Share assets for selling and distributing Retail B Shares and
for providing services to shareholders. Because 12b-1 fees are paid on an
ongoing basis, over time they increase the cost of your investment and may cost
more than paying other sales charges.
CONVERTING RETAIL B SHARES TO RETAIL A SHARES
Six years after you buy Retail B Shares of the Money Market Fund, they will
automatically convert to Retail A Shares of the Fund. This allows you to benefit
from the lower annual expenses of Retail A Shares.
[Sidenote:]
Retail B Shares of the Money Market Fund have higher operating expenses than
Retail A Shares of the Fund and may not be appropriate for investors who do not
plan to exchange their Retail B Shares for Retail B Shares of another Galaxy
Fund.
[Sidenote:]
NET ASSET VALUE
The price you pay for your shares is based on the net asset value per share
(NAV). It's the value of a Fund's assets attributable to Retail A Shares or
Retail B Shares, minus the value of the Fund's liabilities attributable to
Retail A Shares or Retail B Shares, divided by the number of Retail A Shares or
Retail B Shares held by investors.
BUYING, SELLING AND EXCHANGING SHARES
If your order to buy shares is received and accepted by Galaxy's distributor by
11:00 a.m. (Eastern time) on a business day, the price you pay will be the net
asset value (NAV) per share next determined (and you'll receive that day's
dividend) if Galaxy's custodian receives the purchase price in immediately
available funds by 11:00 a.m. that day. If your order to purchase shares is
received and accepted by Galaxy's distributor after 11:00 a.m. (Eastern time)
but before
-31-
<PAGE>
4:00 p.m. (Eastern time) on a business day, the price you pay will be
the NAV next determined (and you'll begin receiving dividends the next day) if
Galaxy's custodian receives the purchase price in immediately available funds by
4:00 p.m. on the day of your order. The price at which you sell shares is the
NAV next determined after receipt your order in proper form as described below,
less any applicable CDSC in the case of Retail B Shares of the Money Market
Fund. NAV is determined on each day the New York Stock Exchange is open for
trading as of 11:00 a.m. (Eastern time) and at the close of regular trading
(usually 4:00 p.m. Eastern time). The New York Stock Exchange is generally open
for trading every Monday through Friday, except for national holidays.
The Funds' assets are valued at amortized cost, which is approximately equal to
market value.
HOW TO BUY SHARES
You can buy shares through your financial institution or directly from Galaxy's
distributor by calling 1-877-BUY-GALAXY (1-877-289-4252). A broker or agent who
places orders on your behalf may charge you a separate fee for their services.
BUYING BY MAIL
Complete an account application and mail it, together with a check payable to
each Fund in which you want to invest, to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
To make additional investments, send your check to the address above along with
one of the following:
- - The detachable slip that's included with your Galaxy statement or your
confirmation of a prior transaction
- - A letter stating the amount of your investment, the name of the Fund you
want to invest in, and your account number
If your check is returned because of insufficient funds, we'll cancel your
order.
[Sidenote:]
MINIMUM INVESTMENT AMOUNTS
The minimum initial investment to open a Fund account is:
- - $2,500 for regular accounts
- - $500 for retirement plan accounts such as IRA, SEP and Keogh Plan accounts
- - $100 for college savings accounts, including Education IRA accounts
-32-
<PAGE>
There is generally no minimum initial investment if you participate in the
Automatic Investment Program or in a salary reduction retirement plan such as a
SIMPLE IRA or 401(k). You generally can make additional investments for as
little as $100. See GALAXY INVESTOR PROGRAMS below for information on other
minimums for initial and additional investments.
Usually, you must keep at least $250 in your account other than retirement plan
accounts. If your account falls below $250 because you sell or exchange shares,
Galaxy may redeem your shares and close your account. Galaxy will give you 60
days' notice in writing before closing your account.
BUYING BY WIRE
To make an initial or additional investment by wire, send U.S. funds through the
Federal Reserve System to Fleet National Bank as agent for Galaxy's distributor.
You should wire money and registration instructions to:
Fleet National Bank
75 State Street
Boston, MA 02109
ABA #0110-0013-8
DDA #79673-5702
Ref: The Galaxy Fund
(Account number)
(Account registration)
Before making an initial investment by wire, you must complete an account
application and send it to The Galaxy Fund, P.O. Box 6520, Providence, RI
02940-6520. Your order will not be effected until the completed account
application is received by Galaxy. Call Galaxy's distributor at 1-877-BUY-GALAXY
(1-877-289-4252) for an account application.
Your financial institution may charge you a fee for sending funds by wire.
CUSTOMERS OF FINANCIAL INSTITUTIONS
If you are a customer of a financial institution such as a bank, savings and
loan association or broker-dealer, including a financial institution affiliated
with the Adviser, you should place your order through your financial
institution. Your financial institution is responsible for sending your order to
Galaxy's distributor and wiring the money to Galaxy's custodian. For details,
please contact your financial institution.
-33-
<PAGE>
HOW TO SELL SHARES
You can sell your shares in several ways: by mail, by telephone, by wire, or
through your financial institution.
SELLING BY MAIL Send your request in writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
You must include the following:
- - The name of the Fund
- - The number of shares or the dollar amount you want to sell
- - Your account number
- - Your Social Security number or tax identification number
- - The signatures of each registered owner of the account (the signatures must
match the names on the account registration)
Additional documents may be required for certain types of shareholders, such as
corporations, partnerships, executors, trustees, administrators or guardians.
[Sidenote:]
SIGNATURE GUARANTEES
When selling your shares by mail or by phone, you must have your signature
guaranteed if:
- - you're selling shares worth more than $50,000,
- - you want Galaxy to send your money to an address other than the address on
your account, unless your money is transferred to a successor custodian,
- - you want Galaxy to send your money to the address on your account that's
changed within the last 30 days, or
- - you want Galaxy to make the check payable to someone else.
Your signature must be guaranteed by a bank that's a member of the FDIC, a trust
company, a member firm of a national securities exchange or any other eligible
institution. A notarized signature is not sufficient.
SELLING BY PHONE
You can sell shares by calling Galaxy's distributor at 1-877-BUY-GALAXY
(1-877-289-4252) unless you tell Galaxy on the account application or in writing
that you don't want this privilege.
-34-
<PAGE>
If you have difficulty getting through to Galaxy because of unusual market
conditions, consider selling your shares by mail or wire.
SELLING BY WIRE
Notify Galaxy's distributor by phone or wire that you wish to sell shares and
have the sale proceeds wired to your account at any financial institution in the
U.S. To be eligible to use this privilege, you must complete the appropriate
section on the account application or notify Galaxy in writing (with a signature
guarantee). Your sale proceeds must be more than $1,000.
The sale proceeds must be paid to the same bank and account you named on your
application or in your written instructions.
CUSTOMERS OF FINANCIAL INSTITUTIONS
Please contact your financial institution for information on how to sell your
shares. The financial institution is responsible for sending your order to
Galaxy's distributor and for crediting your account with the proceeds. Galaxy
doesn't charge a fee for wiring sale proceeds to your financial institution, but
your financial institution may charge you a fee.
HOW TO EXCHANGE SHARES
You may exchange Retail A Shares of a Fund having a value of at least $100 for
Retail A Shares of any other Galaxy Fund or for shares of any other Fund that's
managed by the Adviser or any of its affiliates in which you have an existing
account. Unless you qualify for a waiver, you'll have to pay a sales charge when
you exchange Retail A Shares of a Fund for Retail A Shares of another Galaxy
Fund that imposes a sales charge on purchases.
You may exchange Retail B Shares of the Money Market Fund for Retail B Shares of
any other Galaxy Fund. You won't pay a contingent deferred sales charge when you
exchange your Retail B Shares. However, when you sell the Retail B Shares you
acquired in the exchange, you'll pay a contingent deferred sales charge based on
the date you bought the Retail B Shares which you exchanged.
TO EXCHANGE SHARES:
- - call Galaxy's distributor or use the InvestConnect voice response line at
1-877-BUY-GALAXY (1-877-289-4252)
-35-
<PAGE>
- - send your request in writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
- - ask your financial institution
Galaxy doesn't charge any fee for making exchanges but your financial
institution might do so. You are generally limited to three exchanges per year.
Galaxy may change or cancel the exchange privilege by giving 60 days' advance
written notice to shareholders.
OTHER TRANSACTION POLICIES
If Galaxy doesn't receive full payment for your order to buy shares within three
business days of the order date, Galaxy won't accept your order. Galaxy will
advise you if this happens and return any payment it may eventually receive. You
can only invest in shares of the Funds that are legally available in your state.
Galaxy may refuse any order to buy shares. Galaxy doesn't issue a certificate
when you buy shares but it does keep a record of shares issued to investors.
Galaxy may refuse your order to sell or exchange shares by wire or telephone if
it believes it is advisable to do so. Galaxy or its distributor may change or
cancel the procedures for selling or exchanging shares by wire or telephone at
any time without notice.
If you sell or exchange shares by telephone, you may be responsible for any
fraudulent telephone orders as long as Galaxy has taken reasonable precautions
to verify your identity, such as requesting information about the way in which
your account is registered or about recent transactions in your account.
Galaxy normally pays you cash when you sell your shares, but it has the right to
deliver securities owned by a Fund instead of cash. When you sell these
securities, you'll pay brokerage charges.
Sales proceeds are normally sent to you within three business days but Galaxy
reserves the right to send sales proceeds within seven days if sending proceeds
earlier could adversely affect a Fund.
If any shares that you're selling are part of an investment you've paid for with
a personal check, Galaxy will delay sending your sales proceeds until the check
clears, which can take up to 15 days from the purchase date.
Galaxy reserves the right to vary or waive any minimum investment requirement.
-36-
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Fund declares dividends from net investment income daily and pays them
within five business days after the end of each month. Although the Funds do not
expect to realize net long-term capital gains, any capital gains realized will
be distributed at least annually. Dividends and distributions are paid in cash
unless you indicate in the account application or in a letter to Galaxy that you
want to have dividends and distributions reinvested in additional shares.
MONEY MARKET, GOVERNMENT AND U.S. TREASURY FUNDS
Distributions by these Funds will generally be taxable to shareholders. Each of
these Funds expects that all, or substantially all, of its distributions will
consist of ordinary income. You will be subject to income tax on these
distributions regardless whether they are paid in cash or reinvested in
additional shares. The one major exception to these tax principles is that
distributions on shares held in an IRA (or other tax-qualified plan) will not be
currently taxable.
TAX-EXEMPT, CONNECTICUT MUNICIPAL MONEY MARKET, MASSACHUSETTS MUNICIPAL MONEY
MARKET AND NEW YORK MUNICIPAL MONEY MARKET FUNDS
Distributions by these Funds will generally consist of dividends derived from
interest earned on exempt securities, and these "exempt-interest dividends" will
be exempt income for shareholders for federal income tax purposes. It is
possible, depending upon a Fund's investments, that a portion of the Fund's
distributions could be taxable to shareholders as ordinary income or capital
gains, but none of these Funds expects that this will be the case.
Interest on indebtedness incurred by a shareholder to purchase or carry shares
of these Funds generally will not be deductible for federal income tax purposes.
You should note that a portion of the exempt-interest dividends paid by one or
more of these Funds may constitute an item of tax preference for purposes of
determining federal alternative minimum tax liability. Exempt-interest dividends
will also be considered along with other adjusted gross income in determining
whether any Social Security or railroad retirement payments received by you are
subject to federal income taxes.
CONNECTICUT MUNICIPAL MONEY MARKET FUND
This Fund intends to comply with certain state tax requirements so that its
dividends will generally be exempt from the Connecticut state income tax on
individuals, trusts and estates ("CSIT"). However, dividends, if any, derived
from interest on securities other than Connecticut municipal securities, or from
any capital gains, will be subject to the CSIT.
-37-
<PAGE>
MASSACHUSETTS MUNICIPAL MONEY MARKET FUND
This Fund intends to comply with certain state tax requirements so that its
dividends will generally be exempt from the Massachusetts personal income tax.
However, dividends, if any, derived from interest on securities other than
Massachusetts municipal securities, or from any capital gains, will be subject
to Massachusetts personal income tax.
NEW YORK MUNICIPAL MONEY MARKET FUND
This Fund intends to comply with certain state tax requirements so that its
dividends will be generally exempt from the New York State and New York City
personal income tax. However, dividends, if any, derived from interest on
securities other than New York municipal securities, or from any capital gains,
will be subject to the New York State and New York City personal income tax.
ALL FUNDS
Taxable dividends paid in January may be taxable as if they had been paid the
previous December. Each year you'll receive in the mail federal tax information
on distributions paid by the Funds.
OTHER STATE AND LOCAL TAX MATTERS
Generally, shareholders may also be subject to state and local taxes on
distributions and redemptions. State income taxes may not apply however to the
portions of each Fund's distributions, if any, that are attributable to interest
on U.S. Government securities or on securities of the particular state or
localities within the state.
MISCELLANEOUS
The foregoing is only a summary of certain tax considerations under current law,
which may be subject to change in the future. You should consult your tax
adviser for further information regarding federal, state, local and/or foreign
tax consequences relevant to your specific situation.
-38-
<PAGE>
GALAXY INVESTOR PROGRAMS
RETIREMENT PLANS
Retail A Shares and Retail B Shares of the Funds are available for purchase in
connection with any of the following retirement plans:
- - Individual Retirement Arrangements (IRAs), including Traditional, Roth,
Rollover and Education IRAs
- - Simplified Employee Pension Plans (SEPs)
- - Keogh money purchase and profit sharing plans
- - Salary reduction retirement plans set up by employers for their employees,
which are qualified under Section 401(k) and 403(b) of the Internal Revenue
Code
- - SIMPLE IRA plans which are qualified under Section 408(p) of the Internal
Revenue Code
For information about eligibility requirements and other matters concerning
these plans and to obtain an application, call Galaxy's distributor at
1-877-BUY-GALAXY (1-877-289-4252).
OTHER PROGRAMS
It's also easy to buy or sell shares of the Funds by using one of the programs
described below. Just tell Galaxy the amount and how frequently you want to buy
or sell shares and Galaxy does the rest. For further information on any of these
programs, call Galaxy's distributor at 1-877-BUY-GALAXY (1-877-289-4252) or your
financial institution.
AUTOMATIC INVESTMENT PROGRAM
You can make automatic investments from your bank account every month or every
quarter. You can choose to make your investment on any day of the month or
quarter. The minimum investment is $50 a month or $150 a quarter except for
Education IRAs, in which case the minimum investment is $40 a month or $125 a
quarter.
PAYROLL DEDUCTION PROGRAM
You can make regular investments from your paycheck. The minimum investment is
$25 per pay period. Send a completed Galaxy Payroll Deduction Application to
your employer's payroll department. They'll arrange to have your investment
deducted from your paycheck.
COLLEGE INVESTMENT PROGRAM
The minimum for initial and additional investments through the College
Investment Program is $100 unless you participate in the Automatic Investment
Program, in which case the minimum for initial and additional investments is
$50. You can also save for college by opening an Education IRA account. The
minimum for initial and additional investments in an Education
-39-
<PAGE>
IRA is $100 unless you participate in the Automatic Investment Program, in which
case the minimum for initial and additional investments is $40.
CHECKWRITING
You can sign up for Galaxy's checkwriting privilege by completing the signature
card that accompanies the account application or by writing or calling Galaxy's
distributor at 1-877-BUY-GALAXY (1-877-289-4252) to obtain a signature card.
There is no limit on the number of checks you can write each month, although
each check must be in an amount of at least $250. Galaxy may impose a fee for
use of the checkwriting privilege. Please note that you can't write a check to
close your account.
DIRECT DEPOSIT PROGRAM
This program lets you deposit your Social Security payments in your Fund account
automatically. There's no minimum deposit. You can cancel the program by
notifying the Social Security Administration in writing.
SYSTEMATIC WITHDRAWAL PLAN
You can make regular withdrawals from your investment account every month, every
quarter, every six months or once a year. You need a minimum account balance of
$10,000 to participate in the plan. No CDSC will be charged on withdrawals of
Retail B Shares of the Money Market Fund made through the plan that don't
annually exceed 12% of your account's value.
You may cancel your participation in any of these programs, other than the
Direct Deposit Program, by writing to Galaxy at:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
Please allow at least five days for the cancellation to be processed.
-40-
<PAGE>
HOW TO REACH GALAXY
THROUGH YOUR FINANCIAL INSTITUTION
Your financial institution can help you buy, sell or exchange shares and can
answer questions about your account.
GALAXY SHAREHOLDER SERVICES
Call Galaxy's distributor at 1-877-BUY-GALAXY (1-877-289-4252), Monday through
Friday, 8 a.m. to 6 p.m. (Eastern time) for help from a Galaxy representative.
INVESTCONNECT
InvestConnect is Galaxy's Shareholder Voice Response System. Call
1-877-BUY-GALAXY (1-877-289-4252) from any touch-tone phone for automated access
to account information and current Fund prices and performance, or to place
orders to sell or exchange shares. It's available 24 hours a day, seven days a
week.
If you live outside the United States, you can contact Galaxy by calling
1-508-871-4121.
THE INTERNET
Please visit Galaxy's website at:
www.galaxyfunds.com
[Sidenote:]
Galaxy also offers a TDD service for the hearing impaired. Just call
1-800-696-6515, 24 hours a day, seven days a week.
-41-
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables shown below will help you understand the
financial performance for the Funds' Retail A Shares and/or Retail B Shares for
the past five years (or the period since a particular Fund began operations or a
particular class of shares was first offered). Certain information reflects the
financial performance of a single Retail A Share or Retail B Share. The total
returns in the tables represent the rate that an investor would have earned (or
lost) on an investment in Retail A Shares and/or Retail B Shares of each Fund,
assuming all dividends and distributions were reinvested. The information for
the fiscal year ended October 31, 1999 has been audited by , independent
auditors, whose report, along with the Funds' financial statements, are included
in the Funds' Annual Report and are incorporated by reference into the SAI. The
Annual Report and SAI are available free of charge upon request. The information
for the fiscal years ended October 31, 1995, 1996, 1997 and 1998 was audited by
Galaxy's former auditors, . No financial highlights are presented for
the New York Municipal Money Market Fund because the Fund had not commenced
operations prior to the date of this prospectus.
As discussed above in "Risk/return summary - Connecticut Municipal Money Market
Fund," prior to December 4, 1995, the predecessor to the Connecticut Municipal
Money Market Fund (Predecessor Fund) offered and sold two classes of shares,
Investment Shares and Trust Shares. Investment Shares of the Predecessor Fund
were similar to the Retail A Shares which the Connecticut Municipal Money Market
Fund currently offers. Accordingly, Trust Shares of the Predecessor Fund have
not been included in the financial highlights table for the Connecticut
Municipal Money Market Fund set forth below.
-42-
<PAGE>
Galaxy Money Market Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
--------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Retail A Retail B Retail A Retail B Retail A Retail B Retail A Retail A
Shares Shares Shares Shares Shares Shares(1) Shares Shares
------ ------ ------ ------ ------ --------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period......................... $1.00 $1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations:
Net investment income(2)......... 0.05 0.04 0.05 0.03 0.05 0.05
Net realized and unrealized gain
(loss) on investments....... -- -- -- -- -- --
Total from investment
operations................ 0.05 0.04 0.05 0.03 0.05 0.05
Less dividends:
Dividends from net investment
income (0.05) (0.04) (0.05) (0.03) (0.05) (0.05)
Dividends from net realized
capital gains............. -- -- -- -- -- --
Total dividends............. (0.05) (0.04) (0.05) (0.03) (0.05) (0.05)
Net increase (decrease) in net
asset value.................... -- -- -- -- -- --
Net asset value, end of period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- ------
Total return(3)................ 5.04% 4.33% 4.93% 2.66%(4) 4.78% 5.23%
Ratios/supplemental data:
Net assets, end of period (000's) $2,139,213 $l,607 $1,877,889 $ 749 $1,159,312 $580,762
Ratios to average net assets:
Net investment income including
reimbursement/ waiver 4.94% 4.26% 4.85% 4.27%(5) 4.67% 5.12%
Operating expenses including
reimbursement/waiver........ 0.67% 1.35% 0.69% 1.38%(5) 0.77% 0.74%
Operating expenses excluding
reimbursement/waiver........ 0.71% 1.39% 0.73% 1.42%(5) 0.80% 0.76%
--------------------
</TABLE>
(1) The Fund began offering Retail B Shares on March 6, 1997.
(2) Net investment income per share for Retail A Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for the years ended October 31, 1999, 1998, 1997, 1996 and 1995 was $ ,
$0.05, $0.05, $0.05 and $0.05, respectively. Net investment income per
share for Retail B Shares before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for the year ended October 31, 1998
and the period ended October 31, 1997 was $0.04 and $0.03, respectively.
(3) Calculation does not include the effect of any sales charge for Retail B
Shares. Total return for the year ended October 31, 1994 includes the
effect of the voluntary capital contribution of $1.6 million from the
Adviser in order to partially offset losses realized on the sale of certain
securities held by the Fund. Without this capital contribution, the total
return would have been 3.35%.
(4) Not annualized.
(5) Annualized.
-43-
<PAGE>
Galaxy Government Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
---------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Retail A Retail A Retail A Retail A Retail A
Shares Shares Shares Shares Shares
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations:
Net investment income(1)...... 0.05 0.05 0.05 0.05
Net realized and unrealized
gain (loss) on investments.. -- -- -- --
Total from investment
operations.................. 0.05 0.05 0.05 0.05
Less dividends:
Dividends from net investment
income...................... (0.05) (0.05) (0.05) (0.05)
Dividends from net realized
capital gains............... -- -- -- --
Total dividends............ (0.05) (0.05) (0.05) (0.05)
Net increase (decrease) in net
asset value................. -- -- -- --
Net asset value, end of
period...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- --------- ---------
Total return(2)................ 4.94% 4.85% 4.72% 5.20%
Ratios/supplemental data:
Net assets, end of period (000's) $352,799 $350,513 $326,411 $320,795
Ratios to average net assets:
Net investment income including
reimbursement/ waiver....... 4.84% 4.74% 4.62% 5.11%
Operating expenses including
reimbursement/waiver........ 0.70% 0.71% 0.75% 0.73%
Operating expenses excluding
reimbursement/waiver........ 0.71% 0.72% 0.76% 0.74%
--------------------
</TABLE>
(1) Net investment income per share for Retail A Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for the years ended October 31, 1999, 1998, 1997, 1996 and 1995 was $ ,
$0.05, $0.05, $0.05 and $0.05, respectively.
(2) Total return for the year ended October 31, 1994 includes the effect of the
voluntary capital contribution of $2.3 million from the Adviser in order to
partially offset losses realized on the sale of certain securities held by
the Fund. Without this capital contribution, the total return would have
been 3.49%.
-44-
<PAGE>
Galaxy U.S. Treasury Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
---------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Retail A Retail A Retail A Retail A Retail A
Shares Shares Shares Shares Shares
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment
operations:
Net investment income(1)....... 0.05 0.05 0.05 0.05
Net realized and unrealized
gain (loss) on investments.. -- -- -- --
Total from investment
operations................ 0.05 0.05 0.05 0.05
Less dividends:
Dividends from net investment
income...................... (0.05) (0.05) (0.05) (0.05)
Dividends from net realized
capital gains............... -- -- -- --
Total dividends............ (0.05) (0.05) (0.05) (0.05)
Net increase (decrease) in net
asset value.................... -- -- -- --
Net asset value, end of
period......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------
Total return(2)................ 4.73% 4.67% 4.63% 4.99%
Ratios/supplemental data:
Net assets, end of period (000's) $559,053 $585,969 $443,230 $318,621
Ratios to average net assets:
Net investment income including
reimbursement/ waiver....... 4.63% 4.58% 4.53% 4.90%
Operating expenses including
reimbursement/waiver........ 0.68% 0.69% 0.69% 0.73%
Operating expenses excluding
reimbursement/waiver....... 0.68% 0.70% 0.69% 0.73%
--------------------
</TABLE>
(1) Net investment income per share for Retail A Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for the years ended October 31, 1999, 1998, 1997, 1996 and 1995 was $ _,
$0.05, $0.05, $0.05 and $0.05, respectively.
(2) Total return for the year ended October 31, 1994 includes the effect of the
voluntary capital contribution of $1 million from the Adviser in order to
partially offset losses realized on the sale of certain securities held by
the Fund. Without this capital contribution, the total return would have
been 3.30%.
-44-
<PAGE>
Galaxy Tax-Exempt Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
-------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Retail A Retail A Retail A Retail A Retail A
Shares Shares Shares Shares Shares
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment
operations:
Net investment income(1)...... 0.03 0.03 0.03 0.03
Net realized and unrealized
gain (loss) on investments.. -- -- -- --
Total from investment
operations................ 0.03 0.03 0.03 0.03
Less dividends:
Dividends from net investment
income...................... (0.03) (0.03) (0.03) (0.03)
Dividends from net realized
capital gains............... -- -- -- --
Total dividends............ (0.03) (0.03) (0.03) (0.03)
Net increase (decrease) in net -
asset value.................... -- -- -- --
Net asset value, end of
period......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------
Total return................... 2.89% 2.95% 2.82% 3.16%
Ratios/supplemental data:
Net assets, end of period (000's) $164,340 $151,907 $117,548 $127,056
Ratios to average net assets:
Net investment income including
reimbursement/ waiver....... 2.85% 2.92% 2.78% 3.12%
Operating expenses including
reimbursement/waiver........ 0.67% 0.68% 0.68% 0.68%
Operating expenses excluding
reimbursement/waiver........ 0.67% 0.69% 0.69% 0.71%
--------------------
</TABLE>
(1) Net investment income per share for Retail A Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for the years ended October 31, 1999, 1998, 1997, 1996 and 1995 was $ ,
$0.03, $0.03, $0.03 and $0.03, respectively.
-46-
<PAGE>
Galaxy Connecticut Municipal Money Market Fund(1)
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
--------------------------------------------------------------------
1999 1998 1997 1996(1) 1995
---- ---- ---- ----- ----
Retail A Retail A Retail A Retail A Retail A
Shares(2) Shares(2) Shares(2) Shares(2) Shares(2)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment
operations:
Net investment income(3)...... 0.03 0.03 0.03 0.03
Net realized and unrealized
gain (loss) on investments.. -- -- -- --
Total from investment
operations................ 0.03 0.03 0.03 0.03
Less dividends:
Dividends from net investment
income...................... (0.03) (0.03) (0.03) (0.03)
Dividends from net realized
capital gains............... -- -- -- --
Total dividends............ (0.03) (0.03) (0.03) (0.03)
Net increase (decrease) in net
asset value.................... -- -- -- --
Net asset value, end of
period......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------
Total return(4)................ 2.87% 2.94% 2.83% 2.94%
Ratios/supplemental data:
Net assets, end of period (000's) $165,186 $137,095 $110,544 $71,472
Ratios to average net assets:
Net investment income including
reimbursement/ waiver....... 2.83% 2.91% 2.79% 2.88%
Operating expenses including
reimbursement/waiver........ 0.62% 0.60% 0.64% 0.82%
Operating expenses excluding
reimbursement/waiver........ 0.65% 0.65% 0.73% 1.29%
- ----------------------------
</TABLE>
(1) The Fund commenced operations on October 4, 1993 as a separate investment
portfolio (the "Predecessor Fund") of The Shawmut Funds. On December 4,
1995, the Predecessor Fund was reorganized as a new portfolio of Galaxy
with a single series of shares. Prior to the reorganization, the
Predecessor Fund offered and sold two series of shares, Investment Shares
and Trust Shares. In connection with the reorganization, the shareholders
of the Predecessor Fund exchanged shares of each series for Shares in the
Fund.
(2) Prior to May 27, 1999, Retail A Shares were designated as Shares.
(3) Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or other parties for the fiscal years ended October 31, 1999,
1998, 1997 and 1996 was $ , $0.03, $0.03 and $0.03, respectively. Net
investment income per share before reimbursement/waiver of fees by other
parties for the fiscal years ended October 31, 1995 was $0.03 (unaudited).
(4) Calculation does not include the effect of any sales charge for Investment
Shares of the Predecessor Fund.
-47-
<PAGE>
Galaxy Massachusetts Municipal Money Market Fund(1)
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
------------------------------------------------------------------
1999 1998 1997 1996(1) 1995
---- ---- ---- ------- ----
Retail A Retail A Retail A Retail A Retail A
Shares Shares Shares Shares Shares
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment
operations:
Net investment income(3)...... 0.03 0.03 0.03 0.03
Net realized and unrealized
gain (loss) on investments.. -- -- -- --
Total from investment
operations................ 0.03 0.03 0.03 0.03
Less dividends:
Dividends from net investment
income...................... (0.03) (0.03) (0.03) (0.03)
Dividends from net realized
capital gains............... -- -- -- --
Total dividends............ (0.03) (0.03) (0.03) (0.03)
Net increase (decrease) in net
asset value.................... -- -- -- --
Net asset value, end of
period......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ------- ------- -------
Total return................... 2.86% 2.92% 2.83% 3.21%
Ratios/supplemental data:
Net assets, end of period (000's) $127,922 $80,966 $47,066 $40,326
Ratios to average net assets:
Net investment income including
reimbursement/ waiver....... 2.81% 2.90% 2.78% 3.16%
Operating expenses including
reimbursement/waiver........ 0.62% 0.61% 0.62% 0.57%
Operating expenses excluding
reimbursement/waiver........ 0.68% 0.69% 0.83% 1.06%
- -----------------------------
</TABLE>
(1) The Fund commenced operations on October 5, 1993 as a separate investment
portfolio (the "Predecessor Fund") of The Shawmut Funds. On December 4,
1995, the Predecessor Fund was reorganized as a new portfolio of Galaxy.
Prior to the reorganization, the Predecessor Fund offered and sold one
series of shares. In connection with the reorganization, the shareholders
of the Predecessor Fund exchanged shares for Shares in the Fund.
(2) Prior to May 27, 1999, Retail A Shares were designated as Shares.
(3) Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or other parties for the fiscal years ended October 31, 1999,
1998, 1997 and 1996 was $ , $0.03, $0.03 and $0.03, respectively. Net
investment income per share before reimbursement/waiver of fees by other
parties for the fiscal years ended October 31, 1995 was $0.03 (unaudited).
-48-
<PAGE>
[Back Cover Page]
Where to find more information
You'll find more information about the Funds in the following documents:
ANNUAL AND SEMI-ANNUAL REPORTS
Galaxy's annual and semi-annual reports contain more information about each Fund
and a discussion about the market conditions and investment strategies that had
a significant effect on each Fund's performance during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains detailed information about the Funds and their policies. By
law, it's incorporated by reference into (considered to be part of) this
prospectus.
You can get a free copy of these documents, request other information about the
Funds and make shareholder inquiries by calling Galaxy at 1-877-BUY-GALAXY
(1-877-289-4252) or by writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
If you buy your shares through a financial institution, you may contact your
institution for more information.
You can write to the Securities and Exchange Commission (SEC) Public Reference
Section and ask them to mail you information about the Funds, including the SAI.
They'll charge you a fee for this service. You can also visit the SEC Public
Reference Room and copy the documents while you're there. For information about
the operation of the Public Reference Room, call the SEC.
Public Reference Section of the SEC Washington, DC 20549- 0102.
1-202-942-8090
Reports and other information about the Funds are also available on the EDGAR
Database on the SEC's website at http://www.sec.gov. Copies of this information
may also be obtained, after paying a duplicating fee, by electronic request, to
the SEC's e-mail address at [email protected].
Galaxy's Investment Company Act File No. is 811-4636.
[Fleet assigned code]
<PAGE>
[Front cover page]
Galaxy Money Market Funds
The Galaxy Fund
Prospectus
____________, 2000
Galaxy Money Market Fund
Galaxy Government Fund
Galaxy Institutional Government Money Market Fund
Galaxy U.S. Treasury Fund
Galaxy Tax-Exempt Fund
Trust Shares
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved any shares of these Funds or determined if this
prospectus is accurate or complete. Anyone who tells you otherwise is committing
a crime.
<PAGE>
Contents
1 Risk/return summary
1 Introduction
3 Galaxy Money Market Fund
6 Galaxy Government Fund
9 Galaxy Institutional Government Money Market Fund
12 Galaxy U.S. Treasury Fund
15 Galaxy Tax-Exempt Fund
19 Additional information about risk
20 Investor Guidelines
21 Fund management
22 How to invest in the Funds
22 Buying, selling and exchanging shares
23 How to buy shares
23 How to sell shares
23 Other transaction policies
24 How to exchange shares -
Institutional Government Money Market Fund only
25 Dividends, distributions and taxes
27 Financial highlights
<PAGE>
RISK/RETURN SUMMARY
INTRODUCTION
This prospectus describes the Galaxy Money Market Funds. The Funds invest
primarily in short-term debt obligations, commonly known as money market
instruments, that are determined by the Funds' investment adviser to carry very
little risk. Money market instruments purchased by the Funds must meet strict
requirements as to investment quality, maturity and diversification. The Funds
don't invest in securities with remaining maturities of more than 397 days
(subject to certain exceptions) and the average maturity of all securities held
by a particular Fund must be 90 days or less. Each Fund tries to maintain its
share price at $1.00 to protect your investment from loss.
On the following pages you'll find important information about each Galaxy Money
Market Fund, including:
- - the Fund's investment objective (sometimes called the Fund's goal) and the
main investment strategies used by the Fund's investment adviser in trying
to achieve that objective
- - the main risks associated with an investment in the Fund
- - the Fund's past performance measured on both a year-by-year and long-term
basis
- - the fees and expenses that you will pay as an investor in the Fund
[Sidenote:]
MATURITY
The maturity of a security is the date when the issuer must repay the security's
entire principal amount to an investor, such as a Fund.
WHICH FUND IS RIGHT FOR YOU?
Not all mutual funds are right for all investors. Your investment goals and
tolerance for risk will determine which fund is right for you. On page __ you'll
find a table which sets forth general guidelines to help you decide which of the
Galaxy Money Market Funds is best suited to you.
THE FUNDS' INVESTMENT ADVISER
Fleet Investment Advisors Inc. (the "Adviser") is the investment adviser for all
of these Funds. The Adviser, an indirect wholly-owned subsidiary of FleetBoston
Corporation, was established in 1984 and has its main office at 75 State Street,
Boston, Massachusetts 02109. The Adviser also provides investment management and
advisory services to individual and
-1-
<PAGE>
institutional clients and manages the other Galaxy investment portfolios. As of
December 31, 1999, the Adviser managed over $__ billion in assets.
AN INVESTMENT IN THE FUNDS ISN'T A FLEET BANK DEPOSIT AND IT ISN'T INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. ALTHOUGH THE FUNDS SEEK TO PRESERVE THE VALUE OF YOUR INVESTMENT AT
$1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUNDS.
-2-
<PAGE>
Galaxy Money Market Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current income as is consistent with liquidity
and stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests in a diversified portfolio of money market instruments,
including commercial paper, notes and bonds issued by U.S. corporations,
obligations issued by the U.S. Government and its agencies and
instrumentalities, and obligations issued by U.S. and foreign banks, such as
certificates of deposit. The Fund also invests in repurchase agreements backed
by U.S. Government obligations.
The Fund will only buy a security if it has the highest short-term rating from
at least two nationally recognized statistical rating organizations, or one such
rating if only one organization has rated the security. If the security is not
rated, it must be determined by the Adviser to be of comparable credit quality.
[Sidenote:]
REPURCHASE AGREEMENTS
Repurchase agreements are transactions in which a fund buys securities from a
seller (usually a bank or broker-dealer) who agrees to buy them back from the
fund on a certain date and at a certain price.
THE MAIN RISKS OF INVESTING IN THE FUND
While money market funds are considered to be among the safest of all
investments, they are not risk free. Here are the main risks associated with an
investment in the Fund:
- - INTEREST RATE RISK - The yield paid by the Fund will vary with changes in
short-term interest rates.
- - CREDIT RISK - Although credit risk is very low because the Fund only
invests in high quality obligations, if an issuer fails to pay interest or
repay principal, the value of your investment could decline.
- - REPURCHASE AGREEMENTS - Repurchase agreements carry the risk that the
other party may not fulfill its obligations under the agreement. This
could cause the value of your investment to decline.
-3-
<PAGE>
- - SHARE PRICE - There's no guarantee the Fund will be able to preserve the
value of your investment at $1.00 per share.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares of the Fund has varied
from year to year.
[SIDENOTE:]
BEST QUARTER: ___% FOR THE QUARTER ENDING ______, ____
WORST QUARTER: ___% FOR THE QUARTER ENDING ______, ____
[bar chart goes here]
<TABLE>
<CAPTION>
- -------------------- ------------------- ------------------ --------------------- ----------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ---
- -------------------- ------------------- ------------------ --------------------- ----------------
- -------------------- ------------------- ------------------ --------------------- ----------------
<S> <C> <C> <C> <C>
5.50% 4.94% 5.19% 5.14% ____%
- -------------------- ------------------- ------------------ --------------------- ----------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999.
<TABLE>
<CAPTION>
- --------------------------- -------------------- --------------------- ---------------------------
1 year 5 YEARS Since inception
- --------------------------- -------------------- --------------------- ---------------------------
- --------------------------- -------------------- --------------------- ---------------------------
<S> <C> <C> <C>
Trust Shares _____% ______% _____% (11/1/94)
- --------------------------- -------------------- --------------------- ---------------------------
</TABLE>
To obtain the Fund's current 7-day yield, please call 1-877-BUY-GALAXY
(1-877-289-4252).
-4-
<PAGE>
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- ------------------------- ---------------------- ---------------------- ----------------------- ----------------------
Distribution (12b-1) Total Fund operating
Management fees fees Other expenses expenses
- ------------------------- ---------------------- ---------------------- ----------------------- ----------------------
- ------------------------- ---------------------- ---------------------- ----------------------- ----------------------
<S> <C> <C> <C> <C>
Trust Shares 0.40%(1) None _____% _____%1
- ------------------------- ---------------------- ---------------------- ----------------------- ----------------------
</TABLE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be _____%. Total Fund operating expenses after this waiver
are expected to be _____%. This fee waiver may be revised or discontinued
at any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- ----------------------- --------------------- -------------------- --------------------- --------------------
1 year 3 years 5 years 10 years
- ----------------------- --------------------- -------------------- --------------------- --------------------
- ----------------------- --------------------- -------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Trust Shares $____ $____ $____ $____
- ----------------------- --------------------- -------------------- --------------------- --------------------
</TABLE>
-5-
<PAGE>
Galaxy Government Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current income as is consistent with liquidity
and stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests primarily in U.S. Government obligations, including U.S.
Treasury obligations and obligations of U.S. Government agencies and
instrumentalities. The Fund also invests in repurchase agreements backed by
these obligations.
[Sidenote:]
U.S. GOVERNMENT OBLIGATIONS
U.S. Government obligations are debt obligations issued or guaranteed by the
U.S. Government or one of its agencies or instrumentalities. U.S. Government
obligations generally have less credit risk than other debt obligations.
THE MAIN RISKS OF INVESTING IN THE FUND
While money market funds are considered to be among the safest of all
investments, they are not risk free. Here are the main risks associated with an
investment in the Fund:
- - INTEREST RATE RISK - The yield paid by the Fund will vary with changes in
short-term interest rates.
- - CREDIT RISK - Although U.S. Government securities have historically
involved little credit risk, if an issuer fails to pay interest or repay
principal, the value of your investment could decline.
- - REPURCHASE AGREEMENTS - Repurchase agreements carry the risk that the
other party may not fulfill its obligations under the agreement. This
could cause the value of your investment to decline.
- - SHARE PRICE - There's no guarantee the Fund will be able to preserve the
value of your investment at $1.00 per share.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
-6-
<PAGE>
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares of the Fund has varied
from year to year.
[SIDENOTE:]
BEST QUARTER: ___% FOR THE QUARTER ENDING _______,__
WORST QUARTER: ___% FOR THE QUARTER ENDING _______,__
[bar chart goes here]
<TABLE>
<CAPTION>
- ----------------------- --------------------- ---------------- ------------------ ----------------
1995 1996 1997 1998 1999
- ----------------------- --------------------- ---------------- ------------------ ----------------
- ----------------------- --------------------- ---------------- ------------------ ----------------
<S> <C> <C> <C> <C>
5.47% 4.89% 5.10% 5.06% ___%
- ----------------------- --------------------- ---------------- ------------------ ----------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999.
<TABLE>
<CAPTION>
- --------------------------- ------------------- ------------------------- ------------------------
1 year 5 YEARS Since inception
- --------------------------- ------------------- ------------------------- ------------------------
- --------------------------- ------------------- ------------------------- ------------------------
<S> <C> <C> <C>
Trust Shares ____% ____% ____% (11/1/94)
- --------------------------- ------------------- ------------------------- ------------------------
</TABLE>
To obtain the Fund's current 7-day yield, please call 1-877-BUY-GALAXY
(1-877-289-4252).
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
-7-
<PAGE>
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- ------------------------- ---------------------- ---------------------- ----------------------- ----------------------
Distribution (12b-1) Total Fund operating
Management fees fees Other expenses expenses
- ------------------------- ---------------------- ---------------------- ----------------------- ----------------------
- ------------------------- ---------------------- ---------------------- ----------------------- ----------------------
<S> <C> <C> <C> <C>
Trust Shares 0.40%(1) None _____% _____%(1)
- ------------------------- ---------------------- ---------------------- ----------------------- ----------------------
</TABLE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be ____%. Total Fund operating expenses after this waiver
are expected to be ____%. This fee waiver may be revised or discontinued
at any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- ----------------------- --------------------- -------------------- --------------------- --------------------
1 year 3 years 5 years 10 years
- ----------------------- --------------------- -------------------- --------------------- --------------------
- ----------------------- --------------------- -------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Trust Shares $___ $___ $___ $___
- ----------------------- --------------------- -------------------- --------------------- --------------------
</TABLE>
-8-
<PAGE>
Galaxy Institutional Government Money Market Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks current income with liquidity and stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests primarily in U.S. Government obligations, including U.S.
Treasury obligations and obligations of U.S. Government agencies and
instrumentalities. The Fund also invests in repurchase agreements backed by
these obligations.
THE MAIN RISKS OF INVESTING IN THE FUND
While money market funds are considered to be among the safest of all
investments, they are not risk free. Here are the main risks associated with an
investment in the Fund:
- - INTEREST RATE RISK - The yield paid by the Fund will vary with changes in
short-term interest rates.
- - CREDIT RISK - Although U.S. Government securities have historically
involved little credit risk, if an issuer fails to pay interest or repay
principal, the value of your investment could decline.
- - REPURCHASE AGREEMENTS - Repurchase agreements carry the risk that the
other party may not fulfill its obligations under the agreement. This
could cause the value of your investment to decline.
- - SHARE PRICE - There's no guarantee the Fund will be able to preserve the
value of your investment at $1.00 per share.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future. The Fund offers only one class of shares which are referred to in
this prospectus as Trust Shares.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares of the Fund has varied
from year to year.
-9-
<PAGE>
[SIDENOTE:]
BEST QUARTER: ___% FOR THE QUARTER ENDING _________, ____
WORST QUARTER: ___% FOR THE QUARTER ENDING _________, ____
[bar chart goes here]
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999
----
- -------------------- ----------------- --------------- ------------------- ------------------ --------------------
- -------------------- ----------------- --------------- ------------------- ------------------ --------------------
<S> <C> <C> <C> <C> <C>
3.92% 5.58% 5.06% 5.11% 5.30% ____%
-----
- -------------------- ----------------- --------------- ------------------- ------------------ --------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
DECEMBER 31, 1999.
<TABLE>
<CAPTION>
- --------------------------- ------------------- ---------------------- ----------------------
1 Year 5 Years Since inception
- --------------------------- ------------------- ---------------------- ----------------------
- --------------------------- ------------------- ---------------------- ----------------------
<S> <C> <C> <C>
Trust Shares ____% ____% ____% (4/15/93)
- --------------------------- ------------------- ---------------------- ----------------------
</TABLE>
To obtain the Fund's current 7-day yield, please call 1-877-BUY-GALAXY
(1-877-289-4252).
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- -------------------- ------------------------ ---------------- -------------------- ----------------------------------
Distribution Total Fund
Management fees (12b-1) fees Other expenses operating expenses
- -------------------- ------------------------ ---------------- -------------------- ----------------------------------
- -------------------- ------------------------ ---------------- -------------------- ----------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.20%(1) None ____%(1) ____%(1)
- -------------------- ------------------------ ---------------- -------------------- ----------------------------------
</TABLE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be ___%. The Fund's administrator is waiving a portion of
the administration fees so that Other expenses are expected to be ___%.
Total Fund operating expenses after these waivers are expected to be ___%.
These fee waivers may be revised or discontinued at any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
-10-
<PAGE>
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- ----------------------- --------------------- -------------------- --------------------- --------------------
1 Year 3 Years 5 Years 10 Years
- ----------------------- --------------------- -------------------- --------------------- --------------------
- ----------------------- --------------------- -------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Trust Shares $___ $___ $___ $___
- ----------------------- --------------------- -------------------- --------------------- --------------------
</TABLE>
-11-
<PAGE>
Galaxy U.S. Treasury Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks current income with liquidity and stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests primarily in securities issued or guaranteed by the U.S.
Treasury and certain U.S. Government agencies and instrumentalities that provide
income that is generally not subject to state income tax.
[Sidenote:]
U.S. TREASURY OBLIGATIONS
U.S. Treasury obligations are among the safest of all investments because they
are backed by the "full faith and credit" of the U.S. Government.
THE MAIN RISKS OF INVESTING IN THE FUND
While money market funds are considered to be among the safest of all
investments, they are not risk free. Here are the main risks associated with an
investment in the Fund:
- - INTEREST RATE RISK - The yield paid by the Fund will vary with changes in
short-term interest rates.
- - CREDIT RISK - Although U.S. Government securities, particularly U.S.
Treasury securities, have historically involved little credit risk, if an
issuer fails to pay interest or repay principal, the value of your
investment could decline.
- - SHARE PRICE - There's no guarantee the Fund will be able to preserve the
value of your investment at $1.00 per share.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
-12-
<PAGE>
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares of the Fund has varied
from year to year.
[SIDENOTE:]
BEST QUARTER: ____% FOR THE QUARTER ENDING __________, ____
WORST QUARTER: ____% FOR THE QUARTER ENDING __________, ____
[bar chart goes here]
<TABLE>
<CAPTION>
- ----------------------- --------------------- ------------------- ------------------------ -------------------
1995 1996 1997 1998 1999
- ----------------------- --------------------- ------------------- ------------------------ -------------------
- ----------------------- --------------------- ------------------- ------------------------ -------------------
<S> <C> <C> <C> <C>
5.23% 4.76% 4.88% 4.80% ____%
- ----------------------- --------------------- ------------------- ------------------------ -------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999.
<TABLE>
<CAPTION>
- --------------------------- ------------------------ ------------------------ ------------------------
1 year 5 YEARS Since inception
- --------------------------- ------------------------ ------------------------ ------------------------
- --------------------------- ------------------------ ------------------------ ------------------------
<S> <C> <C> <C>
Trust Shares ____% ____% ____% (11/1/94)
- --------------------------- ------------------------ ------------------------ ------------------------
</TABLE>
To obtain the Fund's current 7-day yield, please call 1-877-BUY-GALAXY
(1-877-289-4252).
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- -------------------- ------------------------ ---------------- -------------------- ----------------------------------
Distribution Total Fund
Management fees (12b-1) fees Other expenses operating expenses
- -------------------- ------------------------ ---------------- -------------------- ----------------------------------
- -------------------- ------------------------ ---------------- -------------------- ----------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.39% None ____% ____%
- -------------------- ------------------------ ---------------- -------------------- ----------------------------------
</TABLE>
-13-
<PAGE>
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- ----------------------- --------------------- -------------------- --------------------- --------------------
1 year 3 years 5 years 10 years
- ----------------------- --------------------- -------------------- --------------------- --------------------
- ----------------------- --------------------- -------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Trust Shares $____ $____ $____ $____
- ----------------------- --------------------- -------------------- --------------------- --------------------
</TABLE>
-14-
<PAGE>
Galaxy Tax-Exempt Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current interest income exempt from federal
income tax as is consistent with stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities, which are securities issued by state and local governments and other
political or public bodies or agencies and that pay interest which is exempt
from regular federal income tax. Under normal conditions, the Fund will invest
no more than 20% of its total assets in taxable obligations, such as U.S.
Government obligations, money market instruments and repurchase agreements.
Municipal securities purchased by the Fund may include general obligation
securities, revenue securities and private activity bonds. The interest on
private activity bonds may be subject to the federal alternative minimum tax.
Investments in private activity bonds will not be treated as investments in
municipal securities for purposes of the 80% requirement stated above.
The Fund will only buy a security if it has one of the two highest short-term
ratings from at least two nationally recognized statistical rating
organizations, or one such rating if only one organization has rated the
security. If the security is not rated, it must be determined by the Adviser to
be of comparable credit quality.
[Sidenote:]
MUNICIPAL SECURITIES
State and local governments issue municipal securities to raise money to finance
public works, to repay outstanding obligations, to raise funds for general
operating expenses and to make loans to other public institutions. Some
municipal securities, known as private activity bonds, are issued to finance
projects for private companies. Municipal securities, which can be issued as
bonds, notes or commercial paper, usually have fixed interest rates, although
some have interest rates that change from time to time.
[Sidenote:]
TYPES OF MUNICIPAL SECURITIES
GENERAL OBLIGATION securities are secured by the issuer's full faith, credit and
taxing power. REVENUE OBLIGATION securities are usually payable only from
revenues derived from specific facilities or revenue sources. PRIVATE ACTIVITY
BONDS are usually revenue obligations since they are typically payable by the
private user of the facilities financed by the bonds.
-15-
<PAGE>
THE MAIN RISKS OF INVESTING IN THE FUND
While money market funds are considered to be among the safest of all
investments, they are not risk free. Here are the main risks associated with an
investment in the Fund:
- - INTEREST RATE RISK - The yield paid by the Fund will vary with changes in
short-term interest rates.
- - CREDIT RISK - Although credit risk is very low because the Fund only
invests in high quality obligations, if an issuer fails to pay interest or
repay principal, the value of your investment could decline. The ability
of a state or local government issuer to make payments can be affected by
many factors, including economic conditions, the flow of tax revenues and
changes in the level of federal, state or local aid.
- - SHARE PRICE - There's no guarantee the Fund will be able to preserve the
value of your investment at $1.00 per share.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares of the Fund has varied
from year to year.
[SIDENOTE:]
BEST QUARTER: ____% FOR THE QUARTER ENDING __________, ____
WORST QUARTER: ____% FOR THE QUARTER ENDING __________, ____
[bar chart goes here]
<TABLE>
<CAPTION>
- ----------------------- --------------------- ------------------- ------------------------ --------------------
1995 1996 1997 1998 1999
- ----------------------- --------------------- ------------------- ------------------------ --------------------
- ----------------------- --------------------- ------------------- ------------------------ --------------------
<S> <C> <C> <C> <C>
3.34 2.92% 3.14% 2.95% ____%
-----
- ----------------------- --------------------- ------------------- ------------------------ --------------------
</TABLE>
-16-
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999.
<TABLE>
<CAPTION>
- --------------------------- ------------------ ---------------------------- -----------------------------
1 year 5 YEARS Since inception
- --------------------------- ------------------ ---------------------------- -----------------------------
- --------------------------- ------------------ ---------------------------- -----------------------------
<S> <C> <C> <C>
Trust Shares ____% ____% ____% (11/1/94)
- --------------------------- ------------------ ---------------------------- -----------------------------
</TABLE>
To obtain the Fund's current 7-day yield, please call 1-877-BUY-GALAXY
(1-877-289-4252).
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- -------------------- ------------------------ ---------------- -------------------- ----------------------------------
Distribution Total Fund
Management fees (12b-1) fees Other expenses operating expenses
- -------------------- ------------------------ ---------------- -------------------- ----------------------------------
- -------------------- ------------------------ ---------------- -------------------- ----------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.40% None ____% ____%
- -------------------- ------------------------ ---------------- -------------------- ----------------------------------
</TABLE>
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- ----------------------- --------------------- -------------------- --------------------- --------------------
1 year 3 years 5 years 10 years
- ----------------------- --------------------- -------------------- --------------------- --------------------
- ----------------------- --------------------- -------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Trust Shares $____ $____ $____ $____
- ----------------------- --------------------- -------------------- --------------------- --------------------
</TABLE>
[Sidenote:]
TAX-EQUIVALENT YIELD
One way to understand the tax advantages of a tax-exempt fund is to compare its
after-tax return to that of a taxable investment. For example, suppose a taxable
fund pays a return of 10%. If you're in the 36% federal income tax bracket, the
fund's return after taxes is 6.4%. When a tax-
-17-
<PAGE>
exempt fund pays a return of 10%, you don't pay tax. So if you're in the 36% tax
bracket that's the equivalent of earning about 15.6% on a taxable fund. If
you're in a low tax bracket, however, it may not be helpful to invest in a
tax-exempt fund if you can achieve a higher after-tax return from a taxable
investment.
-18-
<PAGE>
ADDITIONAL INFORMATION ABOUT RISK
The main risks associated with an investment in each of the Galaxy Money Market
Funds have been described above. The following supplements that discussion.
TEMPORARY DEFENSIVE POSITIONS
Each Fund may temporarily hold up to 100% of its total assets in investments
that aren't part of its main investment strategy during unfavorable market
conditions. These investments may include cash (which will not earn any income)
and, in the case of the Tax-Exempt Fund, short-term taxable investments, such as
money market instruments and debt securities issued or guaranteed by the U.S.
Government or its agencies, in excess of 20% of the Fund's assets. This strategy
could prevent a Fund from achieving its investment objective.
OTHER TYPES OF INVESTMENTS
This prospectus describes each Fund's main investment strategies and the
particular types of securities in which each Fund mainly invests. Each Fund
may, from time to time, pursue other investment strategies and make other
types of investments in support of its overall investment goal. These
supplemental investment strategies, which are not considered to be main
investment strategies of the Fund - and the risks involved - are described in
detail in the Statement of Additional Information (SAI) which is referred to
on the back cover of this prospectus.
-19-
<PAGE>
INVESTOR GUIDELINES
The table below provides information as to which type of investor might want to
invest in each of the Galaxy Money Market Funds. It's meant as a general guide
only. TAX-EXEMPT FUNDS ARE GENERALLY NOT APPROPRIATE INVESTMENTS FOR
TAX-DEFERRED RETIREMENT ACCOUNTS, SUCH AS IRAS, BECAUSE THEIR RETURNS BEFORE
TAXES ARE GENERALLY LOWER THAN THOSE OF TAXABLE FUNDS. Consult your financial
institution or plan administrator for help in deciding which Fund is right for
you.
<TABLE>
<CAPTION>
Galaxy Fund May be best suited for...
- ------------------------------------------------------- -----------------------------------------------------
<S> <C>
Galaxy Money Market Fund investors who want a
flexible and convenient
way to manage cash while
earning money market
returns
- ------------------------------------------------------- -----------------------------------------------------
Galaxy Government Fund investors who want a way to earn money market
returns with the extra margin of safety associated
with U.S. Government obligations
- ------------------------------------------------------- -----------------------------------------------------
Galaxy Institutional Government Money Market Fund institutional investors
who want a way to earn
money market returns
with the extra margin of
safety associated with
U.S. Government
obligations
- ------------------------------------------------------- -----------------------------------------------------
Galaxy U.S. Treasury Fund investors who want a way to earn money market
returns from U.S. Treasury obligations that are
generally free from state and local taxes
- ------------------------------------------------------- -----------------------------------------------------
Galaxy Tax-Exempt Fund investors who want a way
to earn money market
returns that are free
from federal income tax
- ------------------------------------------------------- -----------------------------------------------------
</TABLE>
-20-
<PAGE>
FUND MANAGEMENT
ADVISER
The Adviser, subject to the general supervision of Galaxy's Board of Trustees,
manages each Fund in accordance with its investment objective and policies,
makes decisions with respect to, and places orders for, all purchases and sales
of portfolio securities, and maintains related records.
ALLOCATION OF ORDERS FOR PORTFOLIO SECURITIES
The Adviser may allocate orders for the purchase and sale of portfolio
securities to certain financial institutions, including those that are
affiliated with the Adviser or that have sold shares of the Funds, to the extent
permitted by law or by order of the Securities and Exchange Commission. The
Adviser will allocate orders to such institutions only if it believes that the
quality of the transaction and the commission are comparable to what they would
be with other qualified brokerage firms.
MANAGEMENT FEES
The management fees paid to the Adviser by the Funds during the last fiscal year
are set forth below.
<TABLE>
<CAPTION>
Fund Management fee as a
% of average net assets
- ------------------------------------------------------- ------------------------------------
<S> <C>
Money Market ____%
- ------------------------------------------------------- ------------------------------------
Government ____%
- ------------------------------------------------------- ------------------------------------
Institutional Government Money Market ____%
- ------------------------------------------------------- ------------------------------------
U.S. Treasury ____%
- ------------------------------------------------------- ------------------------------------
Tax-Exempt ____%
- ------------------------------------------------------- ------------------------------------
</TABLE>
SUB-ACCOUNT SERVICES
Affiliates of the Adviser and certain other parties may receive fees from
Galaxy's transfer agent for providing certain sub-accounting and administrative
services to participant sub-accounts with respect to Trust Shares of the Funds
(other than the Tax-Exempt Fund) held by defined contribution plans. The
transfer agency fees payable by Trust Shares of the Funds have been increased by
an amount equal to these fees, so that the holders of Trust Shares indirectly
bear these fees.
-21-
<PAGE>
HOW TO INVEST IN THE FUNDS
BUYING, SELLING AND EXCHANGING SHARES
Trust Shares of the Funds (other than the Institutional Government Money Market
Fund) are available for purchase by the following types of investors:
- - Investors maintaining a qualified account at a bank or trust institution,
including subsidiaries of Fleetboston Corporation
- - Participants in employer-sponsored defined contribution plans
Qualified accounts include discretionary investment management accounts,
custodial accounts, agency accounts and different types of tax-advantaged
accounts. Your institution can provide more information about which types of
accounts are eligible.
Trust Shares of the Institutional Government Money Market Fund are available for
purchase by financial institutions, such as banks, savings and loan associations
and broker-dealers, including financial institutions affiliated with the
Adviser, that are purchasing shares of the Fund on behalf of their customers.
You can buy and sell Trust Shares of the Funds on any business day. A business
day is any day that Galaxy's distributor, Galaxy's custodian and your financial
institution or employer-sponsored plan are open for business.
If your order to buy shares is received and accepted by Galaxy's distributor by
11:00 a.m. (Eastern time) on a business day, the price you pay will be the net
asset value (NAV) per share next determined (and you'll receive that day's
dividend) if Galaxy's custodian receives the purchase price in immediately
available funds by 11:00 a.m. that day. If your order to purchase shares is
received and accepted by Galaxy's distributor after 11:00 a.m. (Eastern time)
but before 4:00 p.m. (Eastern time) on a business day, the price you pay will be
the NAV next determined (and you'll begin receiving dividends the next day) if
Galaxy's custodian receives the purchase price in immediately available funds by
4:00 p.m. on the day of your order. The price at which you sell shares is the
NAV per share next determined after receipt of your order. NAV is determined on
each day the New York Stock Exchange is open for trading as of 11:00 a.m.
(Eastern time) and at the close of regular trading that day (usually 4:00 p.m.
Eastern time). The New York Stock Exchange is generally open for trading every
Monday through Friday, except for national holidays.
The Funds' assets are valued at amortized cost, which is approximately equal to
market value.
[Sidenote:]
NET ASSET VALUE
The price you pay for your shares is based on the net asset value per share
(NAV). It's the value of a fund's assets attributable to Trust Shares, minus the
value of the fund's liabilities attributable to Trust Shares, divided by the
number of Trust Shares held by investors.
-22-
<PAGE>
HOW TO BUY SHARES
You can buy Trust Shares by following the procedures established by your
financial institution or your employer-sponsored plan. Your financial
institution or plan administrator is responsible for sending your order to
Galaxy's distributor and wiring payment to Galaxy's custodian. The FINANCIAL
institution or employer-sponsored plan holds the shares in your name and
receives all confirmations of purchases and sales.
[Sidenote:]
INVESTMENT MINIMUMS
Except for the Institutional Government Money Market Fund, Galaxy does not have
any minimum investment requirements for initial or additional investments in
Trust Shares but financial institutions and employer-sponsored plans may do so.
They may also require you to maintain a minimum account balance.
The minimum initial aggregate investment by a financial institution purchasing
shares of the Institutional Government Money Market Fund on behalf of its
customers is $2,000,000. There is no minimum investment requirement for
additional purchases.
HOW TO SELL SHARES
You can sell Trust Shares by following the procedures established by your
financial institution or your employer-sponsored plan. Your financial
institution or plan administrator is responsible for sending your order to
Galaxy's distributor and for crediting your account with the proceeds. Galaxy
doesn't charge for wiring the proceeds, but your financial institution or
employer-sponsored plan may do so. Contact your financial institution or plan
administrator for more information.
OTHER TRANSACTION POLICIES
Galaxy may refuse any order to buy shares. Galaxy doesn't issue a certificate
when you buy shares but it does keep a record of shares issued to investors.
Sales proceeds are normally wired to your FINANCIAL institution or plan
administrator on the next business day but Galaxy reserves the right to send
sales proceeds within seven days if sending proceeds earlier could adversely
affect a Fund.
Galaxy may ask for any information it might reasonably need to make sure that
you've authorized a sale of shares.
-23-
<PAGE>
With respect to the Institutional Government Money Market Fund, Galaxy requires
that a financial institution maintain an average account balance of $2,000,000.
If the balance in the account falls below $2,000,000, Galaxy may require the
financial institution to sell all shares in the account. With respect to the
other Funds, Galaxy may close any account after 60 days' written notice if the
value of the account drops below $250 as a result of selling shares.
HOW TO EXCHANGE SHARES - INSTITUTIONAL GOVERNMENT MONEY MARKET FUND ONLY
If you are a customer of a financial institution, you may exchange Trust Shares
of the Institutional Government Money Market Fund having a value of at least
$100 for Retail A Shares of any other Galaxy Fund or for shares of any other
Fund that's managed by the Adviser or any of its affiliates in which you have an
existing account. Unless you qualify for a waiver, you'll have to pay a sales
charge when you exchange your Trust Shares of the Institutional Government Money
Market Fund for Retail A Shares of another Galaxy Fund that imposes a sales
charge on purchases.
TO EXCHANGE SHARES:
- - call Galaxy's distributor or use the InvestConnect voice response line at
1-877-BUY-GALAXY (1-877-289-4252)
- - send your request in writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
- - ask your financial institution
Galaxy doesn't charge any fee for making exchanges but your financial
institution might do so. You are generally limited to three exchanges per year.
Galaxy may refuse any exchange request and may change or cancel the exchange
privilege by giving 60 days' advance written notice to shareholders.
-24-
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Fund declares dividends from net investment income daily and pays them
within five business days after the end of each month. Although the Funds do not
expect to realize net long-term capital gains, any capital gains realized will
be distributed at least annually. Dividends and distributions are paid in cash
unless you indicate in the account application or in a letter to Galaxy that you
want to have dividends and distributions reinvested in additional shares.
MONEY MARKET, GOVERNMENT, INSTITUTIONAL GOVERNMENT MONEY MARKET AND U.S.
TREASURY FUNDS
Distributions by these Funds will generally be taxable to shareholders. Each of
these Funds expects that all, or substantially all, of its distributions will
consist of ordinary income. You will be subject to income tax on these
distributions regardless of whether they are paid in cash or reinvested in
additional shares. The one major exception to these tax principles is that
distributions on shares held in an IRA (or other tax-qualified plan) will not be
currently taxable.
TAX-EXEMPT FUND
Distributions by this Fund will generally consist of dividends derived from
interest earned on exempt securities, and these "exempt-interest dividends" will
be exempt income for shareholders for federal income tax purposes. It is
possible, depending upon the Fund's investments, that a portion of the Fund's
distributions could be taxable to shareholders as ordinary income or capital
gains, but the Fund does not expect that this will be the case.
Interest on indebtedness incurred by a shareholder to purchase or carry shares
of this Fund generally will not be deductible for federal income tax purposes.
You should note that a portion of the exempt-interest dividends paid by this
Fund may constitute an item of tax preference for purposes of determining
federal alternative minimum tax liability. Exempt-interest dividends will also
be considered along with other adjusted gross income in determining whether any
Social Security or railroad retirement payments received by you are subject to
federal income taxes.
ALL FUNDS
Taxable dividends paid in January may be taxable as if they had been paid the
previous December. Each year you'll receive in the mail federal tax information
on distributions paid by the Funds.
-25-
<PAGE>
STATE AND LOCAL TAXES
Generally, shareholders may also be subject to state and local taxes on
distributions , redemptions and exchanges. State income taxes may not apply
however to the portions of each Fund's distributions, if any, that are
attributable to interest on U.S. Government securities or on securities of the
particular state, or localities within a state.
MISCELLANEOUS
The foregoing is only a summary of certain tax considerations under current law,
which may be subject to change in the future. You should consult your tax
adviser for further information regarding federal, state, local and/or foreign
tax consequences relevent to your specific situation.
-26-
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables shown below will help you understand the
financial performance for the Funds' Trust Shares for the past five years.
Certain information reflects the financial performance of a single Trust
Share. The total returns in the tables represent the rate that an investor
would have earned (or lost) on an investment in Trust Shares of each Fund,
assuming all dividends and distributions were reinvested. The information for
the fiscal year ended October 31,1999 has been audited by____________,
independent auditors, whose report, along with the Funds' financial
statements, are included in the Funds' Annual Report and are incorporated by
reference into the SAI. The Annual Report and SAI are available free of
charge upon request. The information for the fiscal years ended October 31,
1995, 1996, 1997 and 1998 was audited by Galaxy's former auditors,____________.
-27-
<PAGE>
Galaxy Money Market Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
--------------------------------------------------------------------------------
1999 1998 1997 1996 1995(1)
---- ---- ---- ---- ----
TRUST SHARES
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .... $1.00 $1.00 $1.00 $1.00
----- ----- ----- -----
Income from investment operations:
Net investment income(2) .............. 0.05 0.05 0.05 0.05
Net realized and unrealized gain (loss)
on investments ...................... -- -- -- --
----- ----- ----- -----
Total from investment operations ........ 0.05 0.05 0.05 0.05
----- ----- ----- -----
Less dividends:
Dividends from net investment income .. (0.05) (0.05) (0.05) (0.05)
Dividends from net realized capital
gains ................................ -- -- -- --
----- ----- ----- -----
Total dividends ......................... (0.05) (0.05) (0.05) (0.05)
----- ----- ----- -----
Net increase (decrease)
in net asset value .................... -- -- -- --
----- ----- ----- -----
Net asset value, end of period .......... $1.00 $1.00 $1.00 $1.00
----- ----- ----- -----
----- ----- ----- -----
Total return ............................ 5.23% 5.13% 5.00% 5.43%
Ratios/supplemental data:
Net assets, end of period (000's) ..... $1,262,900 $1,138,185 $924,222 $334,054
Ratios to average net assets:
Net investment income including
reimbursement/waiver ................. 5.12% 5.04% 4.89% 5.30%
Operating expenses including
reimbursement/waiver ................. 0.49% 0.50% 0.55% 0.55%
Operating expenses excluding
reimbursement/waiver ................. 0.53% 0.54 0.58% 0.56%
</TABLE>
- ----------------
1 Prior to November 1, 1994, the Fund offered a single class of shares. As of
such date, the existing class of shares was designated as Retail Shares
(now designated Retail A Shares) and the Fund began issuing a second class
of shares designated as Trust Shares.
2 Net investment income per share for Trust Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for the years ended October 31, 1999, 1998, 1997, 1996 and 1995 was $___,
$0.05, $0.05, $0.05 and $0.05, respectively.
-28-
<PAGE>
Galaxy Government Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
-------------------------------------------------------------------------
1999 1998 1997 1996 1995(1)
---- ---- ---- ---- ----
Trust Shares
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .... $1.00 $1.00 $1.00 $1.00
Income from investment operations:
Net investment income(2) ............... 0.05 0.05 0.05 0.05
Net realized and unrealized gain (loss)
on investments ....................... -- -- -- --
Total from investment operations ....... 0.05 0.05 0.05 0.05
Less dividends:
Dividends from net investment income .. (0.05) (0.05) (0.05) (0.05)
Dividends from net realized capital
gains ................................. -- -- -- --
Total dividends ......................... (0.05) (0.05) (0.05) (0.05)
Net increase (decrease)
in net asset value ..................... -- -- -- --
Net asset value, end of period ......... $1.00 $1.00 $1.00 $1.00
Total return ............................. 5.15% 5.06% 4.95% 5.39%
Ratios/supplemental data:
Net assets, end of period (000's) ..... $722,476 $630,859 $733,759 $678,679
Ratios to average net assets:
Net investment income including
Reimbursement/waiver ................. 5.03% 4.94% 4.85% 5.27%
Operating expenses including
Reimbursement/waiver ................. 0.51% 0.51% 0.52% 0.53%
Operating expenses excluding
Reimbursement/waiver ................. 0.52% 0.52% 0.53% 0.54%
</TABLE>
- ----------------
1 Prior to November 1, 1994, the Fund offered a single class of shares. As of
such date, the existing class of shares was designated as Retail Shares
(now designated Retail A Shares) and the Fund began issuing a second class
of shares designated as Trust Shares.
2 Net investment income per share for Trust Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for the years ended October 31, 1999, 1998, 1997, 1996 and 1995 was $____,
$0.05, $0.05, $0.05 and $0.05, respectively.
-29-
<PAGE>
Galaxy Institutional Government Money Market Fund(1)
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
----------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Trust Shares
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .... $1.00 $1.00 $1.00 $1.00
Income from investment operations:
Net investment income(2) ............... 0.05 0.05 0.05 0.05
Net realized and unrealized gain (loss)
on investments ....................... -- -- -- --
Total from investment operations ....... 0.05 0.05 0.05 0.05
Less dividends:
Dividends from net investment income .. (0.05) (0.05) (0.05) (0.05)
Dividends from net realized capital
gains ................................. -- -- -- --
Total dividends ......................... (0.05) (0.05) (0.05) (0.05)
Net increase (decrease)
in net asset value ..................... -- -- -- --
Net asset value, end of period ......... $1.00 $1.00 $1.00 $1.00
Total return ........................... 5.32% 5.09% 5.12% 5.53%
Ratios/supplemental data:
Net assets, end of period (000's) ..... $200,319 $175,141 $500,927 $506,692
Ratios to average net assets:
Net investment income including
reimbursement/waiver .................. 5.17% 4.94% 5.00% 5.38%
Operating expenses including
reimbursement/waiver .................. 0.20% 0.19% 0.19% 0.17%
Operating expenses excluding
reimbursement/waiver .................. 0.36% 0.33% 0.33% 0.33%
</TABLE>
- ----------------
1 The Fund was formerly known as the Institutional Treasury Money Market
Fund.
2 Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for the years ended October 31,
1999, 1998, 1997, 1996 AND 1995 was $___, $0.05, $0.05, $0.05, and $0.05,
respectively.
-30-
<PAGE>
Galaxy U.S. Treasury Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
--------------------------------------------------------------------------
1999 1998 1997 1996 1995(1)
---- ---- ---- ---- ----
Trust Shares
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .... $1.00 $1.00 $1.00 $1.00
Income from investment operations:
Net investment income(2) .............. 0.05 0.05 0.05 0.05
Net realized and unrealized gain (loss)
on investments ...................... -- -- -- --
Total from investment operations ....... 0.05 0.05 0.05 0.05
Less dividends:
Dividends from net investment income . (0.05) (0.05) (0.05) (0.05)
Dividends from net realized capital
gains ................................ -- -- -- --
Total dividends ........................ (0.05) (0.05) (0.05) (0.05)
Net increase (decrease)
in net asset value ................... -- -- -- --
Net asset value, end of period ......... $1.00 $1.00 $1.00 $1.00
Total return ............................ 4.90% 4.85% 4.80% 5.18
Ratios/supplemental data :
Net assets, end of period (000's) ..... $429,645 $393,175 $354,331 $271,036
Ratios to average net assets:
Net investment income including
reimbursement/waiver ................. 4.80% 4.75% 4.69% 5.06%
Operating expenses including
reimbursement/waiver ................. 0.51% 0.52% 0.53% 0.55%
Operating expenses excluding
reimbursement/waiver ................. 0.51% 0.53% 0.53% 0.55%
</TABLE>
- ----------------
1 Prior to November 1, 1994, the Fund offered a single class of shares. As of
such date, the existing class of shares was designated as Retail Shares
(now designated Retail A Shares) and the Fund began issuing a second class
of shares designated as Trust Shares.
2 Net investment income per share for Trust Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for the years ended October 31, 1999, 1998, 1997, 1996 and 1995 was $____,
$0.05, $0.05, $0.05 and $0.05, respectively.
-31-
<PAGE>
Galaxy Tax-Exempt Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
---------------------------------------------------------------------------
1999 1998 1997 1996 1995(1)
---- ---- ---- ---- ----
Trust Shares
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .... $1.00 $1.00 $1.00 $1.00
Income from investment operations:
Net investment income(2) ............... 0.03 0.03 0.03 0.03
Net realized and unrealized gain (loss)
on investments ....................... -- -- -- --
Total from investment operations ....... 0.03 0.03 0.03 0.03
Less dividends:
Dividends from net investment income .. (0.03) (0.03) (0.03) (0.03)
Dividends from net realized capital
gains ................................. -- -- -- --
Total dividends ......................... (0.03) (0.03) (0.03) (0.03)
Net increase (decrease)
in net asset value ..................... -- -- -- --
Net asset value, end of period ......... $1.00 $1.00 $1.00 $1.00
Total return ............................. 3.03% 3.10% 2.97% 3.29%
Ratios/supplemental data:
Net assets, end of period (000's) ..... $227,176 $169,316 $184,307 $180,706
Ratios to average net assets:
Net investment income including
reimbursement/waiver .................. 2.99% 3.05% 2.92% 3.24%
Operating expenses including
reimbursement/waiver .................. 0.53% 0.53% 0.54% 0.55%
Operating expenses excluding
reimbursement/waiver .................. 0.53% 0.53% 0.54% 0.56%
</TABLE>
- ----------------
1 Prior to November 1, 1994, the Fund offered a single class of shares. As of
such date, the existing class of shares was designated as Retail Shares
(now designated Retail A Shares) and the Fund began issuing a second class
of shares designated as Trust Shares.
2 Net investment income per share for Trust Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for the years ended October 31, 1999, 1998, 1997, 1996 and 1995 was $____,
$0.03, $0.03, $0.03 and $0.03, respectively.
-32-
<PAGE>
[Back Cover Page]
Where to find more information
You'll find more information about the Funds in the following documents:
ANNUAL AND SEMI-ANNUAL REPORTS
Galaxy's annual and semi-annual reports contain more information about each Fund
and a discussion about the market conditions and investment strategies that had
a significant effect on each Fund's performance during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains detailed information about the Funds and their policies. By
law, it's incorporated by reference into (considered to be part of) this
prospectus.
You can get a free copy of these documents, request other information about the
Funds and make shareholder inquiries by calling Galaxy at 1-877-BUY-GALAXY
(1-877-289-4252) or by writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
If you buy your shares through a financial institution, you may contact your
institution for more information.
You can write to the Securities and Exchange Commission (SEC) Public Reference
Section and ask them to mail you information about the Funds, including the SAI.
They'll charge you a fee for this service. You can also visit the SEC Public
Reference Room and copy the documents while you're there. For information about
the operation of the Public Reference Room, call the SEC.
Public Reference Section of the SEC
Washington, DC 20549-0102
1-202-942-8090.
Reports and other information about the Funds are also available on the EDGAR
database on the SEC's website at http://www.sec.gov. Copies of this information
may also be obtained, after paying a duplicating fee, by electronic request, to
the SEC's e-mail address at [email protected].
Galaxy's Investment Company Act File No. is 811-4636.
[FLEET ASSIGNED CODE]
<PAGE>
[Front cover page]
Galaxy Municipal Money Market Funds
The Galaxy Fund
Prospectus
__________, 2000
Galaxy Connecticut Municipal Money Market Fund
Galaxy Massachusetts Municipal Money Market Fund
Galaxy New York Municipal Money Market Fund
Prime Shares
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved any shares of these Funds or determined if this
prospectus is accurate or complete. Anyone who tells you otherwise is committing
a crime.
<PAGE>
Contents
1 Risk/return summary
1 Introduction
3 Galaxy Connecticut Municipal Money Market Fund
7 Galaxy Massachusetts Municipal Money Market Fund
11 Galaxy New York Municipal Money Market Fund
14 Additional information about risk
15 Fund management
16 How to invest in the Funds
16 About sales charges
16 Buying and selling shares
17 How to buy shares
17 How to sell shares
17 Shareholder services
18 Other transaction policies
19 Dividends, distributions and taxes
<PAGE>
RISK/RETURN SUMMARY
INTRODUCTION
This prospectus describes the Galaxy Municipal Money Market Funds. The Funds
invest primarily in short-term municipal securities that are determined by the
Funds' investment adviser to carry very little risk. Municipal securities are
debt obligations of state and local governments and other political or public
bodies or agencies. The interest paid on municipal securities is generally
exempt from federal income tax and, in some cases, from state and local income
tax. Because each of the Funds is a "money market fund," municipal securities
purchased by each Fund must meet strict requirements as to investment quality,
maturity and diversification. The Funds don't invest in securities with
maturities of more than 397 days (subject to certain exceptions) and the average
maturity of all securities held by a particular Fund must be 90 days or less.
Each Fund tries to maintain its share price at $1.00 to protect your investment
from loss.
On the following pages, you'll find important information about each Galaxy
Municipal Money Market Fund, including:
- - the Fund's investment objective (sometimes called the Fund's goal) and the
main investment strategies used by the Fund's investment adviser in trying
to achieve that objective
- - the main risks associated with an investment in the Fund
- - the Fund's past performance measured on both a year-by-year and long-term
basis
- - the fees and expenses that you will pay as an investor in the Fund
[Sidenote:]
MATURITY
The maturity of a security is the date when the issuer must repay the security's
entire principal amount to an investor, such as a Fund.
WHICH FUND IS RIGHT FOR YOU?
The Funds are designed for investors who are looking for a way to earn money
market returns that are free of federal income tax and certain state and local
income taxes. A Fund that specializes in a particular state is best suited to
residents of that state who are looking for income that is free of the state's
income tax. TAX-EXEMPT FUNDS ARE NOT APPROPRIATE INVESTMENTS FOR TAX-DEFERRED
RETIREMENT ACCOUNTS, SUCH AS IRAS, BECAUSE THEIR RETURNS BEFORE TAXES ARE
GENERALLY LOWER THAN THOSE OF TAXABLE FUNDS.
-1-
<PAGE>
THE FUNDS' INVESTMENT ADVISER
Fleet Investment Advisors Inc. (the "Adviser") is the investment adviser for all
of these Funds. The Adviser, an indirect wholly-owned subsidiary of FleetBoston
Corporation, was established in 1984 and has its main office at 75 State Street,
Boston, Massachusetts 02109. The Adviser also provides investment management and
advisory services to individual and institutional clients and manages the other
Galaxy investment portfolios. As of December 31, 1999, the Adviser managed over
$__ billion in assets.
AN INVESTMENT IN THE FUNDS ISN'T A FLEET BANK DEPOSIT AND IT ISN'T INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. ALTHOUGH THE FUNDS SEEK TO PRESERVE THE VALUE OF YOUR INVESTMENT AT
$1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUNDS.
[Sidenote:]
TAX-EQUIVALENT YIELD
One way to understand the tax advantages of a tax-exempt fund is to compare its
after-tax return to that of a taxable investment. For example, suppose a taxable
fund pays a return of 10%. If you're in the 36% federal income tax bracket, the
fund's return after taxes is 6.4%. When a tax-exempt fund pays a return of 10%,
you don't pay tax. So if you're in the 36% tax bracket, that's the equivalent of
earning about 15.6% on a taxable fund. If you're in a low tax bracket, however,
it may not be helpful to invest in a tax-exempt fund if you can achieve a higher
after-tax return from a taxable investment.
-2-
<PAGE>
Galaxy Connecticut Municipal Money Market Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks to provide current income exempt from federal regular income tax
and the Connecticut state income tax on individuals, trusts and estates,
consistent with relative stability of principal and liquidity.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities that pay interest which is exempt from federal regular income tax,
and at least 65% of its total assets in Connecticut municipal securities, which
are securities issued by or on behalf of the State of Connecticut and other
government issuers and that pay interest which is exempt from both federal
regular income tax and the Connecticut state income tax on individuals, trusts
and estates. Under normal conditions, the Fund will invest no more than 20% of
its total assets in taxable obligations, such as U.S. Government obligations,
money market instruments and repurchase agreements.
Municipal securities purchased by the Fund may include general obligation
securities, revenue securities and private activity bonds. General obligation
securities are secured by the issuer's full faith, credit and taxing power.
Revenue obligation securities are usually payable only from revenues derived
from specific facilities or revenue sources. Private activity bonds are usually
revenue obligations since they are typically payable by the private user of the
facilities financed by the bonds. The interest on private activity bonds may be
subject to the federal alternative minimum tax. Investments in private activity
bonds will not be treated as investments in municipal securities for purposes of
the 80% requirement stated above.
The Fund will only buy a security if it has one of the two highest short-term
ratings from at least two nationally recognized statistical rating
organizations, or one such rating if only one organization has rated the
security. If the security is not rated, it must be determined by the Adviser to
be of comparable credit quality.
[Sidenote:]
MUNICIPAL SECURITIES
State and local governments issue municipal securities to raise money to finance
public works, to repay outstanding obligations, to raise funds for general
operating expenses and to make loans to other public institutions. Some
municipal securities, known as private activity bonds, are issued to finance
projects for private companies. Municipal securities, which can be issued as
bonds,
-3-
<PAGE>
notes or commercial paper, usually have fixed interest rates, although some have
interest rates that change from time to time.
THE MAIN RISKS OF INVESTING IN THE FUND
While money market funds are considered to be among the safest of all
investments, they are not risk free. Here are the main risks associated with an
investment in the Fund:
- - INTEREST RATE RISK - The yield paid by the Fund will vary with changes in
short-term interest rates.
- - CREDIT RISK - Although credit risk is very low because the Fund only
invests in high quality obligations, if an issuer fails to pay interest or
repay principal, the value of your investment could decline. The ability of
a state or local government issuer to make payments can be affected by many
factors, including economic conditions, the flow of tax revenues and
changes in the level of federal, state or local aid.
- - LACK OF DIVERSIFICATION - The Fund is not diversified, which means that it
can invest a large percentage of its assets in a small number of issuers.
As a result, a change in the value of any one investment held by the Fund
may affect the overall value of the Fund more than it would affect a
diversified fund which holds more investments.
- - SINGLE STATE RISK - Since the Fund invests primarily in Connecticut
municipal securities, it is likely to be especially susceptible to
economic, political and regulatory events that affect Connecticut.
- - SHARE PRICE - There's no guarantee the Fund will be able to preserve the
value of your investment at $1.00 per share.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by each Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
As of the date of this prospectus, the Fund had not offered Prime Shares to
investors. The returns below represent the returns for Retail A Shares of the
Fund which are offered in a separate prospectus. Prime Shares are subject to
distribution and service fees at a maximum annual rate of 1.00% of the Fund's
Prime Share assets. Had the returns for Retail A Shares been restated to reflect
these distribution and service fees, the returns would have been lower.
-4-
<PAGE>
The Fund began operations on October 4, 1993 as a separate portfolio (the
Predecessor Fund) of The Shawmut Funds. 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 classes of shares, Investment Shares
and Trust Shares. In connection with the reorganization, shareholders of the
Predecessor Fund exchanged their Investment Shares and Trust Shares for Retail A
Shares of the Fund. The returns for periods prior to December 4, 1995 are for
Investment Shares of the Predecessor Fund.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares has varied from year
to year.
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
[bar chart goes here]
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1.99% 2.97% 2.78% 2.98% 2.77% %
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999, after taking into account any sales charges on Investment
Shares of the Predecessor Fund.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
1 year 5 years Since inception
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares % % % (10/4/93)
- -----------------------------------------------------------------------------------------------------
</TABLE>
To obtain the Fund's current 7-day yield, please call 1-877-BUY-GALAXY
(1-877-289-4252).
FEES AND EXPENSES OF THE FUND
There are no sales charges when you buy or sell Prime Shares of the Fund. The
following table shows the fees and expenses you pay when you buy and hold shares
of the Fund.
-5-
<PAGE>
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Distribution and Total Fund
service (12b-1) Other operating
Management fees fees expenses expenses
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime Shares 0.40%(1) % % %(1)
- ------------------------------------------------------------------------------------------
</TABLE>
(1)The Adviser is waiving a portion of the Management fees so that such fees are
expected to be ____%. Total Fund operating expenses after this waiver are
expected to be ___%. This fee waiver may be revised or discontinued at any
time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime Shares $ $ $ $
- ---------------------------------------------------------------------------------------------------------
</TABLE>
-6-
<PAGE>
Galaxy Massachusetts Municipal Money Market Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks to provide current income exempt from federal regular income tax
and the income taxes imposed by the Commonwealth of Massachusetts, consistent
with relative stability of principal and liquidity.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities that pay interest which is exempt from federal regular income tax,
and at least 65% of its total assets in Massachusetts municipal securities,
which are securities issued by or on behalf of the Commonwealth of Massachusetts
and other government issuers and that pay interest which is exempt from both
federal regular income tax and Massachusetts personal income tax. Under normal
conditions, the Fund will invest no more than 20% of its total assets in taxable
obligations, such as U.S. Government obligations, money market instruments and
repurchase agreements.
Municipal securities purchased by the Fund may include general obligation
securities, revenue securities and private activity bonds. General obligation
securities are secured by the issuer's full faith, credit and taxing power.
Revenue obligation securities are usually payable only from revenues derived
from specific facilities or revenue sources. Private activity bonds are usually
revenue obligations since they are typically payable by the private user of the
facilities financed by the bonds. The interest on private activity bonds may be
subject to the federal alternative minimum tax. Investments in private activity
bonds will not be treated as investments in municipal securities for purposes of
the 80% requirement stated above.
The Fund will only buy a security if it has one of the two highest short-term
ratings from at least two nationally recognized statistical rating
organizations, or one such rating if only one organization has rated the
security. If the security is not rated, it must be determined by the Adviser to
be of comparable credit quality.
[Sidenote:]
MUNICIPAL SECURITIES
State and local governments issue municipal securities to raise money to finance
public works, to repay outstanding obligations, to raise funds for general
operating expenses and to make loans to other public institutions. Some
municipal securities, known as private activity bonds, are issued to finance
projects for private companies. Municipal securities, which can be issued as
bonds,
-7-
<PAGE>
notes or commercial paper, usually have fixed interest rates, although some have
interest rates that change from time to time.
THE MAIN RISKS OF INVESTING IN THE FUND
While money market funds are considered to be among the safest of all
investments, they are not risk free. Here are the main risks associated with an
investment in the Fund:
- - INTEREST RATE RISK - The yield paid by the Fund will vary with changes in
short-term interest rates.
- - CREDIT RISK - Although credit risk is very low because the Fund only
invests in high quality obligations, if an issuer fails to pay interest or
repay principal, the value of your investment could decline. The ability of
a state or local government issuer to make payments can be affected by many
factors, including economic conditions, the flow of tax revenues and
changes in the level of federal, state or local aid.
- - LACK OF DIVERSIFICATION - The Fund is not diversified, which means that it
can invest a large percentage of its assets in a small number of issuers.
As a result, a change in the value of any one investment held by the Fund
may affect the overall value of the Fund more than it would affect a
diversified fund which holds more investments.
- - SINGLE STATE RISK - Since the Fund invests primarily in Massachusetts
municipal securities, it is likely to be especially susceptible to
economic, political and regulatory events that affect Massachusetts.
- - SHARE PRICE - There's no guarantee the Fund will be able to preserve the
value of your investment at $1.00 per share.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by each Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
As of the date of this prospectus, the Fund had not offered Prime Shares to
investors. The returns below represent the returns for Retail A Shares of the
Fund which are offered in a separate prospectus. Prime Shares are subject to
distribution and service fees at a maximum annual rate of 1.00% of the Fund's
Prime Share assets. Had the returns for Retail A Shares been restated to reflect
these distribution and service fees, the returns would have been lower.
-8-
<PAGE>
The Fund began operations on October 5, 1993 as a separate portfolio (the
Predecessor Fund) of The Shawmut Funds. 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 a single class of shares. In connection
with the reorganization, shareholders of the Predecessor Fund exchanged their
shares for Retail A Shares of the Fund. The returns for periods prior to
December 4, 1995 are for shares of the Predecessor Fund.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of the Fund has varied from year to
year.
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
[bar chart goes here]
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2.15% 3.23% 2.78% 2.96% 2.79% %
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
1 year 5 years Since inception
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares % % % (10/5/93)
------------------------------------------------------------------------------------------------------
</TABLE>
To obtain the Fund's current 7- day yield, please call 1-877-BUY-GALAXY
(1-877-289-4252).
FEES AND EXPENSES OF THE FUND
There are no sales charges when you buy or sell Prime Shares of the Fund. The
following table shows the fees and expenses you pay when you buy and hold shares
of the Fund.
-9-
<PAGE>
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Distribution and Total Fund
service (12b-1) Other operating
Management fees fees expenses expenses
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime Shares 0.40%(1) % % %(1)
- ----------------------------------------------------------------------------------------
</TABLE>
(1)The Adviser is waiving a portion of the Management fees so that such fees are
expected to be ____%. Total Fund operating expenses after this waiver are
expected to be ____%. This fee waiver may be revised or discontinued at any
time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime Shares $ $ $ $
- --------------------------------------------------------------------------------------------------------
</TABLE>
-10-
<PAGE>
Galaxy New York Municipal Money Market Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks to provide current income exempt from federal regular income tax
and from New York State and New York City personal income tax, consistent with
relative stability of principal and liquidity.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities that pay interest which is exempt from federal regular income tax,
and at least 65% of its total assets in New York municipal securities, which are
securities issued by or on behalf of the State of New York and other government
issuers and that pay interest which is exempt from federal regular income tax
and New York State and New York City personal income tax. Under normal
conditions, the Fund will invest no more than 20% of its total assets in taxable
obligations, such as U.S. Government obligations, money market instruments and
repurchase agreements.
Municipal securities purchased by the Fund may include general obligations
securities, revenue securities and private activity bonds. General obligation
securities are secured by the issuer's full faith, credit and taxing power.
Revenue obligation securities are usually payable only from revenues derived
from specific facilities or revenue sources. Private activity bonds are usually
revenue obligations since they are typically payable by the private user of the
facilities financed by the bonds. The interest on private activity bonds may be
subject to the federal alternative minimum tax. Investments in private activity
bonds will not be treated as investments in municipal securities for purposes of
the 80% requirement stated above.
The Fund will only buy a security if it has one of the two highest short-term
ratings from at least two nationally recognized statistical rating
organizations, or one such rating if only one organization has rated the
security. If the security is not rated, it must be determined by the Adviser to
be of comparable credit quality.
[Sidenote:]
MUNICIPAL SECURITIES
State and local governments issue municipal securities to raise money to finance
public works, to repay outstanding obligations, to raise funds for general
operating expenses and to make loans to other public institutions. Some
municipal securities, known as private activity bonds, are issued to finance
projects for private companies. Municipal securities, which can be issued as
bonds, notes or commercial paper, usually have fixed interest rates, although
some have interest rates that change from time to time.
-11-
<PAGE>
THE MAIN RISKS OF INVESTING IN THE FUND
While money market funds are considered to be among the safest of all
investments, they are not risk free. Here are the main risks associated with an
investment in the Fund:
- - INTEREST RATE RISK - The yield paid by the Fund will vary with changes in
short-term interest rates.
- - CREDIT RISK - Although credit risk is very low because the Fund only
invests in high quality obligations, if an issuer fails to pay interest or
repay principal, the value of your investment could decline. The ability of
a state or local government issuer to make payments can be affected by many
factors, including economic conditions, the flow of tax revenues and
changes in the level of federal, state or local aid.
- - LACK OF DIVERSIFICATION - The Fund is not diversified, which means that it
can invest a large percentage of its assets in a small number of issuers.
As a result, a change in the value of any one investment held by the Fund
may affect the overall value of the Fund more than it would affect a
diversified fund which holds more investments.
- - SINGLE STATE RISK - Because the Fund invests primarily in New York
municipal securities, the Fund's ability to achieve its investment
objective is dependent upon the ability of the issuers of New York
municipal securities to meet their continuing obligations for the payment
of principal and interest. New York State and New York City face long-term
economic problems that could seriously affect their ability and that of
other issuers of New York municipal securities to meet their financial
obligations. Other considerations affecting the Fund's investments in New
York municipal securities are summarized in the Statement of Additional
Information.
- - SHARE PRICE - There's no guarantee the Fund will be able to preserve the
value of your investment at $1.00 per share.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by each Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The Fund had not commenced operations prior to the date of this prospectus. No
performance information is presented because the Fund has less than one full
calendar year of performance history.
FEES AND EXPENSES OF THE FUND
There are no sales charges when you buy or sell Prime Shares of the Fund. The
following table shows the fees and expenses you pay when you buy and hold shares
of the Fund.
-12-
<PAGE>
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Distribution and Total Fund
service (12b-1) Other operating
Management fees fees expenses expenses
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime Shares 0.40%(1) % %(2) %(1)
- ----------------------------------------------------------------------------------------
</TABLE>
1 The Adviser is waiving a portion of the Management fees so that such fees are
expected to be ____%. Total Fund operating expenses after this waiver are
expected to be ___%. This fee waiver may be revised or discontinued at any
time.
2 Other expenses are based on estimated amounts for the current fiscal year.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
1 year 3 years
- ------------------------------------------------------------------------
<S> <C> <C>
Prime Shares $ $
- ------------------------------------------------------------------------
</TABLE>
-13-
<PAGE>
ADDITIONAL INFORMATION ABOUT RISK
The main risks associated with an investment in each of the Galaxy Municipal
Money Market Funds have been described above. The following supplements that
discussion.
TEMPORARY DEFENSIVE POSITIONS
Each Fund may temporarily hold up to 100% of its total assets in investments
that aren't part of its main investment strategy during unfavorable market
conditions. These investments may include cash (which will not earn any income)
and short-term taxable investments, such as money market instruments and debt
securities issued or guaranteed by the U.S. Government or its agencies, in
excess of 20% of each Fund's assets. This strategy could prevent a Fund from
achieving its investment objective.
OTHER TYPES OF INVESTMENTS
This prospectus describes each Fund's main investment strategies and the
particular types of securities in which each Fund mainly invests. Each Fund
may, from time to time, pursue other investment strategies and make other
types of investments in support of its overall investment goal. These
supplemental investment strategies, which are not considered to be main
investment strategies of the Fund - and the risks involved - are described in
detail in the Statement of Additional Information (SAI) which is referred to
on the back cover of this prospectus.
-14-
<PAGE>
FUND MANAGEMENT
ADVISER
The Adviser, subject to the general supervision of Galaxy's Board of Trustees,
manages each Fund in accordance with its investment objective and policies,
makes decisions with respect to and places orders for all purchases and sales of
portfolio securities, and maintains related records.
ALLOCATION OF ORDERS FOR PORTFOLIO SECURITIES
The Adviser may allocate orders for the purchase and sale of portfolio
securities to certain financial institutions, including those that are
affiliated with the Adviser or that have sold shares of the Funds, to the extent
permitted by law or by order of the Securities and Exchange Commission. The
Adviser will allocate orders to such institutions only if it believes that the
quality of the transaction and the commission are comparable to what they would
be with other qualified brokerage firms.
MANAGEMENT FEES
The management fees paid to the Adviser by the Funds during the last fiscal year
are set forth below. The New York Municipal Money Market Fund had not commenced
operations prior to the date of this prospectus, and the fee shown is that which
is currently in effect.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Management fee as a
Fund % of average of net assets
- -----------------------------------------------------------------------------------------------
<S> <C>
Connecticut Municipal Money Market %
- -----------------------------------------------------------------------------------------------
Massachusetts Municipal Money Market %
- -----------------------------------------------------------------------------------------------
New York Municipal Money Market %
- -----------------------------------------------------------------------------------------------
</TABLE>
-15-
<PAGE>
HOW TO INVEST IN THE FUNDS
ABOUT SALES CHARGES
There are no sales charges (sometimes called front-end loads) or contingent
deferred sales charges (sometimes called back-end loads or CDSCs) when you buy
or sell Prime Shares of a Fund.
[Sidenote:]
NET ASSET VALUE
The price you pay for your shares is based on the net asset value per share
(NAV). It's the value of a Fund's assets attributable to Prime Shares, minus the
value of the Fund's liabilities attributable to Prime Shares, divided by the
number of Prime Shares held by investors.
DISTRIBUTION AND SHAREHOLDER SERVICE FEES
Galaxy has adopted a plan under Rule 12b-1 that allows each Fund to pay fees
from its Prime Share assets for selling and distributing Prime Shares and for
services provided to shareholders. Prime Shares of the Funds can pay
distribution and shareholder service (12b-1) fees at an annual rate of up to
1.00% of each Fund's Prime Share assets. The Funds do not intend to pay more
than ___% in distribution and shareholder service (12b-1) fees during the
current fiscal year. Because 12b-1 fees are paid on an ongoing basis, over time
they increase the cost of your investment and may cost more than paying other
sales charges.
BUYING AND SELLING SHARES
You can buy and sell Prime Shares of the Funds on any day that the Funds are
open for business, which is any day that the New York Stock Exchange is open.
The New York Stock Exchange is generally open for trading every Monday through
Friday, except for national holidays.
If your order to buy shares is received and accepted by Galaxy's distributor by
11:00 a.m. (Eastern time) on a business day, the price you pay will be the net
asset value (NAV) per share next determined (and you'll receive that day's
dividend) if Galaxy's custodian receives the purchase price in immediately
available funds by 11:00 a.m. that day. If your order to purchase shares is
received and accepted by Galaxy's distributor after 11:00 a.m. (Eastern time)
but before 4:00 p.m. (Eastern time) on a business day, the price you pay will be
the NAV next determined (and you'll begin receiving dividends the next day) if
Galaxy's custodian receives the purchase price in immediately available funds by
4:00 p.m. on the day of your order. The price at which you sell shares is the
NAV next determined after receipt of your order in proper form as described
below. NAV is determined on each day the New York Stock Exchange is open for
-16-
<PAGE>
trading as of 11:00 a.m. (Eastern time) and at the close of regular trading
(usually 4:00 p.m. Eastern time).
The Funds' assets are valued at amortized cost, which is approximately equal to
market value.
[Sidenote:]
MINIMUM INVESTMENT AMOUNTS
The minimum initial investment to open a Fund account is $2,500. You generally
can make additional investments for as little as $100.
Usually, you must keep at least $250 in your account. If your account falls
below $250 because you sell shares, Galaxy may redeem your shares and close your
account. Galaxy will give you 60 days' notice in writing before closing your
account.
HOW TO BUY SHARES
You can buy Prime Shares through your broker-dealer. Your broker-dealer is
responsible for sending your order to Galaxy's distributor and for wiring
payment to Galaxy's custodian. Your broker-dealer will usually hold the shares
in your name and receive all confirmations of purchases and sales. Contact your
broker-dealer for more information. A broker-dealer who places orders on your
behalf may charge you a separate fee for its services.
HOW TO SELL SHARES
You can sell your Prime Shares through your broker-dealer. Please contact your
broker-dealer for information on how to sell your shares. The broker-dealer is
responsible for sending your order to Galaxy's distributor and for crediting
your account with the proceeds. Galaxy doesn't charge a fee for wiring sale
proceeds to your broker-dealer, but your broker-dealer may charge you a fee.
Contact your broker-dealer for more information.
SHAREHOLDER SERVICES
Your broker-dealer may offer certain shareholder services to its customers. For
example, broker-dealers may offer participation in an automatic investment
program that allows investors to systematically purchase shares of the Funds on
a periodic basis from a designated account. Broker-dealers may also offer a
systematic withdrawal plan which permits investors automatically to sell shares
on a regular basis. Please contact your broker-dealer for details on these and
any other shareholder services that may be available.
-17-
<PAGE>
OTHER TRANSACTION POLICIES
If Galaxy doesn't receive full payment for your order to buy shares within three
business days of the order date, Galaxy won't accept your order. Galaxy will
advise your broker-dealer if this happens and return any payment it may
eventually receive. You can only invest in shares of the Funds that are legally
available in your state.
Galaxy may refuse any order to buy shares. Galaxy doesn't issue a certificate
when you buy shares but it does keep a record of shares issued to investors.
Galaxy normally pays you cash when you sell your shares, but it has the right to
deliver securities owned by a Fund instead of cash. When you sell these
securities, you'll pay brokerage charges.
Sales proceeds are normally sent to your broker-dealer within three business
days but Galaxy reserves the right to send sales proceeds within seven business
days if sending proceeds earlier could adversely affect a Fund.
Galaxy reserves the right to vary or waive any minimum investment requirement.
-18-
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Fund declares dividends from net investment income daily and pays them
within five business days after the end of each month. Although the Funds do not
expect to realize net long-term capital gains, any capital gains realized will
be distributed at least annually. Dividends and distributions are paid in cash
unless you indicate in the account application or in a letter to Galaxy that you
want to have dividends and distributions reinvested in additional shares.
Distributions by the Funds will generally consist of dividends derived from
interest earned on exempt securities, and these "exempt-interest dividends" will
be exempt income for shareholders for federal income tax purposes. It is
possible, depending upon a Fund's investments, that a portion of the Fund's
distributions could be taxable to shareholders as ordinary income or capital
gains, but none of these Funds expects that this will be the case.
Interest on indebtedness incurred by a shareholder to purchase or carry shares
of these Funds generally will not be deductible for federal income tax purposes.
You should note that a portion of the exempt-interest dividends paid by one or
more of these Funds may constitute an item of tax preference for purposes of
determining federal alternative minimum tax liability. Exempt-interest dividends
will also be considered along with other adjusted gross income in determining
whether any Social Security or railroad retirement payments received by you are
subject to federal income taxes.
CONNECTICUT MUNICIPAL MONEY MARKET FUND
This Fund intends to comply with certain state tax requirements so that its
dividends will generally be exempt from the Connecticut state income tax on
individuals, trusts and estates ("CSIT"). However, dividends, if any, derived
from interest on securities other than Connecticut municipal securities, or from
capital gains, will be subject to the CSIT.
MASSACHUSETTS MUNICIPAL MONEY MARKET FUND
This Fund intends to comply with certain state tax requirements so that its
dividends will generally be exempt from the Massachusetts personal income tax.
However, dividends, if any, derived from interest on securities other than
Massachusetts municipal securities, or from capital gains, will be subject to
Massachusetts personal income tax.
-19-
<PAGE>
NEW YORK MUNICIPAL MONEY MARKET FUND
This Fund intends to comply with certain state tax requirements so that its
income and dividends will generally be exempt from New York State and New York
City personal income tax. However, dividends, if any, derived from interest on
securities other than New York municipal securities, or from capital gains, will
be subject to New York State and New York City personal income tax.
ALL FUNDS
Taxable dividends paid in January may be taxable as if they had been paid the
previous December. Each year you'll receive in the mail federal tax information
on distributions paid by the Funds.
OTHER STATE AND LOCAL TAX MATTERS
Generally, shareholders may also be subject to state and local taxes on
distributions and redemptions. State income taxes may not apply, however, to the
portions of each Fund's distributions, if any, that are attributable to interest
on U.S. Government securities or on securities of the particular state, or
localities within the State.
MISCELLANEOUS
The foregoing is only a summary of certain tax considerations under current law,
which may be subject to change in the future. You should consult your tax
advisor for further information regarding federal, state, local and/or foreign
tax consequences relevant to your specific situation.
-20-
<PAGE>
[Back Cover Page]
WHERE TO FIND MORE INFORMATION
You'll find more information about the Funds in the following documents:
ANNUAL AND SEMI-ANNUAL REPORTS
Galaxy's annual and semi-annual reports contain more information about each Fund
and a discussion about the market conditions and investment strategies that had
a significant effect on each Fund's performance during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains detailed information about the Funds and their policies. By
law, it's incorporated by reference into (considered to be part of) this
prospectus.
You can get a free copy of these documents, request other information about the
Funds and make shareholder inquiries by contacting your broker-dealer or by
calling Galaxy at 1-877-BUY-GALAXY (1-877-289-4252) or by writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
You can write to the Securities and Exchange Commission (SEC) Public Reference
Section and ask them to mail you information about the Funds, including the SAI.
They'll charge you a fee for this service. You can also visit the SEC Public
Reference Room and copy the documents while you're there. For information about
the operation of the Public Reference Room, call the SEC.
Public Reference Section of the SEC
Washington, DC 20549-0102.
1-202-942-8090
Reports and other information about the Funds are also available on the EDGAR
Database on the SEC's website at http://www.sec.gov. Copies of this information
may also be obtained, after paying a duplicating fee, by electronic request, to
the SEC's e-mail address at [email protected].
Galaxy's Investment Company Act File No. is 811-4636.
[INSERT FLEET-ASSIGNED CODE]
<PAGE>
THE GALAXY FUND
STATEMENT OF ADDITIONAL INFORMATION
________, 2000
GALAXY ASSET ALLOCATION FUND
GALAXY EQUITY INCOME FUND
GALAXY GROWTH AND INCOME FUND
GALAXY STRATEGIC EQUITY FUND
GALAXY EQUITY VALUE FUND
GALAXY EQUITY GROWTH FUND
GALAXY INTERNATIONAL EQUITY FUND
GALAXY SMALL CAP VALUE FUND
GALAXY SMALL COMPANY EQUITY FUND
RETAIL A SHARES, RETAIL B SHARES AND
TRUST SHARES
This Statement of Additional Information is not a prospectus. The
prospectuses for the Funds as listed below, as they may be supplemented or
revised from time to time (the "Prospectuses"), as well as the Funds' Annual
Report to Shareholders dated October 31, 1999 (the "Annual Report"), may be
obtained, without charge, by writing:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
or by calling 1-877-BUY-GALAXY (1-877-289-4252)
Current Prospectuses
- - Prospectus for Retail A Shares and Retail B Shares of the Funds
dated ________, 2000
- - Prospectus for Trust Shares of the Funds dated ___________, 2000
The ______________ and the report thereon of ___________, The Galaxy
Funds' independent accountants, are incorporated by reference into this
Statement of Additional Information.
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TABLE OF CONTENTS
PAGE
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GENERAL INFORMATION......................................................................1
DESCRIPTION OF GALAXY AND ITS SHARES.....................................................1
INVESTMENT STRATEGIES, POLICIES AND RISKS................................................4
Asset Allocation Fund..............................................................5
Equity Income Fund.................................................................5
Growth and Income Fund.............................................................6
Strategic Equity Fund..............................................................6
Equity Value Fund..................................................................6
Equity Growth Fund.................................................................7
International Equity Fund..........................................................7
Small Cap Value Fund...............................................................8
Small Company Equity Fund..........................................................9
Special Risk Considerations........................................................9
Foreign Securities.................................................................9
European Currency Unification.....................................................10
Other Investment Policies and Risk Considerations.................................10
Ratings...........................................................................10
U.S. Government Obligations and Money Market Instruments..........................11
Variable and Floating Rate Obligations............................................13
Repurchase and Reverse Repurchase Agreements......................................13
Securities Lending................................................................14
Investment Company Securities.....................................................15
REITS.............................................................................15
Derivative Securities.............................................................16
American, European and Global Depository Receipts.................................25
Asset-Backed Securities -- Asset Allocation Fund..................................25
Mortgage-Backed Securities -- Asset Allocation Fund...............................26
Mortgage Dollar Rolls -- Asset Allocation Fund....................................27
Convertible Securities............................................................28
When-Issued and Delayed Settlement Transactions - Growth and Income,
Strategic Equity, International Equity and Small Cap Value Funds............29
Restricted and Illiquid Securities................................................30
Portfolio Turnover................................................................31
INVESTMENT LIMITATIONS..................................................................31
VALUATION OF PORTFOLIO SECURITIES.......................................................38
Valuation of the Asset Allocation, Equity Income, Growth and Income, Strategic
Equity, Equity Value, Equity Growth, Small Cap Value and Small
Company Equity Funds........................................................38
Valuation of the International Equity Fund........................................38
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION..........................................39
Purchases of Retail A Shares and Retail B Shares..................................39
General...........................................................................39
Customers of Institutions.........................................................40
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Other Purchase Information........................................................40
Applicable Sales Charge - Retail A Shares.........................................40
Computation of Offering Price - Retail A Shares...................................42
Quantity Discounts................................................................44
Applicable Sales Charge - Retail B Shares.........................................46
Characteristics of Retail A Shares and Retail B Shares............................47
Factors to Consider When Selecting Retail A Shares or Retail B Shares.............48
Purchases of Trust Shares.........................................................49
Redemption of Retail A Shares, Retail B Shares and Trust Shares...................50
INVESTOR PROGRAMS-RETAIL A SHARES AND RETAIL B SHARES...................................50
Exchange Privilege................................................................50
Retirement Plans..................................................................51
Automatic Investment Program and Systematic Withdrawal Plan.......................52
Payroll Deduction Program.........................................................53
College Investment Program........................................................53
Direct Deposit Program............................................................53
TAXES...................................................................................53
Taxation of Certain Financial Instruments and Investments.........................54
TRUSTEES AND OFFICERS...................................................................54
Shareholder and Trustee Liability.................................................58
INVESTMENT ADVISER AND SUB-ADVISER......................................................59
Authority to Act as Investment Adviser............................................62
ADMINISTRATOR...........................................................................62
CUSTODIAN AND TRANSFER AGENT............................................................64
EXPENSES................................................................................66
PORTFOLIO TRANSACTIONS..................................................................66
SHAREHOLDER SERVICES PLAN...............................................................69
DISTRIBUTION AND SERVICES PLAN..........................................................70
DISTRIBUTOR.............................................................................73
AUDITORS................................................................................75
COUNSEL.................................................................................75
PERFORMANCE AND YIELD INFORMATION.......................................................76
Performance Reporting.............................................................79
MISCELLANEOUS...........................................................................80
FINANCIAL STATEMENTS....................................................................87
APPENDIX A.............................................................................A-1
APPENDIX B.............................................................................B-1
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GENERAL INFORMATION
This Statement of Additional Information should be read in conjunction
with a current Prospectus. This Statement of Additional Information relates to
the Prospectuses for Trust Shares, Retail A Shares and Retail B Shares of the
nine Funds listed on the cover page. Each Fund also offers Prime A Shares and
Prime B Shares, which are described in a separate statement of additional
information and related prospectus. This Statement of Additional Information is
incorporated by reference in its entirety into the Prospectuses. No investment
in shares of the Funds should be made without reading a Prospectus.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, FLEETBOSTON CORPORATION 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.
DESCRIPTION OF GALAXY AND ITS SHARES
The Galaxy Fund ("Galaxy") is an open-end management investment company
currently offering shares of beneficial interest in twenty-nine 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, 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. Galaxy
is also authorized to issue shares of beneficial interest in two additional
investment portfolios, the MidCap Equity Fund and the New York Municipal Money
Market Fund. As of the date of this Statement of Additional Information,
however, the MidCap Equity Fund and the New York Municipal Money Market Fund had
not commenced investment operations.
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
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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.
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 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 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 (Prime A Shares) and Class C - Special Series 4 shares (Prime B 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 (Prime A Shares)
and Class G - Series 5 shares (Prime B 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 (Prime B 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 (Prime A Shares) and Class I - Series 5 shares
(Prime B 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 (Prime A Shares) and Class K - Series 5 shares (Prime B Shares),
each series representing interests in the Small Company Equity Fund; Class N -
Series 1 shares (Trust Shares), Class N - Series 2 shares (Retail A Shares),
Class N - Series 3 shares (Retail B Shares), Class N - Series 4 shares (Prime A
Shares) and Class N - Series 5 shares (Prime B Shares), each series representing
interests in the Asset Allocation Fund; Class U - Series 1 shares (Trust
Shares), Class U - Series 2 shares (Retail A Shares), Class U - Series 3 shares
(Retail B Shares), Class U - Series 4 shares (Prime A Shares) and Class U -
Series 5 shares (Prime B 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 shares (Prime A Shares) and Class X - Series 5 shares
(Prime B 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 -
Series 4 shares (Prime A Shares) and Class AA - Series 5 shares (Prime B
Shares), each series representing interests in the Strategic Equity Fund. Each
Fund is classified as a diversified company under the Investment Company Act
of 1940, as amended (the "1940 Act").
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.
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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 in a Fund (i.e., Retail A Shares, Retail B
Shares, Trust Shares, Prime A Shares and Prime B Shares) bear pro rata the same
expenses and are entitled equally to the 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. Standardized yield and total return quotations are computed
separately for each series of shares. The differences in expenses paid by the
respective series will affect their performance. See "Shareholder Services Plan"
and "Distribution and Services Plan" below.
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 of a Fund will be entitled to vote on matters submitted to a
vote of 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
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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 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.
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 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. Galaxy's Declaration of Trust provides that a
meeting of shareholders shall be called by the Board of Trustees upon a written
request of shareholders owning at least 10% of the outstanding shares of Galaxy
entitled to vote.
Galaxy's Declaration of Trust authorizes the Board of Trustees, without
shareholder approval (unless otherwise required by applicable law), to (a) sell
and convey the assets of a Fund to another management investment company for
consideration which may include securities issued by the purchaser and, in
connection therewith, to cause all outstanding shares of the Fund involved to be
redeemed at a price which is equal to their net asset value and which may be
paid in cash or by distribution of the securities or other consideration
received from the sale and conveyance; (b) sell and convert a Fund's assets into
money and, in connection therewith, to cause all outstanding shares of the Fund
involved to be redeemed at their net asset value; or (c) combine the assets
belonging to a Fund with the assets belonging to another Fund of Galaxy and, in
connection therewith, to cause all outstanding shares of any Fund to be redeemed
at their net asset value or converted into shares of another class of Galaxy's
shares at the net asset value. In the event that shares are redeemed in cash at
their net asset value, a shareholder may receive in payment for such shares, due
to changes in the market prices of the Fund's portfolio securities, an amount
that is more or less than the original investment. The exercise of such
authority by the Board of Trustees will be subject to the provisions of the 1940
Act, and the Board of Trustees will not take any action described in this
paragraph unless the proposed action has been disclosed in writing to the Fund's
shareholders at least 30 days prior thereto.
INVESTMENT STRATEGIES, POLICIES AND RISKS
Fleet Investment Advisors Inc. ("Fleet"), the Funds' investment adviser,
and, with respect to the International Equity Fund, Oechsle International
Advisors, LLC ("Oechsle"), the Fund's sub-adviser, will use their best efforts
to achieve each Fund's investment objective, although such achievement cannot be
assured. The investment objective of a Fund as described in its Prospectuses may
not be changed without the approval of the holders of a majority of its
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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. The following investment
strategies, policies and risks supplement those set forth in the Funds'
Prospectuses.
ASSET ALLOCATION FUND
The Asset Allocation Fund may invest up to 20% of its total assets in
foreign securities. Such foreign investments may be made directly, by purchasing
securities issued or guaranteed by foreign corporations, banks or governments
(or their political subdivisions or instrumentalities) or by supranational banks
or other organizations, or indirectly, by purchasing American Depository
Receipts ("ADRs") and European Depository Receipts ("EDRs"). Examples of
supranational banks include the International Bank for Reconstruction and
Development ("World Bank"), the 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 for
information regarding additional investment policies of the Asset Allocation
Fund.
EQUITY INCOME FUND
In addition to common stocks, the Equity Income Fund may also invest in
securities convertible into common stock that offer income potential. See "Other
Investment Policies and Risk Considerations - Convertible Securities" below. The
Fund may invest up to 20% of its total assets in foreign securities, either
directly or indirectly through the purchase of ADRs and EDRs. In addition, the
Fund may invest in securities issued by foreign branches of U.S. banks and
foreign banks. See "Special Risk Considerations -- Foreign Securities" and
"Other Investment Policies and Risk Considerations -- American, European and
Global Depository Receipts" below. The Fund may also purchase put options and
call options and write covered call options. See "Other Investment Policies and
Risk Considerations -- Derivative Securities" below.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Equity Income Fund.
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GROWTH AND INCOME FUND
Under normal market conditions, the Growth and Income 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 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 -- 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 Global Depository
Receipts ("GDRs"). Securities of a foreign issuer may present greater risks in
the form of nationalization, confiscation, domestic marketability, or other
national or international restrictions. As a matter of practice, the Fund will
not invest in the securities of foreign issuers if any such risk appears to
Fleet to be substantial. See "Special Risk Considerations -- Foreign Securities"
and "Other Investment Policies and Risk Considerations -- American, European and
Global Depository Receipts" below.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Growth and Income
Fund.
STRATEGIC EQUITY FUND
Under normal market and economic conditions, the Strategic Equity 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 -- Derivative Securities" below.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Strategic Equity
Fund.
EQUITY VALUE FUND
Under normal market and economic conditions, the Equity Value Fund
invests at least 75% of its total assets in common stock, preferred stock
(including convertible 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
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market instability and are acquired principally for income with the potential
for appreciation being a secondary consideration. See "Other Investment Policies
and Risk Considerations -- Convertible Securities" below.
The Fund may also invest up to 20% of its total assets in foreign
securities, either directly or indirectly through 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 write covered call options.
See "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
Convertible securities purchased by the Equity Growth Fund may include
both debt securities and preferred stock. 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 also invest in
common stock warrants.
The Fund may invest up to 20% of its total assets in foreign securities,
either directly or indirectly through the purchase of ADRs and EDRs. In
addition, the Fund may invest in securities issued by foreign branches of U.S.
banks and foreign banks. See "Special Risk Considerations -- Foreign Securities"
and "Other Investment Policies and Risk Considerations -- American, European and
Global Depository Receipts" below. The Fund may also purchase put options and
call options and write covered call options. See "Other Investment Policies and
Risk Considerations -- Derivative Securities" below.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Equity Growth Fund.
INTERNATIONAL EQUITY FUND
The International Equity Fund invests at least 75% of its total assets in
equity securities of foreign issuers. 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.
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
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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."
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 GDRs as described under "Other
Investment Policies and Risk Considerations -- American, European and Global
Depository Receipts." Furthermore, the Fund may purchase and sell securities on
a when-issued basis.
See "Other Investment Policies and Risk Considerations" below regarding
additional investment policies of the International Equity Fund.
SMALL CAP VALUE FUND
In addition to common stocks, the Small Cap Value 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 -- 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
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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.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Small Cap Value
Fund.
SMALL COMPANY EQUITY FUND
In addition to common stocks, the Small Company Equity Fund may invest in
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 that have market
capitalizations of $1.5 billion or less. 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 -- Derivative Securities" below.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Small Company Equity
Fund.
SPECIAL RISK CONSIDERATIONS
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
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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 have adopted a single European currency, the
euro. On January 1, 1999, the euro became legal tender for all countries
participating in the Economic and Monetary Union ("EMU"). A new European Central
Bank has been created to manage the monetary policy of the new unified region.
On the same date, the exchange rates were 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 the Prospectuses and this Statement of
Additional Information 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
Asset Allocation, Equity Income, Strategic Equity, Equity Value, Equity
Growth and Small Company 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"
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by Moody's or "BBB" by S&P are generally considered to be investment grade
securities although they have speculative characteristics and changes in
economic conditions or circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case for higher
rated debt obligations.
The International Equity Fund may only purchase debt securities rated "A"
or higher by Moody's or S&P, or if unrated, determined by Fleet or Oechsle to be
of comparable quality. Issuers of commercial paper, bank obligations or
repurchase agreements in which the International Equity Fund invests must have,
at the time of investment, outstanding debt rated A or higher by Moody's or S&P,
or, if they are not rated, the instrument purchased must be determined to be of
comparable quality.
The Growth and Income and Small Cap Value 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 Growth and Income and Small Cap Value
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.
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 or Oechsle, as the case may
be, 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
("SEC").
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 other "money market" instruments, including
bank obligations and commercial paper.
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.
U.S. Treasury securities 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.
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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 Growth and Income and
Small Cap Value 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 Strategic
Equity Fund, Growth and Income Fund and Small Cap Value Fund) of a Fund's net
assets. Investments by the Funds in non-negotiable time deposits are limited to
no more than 5% of each Fund's total assets at the time of purchase.
Domestic and foreign banks are subject to extensive but different
government regulation which may limit the amount and types of their loans and
the interest rates that may be charged. In addition, the profitability of the
banking industry is largely dependent upon the availability and cost of funds to
finance lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and 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 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. 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.
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Commercial paper may include variable and floating rate instruments which
are unsecured instruments that permit the indebtedness thereunder to vary.
Variable rate instruments provide for periodic adjustments in the interest rate.
Floating rate instruments provide for automatic adjustment of the interest rate
whenever some other specified interest rate changes. Some variable and floating
rate obligations are direct lending arrangements between the purchaser and the
issuer and there may be no active secondary market. However, in the case of
variable and floating rate obligations with a demand feature, 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.
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 the
Prospectuses and this Statement of Additional Information. If such an instrument
is not rated, Fleet or Oechsle, 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 an instrument will
usually be deemed to have a maturity equal to the longer of the period
remaining until the next regularly scheduled interest rate adjustment or the
time the Fund involved can receive payment of principal as specified in the
instrument. Instruments which are U.S. Government obligation and certain
variable rate instruments having a nominal maturity of 397 days or less when
purchased by the Fund involved, however, will be deemed to have a maturity
equal to the period remaining until the next interest rate adjustment.
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. 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 Asset Allocation,
Equity Income, Strategic Equity, Equity Value, Equity Growth, International
Equity and Small Company Equity Funds, and to the 15% limit described below in
Investment Limitation No. 23 under "Investment Limitations" with respect to the
Growth and Income and Small Cap Value Funds.
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<PAGE>
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by 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.
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 1940 Act.
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. 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.
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. 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. Loans will generally be
short-term (except in the case of the Growth and Income and Small Cap Value
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.
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INVESTMENT COMPANY SECURITIES
The Asset Allocation, Equity Income, Equity Value, Equity Growth,
International Equity and Small Company Equity 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 primarily of securities of issuers located in one foreign country.
The Growth and Income, Strategic Equity and Small Cap Value 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 Growth and Income,
Strategic Equity and Small Cap Value 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
Growth and Income, Strategic Equity and Small Cap Value Funds, securities of
other investment companies will be acquired by a Fund within the limits
prescribed by the 1940 Act. Each Fund currently intends to limit its investments
so that, as determined immediately after a securities purchase is made: (a) not
more than 5% of the value of its total assets will be invested in the securities
of any one investment company; (b) not more than 10% of the value of its total
assets will be invested in the aggregate in securities of other investment
companies as a group; (c) not more than 3% of the outstanding voting stock of
any one investment company will be owned by the Fund; and (d) not more than 10%
of the outstanding voting stock of any one closed-end investment company will be
owned in the aggregate by the Fund, other investment portfolios of Galaxy, or
any other investment companies advised by Fleet 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 of 1986, as amended (the "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
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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.
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. Further discussion of particular types of
derivative securities follows.
PUT AND CALL OPTIONS -- ASSET ALLOCATION, EQUITY INCOME, EQUITY GROWTH
AND SMALL COMPANY EQUITY FUNDS. The Asset Allocation, Equity Income, Equity
Growth and Small Company Equity 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. Such options may relate to
particular securities
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or to various stock indexes, except that a Fund may not write covered call
options on an index. A Fund may not purchase options unless immediately after
any such transaction the aggregate amount of premiums paid for put or call
options does not exceed 5% of its total assets. Purchasing options is a
specialized investment technique that may entail the risk of a complete loss of
the amounts paid as premiums to the writer of the option.
In order to close out put or call option positions, a Fund will be
required to enter into a "closing purchase transaction" -- the purchase of a put
or call 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
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will likely be unable to control losses by closing its position where a liquid
secondary market does not exist. Moreover, regardless of how much the market
price of the underlying security increases or decreases, the option buyer's risk
is limited to the amount of the original investment for the purchase of the
option. However, options may be more volatile than their underlying securities,
and therefore, on a percentage basis, an investment in options may be subject to
greater fluctuation than an investment in the underlying securities.
A decision as to whether, when and how to use options involves the
exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected events.
COVERED CALL OPTIONS -- ASSET ALLOCATION, EQUITY INCOME, EQUITY VALUE,
EQUITY GROWTH, INTERNATIONAL EQUITY AND SMALL COMPANY EQUITY FUNDS. To further
increase return on their portfolio securities, in accordance with their
respective investment objectives and policies, the Asset Allocation, Equity
Income, Equity Value, Equity Growth, International Equity and Small Company
Equity 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 Asset Allocation, Equity Income,
Equity Value, Equity Growth, International Equity and Small Company Equity 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. A 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.
The 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
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incurred a loss in the transaction. An option position may be closed out only on
an exchange that provides a secondary market for an option of the same series.
There is no assurance that a liquid secondary market on an exchange will exist
for any particular option. A covered option writer, unable to effect a closing
purchase transaction, will not be able to sell the underlying security until the
option expires or the underlying security is delivered upon exercise. The writer
in such circumstances will be subject to the risk of market decline of the
underlying security during such period. A Fund will write an option on a
particular security only if Fleet and/or Oechsle believes that a liquid
secondary market will exist on an exchange for options of the same series, which
will permit the Fund to make a closing purchase transaction in order to close
out its position.
When a Fund writes an option, an amount equal to the net premium (the
premium less the commission) received by the Fund is included as a deferred
credit in the liability section of the Fund's statement of assets and
liabilities. The amount of the deferred credit will be subsequently
marked-to-market to reflect the current value of the option written. The current
value of the traded option is the last sale price or, in the absence of a sale
price, the average of the closing bid and asked prices. If an option expires on
the stipulated expiration date or if a Fund enters into a closing purchase
transaction, it will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the net premium received when the option is sold), and the
deferred credit related to such option will be eliminated. If an option is
exercised, the Fund may deliver the underlying security from its portfolio and
purchase the underlying security in the open market. In either event, the
proceeds of the sale will be increased by the net premium originally received,
and the Fund will realize a gain or loss. Premiums from expired call options
written by a Fund and net gains from closing purchase transactions are treated
as short-term capital gains for 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
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
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
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expiration by entering into a closing transaction on an exchange or the option
may expire unexercised.
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.
OPTIONS AND FUTURES CONTRACTS - GROWTH AND INCOME, STRATEGIC EQUITY AND
SMALL CAP VALUE FUNDS. The Growth and Income, Strategic Equity and Small Cap
Value 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.
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.
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STOCK INDEX FUTURES, SWAP AGREEMENTS, INDEXED SECURITIES AND OPTIONS -
GROWTH AND INCOME, STRATEGIC EQUITY AND SMALL CAP VALUE FUNDS. The Growth and
Income, Strategic Equity and Small Cap Value Funds may utilize stock index
futures contracts, options, swap agreements, indexed securities, and options on
futures contracts for the purposes of managing cash flows into and out of their
respective portfolios and potentially reducing transaction costs, 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. The Funds may not use
stock index futures contracts and options for speculative purposes.
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.
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.
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The Funds may only: (1) buy listed put options on stock indices and stock
index futures contracts; (2) buy listed put options on securities held in their
respective portfolios; and (3) sell listed call options either on securities
held in their respective portfolios or on securities which they have the right
to obtain without payment of further consideration (or have segregated cash in
the amount of any such additional consideration). A Fund will maintain its
positions in securities, option rights, and segregated cash subject to puts and
calls until the options are exercised, closed or expired. A Fund may also enter
into stock index futures contracts. A stock index futures contract is a
bilateral agreement which obligates the seller to deliver (and the purchaser to
take delivery of) an amount of cash equal to a specific dollar amount times the
difference between the value of a specific stock index at the close of trading
of the contract and the price at which the agreement is originally made. There
is no physical delivery of the stocks constituting the index, and no price is
paid upon entering into a futures contract.
In general, option contracts are closed out prior to their expiration. A
Fund, when purchasing or selling a futures contract, will initially be required
to deposit in a segregated account in the broker's name with the Fund's
custodian an amount of cash or liquid portfolio securities approximately equal
to 5% - 10% of the contract value. This amount is known as "initial margin," and
it is subject to change by the exchange or board of trade on which the contract
is traded. Subsequent payments to and from the broker are made on a daily basis
as the price of the index or the securities underlying the futures contract
fluctuates. These payments are known as "variation margins," and the fluctuation
in value of the long and short positions in the futures contract is a process
referred to as "marking to market." A Fund may decide to close its position on a
contract at any time prior to the contract's expiration. This is accomplished by
the Fund taking an opposite position at the then prevailing price, thereby
terminating its existing position in the contract. Because the initial margin
resembles a performance bond or good-faith deposit on the contract, it is
returned to the Fund upon the termination of the contract, assuming that all
contractual obligations have been satisfied. Therefore, the margin utilized in
futures contracts is readily distinguishable from the margin employed in
security transactions, since the margin employed in futures contracts does not
involve the borrowing of funds to finance the transaction.
None of the Growth and Income, Strategic Equity or Small Cap Value Funds
will enter into futures contracts if, immediately thereafter, the sum of its
initial margin deposits on open contracts exceed 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.
The Growth and Income, Strategic Equity and Small Cap Value 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
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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.
As one way of managing their exposure to different types of investments,
the Growth and Income, Strategic Equity and Small Cap Value Funds may enter into
interest rate swaps, currency swaps, and other types of swap agreements such as
caps, collars, and floors. In a typical interest rate swap, one party agrees to
make regular payments equal to a floating interest rate times a "notional
principal amount," in return for payments equal to a fixed rate times the same
amount, for a specified period of time. If a swap agreement provides for
payments in different currencies, the parties might agree to exchange notional
principal amount as well. Swaps may also depend on other prices or rates, such
as the value of an index or mortgage prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments
only under specified circumstances, usually in return for payment of a fee by
the other party. For example, the buyer of an interest rate cap obtains the
right to receive payments to the extent that a specified interest rate exceeds
an agreed upon level, while the seller of an interest rate floor is obligated to
make payments to the extent that a specified interest rate falls below an agreed
upon level. An interest rate collar combines elements of buying a cap and
selling a floor.
Swap agreements will tend to shift a Fund's investment exposure from one
type of investment to another. For example, if a Fund agreed to exchange
payments in dollars for payments in foreign currency, the swap agreement would
tend to decrease the Fund's exposure to U.S. interest rates and increase its
exposure to foreign currency and interest rates. Caps and floors have an effect
similar to buying or writing options. Depending on how they are used, swap
agreements may increase or decrease the overall volatility of a Fund's
investments and its share price and yield.
Swap agreements are sophisticated hedging instruments that typically
involve a small investment of cash relative to the magnitude of risks assumed.
As a result, swaps can be highly volatile and may have a considerable impact on
the Funds' performance. Swap agreements are subject to risks related to the
counterparty's ability to perform, and may decline in value if the
counterparty's creditworthiness deteriorates. The Funds may also suffer losses
if they are unable to terminate outstanding swap agreements or reduce their
exposure through offsetting transactions.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because 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
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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, which may be
any fixed number of days from the date of the contract, 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.
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
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respect to portfolio security transactions; however, it is important to have the
flexibility to enter into foreign currency hedging transactions when it is
determined that the transactions would be in the Fund's best interest. Although
these transactions tend to minimize the risk of loss due to a decline in the
value of the hedged currency, at the same time they tend to limit any potential
gain that might be realized should the value of the hedged currency increase.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible because the future value of
these securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. The projection of currency market
movements is extremely difficult, and the successful execution of a hedging
strategy is highly uncertain.
AMERICAN, EUROPEAN AND GLOBAL DEPOSITORY RECEIPTS
Each Fund may invest in ADRs and EDRs. The Growth and Income, Strategic
Equity, International Equity and Small Cap Value 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. If a Fund invests in an unsponsored ADR, EDR or GDR,
there may be less information available to the Fund concerning the issuer of the
securities underlying the unsponsored ADR, EDR or GDR than is available for an
issuer of securities underlying a sponsored ADR, EDR or GDR. 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."
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
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be primarily a function of current market rates, although other economic and
demographic factors will be involved.
Asset-backed securities are generally issued as pass-through
certificates, which represent undivided fractional ownership interests in an
underlying pool of assets, or as debt instruments, which are also known as
collateralized obligations, and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt. Asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties.
The yield characteristics of asset-backed securities differ from
traditional debt securities. A major difference is that the principal amount of
the obligations may be prepaid at any time because the underlying assets (i.e.,
loans) generally may be prepaid at any time. As a result, if an asset-backed
security is purchased at a premium, a prepayment rate that is faster than
expected will reduce yield to maturity, while a prepayment rate that is slower
than expected will have the opposite effect of increasing yield to maturity.
Conversely, if an asset-backed security is purchased at a discount, faster than
expected prepayments will increase, while slower than expected prepayments, will
decrease, yield to maturity.
Prepayments on asset-backed securities generally increase with falling
interest rates and decrease with rising interest rates; furthermore prepayment
rates are influenced by a variety of economic and social factors. In general,
the collateral supporting non-mortgage asset-backed securities is of shorter
maturity than mortgage loans and is less likely to experience substantial
prepayments. Like other fixed income securities, when interest rates rise, the
value of an asset-backed security generally will decline; however, when interest
rates decline, the value of an asset-backed security with prepayment features
may not increase as much as that of other fixed income securities.
Asset-backed securities are subject to greater risk of default during
periods of economic downturn. Also, the secondary market for certain
asset-backed securities may not be as liquid as the market for other types of
securities, which could result in a Fund's experiencing difficulty in valuing or
liquidating such securities. For these reasons, under certain circumstances,
asset-backed securities may be considered illiquid securities.
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
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interest rates decline. To the extent that the Fund purchases mortgage-backed
securities at a premium, mortgage foreclosures and prepayments of principal by
mortgagors (which may be made at any time without penalty) may result in some
loss of the Fund's principal investment to the extent of the premium paid. The
yield of the Fund, should it invest in mortgage-backed securities, may be
affected by reinvestment of prepayments at higher or lower rates than the
original investment.
Other mortgage-backed securities are issued by private issuers, generally
originators of and investors in mortgage loans, including savings associations,
mortgage bankers, commercial banks, investment bankers, and special purpose
entities. These private mortgage-backed securities may be supported by U.S.
Government mortgage-backed securities or some form of non-government credit
enhancement. Mortgage-backed securities have either fixed or adjustable interest
rates. The rate of return on mortgage-backed securities may be affected by
prepayments of principal on the underlying loans, which generally increase as
interest rates decline; as a result, when interest rates decline, holders of
these securities normally do not benefit from appreciation in market value to
the same extent as holders of other non-callable debt securities. In addition,
like other debt securities, the 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
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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.
The Growth and Income and Small Cap Value 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
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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 not 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 Appendix A to this Statement of Additional Information.
WHEN-ISSUED AND DELAYED SETTLEMENT TRANSACTIONS - GROWTH AND INCOME, STRATEGIC
EQUITY, INTERNATIONAL EQUITY AND SMALL CAP VALUE FUNDS
The Growth and Income, Strategic Equity, International Equity and Small
Cap Value Funds may purchase eligible securities on a "when-issued" basis. The
Growth and Income, Strategic Equity and Small Cap Value 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.
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
-29-
<PAGE>
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.
RESTRICTED AND ILLIQUID SECURITIES
Each Fund may invest in commercial paper issued in reliance on the
exemption from registration afforded by Section 4(2) of the Securities Act of
1933, as amended (the "1933 Act"). 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.
Rule 144A under the 1933 Act allows for a broader institutional trading
market for securities otherwise subject to restrictions on resale to the general
public. Rule 144A establishes a "safe harbor" from the registration requirements
of the 1933 Act for resales of certain securities to qualified institutional
buyers. 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 Growth and
Income, Small Cap Value and Strategic Equity Funds) on purchases of illiquid
instruments described under "Investment Limitations" below, 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.
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<PAGE>
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.
INVESTMENT LIMITATIONS
In addition to each Fund's investment objective as stated in its
Prospectuses, 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").
The Asset Allocation, Equity Income, Strategic Equity, Equity Value,
Equity Growth, International Equity and Small Company 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 Asset
Allocation, Equity Income, Strategic Equity, Equity Growth,
International Equity and Small Company 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 Asset
Allocation, Equity Income, Strategic Equity, Equity Growth,
International Equity and Small Company 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
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<PAGE>
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.
5. 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.
6. 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.
7. 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.
8. 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 Asset Allocation, Equity Income, Equity Value,
Equity Growth, International Equity and Small Company
Equity 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 Strategic Equity Fund
may engage in transactions involving financial futures
contracts or options on financial futures contracts.
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<PAGE>
9. Invest in or sell put options, call options, straddles,
spreads, or any combination thereof; provided, however,
that each of the Asset Allocation, Equity Income, Equity
Value, Equity Growth, International Equity and Small
Company Equity Funds may write covered call options with
respect to its portfolio securities that are traded on a
national securities exchange, and may enter into closing
purchase transactions with respect to such options if, at
the time of the writing of such options, the aggregate
value of the securities subject to the options written by
the Fund does not exceed 25% of the value of its total
assets; and further provided that (i) the Asset Allocation,
Equity Income, Equity Growth, International Equity and
Small Company Equity Funds may purchase put and call
options to the extent permitted by their investment
objectives and policies, and (ii) the Strategic Equity Fund
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.
10. Invest in companies for the purpose of exercising
management or control.
11. 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 the Strategic Equity Fund
may from time to time, on a temporary basis, invest
exclusively in one other investment company similar to the
Fund.
The Growth and Income and Small Cap Value Funds may not:
12. 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.
13. 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.
14. 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
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<PAGE>
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.
15. Issue senior securities except that each Fund may borrow
money or engage in reverse repurchase agreements in amounts
up to one-third of the value of its total assets, including
the amounts borrowed; and except to the extent that the
Funds may enter into futures contracts. No Fund will borrow
money or engage in reverse repurchase agreements for
investment leverage, but rather as a temporary,
extraordinary, or emergency measure to facilitate
management of the portfolio by enabling a Fund to meet
redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous.
No Fund will purchase any securities while borrowings in
excess of 5% of its total assets are outstanding.
16. 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.
17. 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.
18. 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.
19. 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.
20. 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
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<PAGE>
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.
21. With respect to securities comprising 75% of the value of
its total assets, 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. A Fund will not acquire
more than 10% of the outstanding voting securities of any
one issuer.
22. 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 investment policies with respect to the Growth and Income
and Small Cap Value Funds may be changed by Galaxy's Board of Trustees without
shareholder approval. Shareholders will be notified before any material change
in these limitations become effective:
23. The 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).
24. Each Fund will limit its investments in other investment
companies to not more than 3% of the total outstanding
voting stock of any investment company; will invest no more
than 5% of its total assets in any one investment company;
and will invest no more than 10% of its total assets in
investment companies in general. However, these limitations
are not applicable if the securities are acquired in a
merger, consolidation, reorganization or acquisition of
assets.
The 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
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<PAGE>
Fund in shares of another investment company would be
subject to such duplicate expenses.
25. 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.
26. Neither Fund may purchase or sell interests in oil, gas, or
mineral exploration or development programs or leases;
except that the Funds may purchase the securities of
issuers which invest in or sponsor such programs.
27. 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.
28. 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.
29. 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.
30. Neither Fund will invest more than 15% of the value of its
respective net assets in illiquid securities, including
repurchase agreements providing for settlement in more than
seven days after notice, non-negotiable fixed time deposits
with maturities over seven days, and certain securities not
determined by the Board of Trustees to be liquid.
31. Neither Fund may invest in companies for the purpose of
exercising management or control.
32. 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.
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<PAGE>
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 Asset Allocation, Equity Income, Strategic Equity,
Equity Growth, International Equity and Small Company 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.
With respect to Investment Limitation No. 4 above, each of the Asset
Allocation, Equity Income, Strategic Equity, Equity Value, Equity Growth,
International Equity and Small Company Equity Funds does not intend to
acquire more than 10% of the outstanding voting securities of any one issuer.
The Growth and Income and Small Cap Value 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.
Except as stated otherwise, 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. If the value of a Fund's holdings of illiquid
securities at any time exceeds the percentage limitation applicable at the time
of acquisition due to subsequent fluctuations in value or other reasons, the
Board of Trustees will consider what actions, if any, are appropriate to
maintain adequate liquidity. With respect to borrowings, if a Fund's asset
coverage at any time falls below that required by the 1940 Act, the Fund will
reduce the amount of its borrowings in the manner required by the 1940 Act to
the extent necessary to satisfy the asset coverage requirement.
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<PAGE>
VALUATION OF PORTFOLIO SECURITIES
VALUATION OF THE ASSET ALLOCATION, EQUITY INCOME, GROWTH AND INCOME, STRATEGIC
EQUITY, EQUITY VALUE, EQUITY GROWTH, SMALL CAP VALUE AND SMALL COMPANY EQUITY
FUNDS
In determining market value, the assets in the Asset Allocation, Equity
Income, Growth and Income, Strategic Equity, Equity Value, Equity Growth, Small
Cap Value and Small Company Equity Funds which are traded on a recognized stock
exchange are valued at the last sale price on the securities exchange on which
such securities are primarily traded or at the last sale price on the national
securities market. Securities quoted on the NASD National Market System are also
valued at the last sale price. Other securities traded on over-the-counter
markets are valued on the basis of their closing over-the-counter bid prices.
Securities for which there were no transactions are valued at the average of the
most recent bid and asked prices. Investments in debt securities with remaining
maturities of 60 days or less are valued based upon the amortized cost method.
Restricted securities, securities for which market quotations are not readily
available, and other assets are valued at fair value by Fleet under the
supervision of Galaxy's Board of Trustees. An option is generally valued at the
last sale price or, in the absence of a last sale price, the last offer price.
See "Valuation of International Equity Fund" below for a description of the
valuation of certain foreign securities held by these Funds.
VALUATION OF THE INTERNATIONAL EQUITY FUND
In determining market value, 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.
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<PAGE>
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares in each Fund are sold on a continuous basis by Galaxy's
distributor, Provident Distributors, Inc. ("PDI"). PDI is a registered
broker/dealer with its principal offices at Four Fall Corporate Center, 6th
Floor, West Conshohocken, Pennsylvania 19428. PDI has agreed to use appropriate
efforts to solicit all purchase orders.
This Statement of Additional Information provides additional purchase and
redemption information for Trust Shares, Retail A Shares and Retail B Shares of
the Funds. Purchase and redemption information for Prime A Shares and Prime B
Shares of the Funds is provided in a separate prospectus and statement of
additional information.
PURCHASES OF RETAIL A SHARES AND RETAIL B SHARES
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.
PDI has established several procedures to enable different types of
investors to purchase Retail A Shares and Retail B Shares (collectively,
"Retail Shares") of the Funds. Retail Shares 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. Retail
Shares may also be purchased by FIS Securities, Inc., Fleet Securities, Inc.,
Fleet Enterprises, Inc., FleetBoston Corporation, its affiliates, their
correspondent banks and other qualified banks, savings and loan associations
and broker/dealers on behalf of their customers. Purchases may take place
only on days on which PDI 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 PDI on a Business Day in accordance with
PDI's procedures.
Galaxy has authorized certain brokers to accept purchase, exchange and
redemption orders on behalf of Galaxy with respect to Retail A Shares of the
Funds. Such brokers are authorized to designate other intermediaries to accept
purchase, exchange and redemption orders on behalf of Galaxy. Galaxy will be
deemed to have received a purchase, exchange or redemption order when such an
authorized broker or designated intermediary accepts the order. Orders for the
purchase, exchange or redemption of Retail A Shares of the Funds accepted by any
such authorized broker or designated intermediary will be effected at the Funds'
respective net asset values per share next determined after acceptance of such
order and will not be subject
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<PAGE>
to the front-end sales charge with respect to Retail A Shares described in the
applicable Prospectus and in this Statement of Additional Information.
CUSTOMERS OF INSTITUTIONS
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.
OTHER PURCHASE INFORMATION
On a Business Day when the New York Stock Exchange (the "Exchange")
closes early due to a partial holiday or otherwise, Galaxy will advance the time
at which purchase orders must be received in order to be processed on that
Business Day.
APPLICABLE SALES 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 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. A portion of the front-end sales charge may be reallowed to
broker-dealers as follows:
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<PAGE>
REALLOWANCE TO
DEALERS
-------
<TABLE>
<CAPTION>
AS A % OF
OFFERING PRICE
AMOUNT OF TRANSACTION PER SHARE
- --------------------- --------------
<S> <C>
Less than $50,000 3.25
$50,000 but less than $100,000 3.00
$100,000 but less than $250,000 2.50
$250,000 but less than $500,000 2.00
$500,000 and over 0.00
</TABLE>
The appropriate reallowance to dealers will be paid by PDI to
broker-dealer organizations which have entered into agreements with PDI. The
reallowance to dealers may be changed from time to time.
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. In addition
to the sales charge waivers described in the applicable Prospectus, 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:
- purchases by directors, officers and employees of broker-dealers
having agreements with PDI pertaining to the sale of Retail A
Shares to the extent permitted by such organizations;
- 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
FleetBoston Corporation and any of its affiliates and members of
their immediate families;
- purchases by officers, directors, employees and retirees of
PFPC Inc. 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;
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<PAGE>
- purchases by clients of investment advisers or financial planners
who place trades for their own accounts if such accounts are
linked to the master accounts of such investment advisers or
financial planners on the books of the broker-dealer through whom
Retail A Shares are purchased;
- purchases by institutional clients of broker-dealers, including
retirement and deferred compensation plans and the trusts used to
fund these plans, which place trades through an omnibus account
maintained with Galaxy by the broker-dealer; and
- purchases prior to July 1, 1999 by former deposit customers of
financial institutions (other than registered broker-dealers)
acquired by FleetBoston Corporation in February 1998.
COMPUTATION OF OFFERING PRICE - RETAIL A SHARES
An illustration of the computation of the offering price per share of
Retail A Shares of the Funds, using the value of each Fund's net assets
attributable to such Shares and the number of outstanding Retail A Shares of
each Fund at the close of business on October 31, 1999 and the maximum front-end
sales charge of 3.75%, is as follows:
<TABLE>
<CAPTION>
Asset Allocation Equity Income
Fund Fund
---- ----
<S> <C> <C>
Net Assets........................................... $ _________ $ _________
Outstanding Shares................................... _________ _________
Net Asset Value Per Share............................ $ _________ $ _________
Sales Charge (3.75% of
the offering price).................................. $ _________ $ _________
Offering Price to Public............................. $ _________ $ _________
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Growth and Strategic
Income Fund Equity Fund
----------- -----------
<S> <C> <C>
Net Assets........................................... $ _________ $ _________
Outstanding Shares................................... _________ _________
Net Asset Value Per Share............................ $ _________ $ _________
Sales Charge (3.75% of
the offering price).................................. $ _________ $ _________
Offering Price to Public............................. $ _________ $ _________
</TABLE>
<TABLE>
<CAPTION>
Equity Equity
Value Fund Growth Fund
---------- -----------
<S> <C> <C>
Net Assets........................................... $ _________ $ _________
Outstanding Shares................................... _________ _________
Net Asset Value Per Share............................ $ _________ $ _________
Sales Charge (3.75% of
the offering price).................................. $ _________ $ _________
Offering Price to Public............................. $ _________ $ _________
</TABLE>
<TABLE>
<CAPTION>
International Small Cap
Equity Fund Value Fund
----------- ----------
<S> <C> <C>
Net Assets........................................... $ _________ $ _________
Outstanding Shares................................... _________ _________
Net Asset Value Per Share............................ $ _________ $ _________
Sales Charge (3.75% of
the offering price).................................. $ _________ $ _________
Offering Price to Public............................. $ _________ $ _________
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Small Company
Equity Fund
-----------
<S> <C>
Net Assets........................................... $ _________
Outstanding Shares................................... _________
Net Asset Value Per Share............................ $ _________
Sales Charge (3.75% of
the offering price).................................. $ _________
Offering Price to Public............................. $ _________
</TABLE>
QUANTITY DISCOUNTS
Investors 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 investor 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, an investor must notify
PDI 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 an investor's
holdings through a check of appropriate records. For more information about
quantity discounts, please contact PDI or your financial 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 an investor'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, an investor 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, an investor 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
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has been paid and that are beneficially owned by an investor 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.
PFPC Inc. ("PFPC"), Galaxy's administrator, 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 an investor does not purchase the full
amount indicated in the Letter of Intent. The escrow will be released when
the investor 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 the investor's total purchases.
If total purchases are less than the amount specified, the investor 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, PFPC, as attorney-in-fact pursuant
to the terms of the Letter of Intent and at PDI's 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 an investor to purchase
the full amount indicated at the sales charge in effect at the time of
signing, but an investor must complete the intended purchase in accordance
with the terms of the Letter of Intent to obtain the reduced sales charge. To
apply, an investor 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. Investors 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.
Investors wishing to exercise this Privilege must submit a written
reinstatement request to PFPC 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 Code's "wash sale" rules.
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<PAGE>
GROUP SALES. Members of qualified groups may purchase Retail A Shares of
the Funds at the following group sales rates:
<TABLE>
<CAPTION>
REALLOWANCE
TOTAL SALES CHARGE 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 PDI. To receive
the group sales charge rate, group members must purchase Retail A Shares
directly from PDI in accordance with any of the procedures described in the
applicable Prospectus. Group members must also ensure that their qualified 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. PDI may request periodic certification of group and member
eligibility. PDI reserves the right to determine whether a group qualifies for a
quantity discount and to suspend this offer at any time.
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 investors 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 PDI
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 an investor's Retail B
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<PAGE>
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 proceeds from the contingent deferred sales charge that an investor
may pay upon redemption go to PDI, 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. In addition to the sales charge exemptions described in the applicable
Prospectus, the contingent deferred sales charge with respect to Retail B Shares
is not assessed on: (i) 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 Code; (ii) 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; (iii) 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; (iv) 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; (v) redemptions resulting from a tax-free
return of an excess contribution pursuant to Section 408(d)(4) or (5) of the
Code; or (vi) any redemption of Retail B Shares held by an investor, provided
the investor 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 - Retail A Shares and Retail B Shares -- 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. An investor 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 the applicable Prospectus and "Applicable
Sales Charges -- Retail A Shares" and "Quantity Discounts" above. 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.
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<PAGE>
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 the applicable
Prospectus and "Applicable Sales Charges - Retail B Shares" above. 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 PDI 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 an investor receives dollar-for-dollar the same
value of Retail A Shares as he or she had of Retail B Shares. The conversion
occurs six years after the beginning of the calendar month in which the Shares
are purchased. Upon conversion, the converted shares will be relieved of the
distribution and shareholder servicing fees borne by Retail B Shares, although
they will be subject to the shareholder servicing fees borne by Retail A Shares.
Retail B Shares acquired through a reinvestment of dividends or
distributions (as discussed under "Applicable Sales Charge - Retail B Shares")
are also converted at the earlier of two dates - six years after the beginning
of the calendar month in which the reinvestment occurred or the date of
conversion of the most recently purchased Retail B Shares that were not acquired
through reinvestment of dividends or distributions. For example, if an investor
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 investor'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,
investors 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.
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<PAGE>
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. Investors 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.
PURCHASES OF TRUST SHARES
Trust Shares are sold to investors maintaining qualified accounts at
bank and trust institutions, including subsidiaries of FleetBoston
Corporation, and to participants in employer-sponsored defined contribution
plans (such institutions and plans are referred to herein collectively as
"Institutions"). Trust Shares sold to such investors ("Customers") will be
held of record by Institutions. Purchases of Trust Shares will be effected
only on days on which PDI, Galaxy's custodian and the purchasing Institution
are open for business ("Trust Business Days"). If an Institution accepts a
purchase order from its Customer on a non-Trust Business Day, the order will
not be executed until it is received and accepted by PDI on a Trust Business
Day in accordance with the foregoing procedures.
Trust Shares of the International Equity Fund may also be sold to
clients, members and employees of Oechsle.
On a Trust 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 Trust Business Day.
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<PAGE>
REDEMPTION OF RETAIL A SHARES, RETAIL B SHARES
AND TRUST SHARES
Redemption orders are effected at the net asset value per share next
determined after receipt of the order by PDI. On a Business Day or Trust
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 or Trust Business Day.
Galaxy may require any information reasonably necessary to ensure that a
redemption has been duly authorized. 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.
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 SEC exists making disposal of a
Fund's investments or determination of its net asset value not reasonably
practicable; (b) the Exchange is closed (other than customary weekend and
holiday closings); or (c) the SEC by order has permitted such suspension.
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. HOWEVER, GALAXY HAS FILED AN ELECTION WITH THE SEC TO PAY IN CASH ALL
REDEMPTIONS REQUESTED BY A SHAREHOLDER OF RECORD LIMITED IN AMOUNT DURING ANY
90-DAY PERIOD TO THE LESSER OF $250,000 OR 1% OF THE NET ASSETS OF A FUND AT THE
BEGINNING OF SUCH PERIOD. SUCH COMMITMENT CANNOT BE REVOKED WITHOUT THE PRIOR
APPROVAL OF THE SEC.
INVESTOR PROGRAMS-RETAIL A SHARES AND RETAIL B SHARES
The following information supplements the description in the applicable
Prospectus as to the various Investor Programs available to holders of Retail
Shares of the Funds.
EXCHANGE PRIVILEGE
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 (i) the Retail Shares being redeemed were purchased
through a registered representative who is a Fleet
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Bank employee, in which event there is no minimum investment requirement, or
(ii) at the time of the exchange the investor 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,
investors should call PFPC at 1-877-BUY-GALAXY (1-877-289-4252). Customers of
institutions should call their institution for such information. Investors
exercising the exchange privilege into other portfolios should request and
review these portfolios' prospectuses prior to making an exchange. Telephone
1-877-BUY-GALAXY (1-877-289-4252) for a prospectus or to make an exchange.
In order to prevent abuse of this privilege to the disadvantage of other
shareholders, Galaxy reserves the right to terminate the exchange privilege of
any shareholder who requests more than three exchanges a year. Galaxy will
determine whether to do so based on a consideration of both the number of
exchanges that any particular shareholder or group of shareholders has requested
and the time period over which their exchange requests have been made, together
with the level of expense to Galaxy which will result from effecting additional
exchange requests. The exchange privilege may be modified or terminated at any
time. At least 60 days' notice of any material modification or termination will
be given to shareholders except where notice is not required under the
regulations of the SEC.
For federal income tax purposes, an exchange of shares is a taxable event
and, accordingly, a capital gain or loss may be realized by an investor. Before
making an exchange request, an investor should consult a tax or other financial
adviser to determine the tax consequences.
RETIREMENT PLANS
Retail Shares of the Funds are available for purchase in connection with
the following tax-deferred prototype retirement plans:
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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 RETIREMENT PLANS ("MERPS"), a retirement vehicle
established by employers for their employees which is qualified under Section
401(k) and 403(b) of the 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 in the applicable
Prospectus. Detailed information concerning eligibility and other matters
related to these plans and the form of application is available from PDI (call
1-877-BUY-GALAXY (1-877-289-4252)) with respect to IRAs, SEPs and Keogh Plans
and from Fleet Securities, Inc. (call 1-800-221-8210) with respect to MERPs.
AUTOMATIC INVESTMENT PROGRAM AND SYSTEMATIC WITHDRAWAL PLAN
The Automatic Investment Program permits an investor to purchase Retail
Shares of a Fund each month or each quarter. Provided an investor's financial
institution allows automatic withdrawals, Retail Shares are purchased by
transferring funds from the investor's checking, bank money market, NOW or
savings account designated by the investor. The account designated will be
debited in the specified amount, and Retail Shares will be purchased, on a
monthly or quarterly basis, on any Business Day designated by the 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 ("ACH")
member may be so designated.
The Systematic Withdrawal Plan permits an investor to automatically
redeem Retail Shares on a monthly, quarterly, semi-annual, or annual basis on
any Business Day designated by the investor. 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
PFPC, 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
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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
To be eligible for the Payroll Deduction Program, the payroll department
of an investor's employer must have the capability to forward transactions
directly through the ACH, or indirectly through a third party payroll processing
company that has access to the ACH. An 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
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. An 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
Galaxy reserves the right to redeem accounts participating in the College
Investment 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. Investors participating in the College Investment Program
will receive consolidated monthly statements of their accounts. Detailed
information concerning College Investment Program accounts and applications may
be obtained from PDI (call 1-877-BUY-GALAXY (1-877-289-4252)).
DIRECT DEPOSIT PROGRAM
Death or legal incapacity will terminate an investor's participation in
the Direct Deposit Program. An investor may elect at any time to terminate his
or her participation by notifying in writing the Social Security Administration.
Further, Galaxy may terminate an investor's participation upon 30 days' notice
to the investor.
TAXES
Each Fund qualified during its last taxable year and intends to continue
to qualify as a regulated investment company under Subchapter M of the Code, and
to distribute out its income to shareholders each year, so that each Fund itself
generally will be relieved of federal income and excise taxes. If a Fund were to
fail to so qualify: (1) the Fund would be taxed at regular corporate rates
without any deduction for distributions to shareholders; and (2) shareholders
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would be taxed as if they received ordinary dividends, although corporate
shareholders could be eligible for the dividends received deduction.
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."
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.
TAXATION OF CERTAIN FINANCIAL INSTRUMENTS AND INVESTMENTS
The tax principles applicable to transactions in financial instruments
and futures contacts and options that may be engaged in by a Fund, and
investments in passive foreign investment companies ("PFICs"), are complex and,
in some cases, uncertain. Such transactions and investments may cause a Fund to
recognize taxable income prior to the receipt of cash, thereby requiring the
Fund to liquidate other positions, or to borrow money, so as to make sufficient
distributions to shareholders to avoid corporate-level tax. Moreover, some or
all of the taxable income recognized may be ordinary income or short-term
capital gain, so that the distributions may be taxable to shareholders as
ordinary income.
In addition, in the case of any shares of a PFIC in which a Fund invests,
the Fund may be liable for corporate-level tax on any ultimate gain or
distributions on the shares if the Fund fails to make an election to recognize
income annually during the period of its ownership of the shares.
TRUSTEES AND OFFICERS
The business and affairs of the Funds are managed under the direction of
Galaxy's Board of Trustees in accordance with the laws of the Commonwealth of
Massachusetts and the Trust's Declaration of Trust. The trustees and executive
officers of Galaxy, their addresses, principal occupations during the past five
years, and other affiliations are as follows:
-54-
<PAGE>
<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 &
Vicks Lithograph & Printing Corporation (book manufacturing
Printing Corporation and commercial printing); Director, Utica
Commercial Drive First Insurance Company; Trustee, Savings
P.O. Box 270 Bank of Utica; Director, Monitor Life
Yorkville, NY 13495 Insurance Company; Director, Commercial
Age 66 Travelers Mutual Insurance Company;
Trustee, The Galaxy VIP Fund; Trustee,
Galaxy Fund II.
John T. O'Neill(1) President, Treasurer Executive Vice President and CFO, Hasbro,
Hasbro, Inc. & Trustee Inc. (toy and game manufacturer); Trustee,
1011 Newport Avenue The Galaxy VIP Fund; Trustee, Galaxy Fund
Pawtucket, RI 02862 II.
Age 55
Louis DeThomasis Trustee President, Saint Mary's College of
Saint Mary's College Minnesota; Director, Bright Day Travel,
of Minnesota Inc.; Trustee, Religious Communities Trust;
Winona, MN 55987 Trustee, The Galaxy VIP Fund; Trustee,
Age 59 Galaxy Fund II.
Donald B. Miller Trustee Chairman, Horizon Media, Inc. (broadcast
10725 Quail Covey Road services); Director/Trustee, Lexington
Boynton Beach, FL 33436 Funds; Chairman, Executive Committee,
Age 74 Compton International, Inc. (advertising
agency); Trustee, Keuka College; Trustee,
The Galaxy VIP Fund; Trustee, Galaxy Fund
II.
-55-
<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 Astra Projects,
The Astra Ventures, Inc. Incorporated (land development); President,
One Citizens Plaza The Astra Ventures, Incorporated
Providence, RI 02903 (previously, Buffinton Box Company -
Age 58 manufacturer of cardboard boxes);
Commissioner, Rhode Island Investment
Commission; Trustee, The Galaxy VIP Fund;
Trustee, Galaxy Fund II.
Bradford S. Wellman(1) Trustee Private Investor; Vice President and
2468 Ohio Street Director, Acadia Management Company
Bangor, ME 04401 (investment services); Director, Essex
Age 68 County Gas Company, until January 1994;
Director, Maine Mutual Fire Insurance Co.;
Member, Maine Finance Authority; Trustee,
The Galaxy VIP Fund; Trustee, Galaxy Fund
II.
W. Bruce McConnel, III Secretary Partner of the law firm Drinker Biddle &
One Logan Square Reath LLP, Philadelphia, Pennsylvania.
18th and Cherry Streets
Philadelphia, PA 19103
Age 57
Jylanne Dunne Vice President and Vice President, PFPC Inc., 1990 to present.
PFPC Inc. Assistant Treasurer
4400 Computer Drive
Westborough, MA 01581-5108
Age 40
William Greilich Vice President Vice President, PFPC Inc., 1991-96; Vice
PFPC Inc. President and Division Manager, PFPC Inc.,
4400 Computer Drive 1996-present.
Westborough, MA 01581-5108
Age 46
</TABLE>
-56-
<PAGE>
- -------------------------
1. May be deemed to be an "interested person" within the definition set
forth in Section 2(a)(19) of the 1940 Act.
Effective May 28, 1999, each trustee receives an annual aggregate fee of
$45,000 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 $3,500 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 May 28,
1999, each Trustee was entitled to receive an annual aggregate fee of $40,000
for his services as a Trustee of the Trusts plus an additional $2,500 for each
in-person Galaxy Board meeting attended, with all other fees being the same as
those currently in effect.
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 PFPC 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 its affiliates, serves as a trustee, officer or employee
of Galaxy. The trustees and officers of Galaxy own less than 1% of its
outstanding shares.
The following chart provides certain information about the fees received
by Galaxy's trustees in the most recently completed fiscal year.
-57-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Pension or
Retirement Total Compensation
Benefits Accrued from Galaxy and Fund
Aggregate Compensation as Part of Fund Complex *Paid to
Name of Person/Position from Galaxy Expenses Trustees
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bradford S. Wellman $_______ None $________
Trustee
- ------------------------------------------------------------------------------------------------------------
Dwight E. Vicks, Jr. $_______ None $________
Chairman and Trustee
- ------------------------------------------------------------------------------------------------------------
Donald B. Miller** $_______ None $________
Trustee
- ------------------------------------------------------------------------------------------------------------
Rev. Louis DeThomasis $_______ None $________
Trustee
- ------------------------------------------------------------------------------------------------------------
John T. O'Neill $_______ None $________
President, Treasurer
and Trustee
- ------------------------------------------------------------------------------------------------------------
James M. Seed** $_______ None $_______
Trustee
- ------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------
* The "Fund Complex" consists of Galaxy, The Galaxy VIP Fund and Galaxy
Fund II which comprise a total of 43 separate portfolios.
** Deferred compensation (including interest) in the amounts of $_____ and
$______ accrued during Galaxy's fiscal year ended October 31, 1999 for
Messrs. Miller and Seed, respectively.
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. However, Galaxy's Declaration of Trust provides that shareholders
shall not be subject to any personal liability for the acts or obligations of
Galaxy, and that every note, bond, contract, order or other undertaking made by
Galaxy shall contain a provision to the effect that the shareholders are not
personally liable thereunder. The Declaration of Trust provides for
indemnification out of the trust property of any shareholder held personally
liable solely by reason of his or her being or having been a shareholder and not
because of his or her acts or omissions outside such capacity or some other
reason. The Declaration of Trust also provides that Galaxy shall, upon request,
assume the defense of any claim made against any shareholder for any act or
obligation of Galaxy, and shall satisfy any judgment thereon. Thus, the risk of
shareholder liability is limited to circumstances in which Galaxy itself would
be unable to meet its obligations.
The Declaration of Trust states further that no trustee, officer or agent
of Galaxy shall be personally liable for or on account of any contract, debt,
claim, damage, judgment or decree arising out of or connected with the
administration or preservation of the trust estate or the conduct of any
business of Galaxy; nor shall any trustee be personally liable to any person for
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<PAGE>
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.
INVESTMENT ADVISER AND SUB-ADVISER
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" below.
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 0.75% of the average daily net assets of each Fund other than
the International Equity Fund. For the services provided and the 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
0.95% of the next $50 million of such assets, plus 0.85% of net assets in excess
of $100 million.
-59-
<PAGE>
During the last three fiscal years, Galaxy paid advisory fees (net of fee
waivers and/or expense reimbursements) to Fleet as set forth below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Asset Allocation....................................................... $3,743,922 $2,313,863
Equity Income.......................................................... $2,457,188 $1,947,792
Growth and Income...................................................... $3,701,722 $2,361,898
Strategic Equity....................................................... $70,206(1) *
Equity Value........................................................... $3,782,620 $2,860,410
Equity Growth.......................................................... $8,345,236 $6,555,045
International Equity(2)................................................ $2,480,868 $1,844,037
Small Cap Value........................................................ $2,042,588 $1,370,449
Small Company Equity................................................... $3,166,852 $2,610,431
</TABLE>
- ---------------
* Not in operation during the period.
(1) For the period from March 4, 1998 (commencement of operations) through
October 31, 1998. Fleet waived advisory fees of $26,590 with respect to
the Strategic Equity Fund during this period.
(2) For the fiscal years ended October 31, 1999, October 31, 1998 and October
31, 1997, Fleet waived advisory fees of $_______, $950,363 and $682,009,
respectively, with respect to the International Equity Fund.
During the last three fiscal years, Fleet reimbursed expenses as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Asset Allocation....................................................... $0 $19,254
Equity Income.......................................................... $0 $38,298
Growth and Income...................................................... $150,727 $306,295
Strategic Equity....................................................... $2,915(1) *
Equity Value........................................................... $0 $26,294
Equity Growth.......................................................... $0 $27,033
International Equity................................................... $0 $18,362
Small Cap Value........................................................ $115,022 $103,101
Small Company Equity................................................... $27,376 $118,118
</TABLE>
- ---------------
* Not in operation during the period.
(1) For the period from March 4, 1998 (commencement of operations) through
October 31, 1998.
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
-60-
<PAGE>
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.
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 liability company with principal offices
at One International Place, Boston, Massachusetts 02210, as the sub-adviser to
the International Equity Fund. The member manager of Oechsle is Oechsle Group,
LLC. FleetBoston Corporation owns approximately a 35% non-voting
interest in Oechsle. As of December 31, 1999, Oechsle had discretionary
management authority over approximately $____________ 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. Oechsle will provide services under this agreement in
accordance with the Fund's investment objectives, policies and restrictions.
Unless sooner terminated by Fleet or the Board of Trustees upon sixty days'
written notice or by Oechsle upon ninety days' written notice, the sub-advisory
agreement will continue in effect from year to year as long as such continuance
is approved at least annually as described above.
For the 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 years ended October 31, 1999, October 31, 1998 and October
31, 1997, Oechsle and /or its predecessor, Oechsle International Advisors, L.P.,
received sub-advisory fees of $________, $1,355,508 and $979,810, respectively,
with respect to the International Equity Fund.
-61-
<PAGE>
Fleet and Oechsle are authorized to allocate purchase and sale orders for
portfolio securities to certain financial institutions, including, to the extent
permitted by law or order of the SEC, financial institutions that are affiliated
with Fleet or Oechsle or that have sold shares of the Funds, if Fleet or
Oechsle, as the case may be, believes that the quality of the transaction and
the commission are comparable to what they would be with other qualified
brokerage firms.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities such as 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
PFPC (formerly known as First Data Investor Services Group, Inc.),
located at 4400 Computer Drive, Westborough, Massachusetts 01581-5108, serves
as the Funds' administrator. PFPC is a majority-owned subsidiary of PNC Bank
Corp.
PFPC generally assists the Funds in their administration and
operation. PFPC also serves as administrator to the other portfolios of
Galaxy. For the services provided to the Funds, PFPC is entitled to receive
administration fees based on the combined average daily net assets of the
Funds and the other portfolios offered by
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<PAGE>
Galaxy with an October 31 fiscal year end, computed daily and paid monthly, at
the following annual rates, effective September 10, 1998:
<TABLE>
<CAPTION>
COMBINED AVERAGE DAILY NET ASSETS ANNUAL RATE
--------------------------------- -----------
<S> <C>
Up to $2.5 billion.......................... 0.090%
From $2.5 to $5 billion..................... 0.085%
From $5 to $12 billion...................... 0.075%
From $12 to $15 billion..................... 0.065%
From $15 to $18 billion..................... 0.060%
Over $18 billion............................ 0.0575%
</TABLE>
Prior to September 10, 1998, Galaxy paid PFPC administration fees
based on the combined average daily net assets of the Funds and all other
portfolios offered by Galaxy at the following annual rates:
<TABLE>
<CAPTION>
COMBINED AVERAGE DAILY NET ASSETS ANNUAL RATE
--------------------------------- -----------
<S> <C>
Up to $2.5 billion.......................... 0.090%
From $2.5 to $5 billion..................... 0.085%
Over $5 billion............................. 0.075%
</TABLE>
PFPC also receives a separate annual fee from each Galaxy portfolio for certain
fund accounting services.
From time to time, PFPC may waive voluntarily all or a portion of the
administration fees payable to it by the Funds. For the fiscal year ended
October 31, 1999, each Fund paid PFPC administration fees at the effective
annual rate of ____% of such Fund's average daily net assets. During the last
three fiscal years, PFPC received administration fees (net of fee waivers) as
set forth below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Asset Allocation....................................................... $401,495 $253,881
Equity Income.......................................................... $263,640 $216,835
Growth and Income...................................................... $413,204 $290,324
Strategic Equity....................................................... $10,624(1) *
Equity Value........................................................... $405,740 $314,236
Equity Growth.......................................................... $895,213 $716,320
International Equity................................................... $305,871 $222,620
Small Cap Value........................................................ $231,440 $160,350
Small Company Equity................................................... $342,901 $222,620
</TABLE>
- ---------------------
* Not in operation during the period.
(1) For the period from March 4, 1998 (commencement of operations) through
October 31, 1998.
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<PAGE>
During the last three fiscal years, PFPC waived administration fees as
set forth below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Asset Allocation....................................................... $0 $0
Equity Income.......................................................... $0 $0
Growth and Income...................................................... $0 $0
Strategic Equity....................................................... $0(1) *
Equity Value........................................................... $0 $0
Equity Growth.......................................................... $0 $0
International Equity................................................... $0 $0
Small Cap Value........................................................ $0 $0
Small Company Equity................................................... $0 $0
</TABLE>
- ---------------------
* Not in operation during the period.
(1) For the period from March 4, 1998 (commencement of operations) through
October 31, 1998.
Under the administration agreement between Galaxy and PFPC (the
"Administration Agreement"), PFPC 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. PFPC 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. Unless otherwise
terminated, the Administration Agreement will remain in effect until May 31,
2001 and thereafter will continue from year to year upon annual approval of
Galaxy's Board of Trustees.
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
pursuant to a Global Custody Agreement. 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.
Under the Global 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
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<PAGE>
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 also serves as Galaxy's "foreign custody manager" (as
that term is defined in Rule 17f-5 under the 1940 Act) and in such capacity
employs sub-custodians for the Funds 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.
PFPC serves as the Funds' transfer and dividend disbursing agent
pursuant to a Transfer Agency and Services Agreement (the "Transfer Agency
Agreement"). Communications to PFPC should be directed to PFPC at P.O. Box
5108, 4400 Computer Drive, Westborough, Massachusetts 01581. Under the
Transfer Agency Agreement, PFPC 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.
PFPC 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 PFPC for the Sub-Account Services and in connection therewith the transfer
agency fees payable by Trust Shares of the Funds to PFPC 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.
Fleet Bank, an affiliate of Fleet, is paid a fee for Sub-Account Services
performed with respect to Trust Shares of the Funds held by defined contribution
plans. Pursuant to an agreement between Fleet Bank and PFPC,
Fleet Bank will be paid $21.00 per year for each defined contribution plan
participant account. For the fiscal year ended October 31, 1999, Fleet Bank
received $__________ for Sub-Account Services.
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<PAGE>
EXPENSES
Fleet and PFPC bear all expenses in connection with the performance of
their services for the Funds, except that 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 PFPC); SEC
fees; state securities fees; costs of preparing and printing prospectuses for
regulatory purposes and for distribution to existing shareholders; advisory,
administration, shareholder servicing, Rule 12b-1 distribution (if
applicable), fund accounting and custody fees; charges of the transfer agent
and dividend disbursing agent; certain insurance premiums; outside auditing
and legal expenses; costs of independent pricing services; costs of
shareholder reports and meetings; and any extraordinary expenses. The Funds
also pay for brokerage fees and commissions in connection with the purchase
of portfolio securities.
PORTFOLIO TRANSACTIONS
Fleet or Oechsle will select specific portfolio investments and effect
transactions for the Funds. Fleet seeks to obtain the best net price and the
most favorable execution of orders. Fleet or Oechsle may, in its discretion,
effect transactions in portfolio securities with dealers who provide research
advice or other services to the Funds, Fleet or Oechsle. Fleet or Oechsle is
authorized to pay a broker or dealer who provides such brokerage and research
services a commission for executing a portfolio transaction for any Fund which
is in excess of the amount of commission another broker or dealer would have
charged for effecting that transaction if Fleet or Oechsle determines in good
faith that such commission was reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer, viewed in
terms of either that particular transaction or Fleet or Oechsle's overall
responsibilities to the particular Fund and to Galaxy. Such brokerage and
research services might consist of reports and statistics relating to specific
companies or industries, general summaries of groups of stocks or bonds and
their comparative earnings and yields, or broad overviews of the stock, bond and
government securities markets and the economy. The fees under the investment
advisory agreements between Galaxy and Fleet and Fleet and Oechsle are not
reduced by reason of receiving such brokerage and research services. The Board
of Trustees will periodically review the commissions paid by the Funds to
determine if the commissions paid over representative periods of time were
reasonable in relation to the benefits inuring to the Funds.
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<PAGE>
During the fiscal year ended October 31, 1999, the Funds paid soft dollar
commissions as shown below:
<TABLE>
<CAPTION>
FUND COMMISSIONS
<S> <C>
Asset Allocation.............. $
Equity Income................. $
Growth and Income............. $
Strategic Equity.............. $
Equity Value.................. $
Equity Growth................. $
International Equity.......... $
Small Cap Value............... $
Small Company Equity.......... $
</TABLE>
Transactions on U.S. stock exchanges involve the payment of negotiated
brokerage commissions. On exchanges on which commissions are negotiated, the
cost of transactions may vary among different brokers. There is generally no
stated commission in the case of securities traded in U.S. over-the-counter
markets, but the prices of those securities include undisclosed commissions or
mark-ups. 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. U.S.
Government Securities are generally purchased from underwriters or dealers,
although certain newly issued U.S. Government Securities may be purchased
directly from the U.S. Treasury or from the issuing agency or instrumentality.
No brokerage commissions are typically paid on purchases and sales of U.S.
Government Securities.
The Funds paid brokerage commissions as shown in the table below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Asset Allocation....................................................... $225,758 $155,296
Equity Income.......................................................... $304,645 $201,407
Growth and Income...................................................... $511,307 $851,919
Strategic Equity....................................................... $118,965(1) *
Equity Value........................................................... $965,718 $934,709
Equity Growth.......................................................... $1,128,464 $7,006,331
International Equity................................................... $841,389 $851,919
Small Cap Value........................................................ $223,853 $173,335
Small Company Equity................................................... $579,137 $354,910
</TABLE>
- -----------------
* Not in operation during the period.
(1) For the period from March 4, 1998 (commencement of operations) through
October 31, 1998.
-67-
<PAGE>
During the period February 1, 1998 through October 31, 1998 and the
fiscal year ended October 31, 1999, certain Funds effected a portion of their
portfolio transactions through Quick & Reilly Institutional Trading ("Quick &
Reilly"), a division of Fleet Securities, Inc. which is an affiliate of Fleet.
The table below discloses (1) the aggregate amount of commissions paid to Quick
& Reilly by the Funds during the period ended October 31, 1998 and the fiscal
year ended October 31, 1999, (2) the percentage of each Fund's aggregate
brokerage commissions for the fiscal year ended October 31, 1999 that was paid
to Quick & Reilly, and (3) the percentage of each Fund's aggregate dollar amount
of transactions that involved payment of commissions that was effected through
Quick & Reilly during the fiscal year ended October 31, 1999.
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1999:
1999
1999 % OF
1999 % OF 1998 AGGREGATE
AGGREGATE AGGREGATE AGGREGATE COMMISSION
FUND AMOUNT COMMISSIONS AMOUNT TRANSACTIONS
- ---- ------ ----------- ------ ------------
<S> <C> <C> <C> <C>
Asset Allocation.................... $_______ ______% $130,968 ______%
Equity Income....................... $_______ ______% $108,651 ______%
Growth and Income................... $_______ ______% $118,050 ______%
Strategic Equity(1)................. $_______ ______% $26,480 ______%
Equity Value........................ $_______ ______% $298,078 ______%
Equity Growth....................... $_______ ______% $56,784 ______%
</TABLE>
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. 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, PFPC, 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, 1999 [TO BE PROVIDED BY FIRST DATA.]
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
-68-
<PAGE>
Galaxy's other Funds and portfolios, or other investment companies or
accounts in order to obtain best execution.
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 render certain administrative and support services to customers
who are the beneficial owners of Retail A Shares. Such services are provided
to customers who are the beneficial owners of Retail A Shares and are
intended to supplement the services provided by PFPC 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 PDI; 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.
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
Statement of Additional Information, Galaxy has entered 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. As of October 31, 1999,
Galaxy had entered into Servicing Agreements only with Fleet Bank and
affiliates.
Each Servicing Agreement between Galaxy and a Service Organization
relating to the Services Plan requires that, with respect to those Funds which
declare dividends on a daily basis, the Service Organization agrees to waive a
portion of the servicing fee payable to it under the Services Plan to the extent
necessary to ensure that the fees required to be accrued with respect to the
Retail A Shares of such Funds on any day do not exceed the income to be accrued
to such Retail A Shares on that day.
-69-
<PAGE>
During the last three fiscal years, Galaxy made payments to Service
Organizations with respect to Retail A Shares as shown in the table below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Asset Allocation....................................................... $763,611 $412,384
Equity Income.......................................................... $599,940 $434,674
Growth and Income...................................................... $472,627 $324,069
Strategic Equity....................................................... $4,356(1) *
Equity Value........................................................... $667,247 $440,920
Equity Growth.......................................................... $841,650 $558,695
International Equity................................................... $191,712 $102,465
Small Cap Value........................................................ $250,077 $130,739
Small Company Equity................................................... $343,948 $287,068
</TABLE>
- -------------------
* Not in operation during the period.
(1) For the period from March 4, 1998 (commencement of operations) through
October 31, 1998.
Galaxy's Servicing Agreements are governed by the Services Plan that has
been adopted by Galaxy's Board of Trustees in connection with the offering of
Retail A Shares of each Fund. Pursuant to the Services Plan, the Board of
Trustees reviews, at least quarterly, a written report of the amounts paid under
the Servicing Agreements and the purposes for which the expenditures were made.
In addition, the arrangements with Service Organizations must be approved
annually by a majority of Galaxy's trustees, including a majority of the
trustees who are not "interested persons" of Galaxy as defined in the 1940 Act
and who have no direct or indirect financial interest in such arrangements (the
"Disinterested Trustees").
The Board of Trustees has approved Galaxy's arrangements with Service
Organizations based on information provided by Galaxy's service contractors that
there is a reasonable likelihood that the arrangements will benefit the Funds
and their shareholders by affording Galaxy greater flexibility in connection
with the efficient servicing of the accounts of the beneficial owners of Retail
A Shares of the Funds. Any material amendment to Galaxy's arrangements with
Service Organizations must be approved by a majority of Galaxy's Board of
Trustees (including a majority of the Disinterested Trustees). So long as
Galaxy's arrangements with Service Organizations are in effect, the selection
and nomination of the members of Galaxy's Board of Trustees who are not
"interested persons" (as defined in the 1940 Act) of Galaxy will be committed to
the discretion of such Disinterested Trustees.
DISTRIBUTION AND SERVICES PLAN
Galaxy has adopted a Distribution and Services Plan pursuant to Rule
12b-1 under the 1940 Act (the "Rule") with respect to Retail B Shares of the
Funds (the "12b-1 Plan"). Under the 12b-1 Plan, Galaxy may pay (a) PDI or
another person for expenses and activities intended to
-70-
<PAGE>
result in the sale of Retail B Shares, including the payment of commissions to
broker-dealers and other industry professionals who sell Retail B Shares and the
direct or indirect cost of financing such payments, (b) institutions for
shareholder liaison services, which means personal services for holders of
Retail B Shares and/or the maintenance of shareholder accounts, such as
responding to customer inquiries and providing information on accounts, and (c)
institutions for administrative support services, which include but are not
limited to (i) transfer agent and sub-transfer agent services for beneficial
owners of Retail B Shares; (ii) aggregating and processing purchase and
redemption orders; (iii) providing beneficial owners with statements showing
their positions in Retail B Shares; (iv) processing dividend payments; (v)
providing sub-accounting services for Retail B Shares held beneficially; (vi)
forwarding shareholder communications, such as proxies, shareholder reports,
dividend and tax notices, and updating prospectuses to beneficial owners; and
(vii) receiving, translating and transmitting proxies executed by beneficial
owners.
Under the 12b-1 Plan, 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 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.
Payments for distribution expenses under the 12b-1 Plan are subject to
the Rule. The Rule defines distribution expenses to include the cost of "any
activity which is primarily intended to result in the sale of shares issued by"
Galaxy. 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 (the "12b-1 Trustees"), by vote cast in person at a meeting called
for the purpose of considering such amendments.
During the last three fiscal years, Retail B Shares of the Funds bore the
following distribution fees under the 12b-1 Plan:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Asset Allocation....................................................... $292,256 $99,219
-71-
<PAGE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Equity Income.......................................................... * *
Growth and Income...................................................... $306,933 $122,300
Strategic Equity....................................................... $1,300(1) **
Equity Value........................................................... $132,464 $50,897
Equity Growth.......................................................... $184,524 $75,906
International Equity................................................... * *
Small Cap Value........................................................ * *
Small Company Equity................................................... $97,785 $55,371
</TABLE>
- ------------------
* The Equity Income, International Equity and Small Cap Value Funds did not
offer Retail B Shares until November 1, 1998.
** Not in operation during the period.
(1) For the period from March 4, 1998 (commencement of operations) through
October 31, 1998.
During the last three the fiscal years, Retail B Shares of the Funds bore
the following shareholder servicing fees under the 12b-1 Plan:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Asset Allocation....................................................... $134,888 $44,293
Equity Income.......................................................... * *
Growth and Income...................................................... $124,879 $54,046
Strategic Equity....................................................... $600(1) **
Equity Value........................................................... $61,137 $21,199
Equity Growth.......................................................... $85,165 $34,034
International Equity................................................... * *
Small Cap Value........................................................ * *
Small Company Equity................................................... $45,132 $23,556
</TABLE>
- ------------------
* The Equity Income, International Equity and Small Cap Value Funds did not
offer Retail B Shares until November 1, 1998.
** Not in operation during the period.
(1) For the period from March 4, 1998 (commencement of operations) through
October 31, 1998.
All amounts paid under the 12b-1 Plan for these periods 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
12b-1 Trustees and is terminable at any time with respect to any Fund by a vote
of a majority of the 12b-1 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 12b-1 Trustees,
by vote of the holders of a majority of the Retail B Shares of such Fund, by PDI
or by the Service Organization. An agreement will also terminate automatically
in the event of its assignment.
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<PAGE>
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 the 12b-1 Trustees.
DISTRIBUTOR
PDI serves as Galaxy's distributor. PDI is a registered broker-dealer
with principal offices located at Four Falls Corporate Center, 6th Floor, West
Conshohocken, Pennsylvania 19428-2961. Jane Haegele is the sales shareholder of
PDI.
Unless otherwise terminated, the Distribution Agreement between Galaxy
and PDI remains in effect until November 30, 2000, 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.
PDI 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 and
this Statement of Additional Information. Prior to December 1, 1999, First
Data Distributors, Inc. ("FD Distributors") a wholly-owned subsidiary of
PFPC, served as Galaxy's distributor, and was entitled to the payment of the
front-end sales charge on the sale of Retail A Shares of the Funds. During
the last three fiscal years, FD Distributors received front-end sales charges
in connection with Retail A Share purchases as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Asset Allocation....................................................... $1,208,453 $1,010,359
Equity Income.......................................................... $312,155 $592,347
Growth and Income...................................................... $681,018 $988,216
Strategic Equity....................................................... $21,677(1) *
Equity Value........................................................... $364,586 $451,771
Equity Growth.......................................................... $548,901 $491,165
International Equity................................................... $126,093 $320,935
Small Cap Value........................................................ $398,478 $300,152
Small Company Equity................................................... $103,755 $343,614
</TABLE>
- -----------------
* Not in operation during the period.
(1) For the period from March 4, 1998 (commencement of operations) through
October 31, 1998.
FD Distributors retained none of the amounts shown in the table above.
-73-
<PAGE>
PDI is also entitled to the payment of contingent deferred sales charges
upon the redemption of Retail B Shares of the Funds. During the last three
fiscal years, FD Distributors, as distributor for the Funds, was entitled to the
payment of the contingent deferred sales charges upon the redemption of Retail B
Shares and received contingent deferred sales charges in connection with Retail
B Share redemptions as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Asset Allocation....................................................... $142,492 $57,559
Equity Income.......................................................... * *
Growth and Income...................................................... $107,798 $49,278
Strategic Equity....................................................... $112(1) **
Equity Value........................................................... $44,300 $21,384
Equity Growth.......................................................... $65,766 $28,379
International Equity................................................... * *
Small Cap Value........................................................ * *
Small Company Equity................................................... $38,792 $34,481
</TABLE>
- -----------------
* The Equity Income, International Equity and Small Cap Value Funds did not
offer Retail B Shares until November 1, 1998.
** Not in operation during the period.
(1) For the period from March 4, 1998 (commencement of operations) through
October 31, 1998.
FD Distributors retained none of the amounts shown in the table above.
-74-
<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, 1999:
<TABLE>
<CAPTION>
Brokerage
Net Underwriting Compensation on Commissions in
Discounts and Redemption and Connection with Other
Fund Commissions(1) Repurchase(2) Fund Transactions Compensation(3)
- ---- -------------- ------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Asset
Allocation ------ ------ ------ ------
Equity Income ------ ------ ------ ------
Growth and Income ------ ------ ------ ------
Strategic Equity ------ ------ ------ ------
Equity Value ------ ------ ------ ------
Equity Growth ------ ------ ------ ------
International
Equity ------ ------ ------ ------
Small Cap Value ------ ------ ------ ------
Small Company
Equity ------ ------ ------ ------
</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,
1999, which includes fees accrued in the fiscal year ended October 31,
1998, which were paid in 1997 (see "Shareholder Services Plan" and
"Distribution and Services Plan" above).
AUDITORS
, independent auditors, with offices at , serve
as auditors for 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 and into this Statement of
Additional Information for the fiscal year ended October 31, 1999 have been
audited by . For the respective fiscal years and periods prior
to October 31, 1999, the financial highlights for the Funds included in the
Prospectuses and the financial statements for such years and periods contained
in the Annual Report were audited by , Galaxy's former auditors.
COUNSEL
Drinker Biddle & Reath LLP (of which W. Bruce McConnel, III, Secretary of
Galaxy, is a partner), One Logan Square, 18th and Cherry Streets, Philadelphia,
Pennsylvania 19103, are counsel to Galaxy and will pass upon certain legal
matters on its behalf.
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<PAGE>
PERFORMANCE AND YIELD INFORMATION
Investment returns and principal values will vary with market conditions
so that an investor's shares, when redeemed, may be worth more or less than
their original cost. 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.
The Funds' 30-day (or one month) standard yields 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 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
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<PAGE>
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 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, Retail B Shares and Trust Shares of the Funds for the 30-day period
ended October 31, 1999 were as set forth below:
<TABLE>
<CAPTION>
FUND RETAIL A RETAIL B TRUST
- ---- -------- -------- -----
<S> <C> <C> <C>
Asset Allocation............................ ___% ___% ___%
Equity Income............................... ___% ___% ___%
Growth and Income........................... ___% ___% ___%
Strategic Equity............................ ___% ___% ___%
Equity Value................................ ___% ___% ___%
Equity Growth............................... ___% ___% ___%
International Equity........................ ___% ___% ___%
Small Cap Value............................. ___% ___% ___%
Small Company Equity........................ ___% ___% ___%
</TABLE>
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; 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
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<PAGE>
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, as the case may be.
The aggregate total returns for Retail A Shares, Retail B Shares and
Trust Shares (as applicable) of the Funds from the date of initial public
offering to October 31, 1999 are set forth below:
<TABLE>
<CAPTION>
FUND RETAIL A(1) RETAIL B TRUST
- ---- -------- -------- -----
<S> <C> <C> <C>
Asset Allocation............................. _____%(2) _____%(3) _____%(2)
Equity Income................................ _____%(4) _____%* _____%(4)
Growth and Income............................ _____%(5) _____%(3) _____%(6)
Strategic Equity(7).......................... _____% _____% _____%
Equity Value................................. _____%(8) _____%(3) _____%(8)
Equity Growth................................ _____%(4) _____%(3) _____%(4)
International Equity......................... _____%(2) _____%* _____%(2)
Small Company Equity......................... _____%(2) _____%(3) _____%(2)
Small Cap Value.............................. _____%(5) _____%* _____%(6)
</TABLE>
- ----------------
* For the period from November 1, 1998 (initial public offering date)
through October 31, 1999.
(1) On September 7, 1995, Retail Shares of the Funds were redesignated
"Retail A Shares."
(2) For the period from December 30, 1991 (initial public offering date)
through October 31, 1999.
(3) For the period from March 4, 1996 (initial public offering date) through
October 31, 1999.
(4) For the period from December 14, 1990 (initial public offering date)
through October 31, 1999.
(5) For the period from February 12, 1993 through October 31, 1999. The
Predecessor Growth and Income Fund and Predecessor Small Cap Value Fund
began offering Investment Shares, which were similar to Retail A Shares,
on February 13, 1993.
(6) For the period from December 14, 1992 (initial public offering date)
through October 31, 1999. The Predecessor Growth and Income Fund and
Predecessor Small Cap Value Fund commenced operations on December 14,
1992, and initially offered Trust Shares, which were similar to Galaxy
Trust Shares.
(7) For the period from March 4, 1998 (initial public offering date) through
October 31, 1999.
(8) For the period from September 1, 1988 (initial public offering date)
through October 31, 1999.
The average annual total returns for Retail A Shares, Retail B Shares and
Trust Shares of the Funds for the one-year, five-year and ten-year periods (as
applicable) ended October 31, 1998 are as set forth below:
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<TABLE>
<CAPTION>
RETAIL A RETAIL B TRUST
ONE- FIVE- TEN- ONE- FIVE- TEN- ONE- FIVE- TEN-
FUND YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Asset Allocation ...... ____% ____% * ____% * * ____% ____% *
Equity Income ......... ____% ____% * ** ** ____% ____% *
Growth and Income ..... ____% ____% * ____% * * ____% ____% *
Strategic Equity ...... * * * * * *
Equity Value .......... ____% ____% ____% ____% * * ____% ____% ____%
Equity Growth ......... ____% ____% * ____% * * ____% ____% *
International Equity .. ____% ____% * ** ** ____% ____% *
Small Cap Value ....... ____% ____% * ** ** ____% ____% *
Small Company Equity .. ____% ____% * ____% * * ____% ____% *
</TABLE>
- -----------------------
* Not offered during the full period.
** The Equity Income, International Equity and Small Cap Value Funds did not
offer Retail B Shares until November 1, 1998.
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders, the
performance of the Funds may be quoted and compared to that of other mutual
funds with similar investment objectives and to stock or other relevant indices
or to rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
performance of the Funds may be compared to data prepared by Lipper Analytical
Services, Inc., a widely recognized independent service which monitors the
performance of mutual funds, the S&P 500 Index, 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, Retail B
Shares, Prime A Shares and Prime B Shares of the Funds.
The standard yield is computed as described above. 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.
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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 and are calculated as described above. 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 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 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
As used in this Statement of Additional Information, "assets belonging
to" a particular Fund or series of a Fund means the consideration received by
Galaxy upon the issuance of shares in that particular Fund or 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
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<PAGE>
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.
Shareholders will receive unaudited semi-annual reports describing the
Funds' investment operations and annual financial statements audited by
independent certified public accountants.
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.
As of November 30, 1999, 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 Government 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 (99.87%); 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 14638, Account 00000012621 (98.58%); Equity Value Fund -- Gales &
Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000000064 (76.43%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000003204 (14.55%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000011551 (7.23%); Equity Growth Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000082 (70.31%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000010017 (15.31%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000030718 (14.04%); Equity Income Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000015771 (48.75%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000003748 (36.92%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000000037 (13.37%); International Equity Fund --Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000073 (42.99%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000000876 (39.29%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000004088 (14.13%); Growth and Income Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 05000503793 (76.73%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 05000503873 (19.78%); Asset Allocation Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000073 (93.27%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000002598 (5.98%); Small Company Equity -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000046 (66.04%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000001492 (24.41%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000006102 (7.33%); Institutional Treasury Money Market Fund -- Fleet
New York, Fleet Investment Services, 159 East Main Street, NY/RO/TO3C,
Rochester, NY 14638, Account 00000000019 (91.11%); Luitpold Pharmaceuticals
Inc., Kirk Sobecki, CFO, Attn: Harold Noviello, One Luitpold Drive, Shirley,
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NY 11967, Account 05100281441 (7.02%); Small Cap Value Fund -- Gales & Co.,
Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 05000503999 (48.74%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 05000503917 (31.01%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 05000503953 (19.77%); Strategic Equity Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 5100115522 (97.48%); Intermediate Government Income
Fund -- Gales & Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A,
159 East Main Street, Rochester, NY 14638, Account 00000038408 (38.48%); Gales &
Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000007183 (34.80%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000037 (26.20%); High Quality Bond Fund --
Gales & Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East
Main Street, Rochester, NY 14638, Account 00000000037 (62.76%); Gales & Co.,
Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000001465 (24.53%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000006095 (12.37%); Short-Term Bond Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000008627 (31.48%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000000064 (46.43%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000001090 (21.82%); Tax-Exempt Bond Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000005899 (34.38%) Gales & Co, Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000000028 (38.95%); Gales and Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000000670 (26.42%); Connecticut Municipal Bond Fund -- Gales & Co.,
Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000019 (74.69%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000000037 (24.84%); Massachusetts Municipal Bond Fund -- Gales
& Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000000019 (48.96%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000073 (49.06%); Corporate Bond Fund -- Gales
& Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000000046 (44.33%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000006102 (36.50%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000001492 (12.65%); New Jersey Municipal Bond Fund -- Gales &
Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/T04A, 159 East Main
Street, Rochester, NY 14638, Account 5100115489 (51.69%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 5100115504 (35.56%); BOB & Co., c/o Bank
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of Boston, Attn: Mutual Fund Dept. 45-02-06, P.O. Box 1809, Boston, MA 02105,
Account 5102076990 (12.74%); and New York Municipal Bond Fund -- Gales & Co.,
Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000019 (9.36%); Gales & Co., Fleet Investment
Services, Mutual Fund Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000001107 (70.04%); Gales & Co., Fleet Investment Services,
Mutual Fund Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000005292 (14.85%); BOB & Co., c/o Bank of Boston, Attn: Mutual Fund
Dept. 45-02-06, P.O. Box 1809, Boston, MA 02105, Account 5102076990 (5.68%).
As of November 30, 1999, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding Retail A
Shares of each of Galaxy's investment portfolios (including shares of the
Connecticut Municipal Money Market and Massachusetts Municipal Money Market
Funds) were as follows: Tax-Exempt Money Market Fund -- Ellsworth Kelly, P.O.
Box 151, 45 South Street, Spencertown, NY 12165, Account 0000063825 (6.99%);
U.S. Treasury Money Market Fund -- US Clearing, a Division of Fleet Securities
Inc., 26 Broadway, New York, NY 10004, Account 05100115684 (10.40%);
Massachusetts Municipal Money Market Fund -- Fleet New York, Fleet Investment
Services, 159 East Main St., NY/RO/TO3C, Rochester, NY 14638, Account
05100058503 (61.34%); Connecticut Municipal Money Market Fund -- Fleet New York,
Fleet Investment Services, 159 East Main St., NY/RO/TO3C, Rochester, NY 14638,
Account 05100058521 (48.64%); William L. Bucknall & Norma Lee Bucknall, 5 Oak
Ridge Drive, Bethany, CT 06524, Account 0000002259 (5.16%); 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
(40.88%); James R. McCulloch, c/o Microfibre, PO Box 1208, Pawtucket, RI 02860,
Account 05000414933 (9.11%); New York Municipal Bond Fund -- Marilyn J.
Brantley, 5954 Van Allen Road, Belfast, NY 14711, Account 05100977627 (11.78%);
New Jersey Municipal Bond Fund -- Jeffery W. Golden, 7 Hampton Ridge CT, Old
Tappan, NJ 07675, Account 05100780704 (16.09%); John W. Maki & Kimberly McGrath
Maki JT, 1 Connet Lane, Mendham, NJ, 07945, Account 05100011377 (33.47%); US
Clearing Corp., FBO 979-06374-12, 26 Broadway, New York, NY 10004-1798, Account
07000100574 (27.89%); Serene W. Peng, 70 Chelsea, Watchung, NJ 07060, Account
5101583480 (17.19%); Tax-Exempt Bond Fund -- Danny Schulman, 9 Corn Mill Ct.,
Upper Saddle River, NJ 07458, Account 510116598 (6.11%); and Massachusetts
Municipal Bond Fund -- New England Realty Assoc., Robert Blank, Ronald Brown,
Harold Brown and Carl Veleri, 39 Brighton Ave., Boston MA 02134, Account
5100587013 (6.59%).
As of November 30, 1999, 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 -- Worldmark Master Fund, LLC, D. Dean Rhodes auth. officer or Richard J.
Gates (investment adviser), 11466 Old Harber Road, N. Palm Beach, FL 33408,
Account 5102031823 (18.24%); Worldmark Master Fund, LLC, D. Dean Rhodes auth.
officer or Richard J. Gates (investment adviser) 11465 Old Harbor Road, N. Palm
Beach, FL 33408, Account 5102074064 (20.78%); Intermediate Government Income
Fund; Adriana Vita, 345 Park Avenue, New York, NY 10154, Account 05101563377
(8.84%); Short-Term Bond Fund -- Elizabeth Mugar, 10 Chestnut St., Apt. 1808,
Springfield, MA 01103,
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Account 5100760012 (7.15%); Chelsea Police Relief Assoc., John R. Phillips,
Treasurer, and Michael McCona, Clerk, 180 Crescent Avenue, Chelsea, MA 02150,
Account 0970036155 (13.23%); Josve Colon, Cust., Hazel Colon UGMA CT, 400
LaSalle Street, New Britain, CT 06051, Account 5101157039 (7.37%); U.S. Clearing
Corp., FBO 978-02086-18, Eugene J. Margaret Dunscomb, 505 Apple Tree Lane,
Brewster, NY 10509-6004, Account 70000100609 (7.09%); Tax-Exempt Bond Fund --
David Fendler & Sylvia Fendler JT WROS, 72 Brinkerhoff Ave., Stamford, CT 06905,
Account 05100255354 (7.48%); Frances E. Stady, P.O. Box 433, 3176 Main Street,
Yorkshire, NY 14173, Account 05102027437 (5.84%); and Strategic Equity Fund --
Betsey Tan, 7 Donovan's Lane, Natick, MA 01760, Account 05101043778 (7.41%).
As of November 30, 1999, 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
Street, Rochester, NY 14638, (12.05%); Hope-Sayles Trust, c/o Norstar Trust Co.,
Gales & Co., 159 East Main Street, Rochester, NY 14638, (10.65%); Government
Money Fund -- AMS Trust Account, c/o Norstar Trust Co., Gales & Co., 159 East
Main Street, Rochester, NY 14638, (9.76%); Beacon Mutual Insurance Co., c/o
Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638 (6.33%); U.S.
Treasury Money Fund -- Loring Walcott Client Sweep Acct., c/o Norstar Trust Co.,
Gales & Co., 159 East Main, Rochester, NY 14638, (23.17%); Equity Value
Fund--Fleet Savings Plus-Equity Value, c/o Norstar Trust Co., Gales & Co., 159
East Main, Rochester, NY 14638, (24.21%); Equity Growth Fund--Fleet Savings
Plus-Equity Growth, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (23.54%); Nusco Retiree Health VEBA Trust, c/o Norstar
Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638, (6.82%);
International Equity Fund--FFG International Equity Fund, c/o Norstar Trust Co.,
Gales & Co., 159 East Main, Rochester, NY 14638, (12.68%); Fleet Savings
Plus-Intl. Equity, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester,
NY 14638, (9.82%); Intermediate Government Income Fund -- Nusco Retiree Health
VEBA Trust, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY
14638 (6.44%); Strategic Equity Fund--FFG Retirement & Pension VDG, c/o Fleet
Financial Group, 159 East Main, Rochester, NY 14638, (93.39%); High Quality Bond
Fund--Fleet Savings Plus Plan-HQ Bond, c/o Norstar Trust Co., Gales & Co., 159
East Main, Rochester, NY 14638 (19.60%); Asset Allocation Fund--Fleet Savings
Plus-Asset Allocation, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (26.52%); Small Company Equity Fund--Fleet Savings
Plus-Small Company, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (33.58%); Tax Exempt Bond Fund -- Nusco Retiree Health VEBA
Trust, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638,
(37.64%); Corporate Bond Fund--Cole Hersee Pension Plan, c/o Norstar Trust Co.,
Gales & Co., 159 East Main, Rochester, NY 14638, (8.40%); Growth Income
Fund--Fleet Savings Plus-Growth Income, c/o Norstar Trust Co., Gales & Co., 159
East Main, Rochester, NY 14638, (43.81%); Crumpton & Knowles IARP, c/o Norstar
Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638 (10.11%); Small Cap
Value Fund--FFG Emp. Ret. Misc. Assets SNC, c/o Norstar Trust Co., Gales & Co.,
159 East Main, Rochester, NY 14638, (25.16%); Institutional Government Fund --
IBEW Local #99 Annuity, c/o Norstar Trust Co., Gales & Co., 159 East Main
Street, Rochester, NY 14638 (5.26%); New Jersey Municipal Bond Fund--Perillo
Tours, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638,
(22.47%); Royal Chambord IMA, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY, 14638, (11.24%); McKee Wendell A. Marital Trust, c/o Norstar
Trust Co., Gales & Co., 159 East Main, Rochester,
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NY 14638, (11.16%); Varco Inc. IMA, c/o Norstar Trust Co., Gales & Co., 159 East
Main, Rochester, NY 14638, (5.62%); and Tiernan Diana V IA, c/o Norstar Trust
Co., Gales & Co., 159 East Main, Rochester, NY 14638, (5.10%).
As of November 30, 1999, the name, address and share ownership of the
entities or persons that held of record or beneficially more than 5% of the
outstanding A Prime Shares of Galaxy's Asset Allocation, Equity Income, Growth
and Income, Strategic Equity, Equity Value, Equity Growth, International Equity,
Small Cap Value, Small Company Equity, Short-Term Bond, Intermediate Government
Income, High Quality Bond and Tax-Exempt Bond Funds were as follows: Asset
Allocation Fund--U.S. Clearing, A Division of Fleet Securities, Inc., FBO
#147-97697-11, Ray Wayne Prince, 11010 Stephens Road, Berlin Heights, OH
44814-9673 (18.52%); U.S. Clearing, A Division of Fleet Securities, Inc., FBO
#135-29801-11, Joseph P. Quinn & Genevieve H. Quinn Trust, 725 N. Riverside
Drive, Apt. 405, Pompano Beach, FL 33062-4536 (12.47%); U.S. Clearing, A
Division of Fleet Securities, Inc., FBO #175-97327-10, Margaret Ann Gillenwater,
2525 E. Prince Road #23, Tucson, AZ 85716-1146 (11.92%); U.S. Clearing, A
Division of Fleet Securities, Inc., FBO #114-97238-17, Sara Mallow, 936
Broadway, New York, NY 10010-6013 (25.26%); U.S. Clearing, A Division of Fleet
Securities, Inc., FBO #166-88586-13, Pamela Ann Radamaker, 1001 Tramway Blvd.
NE, Albuquerque, NM 87112-6280 (10.72%); U.S. Clearing, A Division of Fleet
Securities, Inc., FBO #114-23817-12, John R. Johnson, P.O. Box 4338, Deerfield
Beach, FL 33442-4338 (8.31%); Growth and Income Fund--U.S. Clearing, A Division
of Fleet Securities Inc., FBO #160-27022-17, Linda Shaw, Trustee for the Linda
J. Shaw Trust, 920 Meadows Road, Geneva, IL 60134-3052 (34.66%); U.S. Clearing,
A Division of Fleet Securities Inc., FBO #113-27816-16, Pamela M. Fein, 68 Oak
Ridge Drive, Bethany, CT 06524-3118 (29.85%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO #175-97327-10, Margaret Ann Gillenwater, 2525 E. Prince
Road #23, Tucson, AZ 85716-1146 (23.43%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO #103-80080-19, Saint Clare School Endowment Fund, Attn: Fr.
O'Shea/Andrew J. Houvouras and/or Bruce Blatman, 821 Prosperity Farms Road, No.
Palm Beach, FL 33408-4299 (6.09%); Equity Growth Fund--U.S. Clearing, A Division
of Fleet Securities Inc., FBO #104-32732-16, Hilda Brandt, 3900 North Charles
Street, Baltimore, MD 21218-1724 (50.91%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO #114-97236-17, Sara Mallow, 936 Broadway, New York, NY
10010-6013 (26.57%); U.S. Clearing, A Division of Fleet Securities Inc., FBO
#120-97689-18, Yook Y. Doo, 4634 Robinson St., Flushing, NY 11355-3445 (8.84%);
U.S. Clearing, A Division of Fleet Securities Inc., FBO #021-90471-15, Mabel L.
Bowman, 35634 Meyers Ct., Fremont, CA 84536-2540 (7.00%); U.S. Clearing, A
Division of Fleet Securities Inc., FBO #143-27206-11, Mary V. Mastroianni &
Pasqual Mastroianni JT Ten, 1811 Randolph Road, Schenectady, NY 12308-2021
(5.44%); International Equity Fund--U.S. Clearing, A Division of Fleet
Securities Inc., FBO #125-98055-11, Albert F. Twanmo, 6508 81st St., Cabin John,
MD 20818-1203 (94.66%); Small Cap Value Fund U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 104-32732-16, Hilda Brandt, 3900 North Charles Street,
Baltimore, MD 21218-1724 (26.87%); U.S. Clearing, A Division of Fleet Securities
Inc., FBO # 150-98301-11, N. Clifford Nelson Jr., 58 Middlebury Road, Orchard
Park, NY 14127-3581 (16.93%); U.S. Clearing, A Division of Fleet Securities
Inc., FBO # 102-60254-19, Frederick W. Geissinger, 601 NW 2nd Street,
Evansville, IN 47708-1013 (16.81%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 103-97564-14, Thomas X. McKenna, 170 Turtle Creek Drive,
Tequesta, FL 33469-1547 (12.55%); U.S. Clearing, A Division of Fleet Securities
Inc., FBO # 103-31296-18, Edward U.
-85-
<PAGE>
Roddy III, 109 Angler Avenue, Palm Beach, FL 33480-3101 (8.27%); U.S. Clearing,
A Division of Fleet Securities Inc., FBO # 180-24606-24, Gary R. Plemons, P.O.
Box 190, Madisonville, TN 37354-0190 (5.56%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 165-26664-29, Special Risk Underwriters, P.O. Box 54699,
Phoenix, AZ 85078-4699 (5.31%); High Quality Bond Fund - U.S. Clearing, A
Division of Fleet Securities Inc., FBO # 103-30971-12, Doris G. Schack, FBO #
103-30971-12, Doris G. Schack Living Trust, 9161 East Evans, Scottsdale, AZ
85260-7575 (72.18%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #
013-02964-11, Jane L. Grayhurst, 770 Boylston St., Apt. 10G, Boston, MA
02199-7709 (15.46%); U.S. Clearing, A Division of Fleet Securities, Inc., FBO
#132-90090-11, Virginia Holmes, 303 Bella Vista Drive, Ithaca, NY 14850-5774
(12.10%).
As of November 30, 1999, the name, address and share ownership of the
entities or persons that held of record or beneficially more than 5% of the
outstanding B Prime Shares of Galaxy's Asset Allocation, Equity Income, Growth
and Income, Strategic Equity, Equity Value, Equity Growth, International Equity,
Small Cap Value, Small Company Equity, Short-Term Bond, Intermediate Government
Income, High Quality Bond and Tax-Exempt Bond Funds were as follows: Asset
Allocation Fund -- U.S. Clearing, A Division of Fleet Securities Inc., FBO #
138-97818-14, Carol Y. Foster, 524 Marie Ave., Blountstown, FL 32424-1218
(10.07%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #
102-92974-11, Ann E. Herzog, 74 Tacoma St., Staten Island, NY 10304-4222
(9.61%); U.S. Clearing, A Division of Fleet Securities Inc., FBO # 166-98559-16,
Ann P. Sargent, 422 Los Encinos Ave., San Jose, CA 95134-1336 (6.40%); U.S.
Clearing, A Division of Fleet Securities Inc., FBO # 166-97970-19, Alicia E.
Schober, 10139 Ridgeway Drive, Cupertino, CA 95014-2658 (6.22%); U.S. Clearing,
A Division of Fleet Securities Inc., FBO # 19414889-16, Paul R. Thornton & Karin
Z. Thornton, JT TEN, 1207 Oak Glen Lane, Sugar Land, TX 77479-6175 (5.70%); U.S.
Clearing, A Division of Fleet Securities, Inc., FBO #147-29049-19, Randall
Prince, Rt. 1, Box 865, Turtletown, TN 37391-9700 (6.06%); Growth and Income
Fund - U.S. Clearing, A Division of Fleet Securities Inc., FBO # 147-97497-13,
Martin Allen Sante, 15222 Birch Lakeshore Drive, Vandalia, MI 49095-9741
(27.18%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #103-31744-16,
Irwin Luftig & Elaine Luftig, 6119 Bear Creek Ct., Lake Worth, FL 33467-6812
(19.02%); Linda M. Berke & Michael E. Berke, JT WROS, 30941 Westwood Rd.,
Farmington Hills, MI 48331-1466 (15.25%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 147-29019-15, Walter W. Quan, 2617 Skyline Drive, Lorain,
OH 44053-2243 (14.87%); U.S. Clearing, A Division of Fleet Securities Inc., FBO
#014-90365-19, Peter Burr Bickford, 65 A Lazell St., Hingham, MA 02043-4403
(7.44%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #108-00116-10,
Michael Kennedy & Carleen Kennedy, JT WROS, 12 Walton Avenue, Locust Valley, NY
11560-1227 (5.48%); Equity Growth Fund - U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 111-98315-17, Thomas J. Bernfeld, 185 West End Ave., Apt.
21D, New York, NY 10023-5548 (29.52%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 166-31108-13, Frank Catanho, Trustee of the Frank Catanho
1996 Trust dated 10/22/96, 24297 Mission Blvd., Hayward, CA 94544-1020 (19.07%);
U.S. Clearing, A Division of Fleet Securities Inc., FBO # 183-97247-11, W.P.
Fleming, 66500 E. 253rd, Grove, OK 74344-6163 (8.77%); U.S. Clearing, A Division
of Fleet Securities Inc., FBO # 131-96122-18, Elaine B. Odessa, 9 Newman Rd.,
Pawtucket, RI 02860-8183 (6.66%); International Equity Fund - U.S. Clearing, A
Division of Fleet Securities Inc., FBO # 102-5924-17, Church & Friary of St.
Francis of Assisi, c/o Fr.
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Ronald P. Stark OFM, 135 West 31st St., New York, NY 10001-3405 (82.40%); Small
Cap Value Fund - U.S. Clearing, A Division of Fleet Securities Inc., FBO #
147-97574-19, Ray William Mominey, 1340 San Cristobal Villa, Punta Gorda, FL
33983-6616 (15.90%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #
111-98315-17, Thomas J. Bernfeld, 185 West End Ave., Apt. 21D, New York, NY
10023-5548 (10.13%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #
107-30623-15, Andrejs Zvejnieks, 2337 Christopher Walk, Atlanta, GA 30327-1110
(6.86%); E-Trade: Cust. for the rollover IRA, FBO Rufus O. Eddins, Jr., A/C #
11042697, 360 Dominion Circle, Knoxville, TN 37922-2750 (5.34%); U.S. Clearing,
A Division of Fleet Securities Inc., FBO # 221-97250-13, Micheal A. Veschi, 106
Exmoor Court, Leesburg, VA 20176-2049 (5.13%); High Quality Bond Fund - U.S.
Clearing, A Division of Fleet Securities Inc., FBO # 200-70099-19, Neil C.
Feldman, 41 Windham Way, Englishtown, NJ 07726-8216 (25.37%); U.S. Clearing, A
Division of Fleet Securities Inc., FBO # 119-97697-10, Ira Sornborg, 4219
Nautilus Ave., Brooklyn, NY 11224-1019 (10.23%); U.S. Clearing, A Division of
Fleet Securities Inc., FBO # 216-12779-14, Les H. Galex & Nan Galex, JT TEN,
7540 Farragut St., Hollywood, FL 33024-2626 (8.11%); U.S. Clearing, A Division
of Fleet Securities Inc., FBO # 102-93287-11, Marjorie Dion, 301 Raimond St.,
Yaphank, NY 11980-9725 (7.31%); U.S. Clearing, A Division of Fleet Securities
Inc., FBO # 102-68909-11, Marjorie Dion, 301 Raimond St., Yaphank, NY 11980-9725
(8.61%); U.S. Clearing, A Division of Fleet Securities Inc., FBO # 147-24459-13,
Jay Robert Klein, 26800 Amhearst Circle, #209, Cleveland, OH 44122-7572 (8.40%);
U.S. Clearing, A Division of Fleet Securities Inc., FBO # 157-98031-13, Patricia
Fusco, 112 E. Chapel Ave., Cherry Hill, NJ 08034-1204 (6.53%); U.S. Clearing, A
Division of Fleet Securities, Inc., FBO # 216-13463-13, Jerry H. Dunmire, 5151
SW 89 Terrace, Cooper City, FL 33328-3631 (6.48%).
As of November 30, 1999, the name, address and share ownership of the
entities or persons that held of record or beneficially more than 5% of the
outstanding shares of Galaxy's Prime Reserves, Government Reserves and Tax
Exempt Reserves were as follows: Prime Reserves -- U.S. Clearing, 26 Broadway,
New York, NY 10004 (6.96%); Government Reserves -- U.S. Clearing, 26 Broadway,
New York, NY 10004 (100.00%); and Tax Exempt Reserves -- U.S. Clearing, 26
Broadway, New York, NY 10004 (100.00%).
As of November 30, 1999, no entity or person held of record or
beneficially more than 5% of the outstanding Retail A and Retail B Shares of
Galaxy's Equity Income, New York Municipal Bond, Connecticut Municipal Bond,
Massachusetts Municipal Bond, Rhode Island Municipal Bond, Massachusetts
Municipal Money Market, Connecticut Municipal Money Market and Short Term Bond
Funds.
FINANCIAL STATEMENTS
Galaxy's Annual Report to Shareholders with respect to the Funds for
the fiscal year ended October 31, 1999 with the SEC. The financial statements
contained in such Annual Report are [ ] into this Statement of
Additional Information. The financial statements and financial highlights for
the Funds for the fiscal year ended October 31, 1999 have been audited by
Galaxy's independent accountants, [ ], whose report thereon also appears
in such Annual Report and [ ]. The financial statements in such
Annual Report have been [ ] in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
-87-
<PAGE>
APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current opinion of
credit worthiness of an obligor with respect to financial obligations having an
original maturity of no more than 365 days. The following summarizes the rating
categories used by Standard and Poor's for commercial paper:
"A-1" - Obligations are rated in the highest category indicating that
the obligor's capacity to meet its financial commitment on the obligation is
strong. Within this category, certain obligations are designated with a plus
sign (+). This indicates that the obligor's capacity to meet its financial
commitment on these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rating categories. However, the obligor's capacity to meet its financial
commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
"B" - Obligations are regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and are
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.
"D" - Obligations are in payment default. The "D" rating category is
used when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's believes that
such payments will be made during such grace period. The "D" rating will be used
upon the filing of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually senior debt obligations not having an original
maturity in excess of one year, unless explicitly noted. The following
summarizes the rating categories used by Moody's for commercial paper:
"Prime-1" - Issuers (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be
A-1
<PAGE>
evidenced by many of the following characteristics: leading market positions in
well-established industries; high rates of return on funds employed;
conservative capitalization structure with moderate reliance on debt and ample
asset protection; broad margins in earnings 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.
"Prime-2" - Issuers (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an acceptable
ability for repayment of senior short-term debt obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
"Not Prime" - Issuers do not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps
employs three designations, "D-1+," "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"D-1+" - Debt possesses the highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
"D-2" - Debt possesses 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.
"D-3" - Debt possesses satisfactory liquidity and other protection
factors qualify issues as to investment grade. Risk factors are larger and
subject to more variation. Nevertheless, timely payment is expected.
A-2
<PAGE>
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to insure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or interest
payments.
Fitch IBCA short-term ratings apply to debt obligations that have time
horizons of less than 12 months for most obligations, or up to three years for
U.S. public finance securities. The following summarizes the rating categories
used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This designation
indicates the strongest capacity for timely payment of financial commitments and
may have an added "+" to denote any exceptionally strong credit feature.
"F2" - Securities possess good credit quality. This designation
indicates a satisfactory capacity for timely payment of financial commitments,
but the margin of safety is not as great as in the case of the higher ratings.
"F3" - Securities possess fair credit quality. This designation
indicates that the capacity for timely payment of financial commitments is
adequate; however, near-term adverse changes could result in a reduction to
non-investment grade.
"B" - Securities possess speculative credit quality. This designation
indicates minimal capacity for timely payment of financial commitments, plus
vulnerability to near-term adverse changes in financial and economic conditions.
"C" - Securities possess high default risk. This designation indicates
that default is a real possibility and that the capacity for meeting financial
commitments is solely reliant upon a sustained, favorable business and economic
environment.
"D" - Securities are in actual or imminent payment default.
Thomson BankWatch short-term ratings assess the likelihood of an
untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson Financial BankWatch:
"TBW-1" - This designation represents Thomson Financial BankWatch's
highest category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson Financial BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of
A-3
<PAGE>
principal and interest is strong, the relative degree of safety is not as high
as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's lowest
investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's lowest
rating category and indicates that the obligation is regarded as non-investment
grade and therefore speculative.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
Obligations rated "BB," "B," "CCC," "CC" and "C" are regarded as
having significant speculative characteristics. "BB" indicates the least degree
of speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
"BB" - An obligation rated "BB" is less vulnerable to nonpayment than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to the obligor's inadequate capacity to meet its financial commitment on the
obligation.
A-4
<PAGE>
"B" - An obligation rated "B" is more vulnerable to nonpayment than
obligations rated "BB," but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
"CCC" - An obligation rated "CCC" is currently vulnerable to
nonpayment, and is dependent upon favorable business, financial and economic
conditions for the obligor to meet its financial commitment on the obligation.
In the event of adverse business, financial, or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the
obligation.
"CC" - An obligation rated "CC" is currently highly vulnerable to
nonpayment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
"D" - An obligation rated "D" is in payment default. The "D" rating
category is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period. The "D"
rating also will be used upon the filing of a bankruptcy petition or the taking
of a similar action if payments on an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
"r" - This symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or volatility of
expected returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk - such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as
high-grade bonds. They are rated lower
A-5
<PAGE>
than the best bonds because margins of protection may not be as large as in
"Aaa" securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-term risk
appear somewhat larger than the "Aaa" securities.
"A" - Bonds 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
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds 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.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" indicates poor standing; "Ca" represents
obligations which are speculative in a high degree; and "C" represents the
lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (---) - Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic
rating classification from "Aa" through "Caa." The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the
lower end of its generic rating category.
The following summarizes the long-term debt ratings used by Duff &
Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered to be of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable in periods of greater economic
stress.
A-6
<PAGE>
"BBB" - Debt possesses below-average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt rated
"B" possesses the risk that obligations will not be met when due. Debt rated
"CCC" is well below investment grade and has considerable uncertainty as to
timely payment of principal, interest or preferred dividends. Debt rated "DD" is
a defaulted debt obligation, and the rating "DP" represents preferred stock with
dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch IBCA for corporate
and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. These ratings denote the lowest expectation of credit risk and
are assigned only in case of exceptionally strong capacity for timely payment of
financial commitments. This capacity is highly unlikely to be adversely affected
by foreseeable events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. These ratings denote a very low expectation of credit risk and indicate
very strong capacity for timely payment of financial commitments. This capacity
is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high credit
quality. These ratings denote a low expectation of credit risk and indicate
strong capacity for timely payment of financial commitments. This capacity may,
nevertheless, be more vulnerable to changes in circumstances or in economic
conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good credit
quality. These ratings denote that there is currently a low expectation of
credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity.
"BB" - Bonds considered to be speculative. These ratings indicate that
there is a possibility of credit risk developing, particularly as the result of
adverse economic changes over time; however, business or financial alternatives
may be available to allow financial commitments to be met. Securities rated in
this category are not investment grade.
A-7
<PAGE>
"B" - Bonds are considered highly speculative. These ratings indicate
that significant credit risk is present, but a limited margin of safety remains.
Financial commitments are currently being met; however, capacity for continued
payment is contingent upon a sustained, favorable business and economic
environment.
"CCC," "CC", and "C" - Bonds have high default risk. Default is a real
possibility, and capacity for meeting financial commitments is solely reliant
upon sustained, favorable business or economic developments. "CC" ratings
indicate that default of some kind appears probable, and "C" ratings signal
imminent default.
"DDD," "DD" and "D" - Bonds are in default. The ratings of obligations
in this category are based on their prospects for achieving partial or full
recovery in a reorganization or liquidation of the obligor. While expected
recovery values are highly speculative and cannot be estimated with any
precision, the following serve as general guidelines. "DDD" obligations have the
highest potential for recovery, around 90%-100% of outstanding amounts and
accrued interest. "DD" indicates potential recoveries in the range of 50%-90%,
and "D" the lowest recovery potential, i.e., below 50%.
Entities rated in this category have defaulted on some or all of their
obligations. Entities rated "DDD" have the highest prospect for resumption of
performance or continued operation with or without a formal reorganization
process. Entities rated "DD" and "D" are generally undergoing a formal
reorganization or liquidation process; those rated "DD" are likely to satisfy a
higher portion of their outstanding obligations, while entities rated "D" have a
poor prospect for repaying all obligations.
To provide more detailed indications of credit quality, the Fitch IBCA
ratings from and including "AA" to "CCC" may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within these major rating
categories.
Thomson Financial BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
"AAA" - This designation indicates that the ability to repay principal
and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis, with limited incremental risk compared
to issues rated in the highest category.
"A" - This designation indicates that the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
A-8
<PAGE>
"BBB" - This designation represents the lowest investment-grade
category and indicates an acceptable capacity to repay principal and interest.
Issues rated "BBB" are more vulnerable to adverse developments (both internal
and external) than obligations with higher ratings.
"BB," "B," "CCC," and "CC" - These designations are assigned by
Thomson Financial BankWatch to non-investment grade long-term debt. Such issues
are regarded as having speculative characteristics regarding the likelihood of
timely repayment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's note rating reflects the liquidity concerns and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess a
very strong capacity to pay debt service are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest, with some vulnerability to adverse
financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
A-9
<PAGE>
"MIG-1"/"VMIG-1" - This designation denotes best quality. There is
present strong protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes 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.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt instruments
in this category lack of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
A-10
<PAGE>
APPENDIX B
As stated above, the Growth and Income, Strategic Equity and Small Cap
Value Funds may enter into futures transactions for hedging purposes. The
following is a description of such transactions.
I. INTEREST RATE FUTURES CONTRACTS
USE OF INTEREST RATE FUTURES CONTRACTS. Bond prices are established in
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the future
for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, the Funds may use interest rate futures
contracts as a defense, or hedge, against anticipated interest rate changes and
not for speculation. As described below, this would include the use of futures
contract sales to protect against expected increases in interest rates and
futures contract purchases to offset the impact of interest rate declines.
The Funds presently could accomplish a similar result to that which they
hope to achieve through the use of futures contracts by selling bonds with long
maturities and investing in bonds with short maturities when interest rates are
expected to increase, or conversely, selling short-term bonds and investing in
long-term bonds when interest rates are expected to decline. However, because of
the liquidity that is often available in the futures market, the protection is
more likely to be achieved, perhaps at a lower cost and without changing the
rate of interest being earned by the Funds, through using futures contracts.
DESCRIPTION OF INTEREST RATE FUTURES CONTRACTS. An interest rate futures
contract sale would create an obligation by a Fund, as seller, to deliver the
specific type of financial instrument called for in the contract at a specific
future time for a specified price. A futures contract purchase would create an
obligation by the Fund, as purchaser, to take delivery of the specific type of
financial instrument at a specific future time at a specific price. The specific
securities delivered or taken, respectively, at settlement date, would not be
determined until at or near that date. The determination would be in accordance
with the rules of the exchange on which the futures contract sale or purchase
was made.
Although interest rate futures contracts by their terms call for actual
delivery or acceptance of securities, in most cases the contracts are closed out
before the settlement date without the making or taking of delivery of
securities. Closing out a futures contract sale is effected by a Fund's entering
into a futures contract purchase for the same aggregate amount of the specific
type of financial instrument and the same delivery date. If the price of the
sale exceeds the price of the offsetting purchase, the Fund immediately is paid
the difference and thus realizes a gain. If the offsetting purchase price
exceeds the sale price, the Fund pays the difference and realizes a loss.
Similarly, the closing out of a futures contract purchase is effected
B-1
<PAGE>
by a Fund entering into a futures contract sale. If the offsetting sale price
exceeds the purchase price, the Fund realizes a gain, and if the purchase price
exceeds the offsetting sale price, the Fund realizes a loss.
Interest rate futures contracts are traded in an auction environment on
the floors of several exchanges -- principally, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Futures Exchange. The Funds would
deal only in standardized contracts on recognized exchanges. Each exchange
guarantees performance under contract provisions through a clearing corporation,
a nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various
financial instruments including long-term United States Treasury Bonds and
Notes; Government National Mortgage Association (GNMA) modified pass-through
mortgage backed securities; three-month United States Treasury Bills; and
ninety-day commercial paper. The Funds may trade in any interest rate futures
contracts for which there exists a public market, including, without limitation,
the foregoing instruments.
EXAMPLE OF FUTURES CONTRACT SALE. The Funds would engage in an interest
rate futures contract sale to maintain the income advantage from continued
holding of a long-term bond while endeavoring to avoid part or all of the loss
in market value that would otherwise accompany a decline in long-term securities
prices. Assume that the market value of a certain security held by a particular
Fund tends to move in concert with the futures market prices of long-term United
States Treasury bonds ("Treasury bonds"). Fleet wishes to fix the current market
value of this portfolio security until some point in the future. Assume the
portfolio security has a market value of 100, and Fleet believes that, because
of an anticipated rise in interest rates, the value will decline to 95. The Fund
might enter into futures contract sales of Treasury bonds for an equivalent of
98. If the market value of the portfolio security does indeed decline from 100
to 95, the equivalent futures market price for the Treasury bonds might also
decline from 98 to 93.
In that case, the five point loss in the market value of the portfolio
security would be offset by the five point gain realized by closing out the
futures contract sale. Of course, the futures market price of Treasury bonds
might well decline to more than 93 or to less than 93 because of the imperfect
correlation between cash and futures prices mentioned below.
Fleet could be wrong in its forecast of interest rates, and the
equivalent futures market price could rise above 98. In this case, the market
value of the portfolio securities, including the portfolio security being
protected, would increase. The benefit of this increase would be reduced by the
loss realized on closing out the futures contract sale.
If interest rate levels did not change, the Fund in the above example
might incur a loss of 2 points (which might be reduced by an offsetting
transaction prior to the settlement date). In each transaction, transaction
expenses would also be incurred.
B-2
<PAGE>
EXAMPLE OF FUTURES CONTRACT PURCHASE. A Fund would engage in an interest
rate futures contract purchase when it is not fully invested in long-term bonds
but wishes to defer for a time the purchase of long-term bonds in light of the
availability of advantageous interim investments, e.g., shorter term securities
whose yields are greater than those available on long-term bonds. A Fund's basic
motivation would be to maintain for a time the income advantage from investing
in the short-term securities; the Fund would be endeavoring at the same time to
eliminate the effect of all or part of an expected increase in market price of
the long-term bonds that the Fund may purchase.
For example, assume that the market price of a long-term bond that the
Fund may purchase, currently yielding 10%, tends to move in concert with futures
market prices of Treasury bonds. Fleet wishes to fix the current market price
(and thus 10% yield) of the long-term bond until the time (four months away in
this example) when it may purchase the bond. Assume the long-term bond has a
market price of 100, and Fleet believes that, because of an anticipated fall in
interest rates, the price will have risen to 105 (and the yield will have
dropped to about 9 1/2%) in four months. The Fund might enter into futures
contracts purchases of Treasury bonds for an equivalent price of 98. At the same
time, the Fund would assign a pool of investments in short-term securities that
are either maturing in four months or earmarked for sale in four months, for
purchase of the long-term bond at an assumed market price of 100. Assume these
short-term securities are yielding 15%. If the market price of the long-term
bond does indeed rise from 100 to 105, the equivalent futures market price for
Treasury bonds might also rise from 98 to 103. In that case, the 5 point
increase in the price that the Fund pays for the long-term bond would be offset
by the 5 point gain realized by closing out the futures contract purchase.
Fleet could be wrong in its forecast of interest rates; long-term
interest rates might rise to above 10%; and the equivalent futures market price
could fall below 98. If short-term rates at the same time fall to 10% or below,
it is possible that the Fund would continue with its purchase program for
long-term bonds. The market price of available long-term bonds would have
decreased. The benefit of this price decrease, and thus yield increase, will be
reduced by the loss realized on closing out the futures contract purchase.
If, however, short-term rates remained above available long-term rates,
it is possible that the Fund would discontinue its purchase program for
long-term bonds. The yield on short-term securities in the portfolio, including
those originally in the pool assigned to the particular long-term bond, would
remain higher than yields on long-term bonds. The benefit of this continued
incremental income will be reduced by the loss realized on closing out the
futures contract purchase. In each transaction, expenses would also be incurred.
II. MARGIN PAYMENTS
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
B-3
<PAGE>
initial margin in futures transactions is different from that of margin in
security transactions in that futures contract margin does not involve the
borrowing of funds by the customer to finance the transactions. Rather, the
initial margin is in the nature of a performance bond or good faith deposit on
the contract which is returned to the Fund upon termination of the futures
contract assuming all contractual obligations have been satisfied. Subsequent
payments, called variation margin, to and from the broker, will be made on a
daily basis as the price of the underlying instruments fluctuates making the
long and short positions in the futures contract more or less valuable, a
process known as marking-to-the-market. For example, when a particular Fund has
purchased a futures contract and the price of the contract has risen in response
to a rise in the underlying instruments, that position will have increased in
value and the Fund will be entitled to receive from the broker a variation
margin payment equal to that increase in value. Conversely, where the Fund has
purchased a futures contract and the price of the future contract has declined
in response to a decrease in the underlying instruments, the position would be
less valuable and the Fund would be required to make a variation margin payment
to the broker. At any time prior to expiration of the futures contract, Fleet
may elect to close the position by taking an opposite position, subject to the
availability of a secondary market, which will operate to terminate the Fund's
position in the futures contract. A final determination of variation margin is
then made, additional cash is required to be paid by or released to the Fund,
and the Fund realizes a loss or gain.
III. RISKS OF TRANSACTIONS IN FUTURES CONTRACTS
There are several risks in connection with the use of futures by the
Growth and Income, Strategic Equity and Small Cap Value 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
B-4
<PAGE>
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
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.
B-5
<PAGE>
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.
B-6
<PAGE>
THE GALAXY FUND
STATEMENT OF ADDITIONAL INFORMATION
, 2000
GALAXY SHORT-TERM BOND FUND
GALAXY INTERMEDIATE GOVERNMENT INCOME FUND
GALAXY HIGH QUALITY BOND FUND
RETAIL A SHARES, RETAIL B SHARES AND
TRUST SHARES
GALAXY CORPORATE BOND FUND
TRUST SHARES
This Statement of Additional Information is not a prospectus. The
prospectuses for the Funds as listed below, as they may be supplemented or
revised from time to time (the "Prospectuses"), as well as the Funds' Annual
Report to Shareholders dated October 31, 1999 (the "Annual Report"), may be
obtained, without charge, by writing:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
or by calling 1-877-BUY-GALAXY (1-877-289-4252)
CURRENT PROSPECTUSES
- - Prospectus for Retail A Shares and Retail B Shares of the Short-Term Bond,
Intermediate Government Income and High Quality Bond Funds
dated , 2000
- - Prospectus for Trust Shares of the Funds dated , 2000
The and the report thereon of , The Galaxy Funds'
independent accountants, are incorporated by reference into this Statement of
Additional Information.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GENERAL INFORMATION..............................................................1
DESCRIPTION OF GALAXY AND ITS SHARES.............................................1
INVESTMENT STRATEGIES, POLICIES AND RISKS........................................4
Short-Term Bond Fund........................................................4
Intermediate Government Income Fund.........................................5
High Quality Bond Fund......................................................6
Corporate Bond Fund.........................................................6
Special Risk Considerations.................................................7
Foreign Securities..........................................................7
Ratings.....................................................................8
Other Investment Policies and Risk Considerations...........................8
Variable and Floating Rate Obligations......................................8
U.S. Government Obligations and Money Market Instruments....................8
Municipal Securities.......................................................10
Stand-by Commitments.......................................................12
Repurchase and Reverse Repurchase Agreements...............................13
Securities Lending.........................................................14
Investment Company Securities..............................................14
Derivative Securities......................................................14
When-Issued, Forward Commitment and Delayed Settlement Transactions........16
Asset-Backed Securities....................................................17
Mortgage-Backed Securities.................................................18
Mortgage Dollar Rolls......................................................19
Stripped Obligations.......................................................20
Guaranteed Investment Contracts............................................20
Bank Investment Contracts..................................................21
Zero Coupon Bonds..........................................................21
Portfolio Turnover.........................................................21
INVESTMENT LIMITATIONS..........................................................22
VALUATION OF PORTFOLIO SECURITIES...............................................24
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION..................................25
Purchases of Retail Shares and Trust Shares of the Corporate Bond Fund.....25
General....................................................................25
Customers of Institutions..................................................26
Other Purchase Information.................................................26
Applicable Sales Charge -- Retail A Shares.................................27
Computation of Offering Price - Retail A Shares............................28
Quantity Discounts.........................................................29
Applicable Sales Charge - Retail B Shares..................................32
Characteristics of Retail A Shares and Retail B Shares.....................33
Factors to Consider When Selecting Retail A Shares or Retail B Shares......34
Purchases of Trust Shares..................................................34
-i-
<PAGE>
Redemption of Retail A Shares, Retail B Shares and Trust Shares............35
INVESTOR PROGRAMS - RETAIL A SHARES AND RETAIL B SHARES.........................36
Exchange Privilege.........................................................36
Retirement Plans...........................................................37
Automatic Investment Program and Systematic Withdrawal Plan................37
Payroll Deduction Program..................................................38
College Investment Program.................................................38
Direct Deposit Program.....................................................38
TAXES...........................................................................39
Taxation of Certain Financial Instruments..................................39
TRUSTEES AND OFFICERS...........................................................40
Shareholder and Trustee Liability..........................................43
INVESTMENT ADVISER..............................................................44
Authority to Act as Investment Adviser.....................................45
ADMINISTRATOR...................................................................46
CUSTODIAN AND TRANSFER AGENT....................................................47
EXPENSES........................................................................48
PORTFOLIO TRANSACTIONS..........................................................49
SHAREHOLDER SERVICES PLAN.......................................................50
DISTRIBUTION AND SERVICES PLAN..................................................51
DISTRIBUTOR.....................................................................53
AUDITORS........................................................................55
COUNSEL.........................................................................56
PERFORMANCE AND YIELD INFORMATION...............................................56
Performance Reporting......................................................59
MISCELLANEOUS...................................................................60
FINANCIAL STATEMENTS............................................................67
APPENDIX A.....................................................................A-1
APPENDIX B.....................................................................B-1
</TABLE>
-ii-
<PAGE>
GENERAL INFORMATION
This Statement of Additional Information should be read in conjunction with
a current Prospectus. This Statement of Additional Information relates to the
Prospectuses for Trust Shares of the four Funds listed on the cover page and
Retail A Shares and Retail B Shares of each of the Short-Term Bond, Intermediate
Government Income and High Quality Bond Funds. The Corporate Bond Fund is
authorized to offer Retail A Shares and Trust Shares but currently offers only
Trust Shares. The Short-Term Bond, Intermediate Government Income and High
Quality Bond Funds also offer Prime A Shares and Prime B Shares, which are
described in a separate statement of additional information and related
prospectus. This Statement of Additional Information is incorporated by
reference in its entirety into the Prospectuses. No investment in shares of the
Funds should be made without reading a Prospectus.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, FLEETBOSTON CORPORATION 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.
DESCRIPTION OF GALAXY AND ITS SHARES
The Galaxy Fund ("Galaxy") is an open-end management investment company
currently offering shares of beneficial interest in twenty-nine 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, 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. Galaxy
is also authorized to issue shares of beneficial interest in two additional
investment portfolios, the MidCap Equity Fund and the New York Municipal Money
Market Fund. As of the date of this Statement of Additional Information,
however, the MidCap Equity Fund and the New York Municipal Money Market Fund had
not commenced investment operations.
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 by
setting or changing in any one or more
<PAGE>
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 an unlimited number of shares in each of the series
in the Funds as follows: Class D shares (Trust Shares), Class D - Special
Series 1 shares (Retail A Shares), Class D shares - Special Series 2 shares
(Retail B Shares), Class D shares - Special Series 3 shares, (Prime A Shares)
and Class D shares - Special Series 4 shares (Prime B 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 (Prime A
Shares) and Class J - Series 5 shares (Prime B Shares), each series representing
interests in the High Quality Bond Fund; 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 (Prime A Shares) and Class L -
Series 5 shares (Prime B Shares), each series representing interests in the
Short-Term Bond Fund; and Class T - Series 1 shares (Trust Shares) and Class T -
Series 2 shares (Retail A Shares), each series representing interests in the
Corporate Bond Fund. Each Fund is classified as a diversified company under the
Investment Company Act of 1940, as amended (the "1940 Act").
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.
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 in a Fund (i.e., Retail A Shares, Retail B
Shares, Trust Shares, Prime A Shares and Prime B Shares) bear pro rata the same
expenses and are entitled equally to the 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. Standardized yield and total return quotations are computed
separately for each series of shares. The differences in expenses paid by the
respective series will affect their performance. See "Shareholder Services Plan"
and "Distribution and Services Plan" below.
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
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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 of a Fund will be entitled to vote on matters submitted to a
vote of 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 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.
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 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. 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
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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.
INVESTMENT STRATEGIES, POLICIES AND RISKS
Fleet Investment Advisors Inc. ("Fleet"), the Funds' investment adviser,
will use its best efforts to achieve each Fund's investment objective, although
such achievement cannot be assured. The investment objective of a Fund as
described in its Prospectus(es) 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. The following investment strategies, policies and risks supplement
those set forth in the Funds' Prospectuses.
SHORT-TERM BOND FUND
In addition to its primary investment strategies and policies as described
in its Prospectuses, the Short-Term Bond 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. See "Other
Investment Policies and Risk Consideration-Municipal Securities" below. The Fund
may also enter into interest rate futures contracts to hedge against changes in
market values. See "Other Investment Policies and Risk Considerations -
Derivative Securities" below. Any common stock received through the conversion
of convertible debt obligations will be sold in an orderly manner as soon as
possible.
Debt obligations rated in the lowest of the four highest rating categories
assigned by Standard & Poor's Rating Group ("S&P") ("BBB") or Moody's Investors
Service, Inc. ("Moody's") ("Baa") (or which, if unrated, are determined by Fleet
to be of comparable quality) 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
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weakened capacity to make principal and interest payments than is the case with
higher grade debt obligations. 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. See Appendix A to this Statement of Additional Information for a
description of S&P's and Moody's rating categories.
The obligations of foreign banks and obligations issued or guaranteed by
foreign governments or any of their political subdivisions or instrumentalities
in which the Fund may invest 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, which 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.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Short-Term Bond
Fund.
INTERMEDIATE GOVERNMENT INCOME FUND
In addition to its primary investment strategies and policies as described
in its Prospectuses, the Intermediate Government Income Fund may also invest,
from time to time, in municipal securities. See "Other Investment Policies and
Risk Considerations - Municipal Securities" below. The Fund may also enter into
interest rate futures contracts to hedge against changes in market values. See
"Other Investment Policies and Risk Considerations - Derivative Securities"
below. In addition, the Fund may invest in obligations issued by Canadian
Provincial Governments and in debt obligations of supranational entities. The
Fund may also invest in dollar-denominated high quality debt obligations of U.S.
corporations issued outside the United States. Any common stock received through
the conversion of convertible debt obligations will be sold in an orderly manner
as soon as possible.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Intermediate
Government Income Fund and Appendix A to this Statement of Additional
Information for a description of S&P's and Moody's rating categories.
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HIGH QUALITY BOND FUND
In addition to its primary investment strategies and policies as described
in its Prospectuses, the High Quality Bond Fund may also invest, from time to
time, in municipal securities. See "Other Investment Policies and Risk
Considerations - Municipal Securities" below. The Fund may 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 - Derivative Securities" below. The
Fund may also invest in obligations issued by Canadian Provincial Governments
and in debt obligations of supranational entities. The Fund may also invest in
dollar-denominated high quality debt obligations of U.S. corporations issued
outside the United States. Any common stock received through the conversion of
convertible debt obligations will be sold in an orderly manner as soon as
possible.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the High Quality Bond
Fund. See "Short-Term Bond Fund" above for a description of the risks associated
with the Fund's investments in debt obligations that are rated in the lowest of
the four highest rating categories. See Appendix A to this Statement of
Additional Information for a description of S&P's and Moody's rating categories.
CORPORATE BOND FUND
In addition to its primary investment strategies and policies as described
in its Prospectus, the Corporate Bond Fund may also invest in obligations issued
or guaranteed by the U.S. or foreign governments, their agencies or
instrumentalities, or by supranational banks or other organizations. Examples of
supranational banks include the World Bank, the Asian Development Bank and the
InterAmerican Development Bank. Obligations of supranational banks may be
supported by appropriated but unpaid commitments of their member countries and
there is no assurance that those commitments will be undertaken or met in the
future. The Fund may invest, from time to time, in municipal securities. The
purchase of municipal securities may be advantageous when, as a result of their
tax status or prevailing economic, regulatory or other circumstances, the
performance of such securities is expected to be comparable to that of corporate
or U.S. Government debt obligations. See "Other Investment Policies and Risk
Considerations - Municipal Securities" below. The Fund may enter into interest
rate futures contracts to hedge against changes in market values. See "Other
Investment Policies and Risk Considerations Derivative Securities" below. The
Fund may also invest in "money market" instruments.
The value of convertible securities in which the Fund may invest fluctuates
in relation to changes in interest rates like bonds and, in addition, fluctuates
in relation to the underlying common stock. Any common stock received through
the conversion of convertible debt obligations will be sold in an orderly manner
as soon as possible.
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The Fund may also invest in debt obligations of foreign issuers such as
foreign corporations and banks, as well as foreign governments and their
political subdivisions. Such investments may subject the Fund to special
investment risks. See "Special Risk Considerations - Foreign Securities" below.
The Fund will not invest more than 20% of its net 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.
The Fund may enter into currency forward contracts (agreements to exchange
one currency for another at a future date) to manage currency risks and to
facilitate transactions in foreign securities. Although currency forward
contracts can be used to protect the Fund from adverse rate changes, they
involve a risk of loss if Fleet fails to predict foreign currency values
correctly. See "Other Investment Policies and Risk Considerations Derivative
Securities" below.
See "Short-Term Bond Fund" above for a description of the risks associated
with the Fund's investments in debt obligations that are rated in the lowest of
the four highest rating categories and Appendix A to this Statement of
Additional Information for a description of S&P's and Moody's rating categories.
See "Other Investment Policies and Risk Considerations" below for information
regarding additional investment policies of the Fund.
SPECIAL RISK CONSIDERATIONS
FOREIGN SECURITIES
Investments by the Short-Term Bond and Corporate Bond Funds 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 and Corporate Bond Funds may invest in
securities denominated in foreign currencies, the Funds value their securities
and other assets in U.S. dollars. As a result, the net asset value of the Funds'
shares may fluctuate with U.S. dollar exchange rates as well as with price
changes of the Funds' 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 Funds make their foreign investments could reduce the
effect of increases and magnify the effect of decreases in the price of the
Funds' 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 Funds'
foreign 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.
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RATINGS
The Corporate Bond Fund's investments in obligations rated below the four
highest ratings assigned by S&P and Moody's have different risks than
investments in securities that are rated "investment grade." Risk of loss upon
default by the issuer is significantly greater because lower-rated securities
are generally unsecured and are often subordinated to other creditors of the
issuer, and because the issuers frequently have high levels of indebtedness and
are more sensitive to adverse economic conditions, such as recessions,
individual corporate developments and increasing interest rates than are
investment grade issuers. As a result, the market price of such securities may
be particularly volatile.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in the Prospectuses and this Statement of
Additional Information 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.
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 the Prospectuses
and this Statement of Additional Information. If such an instrument is not
rated, Fleet 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 an instrument will
usually be deemed to have a maturity equal to the longer of the period
remaining until the next regularly scheduled interest rate adjustment or the
time the Fund involved can receive payment of principal as specified in the
instrument. Instruments which are U.S. Government obligations and certain
variable rate instruments having a nominal maturity of 397 days or less when
purchased by the Fund involved, however, will be deemed to have a maturity
equal to the period remaining until the next interest rate adjustment.
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.
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
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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.
U.S. Treasury securities 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. 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.
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. Such investments may also subject a Fund to investment risks similar to
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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 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" below.
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 (the "Code"), 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 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
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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.
There are, of course, variations in the quality of municipal securities,
both within a particular category and between categories, and the yields on
municipal securities depend upon a variety of factors, including general market
conditions, the financial condition of the issuer, general conditions of the
municipal bond market, the size of a particular offering, the maturity of the
obligation, and the rating of the issue. The ratings of a nationally recognized
statistical rating organization ("NRSRO"), such as Moody's and S&P, described in
Appendix A to this Statement of Additional Information, represent such NRSRO's
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. 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 for each Fund.
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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.
Opinions relating to the validity of municipal securities and to the
exemption of interest thereon from regular federal income tax are rendered by
bond counsel to the respective issuers at the time of issuance. Neither the
Funds nor Fleet will review the proceedings relating to the issuance of
municipal securities or the bases for such opinions.
VARIABLE AND FLOATING RATE MUNICIPAL SECURITIES. Municipal securities
purchased by the Funds may include rated and unrated variable and floating rate
tax-exempt instruments. There may be no active secondary market with respect to
a particular variable or floating rate instrument. Nevertheless, the periodic
readjustments of their interest rates tend to assure that their value to a Fund
will approximate their par value. Illiquid variable and floating rate
instruments (instruments which are not payable upon seven days' notice and do
not have an active trading market) that are acquired by the Funds are subject to
the 10% (15% with respect to the Corporate Bond Fund) limit described in
Investment Limitation No. 3 under "Investment Limitations" below.
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). 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. Stand-by commitments acquired by a Fund would be valued at zero in
determining the Fund's net asset value.
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. A Fund
will enter into stand-by commitments only with
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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.
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. No Fund will enter into repurchase agreements with Fleet
or any of its affiliates. Unless a repurchase agreement has a remaining maturity
of seven days or less or may be terminated on demand upon notice of seven days
or less, the repurchase agreement will be considered an illiquid security and
will be subject to the 10% (15% with respect to the Corporate Bond Fund) limit
described in Investment Limitation No. 3 under "Investment Limitations" below.
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by a Fund at
not less than the agreed upon repurchase price. If the seller defaulted on its
repurchase obligation, the Fund holding such obligation would suffer a loss to
the extent that the proceeds from a sale of the underlying securities (including
accrued interest) were less than the repurchase price (including accrued
interest) under the agreement. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the Fund
might be delayed pending court action.
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 1940 Act.
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. Whenever a Fund enters into a reverse repurchase
agreement, it will place in a segregated custodial account liquid assets such as
cash or liquid portfolio securities equal to the repurchase price (including
accrued interest). The Fund will monitor the account to ensure such equivalent
value is maintained. Reverse repurchase agreements are considered to be
borrowings by a Fund under the 1940 Act.
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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. 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. 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 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.
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, interest rate futures, certain asset-backed and
mortgage-backed securities, certain zero coupon bonds and currency forward
contracts.
Derivative securities present, to varying degrees, market risk that the
performance of the underlying assets, interest 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
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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 the Funds'
investment objectives. 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.
INTEREST RATE FUTURES CONTRACTS. The Funds may enter into contracts (both
purchase and sales) which provide for the future delivery of fixed income
securities (commonly known as interest rate futures contracts). The Funds will
not engage in futures transactions for speculation, but only to hedge against
changes in the market values of securities which the Funds hold or intend to
purchase. The Funds will engage in futures transactions only to the extent
permitted by the Commodity Futures Trading Commission ("CFTC") and the
Securities and Exchange Commission ("SEC"). The purchase of futures instruments
in connection with securities which a Fund intends to purchase will require an
amount of cash and/or liquid assets, equal to the market value of the
outstanding futures contracts, to be deposited in a segregated account to
collateralize the position and thereby insure that the use of such futures is
unleveraged. Each Fund will limit its hedging transactions in futures contracts
so that, immediately after any such transaction, the aggregate initial margin
that is required to be posted by the Fund under the rules of the exchange on
which the futures contract is traded does not exceed 5% of the Fund's total
assets after taking into account any unrealized profits and unrealized losses on
the Fund's open contracts. In addition, no more than one-third of each Fund's
total assets may be covered by such contracts.
Transactions in futures as a hedging device may subject the Funds to a
number of risks. Successful use of futures by the Funds is subject to the
ability of Fleet to predict correctly movements in the direction of the market.
In addition, there may be an imperfect correlation, or no correlation at all,
between movements in the price of futures contracts and movements in the price
of the instruments being hedged. There is no assurance that a liquid market will
exist for any particular futures contract at any particular time. Consequently,
a Fund may realize a loss on a futures transaction that is not offset by a
favorable movement in the price of securities which it holds or intends to
purchase or a Fund may be unable to close a futures position in the event of
adverse price movements. Additional information concerning futures transactions
is contained in Appendix B to this Statement of Additional Information.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS - SHORT-TERM BOND AND CORPORATE BOND
FUNDS. Because the Short-Term Bond and Corporate Bond Funds may buy and sell
securities denominated in currencies other than the U.S. dollar, and receive
interest, dividends and sale
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proceeds in currencies other than the U.S. dollar, the Funds may enter into
foreign currency exchange transactions to convert United States currency to
foreign currency and foreign currency to United States currency as well as
convert foreign currency to other foreign currencies. A Fund either enters into
these transactions on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market, or uses forward contracts to purchase or
sell foreign currencies.
A forward foreign currency exchange contract is an obligation by a Fund to
purchase or sell a specific currency at a specified price and future date, which
may be any fixed number of days from the date of the contract. Forward foreign
currency exchange contracts establish an exchange rate at a future date. These
contracts are transferable in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A forward
foreign currency exchange contract generally has no deposit requirement and is
traded at a net price without commission. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the prices of a
Fund's portfolio securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline.
The Short-Term Bond and Corporate Bond Funds may enter into foreign
currency hedging transactions in an attempt to protect against changes in
foreign currency exchange rates between the trade and settlement dates of
specific securities transactions or changes in foreign currency exchange rates
that would adversely affect a portfolio position or an anticipated portfolio
position. Since consideration of the prospect for currency parities will be
incorporated into a Fund's long-term investment decisions, neither Fund will
routinely enter into foreign currency hedging transactions with respect to
portfolio security transactions; however, it is important to have the
flexibility to enter into foreign currency hedging transactions when it is
determined that the transactions would be in a Fund's best interest. Although
these transactions 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.
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
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and delayed settlement transactions involve the risk, however, that the yield or
price obtained in a transaction may be less favorable than the yield or price
available in the market when the security delivery takes place. It is expected
that forward commitments, when-issued purchases and delayed settlements will not
exceed 25% of the value of a Fund's total assets absent unusual market
conditions. In the event a Fund's forward commitments, when-issued purchases and
delayed settlements ever exceeded 25% of the value of its total assets, the
Fund's liquidity and the ability of Fleet to manage the Fund might be adversely
affected. The Funds do not intend to engage in when-issued purchases, forward
commitments and delayed settlements for speculative purposes, but only in
furtherance of their investment objectives.
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.
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.
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,
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which are also known as collateralized obligations, and are generally issued as
the debt of a special purpose entity organized solely for the purpose of owning
such assets and issuing such debt. Asset-backed securities are often backed by a
pool of assets representing the obligations of a number of different parties.
The yield characteristics of asset-backed securities differ from
traditional debt securities. A major difference is that the principal amount of
the obligations may be prepaid at any time because the underlying assets (i.e.,
loans) generally may be prepaid at any time. As a result, if an asset-backed
security is purchased at a premium, a prepayment rate that is faster than
expected will reduce yield to maturity, while a prepayment rate that is slower
than expected will have the opposite effect of increasing yield to maturity.
Conversely, if an asset-backed security is purchased at a discount, faster than
expected prepayments will increase, while slower than expected prepayments, will
decrease, yield to maturity.
Prepayments on asset-backed securities generally increase with falling
interest rates and decrease with rising interest rates; furthermore prepayment
rates are influenced by a variety of economic and social factors. In general,
the collateral supporting non-mortgage asset-backed securities is of shorter
maturity than mortgage loans and is less likely to experience substantial
prepayments. Like other fixed income securities, when interest rates rise, the
value of an asset-backed security generally will decline; however, when interest
rates decline, the value of an asset-backed security with prepayment features
may not increase as much as that of other fixed income securities.
Asset-backed securities are subject to greater risk of default during
periods of economic downturn. Also, the secondary market for certain
asset-backed securities may not be as liquid as the market for other types of
securities, which could result in a Fund's experiencing difficulty in valuing or
liquidating such securities. For these reasons, under certain circumstances,
asset-backed securities may be considered illiquid securities.
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 payments may be made
out of unscheduled repayments of principal resulting from the sale of the
underlying residential property, refinancing or foreclosure, net of fees or
costs that may be incurred. Prepayments of principal on mortgage-backed
securities may tend to increase due to refinancing of mortgages as interest
rates decline. To the extent that the Fund purchases mortgage-backed securities
at a premium, mortgage foreclosures and prepayments of principal by mortgagors
(which may be made at any time without penalty) may result in some loss of the
Fund's principal investment to the extent of the premium paid. The yield of a
Fund that invests in mortgage-backed securities may be affected by reinvestment
of prepayments at higher or lower rates than the original investment.
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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.
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STRIPPED OBLIGATIONS
To the extent consistent with its investment objective, each Fund may
purchase U.S. Treasury receipts and other "stripped" securities that evidence
ownership in either the future interest payments or the future principal
payments on U.S. Government and other obligations. These participations, which
may be issued by the U.S. Government or by private issuers, such as banks and
other institutions, are issued at their "face value," and may include stripped
mortgage-backed securities ("SMBS"), which are derivative multi-class mortgage
securities. Stripped securities, particularly SMBS, may exhibit greater price
volatility than ordinary debt securities because of the manner in which their
principal and interest are returned to investors.
SMBS are usually structured with two or more classes that receive different
proportions of the interest and principal distributions from a pool of
mortgage-backed obligations. A common type of SMBS will have one class receiving
all of the interest, while the other class will receive all of the principal.
However, in some instances, one class will receive some of the interest and most
of the principal while the other class will receive most of the interest and the
remainder of the principal. If the underlying obligations experience greater
than anticipated prepayments of principal, the Fund may fail to fully recoup its
initial investment in these securities. The market value of the class consisting
entirely of principal payments generally is extremely volatile in response to
changes in interest rates. The yields on a class of SMBS that receives all or
most of the interest are generally higher than prevailing market yields on other
mortgage-backed obligations because their cash flow patterns are more volatile
and there is a greater risk that the initial investment will not be fully
recouped. SMBS which are not issued by the U.S. Government (or a U.S. Government
agency or instrumentality) are considered illiquid by the Funds. Obligations
issued by the U.S. Government may be considered liquid under guidelines
established by Galaxy's Board of Trustees if they can be disposed of promptly in
the ordinary course of business at a value reasonably close to that used in the
calculation of net asset value per share.
GUARANTEED INVESTMENT CONTRACTS
Each Fund, except the Corporate Bond Fund, may invest in guaranteed
investment contracts ("GICs") issued by United States and Canadian insurance
companies. Pursuant to GICs, a Fund makes cash contributions to a deposit fund
of the insurance company's general account. The insurance company then credits
to the Fund payments at negotiated, floating or fixed interest rates. A GIC is a
general obligation of the issuing insurance company and not a separate account.
The purchase price paid for a GIC becomes part of the general assets of the
insurance company, and the contract is paid from the company's general assets.
The Funds will only purchase GICs that are issued or guaranteed by insurance
companies that at the time of purchase are rated at least AA by S&P or receive a
similar high quality rating from a nationally recognized service which provides
ratings of insurance companies. GICs are considered illiquid securities and will
be subject to the Funds' 10% limitation on such investments, unless there is an
active and substantial secondary market for the particular instrument and market
quotations are readily available.
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BANK INVESTMENT CONTRACTS
Each Fund may invest in bank investment contracts ("BICs") issued by banks
that meet the quality and asset size requirements for banks described above
under "U.S. Government Obligations and Money Market Instruments." Pursuant to
BICs, cash contributions are made to a deposit account at the bank in exchange
for payments at negotiated, floating or fixed interest rates. A BIC is a general
obligation of the issuing bank. BICs are considered illiquid securities and will
be subject to the Funds' 10% (15% with respect to the Corporate Bond Fund)
limitation on such investments, unless there is an active and substantial
secondary market for the particular instrument and market quotations are readily
available.
ZERO COUPON BONDS
The Corporate Bond Fund may invest in zero coupon bonds. Zero coupon bonds
do not make interest payments; instead, they are sold at a deep discount from
their face value and are redeemed at face value when they mature. Because zero
coupon bonds do not pay current income, their prices can be very volatile when
interest rates change. In calculating its daily dividend, the Fund takes into
account as income a portion of the difference between a zero coupon bond's
purchase price and its face value.
A broker/dealer creates a derivative zero by separating the interest and
principal components of a U.S. Treasury security and selling them as two
individual securities. CATS (Certificates of Accrual on Treasury Securities),
TIGRs (Treasury Investment Growth Receipts), TRs (Treasury Receipts), and
STRIPS (Separate Trading of Registered Interest and Principal of
Securities) are examples of derivative zeros. Bonds issued by the Resolution
Funding Corporation (REFCORP) and the Financing Corporation (FICO) can also be
separated in this fashion. Original issue zeros are zero coupon securities
originally issued by the U.S. Government, a U.S. Government agency or a
corporation in zero coupon form.
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.
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INVESTMENT LIMITATIONS
In addition to each Fund's investment objective as stated in its
Prospectus(es), 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").
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. None of the
Short-Term Bond, Intermediate Government Bond or High Quality
Bond Funds 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 Corporate Bond
Fund) of the value of its net assets in illiquid securities,
including repurchase agreements with remaining maturities in
excess of seven days, time deposits with maturities in excess of
seven days, restricted securities, non-negotiable time deposits
and other securities which are not readily marketable.
4. Purchase 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.
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5. 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.
6. 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.
7. Purchase or sell real estate; except that each Fund may purchase
securities that are secured by real estate and may purchase
securities of issuers which deal in real estate or interests
therein; however, the Funds will not purchase or sell interests
in real estate limited partnerships.
8. 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 and Corporate Bond Fund may enter
into forward currency contracts and foreign currency futures
contracts and related options to the extent permitted by their
respective investment objectives and policies.
9. Invest in or sell put options, call options, straddles, spreads,
or any combination thereof.
10. Invest in companies for the purpose of exercising management or
control.
11. 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:
12. The Funds, with the exception of the Short-Term Bond and
Corporate Bond Funds, may not purchase foreign securities, except
that the Intermediate Government Income and High Quality Bond
Funds 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
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Canadian Provincial Governments in accordance with each Fund's
investment objective and policies.
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% (15% with respect to the Corporate Bond Fund) 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.
Except as stated otherwise, 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. If the value of a Fund's holdings of illiquid
securities at any time exceeds the percentage limitation applicable at the time
of acquisition due to subsequent fluctuations in value or other reasons, the
Board of Trustees will consider what actions, if any, are appropriate to
maintain adequate liquidity.
VALUATION OF PORTFOLIO SECURITIES
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
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<PAGE>
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.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares in each Fund are sold on a continuous basis by Galaxy's distributor,
Provident Distributors, Inc. ("PDI"). PDI is a registered broker/dealer with its
principal offices at Four Falls Corporate Center, 6th Floor, West Conshohocken,
Pennsylvania 19428. PDI has agreed to use appropriate efforts to solicit all
purchase orders.
This Statement of Additional Information provides additional purchase
and redemption information for Trust Shares of the Funds and Retail A Shares and
Retail B Shares of the Tax-Exempt Bond, Intermediate Government Income and High
Quality Bond Funds. Purchase and redemption information for Prime A Shares and
Prime B Shares of the Short-Term Bond, Intermediate Government Income and High
Quality Bond Funds is provided in a separate prospectus and statement of
additional information.
PURCHASES OF RETAIL SHARES AND TRUST SHARES OF THE CORPORATE BOND FUND
GENERAL
Investments in Retail A Shares of the Short-Term Bond, Intermediate
Government Income and High Quality Bond Funds are subject to a front-end sales
charge. Investments in Retail B Shares of such 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.
PDI has established several procedures to enable different types of
investors to purchase Retail A Shares and Retail B Shares of the Short-Term
Bond, Intermediate Government Income and High Quality Bond Funds (collectively,
"Retail Shares"). These procedures also apply to purchases of Trust Shares of
the Corporate Bond Fund, in addition to the purchase information described below
under "Purchases of Trust Shares." Retail Shares and Trust Shares of the
Corporate Bond Fund 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. Retail Shares and Trust Shares of the
Corporate Bond Fund may also be purchased by FIS Securities, Inc., Fleet
Securities, Inc., Fleet Enterprises, Inc., FleetBoston
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Corporation, its affiliates, their correspondent banks and other qualified
banks, savings and loan associations and broker/dealers on behalf of their
customers. Purchases may take place only on days on which PDI 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 PDI on a Business Day in accordance with PDI's procedures.
Galaxy has authorized certain brokers to accept purchase, exchange and
redemption orders on behalf of Galaxy with respect to Retail A Shares of the
Short-Term Bond, Intermediate Government Income and High Quality Bond Funds.
Such brokers are authorized to designate other intermediaries to accept
purchase, exchange and redemption orders on behalf of Galaxy. Galaxy will be
deemed to have received a purchase, exchange or redemption order when such an
authorized broker or designated intermediary accepts the order. Orders for
purchase, exchange or redemption of Retail A Shares of the Short-Term Bond,
Intermediate Government Income and High Quality Bond Funds accepted by any such
authorized broker or designated intermediary will be effected at the Funds'
respective net asset values per share next determined after acceptance of such
order and will not be subject to the front-end sales charge with respect to
Retail A Shares described in the applicable Prospectus and in this Statement of
Additional Information.
CUSTOMERS OF INSTITUTIONS
Retail Shares and Trust Shares of the Corporate Bond Fund purchased by
institutions on behalf of their customers will normally be held of record by the
institution and beneficial ownership of Retail Shares and Trust Shares of the
Corporate Bond Fund 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 and Trust Shares of the Corporate Bond
Fund. Depending on the terms of the arrangement between a particular institution
and Galaxy's transfer agent, confirmations of purchases and redemptions of
Retail Shares and Trust Shares of the Corporate Bond Fund 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 and Trust
Shares of the Corporate Bond Fund established by institutions in connection with
the requirements of their customer accounts may apply. Customers wishing to
purchase Retail Shares or Trust Shares of the Corporate Bond Fund through their
institution should contact such entity directly for appropriate purchase
instructions.
OTHER PURCHASE INFORMATION
On a Business Day when the New York Stock Exchange (the "Exchange') closes
early due to a partial holiday or otherwise, Galaxy will advance the time at
which purchase orders must be received in order to be processed on that Business
Day.
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<PAGE>
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 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. A portion of the front-end sales charge may be reallowed to
broker-dealers as follows:
<TABLE>
<CAPTION>
REALLOWANCE TO
DEALERS
-------
AS A % OF
OFFERING PRICE
AMOUNT OF TRANSACTION PER SHARE
- --------------------- ---------
<S> <C>
Less than $50,000 3.25
$50,000 but less than $100,000 3.00
$100,000 but less than $250,000 2.50
$250,000 but less than $500,000 2.00
$500,000 and over 0.00
</TABLE>
The appropriate reallowance to dealers will be paid by PDI to broker-dealer
organizations which have entered into agreements with PDI. The reallowance to
dealers may be changed from time to time.
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. In addition
to the sales charge waivers described in the applicable Prospectus, 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:
- purchases by directors, officers and employees of broker-dealers
having agreements with PDI pertaining to the sale of Retail A Shares
to the extent permitted by such organizations;
- 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
FleetBoston Corporation, and any of its affiliates and members of
their immediate families;
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<PAGE>
- purchases by officers, directors, employees and retirees of PFPC Inc.
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 clients of investment advisers or financial planners who
place trades for their own accounts if such accounts are linked to the
master accounts of such investment advisers or financial planners on
the books of the broker-dealer through whom Retail A Shares are
purchased;
- purchases by institutional clients of broker-dealers, including
retirement and deferred compensation plans and the trusts used to fund
these plans, which place trades through an omnibus account maintained
with Galaxy by the broker-dealer; and
- purchases prior to July 1, 1999 by former deposit customers of
financial institutions (other than registered broker-dealers) acquired
by FleetBoston Corporation in February 1998.
COMPUTATION OF OFFERING PRICE - RETAIL A SHARES
An illustration of the computation of the offering price per share of
Retail A Shares of the Funds, using the value of each Fund's net assets
attributable to such Shares and the number of outstanding Retail A Shares of
each Fund at the close of business on October 31, 1999 and the maximum front-end
sales charge of 3.75%, is as follows:
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<PAGE>
<TABLE>
<CAPTION>
Short-Term Intermediate Government
Bond Fund Income Fund
---------- -----------------------
<S> <C> <C>
Net Assets............................
Outstanding Shares....................
Net Asset Value Per Share.............
Sales Charge (3.75% of
the offering price)...................
Offering Price to Public..............
<CAPTION>
High Quality
Bond Fund
-----------
<S> <C>
Net Assets............................
Outstanding Shares....................
Net Asset Value Per Share.............
Sales Charge (3.75% of
the offering price)...................
Offering Price to Public..............
</TABLE>
QUANTITY DISCOUNTS
Investors 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 investor 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, an investor must notify PDI
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 an investor's
holdings through a check of appropriate records. For more information about
quantity discounts, please contact PDI or your financial 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 an
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<PAGE>
investor'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, an
investor 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, an investor 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 an investor 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.
PFPC Inc. ("PFPC"), Galaxy's administrator, 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 an investor does not purchase the full
amount indicated in the Letter of Intent. The escrow will be released when
the investor 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 the investor's total purchases.
If total purchases are less than the amount specified, the investor 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, PFPC, as attorney-in-fact pursuant
to the terms of the Letter of Intent and at PDI's 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 an investor to purchase
the full amount indicated at the sales charge in effect at the time of
signing, but an investor must complete the intended purchase in accordance
with the terms of the Letter of Intent to obtain the reduced sales charge. To
apply, an investor 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.
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<PAGE>
REINSTATEMENT PRIVILEGE. Investors 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.
Investors wishing to exercise this Privilege must submit a written
reinstatement request to PFPC 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 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>
REALLOWANCE
TOTAL SALES CHARGE 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 PDI. To receive
the group sales charge rate, group members must purchase Retail A Shares
directly from PDI in accordance with any of the procedures described in the
applicable Prospectus. Group members must also ensure that their qualified 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. PDI may request periodic certification of group and member
eligibility. PDI reserves the right to determine whether a group qualifies for a
quantity discount and to suspend this offer at any time.
-31-
<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 investors 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 PDI
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 an investor'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 proceeds from the contingent deferred sales charge that an investor may
pay upon redemption go to PDI, 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. In addition to the sales charge exemptions described in the applicable
Prospectus, the contingent deferred sales charge with respect to Retail B Shares
is not assessed on: (i) 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 Code; (ii) 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; (iii) 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; (iv) 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; (v) redemptions resulting from a tax-free
return of an excess contribution pursuant to Section 408(d)(4) or (5) of the
Code; or (vi) any redemption of Retail B Shares held by an investor, provided
the investor 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 - Retail A Shares and Retail B Shares - Automatic Investment Program
and Systematic Withdrawal Plan" below.
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<PAGE>
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.
An investor 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 the applicable Prospectus and "Applicable
Sales Charges -- Retail A Shares" and "Quantity Discounts" above. Retail A
Shares of a Fund are currently subject to ongoing shareholder servicing fees at
an annual rate of up to .15% of the Fund's average daily net assets attributable
to its Retail A Shares.
Retail B Shares of the 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 the applicable Prospectus and
"Applicable Sales Charges -- Retail B Shares" above. 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 PDI 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 an investor receives dollar-for-dollar the same
value of Retail A Shares as he or she had of Retail B Shares. The conversion
occurs six years after the beginning of the calendar month in which the Shares
are purchased. Upon conversion, the converted shares will be relieved of the
distribution and shareholder servicing fees borne by Retail B Shares, although
they will be subject to the shareholder servicing fees borne by Retail A Shares.
Retail B Shares acquired through a reinvestment of dividends or
distributions (as discussed under "Applicable Sales Charge -- Retail B Shares")
are also converted at the earlier of two dates -- six years after the beginning
of the calendar month in which the reinvestment occurred or the date of
conversion of the most recently purchased Retail B Shares that were not acquired
through reinvestment of dividends or distributions. For example, if an investor
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 investor'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.
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<PAGE>
FACTORS TO CONSIDER WHEN SELECTING RETAIL A SHARES OR RETAIL B SHARES
Before purchasing Retail A Shares or Retail B Shares of the Funds,
investors 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. Investors 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.
PURCHASES OF TRUST SHARES
Trust Shares of the Funds are sold to investors maintaining qualified
accounts at bank and trust institutions, including subsidiaries of
FleetBoston Corporation, and to participants in employer-sponsored defined
contribution plans (such institutions and plans
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<PAGE>
referred to herein collectively as "Institutions"). Trust Shares sold to such
investors ("Customers") will be held of record by Institutions. Purchases of
Trust Shares will be effected only on days on which PDI, Galaxy's custodian and
the purchasing Institution are open for business ("Trust Business Days"). If an
Institution accepts a purchase order from its Customer on a non-Trust Business
Day, the order will not be executed until it is received and accepted by PDI on
a Trust Business Day in accordance with the foregoing procedures.
On a Trust 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 Trust Business Day.
REDEMPTION OF RETAIL A SHARES, RETAIL B SHARES AND TRUST SHARES
Redemption orders are effected at the net asset value per share next
determined after receipt of the order by PDI. On a Business Day or Trust
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 or Trust Business Day.
Galaxy may require any information reasonably necessary to ensure that a
redemption has been duly authorized. 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.
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 SEC exists making disposal of a Fund's
investments or determination of its net asset value not reasonably practicable;
(b) the Exchange is closed (other than customary weekend and holiday closings);
or (c) the SEC by order has permitted such suspension.
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. However, Galaxy has filed an election with the Securities and Exchange
Commission ("SEC") to pay in cash all redemptions requested by a shareholder of
record limited in amount during any 90-day period to the lesser of $250,000 or
1% of the net assets of a Fund at the beginning of such period. Such commitment
cannot be revoked without the prior approval of the SEC.
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<PAGE>
INVESTOR PROGRAMS - RETAIL A SHARES AND RETAIL B SHARES
The following information supplements the description in the applicable
Prospectus as to the various Investor Programs available to holders of Retail
Shares of the Funds.
EXCHANGE PRIVILEGE
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 (i) the Retail Shares being redeemed were purchased
through a registered representative who is a Fleet Bank employee, in which event
there is no minimum investment requirement, or (ii) at the time of the exchange
the investor 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,
investors should call PFPC at 1-877-BUY-GALAXY (1-877-289-4252). Customers of
institutions should call their institution for such information. Investors
exercising the exchange privilege into other portfolios should request and
review these portfolios' prospectuses prior to making an exchange. Telephone
1-877-BUY-GALAXY (1-877-289-4252) for a prospectus or to make an exchange.
In order to prevent abuse of this privilege to the disadvantage of other
shareholders, Galaxy reserves the right to terminate the exchange privilege of
any shareholder who requests more than three exchanges a year. Galaxy will
determine whether to do so based on a consideration of both the number of
exchanges that any particular shareholder or group of shareholders has requested
and the time period over which their exchange requests have been made, together
with the level of expense to Galaxy which will result from effecting additional
exchange requests. The exchange privilege may be modified or terminated at any
time. At least 60 days' notice of any material modification or termination will
be given to shareholders except where notice is not required under the
regulations of the SEC.
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<PAGE>
For federal income tax purposes, an exchange of shares is a taxable event
and, accordingly, a capital gain or loss may be realized by an investor. Before
making an exchange request, an investor should consult a tax or other financial
adviser to determine the tax consequences.
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 RETIREMENT PLANS ("MERPS"), a retirement vehicle established
by employers for their employees which is qualified under Section 401(k) and
403(b) of the 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 in the applicable
Prospectus. Detailed information concerning eligibility and other matters
related to these plans and the form of application is available from PDI (call
1-877-BUY-GALAXY (1-877-289-4252)) with respect to IRAs, SEPs and Keogh Plans
and from Fleet Securities, Inc. (call 1-800-221-8210) with respect to MERPs.
AUTOMATIC INVESTMENT PROGRAM AND SYSTEMATIC WITHDRAWAL PLAN
The Automatic Investment Program permits an investor to purchase Retail
Shares of a Fund each month or each quarter. Provided an investor's financial
institution allows automatic withdrawals, Retail Shares are purchased by
transferring funds from the investor's checking, bank money market, NOW or
savings account designated by the investor. The account designated will be
debited in the specified amount, and Retail Shares will be purchased, on a
monthly or quarterly basis, on any Business Day designated by an 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 ("ACH")
member may be so designated.
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<PAGE>
The Systematic Withdrawal Plan permits an investor to automatically
redeem Retail Shares on a monthly, quarterly, semi-annual, or annual basis on
any Business Day designated by the investor. 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
PFPC, Galaxy's transfer agent (but not less than five days before a payment
date). There is no charge for this service. Purchases of additional Retail A
Shares concurrently with withdrawals are ordinarily not advantageous because
of the sales charge involved in the additional purchases. No contingent
deferred sales charge will be assessed on redemptions of Retail B Shares made
through the Systematic Withdrawal Plan that do not exceed 12% of an account's
net asset value on an annualized basis. For example, monthly, quarterly and
semi-annual Systematic Withdrawal Plan redemptions of Retail B Shares will
not be subject to the contingent deferred sales charge if they do not exceed
1%, 3% and 6%, respectively, of an account's net asset value on the
redemption date. Systematic Withdrawal Plan redemptions of Retail B Shares in
excess of this limit are still subject to the applicable contingent deferred
sales charge.
PAYROLL DEDUCTION PROGRAM
To be eligible for the Payroll Deduction Program, the payroll department of
an investor's employer must have the capability to forward transactions directly
through the ACH, or indirectly through a third party payroll processing company
that has access to the ACH. An 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 an 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. An 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
Galaxy reserves the right to redeem accounts participating in the College
Investment 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. Investors participating in the College Investment Program
will receive consolidated monthly statements of their accounts. Detailed
information concerning College Investment Program accounts and applications may
be obtained from PDI (call 1-877-BUY-GALAXY (1-877-289-4252)).
DIRECT DEPOSIT PROGRAM
Death or legal incapacity will terminate an investor's participation in the
Direct Deposit Program. An investor may elect at any time to terminate his or
her participation by notifying in
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<PAGE>
writing the Social Security Administration. Further, Galaxy may terminate an
investor's participation upon 30 days' notice to the investor.
TAXES
Each Fund qualified during its last taxable year and intends to continue to
qualify as a regulated investment company under Subchapter M of the Code, and to
distribute out its income to shareholders each year, so that each Fund itself
generally will be relieved of federal income and excise taxes. If a Fund were to
fail to so qualify: (1) the Fund would be taxed at regular corporate rates
without any deduction for distributions to shareholders; and (2) shareholders
would be taxed as if they received ordinary dividends, although corporate
shareholders could be eligible for the dividends received deduction.
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."
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.
TAXATION OF CERTAIN FINANCIAL INSTRUMENTS
The tax principles applicable to certain financial instruments and futures
contracts and options that may be acquired by a Fund are complex and, in some
cases, uncertain. Such investments may cause a Fund to recognize taxable income
prior to the receipt of cash, thereby requiring the Fund to liquidate other
positions, or to borrow money, so as to make sufficient distributions to
shareholders to avoid corporate-level tax. Moreover, some or all of the taxable
income recognized may be ordinary income or short-term capital gain, so that the
distributions may be taxable to shareholders as ordinary income.
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<PAGE>
TRUSTEES AND OFFICERS
The business and affairs of the Funds are managed under the direction of
Galaxy's Board of Trustees in accordance with the laws of the Commonwealth of
Massachusetts and the Trust's Declaration of Trust. 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 and Age Galaxy Fund and Other Affiliations
- ------------------------ ----------- ----------------------
<S> <C> <C>
Dwight E. Vicks, Jr. Chairman & Trustee President & Director, Vicks Lithograph &
Vicks Lithograph & Printing Corporation (book manufacturing
Printing Corporation and commercial printing); Director, Utica
Commercial Drive First Insurance Company; Trustee, Savings
P.O. Box 270 Bank of Utica; Director, Monitor Life
Yorkville, NY 13495 Insurance Company; Director, Commercial
Age 66 Travelers Mutual Insurance Company;
Trustee, The Galaxy VIP Fund; Trustee,
Galaxy Fund II.
John T. O'Neill(1) President, Treasurer Executive Vice President and CFO, Hasbro,
Hasbro, Inc. & Trustee Inc. (toy and game manufacturer); Trustee,
1011 Newport Avenue The Galaxy VIP Fund; Trustee, Galaxy Fund
Pawtucket, RI 02862 II.
Age 55
Louis DeThomasis Trustee President, Saint Mary's College of
Saint Mary's College Minnesota; Director, Bright Day Travel,
of Minnesota Inc.; Trustee, Religious Communities Trust;
Winona, MN 55987 Trustee, The Galaxy VIP Fund; Trustee,
Age 59 Galaxy Fund II.
Donald B. Miller Trustee Chairman, Horizon Media, Inc. (broadcast
10725 Quail Covey Road services); Director/Trustee, Lexington
Boynton Beach, FL 33436 Funds; Chairman, Executive Committee,
Age 74 Compton International, Inc. (advertising
agency); Trustee, Keuka College; Trustee,
The Galaxy VIP Fund; Trustee, Galaxy Fund
II.
</TABLE>
-40-
<PAGE>
<TABLE>
<CAPTION>
Positions Principal Occupation
with The During Past 5 Years
Name and Address and Age Galaxy Fund and Other Affiliations
- ------------------------ ----------- ----------------------
<S> <C> <C>
James M. Seed Trustee Chairman and President, The Astra Projects,
The Astra Ventures, Inc. Incorporated (land development); President,
One Citizens Plaza The Astra Ventures, Incorporated
Providence, RI 02903 (previously, Buffinton Box Company -
Age 58 manufacturer of cardboard boxes);
Commissioner, Rhode Island Investment
Commission; Trustee, The Galaxy VIP Fund;
Trustee, Galaxy Fund II.
Bradford S. Wellman(1) Trustee Private Investor; Vice President and
2468 Ohio Street Director, Acadia Management Company
Bangor, ME 04401 (investment services); Director, Essex
Age 68 County Gas Company, until January 1994;
Director, Maine Mutual Fire Insurance Co.;
Member, Maine Finance Authority; Trustee,
The Galaxy VIP Fund; Trustee, Galaxy Fund
II.
W. Bruce McConnel, III Secretary Partner of the law firm Drinker Biddle &
One Logan Square Reath LLP, Philadelphia, Pennsylvania.
18th & Cherry Streets
Philadelphia, PA 19103
Age 57
Jylanne Dunne Vice President and Vice President, PFPC Inc., 1990 to present.
PFPC Inc. Assistant Treasurer
4400 Computer Drive
Westborough, MA 01581-5108
Age 40
</TABLE>
-41-
<PAGE>
<TABLE>
<CAPTION>
Positions Principal Occupation
with The During Past 5 Years
Name and Address and Age Galaxy Fund and Other Affiliations
- ------------------------ ----------- ----------------------
<S> <C> <C>
William Greilich Vice President Vice President, PFPC Inc., 1991-96; Vice
PFPC Inc. President and Division Manager, PFPC Inc.,
4400 Computer Drive 1996-present.
Westborough, MA 01581-5108
Age 46
</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 May 28, 1999, each trustee receives an annual aggregate fee of
$45,000 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 $3,500 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 May 28,
1999, each Trustee was entitled to receive an annual aggregate fee of $40,000
for his services as a Trustee of the Trusts plus an additional $2,500 for each
in-person Galaxy Board meeting attended, with all other fees being the same as
those currently in effect.
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 PFPC receives any compensation from Galaxy for acting as
an officer. No person who is an officer, director or employee of Fleet, or
any of its affiliates, serves as a trustee, officer or employee of Galaxy.
The trustees and officers of Galaxy own less than 1% of its outstanding
shares.
The following chart provides certain information about the fees received by
Galaxy's trustees in the most recently completed fiscal year.
<TABLE>
<CAPTION>
Pension or
Retirement Total Compensation
Benefits Accrued from Galaxy and Fund
Aggregate Compensation as Part of Fund Complex*Paid to
Name of Person/Position from Galaxy Expenses Trustees
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bradford S. Wellman $ None $
Trustee
Dwight E. Vicks, Jr. $ None $
Chairman and Trustee
Donald B. Miller** $ None $
Trustee
Rev. Louis DeThomasis $ None $
Trustee
John T. O'Neill $ None $
President, Treasurer
and Trustee
James M. Seed** $ None $
Trustee
</TABLE>
- -------------
* The "Fund Complex" consists of Galaxy, The Galaxy VIP Fund and Galaxy Fund
II, which comprise a total of 43 separate portfolios.
** Deferred compensation (including interest) in the amounts of $ and
$ accrued during Galaxy's fiscal year ended October 31, 1999 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
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<PAGE>
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.
INVESTMENT ADVISER
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" below.
For the services provided and expenses assumed with respect to the Funds,
Fleet is entitled to receive advisory fees, computed daily and paid monthly, at
an annual rate of .75% of the average daily net assets of each Fund. During the
last three fiscal years, Galaxy paid advisory fees (net of fee waivers and/or
expense reimbursements) to Fleet as set forth below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Short-Term Bond................................... $390,913 $470,347
Intermediate Government Income.................... $1,582,909 $1,535,166
High Quality Bond................................. $1,294,758 $1,089,506
Corporate Bond.................................... $489,512 $507,794
</TABLE>
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<PAGE>
During the last three fiscal years, Fleet waived advisory fees as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Short-Term Bond................................... $142,191 $171,035
Intermediate Government Income.................... $575,603 $558,241
High Quality Bond................................. $470,821 $396,183
Corporate Bond.................................... $178,004 $184,653
</TABLE>
During the last three fiscal years, Fleet reimbursed expenses as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Short-Term Bond................................... $111 $2,300
Intermediate Government Income.................... $0 $0
High Quality Bond................................. $0 $28,489
Corporate Bond.................................... $0 $0
</TABLE>
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.
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
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<PAGE>
from sponsoring, organizing, controlling, or distributing the shares of a
registered, open-end investment company continuously engaged in the issuance of
its shares, and prohibit banks generally from issuing, underwriting, selling, or
distributing securities such as shares of the Funds, but 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
PFPC (formerly known as First Data Investors Services Group, Inc.),
located at 4400 Computer Drive, Westborough, Massachusetts 01581-5108, serves
as the Funds' administrator. PFPC is a majority-owned subsidiary of PNC Bank
Corp.
PFPC generally assists the Funds in their administration and operation.
PFPC also serves as administrator to the other portfolios of Galaxy. For the
services provided to the Funds, PFPC is entitled to receive administration
fees based on the combined average daily net assets of the Funds and the
other portfolios offered by Galaxy with an October 31 fiscal year end,
computed daily and paid monthly, at the following annual rates, effective
September 10, 1998:
<TABLE>
<CAPTION>
COMBINED AVERAGE DAILY NET ASSETS ANNUAL RATE
--------------------------------- -----------
<S> <C>
Up to $2.5 billion................... 0.090%
From $2.5 to $5 billion.............. 0.085%
From $5 to $12 billion............... 0.075%
From $12 to $15 billion.............. 0.065%
From $15 to $18 billion.............. 0.060%
Over $18 billion..................... 0.0575%
</TABLE>
Prior to September 10, 1998, Galaxy paid PFPC administration fees based
on the combined average daily net assets of the Funds and all other
portfolios offered by Galaxy at the following annual rates:
<TABLE>
<CAPTION>
COMBINED AVERAGE DAILY NET ASSETS ANNUAL RATE
--------------------------------- -----------
<S> <C>
Up to $2.5 billion................... 0.090%
From $2.5 to $5 billion.............. 0.085%
Over $5 billion...................... 0.075%
</TABLE>
PFPC also receives a separate annual fee from each Galaxy portfolio for
certain fund accounting services.
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<PAGE>
From time to time, PFPC may waive voluntarily all or a portion of the
administration fees payable to it by the Funds. For the fiscal year ended
October 31, 1999 PFPC received administration fees at the effective annual
rate of ____% of each Fund's average daily net assets. During the last three
fiscal years, PFPC received administration fees as set forth below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Short-Term Bond...................................... $ $57,228 $69,851
Intermediate Government Income....................... $ $231,595 $227,963
High Quality Bond.................................... $ $189,406 $161,732
Corporate Bond....................................... $ $71,640 $75,411
</TABLE>
Under the administration agreement between Galaxy and PFPC (the
"Administration Agreement"), PFPC 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. PFPC 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. Unless otherwise
terminated, the Administration Agreement will remain in effect until May 31,
2001 and thereafter will continue from year to year upon approval of Galaxy's
Board of Trustees.
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
pursuant to a Global Custody Agreement. Chase Manhattan may employ
sub-custodians for the Short-Term Bond and Corporate Bond Funds for the purpose
of providing custodial services for the Funds' foreign assets held outside the
United States.
Under the Global 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
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<PAGE>
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 also serves as Galaxy's "foreign
custody manager" (as that term is defined in Rule 17f-5 under the 1940 Act) and
in such capacity employs sub-custodians for the Funds 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.
PFPC serves as the Funds' transfer and dividend disbursing agent
pursuant to a Transfer Agency and Services Agreement (the "Transfer Agency
Agreement"). Communications to PFPC should be directed to PFPC at P.O. Box
5108, 4400 Computer Drive, Westborough, Massachusetts 01581. Under the
Transfer Agency Agreement, PFPC 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.
PFPC 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 PFPC for the Sub-Account Services and in connection therewith the transfer
agency fees payable by Trust Shares of the Funds to PFPC 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.
Fleet Bank, an affiliate of Fleet, is paid a fee for Sub-Account
Services performed with respect to Trust Shares of the Funds held by defined
contribution plans. Pursuant to an agreement between Fleet Bank and PFPC,
Fleet Bank will be paid $21.00 per year for each defined contribution plan
participant sub-account. For the fiscal year ended October 31, 1999, Fleet
Bank received $ _____ for Sub-Account Services. PFPC bears this expense
directly, and shareholders of Trust Shares of the Funds bear this expense
indirectly through fees paid to PFPC for transfer agency services.
EXPENSES
Fleet and PFPC bear all expenses in connection with the performance of
their services for the Funds, except that Galaxy bears the expenses incurred
in the Funds'
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<PAGE>
operations including: taxes; interest; fees (including fees paid to its
trustees and officers who are not affiliated with PFPC); SEC fees; state
securities fees; costs of preparing and printing prospectuses for regulatory
purposes and for distribution to existing shareholders; advisory,
administration, shareholder servicing, Rule 12b-1 distribution (if
applicable), fund accounting and custody fees; charges of the transfer agent
and dividend disbursing agent; certain insurance premiums; outside auditing
and legal expenses; costs of independent pricing services; costs of
shareholder reports and meetings; and any extraordinary expenses. The Funds
also pay for brokerage fees and commissions in connection with the purchase
of portfolio securities.
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, PFPC, or their affiliates, and will not give preference to affiliates
and correspondent banks of Fleet with respect to such transactions.
Galaxy is required to identify any securities of its "regular brokers or
dealers" that the Funds have acquired during Galaxy's most recent fiscal year.
During fiscal year ended October 31, 1999, [FIRST DATA TO PROVIDE]
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
-49-
<PAGE>
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
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 render certain administrative and support services to customers
who are the beneficial owners of Retail A Shares. Such services are provided
to customers who are the beneficial owners of Retail A Shares and are
intended to supplement the services provided by PFPC as administrator and
transfer agent to the shareholders of record of the Retail A Shares. The Plan
provides that Galaxy will pay fees for such services at an annual rate of up
to .30% of the average daily net asset value of Retail A Shares owned
beneficially by customers. Institutions may receive up to one-half of this
fee for providing one or more of the following services to such customers:
aggregating and processing purchase and redemption requests and placing net
purchase and redemption orders with PDI; 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.
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
Statement of Additional Information, Galaxy has entered into servicing
agreements under the Shareholder Services Plan only with respect to Retail A
Shares of the Short-Term Bond, Intermediate Government Income and High Quality
Bond Funds, 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. As of October 31, 1999, 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.
-50-
<PAGE>
During the last three fiscal years, Galaxy made payments to Service
Organizations with respect to Retail A Shares as shown in the table below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Short-Term Bond................................... $ $41,334 $43,131
Intermediate Government Income.................... $ $97,753 $102,805
High Quality Bond................................. $ $52,525 $35,749
</TABLE>
Galaxy's Servicing Agreements are governed by the Services Plan that has
been adopted by Galaxy's Board of Trustees in connection with the offering of
Retail A Shares of each Fund. Pursuant to the Services Plan, the Board of
Trustees reviews, at least quarterly, a written report of the amounts paid under
the Servicing Agreements and the purposes for which the expenditures were made.
In addition, the arrangements with Service Organizations must be approved
annually by a majority of Galaxy's trustees, including a majority of the
trustees who are not "interested persons" of Galaxy as defined in the 1940 Act
and who have no direct or indirect financial interest in such arrangements (the
"Disinterested Trustees").
The Board of Trustees has approved Galaxy's arrangements with Service
Organizations based on information provided by Galaxy's service contractors that
there is a reasonable likelihood that the arrangements will benefit the Funds
and their shareholders by affording Galaxy greater flexibility in connection
with the efficient servicing of the accounts of the beneficial owners of Retail
A Shares of the Funds. Any material amendment to Galaxy's arrangements with
Service Organizations must be approved by a majority of Galaxy's Board of
Trustees (including a majority of the Disinterested Trustees). So long as
Galaxy's arrangements with Service Organizations are in effect, the selection
and nomination of the members of Galaxy's Board of Trustees who are not
"interested persons" (as defined in the 1940 Act) of Galaxy will be committed to
the discretion of such Disinterested Trustees.
DISTRIBUTION AND SERVICES PLAN
Galaxy has adopted a Distribution and Services Plan pursuant to Rule 12b-1
under the 1940 Act (the "Rule") with respect to Retail B Shares of the
Short-Term Bond, Intermediate Government Income and High Quality Bond Funds (the
"12b-1 Plan"). Under the 12b-1 Plan, Galaxy may pay (a) PDI or another person
for expenses and activities intended to result in the sale of Retail B Shares,
including the payment of commissions to broker-dealers and other industry
professionals who sell Retail B Shares and the direct or indirect cost of
financing such payments, (b) institutions for shareholder liaison services,
which means personal services for holders of Retail B Shares and/or the
maintenance of shareholder accounts, such as responding to customer inquiries
and providing information on accounts, and (c) institutions for administrative
support services, which include but are not limited to (i) transfer agent and
sub-transfer agent services for beneficial owners of Retail B Shares; (ii)
aggregating and processing purchase and redemption orders; (iii) providing
beneficial owners with statements showing their positions in Retail B Shares;
(iv) processing dividend payments; (v) providing sub-accounting services for
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<PAGE>
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 12b-1 Plan, 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 .15% and .15%, 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 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 .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 the
Rule. The Rule defines distribution expenses to include the cost of "any
activity which is primarily intended to result in the sale of shares issued by"
Galaxy. 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 (the "12b-1 Trustees"), by vote cast in person at a meeting called
for the purpose of considering such amendments.
During the last three fiscal years, Retail B Shares of the Short-Term Bond
and High Quality Bond Funds bore the following distribution fees under the 12b-1
Plan:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Short-Term Bond..................................... $ $6,185 $3,443
High Quality Bond................................... $ $22,171 $7,645
</TABLE>
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<PAGE>
During the last three fiscal years, Retail B Shares of the Short-Term Bond
and High Quality Bond Funds bore the following shareholder servicing fees under
the 12b-1 Plan:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Short-Term Bond..................................... $ $1,427 $788
High Quality Bond................................... $ $5,116 $1,729
</TABLE>
All amounts paid under the 12b-1 Plan for these periods 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
12b-1 Trustees and is terminable at any time with respect to any Fund by a vote
of a majority of the 12b-1 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 12b-1 Trustees,
by vote of the holders of a majority of the Retail B Shares of such Fund, by PDI
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 the 12b-1 Trustees.
DISTRIBUTOR
PDI serves as Galaxy's distributor. PDI is a registered broker-dealer with
principal offices located at Four Falls Corporate Center, 6th floor, West
Conshohocken, Pennsylvania 19428-2961. Jane Haegele is the sole shareholder of
PDI.
Unless otherwise terminated, the Distribution Agreement between Galaxy and
PDI remains in effect until November 30, 2000, 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.
PDI is entitled to the payment of a front-end sales charge on the sale of
Retail A Shares of the Short-Term Bond, Intermediate Government Income and High
Quality Bond Funds as described in the applicable Prospectus and this Statement
of Additional Information.
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<PAGE>
Prior to December 1, 1999, First Data Distributors, Inc. ("FD
Distributors"), a wholly-owned subsidiary of PFPC, served as Galaxy's
distributor and was entitled to the payment of the front-end sales charges on
the sale of Retail A Shares of the Short-Term Bond, Intermediate Government
Income and High Quality Bond Funds. During the last three fiscal years, FD
Distributors received front-end sales charges in connection with Retail A
Share purchases as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Short-Term Bond..................................... $ $32,006 $15,074
Intermediate Government Income...................... $ $46,625 $28,979
High Quality Bond................................... $ $95,494 $43,211
</TABLE>
FD Distributors retained none of the amounts shown in the table above.
PDI is also entitled to the payment of contingent deferred sales charges
upon the redemption of Retail B Shares of the Funds. Prior to _______, 1999, FD
Distributors was entitled to the payment of such contingent deferred sales
charges. During the last three fiscal years, FD Distributors received contingent
deferred sales charges in connection with Retail B Share redemptions as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Short-Term Bond..................................... $ $2,849 $3,662
Intermediate Government Income...................... $ * *
High Quality Bond................................... $ $9,250 $5,970
</TABLE>
- -----------------
* The Intermediate Government Income Fund did not offer Retail B Shares
until November 1, 1998.
FD Distributors retained none of the amounts shown in the table above.
-54-
<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, 1999:
<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
Intermediate $ $ $ $
Government
Income
High Quality $ $ $ $
Bond
Corporate Bond $ $ $ $
</TABLE>
- ----------------------
(1) Represents amounts received from front-end sales charges on Retail A Shares
and commissions received in connection with sales of Retail B Shares.
(2) Represents amounts received from contingent deferred sales charges on
Retail B Shares. The basis on which such sales charges are paid is
described in the Prospectus relating to Retail B Shares. All such amounts
were paid to affiliates of Fleet.
(3) Represents payments made under the Shareholder Services Plan and
Distribution and Services Plan during the fiscal year ended October 31,
1999, which includes fees accrued in the fiscal year ended October 31, 1998
which were paid in 1999 (see "Shareholder Services Plan" and "Distribution
and Services Plan" above).
AUDITORS
[ ], independent auditors, with offices at
[ ], serve as auditors for 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 with respect to the Funds (the "Annual Report") and
[ ] into this Statement of Additional Information for the
fiscal year ended October 31, 1999 have been audited by [ ].
For the respective fiscal years and periods prior to October 31, 1999, the
financial highlights for the Funds included in the Prospectuses and the
financial statements for such years and periods contained in the Annual Report
were audited by [ ], Galaxy's former auditors.
-55-
<PAGE>
COUNSEL
Drinker Biddle & Reath LLP (of which W. Bruce McConnel, III, Secretary of
Galaxy, is a partner), One Logan Square, 18th & Cherry Streets, Philadelphia,
Pennsylvania 19103, are counsel to Galaxy and will pass upon certain legal
matters on its behalf.
PERFORMANCE AND YIELD INFORMATION
Investment returns and principal values will vary with market conditions so
that an investor's shares, when redeemed, may be worth more or less than their
original cost. 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.
The Funds' 30-day (or one month) standard yields 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 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
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<PAGE>
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, Retail B Shares and Trust Shares (as applicable) of the Funds for the
30-day period ended October 31, 1999 were as set forth below:
<TABLE>
<CAPTION>
FUND RETAIL A RETAIL B TRUST
- ---- -------- -------- -----
<S> <C> <C> <C>
Short-Term Bond.....................................$ 3.44% $
Intermediate Government Income......................$ $ $
High Quality Bond...................................$ 3.64% $
Corporate Bond...................................... * * $
</TABLE>
- ----------------------
* The Corporate Bond Fund does not offer Retail A Shares or Retail B Shares.
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' 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, as the case may be.
The aggregate total returns for Retail A Shares, Retail B Shares and Trust
Shares (as applicable) of the Funds from the date of initial public offering to
October 31, 1999 are set forth below:
<TABLE>
<CAPTION>
FUND RETAIL A(1) RETAIL B TRUST
- ---- ----------- -------- -----
<S> <C> <C> <C>
Short-Term Bond................................... $ (2) $ (3) $ (2)
Intermediate Government Income.................... $ (4) $ $ (4)
High Quality Bond................................. $ (5) $ (3) $ (5)
Corporate Bond.................................... * * $ (6)
</TABLE>
- ----------------------
* The Corporate Bond Fund does not offer Retail A Shares or Retail B Shares.
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<PAGE>
(1) On September 7, 1995, Retail Shares of the Funds were redesignated "Retail
A Shares."
(2) For the period from December 30, 1991 (initial public offering date)
through October 31, 1999.
(3) For the period from March 4, 1996 (initial public offering date) through
October 31, 1999.
(4) For the period from September 1, 1988 (initial public offering date)
through October 31, 1999.
(5) For the period from December 14, 1990 (initial public offering date)
through October 31, 1999.
(6) For the period from December 12, 1994 (initial public offering date)
through October 31, 1999.
The average annual total returns for Retail A Shares, Retail B Shares and
Trust Shares (as applicable) of the Funds for the one-year, five-year and
ten-year periods (as applicable) are as set forth below:
<TABLE>
<CAPTION>
RETAIL A RETAIL B TRUST
FIVE- TEN- ONE- FIVE- TEN- ONE- FIVE- TEN-
FUND ONE-YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR
- ---- -------- --------- -------- -------- --------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Short-Term Bond............. $ $ $ $ $ $ $ $ $
Intermediate Government
Income...................... $ $ $ $ $ $ $ $ $
High Quality Bond........... $ $ $ $ $ $ $ $ $
Corporate Bond.............. ** ** ** ** ** ** $ $ $
</TABLE>
- ----------------------
** The Corporate Bond Fund does not offer Retail A Shares or Retail B Shares.
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders, the
performance of the Funds may be quoted and compared to that of other mutual
funds with similar investment objectives and to stock or other relevant indices
or to rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
performance of the Funds may be compared to data prepared by Lipper Analytical
Services, Inc., a widely recognized independent service which monitors the
performance of mutual funds.
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, Retail B Shares,
Prime A Shares and Prime B Shares of the Funds.
The standard yield is computed as described above. 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 and
are calculated as described above. Average total return
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<PAGE>
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 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 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
As used in this Statement of Additional Information, "assets belonging to"
a particular Fund or series of a Fund means the consideration received by Galaxy
upon the issuance of shares in that particular Fund or 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
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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.
Shareholders will receive unaudited semi-annual reports describing the
Funds' investment operations and annual financial statements audited by
independent certified public accountants.
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.
As of December 3, 1999, 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 Government 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 (99.87%); 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 14638, Account 00000012621 (98.58%); Equity Value Fund -- Gales &
Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000000064 (76.43%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000003204 (14.55%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000011551 (7.23%); Equity Growth Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000082 (70.31%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000010017 (15.31%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000030718 (14.04%); Equity Income Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000015771 (48.75%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000003748 (36.92%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000000037 (13.37%); International Equity Fund --Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000073 (42.99%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000000876 (39.29%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000004088 (14.13%); Growth and Income Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 05000503793 (76.73%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 05000503873 (19.78%); Asset Allocation Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000073 (93.27%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000002598 (5.98%); Small Company Equity -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000046 (66.04%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000001492 (24.41%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000006102 (7.33%); Institutional Treasury Money Market Fund -- Fleet
New York, Fleet Investment Services, 159 East Main Street, NY/RO/TO3C,
Rochester, NY 14638, Account 00000000019 (91.11%); Luitpold Pharmaceuticals
Inc., Kirk Sobecki, CFO, Attn: Harold Noviello, One Luitpold Drive, Shirley,
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NY 11967, Account 05100281441 (7.02%); Small Cap Value Fund -- Gales & Co.,
Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 05000503999 (48.74%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 05000503917 (31.01%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 05000503953 (19.77%); Strategic Equity Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 5100115522 (97.48%); Intermediate Government Income
Fund -- Gales & Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A,
159 East Main Street, Rochester, NY 14638, Account 00000038408 (38.48%); Gales &
Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000007183 (34.80%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000037 (26.20%); High Quality Bond Fund --
Gales & Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East
Main Street, Rochester, NY 14638, Account 00000000037 (62.76%); Gales & Co.,
Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000001465 (24.53%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000006095 (12.37%); Short-Term Bond Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000008627 (31.48%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000000064 (46.43%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000001090 (21.82%); Tax-Exempt Bond Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000005899 (34.38%) Gales & Co, Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000000028 (38.95%); Gales and Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000000670 (26.42%); Connecticut Municipal Bond Fund -- Gales & Co.,
Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000019 (74.69%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000000037 (24.84%); Massachusetts Municipal Bond Fund -- Gales
& Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000000019 (48.96%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000073 (49.06%); Corporate Bond Fund -- Gales
& Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000000046 (44.33%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000006102 (36.50%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000001492 (12.65%); New Jersey Municipal Bond Fund -- Gales &
Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/T04A, 159 East Main
Street, Rochester, NY 14638, Account 5100115489 (51.69%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 5100115504 (35.56%); BOB & Co., c/o Bank
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of Boston, Attn: Mutual Fund Dept. 45-02-06, P.O. Box 1809, Boston, MA 02105,
Account 5102076990 (12.74%); and New York Municipal Bond Fund -- Gales & Co.,
Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000019 (9.36%); Gales & Co., Fleet Investment
Services, Mutual Fund Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000001107 (70.04%); Gales & Co., Fleet Investment Services,
Mutual Fund Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000005292 (14.85%); BOB & Co., c/o Bank of Boston, Attn: Mutual Fund
Dept. 45-02-06, P.O. Box 1809, Boston, MA 02105, Account 5102076990 (5.68%).
As of December 3, 1999, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding Retail A
Shares of each of Galaxy's investment portfolios (including shares of the
Connecticut Municipal Money Market and Massachusetts Municipal Money Market
Funds) were as follows: Tax-Exempt Money Market Fund -- Ellsworth Kelly, P.O.
Box 151, 45 South Street, Spencertown, NY 12165, Account 0000063825 (6.99%);
U.S. Treasury Money Market Fund -- US Clearing, a Division of Fleet Securities
Inc., 26 Broadway, New York, NY 10004, Account 05100115684 (10.40%);
Massachusetts Municipal Money Market Fund -- Fleet New York, Fleet Investment
Services, 159 East Main St., NY/RO/TO3C, Rochester, NY 14638, Account
05100058503 (61.34%); Connecticut Municipal Money Market Fund -- Fleet New York,
Fleet Investment Services, 159 East Main St., NY/RO/TO3C, Rochester, NY 14638,
Account 05100058521 (48.64%); William L. Bucknall & Norma Lee Bucknall, 5 Oak
Ridge Drive, Bethany, CT 06524, Account 0000002259 (5.16%); 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
(40.88%); James R. McCulloch, c/o Microfibre, PO Box 1208, Pawtucket, RI 02860,
Account 05000414933 (9.11%); New York Municipal Bond Fund -- Marilyn J.
Brantley, 5954 Van Allen Road, Belfast, NY 14711, Account 05100977627 (11.78%);
New Jersey Municipal Bond Fund -- Jeffery W. Golden, 7 Hampton Ridge CT, Old
Tappan, NJ 07675, Account 05100780704 (16.09%); John W. Maki & Kimberly McGrath
Maki JT, 1 Connet Lane, Mendham, NJ, 07945, Account 05100011377 (33.47%); US
Clearing Corp., FBO 979-06374-12, 26 Broadway, New York, NY 10004-1798, Account
07000100574 (27.89%); Serene W. Peng, 70 Chelsea, Watchung, NJ 07060, Account
5101583480 (17.19%); Tax-Exempt Bond Fund -- Danny Schulman, 9 Corn Mill Ct.,
Upper Saddle River, NJ 07458, Account 510116598 (6.11%); and Massachusetts
Municipal Bond Fund -- New England Realty Assoc., Robert Blank, Ronald Brown,
Harold Brown and Carl Veleri, 39 Brighton Ave., Boston MA 02134, Account
5100587013 (6.59%).
As of December 3, 1999, 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 -- Worldmark Master Fund, LLC, D. Dean Rhodes auth. officer or Richard J.
Gates (investment adviser), 11466 Old Harber Road, N. Palm Beach, FL 33408,
Account 5102031823 (18.24%); Worldmark Master Fund, LLC, D. Dean Rhodes auth.
officer or Richard J. Gates (investment adviser) 11465 Old Harbor Road, N. Palm
Beach, FL 33408, Account 5102074064 (20.78%); Intermediate Government Income
Fund; Adriana Vita, 345 Park Avenue, New York, NY 10154, Account 05101563377
(8.84%); Short-Term Bond Fund -- Elizabeth Mugar, 10 Chestnut St., Apt. 1808,
Springfield, MA 01103,
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Account 5100760012 (7.15%); Chelsea Police Relief Assoc., John R. Phillips,
Treasurer, and Michael McCona, Clerk, 180 Crescent Avenue, Chelsea, MA 02150,
Account 0970036155 (13.23%); Josve Colon, Cust., Hazel Colon UGMA CT, 400
LaSalle Street, New Britain, CT 06051, Account 5101157039 (7.37%); U.S. Clearing
Corp., FBO 978-02086-18, Eugene J. Margaret Dunscomb, 505 Apple Tree Lane,
Brewster, NY 10509-6004, Account 70000100609 (7.09%); Tax-Exempt Bond Fund --
David Fendler & Sylvia Fendler JT WROS, 72 Brinkerhoff Ave., Stamford, CT 06905,
Account 05100255354 (7.48%); Frances E. Stady, P.O. Box 433, 3176 Main Street,
Yorkshire, NY 14173, Account 05102027437 (5.84%); and Strategic Equity Fund --
Betsey Tan, 7 Donovan's Lane, Natick, MA 01760, Account 05101043778 (7.41%).
As of November 30, 1999, 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
Street, Rochester, NY 14638, (12.05%); Hope-Sayles Trust, c/o Norstar Trust Co.,
Gales & Co., 159 East Main Street, Rochester, NY 14638, (10.65%); Government
Money Fund -- AMS Trust Account, c/o Norstar Trust Co., Gales & Co., 159 East
Main Street, Rochester, NY 14638, (9.76%); Beacon Mutual Insurance Co., c/o
Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638 (6.33%); U.S.
Treasury Money Fund -- Loring Walcott Client Sweep Acct., c/o Norstar Trust Co.,
Gales & Co., 159 East Main, Rochester, NY 14638, (23.17%); Equity Value
Fund--Fleet Savings Plus-Equity Value, c/o Norstar Trust Co., Gales & Co., 159
East Main, Rochester, NY 14638, (24.21%); Equity Growth Fund--Fleet Savings
Plus-Equity Growth, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (23.54%); Nusco Retiree Health VEBA Trust, c/o Norstar
Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638, (6.82%);
International Equity Fund--FFG International Equity Fund, c/o Norstar Trust Co.,
Gales & Co., 159 East Main, Rochester, NY 14638, (12.68%); Fleet Savings
Plus-Intl. Equity, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester,
NY 14638, (9.82%); Intermediate Government Income Fund -- Nusco Retiree Health
VEBA Trust, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY
14638 (6.44%); Strategic Equity Fund--FFG Retirement & Pension VDG, c/o Fleet
Financial Group, 159 East Main, Rochester, NY 14638, (93.39%); High Quality Bond
Fund--Fleet Savings Plus Plan-HQ Bond, c/o Norstar Trust Co., Gales & Co., 159
East Main, Rochester, NY 14638 (19.60%); Asset Allocation Fund--Fleet Savings
Plus-Asset Allocation, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (26.52%); Small Company Equity Fund--Fleet Savings
Plus-Small Company, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (33.58%); Tax Exempt Bond Fund -- Nusco Retiree Health VEBA
Trust, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638,
(37.64%); Corporate Bond Fund--Cole Hersee Pension Plan, c/o Norstar Trust Co.,
Gales & Co., 159 East Main, Rochester, NY 14638, (8.40%); Growth Income
Fund--Fleet Savings Plus-Growth Income, c/o Norstar Trust Co., Gales & Co., 159
East Main, Rochester, NY 14638, (43.81%); Crumpton & Knowles IARP, c/o Norstar
Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638 (10.11%); Small Cap
Value Fund--FFG Emp. Ret. Misc. Assets SNC, c/o Norstar Trust Co., Gales & Co.,
159 East Main, Rochester, NY 14638, (25.16%); Institutional Government Fund --
IBEW Local #99 Annuity, c/o Norstar Trust Co., Gales & Co., 159 East Main
Street, Rochester, NY 14638 (5.26%); New Jersey Municipal Bond Fund--Perillo
Tours, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638,
(22.47%); Royal Chambord IMA, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY, 14638, (11.24%); McKee Wendell A. Marital Trust, c/o Norstar
Trust Co., Gales & Co., 159 East Main, Rochester,
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NY 14638, (11.16%); Varco Inc. IMA, c/o Norstar Trust Co., Gales & Co., 159 East
Main, Rochester, NY 14638, (5.62%); and Tiernan Diana V IA, c/o Norstar Trust
Co., Gales & Co., 159 East Main, Rochester, NY 14638, (5.10%).
As of November 30, 1999, the name, address and share ownership of the
entities or persons that held of record or beneficially more than 5% of the
outstanding A Prime Shares of Galaxy's Asset Allocation, Equity Income, Growth
and Income, Strategic Equity, Equity Value, Equity Growth, International Equity,
Small Cap Value, Small Company Equity, Short-Term Bond, Intermediate Government
Income, High Quality Bond and Tax-Exempt Bond Funds were as follows: Asset
Allocation Fund--U.S. Clearing, A Division of Fleet Securities, Inc., FBO
#147-97697-11, Ray Wayne Prince, 11010 Stephens Road, Berlin Heights, OH
44814-9673 (18.52%); U.S. Clearing, A Division of Fleet Securities, Inc., FBO
#135-29801-11, Joseph P. Quinn & Genevieve H. Quinn Trust, 725 N. Riverside
Drive, Apt. 405, Pompano Beach, FL 33062-4536 (12.47%); U.S. Clearing, A
Division of Fleet Securities, Inc., FBO #175-97327-10, Margaret Ann Gillenwater,
2525 E. Prince Road #23, Tucson, AZ 85716-1146 (11.92%); U.S. Clearing, A
Division of Fleet Securities, Inc., FBO #114-97238-17, Sara Mallow, 936
Broadway, New York, NY 10010-6013 (25.26%); U.S. Clearing, A Division of Fleet
Securities, Inc., FBO #166-88586-13, Pamela Ann Radamaker, 1001 Tramway Blvd.
NE, Albuquerque, NM 87112-6280 (10.72%); U.S. Clearing, A Division of Fleet
Securities, Inc., FBO #114-23817-12, John R. Johnson, P.O. Box 4338, Deerfield
Beach, FL 33442-4338 (8.31%); Growth and Income Fund--U.S. Clearing, A Division
of Fleet Securities Inc., FBO #160-27022-17, Linda Shaw, Trustee for the Linda
J. Shaw Trust, 920 Meadows Road, Geneva, IL 60134-3052 (34.66%); U.S. Clearing,
A Division of Fleet Securities Inc., FBO #113-27816-16, Pamela M. Fein, 68 Oak
Ridge Drive, Bethany, CT 06524-3118 (29.85%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO #175-97327-10, Margaret Ann Gillenwater, 2525 E. Prince
Road #23, Tucson, AZ 85716-1146 (23.43%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO #103-80080-19, Saint Clare School Endowment Fund, Attn: Fr.
O'Shea/Andrew J. Houvouras and/or Bruce Blatman, 821 Prosperity Farms Road, No.
Palm Beach, FL 33408-4299 (6.09%); Equity Growth Fund--U.S. Clearing, A Division
of Fleet Securities Inc., FBO #104-32732-16, Hilda Brandt, 3900 North Charles
Street, Baltimore, MD 21218-1724 (50.91%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO #114-97236-17, Sara Mallow, 936 Broadway, New York, NY
10010-6013 (26.57%); U.S. Clearing, A Division of Fleet Securities Inc., FBO
#120-97689-18, Yook Y. Doo, 4634 Robinson St., Flushing, NY 11355-3445 (8.84%);
U.S. Clearing, A Division of Fleet Securities Inc., FBO #021-90471-15, Mabel L.
Bowman, 35634 Meyers Ct., Fremont, CA 84536-2540 (7.00%); U.S. Clearing, A
Division of Fleet Securities Inc., FBO #143-27206-11, Mary V. Mastroianni &
Pasqual Mastroianni JT Ten, 1811 Randolph Road, Schenectady, NY 12308-2021
(5.44%); International Equity Fund--U.S. Clearing, A Division of Fleet
Securities Inc., FBO #125-98055-11, Albert F. Twanmo, 6508 81st St., Cabin John,
MD 20818-1203 (94.66%); Small Cap Value Fund U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 104-32732-16, Hilda Brandt, 3900 North Charles Street,
Baltimore, MD 21218-1724 (26.87%); U.S. Clearing, A Division of Fleet Securities
Inc., FBO # 150-98301-11, N. Clifford Nelson Jr., 58 Middlebury Road, Orchard
Park, NY 14127-3581 (16.93%); U.S. Clearing, A Division of Fleet Securities
Inc., FBO # 102-60254-19, Frederick W. Geissinger, 601 NW 2nd Street,
Evansville, IN 47708-1013 (16.81%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 103-97564-14, Thomas X. McKenna, 170 Turtle Creek Drive,
Tequesta, FL 33469-1547 (12.55%); U.S. Clearing, A Division of Fleet Securities
Inc., FBO # 103-31296-18, Edward U.
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Roddy III, 109 Angler Avenue, Palm Beach, FL 33480-3101 (8.27%); U.S. Clearing,
A Division of Fleet Securities Inc., FBO # 180-24606-24, Gary R. Plemons, P.O.
Box 190, Madisonville, TN 37354-0190 (5.56%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 165-26664-29, Special Risk Underwriters, P.O. Box 54699,
Phoenix, AZ 85078-4699 (5.31%); High Quality Bond Fund - U.S. Clearing, A
Division of Fleet Securities Inc., FBO # 103-30971-12, Doris G. Schack, FBO #
103-30971-12, Doris G. Schack Living Trust, 9161 East Evans, Scottsdale, AZ
85260-7575 (72.18%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #
013-02964-11, Jane L. Grayhurst, 770 Boylston St., Apt. 10G, Boston, MA
02199-7709 (15.46%); U.S. Clearing, A Division of Fleet Securities, Inc., FBO
#132-90090-11, Virginia Holmes, 303 Bella Vista Drive, Ithaca, NY 14850-5774
(12.10%).
As of November 30, 1999, the name, address and share ownership of the
entities or persons that held of record or beneficially more than 5% of the
outstanding B Prime Shares of Galaxy's Asset Allocation, Equity Income, Growth
and Income, Strategic Equity, Equity Value, Equity Growth, International Equity,
Small Cap Value, Small Company Equity, Short-Term Bond, Intermediate Government
Income, High Quality Bond and Tax-Exempt Bond Funds were as follows: Asset
Allocation Fund -- U.S. Clearing, A Division of Fleet Securities Inc., FBO #
138-97818-14, Carol Y. Foster, 524 Marie Ave., Blountstown, FL 32424-1218
(10.07%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #
102-92974-11, Ann E. Herzog, 74 Tacoma St., Staten Island, NY 10304-4222
(9.61%); U.S. Clearing, A Division of Fleet Securities Inc., FBO # 166-98559-16,
Ann P. Sargent, 422 Los Encinos Ave., San Jose, CA 95134-1336 (6.40%); U.S.
Clearing, A Division of Fleet Securities Inc., FBO # 166-97970-19, Alicia E.
Schober, 10139 Ridgeway Drive, Cupertino, CA 95014-2658 (6.22%); U.S. Clearing,
A Division of Fleet Securities Inc., FBO # 19414889-16, Paul R. Thornton & Karin
Z. Thornton, JT TEN, 1207 Oak Glen Lane, Sugar Land, TX 77479-6175 (5.70%); U.S.
Clearing, A Division of Fleet Securities, Inc., FBO #147-29049-19, Randall
Prince, Rt. 1, Box 865, Turtletown, TN 37391-9700 (6.06%); Growth and Income
Fund - U.S. Clearing, A Division of Fleet Securities Inc., FBO # 147-97497-13,
Martin Allen Sante, 15222 Birch Lakeshore Drive, Vandalia, MI 49095-9741
(27.18%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #103-31744-16,
Irwin Luftig & Elaine Luftig, 6119 Bear Creek Ct., Lake Worth, FL 33467-6812
(19.02%); Linda M. Berke & Michael E. Berke, JT WROS, 30941 Westwood Rd.,
Farmington Hills, MI 48331-1466 (15.25%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 147-29019-15, Walter W. Quan, 2617 Skyline Drive, Lorain,
OH 44053-2243 (14.87%); U.S. Clearing, A Division of Fleet Securities Inc., FBO
#014-90365-19, Peter Burr Bickford, 65 A Lazell St., Hingham, MA 02043-4403
(7.44%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #108-00116-10,
Michael Kennedy & Carleen Kennedy, JT WROS, 12 Walton Avenue, Locust Valley, NY
11560-1227 (5.48%); Equity Growth Fund - U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 111-98315-17, Thomas J. Bernfeld, 185 West End Ave., Apt.
21D, New York, NY 10023-5548 (29.52%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 166-31108-13, Frank Catanho, Trustee of the Frank Catanho
1996 Trust dated 10/22/96, 24297 Mission Blvd., Hayward, CA 94544-1020 (19.07%);
U.S. Clearing, A Division of Fleet Securities Inc., FBO # 183-97247-11, W.P.
Fleming, 66500 E. 253rd, Grove, OK 74344-6163 (8.77%); U.S. Clearing, A Division
of Fleet Securities Inc., FBO # 131-96122-18, Elaine B. Odessa, 9 Newman Rd.,
Pawtucket, RI 02860-8183 (6.66%); International Equity Fund - U.S. Clearing, A
Division of Fleet Securities Inc., FBO # 102-5924-17, Church & Friary of St.
Francis of Assisi, c/o Fr.
-66-
<PAGE>
Ronald P. Stark OFM, 135 West 31st St., New York, NY 10001-3405 (82.40%); Small
Cap Value Fund - U.S. Clearing, A Division of Fleet Securities Inc., FBO #
147-97574-19, Ray William Mominey, 1340 San Cristobal Villa, Punta Gorda, FL
33983-6616 (15.90%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #
111-98315-17, Thomas J. Bernfeld, 185 West End Ave., Apt. 21D, New York, NY
10023-5548 (10.13%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #
107-30623-15, Andrejs Zvejnieks, 2337 Christopher Walk, Atlanta, GA 30327-1110
(6.86%); E-Trade: Cust. for the rollover IRA, FBO Rufus O. Eddins, Jr., A/C #
11042697, 360 Dominion Circle, Knoxville, TN 37922-2750 (5.34%); U.S. Clearing,
A Division of Fleet Securities Inc., FBO # 221-97250-13, Micheal A. Veschi, 106
Exmoor Court, Leesburg, VA 20176-2049 (5.13%); High Quality Bond Fund - U.S.
Clearing, A Division of Fleet Securities Inc., FBO # 200-70099-19, Neil C.
Feldman, 41 Windham Way, Englishtown, NJ 07726-8216 (25.37%); U.S. Clearing, A
Division of Fleet Securities Inc., FBO # 119-97697-10, Ira Sornborg, 4219
Nautilus Ave., Brooklyn, NY 11224-1019 (10.23%); U.S. Clearing, A Division of
Fleet Securities Inc., FBO # 216-12779-14, Les H. Galex & Nan Galex, JT TEN,
7540 Farragut St., Hollywood, FL 33024-2626 (8.11%); U.S. Clearing, A Division
of Fleet Securities Inc., FBO # 102-93287-11, Marjorie Dion, 301 Raimond St.,
Yaphank, NY 11980-9725 (7.31%); U.S. Clearing, A Division of Fleet Securities
Inc., FBO # 102-68909-11, Marjorie Dion, 301 Raimond St., Yaphank, NY 11980-9725
(8.61%); U.S. Clearing, A Division of Fleet Securities Inc., FBO # 147-24459-13,
Jay Robert Klein, 26800 Amhearst Circle, #209, Cleveland, OH 44122-7572 (8.40%);
U.S. Clearing, A Division of Fleet Securities Inc., FBO # 157-98031-13, Patricia
Fusco, 112 E. Chapel Ave., Cherry Hill, NJ 08034-1204 (6.53%); U.S. Clearing, A
Division of Fleet Securities, Inc., FBO # 216-13463-13, Jerry H. Dunmire, 5151
SW 89 Terrace, Cooper City, FL 33328-3631 (6.48%).
As of November 30, 1999, the name, address and share ownership of the
entities or persons that held of record or beneficially more than 5% of the
outstanding shares of Galaxy's Prime Reserves, Government Reserves and Tax
Exempt Reserves were as follows: Prime Reserves -- U.S. Clearing, 26 Broadway,
New York, NY 10004 (6.96%); Government Reserves -- U.S. Clearing, 26 Broadway,
New York, NY 10004 (100.00%); and Tax Exempt Reserves -- U.S. Clearing, 26
Broadway, New York, NY 10004 (100.00%).
As of November 30, 1999, no entity or person held of record or
beneficially more than 5% of the outstanding Retail A and Retail B Shares of
Galaxy's Equity Income, New York Municipal Bond, Connecticut Municipal Bond,
Massachusetts Municipal Bond, Rhode Island Municipal Bond, Massachusetts
Municipal Money Market, Connecticut Municipal Money Market and Short Term Bond
Funds.
FINANCIAL STATEMENTS
Galaxy's Annual Report to Shareholders with respect to the Funds for the
fiscal year ended October 31, 1999 [ ] with the SEC. The financial
statements contained in such Annual Report are [ ] into this
Statement of Additional Information. The financial statements and financial
highlights for the Funds for the fiscal year ended October 31, 1999 have been
audited by Galaxy's independent accountants, [ ], whose report thereon also
appears in such Annual Report and [ ]. The financial
statements in such Annual Report have been [ ] in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
-67-
<PAGE>
APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current opinion of
credit worthiness of an obligor with respect to financial obligations having an
original maturity of no more than 365 days. The following summarizes the rating
categories used by Standard and Poor's for commercial paper:
"A-1" - Obligations are rated in the highest category indicating that
the obligor's capacity to meet its financial commitment on the obligation is
strong. Within this category, certain obligations are designated with a plus
sign (+). This indicates that the obligor's capacity to meet its financial
commitment on these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rating categories. However, the obligor's capacity to meet its financial
commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
"B" - Obligations are regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and are
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.
"D" - Obligations are in payment default. The "D" rating category is
used when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's believes that
such payments will be made during such grace period. The "D" rating will be used
upon the filing of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually senior debt obligations not having an original
maturity in excess of one year, unless explicitly noted. The following
summarizes the rating categories used by Moody's for commercial paper:
"Prime-1" - Issuers (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be
A-1
<PAGE>
evidenced by many of the following characteristics: leading market positions in
well-established industries; high rates of return on funds employed;
conservative capitalization structure with moderate reliance on debt and ample
asset protection; broad margins in earnings 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.
"Prime-2" - Issuers (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an acceptable
ability for repayment of senior short-term debt obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
"Not Prime" - Issuers do not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps
employs three designations, "D-1+," "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"D-1+" - Debt possesses the highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
"D-2" - Debt possesses 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.
"D-3" - Debt possesses satisfactory liquidity and other protection
factors qualify issues as to investment grade. Risk factors are larger and
subject to more variation. Nevertheless, timely payment is expected.
A-2
<PAGE>
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to insure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or interest
payments.
Fitch IBCA short-term ratings apply to debt obligations that have time
horizons of less than 12 months for most obligations, or up to three years for
U.S. public finance securities. The following summarizes the rating categories
used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This designation
indicates the strongest capacity for timely payment of financial commitments and
may have an added "+" to denote any exceptionally strong credit feature.
"F2" - Securities possess good credit quality. This designation
indicates a satisfactory capacity for timely payment of financial commitments,
but the margin of safety is not as great as in the case of the higher ratings.
"F3" - Securities possess fair credit quality. This designation
indicates that the capacity for timely payment of financial commitments is
adequate; however, near-term adverse changes could result in a reduction to
non-investment grade.
"B" - Securities possess speculative credit quality. This designation
indicates minimal capacity for timely payment of financial commitments, plus
vulnerability to near-term adverse changes in financial and economic conditions.
"C" - Securities possess high default risk. This designation indicates
that default is a real possibility and that the capacity for meeting financial
commitments is solely reliant upon a sustained, favorable business and economic
environment.
"D" - Securities are in actual or imminent payment default.
Thomson BankWatch short-term ratings assess the likelihood of an
untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson Financial BankWatch:
"TBW-1" - This designation represents Thomson Financial BankWatch's
highest category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson Financial BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of
A-3
<PAGE>
principal and interest is strong, the relative degree of safety is not as high
as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's lowest
investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's lowest
rating category and indicates that the obligation is regarded as non-investment
grade and therefore speculative.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
Obligations rated "BB," "B," "CCC," "CC" and "C" are regarded as
having significant speculative characteristics. "BB" indicates the least degree
of speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
"BB" - An obligation rated "BB" is less vulnerable to nonpayment than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to the obligor's inadequate capacity to meet its financial commitment on the
obligation.
A-4
<PAGE>
"B" - An obligation rated "B" is more vulnerable to nonpayment than
obligations rated "BB," but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
"CCC" - An obligation rated "CCC" is currently vulnerable to
nonpayment, and is dependent upon favorable business, financial and economic
conditions for the obligor to meet its financial commitment on the obligation.
In the event of adverse business, financial, or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the
obligation.
"CC" - An obligation rated "CC" is currently highly vulnerable to
nonpayment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
"D" - An obligation rated "D" is in payment default. The "D" rating
category is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period. The "D"
rating also will be used upon the filing of a bankruptcy petition or the taking
of a similar action if payments on an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
"r" - This symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or volatility of
expected returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk - such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as
high-grade bonds. They are rated lower
A-5
<PAGE>
than the best bonds because margins of protection may not be as large as in
"Aaa" securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-term risk
appear somewhat larger than the "Aaa" securities.
"A" - Bonds 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
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds 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.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" indicates poor standing; "Ca" represents
obligations which are speculative in a high degree; and "C" represents the
lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (---) - Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic
rating classification from "Aa" through "Caa." The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the
lower end of its generic rating category.
The following summarizes the long-term debt ratings used by Duff &
Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered to be of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable in periods of greater economic
stress.
A-6
<PAGE>
"BBB" - Debt possesses below-average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt rated
"B" possesses the risk that obligations will not be met when due. Debt rated
"CCC" is well below investment grade and has considerable uncertainty as to
timely payment of principal, interest or preferred dividends. Debt rated "DD" is
a defaulted debt obligation, and the rating "DP" represents preferred stock with
dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch IBCA for corporate
and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. These ratings denote the lowest expectation of credit risk and
are assigned only in case of exceptionally strong capacity for timely payment of
financial commitments. This capacity is highly unlikely to be adversely affected
by foreseeable events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. These ratings denote a very low expectation of credit risk and indicate
very strong capacity for timely payment of financial commitments. This capacity
is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high credit
quality. These ratings denote a low expectation of credit risk and indicate
strong capacity for timely payment of financial commitments. This capacity may,
nevertheless, be more vulnerable to changes in circumstances or in economic
conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good credit
quality. These ratings denote that there is currently a low expectation of
credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity.
"BB" - Bonds considered to be speculative. These ratings indicate that
there is a possibility of credit risk developing, particularly as the result of
adverse economic changes over time; however, business or financial alternatives
may be available to allow financial commitments to be met. Securities rated in
this category are not investment grade.
A-7
<PAGE>
"B" - Bonds are considered highly speculative. These ratings indicate
that significant credit risk is present, but a limited margin of safety remains.
Financial commitments are currently being met; however, capacity for continued
payment is contingent upon a sustained, favorable business and economic
environment.
"CCC," "CC", and "C" - Bonds have high default risk. Default is a real
possibility, and capacity for meeting financial commitments is solely reliant
upon sustained, favorable business or economic developments. "CC" ratings
indicate that default of some kind appears probable, and "C" ratings signal
imminent default.
"DDD," "DD" and "D" - Bonds are in default. The ratings of obligations
in this category are based on their prospects for achieving partial or full
recovery in a reorganization or liquidation of the obligor. While expected
recovery values are highly speculative and cannot be estimated with any
precision, the following serve as general guidelines. "DDD" obligations have the
highest potential for recovery, around 90%-100% of outstanding amounts and
accrued interest. "DD" indicates potential recoveries in the range of 50%-90%,
and "D" the lowest recovery potential, i.e., below 50%.
Entities rated in this category have defaulted on some or all of their
obligations. Entities rated "DDD" have the highest prospect for resumption of
performance or continued operation with or without a formal reorganization
process. Entities rated "DD" and "D" are generally undergoing a formal
reorganization or liquidation process; those rated "DD" are likely to satisfy a
higher portion of their outstanding obligations, while entities rated "D" have a
poor prospect for repaying all obligations.
To provide more detailed indications of credit quality, the Fitch IBCA
ratings from and including "AA" to "CCC" may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within these major rating
categories.
Thomson Financial BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
"AAA" - This designation indicates that the ability to repay principal
and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis, with limited incremental risk compared
to issues rated in the highest category.
"A" - This designation indicates that the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
A-8
<PAGE>
"BBB" - This designation represents the lowest investment-grade
category and indicates an acceptable capacity to repay principal and interest.
Issues rated "BBB" are more vulnerable to adverse developments (both internal
and external) than obligations with higher ratings.
"BB," "B," "CCC," and "CC" - These designations are assigned by
Thomson Financial BankWatch to non-investment grade long-term debt. Such issues
are regarded as having speculative characteristics regarding the likelihood of
timely repayment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's note rating reflects the liquidity concerns and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess a
very strong capacity to pay debt service are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest, with some vulnerability to adverse
financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
A-9
<PAGE>
"MIG-1"/"VMIG-1" - This designation denotes best quality. There is
present strong protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes 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.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt instruments
in this category lack of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
A-10
<PAGE>
APPENDIX B
As stated above, 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"). The adviser wishes to fix the current
market value of this portfolio security until some point in the future. Assume
the portfolio security has a market value of 100, and the adviser believes that,
because of an anticipated rise in interest rates, the value will decline to 95.
The Fund might enter into futures contract sales of Treasury bonds for an
equivalent of 98. If the market value of the portfolio security does indeed
decline from 100 to 95, the equivalent futures market price for the Treasury
bonds might also decline from 98 to 93.
In that case, the five point loss in the market value of the portfolio
security would be offset by the five point gain realized by closing out the
futures contract sale. Of course, the futures market price of Treasury bonds
might well decline to more than 93 or to less than 93 because of the imperfect
correlation between cash and futures prices mentioned below.
The adviser could be wrong in its forecast of interest rates, and the
equivalent futures market price could rise above 98. In this case, the market
value of the portfolio securities, including the portfolio security being
protected, would increase. The benefit of this increase would be reduced by the
loss realized on closing out the futures contract sale.
If interest rate levels did not change, the Fund in the above example might
incur a loss of 2 points (which might be reduced by an offsetting transaction
prior to the settlement date). In each transaction, transaction expenses would
also be incurred.
EXAMPLE OF FUTURES CONTRACT PURCHASE. A Fund would engage in an interest
rate futures contract purchase when it is not fully invested in long-term bonds
but wishes to defer for a time
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. The adviser wishes to fix the current market
price (and thus 10% yield) of the long-term bond until the time (four months
away in this example) when it may purchase the bond. Assume the long-term bond
has a market price of 100, and the adviser believes that, because of an
anticipated fall in interest rates, the price will have risen to 105 (and the
yield will have dropped to about 9 1/2%) in four months. The Fund might enter
into futures contracts purchases of Treasury bonds for an equivalent price of
98. At the same time, the Fund would assign a pool of investments in short-term
securities that are either maturing in four months or earmarked for sale in four
months, for purchase of the long-term bond at an assumed market price of 100.
Assume these short-term securities are yielding 15%. If the market price of the
long-term bond does indeed rise from 100 to 105, the equivalent futures market
price for Treasury bonds might also rise from 98 to 103. In that case, the 5
point increase in the price that the Fund pays for the long-term bond would be
offset by the 5 point gain realized by closing out the futures contract
purchase.
The adviser could be wrong in its forecast of interest rates; long-term
interest rates might rise to above 10%; and the equivalent futures market price
could fall below 98. If short-term rates at the same time fall to 10% or below,
it is possible that the Fund would continue with its purchase program for
long-term bonds. The market price of available long-term bonds would have
decreased. The benefit of this price decrease, and thus yield increase, will be
reduced by the loss realized on closing out the futures contract purchase.
If, however, short-term rates remained above available long-term rates, it
is possible that the Fund would discontinue its purchase program for long-term
bonds. The yield on short-term securities in the portfolio, including those
originally in the pool assigned to the particular long-term bond, would remain
higher than yields on long-term bonds. The benefit of this continued incremental
income will be reduced by the loss realized on closing out the futures contract
purchase. In each transaction, expenses would also be incurred.
II. MUNICIPAL BOND INDEX FUTURES CONTRACTS
A municipal bond index assigns relative values to the bonds included in the
index and the index fluctuates with changes in the market values of the bonds so
included. The Chicago Board of Trade has designed a futures contract based on
the Bond Buyer Municipal Bond Index. This Index is composed of 40 term revenue
and general obligation bonds, and its composition is updated regularly as new
bonds meeting the criteria of the Index are issued and existing bonds mature.
The Index is intended to provide an accurate indicator of trends and changes in
the
B-3
<PAGE>
municipal bond market. Each bond in the Index is independently priced by six
dealer-to-dealer municipal bond brokers daily. The 40 prices then are averaged
and multiplied by a coefficient. The coefficient is used to maintain the
continuity of the Index when its composition changes. The Chicago Board of
Trade, on which futures contracts based on this Index are traded, as well as
other U.S. commodities exchanges, are regulated by the Commodity Futures Trading
Commission. Transactions on such exchange are cleared through a clearing
corporation, which guarantees the performance of the parties to each contract.
EXAMPLE OF A MUNICIPAL BOND INDEX FUTURES CONTRACT
Consider a portfolio manager holding $1 million par value of each of the
following municipal bonds on February 2 in a particular year.
<TABLE>
<CAPTION>
Current Price
(points and
Maturity thirty-seconds
Issue Coupon Issue Date Date of a point)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ohio HFA 9 3/8 5/05/83 5/1/13 94-2
NYS Power 9 3/4 5/24/83 1/1/17 102-0
San Diego, CA IDR 10 6/07/83 6/1/18 100-14
Muscatine, IA Elec 10 5/8 8/24/83 1/1/08 103-16
Mass Health & Ed 10 9/23/83 7/1/16 100-12
</TABLE>
The current value of the portfolio is $5,003,750.
To hedge against a decline in the value of the portfolio, resulting from a
rise in interest rates, the portfolio manager can use the municipal bond index
futures contract. The current value of the Municipal Bond Index is 86-09.
Suppose the portfolio manager takes a position in the futures market opposite to
his or her cash market position by selling 50 municipal bond index futures
contracts (each contract represents $100,000 in principal value) at this price.
On March 23, the bonds in the portfolio have the following values:
<TABLE>
<S> <C>
Ohio HFA 81-28
NYS Power 98-26
San Diego, CA IDB 98-11
Muscatine, IA Elec 99-24
Mass Health & Ed 97-18
</TABLE>
The bond prices have fallen, and the portfolio has sustained a loss of
$130,312. This would have been the loss incurred without hedging. However, the
Municipal Bond Index also has fallen, and its value stands at 83-27. Suppose now
the portfolio manager closes out his or her futures position by buying back 50
municipal bond index futures contracts at this price.
B-4
<PAGE>
The following table provides a summary of transactions and the results of
the hedge.
<TABLE>
<CAPTION>
Cash Market Futures Market
----------- --------------
<S> <C> <C>
February 2 $5,003,750 long posi- Sell 50 Municipal Bond
tion in municipal futures contracts at
bonds 86-09
March 23 $4,873,438 long posi- Buy 50 Municipal Bond
tion in municipal futures contracts at
bonds 83-27
--------------------- ----------------------
$130,312 Loss $121,875 Gain
</TABLE>
While the gain in the futures market did not entirely offset the loss in
the cash market, the $8,437 loss is significantly lower than the loss which
would have been incurred without hedging.
The numbers reflected in this appendix do not take into account the effect
of brokerage fees or taxes.
III. MARGIN PAYMENTS
Unlike purchases or sales of portfolio securities, no price is paid or
received by a Fund upon the purchase or sale of a futures contract. Initially,
the Fund will be required to deposit with the broker or in a segregated account
with Galaxy's custodian an amount of cash or cash equivalents, known as initial
margin, based on the value of the contract. The nature of initial margin in
futures transactions is different from that of margin in security transactions
in that futures contract margin does not involve the borrowing of funds by the
customer to finance the transactions. Rather, the initial margin is in the
nature of a performance bond or good faith 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, the adviser may elect
to close the position by taking an opposite position, subject to the
availability of a secondary market, which will operate to terminate the Fund's
position in the futures contract. A final determination of variation margin is
then made, additional cash is required to be paid by or released to the Fund,
and the Fund realizes a loss or gain.
B-5
<PAGE>
IV. RISKS OF TRANSACTIONS IN FUTURES CONTRACTS
There are several risks in connection with the use of futures by the Funds
as hedging devices. One risk arises because of the imperfect correlation between
movements in the price of the futures and movements in the price of the
instruments that are the subject of the hedge. The price of the futures may move
more than or less than the price of the instruments being hedged. If the price
of the futures moves less than the price of the instruments which are the
subject of the hedge, the hedge will not be fully effective but, if the price of
the instruments being hedged has moved in an unfavorable direction, a Fund would
be in a better position than if it had not hedged at all. If the price of the
instruments being hedged has moved in a favorable direction, this advantage will
be partially offset by the loss on the futures. If the price of the futures
moves more than the price of the hedged instruments, the Funds involved will
experience either a loss or gain on the futures, which will not be completely
offset by movements in the price of the instruments which are the subject of the
hedge. To compensate for the imperfect correlation of movements in the price of
instruments being hedged and movements in the price of futures contracts, a Fund
may buy or sell futures contracts in a greater dollar amount than the dollar
amount of instruments being hedged if the volatility over a particular time
period of the prices of such instruments has been greater than the volatility
over such time period of the futures, or if otherwise deemed to be appropriate
by the investment adviser. Conversely, a Fund may buy or sell fewer futures
contracts if the volatility over a particular time period of the prices of the
instruments being hedged is less than the volatility over such time period of
the futures contract being used, or if otherwise deemed to be appropriate by
Fleet. It is also possible that, where a Fund had sold futures to hedge its
portfolio against a decline in the market, the market may advance and the value
of instruments held in the Fund may decline. If this occurred, the Fund would
lose money on the futures and also experience a decline in value in its
portfolio securities.
Where futures are purchased to hedge against a possible increase in the
price of securities before a Fund is able to invest its cash (or cash
equivalents) in an orderly fashion, it is possible that the market may decline
instead; if the Fund then concludes not to invest its cash at that time because
of concern as to possible further market decline or for other reasons, the Fund
will realize a loss on the futures contract that is not offset by a reduction in
the price of the instruments that were to be purchased.
In instances involving the purchase of futures contracts by a Fund, an
amount of cash and cash equivalents, equal to the market value of the futures
contracts, will be deposited in a segregated account with Galaxy's custodian
and/or in a margin account with a broker to collateralize the position and
thereby insure that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between movements in the futures and the instruments
being hedged, the price of futures may not correlate perfectly with movement in
the cash market due to certain market distortions. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through off-setting transactions that could distort the normal relationship
between the cash and futures markets. Second, with respect to financial futures
contracts, the liquidity of the
B-6
<PAGE>
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 house or other
disruptions of normal activity, which could at times make it difficult or
impossible to liquidate existing positions or to recover excess variation margin
payments.
Successful use of futures by the Funds is also subject to the adviser's
ability to predict correctly movements in the direction of the market. For
example, if a particular Fund has hedged against the possibility of a decline in
the market adversely affecting securities held by it and securities prices
increase instead, the Fund will lose part or all of the benefit to the increased
value of its securities which it has hedged because it will have offsetting
losses in its futures positions. In addition, in such situations, if the Fund
has insufficient cash, it may have to sell securities to meet daily variation
margin requirements. Such sales of securities may be, but will not necessarily
be, at increased prices which reflect the rising market. The Funds may have to
sell securities at a time when it may be disadvantageous to do so.
B-7
<PAGE>
THE GALAXY FUND
STATEMENT OF ADDITIONAL INFORMATION
__________, 2000
GALAXY TAX-EXEMPT BOND FUND
RETAIL A SHARES, RETAIL B SHARES AND
TRUST SHARES
GALAXY NEW JERSEY MUNICIPAL BOND FUND
GALAXY NEW YORK MUNICIPAL BOND FUND
GALAXY CONNECTICUT MUNICIPAL BOND FUND
GALAXY MASSACHUSETTS MUNICIPAL BOND FUND
GALAXY RHODE ISLAND MUNICIPAL BOND FUND
RETAIL A SHARES AND TRUST SHARES
This Statement of Additional Information is not a prospectus. The
prospectuses for the Funds as listed below, as they may be supplemented or
revised from time to time (the "Prospectuses"), as well as the Funds' Annual
Report to Shareholders dated October 31, 1999 (the "Annual Report"), may be
obtained, without charge by writing:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
or by calling 1-877-BUY-GALAXY (1-877-289-4252)
Current Prospectuses
- - Prospectus for Retail A Shares of the Funds and Retail B Shares of the
Tax-Exempt Bond Fund dated __________, 2000
- - Prospectus for Trust Shares of the Funds dated __________, 2000
The________________ and the report thereon of______________________
The Galaxy Funds' independent accountants, are incorporated by reference into
this Statement of Additional Information.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
GENERAL INFORMATION....................................................... 1
DESCRIPTION OF GALAXY AND ITS SHARES...................................... 1
INVESTMENT STRATEGIES, POLICIES AND RISKS................................. 4
Tax-Exempt Bond Fund.....................................................4
New Jersey Municipal Bond Fund...........................................5
New York Municipal Bond Fund.............................................5
Connecticut Municipal Bond Fund..........................................5
Massachusetts Municipal Bond Fund........................................6
Rhode Island Municipal Bond Fund.........................................7
Special Considerations and Risks.........................................8
Investment Quality.......................................................8
General Risk Consideration...............................................8
Other Investment Policies and Risk Considerations........................9
Variable and Floating Rate Obligations...................................9
U.S. Government Obligations and Money Market Instruments.................9
Municipal Securities....................................................11
Stand-by Commitments....................................................12
Private Activity Bonds..................................................13
Repurchase and Reverse Repurchase Agreements............................13
Securities Lending......................................................14
Investment Company Securities...........................................15
Custodial Receipts and Certificates of Participation....................15
Derivative Securities...................................................15
Futures Contracts.......................................................16
When-Issued, Forward Commitment and Delayed Settlement Transactions.....17
Asset-Backed Securities.................................................18
Mortgage-Backed Securities..............................................19
Guaranteed Investment Contracts.........................................19
Bank Investment Contracts...............................................20
Special Considerations Relating to New Jersey Municipal Securities......20
Special Considerations Relating to New York Municipal Securities........23
Special Considerations Relating to Connecticut Municipal Securities.....35
Portfolio Turnover......................................................38
INVESTMENT LIMITATIONS....................................................38
VALUATION OF PORTFOLIO SECURITIES.........................................41
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION............................41
Purchases Of Retail A Shares And Retail B Shares........................42
General.................................................................42
Customers of Institutions...............................................42
Other Purchase Information..............................................43
Applicable Sales Charge -- Retail A Shares..............................43
Computation of Offering Price - Retail A Shares.........................44
Quantity Discounts......................................................45
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
Applicable Sales Charge - Retail B Shares...............................48
Characteristics of Retail A Shares and Retail B Shares..................49
Factors to Consider When Selecting Retail A Shares or Retail B Shares...49
Purchases of Trust Shares...............................................50
Redemption of Retail A Shares, Retail B Shares
and Trust Shares........................................................51
INVESTOR PROGRAMS - RETAIL A SHARES AND RETAIL B SHARES...................52
Exchange Privilege......................................................52
Retirement Plans........................................................53
Automatic Investment Program and Systematic Withdrawal Plan.............53
Payroll Deduction Program...............................................54
College Investment Program..............................................54
Direct Deposit Program..................................................54
TAXES.....................................................................54
State and Local.........................................................55
Rider B.................................................................58
Miscellaneous...........................................................58
TRUSTEES AND OFFICERS.....................................................58
Shareholder and Trustee Liability.......................................62
INVESTMENT ADVISER........................................................62
Authority to Act as Investment Adviser..................................65
ADMINISTRATOR.............................................................65
CUSTODIAN AND TRANSFER AGENT..............................................67
EXPENSES..................................................................68
PORTFOLIO TRANSACTIONS....................................................68
SHAREHOLDER SERVICES PLAN.................................................69
DISTRIBUTION AND SERVICES PLAN............................................71
DISTRIBUTOR...............................................................72
AUDITORS..................................................................74
COUNSEL...................................................................75
PERFORMANCE AND YIELD INFORMATION.........................................75
Tax Equivalency Tables - New Jersey Municipal Bond and
New York Municipal
Bond Funds..........................................................82
Performance Reporting.....................................................85
MISCELLANEOUS.............................................................86
FINANCIAL STATEMENTS......................................................93
APPENDIX A...............................................................A-1
APPENDIX B...............................................................B-1
</TABLE>
-ii-
<PAGE>
GENERAL INFORMATION
This Statement of Additional Information should be read in conjunction with
a current Prospectus. This Statement of Additional Information relates to the
Prospectuses for Trust Shares and Retail A Shares of the six Funds listed on the
cover page and Retail B Shares of the Tax-Exempt Bond Fund. The Tax-Exempt Bond
Fund is the only Fund that currently offers Retail B Shares. The Tax-Exempt Bond
Fund also offers Prime A Shares and Prime B Shares, which are described in a
separate statement of additional information and related prospectus. As of the
date of this Statement of Additional Information and the Prospectus for Trust
Shares of the Funds, Trust Shares of the Rhode Island Municipal Bond Fund were
not being offered to investors. This Statement of Additional Information is
incorporated by reference in its entirety into the Prospectuses. No investment
in shares of the Funds should be made without reading a Prospectus.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, FLEETBOSTON CORPORATION 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.
DESCRIPTION OF GALAXY AND ITS SHARES
The Galaxy Fund ("Galaxy") is an open-end management investment
company currently offering shares of beneficial interest in twenty-nine
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, 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. Galaxy is also authorized to issue shares of beneficial interest in two
additional investment portfolios, the MidCap Equity Fund and the New York
Municipal Money Market Fund. As of the date of this Statement of Additional
Information, however, the MidCap Equity Fund and the New York Municipal Money
Market Fund have not commenced investment operations.
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
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
<PAGE>
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
M - Series 1 shares (Trust Shares), Class M - Series 2 shares (Retail A Shares),
Class M - Series 3 shares (Retail B Shares), Class M - Series 4 shares (Prime A
Shares) and Class M - Series 5 shares (Prime B Shares), each series representing
interests in the Tax-Exempt Bond Fund; Class O - Series 1 shares (Trust Shares)
and Class O - Series 2 shares (Retail A Shares), each series representing
interests in the New York Municipal Bond Fund; Class P Series 1 shares (Trust
Shares) and Class P - Series 2 shares (Retail A Shares), each series
representing interests in the Connecticut Municipal Bond Fund; Class Q - Series
1 shares (Trust Shares) and Class Q - Series 2 shares (Retail A Shares), each
series representing interests in the Massachusetts Municipal Bond Fund; Class R
- - Series 1 shares (Trust Shares) and Class R - Series 2 shares (Retail A
Shares), each series representing interests in the Rhode Island Municipal Bond
Fund; and Class Y - Series 1 shares (Trust Shares) and Class Y - Series 2 shares
(Retail A Shares), each series representing interests in the New Jersey
Municipal Bond Fund. The Tax-Exempt Bond Fund is classified as a diversified
investment company and the New Jersey Municipal Bond, New York Municipal Bond,
Connecticut Municipal Bond, Massachusetts Municipal Bond and Rhode Island
Municipal Bond Funds are classified as non-diversified companies under the
Investment Company Act of 1940, as amended (the "1940 Act").
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.
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 in a Fund (i.e., Retail A Shares, Retail B
Shares and Trust Shares) bear pro rata the same expenses and are entitled
equally to the 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. Standardized yield
and total return quotations are computed separately for each series of shares.
The differences in expenses paid by the respective series will affect their
performance. See "Shareholder Services Plan" and Distribution and Services Plan"
below.
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
-2-
<PAGE>
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 of a Fund will be entitled to vote on matters submitted to a
vote of 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 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.
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 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. 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
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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.
INVESTMENT STRATEGIES, POLICIES AND RISKS
Fleet Investment Advisors Inc. ("Fleet"), the Funds' investment adviser,
will use its best efforts to achieve each Fund's investment objective, although
such achievement cannot be assured. The investment objective of a Fund as
described in its Prospectuses may not be changed without the approval of the
holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Except as noted herein under "New Jersey Municipal Bond Fund,"
"New York Municipal Bond Fund," "Connecticut Municipal Bond Fund,"
"Massachusetts Municipal Bond Fund" and "Rhode Island Municipal Bond Fund" and
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. The following
investment strategies, policies and risks supplement those set forth in the
Funds' Prospectuses.
TAX-EXEMPT BOND FUND
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Tax-Exempt Bond Fund's shareholders, the Fund will
invest, except during temporary defensive periods, at least 80% of its total
assets in debt obligations issued by or on behalf of states, territories and
possessions of the United States, the District of Columbia and their respective
authorities, agencies, instrumentalities and political subdivisions, the
interest on which, in the opinion of bond counsel to the issuer, is exempt from
regular federal income tax ("Municipal Securities"), primarily bonds (at least
65% under normal market conditions).
Although there is no present intention to do so on a regular basis, the
Fund may invest 25% or more of its assets in Municipal Securities the interest
on which is paid solely from revenues on similar projects if such investment is
deemed necessary or appropriate by Fleet. To the extent that 25% or more of the
Fund's assets are invested in Municipal Securities payable from revenues on
similar projects, the Fund will be subject to the particular risks presented by
such projects to a greater extent than it would be if its assets were not so
concentrated.
See "Special Considerations and Risks" and "Other Investment Policies
and Risk Considerations" below for information regarding additional investment
policies of the Tax-Exempt Bond Fund.
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NEW JERSEY MUNICIPAL BOND FUND
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Fund's shareholders, the New Jersey Municipal Bond Fund
will invest, except during temporary defensive periods, at least 80% of its
total assets in Municipal Securities. The Fund expects that except during
temporary defensive periods or when, in Fleet's opinion, suitable obligations
are unavailable for investment, at least 65% of the Fund's total assets will be
invested in Municipal Securities issued by or on behalf of the State of New
Jersey, its political sub-divisions, authorities, agencies, instrumentalities
and corporations, and certain other governmental issuers such as Puerto Rico,
the interest on which, in the opinion of bond counsel to the issuer, is exempt
from federal and New Jersey personal income taxes ("New Jersey Municipal
Securities"). See "Other Investment Policies and Risk Considerations - Special
Considerations Relating to New Jersey Municipal Securities" below for a
discussion of certain risks in investing in New Jersey Municipal Securities.
Dividends derived from interest on Municipal Securities other than New Jersey
Municipal Securities will generally be exempt from regular federal income tax
but may be subject to New Jersey personal income tax. See "Taxes" below.
See "Special Considerations and Risks" and "Other Investment Policies and
Risk Considerations" below for information regarding additional investment
policies of the New Jersey Municipal Bond Fund.
NEW YORK MUNICIPAL BOND FUND
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Fund's shareholders, the New York Municipal Bond Fund
will invest, except during temporary defensive periods, at least 80% of its
total assets in Municipal Securities, primarily in Municipal Securities issued
by or on behalf of the State of New York, its political sub-divisions,
authorities, agencies, instrumentalities and corporations, and certain other
governmental issuers such as Puerto Rico, the interest on which, in the opinion
of bond counsel to the issuer, is exempt from federal, New York State and New
York City personal income taxes ("New York Municipal Securities"). See "Other
Investment Policies and Risk Considerations - Special Considerations Relating to
New York Municipal Securities" below for a discussion of certain risks in
investing in New York Municipal Securities. Dividends derived from interest on
Municipal Securities other than New York Municipal Securities will generally be
exempt from regular federal income tax but may be subject to New York State and
New York City personal income tax. See "Taxes" below.
See "Special Considerations and Risks" and "Other Investment Policies and
Risk Considerations" below for information regarding additional investment
policies of the New York Municipal Bond Fund.
CONNECTICUT MUNICIPAL BOND FUND
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Fund's shareholders, the Connecticut Municipal Bond
Fund will invest, except during temporary defensive periods, at least 80% of its
total assets in Municipal Securities, primarily in Municipal Securities issued
by or on behalf of the State of Connecticut, its political sub-
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divisions, or any public instrumentality, state or local authority, district
or similar public entity created under the laws of Connecticut and certain other
governmental issuers such as Puerto Rico, the interest on which is, in the
opinion of qualified legal counsel, exempt from federal income tax and from
Connecticut personal income tax by virtue of federal law ("Connecticut Municipal
Securities"). See "Other Investment Policies and Risk Considerations - Special
Considerations Relating to Connecticut Municipal Securities" below, for a
discussion of certain risks in investing in Connecticut Municipal Securities.
Dividends derived from interest on Municipal Securities other than Connecticut
Municipal Securities will generally be exempt from regular federal income tax
but may be subject to Connecticut personal income tax. See "Taxes" below.
See "Special Considerations and Risks" and "Other Investment Policies and
Risk Considerations" below for information regarding additional investment
policies of the Connecticut Municipal Bond Fund.
MASSACHUSETTS MUNICIPAL BOND FUND
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Fund's shareholders, the Massachusetts Municipal Bond
Fund will invest, except during temporary defensive periods, at least 80% of its
total assets in Municipal Securities, primarily in Municipal Securities issued
by or on behalf of the Commonwealth of Massachusetts, its political
sub-divisions, authorities, agencies, instrumentalities and corporations, and
certain other governmental issuers such as Puerto Rico, the interest on which,
in the opinion of bond counsel to the issuer, is exempt from federal and
Massachusetts personal income taxes ("Massachusetts Municipal Securities").
Dividends derived from interest on Municipal Securities other than Massachusetts
Municipal Securities will generally be exempt from regular federal income tax
but may be subject to Massachusetts personal income tax. See "Taxes" below.
The Fund's ability to achieve its investment objective depends on the
ability of issuers of Massachusetts Municipal Securities to meet their
continuing obligations to pay principal and interest. Since the Fund invests
primarily in Massachusetts Municipal Securities, the value of the Fund's shares
may be especially affected by factors pertaining to the economy of Massachusetts
and other factors specifically affecting the ability of issuers of Massachusetts
Municipal Securities to meet their obligations. As a result, the value of the
Fund's shares may fluctuate more widely than the value of shares of a portfolio
investing in securities of issuers in a number of different states. The ability
of Massachusetts and its political subdivisions to meet their obligations will
depend primarily on the availability of tax and other revenues to those
governments and on their fiscal conditions generally. The amount of tax and
other revenues available to governmental issuers of Massachusetts Municipal
Securities may be affected from time to time by economic, political and
demographic conditions within Massachusetts. In addition, constitutional or
statutory restrictions may limit a government's power to raise revenues or
increase taxes. The availability of federal, state and local aid to an issuer of
Massachusetts Municipal Securities may also affect that issuer's ability to meet
its obligations. Payments of principal and interest on limited obligation bonds
will depend on the economic condition of the facility or specific revenue source
from whose revenues the payments will be made, which in turn could be affected
by economic, political and demographic conditions in Massachusetts or a
particular locality. Any reduction in the actual or perceived ability of an
issuer of Massachusetts Municipal Securities to meet its obligations (including
a reduction in the rating of its outstanding
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securities) would likely affect adversely the market value and marketability of
its obligations and could affect adversely the values of other Massachusetts
Municipal Securities as well.
See "Special Considerations and Risks" and "Other Investment Policies and
Risk Considerations" below for information regarding additional investment
policies of the Massachusetts Municipal Bond Fund.
RHODE ISLAND MUNICIPAL BOND FUND
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Fund's shareholders, the Rhode Island Municipal Bond
Fund will invest, except during temporary defensive periods, at least 80% of its
total assets in Municipal Securities, primarily in Municipal Securities issued
by or on behalf of the State of Rhode Island, its political sub-divisions,
authorities, agencies, instrumentalities and corporations, and certain other
governmental issuers such as Puerto Rico, the interest on which, in the opinion
of bond counsel to the issuer, is exempt from federal and Rhode Island personal
income taxes ("Rhode Island Municipal Securities"). Dividends derived from
interest on Municipal Securities other than Rhode Island Municipal Securities
will generally be exempt from regular federal income tax but may be subject to
Rhode Island personal income tax. See "Taxes" below.
The Fund's ability to achieve its investment objective depends on the
ability of issuers of Rhode Island Municipal Securities to meet their continuing
obligations to pay principal and interest. Since the Fund invests primarily in
Rhode Island Municipal Securities, the value of the Fund's shares may be
especially affected by factors pertaining to the economy of Rhode Island and
other factors specifically affecting the ability of issuers of Rhode Island
Municipal Securities to meet their obligations. As a result, the value of the
Fund's shares may fluctuate more widely than the value of shares of a portfolio
investing in securities of issuers in a number of different states. The ability
of Rhode Island and its political subdivisions to meet their obligations will
depend primarily on the availability of tax and other revenues to those
governments and on their fiscal conditions generally. The amount of tax and
other revenues available to governmental issuers of Rhode Island Municipal
Securities may be affected from time to time by economic, political and
demographic conditions within Rhode Island. In addition, constitutional or
statutory restrictions may limit a government's power to raise revenues or
increase taxes. The availability of federal, state and local aid to an issuer of
Rhode Island Municipal Securities may also affect that issuer's ability to meet
its obligations. Payments of principal and interest on limited obligation bonds
will depend on the economic condition of the facility or specific revenue source
from whose revenues the payments will be made, which in turn could be affected
by economic, political and demographic conditions in Rhode Island or a
particular locality. Any reduction in the actual or perceived ability of an
issuer of Rhode Island Municipal Securities to meet its obligations (including a
reduction in the rating of its outstanding securities) would likely affect
adversely the market value and marketability of its obligations and could affect
adversely the value of other Rhode Island Municipal Securities as well.
See "Special Considerations and Risks" and "Other Investment Policies and
Risk Considerations" below for information regarding additional investment
policies of the Rhode Island Municipal Bond Fund.
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SPECIAL CONSIDERATIONS AND RISKS
INVESTMENT QUALITY
Municipal Securities purchased by the Funds will consist primarily of
issues which are rated at the time of purchase within the four highest rating
categories assigned by S&P or Moody's or unrated instruments determined by Fleet
to be of comparable quality. Municipal Securities rated within the four highest
rating categories assigned by S&P ("AAA," "AA," "A" and "BBB") or Moody's
("Aaa," "Aa," "A" and "Baa") are considered to be investment grade. Municipal
Securities rated in the lowest of the four highest rating categories assigned by
S&P or Moody's are considered to have speculative characteristics, even though
they are of investment grade quality, and changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade Municipal
Securities. Such Municipal Securities will be purchased (and retained) only when
Fleet believes the issuers have an adequate capacity to pay interest and repay
principal. If the ratings of a particular Municipal Security purchased by a Fund
are subsequently downgraded below the four highest ratings categories assigned
by S&P or Moody's, such factor will be considered by Fleet in its evaluation of
the overall merits of that Municipal Security, but such ratings will not
necessarily result in an automatic sale of the Municipal Security. Under normal
market and economic conditions, at least 65% of each Fund's total assets will be
invested in Municipal Securities rated in the three highest rating categories
assigned by S&P or Moody's. See Appendix A to this Statement of Additional
Information for a description of S&P's and Moody's rating categories.
GENERAL RISK CONSIDERATION
Generally, the market value of fixed income securities, such as Municipal
Securities, in the Funds can be expected to vary inversely to changes in
prevailing interest rates. During periods of declining interest rates, the
market value of investment portfolios comprised primarily of fixed income
securities, such as the Funds, will tend to increase, and during periods of
rising interest rates, the market value will tend to decrease. In addition,
during periods of declining interest rates, the yields of investment portfolios
comprised primarily of fixed income securities will tend to be higher than
prevailing market rates and, in periods of rising interest rates, yields will
tend to be somewhat lower. Fixed income securities with longer maturities, which
tend to produce higher yields, are subject to potentially greater capital
appreciation and depreciation than obligations with shorter maturities. Changes
in the financial strength of an issuer or changes in the ratings of any
particular security may also offset the value of these investments. Fluctuations
in the market value of fixed income securities subsequent to their acquisition
will not offset cash income from such securities but will be reflected in a
Fund's net asset value.
Although no Fund presently intends to do so on a regular basis, each Fund
may invest more than 25% of its assets in Municipal Securities the interest on
which is paid solely from revenues on similar projects if such investment is
deemed necessary or appropriate by Fleet. To the extent that a Fund's assets are
concentrated in Municipal Securities payable from revenues on similar projects,
the Fund will be subject to the particular risks presented by such projects to a
greater extent than it would be if its assets were not so concentrated.
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The New Jersey Municipal Bond, New York Municipal Bond, Connecticut
Municipal Bond, Massachusetts Municipal Bond and Rhode Island Municipal Bond
Funds are classified as non-diversified investment companies under the 1940 Act.
Investment return on a non-diversified portfolio typically is dependent upon the
performance of a smaller number of securities relative to the number held in a
diversified portfolio. Consequently, the change in value of any one security may
affect the overall value of a non-diversified portfolio more than it would a
diversified portfolio, and thereby subject the market-based net asset value per
share of the non-diversified portfolio to greater fluctuations. In addition, a
non-diversified portfolio may be more susceptible to economic, political and
regulatory developments than a diversified investment portfolio with similar
objectives may be.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in the Prospectuses and this Statement of
Additional Information 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.
VARIABLE AND FLOATING RATE OBLIGATIONS
The Funds may purchase variable and floating rate instruments. If such an
instrument is not rated, Fleet 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 an instrument will
usually be deemed to have a maturity equal to the longer of the period
remaining until the next regularly scheduled interest rate adjustment or the
time the Fund involved can receive payment of principal as specified in the
instrument. Instruments which are U.S. Government obligations and certain
variable rate instruments having a nominal maturity of 397 days or less when
purchased by the Fund involved, however, will be deemed to have a maturity
equal to the period remaining until the next interest rate adjustment.
U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS
The Funds may, in accordance with their investment policies, invest from
time to time in obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and in "money market" instruments, including bank
obligations and commercial paper.
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.
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<PAGE>
U.S. Treasury securities 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. 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.
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
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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.
MUNICIPAL SECURITIES
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 classifications of Municipal Securities which may be held
by the Funds are "general obligation" securities and "revenue" securities.
General obligation securities are secured by the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest.
Revenue securities are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source such as the user of the
facility being financed.
Each Fund's portfolio may also include "moral obligation" securities, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation securities is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.
There are, of course, variations in the quality of Municipal Securities,
both within a particular category and between categories, and the yields on
Municipal Securities depend upon a variety of factors, including general market
conditions, the financial condition of the issuer, general conditions of the
municipal bond market, the size of a particular offering, the maturity of the
obligation, and the rating of the issue. The ratings of a nationally recognized
statistical rating organization ("NRSRO"), such as Moody's and S&P, represent
such NRSRO's 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. The non-governmental user of
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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 for each Fund. See "Private
Activity Bonds" below.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on Municipal Securities. For example, under the Tax Reform Act of 1986,
interest on certain private activity bonds must be included in an investor's
federal alternative minimum taxable income, and corporate investors must include
all tax-exempt interest in their federal alternative minimum taxable income.
Galaxy cannot, of course, predict what legislation may be proposed in the future
regarding the income tax status of interest on Municipal Securities, or which
proposals, if any, might be enacted. Such proposals, while pending or if
enacted, might materially and adversely affect the availability of Municipal
Securities for investment by the Funds and the liquidity and value of their
respective portfolios. In such an event, each Fund would re-evaluate its
investment objective and policies and consider possible changes in its structure
or possible dissolution.
Opinions relating to the validity of Municipal Securities and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Funds nor
Fleet will review the proceedings relating to the issuance of Municipal
Securities or the bases for such opinions.
VARIABLE AND FLOATING RATE MUNICIPAL SECURITIES. Municipal Securities
purchased by the Funds may include rated and unrated variable and floating rate
tax-exempt instruments. There may be no active secondary market with respect to
a particular variable or floating rate instrument. Nevertheless, the periodic
readjustments of their interest rates tend to assure that their value to a Fund
will approximate their par value. Illiquid variable and floating rate
instruments (instruments which are not payable upon seven days' notice and do
not have an active trading market) that are acquired by the Funds are subject to
the 10% (15% with respect to the New Jersey Municipal Bond Fund) limit described
in Investment Limitation No. 3 under "Investment Limitations" below.
STAND-BY COMMITMENTS
The Funds may acquire "stand-by commitments" with respect to Municipal
Securities held by them. Under a stand-by commitment, a dealer agrees to
purchase, at a Fund's option,
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specified Municipal Securities at a specified price. The Funds will acquire
stand-by commitments solely to facilitate portfolio liquidity and do not intend
to exercise their rights thereunder for trading purposes. The Funds expect that
stand-by commitments will generally be available without the payment of any
direct or indirect consideration. However, if necessary or advisable, a Fund may
pay for a stand-by commitment either separately in cash or by paying a higher
price for portfolio securities which are acquired subject to the commitment
(thus reducing the yield otherwise available for the same securities). 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. Stand-by commitments acquired by a
Fund would be valued at zero in determining the Fund's net asset value.
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. 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.
PRIVATE ACTIVITY BONDS
Each Fund may invest in "private activity bonds," the interest on which,
although exempt from regular federal income tax, may constitute an item of tax
preference for purposes of the federal alternative minimum tax. Investments in
such securities, however, will not be treated as investments in Municipal
Securities for purposes of the 80% requirement mentioned above and, under normal
conditions, will not exceed 20% of a Fund's total assets when added together
with any taxable investments held by the Fund.
Private activity bonds 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.
Private activity bonds held by the Fund are in most cases revenue
securities and are not payable from the unrestricted revenues of the issuer.
Consequently, the credit quality of such private activity bonds is usually
directly related to the credit standing of the corporate user of the facility
involved.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
Each Fund may purchase portfolio securities subject to the seller's
agreement to repurchase them at a mutually specified date and price ("repurchase
agreements"). Repurchase agreements will be entered into only with financial
institutions such as banks and broker/dealers
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which are deemed to be creditworthy by Fleet. No Fund will enter into
repurchase agreements with Fleet or any of its affiliates. Unless a repurchase
agreement has a remaining maturity of seven days or less or may be terminated on
demand upon notice of seven days or less, the repurchase agreement will be
considered an illiquid security and will be subject to the 10% (15% with respect
to the New Jersey Municipal Bond Fund) limit described in Investment Limitation
No. 3 under "Investment Limitations" below.
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by a Fund at
not less than the agreed upon repurchase price. If the seller defaulted on its
repurchase obligation, the Fund holding such obligation would suffer a loss to
the extent that the proceeds from a sale of the underlying securities (including
accrued interest) were less than the repurchase price (including accrued
interest) under the agreement. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the Fund
might be delayed pending court action.
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 1940 Act.
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. 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.
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. 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. 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.
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INVESTMENT COMPANY SECURITIES
The Funds may invest in securities issued by other investment companies
which invest in high quality, short-term debt securities and which determine
their net asset value per share based on the amortized cost or penny-rounding
method, provided, however, that the Tax-Exempt Bond Fund may only invest in
securities of other investment companies which invest in high quality short-term
Municipal Securities and which determine their net asset value per share based
on the amortized cost or penny-rounding method. Investments in other investment
companies will cause a Fund (and, indirectly, the Fund's shareholders) to bear
proportionately the costs incurred in connection with the investment companies'
operations. Securities of other investment companies will be acquired by a Fund
within the limits prescribed by the 1940 Act. Each Fund currently intends to
limit its investments so that, as determined immediately after a securities
purchase is made: (a) not more than 5% of the value of its total assets will be
invested in the securities of any one investment company; (b) not more than 10%
of the value of its total assets will be invested in the aggregate in securities
of other investment companies as a group; (c) not more than 3% of the
outstanding voting stock of any one investment company will be owned by the
Fund; and (d) not more than 10% of the outstanding voting stock of any one
closed-end investment company will be owned in the aggregate by the Fund, other
investment portfolios of Galaxy, or any other investment companies advised by
Fleet.
CUSTODIAL RECEIPTS AND CERTIFICATES OF PARTICIPATION
Securities acquired by the Funds may be in the form of custodial receipts
evidencing rights to receive a specific future interest payment, principal
payment or both on certain Municipal Securities. Such obligations are held in
custody by a bank on behalf of holders of the receipts. These custodial receipts
are known by various names, including "Municipal Receipts," "Municipal
Certificates of Accrual on Tax-Exempt Securities" ("M-CATS") and "Municipal
Zero-Coupon Receipts." The Funds may also purchase from time to time
certificates of participation that, in the opinion of counsel to the issuer, are
exempt from federal income tax. A certificate of participation gives a Fund an
undivided interest in a pool of Municipal Securities held by a bank.
Certificates of participation may have fixed, floating or variable rates of
interest. If a certificate of participation is unrated, Fleet will have
determined that the instrument is of comparable quality to those instruments in
which the Fund may invest pursuant to guidelines approved by Galaxy's Board of
Trustees. For certain certificates of participation, a Fund will have the right
to demand payment, on not more than 30 days' notice, for all or any part of the
Fund's participation interest, plus accrued interest. As to these instruments,
each Fund intends to exercise its right to demand payment as needed to provide
liquidity, to maintain or improve the quality of its investment portfolio or
upon a default (if permitted under the terms of the instrument).
DERIVATIVE SECURITIES
The Funds may from time to time, in accordance with their respective
investment policies, purchase certain "derivative" securities. Derivative
securities are instruments that derive their value from the performance of
underlying assets, interest rates, or indices, and include, but are not limited
to, municipal bond index and interest rate futures and certain asset-backed and
mortgage-backed securities.
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Derivative securities present, to varying degrees, market risk that the
performance of the underlying assets, interest rates or indices will decline;
credit risk that the dealer or other counterparty to the transaction will fail
to pay its obligations; volatility and leveraging risk that, if interest 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.
FUTURES CONTRACTS
Each Fund may purchase and sell municipal bond index futures contracts as a
hedge against changes in market conditions. A municipal bond index assigns
values daily to the municipal bonds included in the index based on the
independent assessment of dealer-to-dealer municipal bond brokers. A municipal
bond index futures contract represents a firm commitment by which two parties
agree to take or make delivery of an amount equal to a specified dollar amount
multiplied by the difference between the municipal bond index value on the last
trading date of the contract and the price at which the futures contract is
originally struck. No physical delivery of the underlying securities in the
index is made.
Each Fund may also enter into contracts for the future delivery of fixed
income securities commonly known as interest rate futures contracts. Interest
rate futures contracts are similar to municipal bond index futures contracts
except that, instead of a municipal bond index, the "underlying commodity" is
represented by various types of fixed-income securities.
The Funds will not engage in futures transactions for speculation, but only
to hedge against changes in the market values of securities which the Funds hold
or intend to purchase. The Funds will engage in futures transactions only to the
extent permitted by the Commodity Futures Trading Commission ("CFTC") and the
Securities and Exchange Commission ("SEC"). The purchase of futures instruments
in connection with securities which the Funds intend to purchase will require an
amount of cash or other liquid assets, equal to the market value of the
outstanding futures contracts, to be deposited in a segregated account to
collateralize the position and thereby insure that the use of such futures is
unleveraged. Each Fund will limit its hedging transactions in futures contracts
so that, immediately after any such transaction, the aggregate initial margin
that is required to be posted by the Fund under the rules of the exchange on
which the futures contract is traded does not exceed 5% of the Fund's total
assets after taking into
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account any unrealized profits and unrealized losses on the Fund's open
contracts. In addition, no more than one-third of each Fund's total assets may
be covered by such contracts.
Transactions in futures as a hedging device may subject the Funds to a
number of risks. Successful use of futures by the Funds is subject to the
ability of Fleet to predict correctly movements in the direction of the market.
In addition, there may be an imperfect correlation, or no correlation at all,
between movements in the price of futures contracts and movements in the price
of the instruments being hedged. There is no assurance that a liquid market will
exist for any particular futures contract at any particular time. Consequently,
a Fund may realize a loss on a futures transaction that is not offset by a
favorable movement in the price of securities which it holds or intends to
purchase or may be unable to close a futures position in the event of adverse
price movements. Any income from investments in futures contracts will be
taxable. Additional information concerning futures transactions, including
special rules regarding the taxation of such transactions, is contained in this
Statement of Additional Information and in Appendix B.
WHEN-ISSUED, FORWARD COMMITMENT AND DELAYED SETTLEMENT TRANSACTIONS
Each Fund may purchase eligible securities on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis. Each Fund may also
purchase or sell eligible securities on a "delayed settlement" basis.
When-issued and forward commitment transactions, which involve a commitment by a
Fund to purchase or sell particular securities with payment and delivery taking
place at a future date (perhaps one or two months later), permit the Fund to
lock in a price or yield on a security it owns or intends to purchase,
regardless of future changes in interest rates. Delayed settlement describes
settlement of a securities transaction in the secondary market which will occur
sometime in the future. When-issued, forward commitment and delayed settlement
transactions involve the risk, however, that the yield or price obtained in a
transaction may be less favorable than the yield or price available in the
market when the security delivery takes place. It is expected that forward
commitments, when issued purchases and delayed settlements will not exceed 25%
of the value of a Fund's total assets absent unusual market conditions. In the
event a Fund's forward commitments, when-issued purchases and delayed
settlements ever exceeded 25% of the value of its total assets, the Fund's
liquidity and the ability of Fleet to manage the Fund might be adversely
affected. The Funds do not intend to engage in when-issued purchases, forward
commitments and delayed settlements for speculative purposes, but only in
furtherance of their investment objectives.
When a Fund agrees to purchase securities on a "when-issued," "forward
commitment" or "delayed settlement" basis, the Fund's custodian will set aside
cash or liquid portfolio securities equal to the amount of the commitment in a
separate account. In the event of a decline in the value of the securities that
the custodian has set aside, the Fund may be required to place additional assets
in the separate account in order to ensure that the value of the account remains
equal to the amount of the Fund's commitment. A Fund's net assets may fluctuate
to a greater degree if it sets aside portfolio securities to cover such purchase
commitments than if it sets aside cash. Because a Fund sets aside liquid assets
to satisfy its purchase commitments in the manner described, its liquidity and
ability to manage its portfolio might be adversely affected in the event its
commitments to purchase "forward commitments," commitments to purchase
"when-issued" securities or commitments to purchase securities on a "delayed
settlement" basis exceeded 25% of the value of its assets.
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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.
ASSET-BACKED SECURITIES
Each Fund may purchase asset-backed securities, which represent a
participation in, or are secured by and payable from, a stream of payments
generated by particular assets, most often a pool of assets similar to one
another. Assets generating such payments will consist of such instruments as
motor vehicle installment purchase obligations, credit card receivables and home
equity loans. Payment of principal and interest may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with entities issuing the securities. The
estimated life of an asset-backed security varies with the prepayment experience
with respect to the underlying debt instruments. The rate of such prepayments,
and hence the life of the asset-backed security, will be primarily a function of
current market rates, although other economic and demographic factors will be
involved. A Fund will not invest more than 10% of its total assets in
asset-backed securities.
Asset-backed securities are generally issued as pass-through certificates,
which represent undivided fractional ownership interests in an underlying pool
of assets, or as debt instruments, which are also known as collateralized
obligations, and are generally issued as the debt of a special purpose entity
organized solely for the purpose of owning such assets and issuing such debt.
Asset-backed securities are often backed by a pool of assets representing the
obligations of a number of different parties.
The yield characteristics of asset-backed securities differ from
traditional debt securities. A major difference is that the principal amount of
the obligations may be prepaid at any time because the underlying assets (i.e.,
loans) generally may be prepaid at any time. As a result, if an asset-backed
security is purchased at a premium, a prepayment rate that is faster than
expected will reduce yield to maturity, while a prepayment rate that is slower
than expected will have the opposite effect of increasing yield to maturity.
Conversely, if an asset-backed security is purchased at a discount, faster than
expected prepayments will increase, while slower than expected prepayments, will
decrease, yield to maturity.
Prepayments on asset-backed securities generally increase with falling
interest rates and decrease with rising interest rates; furthermore prepayment
rates are influenced by a variety of economic and social factors. In general,
the collateral supporting non-mortgage asset-backed securities is of shorter
maturity than mortgage loans and is less likely to experience substantial
prepayments. Like other fixed income securities, when interest rates rise, the
value of an asset-backed security generally will decline; however, when interest
rates decline, the value of an asset-backed security with prepayment features
may not increase as much as that of other fixed income securities.
Asset-backed securities are subject to greater risk of default during
periods of economic downturn. Also, the secondary market for certain
asset-backed securities may not be as liquid as
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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.
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 payments may be made
out of unscheduled repayments of principal resulting from the sale of the
underlying residential property, refinancing or foreclosure, net of fees or
costs that may be incurred. Prepayments of principal on mortgage-backed
securities may tend to increase due to refinancing of mortgages as interest
rates decline. To the extent that the Fund purchases mortgage-backed securities
at a premium, mortgage foreclosures and prepayments of principal by mortgagors
(which may be made at any time without penalty) may result in some loss of the
Fund's principal investment to the extent of the premium paid. The yield of a
Fund that invests in mortgage-backed securities may be affected by reinvestment
of prepayments at higher or lower rates than the original investment.
Other mortgage-backed securities are issued by private issuers, generally
originators of and investors in mortgage loans, including savings associations,
mortgage bankers, commercial banks, investment bankers, and special purpose
entities. These private mortgage-backed securities may be supported by U.S.
Government mortgage-backed securities or some form of non-government credit
enhancement. Mortgage-backed securities have either fixed or adjustable interest
rates. The rate of return on mortgage-backed securities may be affected by
prepayments of principal on the underlying loans, which generally increase as
interest rates decline; as a result, when interest rates decline, holders of
these securities normally do not benefit from appreciation in market value to
the same extent as holders of other non-callable debt securities. In addition,
like other debt securities, the value of mortgage-related securities, including
government and government-related mortgage pools, generally will fluctuate in
response to market interest rates.
GUARANTEED INVESTMENT CONTRACTS
Each Fund may invest in guaranteed investment contracts ("GICs") issued by
United States and Canadian insurance companies. Pursuant to GICs, a Fund makes
cash contributions to a deposit fund of the insurance company's general account.
The insurance company then credits to the Fund payments at negotiated, floating
or fixed interest rates. A GIC is a general obligation of the issuing insurance
company and not a separate account. The purchase price paid for a GIC becomes
part of the general assets of the insurance company, and the contract is paid
from the company's general assets. The Funds will only purchase GICs that are
issued or guaranteed by insurance companies that at the time of purchase are
rated at least AA by S&P or receive a similar high quality rating from a
nationally recognized service which provides ratings of insurance companies.
GICs are considered illiquid securities and will be subject to the Funds' 10%
(15% with respect to the New Jersey Municipal Bond Fund) limitation on such
investments,
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unless there is an active and substantial secondary market for the particular
instrument and market quotations are readily available.
BANK INVESTMENT CONTRACTS
Each Fund may invest in bank investment contracts ("BICs") issued by banks
that meet the quality and asset size requirements for banks described above
under "U.S. Government Obligations and Money Market Instruments." Pursuant to
BICs, cash contributions are made to a deposit account at the bank in exchange
for payments at negotiated, floating or fixed interest rates. A BIC is a general
obligation of the issuing bank. BICs are considered illiquid securities and will
be subject to the Funds' 10% (15% with respect to the New Jersey Municipal Bond
Fund) limitation on such investments, unless there is an active and substantial
secondary market for the particular instrument and market quotations are readily
available.
SPECIAL CONSIDERATIONS RELATING TO NEW JERSEY MUNICIPAL SECURITIES
The New Jersey Municipal Bond Fund's ability to achieve its investment
objective is dependent upon the ability of the issuers of New Jersey Municipal
Securities to meet their continuing obligations for the payment of principal and
interest. Since the Fund invests primarily in New Jersey Municipal Securities,
the value of the Fund's shares may be especially affected by factors pertaining
to the economy of New Jersey and other factors specifically affecting the
ability of issuers of New Jersey Municipal Securities to meet their obligations.
The State of New Jersey generally has a diversified economic base
consisting of, among others, commerce and service industries, selective
commercial agriculture, insurance, tourism, petroleum refining and
manufacturing, although New Jersey's manufacturing industry has experienced a
downward trend in the last few years. New Jersey is a major recipient of federal
assistance and, of all the states, is among the highest in the amount of federal
aid received. Therefore, a decrease in federal financial assistance may
adversely affect the financial condition of New Jersey and its political
subdivisions and instrumentalities. While New Jersey's economic base has become
more diversified over time and thus its economy appears to be less vulnerable
during recessionary periods, a recurrence of high levels of unemployment could
adversely affect New Jersey's overall economy and the ability of New Jersey and
its political subdivisions and instrumentalities to meet their financial
obligations. In addition, New Jersey maintains a balanced budget which restricts
total appropriation increases to only 5% annually with respect to any
municipality or county. This balanced budget plan may adversely affect a
particular municipality's or county's ability to repay its obligations.
The State of New Jersey and its political subdivisions, agencies and public
authorities are authorized to issue two general classes of indebtedness: general
obligation bonds and revenue bonds. Both classes of bonds may be included in the
Fund's portfolio. The repayment of principal and interest on general obligation
bonds is secured by the full faith and credit of the issuer, backed by the
issuer's taxing authority, without recourse to any special project or source of
revenue. Special obligation or revenue bonds may be repaid only from revenues
received in connection with the project for which the bonds are issued, special
excise taxes, or other special revenue sources and generally are issued by
entities without taxing power. Neither the State of New Jersey nor any of its
subdivisions is liable for the repayment of principal or interest on revenue
bonds except to the extent stated in the preceding sentences.
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General obligation bonds of the State are repaid from revenues obtained
through the State's general taxing authority. An inability to increase taxes may
adversely affect the State's ability to authorize or repay debt.
Public authorities, private non-profit corporations, agencies and similar
entities of New Jersey ("Authorities") are established for a variety of
beneficial purposes, including economic development, housing and mortgage
financing, health care facilities and public transportation. The Authorities are
not operating entities of the State of New Jersey, but are separate legal
entities that are managed independently. The State oversees the Authorities by
appointing the governing boards, designating management, and by significantly
influencing operations. The Authorities are not subject to New Jersey
constitutional restrictions on the incurrence of debt, applicable to the State
of New Jersey itself, and may issue special obligation or private activity bonds
in legislatively authorized amounts.
An absence or reduction of revenue will affect a bond-issuing Authority's
ability to repay debt on special obligation bonds and no assurance can be given
that sufficient revenues will be obtained to make such payments, although in
some instances repayment may be guaranteed or otherwise secured.
Various Authorities have issued bonds for the construction of health care
facilities, transportation facilities, office buildings and related facilities,
housing facilities, pollution control facilities, water and sewage facilities
and power and electric facilities. Each of these facilities may incur different
difficulties in meeting its debt repayment obligations. Hospital facilities, for
example, are subject to changes in Medicare and Medicaid reimbursement
regulations, attempts by Federal and state legislatures to limit the costs of
health care and management's ability to complete construction projects on a
timely basis as well as to maintain projected rates of occupancy and
utilization. At any given time, there are several proposals pending on a federal
and state level concerning health care which may further affect a hospital's
debt service obligation.
Housing facilities may be subject to increases in operating costs,
management's ability to maintain occupancy levels, rent restrictions and
availability of federal or state subsidies, while power and electric facilities
may be subject to increased costs resulting from environmental restrictions,
fluctuations in fuel costs, delays in licensing procedures and the general
regulatory framework in which these facilities operate. All of these entities
are constructed and operated under rigid regulatory guidelines.
Some entities which financed facilities with proceeds of private activity
bonds issued by the New Jersey Economic Development Authority, a major issuer of
special obligation bonds, have defaulted on their debt service obligations.
Because these special obligation bonds were repayable only from revenue received
from the specific projects which they funded, the New Jersey Economic
Development Authority was unable to repay the debt service to bondholders for
such facilities. Each issue of special obligation bonds, however, depends on its
own revenue for repayment, and thus these defaults should not affect the ability
of the New Jersey Economic Development Authority to repay obligations on other
bonds that it issues in the future.
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The State has experienced a gradual economic recovery in the past five
years. While unemployment in manufacturing has declined, employment gains have
been recorded in business services, construction and retail sectors. Business
investment expenditures and consumer spending have also increased substantially
in the State as well as in the Nation. To the extent that any adverse conditions
exist in the future which affect the obligor's ability to repay debt, the value
of the New Jersey Municipal Bond Fund may be immediately and substantially
affected.
Certain litigation is pending against the State in which the State has a
potential for either a significant loss of revenue or a significant
unanticipated expenditure including as of August 1, 1999, suits relating to the
following matters: (i) A coalition of churches and church leaders in Hudson
County have filed suit asserting the State-owned Liberty State Park in Jersey
City violates environmental standards; (ii) Representatives of the trucking
industry have filed a constitutional challenge to annual hazardous and solid
waste licensure renewal fees; (iii) Several suits have been filed against the
State to compel the State to close the spending gap between poor urban school
districts and wealthy rural school districts; (iv) a group of insurance
companies have filed a constitutional challenge to the challenge to the State's
assessment of monies pursuant to the Fair Automobile Insurance Reform Act of
1990; (v) A class action consisting of prisoners with serious mental disorders
has been filed against officers of the Department of Corrections, alleging sex
discrimination, violation of the Americans with Disabilities Act of 1990, and
constitutional violations; (vi) A class action brought in federal court
challenging the State's method of determining the monthly needs of a spouse of
an institutionalized person under the Medicare Catastrophic Act is now being
appealed to the U.S. Supreme Court by the plaintiff; (vii) Several suits have
been filed against the State in federal court alleging that the State committed
securities fraud and environmental violations in the financing of a new Atlantic
City highway and tunnel; (viii) A class action filed against the State alleging
the State's breach of contract for not paying certain Medicare co-insurance and
deductibles has been appealed by the plaintiff; and (ix) An action has been
filed challenging the State's issuance of bonds to fund the accrued liability in
its pension funds under the Pension Bond Financing Act of 1997. (x) Several
cases have been filed by state hospitals with respect to Medicaid hospital
reimbursement that challenge the state's compliance with federal regulations and
the correctness of reimbursement rates. This Chapter 11 case commenced when
United Hospital closed and demands that the bankruptcy court take jurisdiction
of and decide certain Medicaid reimbursement matters pending in New Jersey
administrative proceedings or the New Jersey appellate courts. (xi) Several
plaintiffs have filed a complaint seeking damages and injunctive relief on
constitutional grounds on behalf of individuals who did not obtain an increase
in welfare benefits under the "family cap" provisions of the State Work First
New Jersey Act. (xii) Several cases have been filed by various hospitals
alleging the $10 per adjusted hospital admission charge is a "tax" as opposed to
a "regulatory fee" and is in violation of the State's constitution. (xiii)The
owner of a resource recovery facility in South Camden who filed suit to have the
county's solid waste process halted to clarify bid specifications has filed a
motion for leave to appeal to the Supreme Court of New Jersey.
Although the New Jersey Municipal Bond Fund generally intends to invest its
assets primarily in New Jersey Municipal Securities rated within the four
highest rating categories assigned by S&P or Moody's, there can be no assurance
that such ratings will remain in effect until such obligations mature or are
redeemed or will not be revised downward or withdrawn. Such revisions or
withdrawals may have an adverse affect on the market price of such securities.
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Although there can be no assurance that such conditions will continue,
the State's general obligation bonds are currently rated "AA+" by S&P and "Aa1"
by Moody's.
SPECIAL CONSIDERATIONS RELATING TO NEW YORK MUNICIPAL SECURITIES
Certain substantial issuers of New York municipal securities (including
issuers whose obligations may be acquired by the Fund) have experienced
serious financial difficulties in recent years. These difficulties have at
times jeopardized the credit standing and impaired the borrowing abilities of
all New York issuers and have generally contributed to higher interest costs
for their borrowings and fewer markets for their outstanding debt obligations.
Although several different issues of municipal securities of New York State and
its agencies and instrumentalities and of New York City have been downgraded
by Standard & Poor's and Moody's in recent years, of Standard & Poor's and
Moody's have recently placed the debt obligations of New York State and New
York City on CreditWatch with positive implications and upgraded the debt
obligations of New York City, respectively. Strong demand for New York municipal
securities has also at times had the effect of permitting New York municipal
securities to be issued with yields relatively lower, and after issuance, to
trade in the market at prices relatively higher, than comparably rated municipal
obligations issued by other jurisdictions. A recurrence of the financial
difficulties previously experienced by certain issuers of New York municipal
securities could result in defaults or declines in the market values of those
issuers' existing obligations and, possibly, in the obligations of other
issuers of New York municipal securities. Although as of the date of this
statement of additional information, no issuers of New York municipal
securities are in default with respect to the payment of their municipal
securities, the occurrence of any such default could affect adversely the
market values and marketability of all New York municipal securities and,
consequently, the net asset value of the Fund's portfolio.
Some of the significant financial considerations relating to the New York
Tax Exempt Fund's investments in New York Municipal Securities are summarized
below. This summary information is not intended to be a complete description and
is principally derived from the Annual Information Statement of the State of New
York as supplemented and contained in official statements relating to issues of
New York Municipal Securities that were available prior to the date of this
Statement of Additional Information. The accuracy and completeness of the
information contained in those official statements have not been independently
verified.
STATE ECONOMY. New York is one of the most populous states in the nation
and has a relatively high level of personal wealth. The State's economy is
diverse with a comparatively large share of the nation's finance, insurance,
transportation, communications and services employment, and a very small share
of the nation's farming and mining activity. The State's location and its
excellent air transport facilities and natural harbors have made it an important
link in international commerce. Travel and tourism constitute an important part
of the economy. Like the rest of the nation, New York has a declining proportion
of its workforce engaged in manufacturing, and an increasing proportion engaged
in service industries.
State per capita personal income has historically been significantly higher
than the national average, although the ratio has varied substantially. Because
New York City (the "City") is a regional employment center for a multi-state
region, State personal income measured on a residence basis understates the
relative importance of the State to the national economy and the size of the
base to which State taxation applies.
There can be no assurance that the State economy will not experience
worse-than-predicted results, with corresponding material and adverse effects on
the State's projections of receipts and disbursements.
STATE BUDGET. The State Constitution requires the governor (the "Governor")
to submit to the State legislature (the "Legislature") a balanced executive
budget which contains a complete plan of expenditures for the ensuing fiscal
year and all moneys and revenues estimated to be available therefor, accompanied
by bills containing all proposed appropriations or reappropriations and any new
or modified revenue measures to be enacted in connection with the executive
budget. The entire plan constitutes the proposed State financial plan for that
fiscal year. The Governor is required to submit to the Legislature quarterly
budget updates which include a revised cash-basis state financial plan, and an
explanation of any changes from the previous state financial plan.
State law requires the Governor to propose a balanced budget each year. In
recent years, the State has closed projected budget gaps of $5.0 billion
(1995-96), $3.9 billion (1996-97), $2.3 billion (1997-98), and less than $1
billion (1998-99). The State's current fiscal year began on April 1, 1999 and
ends on March 31, 2000. On March 31, 1999, the State adopted the debt service
portion of the State budget for the 1999-2000 fiscal year; four months later, on
August 4, 1999, it enacted the remainder of the budget. The Governor approved
the budget as
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passed by the Legislature. Prior to passing the budget in its entirety for the
current fiscal year, the State enacted appropriations that permitted the State
to continue its operations.
In 1999-2000, General Fund disbursements, including transfer to support
capital projects, debt service and other funds, are estimated at $37.36 billion,
an increase of $868 million or 2.38 percent over 1998-99. Projected spending
under the 1999-2000 enacted budget is $215 million above the Governor's
Executive Budget recommendations, including 30-day amendments. This change is
the net result of spending actions that occurred during negotiations on the
Budget. The increase in General Fund spending is comprised of $1.1 billion in
legislative additions to the Executive Budget (primarily in education), offset
by various actions, including re-estimates of required spending based on
year-to-date results and the identification of certain other resources that
offset spending, such as $250 million from commencing the process of privatizing
the Medical Malpractice Insurance Association (MMIA), $250 million from the
retention of the Debt Reduction Reserve Fund within the General Fund and about
$100 million in excess fund balances. The MMIA was established in 1983 to
provide excess liability insurance to doctors and medical providers. Legislation
enacted with the 1999-2000 budget initiates the process of MMIA privatization
and transfers excess fund balances to the State.
The 1999-2000 enacted budget provides for $831 million in new funding for
public schools, the largest year-to-year increase in State history. The budget
also enacts several new tax cuts valued at $375 million when fully phased in by
2003-04. None of the $1.82 billion cash surplus from 1998-99 is assumed to
support spending in 1999-2000, but instead is reserved to help offset the costs
of previously enacted tax cuts that take effect after 1999-2000.
The 1999-2000 Financial Plan projects a closing balance of $2.85 billion in
the General Fund. The balance is comprised of the $1.82 billion surplus from
1998-99 that has been set aside to finance already-enacted tax cuts, $473
million in the Tax Stabilization Reserve Fund (TSRF), $250 million in the Debt
Reduction Reserve Fund (DRRF), $107 million in the Contingency Reserve Fund
(CRF), and $200 million in the Community Projects Fund (CPF), which finances
legislative initiatives. The State expects to close 1999-2000 with cash balances
in these funds at their highest level ever.
Preliminary analysis by Division of Budget ("DOB") indicates that the State
will have a 2000-01 budget gap of approximately $1.9 billion, or about $300
million above the 1999-2000 Executive Budget estimate (after adjusting for the
projected costs of collective bargaining). This estimate includes an assumption
for the projected costs of new collective bargaining agreements, $500 million in
assumed operating efficiencies, as well as the planned application of
approximately $615 million of the $1.82 billion tax reduction reserve. In recent
years, the State has closed projected budget gaps which DOB estimates at $5.0
billion (1995-96), $3.9 billion (1996-97), $2.3 billion (1997-98), and less than
$1 billion (1998-99). DOB will formally update its projections of receipts and
disbursements for future years as part of the Governor's 2000-01 Executive
Budget submission. The revised expectations for these years will reflect the
cumulative impact of tax reductions and spending commitments enacted over the
last several years as well as new 2000-01 Executive Budget recommendations.
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The General Fund is the principal operating fund of the State and is used
to account for all financial transactions except those required to be accounted
for in another fund. It is the State's largest fund and received almost all
State taxes and other resources not dedicated to particular purposes. In the
State's 1999-2000 fiscal year, the General Fund (exclusive of transfers) is
expected to account for approximately 47.1 percent of all Governmental Funds
disbursements and 69.3 percent of total State Funds disbursements. General Fund
moneys are also transferred to other funds, primarily to support certain capital
projects and debt service payments in other fund types.
Total receipts and transfers from other funds are projected to be $39.31
billion in 1999-2000, an increase of $2.57 billion over 1998-99. Total General
Fund disbursements and transfers to other funds are projected to be $37.36
billion, an increase of $868 million over 1998-99. Total General Fund receipts
and transfers in 1999-2000 are now projected to be $39.31 billion, an increase
of $2.57 billion from the $36.74 billion recorded in 1998-99. This total
includes $35.93 billion in tax receipts, $1.36 billion in miscellaneous
receipts, and $2.02 billion in transfers from other funds. The transfer of the
$1.82 billion surplus recorded in 1998-99 to the 1999-2000 fiscal period has the
effect of exaggerating the growth in State receipts from year to year by
depressing reported 1998-99 figures and inflating 1999-2000 projections.
Receipts from user taxes and fees are projected to total $7.35 billion, an
increase of $105 million from reported collections in the prior year. The sales
tax component of this category accounts for virtually all of the 1999-2000
growth. Growth in base sales tax yield, after adjusting for tax law and other
changes, is projected at 5.6 percent. Modest increases in motor fuel and auto
rental tax receipts over 1998-99 levels are also expected. However, receipts
from other user taxes and fees are estimated to decline by $177 million.
The yield of other excise taxes in this category, particularly the
cigarette and alcoholic beverage taxes, show long-term declining trends. General
Fund declines in 1999-2000 motor vehicle fee receipts, in contrast, reflect
statutory fee reductions and an increased amount of collections earmarked to the
Dedicated Highway and Bridge Trust Fund.
Significant statutory changes in this category during the 1999-2000
legislative session include: delaying until March 1, 2000 the implementation of
the exemption from State sales tax of clothing and footwear priced under $110;
providing week-long sales tax exemptions in September 1999 and January 2000 for
clothing and footwear priced under $500; enactment of a variety of small sales
tax exemptions including certain equipment used in providing telecommunications
service for sale, property and services used in theatrical productions, computer
hardware used to design Internet web sites, and building materials used in
farming; a reduction in the beer tax rate; and an expanded exemption from the
alcoholic beverage tax for small brewers.
Following the pattern of the last two fiscal years, education programs
receive the largest share of new funding contained in the 1999-2000 Financial
Plan. School aid is expected to grow by $831 million or 8.58 percent over
1998-99 levels (on a State fiscal year basis). Outside of education, the largest
growth in spending is for State Operations ($207 million, including $100 million
reserved for possible collective bargaining costs); Debt Service ($183
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million), and mental hygiene programs, including funding for a cost of living
increase for care providers ($114 million). These increases were offset, in
part, by spending reductions or actions in health and social welfare ($280
million), and in general State charges ($222 million).
Under the 1999-2000 enacted budget, General Fund spending on school aid is
projected at $10.52 billion on a State fiscal year basis, an increase of $831
million from the prior year. The budget provides additional funding for
operating aid, building aid, and several other targeted aid programs. It also
funds the balance of aid payable for the 1998-99 school year that is due
primarily in the first quarter of the 1999-2000 fiscal year. For all other
educational programs, disbursements are projected to grow by $78 million to
$2.99 billion.
Many complex political, social and economic forces influence the State's
economy and finances, which may in turn affect the State's Financial Plan. These
forces may affect the State unpredictably from fiscal year to fiscal year and
are influenced by governments, institutions, and organizations that are not
subject to the State's control. The State Financial Plan is also necessarily
based upon forecasts of national and State economic activity. Economic forecasts
have frequently failed to predict accurately the timing and magnitude of changes
in the national and the State economies. The DOB believes that its projections
of receipts and disbursements relating to the current State Financial Plan, and
the assumptions on which they are based, are reasonable. The projections assume
no changes in federal tax law, which could substantially alter the current
receipts forecast. In addition, these projections do not include funding for new
collective bargaining agreements after the current contracts expire. Actual
results, however, could differ materially and adversely from their projections,
and those projections may be changed materially and adversely from time to time.
DEBT LIMITS AND OUTSTANDING DEBT. There are a number of methods by which
the State of New York may incur debt. Under the State Constitution, the State
may not, with limited exceptions for emergencies, undertake long-term general
obligation borrowing (I.E., borrowing for more than one year) unless the
borrowing is authorized in a specific amount for a single work or purpose by the
Legislature and approved by the voters. There is no limitation on the amount of
long-term general obligation debt that may be so authorized and subsequently
incurred by the State.
The State may undertake short-term borrowings without voter approval (i) in
anticipation of the receipt of taxes and revenues, by issuing tax and revenue
anticipation notes, and (ii) in anticipation of the receipt of proceeds from the
sale of duly authorized but unissued general obligation bonds, by issuing bond
anticipation notes. The State may also, pursuant to specific constitutional
authorization, directly guarantee certain obligations of the State of New York's
authorities and public benefit corporations ("Authorities"). Payments of debt
service on New York State general obligation and New York State-guaranteed bonds
and notes are legally enforceable obligations of the State of New York.
The State employs additional long-term financing mechanisms, lease-purchase
and contractual-obligation financings, which involve obligations of public
authorities or municipalities that are State-supported but are not general
obligations of the State. Under these financing arrangements, certain public
authorities and municipalities have issued obligations to
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finance the construction and rehabilitation of facilities or the acquisition and
rehabilitation of equipment, and expect to meet their debt service requirements
through the receipt of rental or other contractual payments made by the State.
Although these financing arrangements involve a contractual agreement by the
State to make payments to a public authority, municipality or other entity, the
State's obligation to make such payments is generally expressly made subject to
appropriation by the Legislature and the actual availability of money to the
State for making the payments. The State has also entered into a
contractual-obligation financing arrangement with the LGAC to restructure the
way the State makes certain local aid payments.
Sustained growth in the State's economy could contribute to closing
projected budget gaps over the next several years, both in terms of
higher-than-projected tax receipts and in lower-than-expected entitlement
spending. The State assumes that the 2000-01 Financial Plan will achieve $500
million in savings from initiatives by State agencies to deliver services more
efficiently, workforce management efforts, maximization of federal and
non-General Fund spending offsets, and other actions necessary to help bring
projected disbursements and receipts into balance. The projections do not assume
any gap-closing benefit from the potential settlement of State claims against
the tobacco industry.
Spending from Debt Service Funds are estimated at $3.64 billion in
1999-2000, up $370 million or 11.31 percent from 1998-99. Transportation
purposes, including debt service on bonds issued for State and local highway and
bridge programs financed through the New York State Thruway Authority and
supported by the Dedicated Highway and Bridge Trust Fund, account for $124
million of the year-to-year growth. Debt service for educational purposes,
including State and City University programs financed through the Dormitory
Authority, will increase by $80 million. The remaining growth is for a variety
of programs in mental health and corrections, and for general obligation
financings.
On January 13, 1992, S&P reduced its ratings on the State's general
obligation bonds from A to A- and, in addition, reduced its ratings on the
State's moral obligation, lease purchase, guaranteed and contractual obligation
debt. On August 28, 1997, S&P revised its ratings on the State's general
obligation bonds from A- to A and revised its ratings on the State's moral
obligation, lease purchase, guaranteed and contractual obligation debt. On March
5, 1999, S&P affirmed its A rating on the State's outstanding bonds.
On January 6, 1992, Moody's reduced its ratings on outstanding
limited-liability State lease purchase and contractual obligations from A to
Baal. On February 28, 1994, Moody's reconfirmed its A rating on the State's
general obligation long-term indebtedness. On March 20, 1998, Moody's assigned
the highest commercial paper rating of P-1 to the short-term notes of the State.
On March 5, 1999, Moody's affirmed its A2 rating with a stable outlook to the
State's general obligations.
New York State has never defaulted on any of its general obligation
indebtedness or its obligations under lease-purchase or contractual-obligation
financing arrangements and has never been called upon to make any direct
payments pursuant to its guarantees.
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LITIGATION. Certain litigation pending against New York State or its
officers or employees could have a substantial or long-term adverse effect on
New York State finances. Among the more significant of these cases are those
that involve (1) the validity of agreements and treaties by which various Indian
tribes transferred title to New York State of certain land in central and
upstate New York; (2) certain aspects of New York State's Medicaid policies,
including its rates, regulations and procedures; (3) challenges to the
constitutionality of Public Health Law 2807-d, which imposes a gross receipts
tax from certain patient care services; (4) action seeking enforcement of
certain sales and excise taxes and tobacco products and motor fuel sold to
non-Indian consumers on Indian reservations; (5) a challenge to the Governor's
application of his constitutional line item veto authority; and (6) a challenge
to the enactment of the CLEAN WATER/CLEAN AIR BOND ACT OF 1996.
Several actions challenging the constitutionality of legislation enacted
during the 1990 legislative session which changed actuarial funding methods for
determining state and local contributions to state employee retirement systems
have been decided against the State. As a result, the Comptroller developed a
plan to restore the State's retirement systems to prior funding levels. Such
funding is expected to exceed prior levels by $116 million in fiscal 1996-97,
$193 million in fiscal 1997-98, peaking at $241 million in fiscal 1998-99.
Beginning in fiscal 2001-02, State contributions required under the
Comptroller's plan are projected to be less than that required under the prior
funding method. As a result of the United States Supreme Court decision in the
case of STATE OF DELAWARE V. STATE OF NEW YORK, on January 21, 1994, the State
entered into a settlement agreement with various parties. Pursuant to all
agreements executed in connection with the action, the State was required to
make aggregate payments of $351.4 million. Annual payments to the various
parties will continue through the State's 2002-03 fiscal year in amounts which
will not exceed $48.4 million in any fiscal year subsequent to the State's
1994-95 fiscal year. Litigation challenging the constitutionality of the
treatment of certain moneys held in a reserve fund was settled in June 1996 and
certain amounts in a Supplemental Reserve Fund previously credited by the State
against prior State and local pension contributions were paid in 1998.
The legal proceedings noted above involve State finances, State programs
and miscellaneous cure rights, tort, real property and contract claims in which
the State is a defendant and the monetary damages sought are substantial,
generally in excess of $100 million. These proceedings could affect adversely
the financial condition of the State in the current fiscal year or thereafter.
Adverse developments in these proceedings, other proceedings for which there are
unanticipated, unfavorable and material judgments, or the initiation of new
proceedings could affect the ability of the State to maintain a balanced
financial plan. An adverse decision in any of these proceedings could exceed the
amount of the reserve established in the State's financial plan for the payment
of judgments and, therefore, could affect the ability of the State to maintain a
balanced financial plan.
Although other litigation is pending against New York State, except as
described herein, no current litigation involves New York State's authority, as
a matter of law, to contract indebtedness, issue its obligations, or pay such
indebtedness when it matures, or affects New York State's power or ability, as a
matter of law, to impose or collect significant amounts of taxes and revenues.
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AUTHORITIES. The fiscal stability of New York State is related, in part, to
the fiscal stability of its Authorities, which generally have responsibility for
financing, constructing and operating revenue-producing public benefit
facilities. Authorities are not subject to the constitutional restrictions on
the incurrence of debt which apply to the State itself, and may issue bonds and
notes within the amounts of, and as otherwise restricted by, their legislative
authorization. The State's access to the public credit markets could be
impaired, and the market price of its outstanding debt may be materially and
adversely affected, if any of the Authorities were to default on their
respective obligations, particularly with respect to debt that is
State-supported or State-related.
Authorities are generally supported by revenues generated by the projects
financed or operated, such as fares, user fees on bridges, highway tolls and
rentals for dormitory rooms and housing. In recent years, however, New York
State has provided financial assistance through appropriations, in some cases of
a recurring nature, to certain of the Authorities for operating and other
expenses and, in fulfillment of its commitments on moral obligation indebtedness
or otherwise, for debt service. This operating assistance is expected to
continue to be required in future years. In addition, certain statutory
arrangements provide for State local assistance payments otherwise payable to
localities to be made under certain circumstances to certain Authorities. The
State has no obligation to provide additional assistance to localities whose
local assistance payments have been paid to Authorities under these
arrangements. However, in the event that such local assistance payments are so
diverted, the affected localities could seek additional State funds.
In February 1997, the Job Development Authority ("JDA") issued
approximately $85 million of State-guaranteed bonds to refinance certain of its
outstanding bonds and notes in order to restructure and improve JDA's capital
structure. Due to concerns regarding the economic viability of its programs,
JDA's loan and loan guarantee activities had been suspended since 1995. As a
result of the structural imbalances in JDA's capital structure, and defaults in
its loan portfolio and loan guarantee program incurred between 1991 and 1996,
JDA would have experienced a debt service cash flow shortfall had it not
completed its recent refinancing. JDA anticipates that it will transact
additional refinancings in 1999, 2000 and 2003 to complete its long-term plan of
finance and further alleviate cash flow imbalances which are likely to occur in
future years. JDA recently resumed its lending activities under a revised set of
lending programs and underwriting guidelines.
NEW YORK CITY AND OTHER LOCALITIES. The fiscal health of the State may also
be impacted by the fiscal health of its localities, particularly the City, which
has required and continues to require significant financial assistance from the
State. The City depends on State aid both to enable the City to balance its
budget and to meet its cash requirements. There can be no assurance that there
will not be reductions in State aid to the City from amounts currently projected
or that State budgets will be adopted by the April 1 statutory deadline or that
any such reductions or delays will not have adverse effects on the City's cash
flow or expenditures. In addition, the Federal budget negotiation process could
result in a reduction in or a delay in the receipt of Federal grants which could
have additional adverse effects on the City's cash flow or revenues.
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In 1975, New York City suffered a fiscal crisis that impaired the borrowing
ability of both the City and New York State. In that year the City lost access
to the public credit markets. The City was not able to sell short-term notes to
the public again until 1979. In 1975, S&P suspended its A rating of City bonds.
This suspension remained in effect until March 1981, at which time the City
received an investment grade rating of BBB from S&P.
On July 2, 1985, S&P revised its rating of City bonds upward to BBB+ and on
November 19, 1987, to A-. On February 3, 1998 and again on May 27, 1998, S&P
assigned a BBB+ rating to the City's general obligation debt and placed the
ratings on CreditWatch with positive implications. On March 9, 1999, S&P
assigned its A- rating to Series 1999H of New York City general obligation bonds
and affirmed the A- rating on various previously issued New York City bonds.
Moody's ratings of City bonds were revised in November 1981 from B (in
effect since 1977) to Bal, in November 1983 to Baa, in December 1985 to Baal, in
May 1988 to A and again in February 1991 to Baal. On February 25, 1998, Moody's
upgraded approximately $28 billion of the City's general obligations from Baal
to A3. On June 9, 1998, Moody's affirmed its A3 rating to the City's general
obligations and stated that its outlook was stable.
On March 8, 1999, Fitch IBCA upgraded New York City's $26 billion
outstanding general obligation bonds from A- to A.
New York City is heavily dependent on New York State and federal assistance
to cover insufficiencies in its revenues. There can be no assurance that in the
future federal and State assistance will enable the City to make up its budget
deficits. To help alleviate the City's financial difficulties, the Legislature
created the Municipal Assistance Corporation ("MAC") in 1975. Since its
creation, MAC has provided, among other things, financing assistance to the City
by refunding maturing City short-term debt and transferring to the City funds
received from sales of MAC bonds and notes. MAC is authorized to issue bonds and
notes payable from certain stock transfer tax revenues, from the City's portion
of the State sales tax derived in the City and, subject to certain prior claims,
from State per capita aid otherwise payable by the State to the City. Failure by
the State to continue the imposition of such taxes, the reduction of the rate of
such taxes to rates less than those in effect on July 2, 1975, failure by the
State to pay such aid revenues and the reduction of such aid revenues below a
specified level are included among the events of default in the resolutions
authorizing MAC's long-term debt. The occurrence of an event of default may
result in the acceleration of the maturity of all or a portion of MAC's debt.
MAC bonds and notes constitute general obligations of MAC and do not constitute
an enforceable obligation or debt of either the State or the City.
Since 1975, the City's financial condition has been subject to oversight
and review by the New York State Financial Control Board (the "Control Board")
and since 1978 the City's financial statements have been audited by independent
accounting firms. To be eligible for guarantees and assistance, the City is
required during a "control period" to submit annually for Control Board
approval, and when a control period is not in effect for Control Board review, a
financial plan for the next four fiscal years covering the City and certain
agencies showing
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balanced budgets determined in accordance with GAAP. New York State also
established the Office of the State Deputy Comptroller for New York City
("OSDC") to assist the Control Board in exercising its powers and
responsibilities. On June 30, 1986, the City satisfied the statutory
requirements for termination of the control period. This means that the Control
Board's powers of approval are suspended, but the Board continues to have
oversight responsibilities.
On June 10, 1997, the City submitted to the Control Board the Financial
Plan (the "1998-2001 Financial Plan") for the 1998 through 2001 fiscal years,
relating to the City, the Board of Education ("BOE") and City University of New
York ("CUNY") and reflected the City's expense and capital budgets for the 1998
fiscal year, which were adopted on June 6, 1997. The 1998-2001 Financial Plan
projected revenues and expenditures for the 1998 fiscal year balanced in
accordance with GAAP. The 1998-99 Financial Plan projected General Fund receipts
(including transfers from other funds) of $36.22 billion, an increase of $1.02
billion over the estimated 1997-1998 level. Recurring growth in the State
General Fund tax base is projected to be approximately six percent during
1998-99, after adjusting for tax law and administrative changes. This growth
rate is lower than the rates for 1996-97 or 1997-98, but roughly equivalent to
the rate for 1995-96.
Although the City has consistently maintained balanced budgets and is
projected to achieve balanced operating results for the current fiscal year,
there can be no assurance that the gap-closing actions proposed in the 1998-2001
Financial Plan can be successfully implemented or that the City will maintain a
balanced budget in future years without additional State aid, revenue increases
or expenditure reductions. Additional tax increases and reductions in essential
City services could adversely affect the City's economic base.
The projections set forth in the 1998-2001 Financial Plan were based on
various assumptions and contingencies which are uncertain and which may not
materialize. Changes in major assumptions could significantly affect the City's
ability to balance its budget as required by State law and to meet its annual
cash flow and financing requirements. Such assumptions and contingencies include
the condition of the regional and local economies, the impact on real estate tax
revenues of the real estate market, wage increases for City employees consistent
with those assumed in the 1998-2001 Financial Plan, employment growth, the
ability to implement proposed reductions in City personnel and other cost
reduction initiatives, the ability of the Health and Hospitals Corporation and
the BOE to take actions to offset reduced revenues, the ability to complete
revenue generating transactions, provision of State and Federal aid and mandate
relief and the impact on City revenues and expenditures of Federal and State
welfare reform and any future legislation affecting Medicare or other
entitlements.
Implementation of the 1998-2001 Financial Plan is also dependent upon the
City's ability to market its securities successfully. The City's financing
program for fiscal years 1998 through 2001 contemplates the issuance of $5.7
billion of general obligation bonds and $5.7 billion of bonds to be issued by
the proposed New York City Transitional Finance Authority (the "Finance
Authority") to finance City capital projects. The Finance Authority, was created
as part of the City's effort to assist in keeping the City's indebtedness within
the forecast level of the constitutional restrictions on the amount of debt the
City is authorized to incur. Despite this additional financing mechanism, the
City currently projects that, if no further action is taken, it
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will reach its debt limit in City fiscal year 1999-2000. Indebtedness subject to
the constitutional debt limit includes liability on capital contracts that are
expected to be funded with general obligation bonds, as well as general
obligation bonds. On June 2, 1997, an action was commenced seeking a declaratory
judgment declaring the legislation establishing the Transitional Finance
Authority to be unconstitutional. If such legislation which is currently on
appeal to the Court of Appeals were voided, projected contracts for the City
capital projects would exceed the City's debt limit. Future developments
concerning the City or entities issuing debt for the benefit of the City, and
public discussion of such developments, as well as prevailing market conditions
and securities credit ratings, may affect the ability or cost to sell securities
issued by the City or such entities and may also affect the market for their
outstanding securities.
The City Comptroller and other agencies and public officials have issued
reports and made public statements which, among other things, state that
projected revenues and expenditures may be different from those forecast in the
City's financial plans. It is reasonable to expect that such reports and
statements will continue to be issued and to engender public comment.
The City since 1981 has fully satisfied its seasonal financing needs in the
public credit markets, repaying all short-term obligations within their fiscal
year of issuance. Although the City's 1998 fiscal year financial plan projected
$2.4 billion of seasonal financing, the City expected to undertake only
approximately $1.4 billion of seasonal financing. The City issued $2.4 billion
of short-term obligations in fiscal year 1997. The delay in the adoption of the
State's budget in certain past fiscal years has required the City to issue
short-term notes in amounts exceeding those expected early in such fiscal years.
Certain localities, in addition to the City, have experienced financial
problems and have requested and received additional New York State assistance
during the last several State fiscal years. The potential impact on the State of
any future requests by localities for additional assistance is not included in
the State's projections of its receipts and disbursements for the fiscal year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers") resulted
in the re-establishment of the Financial Control Board for the City of Yonkers
(the "Yonkers Board") by New York State in 1984. The Yonkers Board is charged
with oversight of the fiscal affairs of Yonkers. Future actions taken by the
State to assist Yonkers could result in increased State expenditures for
extraordinary local assistance.
On June 30, 1998, the City of Yonkers satisfied the statutory conditions
for ending the supervision of its finances by a State-ordered control board.
Pursuant to State law, the control board's powers over City finances lapsed six
months after the satisfaction of these conditions, on December 31, 1998.
Beginning in 1990, the City of Troy experienced a series of budgetary
deficits that resulted in the establishment of a Supervisory Board for the City
of Troy in 1994. The Supervisory Board's powers were increased in 1995, when
Troy MAC was created to help Troy avoid default on certain obligations. The
legislation creating Troy MAC prohibits the city of
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Troy from seeking federal bankruptcy protection while Troy MAC bonds are
outstanding. Troy MAC has issued bonds to effect a restructuring of the City of
Troy's obligations.
The 1998-99 budget included $29.4 million in unrestricted aid targeted to
57 municipalities across the State. Other assistance for municipalities with
special needs totals more than $25.6 million. Twelve upstate cities received
$24.2 million in one-time assistance from a cash flow acceleration of State aid.
Municipalities and school districts have engaged in substantial short-term
and long-term borrowings. State law requires the Comptroller to review and make
recommendations concerning the budgets of those local government units other
than New York City that are authorized by State law to issue debt to finance
deficits during the period that such deficit financing is outstanding.
From time to time, federal expenditure reductions could reduce, or in some
cases eliminate, federal funding of some local programs and accordingly might
impose substantial increased expenditure requirements on affected localities. If
the State, the City or any of the Authorities were to suffer serious financial
difficulties jeopardizing their respective access to the public credit markets,
the marketability of notes and bonds issued by localities within the State could
be adversely affected. Localities also face anticipated and potential problems
resulting from certain pending litigation, judicial decisions and long-range
economic trends. Long-range potential problems of declining urban population,
increasing expenditures and other economic trends could adversely affect
localities and require increasing the State assistance in the future.
YEAR 2000 COMPLIANCE. The State is currently addressing Year 2000 ("Y2K")
data processing compliance issues. Since its inception, the computer industry
has used a two-digit date convention to represent the year. In the year 2000,
the date field will contain "00" and, as a result, many computer systems and
equipment may not be able to process dates properly or may fail since they may
not be able to distinguish between the years 1900 and 2000. The Year 2000 issue
not only affects computer programs, but also the hardware, software and networks
on which they operate. In addition, any system or equipment that is dependent on
an embedded chip, such as telecommunication equipment and security systems, may
also be adversely affected.
In April 1999, the State Comptroller released an audit on the State's Year
2000 compliance. The audit, which reviewed the State's Y2K compliance activities
through October 1998, found that the State had made progress in achieving Y2K
compliance, but needed to improve its activities in several areas, including
data interchanges and contingency planning.
The Office for Technology (OFT) will continue to monitor compliance
progress for the States mission-critical and high-priority systems and is
reporting compliance progress to the Governor's Office on a quarterly basis. The
1999-2000 enacted budget allocates $19 million for priority embedded systems and
$20 million for unanticipated expenses related to bringing technology into Y2K
compliance. OFT reports that as of June 1999, the State had completed over 98
percent of the overall compliance effort for its mission-critical systems; 55 of
the 56 systems are now Year 2000 compliant. As of June 1999, the State had
completed 87 percent of
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the overall compliance effort on the high-priority systems; 236 systems are now
Year 2000 compliant. The State has also procured independent validation and
verification services from a qualified vendor to perform an automated review of
code that has been fixed and a testing review process for all mission-critical
systems which is scheduled to be completed by September 1999.
While New York State is taking what it believes to be appropriate action to
address Year 2000 compliance, there can be no guarantee that all of the State's
systems and equipment will be Year 2000 compliant and that there will not be an
adverse impact upon State operations or finances as a result. Since Year 2000
compliance by outside parties is beyond the State's control to remediate, the
failure of outside parties to achieve Year 2000 compliance could have an adverse
impact on State operations or finances as well.
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SPECIAL CONSIDERATIONS RELATING TO CONNECTICUT MUNICIPAL SECURITIES
The following information is a brief summary of factors affecting the
economies and financial strengths of the State of Connecticut, its
municipalities and its political subdivisions
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and does not purport to be a complete description of such factors. Other factors
will affect issuers. The summary is based primarily upon one or more publicly
available offering statements relating to debt offerings of this State of
Connecticut that were available prior to the date of this Statement of
Additional Information. The accuracy and completeness of the information
contained in such offering statements have not been independently verified.
The ability of the issuers of Connecticut Municipal Securities to pay the
principal and interest on their obligations may be impacted by a variety of
factors relating to the economy of Connecticut and to the fiscal stability of
issuers of Connecticut Municipal Securities. The latter may include such matters
as the ability of issuers to raise sufficient tax and other revenues to meet
their needs, the availability of aid from other governmental bodies, and the
burdens that may be imposed on issuers by law or necessity. To the extent that
the Fund invests in obligations that are not general obligations of their
issuers, payments of principal and interest will depend on all factors affecting
the revenue sources from which payments thereon are to be derived. The value of
the obligations held by the Fund would be adversely affected not only by any
actual inability of their issuers to pay the principal and interest thereon,
but also by a public perception that such ability is in doubt.
Manufacturing has historically been of prime economic importance to
Connecticut (sometimes referred to as the "State"). The State's manufacturing
industry is diversified, with transportation equipment (primarily aircraft
engines, helicopters and submarines) the dominant industry, followed by
fabricated metals, non-electrical machinery, and electrical equipment. As a
result of a rise in employment in service-related industries and a decline in
manufacturing employment, however, manufacturing accounted for only 17.09% of
total non-agricultural employment in Connecticut in 1997. Defense-related
business represents a relatively high proportion of the manufacturing sector.
On a per capita basis, defense awards to Connecticut have traditionally been
among the highest in the nation, and reductions in defense spending have had
a substantial adverse impact on Connecticut's economy.
The average annual unemployment rate in Connecticut increased from a low
of 3.0% in 1988 to a high of 7.6% in 1992 and, after a number of important
changes in the method of calculation, was reported to be 5.8% in 1996. Average
per capita personal income of Connecticut residents increased in every year
from 1989 to 1997, rising from $25,443 to $36,434. However, pockets of
significant unemployment and poverty exist in several Connecticut cities and
towns.
For the four fiscal years ended June 30, 1991, the General Fund experienced
operating deficits but, for the eight fiscal years ended June 30, 1999, the
General Fund recorded operating surpluses, based on Connecticut's budgetary
method of accounting. General Fund budgets adopted for the biennium ending
June 30, 2001, authorize expenditures of $10,581,600,000 for the 1999-2000
fiscal year and $11,085,200,000 for the 2000-2001 fiscal year and project
surpluses of $64,400,000 and $4,800,000, respectively, for those years. As of
August 31, 1999, the Comptroller estimated expenditures of $10,689,600,000 and
a surplus of only $11,200,000 for the 1999-2000 fiscal year. Connecticut's
general obligation bonds are rated Aa3 by Moody's and AA by Fitch. On
October 8, 1998, S&P upgraded its ratings of Connecticut's general
obligations bonds from AA- to AA.
The State's primary method for financing capital projects is through the
sale of general obligation bonds. These bonds are backed by the full faith
and credit of the State. As of October 15, 1999, the State had authorized
direct general obligation bond indebtedness totaling $13,310,385,000, of which
$11,144,149,000 had been approved for issuance by the State Bond Commission
and $9,625,537,000 had been issued. As of October 15, 1999, net State direct
general obligation indebtedness outstanding was $6,890,968,000.
In 1995, the State established the University of Connecticut as a
separate corporate entity to issue bonds and construct certain infrastructure
improvements. The University was authorized to issue bonds totaling
$962,000,000 by June 30, 2005, that are secured by a State debt service
commitment to finance the improvements, $359,475,000 of which were
outstanding on October 15, 1999.
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In addition, the State has limited or contingent liability on a
significant amount of other bonds. Such bonds have been issued by the
following quasi-public agencies: the Connecticut Housing Finance Authority,
the Connecticut Development Authority, the Connecticut Higher Education
Supplemental Loan Authority, the Connecticut Resources Recovery Authority and
the Connecticut Health and Educational Facilities Authority. Such bonds have
also been issued by the cities of Bridgeport and West Haven and the
Southeastern Connecticut Water Authority. As of December 1, 1998, the amount
of bonds outstanding on which the State has limited or contingent liability
totaled $4,154,900,000.
In 1984, the State established a program to plan, construct and improve
the State's transportation system (other than Bradley International Airport).
The total cost of the program through June 30, 2002, is currently estimated
to be $12.6 billion, to be met from federal, state, and local funds. The
State expects to finance most of its $5.1 billion share of such cost by
issuing $4.6 billion of special tax obligation ("STO") bonds. The STO bonds
are payable solely from specified motor fuel taxes, motor vehicle receipts,
and license, permit and fee revenues pledged therefor and credited to the
Special Transportation Fund, which was established to budget and account for
such revenues.
The State, its officers and its employees are defendants in numerous
lawsuits. Although it is not possible to determine the outcome of these
lawsuits, the Attorney General has opined that an adverse decision in any of
the following cases might have a significant impact on the State's financial
position: (i) an action on behalf of all persons with traumatic brain injury
who have been placed in certain State hospitals, and other persons with
acquired brain injury who are in the custody of the Department of Mental
Health and Addiction Services, claiming that their constitutional rights are
violated by placement in State hospitals alleged not to provide adequate
treatment and training, and seeking placement in community residential
settings with appropriate support services; (ii) litigation involving claims
by Indian tribes to portions of the State's land area; (iii) an action by
certain students and municipalities claiming that the State's formula for
financing public education violates the State's Constitution and seeking a
declaratory judgment and injunctive relief; (iv) an action for money damages
for the death of a young physician killed in an automobile accident allegedly
as a result of negligence of the State; and (v) actions by several hospitals
claiming partial refunds of taxes imposed on hospital gross earnings to the
extent such taxes related to tangible personal property transferred in the
provision of services to patients.
As a result of litigation on behalf of black and Hispanic school
children in the City of Hartford seeking "integrated education" within the
Greater Hartford metropolitan area, on July 9, 1996, the State Supreme Court
directed the legislature to develop appropriate measures to remedy the racial
and ethnic segregation in the Hartford public schools. The Superior Court
ordered the State to show cause as to whether there has been compliance with
the Supreme Court's ruling and concluded that the State had complied but that
the plaintiffs had not allowed the State sufficient time to take additional
remedial steps. Accordingly, the plaintiffs might be able to pursue their
claim at a later date. The fiscal impact of this matter might be significant
but is not determinable at this time.
The State's Department of Information Technology is reviewing the
State's Year 2000 exposure and developing plans for modification or
replacement of existing software that it believes will prevent significant
operations problems. There is a risk that the plan will not be
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completed on time, that planned testing will not reveal all problems, or that
systems of others on whom the State relies will not be timely updated. If
the necessary remediations are not completed in a timely fashion, the Year
2000 problem may have a material impact on the operations of the State.
General obligation bonds issued by municipalities are payable primarily
from ad valorem taxes on property located in the municipality. A
municipality's property tax base is subject to many factors outside the
control of the municipality, including the decline in Connecticut's
manufacturing industry. Certain Connecticut municipalities have experienced
severe fiscal difficulties and have reported operating and accumulated deficits.
The most notable of these is the City of Bridgeport, which filed a bankruptcy
petition on June 7, 1991. The State opposed the petition. The United States
Bankruptcy Court for the District of Connecticut held that Bridgeport had
authority to file such a petition but that its petition should be dismissed on
the grounds that Bridgeport was not insolvent when the petition was filed.
State legislation enacted in 1993 prohibits municipal bankruptcy filings without
the prior written consent of the Governor. Regional economic difficulties,
reductions in revenues, and increased expenses could lead to further fiscal
problems for the State and its political subdivisions, authorities, and
agencies. Difficulties in payment of debt service on borrowings could result in
declines, possibly severe, in the value of their outstanding obligations,
increases in their future borrowing costs, and impairment of their ability to
pay debt service on their obligations.
In addition to general obligation bonds backed by the full faith and
credit of the municipality, certain municipal authorities finance projects by
issuing bonds that are not considered to be debts of the municipality. Such
bonds may be repaid only from revenues of the financed project, the revenues
from which may be insufficient to service the related debt obligations.
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.
INVESTMENT LIMITATIONS
In addition to each Fund's investment objective as stated in its
Prospectuses, 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").
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No Fund may:
1. Make loans, except that (i) each Fund may purchase or hold debt
instruments in accordance with its investment objective and policies,
and may enter into repurchase agreements with respect to portfolio
securities, and (ii) each Fund may lend portfolio securities against
collateral consisting of cash or securities which are consistent with
its permitted investments, where the value of the collateral is equal
at all times to at least 100% of the value of the securities loaned.
2. Borrow money or issue senior securities, except that each Fund may
borrow from domestic banks for temporary purposes and then in amounts
not in excess of 10% of the value of its total assets at the time of
such borrowing (provided that each Fund may borrow pursuant to reverse
repurchase agreements in accordance with its investment policies and
in amounts not in excess of 10% of the value of its total assets at
the time of such borrowing); or mortgage, pledge, or hypothecate any
assets except in connection with any such borrowing and in amounts not
in excess of the lesser of the dollar amounts borrowed or 10% of the
value of its total assets at the time of such borrowing. No Fund will
purchase securities while borrowings (including reverse repurchase
agreements) in excess of 5% of its total assets are outstanding.
3. Invest more than 10% (15% with respect to the New Jersey Municipal
Bond Fund) of the value of its net assets in illiquid securities,
including repurchase agreements with remaining maturities in excess of
seven days, time deposits with maturities in excess of seven days,
restricted securities, non-negotiable time deposits and other
securities which are not readily marketable.
4. Purchase any securities which would cause 25% or more of the value of
a Fund's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry; provided, however, that there is no
limitation with respect to securities issued or guaranteed by the U.S.
Government, any state, territory or possession of the U. S.
Government, the District of Columbia, or any of their authorities,
agencies, instrumentalities or political subdivisions.
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5. 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.
6. 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.
7. Purchase or sell real estate; except that each Fund may invest in
Municipal Securities secured by real estate or interests therein;
however, the Funds will not purchase or sell interests in real estate
limited partnerships.
8. Purchase or sell commodities or commodity contracts or invest in oil,
gas, or other mineral exploration or development programs or mineral
leases; provided however, that the Funds may enter into municipal bond
index futures contracts and interest rate futures contracts to the
extent permitted under the Commodity Exchange Act and the 1940 Act.
9. Invest in or sell put options, call options, straddles, spreads, or
any combination thereof.
10. Invest in companies for the purpose of exercising management or
control.
11. 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.
12. Invest in industrial revenue bonds where the payment of principal and
interest are the responsibility of a company (including its
predecessors) with less than three years of continuous operation.
13. Purchase foreign securities, except that the 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.
In addition, the Tax-Exempt Bond Fund may not:
14. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. Government, its agencies or
instrumentalities, if immediately after such purchase more than 5% of
the value of its total assets would be invested in the securities of
such issuer, except that up to 25% of the value of its total assets
may be invested without regard to this limitation.
In addition, the New Jersey Municipal Bond, New York Municipal Bond,
Connecticut Municipal Bond, Massachusetts Municipal Bond and Rhode Island
Municipal Bond Funds may not:
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15. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. Government, its agencies or
instrumentalities, if immediately after such purchase more than 5% of
the value of its total assets would be invested in the securities of
such issuer, except that up to 50% of the value of a Fund's total
assets may be invested without regard to this 5% limitation, provided
that no more than 25% of the value of a Fund's total assets are
invested in the securities of any one issuer.
With respect to Investment Limitation No. 2 above, each Fund intends to
limit any borrowings (including reverse repurchase agreements) to not more than
10% of the value of its total assets at the time of such borrowing.
Except as stated otherwise, 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. If the value of a Fund's holdings of illiquid
securities at any time exceeds the percentage limitation applicable at the time
of acquisition due to subsequent fluctuations in value or other reasons, the
Board of Trustees will consider what actions, if any, are appropriate to
maintain adequate liquidity.
VALUATION OF PORTFOLIO SECURITIES
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.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares in each Fund are sold on a continuous basis by Galaxy's distributor,
Provident Distributors, Inc. ("PDI"). PDI is a registered broker/dealer with its
principal offices at Four Falls Corporate Center, 6th Floor, West Conshohocken,
Pennsylvania 19428. PDI has agreed to use appropriate efforts to solicit all
purchase orders.
This Statement of Additional Information provides additional purchase
and redemption information for Trust Shares and Retail A Shares of each Fund and
Retail B Shares of the Tax-
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Exempt Bond Fund. Purchase and redemption information for Prime A Shares and
Prime B Shares of the Tax-Exempt Bond Fund are described in a separate
prospectus and statement of additional information.
PURCHASES OF RETAIL A SHARES AND RETAIL B SHARES
GENERAL
Investments in Retail A Shares of the Funds are subject to a front-end
sales charge. Investments in Retail B Shares of the Tax-Exempt Bond Fund are
subject to a back-end sales charge. This back-end sales charge declines over
time and is known as a "contingent deferred sales charge."
Investors should read "Characteristics of Retail A Shares and Retail B
Shares" and "Factors to Consider When Selecting Retail A Shares or Retail B
Shares" below before deciding between the two with respect to the Tax-Exempt
Bond Fund.
PDI has established several procedures to enable different types of
investors to purchase Retail A Shares of the Funds and Retail B Shares of the
Tax-Exempt Bond Fund (collectively, "Retail Shares"). Retail Shares 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. Retail Shares may also be purchased by FIS Securities, Inc., Fleet
Securities, Inc., Fleet Enterprises, Inc., FleetBoston Corportion, its
affiliates, their correspondent banks and other qualified banks, savings and
loan associations and broker/dealers on behalf of their customers. Purchases
may take place only on days on which PDI 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 PDI on a Business
Day in accordance with PDI's procedures.
CUSTOMERS OF INSTITUTIONS
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.
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OTHER PURCHASE INFORMATION
On a Business Day when the New York Stock Exchange (the "Exchange") closes
early due to a partial holiday or otherwise, Galaxy will advance the time at
which purchase orders must be received in order to be processed on that Business
Day.
APPLICABLE SALES 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 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. A portion of the front-end sales charge may be reallowed to
broker-dealers as follows:
<TABLE>
<CAPTION>
REALLOWANCE TO
DEALERS
--------------
AS A % OF
OFFERING PRICE
AMOUNT OF TRANSACTION PER SHARE
- --------------------- --------------
<S> <C>
Less than $50,000 3.25
$50,000 but less than $100,000 3.00
$100,000 but less than $250,000 2.50
$250,000 but less than $500,000 2.00
$500,000 and over 0.00
</TABLE>
The appropriate reallowance to dealers will be paid by PDI to
broker-dealer organizations which have entered into agreements with PDI. The
reallowance to dealers may be changed from time to time.
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. In addition
to the sales charge waivers described in the applicable Prospectus, 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:
- purchases by directors, officers and employees of broker-dealers
having agreements with PDI pertaining to the sale of Retail A Shares
to the extent permitted by such organizations;
- purchases by current and retired members of Galaxy's Board of Trustees
and members of their immediate families;
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- purchases by officers, directors, employees and retirees of
FleetBoston Corporation and any of its affiliates and members of
their immediate families;
- purchases by officers, directors, employees and retirees of PFPC, Inc.
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 clients of investment advisers or financial planners who
place trades for their own accounts if such accounts are linked to the
master accounts of such investment advisers or financial planners on
the books of the broker-dealer through whom Retail A Shares are
purchased;
- purchases by institutional clients of broker-dealers, including
retirement and deferred compensation plans and the trusts used to fund
these plans, which place trades through an omnibus account maintained
with Galaxy by the broker-dealer; and
- purchases prior to July 1, 1999 by former deposit customers of
financial institutions (other than registered broker-dealers) acquired
by FleetBoston Corporation. in February 1998.
COMPUTATION OF OFFERING PRICE - RETAIL A SHARES
An illustration of the computation of the offering price per share of
Retail A Shares of the Funds, using the value of each Fund's net assets
attributable to such Shares and the number of outstanding Retail A Shares of
each Fund at the close of business on October 31, 1999 and the maximum front-end
sales charge of 3.75%, is as follows:
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<TABLE>
<CAPTION>
New Jersey
Tax-Exempt Municipal
Bond Fund Bond Fund
---------- ----------
<S> <C> <C>
Net Assets............................... $ $
Outstanding Shares....................... $ $
Net Asset Value Per Share................ $ $
Sales Charge (3.75% of
the offering price)...................... $ $
Offering Price to Public................. $ $
<CAPTION>
New York Connecticut
Municipal Municipal
Bond Fund Bond Fund
---------- ----------
<S> <C> <C>
Net Assets............................... $ $
Outstanding Shares....................... $ $
Net Asset Value Per Share................ $ $
Sales Charge (3.75% of
the offering price)...................... $ $
Offering Price to Public................. $ $
<CAPTION>
Massachusetts Rhode Island
Municipal Municipal
Bond Fund Bond Fund
---------- ----------
<S> <C> <C>
Net Assets............................... $ $
Outstanding Shares....................... $ $
Net Asset Value Per Share................ $ $
Sales Charge (3.75% of
the offering price)...................... $ $
Offering Price to Public................. $ $
</TABLE>
QUANTITY DISCOUNTS
Investors 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 investor 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, an investor must notify PDI
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.
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Quantity discounts may be modified or terminated at any time and are subject to
confirmation of an investor's holdings through a check of appropriate records.
For more information about quantity discounts, please contact PDI or your
financial 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 an investor'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, an investor 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, an investor 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 an investor 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.
PFPC, Inc. ("PFPC") Galaxy's administrator, 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 an investor does not purchase the full amount
indicated in the Letter of Intent. The escrow will be released when the investor
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 the investor's total purchases. If total purchases are
less than the amount specified, the investor 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, PFPC, as attorney-in-fact pursuant to the terms of the
Letter of Intent and at PDI's 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 an investor to purchase the full amount indicated at the
sales charge in effect at the time of signing, but an investor must complete the
intended purchase in accordance with the terms of the Letter of Intent to obtain
the reduced sales charge. To apply, an investor 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
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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. Investors 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.
Investors wishing to exercise this Privilege must submit a written
reinstatement request to PFPC 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 "wash sale" rules of the Internal
Revenue Code of 1986, as amended (the "Code").
GROUP SALES. Members of qualified groups may purchase Retail A Shares of
the Funds at the following group sales rates:
<TABLE>
<CAPTION>
REALLOWANCE
TOTAL SALES CHARGE 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 PDI. To receive
the group sales charge rate, group members must purchase Retail A Shares
directly from PDI in accordance with any of the procedures described in the
applicable Prospectus. Group members must also ensure that their qualified 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. PDI may request periodic certification of group and member
eligibility. PDI reserves the right to determine whether a group qualifies for a
quantity discount and to suspend this offer at any time.
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<PAGE>
APPLICABLE SALES CHARGE - RETAIL B SHARES
The public offering price for Retail B Shares of the Tax-Exempt Bond Fund
is the net asset value of the Retail B Shares purchased. Although investors 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 PDI in connection with sales of Retail B Shares. These commissions may be
different than the reallowances or placement fees paid to dealers in connection
with sales of Retail A Shares. Certain affiliates of Fleet may, at their own
expense, provide additional compensation to Fleet Enterprises, Inc., a
broker-dealer affiliate of Fleet, whose customers purchase significant amounts
of Retail B Shares of the Fund. See "Applicable Sales Charge -- Retail A
Shares." The contingent deferred sales charge on Retail B Shares is based on the
lesser of the net asset value of the Shares on the redemption date or the
original cost of the Shares being redeemed. As a result, no sales charge is
imposed on any increase in the principal value of an investor'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 proceeds from the contingent deferred sales charge that an investor may
pay upon redemption go to PDI, 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. In addition to the sales charge exemptions described in the applicable
Prospectus, the contingent deferred sales charge with respect to Retail B Shares
is not assessed on: (i) 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 Code; (ii) 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; (iii) redemptions effected pursuant to the
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; (iv) redemptions in connection with the combination of the Fund with any
other investment company registered under the 1940 Act by merger, acquisition of
assets, or by any other transaction; (v) redemptions resulting from a tax-free
return of an excess contribution pursuant to Section 408(d)(4) or (5) of the
Code; or (vi) any redemption of Retail B Shares held by investors, provided the
investor was the beneficial owner of shares of the Fund (or any of the other
portfolios offered by Galaxy or otherwise advised by Fleet or its affiliates)
before December 1, 1995. In addition to the foregoing exemptions, no contingent
deferred sales charge will be imposed on redemptions made pursuant to the
Systematic Withdrawal Plan, subject to the limitations set forth under "Investor
Programs -- Retail A Shares and Retail B Shares -- Automatic Investment Program
and Systematic Withdrawal Plan" below.
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<PAGE>
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.
An investor 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 the applicable Prospectus and "Applicable
Sales Charges -- Retail A Shares" and "Quantity Discounts" above. 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 Tax-Exempt Bond Fund are sold at net asset value
without an initial sales charge. Normally, however, a deferred sales charge is
paid if the Shares are redeemed within six years of investment. See the
applicable Prospectus and "Applicable Sales Charges -- Retail B Shares" above.
Retail B Shares of the Fund are currently subject to ongoing shareholder
servicing and distribution fees at an annual rate of up to .95% of the Fund's
average daily net assets attributable to its Retail B Shares. These ongoing
fees, which are higher than those charged on Retail A Shares, will cause Retail
B Shares to have a higher expense ratio and pay lower dividends than Retail A
Shares.
Six years after purchase, Retail B Shares of the Fund will convert
automatically to Retail A Shares of the Fund. The purpose of the conversion is
to relieve a holder of Retail B Shares of the higher ongoing expenses charged to
those shares, after enough time has passed to allow PDI 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 an investor receives dollar-for-dollar the same
value of Retail A Shares as he or she had of Retail B Shares. The conversion
occurs six years after the beginning of the calendar month in which the Shares
are purchased. Upon conversion, the converted shares will be relieved of the
distribution and shareholder servicing fees borne by Retail B Shares, although
they will be subject to the shareholder servicing fees borne by Retail A Shares.
Retail B Shares acquired through a reinvestment of dividends or
distributions (as discussed under "Applicable Sales Charge -- Retail B Shares")
are also converted at the earlier of two dates -- six years after the beginning
of the calendar month in which the reinvestment occurred or the date of
conversion of the most recently purchased Retail B Shares that were not acquired
through reinvestment of dividends or distributions. For example, if an investor
makes a one-time purchase of Retail B Shares of the Fund, and subsequently
acquires additional Retail B Shares of the Fund only through reinvestment of
dividends and/or distributions, all of such investor's Retail B Shares in the
Fund, including those acquired through reinvestment, will convert to Retail A
Shares of the Fund on the same date.
FACTORS TO CONSIDER WHEN SELECTING RETAIL A SHARES OR RETAIL B SHARES
Investors deciding whether to purchase Retail A Shares or Retail B Shares
of the Tax-Exempt Bond Fund should consider whether, during the anticipated
periods of their investments
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<PAGE>
in the Fund, the accumulated distribution and shareholder servicing fees and
potential contingent deferred sales charge on Retail B Shares prior to
conversion would be less than the initial sales charge and accumulated
shareholder servicing fees on Retail A Shares purchased at the same time, and to
what extent such differential would be offset by the higher yield of Retail A
Shares. In this regard, to the extent that the sales charge for Retail A Shares
is waived or reduced by one of the methods described above, investments in
Retail A Shares become more desirable. An investment of $250,000 or more in
Retail B Shares would not be in most shareholders' best interest. Shareholders
should consult their financial advisers and/or brokers with respect to the
advisability of purchasing Retail B Shares in amounts exceeding $250,000.
Although Retail A Shares are subject to a shareholder servicing fee, they
are not subject to the higher distribution and shareholder servicing fee
applicable to Retail B Shares. For this reason, Retail A Shares can be expected
to pay correspondingly higher dividends per Share. However, because initial
sales charges are deducted at the time of purchase, purchasers of Retail A
Shares (that do not qualify for exemptions from or reductions in the initial
sales charge) would have less of their purchase price initially invested in the
Fund than purchasers of Retail B Shares in the Fund.
As described above, purchasers of Retail B Shares will have more of their
initial purchase price invested. Any positive investment return on this
additional invested amount would partially or wholly offset the expected higher
annual expenses borne by Retail B Shares. Because the Fund's future returns
cannot be predicted, there can be no assurance that this will be the case.
Holders of Retail B Shares would, however, own shares that are subject to a
contingent deferred sales charge of up to 5.00% upon redemption, depending upon
the year of redemption. Investors 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.
PURCHASES OF TRUST SHARES
Trust Shares are sold to investors maintaining qualified accounts at bank
and trust institutions, including subsidiaries of FleetBoston Corporation, and
to participants in employer-sponsored defined contribution plans (such
institutions and plans referred to herein collectively as "Institutions").
Trust Shares sold to such investors ("Customers") will be held of record by
Institutions. Purchases of Trust Shares will be effected only on days on which
PDI, Galaxy's custodian and the purchasing Institution are open for business
("Trust Business Days"). If an Institution accepts a purchase order from its
Customer on a non-Trust Business Day, the order will not be executed until it
is received and accepted by PDI on a Trust Business Day in accordance with the
foregoing procedures.
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<PAGE>
On a Trust 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 Trust Business Day.
REDEMPTION OF RETAIL A SHARES, RETAIL B SHARES
AND TRUST SHARES
Redemption orders are effected at the net asset value per share next
determined after receipt of the order by PDI. On a Business Day or Trust
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 or Trust Business Day.
Galaxy may require any information reasonably necessary to ensure that a
redemption has been duly authorized. 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.
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 SEC exists making disposal of a Fund's
investments or determination of its net asset value not reasonably practicable;
(b) the Exchange is closed (other than customary weekend and holiday closings);
or (c) the SEC by order has permitted such suspension.
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. However, Galaxy has filed an election with the SEC to pay in cash all
redemptions requested by a shareholder of record limited in amount during any
90-day period to the lesser of $250,000 or 1% of the net assets of a Fund at the
beginning of such period. Such commitment cannot be revoked without the prior
approval of the SEC.
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<PAGE>
INVESTOR PROGRAMS - RETAIL A SHARES AND RETAIL B SHARES
The following information supplements the description in the applicable
Prospectus as to the various Investor Programs available to holders of Retail
Shares of the Funds.
EXCHANGE PRIVILEGE
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 (i) the Retail Shares being redeemed were purchased
through a registered representative who is a Fleet Bank employee, in which event
there is no minimum investment requirement, or (ii) at the time of the exchange
the investor 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, investors
should call PFPC at 1-877-BUY-GALAXY (1-877-289-4252). 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 1-877-BUY-GALAXY
(1-877-289-4252) for a prospectus or to make an exchange.
In order to prevent abuse of this privilege to the disadvantage of other
shareholders, Galaxy reserves the right to terminate the exchange privilege of
any shareholder who requests more than three exchanges a year. Galaxy will
determine whether to do so based on a consideration of both the number of
exchanges that any particular shareholder or group of shareholders has requested
and the time period over which their exchange requests have been made, together
with the level of expense to Galaxy which will result from effecting additional
exchange requests. The exchange privilege may be modified or terminated at any
time. At least 60 days' notice of any material modification or termination will
be given to shareholders except where notice is not required under the
regulations of the SEC.
For federal income tax purposes, an exchange of shares is a taxable event
and, accordingly, a capital gain or loss may be realized by an investor. Before
making an exchange request, an investor should consult a tax or other financial
adviser to determine the tax consequences.
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RETIREMENT PLANS
Retail Shares of the Funds are available for purchase in connection with
the following tax-deferred prototype retirement plans:
INDIVIDUAL RETIREMENT ACCOUNTS ("IRAs") (including traditional, Roth and
Education IRAs and "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 RETIREMENT PLANS ("MERPs"), a retirement vehicle established
by employers for their employees which is qualified under Section 401(k) and
403(b) of the 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 in the applicable
Prospectus. Detailed information concerning eligibility and other matters
related to these plans and the form of application is available from PDI (call
1-877-BUY-GALAXY (1-877-289-4252)) with respect to IRAs, SEPs and Keogh Plans
and from Fleet Securities, Inc. (call 1-800-221-8210) with respect to MERPs.
AUTOMATIC INVESTMENT PROGRAM AND SYSTEMATIC WITHDRAWAL PLAN
The Automatic Investment Program permits an investor to purchase Retail
Shares of a Fund each month or each quarter. Provided an investor's financial
institution allows automatic withdrawals, Retail Shares are purchased by
transferring funds from the investor's checking, bank money market, NOW or
savings account designated by the investor. The account designated will be
debited in the specified amount, and Retail Shares will be purchased, on a
monthly or quarterly basis, on any Business Day designated by the 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 ("ACH")
member may be so designated.
The Systematic Withdrawal Plan permits an investor to automatically redeem
Retail Shares on a monthly, quarterly, semi-annual, or annual basis on any
Business Day designated by an 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 PFPC,
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Galaxy's transfer agent (but not less than five days before a payment date).
There is no charge for this service. Purchases of additional Retail A Shares
concurrently with withdrawals are ordinarily not advantageous because of the
sales charge involved in the additional purchases. No contingent deferred sales
charge will be assessed on redemptions of Retail B Shares made through the
Systematic Withdrawal Plan that do not exceed 12% of an account's net asset
value on an annualized basis. For example, monthly, quarterly and semi-annual
Systematic Withdrawal Plan redemptions of Retail B Shares will not be subject to
the contingent deferred sales charge if they do not exceed 1%, 3% and 6%,
respectively, of an account's net asset value on the redemption date. Systematic
Withdrawal Plan redemptions of Retail B Shares in excess of this limit are still
subject to the applicable contingent deferred sales charge.
PAYROLL DEDUCTION PROGRAM
To be eligible for the Payroll Deduction Program, the payroll department of
an investor's employer must have the capability to forward transactions directly
through the ACH, or indirectly through a third party payroll processing company
that has access to the ACH. An 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 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. An 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
Galaxy reserves the right to redeem accounts participating in the College
Investment 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. Investors participating in the College Investment Program
will receive consolidated monthly statements of their accounts. Detailed
information concerning College Investment Program accounts and applications may
be obtained from PDI (call 1-877-BUY-GALAXY (1-877-289-4252)).
DIRECT DEPOSIT PROGRAM
Death or legal incapacity will terminate an investor's participation in the
Direct Deposit Program. An investor may elect at any time to terminate his or
her participation by notifying in writing the Social Security Administration.
Further, Galaxy may terminate an investor's participation upon 30 days' notice
to the investor.
TAXES
Each Fund qualified during its last taxable year and intends to continue to
qualify as a regulated investment company under Subchapter M of the Code, and to
invest all, or substantially all, of its assets in debt obligations the interest
on which is exempt for federal income tax purposes, so that the Fund itself
generally will be relieved of federal income and excise taxes. If a Fund were to
fail to so qualify: (1) the Fund would be taxed on its taxable
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income at regular corporate rates without any deduction for distributions to
shareholders; and (2) shareholders would be taxed as if they received ordinary
dividends, although corporate shareholders could be eligible for the dividends
received deduction. For a Fund to pay tax-exempt dividends for any taxable year,
at least 50% of the aggregate value of the Fund's assets at the close of each
quarter of the Fund's taxable year must consist of exempt-interest obligations.
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 one year period ending October 31 of such calendar
year. Each Fund intends to make sufficient distributions or deemed distributions
of its ordinary taxable income and any capital gain net income prior to the end
of each calendar year to avoid liability for this excise tax.
The Funds will be required in certain cases to withhold and remit to the
United States Treasury 31% of taxable dividends or gross sale proceeds paid to
any shareholder who (i) has failed to provide a correct tax identification
number, (ii) is subject to withholding by the Internal Revenue Service for
failure to properly include on his or her return payments of taxable interest or
dividends, or (iii) has failed to certify to the Funds that he or she is not
subject to back up withholding when required to do so or that he or she is an
"exempt recipient."
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.
An investment in a Fund is not intended to constitute a balanced investment
program. Shares of the Funds would not be suitable for tax-exempt institutions
and may not be suitable for retirement plans qualified under Section 401 of the
Code, H.R. 10 plans and individual retirement accounts because such plans and
accounts are generally tax-exempt and, therefore, not only would the shareholder
not gain any additional benefit from the Funds' dividends being tax-exempt, but
such dividends would be ultimately taxable to the beneficiaries when
distributed. In addition, the Funds may not be an appropriate investment for
entities which are "substantial users" of facilities financed by "private
activity bonds" or "related persons" thereof. "Substantial user" is defined
under U.S. Treasury Regulations to include a non-exempt person who (i) regularly
uses a part of such facilities in his or her trade or business and whose gross
revenues derived with respect to the facilities financed by the issuance of
bonds are more than 5% of the total revenues derived by all users of such
facilities, (ii) occupies more than 5% of the usable area of such facilities or
(iii) are persons for whom such facilities or a part thereof were specifically
constructed, reconstructed or acquired. "Related persons" include certain
related natural persons, affiliated corporations, a partnership and its partners
and an S corporation and its shareholders.
STATE AND LOCAL
Exempt-interest dividends and other distributions paid by the Funds may be
taxable to shareholders under state or local law as dividend income, even though
all or a portion of such distributions may be derived from interest on
tax-exempt obligations which, if realized directly, would be exempt from such
income taxes.
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It is anticipated that substantially all dividends paid by the New Jersey
Municipal Bond Fund will not be subject to New Jersey personal income tax. In
accordance with the provisions of New Jersey law as currently in effect,
distributions paid by a "qualified investment fund" will not be subject to the
New Jersey personal income tax to the extent that the distributions are
attributable to income received as interest or gain from New Jersey Municipal
Securities (as defined above), or as interest or gain from direct U.S.
Government obligations. Distributions by a "qualified investment fund" that are
attributable to most other sources will be subject to the New Jersey personal
income tax. Shares of the Fund are not subject to property taxation by New
Jersey or its political subdivisions.
The New Jersey personal income tax is not applicable to corporations. For
all corporations subject to the New Jersey Corporation Business Tax, dividends
and distributions from a "qualified investment fund" are included in the net
income tax base for purposes of computing the Corporation Business Tax.
Furthermore, any gain upon the redemption or sale of shares by a corporate
shareholder is also included in the net income tax base for purposes of
computing the Corporation Business Tax.
With respect to the New York Municipal Bond Fund, exempt-interest dividends
(as defined for federal income tax purposes), derived from interest on New York
Municipal Securities (as defined above) will be exempt from New York State and
New York City personal income taxes (but not corporate franchise taxes),
provided the interest on such obligations is and continues to be exempt from
applicable federal, New York State and New York City income taxes. To the extent
that investors are subject to state and local taxes outside of New York State
and New York City, dividends by the Fund may be taxable income for purposes
thereof. Dividends and distributions derived from income (including capital
gains on all New York Municipal Securities) other than interest on New York
Municipal Securities described above are not exempt from New York State and New
York City taxes. Interest or indebtedness incurred or continued by a shareholder
to purchase or carry shares of the Fund is not deductible for federal, New York
State or New York City personal income tax purposes.
Dividends paid by the Connecticut Municipal Bond Fund that qualify as
exempt-interest dividends for federal income tax purposes are not subject to the
Connecticut personal income tax imposed on resident and non-resident
individuals, trusts and estates to the extent that they are derived from
Connecticut Municipal Securities (as defined above). Other Fund dividends and
distributions, whether received in cash or additional shares, are subject to
this tax, except that, in the case of shareholders who hold their shares of the
Fund as capital assets, distributions treated as capital gain dividends for
federal income tax purposes are not subject to the tax to the extent that they
are derived from obligations issued by or on behalf of the State of Connecticut,
its political subdivisions, or public instrumentalities, state or local
authorities, districts or similar public entities created under Connecticut law.
Dividends and distributions paid by the Fund that constitute items of tax
preference for purposes of the federal alternative minimum tax, other than any
derived from Connecticut Municipal Securities, could cause liability for the net
Connecticut minimum tax applicable to investors subject to the Connecticut
personal income tax who are required to pay the federal alternative minimum tax.
Dividends paid by the Fund, including those that qualify as exempt-interest
dividends for federal income tax purposes, are taxable for purposes of the
Connecticut Corporation Business Tax; however, 70% (100% if the investor owns at
least 20% of the total voting power and value of the Fund's shares) of amounts
that are
-56-
<PAGE>
treated as dividends and not as exempt-interest dividends or capital gain
dividends for federal income tax purposes are deductible for purposes of this
tax, but no deduction is allowed for expenses related thereto. Shares of the
Fund are not subject to property taxation by Connecticut or its political
subdivisions.
Distributions by the Massachusetts Municipal Bond Fund to its shareholders
are exempt from Massachusetts personal income taxation to the extent they are
derived from (and designated by the Fund as being derived from) (i) interest on
Massachusetts Municipal Securities (as defined above), (ii) capital gains
realized by the Fund from the sale of certain Massachusetts Municipal
Securities, or (iii) interest on U.S. Government obligations exempt from state
income taxation. Distributions from the Fund's other net investment income and
short-term capital gains will be taxable as ordinary income. Distributions from
the Fund's net long-term capital gains will be taxable as long-term capital
gains regardless of how long the shareholder has owned Fund shares. The tax
treatment of distributions is the same whether distributions are paid in cash or
in additional shares of the Fund. In 1994, the Massachusetts personal income tax
statute was modified to provide for graduated rates of tax (with some
exceptions) on gains from the sale or exchange of capital assets held for more
than one year based on the length of time the asset has been held since January
1, 1995. The Massachusetts Department of Revenue has released proposed
regulations providing that the holding period of the mutual fund (rather than
that of its shareholders) will be determinative for purposes of applying the
revised statute to shareholders that receive capital gain distributions (other
than exempt capital gain distributions, as discussed above), so long as the
mutual fund separately designates the amount of such distributions attributable
to each of six classes of gains from the sale or exchange of capital assets held
for more than one year in a notice provided to shareholders and the Commissioner
of Revenue on or before March 1 of the calendar year after the calendar year of
such distributions. In the absence of such notice, the holding period of the
assets giving rise to such gain is deemed to be more than one but not more than
two years. Shareholders should consult their tax advisers with respect to the
Massachusetts tax treatment of capital gain distributions from the Fund.
Distributions by the Massachusetts Municipal Bond Fund to corporate
shareholders, including exempt-interest dividends, may be subject to
Massachusetts corporate excise tax. Fund shares are not, however, subject to
property taxation by Massachusetts or its political subdivisions.
The Rhode Island Municipal Bond Fund has received a ruling from the Rhode
Island Division of Taxation to the effect that distributions by it to its
shareholders are exempt from Rhode Island personal income taxation and the Rhode
Island business corporation tax to the extent they are derived from (and
designated by the Fund as being derived from) interest earned on Rhode Island
Municipal Securities (as defined above) or obligations of the United States.
Distributions from the Fund's other net investment income and short-term capital
gains will be taxable as ordinary income. Distributions from the Fund's net
long-term capital gains will be taxable as long-term capital gains regardless of
how long the shareholder has owned Fund shares. The tax treatment of
distributions is the same whether distributions are paid in cash or in
additional shares of the Fund.
The Rhode Island Municipal Bond Fund will be subject to the Rhode Island
business corporation tax on its "gross income" apportioned to the State of Rhode
Island. For this purpose, gross income does not include interest income earned
by the Fund on Rhode Island Municipal
-57-
<PAGE>
Securities and obligations of the United States, capital gains realized by the
Fund on the sale of certain Rhode Island Municipal Securities, and 50 percent of
the Fund's other net capital gains.
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.
RIDER B
The tax principles applicable to certain financial investments and futures
contracts and options that may be acquired by a Fund are complex and, in some
cases, uncertain. Such investments may cause a Fund to recognize taxable income
prior to the receipt of cash, thereby requiring the Fund to liquidate other
positions, or to borrow money, so as to make sufficient distributions to
shareholders to avoid corporate-level tax. Moreover, some or all of the taxable
income recognized may be ordinary income or short-term capital gain, so that the
distributions may be taxable to shareholders as ordinary income.
MISCELLANEOUS
Shareholders will be advised annually as to the federal income tax
consequences and, with respect to shareholders of the New Jersey Municipal Bond,
New York Municipal Bond, Connecticut Municipal Bond, Massachusetts Municipal
Bond and Rhode Island Municipal Bond Funds, the New Jersey personal income tax,
New York State and New York City personal income tax, Connecticut personal
income tax, Massachusetts personal income tax and Rhode Island personal income
tax consequences, respectively, of distributions made each year.
TRUSTEES AND OFFICERS
The business and affairs of the Funds are managed under the direction of
Galaxy's Board of Trustees in accordance with the laws of the Commonwealth of
Massachusetts and the Trust's Declaration of Trust. The trustees and executive
officers of Galaxy, their addresses, principal occupations during the past five
years, and other affiliations are as follows:
-58-
<PAGE>
<TABLE>
<CAPTION>
Positions Principal Occupation
with The During Past 5 Years
Name and Address and Age Galaxy Fund and Other Affiliations
- ------------------------ ----------- ----------------------
<S> <C> <C>
Dwight E. Vicks, Jr. Chairman & Trustee President & Director, Vicks Lithograph &
Vicks Lithograph & Printing Corporation (book manufacturing
Printing Corporation and commercial printing); Director, Utica
Commercial Drive First Insurance Company; Trustee, Savings
P.O. Box 270 Bank of Utica; Director, Monitor Life
Yorkville, NY 13495 Insurance Company; Director, Commercial
Age 66 Travelers Mutual Insurance Company;
Trustee, The Galaxy VIP Fund; Trustee,
Galaxy Fund II.
John T. O'Neill(1) President, Treasurer Executive Vice President and CFO, Hasbro,
Hasbro, Inc. & Trustee Inc. (toy and game manufacturer); Trustee,
1011 Newport Avenue The Galaxy VIP Fund; Trustee, Galaxy Fund
Pawtucket, RI 02862 II.
Age 55
Louis DeThomasis Trustee President, Saint Mary's College of
Saint Mary's College Minnesota; Director, Bright Day Travel,
of Minnesota Inc.; Trustee, Religious Communities Trust;
Winona, MN 55987 Trustee, The Galaxy VIP Fund; Trustee,
Age 59 Galaxy Fund II.
Donald B. Miller Trustee Chairman, Horizon Media, Inc. (broadcast
10725 Quail Covey Road services); Director/Trustee, Lexington
Boynton Beach, FL 33436 Funds; Chairman, Executive Committee,
Age 74 Compton International, Inc. (advertising
agency); Trustee, Keuka College; Trustee,
The Galaxy VIP Fund; Trustee, Galaxy Fund
II.
James M. Seed Trustee Chairman and President, The Astra Projects,
The Astra Ventures, Inc. Incorporated (land development); President,
One Citizens Plaza The Astra Ventures, Incorporated
Providence, RI 02903 (previously, Buffinton Box Company -
Age 58 manufacturer of cardboard boxes);
Commissioner,Rhode Island Investment
Commission; Trustee, The Galaxy VIP
Fund; Trustee, Galaxy Fund II.
</TABLE>
-59-
<PAGE>
<TABLE>
<CAPTION>
Positions Principal Occupation
with The During Past 5 Years
Name and Address and Age Galaxy Fund and Other Affiliations
- ------------------------ ----------- ----------------------
<S> <C> <C>
Bradford S. Wellman(1) Trustee Private Investor; Vice President and
2468 Ohio Street Director, Acadia Management Company
Bangor, ME 04401 (investment services); Director, Essex
Age 68 County Gas Company, until January 1994;
Director, Maine Mutual Fire Insurance Co.;
Member, Maine Finance Authority; Trustee,
The Galaxy VIP Fund; Trustee, Galaxy Fund
II.
W. Bruce McConnel, III Secretary Partner of the law firm Drinker Biddle &
One Logan Square Reath LLP, Philadelphia, Pennsylvania.
18th & Cherry Streets
Philadelphia, PA 19103
Age 57
Jylanne Dunne Vice President and Vice President, PFPC Inc.
PFPC Inc. Assistant Treasurer
4400 Computer Drive
Westborough, MA 01581-5108
Age 40
William Greilich Vice President Vice President, PFPC Inc. 1991-96;
PFPC Inc. Vice President and Division Manager,
4400 Computer Drive PFPC Inc., 1996-present.
Westborough, MA 01581-5108
Age 46
</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 May 28, 1999, each trustee receives an annual aggregate fee of
$45,000 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 $3,500 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.
-60-
<PAGE>
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 May 28, 1999, each Trustee was entitled to receive an
annual aggregate fee of $40,000 for his services as a Trustee of the Trusts plus
an additional $2,500 for each in-person Galaxy Board meeting attended, with all
other fees being the same as those currently in effect.
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 PFPC receives any compensation from Galaxy for acting as an
officer. No person who is an officer, director or employee of Fleet or any of
its affiliates, serves as a trustee, officer or employee of Galaxy. The trustees
and officers of Galaxy own less than 1% of its outstanding shares.
The following chart provides certain information about the fees received by
Galaxy's trustees in the most recently completed fiscal year.
<TABLE>
<CAPTION>
Pension or
Retirement Total Compensation
Benefits Accrued from Galaxy and Fund
Aggregate Compensation as Part of Fund Complex* Paid to
Name of Person/Position from Galaxy Expenses Trustees
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bradford S. Wellman $ None $
Trustee
- -------------------------------------------------------------------------------------------------------------------
Dwight E. Vicks, Jr. $ None $
Chairman and Trustee
- -------------------------------------------------------------------------------------------------------------------
Donald B. Miller** $ None $
Trustee
- -------------------------------------------------------------------------------------------------------------------
Rev. Louis DeThomasis $ None $
Trustee
- -------------------------------------------------------------------------------------------------------------------
John T. O'Neill $ None $
President, Treasurer
and Trustee
- -------------------------------------------------------------------------------------------------------------------
James M. Seed** $ None $
Trustee
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
-61-
<PAGE>
- ----------------------
* The "Fund Complex" consists of Galaxy, The Galaxy VIP Fund and Galaxy
Fund II, which comprise a total of 43 separate portfolios.
** Deferred compensation (including interest) in the amounts of $______
and $______ accrued during Galaxy's fiscal year ended October 31, 1999
for Messrs. Miller and Seed, respectively.
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. However, Galaxy's Declaration of Trust provides that shareholders
shall not be subject to any personal liability for the acts or obligations of
Galaxy, and that every note, bond, contract, order or other undertaking made by
Galaxy shall contain a provision to the effect that the shareholders are not
personally liable thereunder. The Declaration of Trust provides for
indemnification out of the trust property of any shareholder held personally
liable solely by reason of his or her being or having been a shareholder and not
because of his or her acts or omissions outside such capacity or some other
reason. The Declaration of Trust also provides that Galaxy shall, upon request,
assume the defense of any claim made against any shareholder for any act or
obligation of Galaxy, and shall satisfy any judgment thereon. Thus, the risk of
shareholder liability is limited to circumstances in which Galaxy itself would
be unable to meet its obligations.
The Declaration of Trust states further that no trustee, officer or agent
of Galaxy shall be personally liable for or on account of any contract, debt,
claim, damage, judgment or decree arising out of or connected with the
administration or preservation of the trust estate or the conduct of any
business of Galaxy; nor shall any trustee be personally liable to any person for
any action or failure to act except by reason of his own bad faith, willful
misfeasance, gross negligence or reckless disregard of his duties as trustee.
The Declaration of Trust also provides that all persons having any claim against
the trustees or Galaxy shall look solely to the trust property for payment.
With the exceptions stated, the Declaration of Trust provides that a
trustee is entitled to be indemnified against all liabilities and expenses
reasonably incurred by him in connection with the defense or disposition of any
proceeding in which he may be involved or with which he may be threatened by
reason of his being or having been a trustee, and that the Board of Trustees
shall indemnify representatives and employees of Galaxy to the same extent to
which they themselves are entitled to indemnification.
INVESTMENT ADVISER
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
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<PAGE>
advisory agreement other than the cost of securities (including brokerage
commissions) purchased for the Funds. See "Expenses" below.
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 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. During the last three fiscal years, Galaxy
paid advisory fees (net of fee waivers and/or expense reimbursements) to Fleet
as set forth below:
-63-
<PAGE>
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Tax-Exempt Bond...................................................... $ $864,035 $789,598
New Jersey Municipal Bond............................................ $ $ 7,348(1) *
New York Municipal Bond.............................................. $ $406,853 $351,041
Connecticut Municipal Bond........................................... $ $118,625 $ 74,799
Massachusetts Municipal Bond......................................... $ $184,536 $102,040
Rhode Island Municipal Bond.......................................... $ $ 60,214 $ 37,641
</TABLE>
- -----------------------
* Not in operation during the period.
(1) For the period from April 3, 1998 (commencement of operations)
through October 31, 1998.
During the last three fiscal years, Fleet waived advisory fees as set
forth below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Tax-Exempt Bond...................................................... $ $318,713 $287,127
New Jersey Municipal Bond............................................ $ $ 20,153(1) *
New York Municipal Bond.............................................. $ $148,595 $127,651
Connecticut Municipal Bond........................................... $ $160,488 $149,599
Massachusetts Municipal Bond......................................... $ $246,101 $204,080
Rhode Island Municipal Bond.......................................... $ $ 80,524 $ 75,284
</TABLE>
- -----------------------
* Not in operation during the period.
(1) For the period from April 3, 1998 (commencement of operations)
through October 31, 1998.
During the last three fiscal years, Fleet reimbursed expenses as
follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Tax-Exempt Bond...................................................... $ $12,427 $73,334
New Jersey Municipal Bond............................................ $ $ 2,729(1) *
New York Municipal Bond.............................................. $ $ 1,784 $48,842
Connecticut Municipal Bond........................................... $ $ 0 $ 0
Massachusetts Municipal Bond......................................... $ $ 0 $ 0
Rhode Island Municipal Bond.......................................... $ $ 0 $ 538
</TABLE>
- -----------------------
* Not in operation during the period.
(1) For the period from April 3, 1998 (commencement of operations)
through October 31, 1998.
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
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<PAGE>
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.
The organizational arrangements of Fleet require that all investment
decisions with respect to the Funds be made by Fleet's Tax-Exempt Investment
Policy Committee and no one person is responsible for making recommendations to
that Committee.
Fleet is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, to the extent permitted
by law or order of the SEC, financial institutions that are affiliated with
Fleet or that have sold shares of the Funds, if Fleet believes that the quality
of the transaction and the commission are comparable to what they would be with
other qualified brokerage firms.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities such as 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
PFPC (formerly known as First Data Investor Services Group, Inc.), located
at 4400 Computer Drive, Westborough, Massachusetts 01581-5108, serves as the
Funds' administrator. PFPC is a majority-owned subsidiary of PNC Bank Corp.
PFPC generally assists the Funds in their administration and operation.
PFPC also serves as administrator to the other portfolios of Galaxy. For the
services provided to the Funds, PFPC is entitled to receive administration fees
based on the combined average daily net assets of the Funds and the other
portfolios offered by
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<PAGE>
Galaxy with an October 31 fiscal year end, computed daily and paid monthly, at
the following rates, effective September 10, 1998:
<TABLE>
<CAPTION>
COMBINED AVERAGE DAILY NET ASSETS ANNUAL RATE
-------------------------------- -----------
<S> <C>
Up to $2.5 billion.......................... 0.090%
From $2.5 to $5 billion..................... 0.085%
From $5 to $12 billion...................... 0.075%
From $12 to $15 billion..................... 0.065%
From $15 to $18 billion..................... 0.060%
Over $18 billion............................ 0.0575%
</TABLE>
Prior to September 10, 1998, Galaxy paid PFPC administration fees based
on the combined average daily net assets of the Funds and all other portfolios
offered by Galaxy at the following annual rates:
<TABLE>
COMBINED AVERAGE DAILY NET ASSETS ANNUAL RATE
-------------------------------- -----------
<S> <C> <C>
Up to $2.5 billion.......................... 0.090%
From $2.5 to $5 billion..................... 0.085%
Over $5 billion............................. 0.075%
</TABLE>
PFPC also receives a separate annual fee from each Galaxy portfolio for certain
fund accounting services.
From time to time, PFPC may waive voluntarily all or a portion of the
administration fee payable to it by the Funds. For the fiscal year ended
October 31, 1999 PFPC received administration fees at the effective annual rate
of % of each Fund's average daily net assets.
Under the administration agreement between Galaxy and PFPC (the
"Administration Agreement"), PFPC 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. PFPC 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. Unless otherwise terminated, the
Administration Agreement will remain in effect until May 31, 2001 and thereafter
will continue from year to year upon annual approval of Galaxy's Board of
Trustees.
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<PAGE>
During the last three fiscal years, PFPC received administration fees (net
of fee waivers) as set forth below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Tax-Exempt Bond..................................................... $ $127,627 $117,223
New Jersey Municipal Bond........................................ .. $ - (1) *
New York Municipal Bond............................................. $ $9,775 $26,292
Connecticut Municipal Bond.......................................... $ $29,946 $ 0
Massachusetts Municipal Bond........................................ $ $46,188 $2,406
Rhode Island Municipal Bond......................................... $ $15,172 $12,293
</TABLE>
- --------------------------------
* Not in operation during the period.
(1) For the period from April 3, 1998 (commencement of operations) through
October 31, 1998.
During the last three fiscal years, PFPC waived administration fees as
set forth below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Tax-Exempt Bond.................................................... $ $0 $0
New Jersey Municipal Bond.......................................... $ $3,235(1) *
New York Municipal Bond............................................ $ $50,001 $25,827
Connecticut Municipal Bond......................................... $ $0 $39,755
Massachusetts Municipal Bond....................................... $ $0 $30,919
Rhode Island Municipal Bond........................................ $ $0 $0
</TABLE>
- --------------------------------
* Not in operation during the period.
(1) For the period from April 3, 1998 (commencement of operations) through
October 31, 1998.
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
pursuant to a Global Custody Agreement.
Under the Global 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
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<PAGE>
exercise reasonable care with respect to the safekeeping of the Funds' assets.
The assets of the Funds are held under bank custodianship in compliance with the
1940 Act.
PFPC serves as the Funds' transfer and dividend disbursing agent pursuant
to a Transfer Agency and Services Agreement (the "Transfer Agency Agreement").
Communications to PFPC should be directed to PFPC at P.O. Box 5108, 4400
Computer Drive, Westborough, Massachusetts 01581. Under the Transfer Agency
Agreement, PFPC 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.
EXPENSES
Fleet and PFPC bear all expenses in connection with the performance of
their services for the Funds, except that 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 PFPC); SEC fees; state
securities fees; costs of preparing and printing prospectuses for regulatory
purposes and for distribution to existing shareholders; advisory,
administration, shareholder servicing, Rule 12b-1 distribution (if applicable),
fund accounting and custody fees; charges of the transfer agent and dividend
disbursing agent; certain insurance premiums; outside auditing and legal
expenses; costs of independent pricing services; costs of shareholder reports
and meetings; and any extraordinary expenses. The Funds also pay for brokerage
fees and commissions in connection with the purchase of portfolio securities.
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
-68-
<PAGE>
with, or sell securities to, Fleet, PFPC, or their affiliates, and will not give
preference to affiliates and correspondent banks of Fleet with respect to such
transactions.
Galaxy is required to identify any securities of its "regular brokers or
dealers" that the Funds have acquired during Galaxy's most recent fiscal year.
During the fiscal year ended October 31, 1999, [INSERT UPDATED REGULAR
BROKER-DEALER INFO.]
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
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 render
certain administrative and support services to customers who are the beneficial
owners of Retail A Shares. Such services are provided to customers who are the
beneficial owners of Retail A Shares and are intended to supplement the services
provided by PFPC as administrator and transfer agent to the shareholders of
record of the Retail A Shares. The Plan provides that Galaxy will pay fees for
such services at an annual rate of up to .30% of the average daily net asset
value of Retail A Shares owned beneficially by customers. Institutions may
receive up to one-half of this fee for providing one or more of the following
services to such customers: aggregating and processing purchase and redemption
requests and placing net purchase and redemption orders with FD Distributors;
processing dividend payments from 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.
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
Statement of Additional Information, Galaxy has entered 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
-69-
<PAGE>
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. As of October
31, 1999, Galaxy had entered into Servicing Agreements only with Fleet Bank and
affiliates.
Each Servicing Agreement between Galaxy and a Service Organization relating
to the Services Plan requires that, with respect to those Funds which declare
dividends on a daily basis, the Service Organization agrees to waive a portion
of the servicing fee payable to it under the Services Plan to the extent
necessary to ensure that the fees required to be accrued with respect to the
Retail A Shares of such Funds on any day do not exceed the income to be accrued
to such Retail A Shares on that day.
During the last three fiscal years, Galaxy made payments to Service
Organizations with respect to Retail A Shares as shown in the table below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Tax-Exempt Bond.......................... $ $38,181 $37,652
New Jersey Municipal Bond................ $ $ 386(1) *
New York Municipal Bond.................. $ $64,145 $56,596
Connecticut Municipal Bond............... $ $37,207 $32,160
Massachusetts Municipal Bond............. $ $58,742 $40,842
Rhode Island Municipal Bond.............. $ $ 0 $ 0
</TABLE>
- ----------------------
* Not in operation during the period.
(1) For the period from April 3, 1998 (commencement of operations) through
October 31, 1998.
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.
-70-
<PAGE>
DISTRIBUTION AND SERVICES PLAN
Galaxy has adopted a Distribution and Services Plan pursuant to Rule 12b-1
under the 1940 Act (the "Rule") with respect to Retail B Shares of the
Tax-Exempt Bond Fund (the "12b-1 Plan"). Under the 12b-1 Plan, Galaxy may pay
(a) PDI or another person for expenses and activities intended to result in the
sale of Retail B Shares, including the payment of commissions to broker-dealers
and other industry professionals who sell Retail B Shares and the direct or
indirect cost of financing such payments, (b) institutions for shareholder
liaison services, which means personal services for holders of Retail B Shares
and/or the maintenance of shareholder accounts, such as responding to customer
inquiries and providing information on accounts, and (c) institutions for
administrative support services, which include but are not limited to (i)
transfer agent and sub-transfer agent services for beneficial owners of Retail B
Shares; (ii) aggregating and processing purchase and redemption orders; (iii)
providing beneficial owners with statements showing their positions in Retail B
Shares; (iv) processing dividend payments; (v) providing sub-accounting services
for Retail B Shares held beneficially; (vi) forwarding shareholder
communications, such as proxies, shareholder reports, dividend and tax notices,
and updating prospectuses to beneficial owners; and (vii) receiving, translating
and transmitting proxies executed by beneficial owners.
Under the 12b-1 Plan for Retail B Shares, payments by Galaxy (i) for
distribution expenses may not exceed the annualized rate of .65% of the average
daily net assets attributable to the Fund's outstanding Retail B Shares, and
(ii) to an institution for shareholder liaison services and/or administrative
support services may not exceed the annual rates of .15% and .15%, respectively,
of the average daily net assets attributable to the Fund's outstanding Retail B
Shares which are owned of record or beneficially by that institution's customers
for whom the institution is the dealer of record or shareholder of record or
with whom it has a servicing relationship. As of the date of this Statement of
Additional Information, Galaxy intends to limit the Fund's payments for
shareholder liaison and administrative support services under the 12b-1 Plan to
an aggregate fee of not more than .15% (on an annualized basis) of the average
daily net asset value of Retail B Shares owned of record or beneficially by
customers of institutions.
Payments for distribution expenses under the 12b-1 Plan are subject to the
Rule. The Rule defines distribution expenses to include the cost of "any
activity which is primarily intended to result in the sale of shares issued by"
Galaxy. 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 (the "12b-1 Trustees"), by vote cast in person at a meeting called
for the purpose of considering such amendments.
-71-
<PAGE>
During the last three fiscal years, Retail B Shares of the Tax-Exempt Bond
Fund bore the following distribution fees and shareholder servicing fees under
the 12b-1 Plan:
<TABLE>
<CAPTION>
SHAREHOLDER
FOR THE FISCAL YEAR ENDED OCTOBER 31: DISTRIBUTION FEES SERVICING FEES
- ------------------------------------- ----------------- --------------
<S> <C> <C>
1999................................................... $ $
1998................................................... $15,405 $3,555
1997................................................... $ 7,788 $1,784
</TABLE>
During these periods, 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 Fund and holders of Retail B
Shares. The 12b-1 Plan is subject to annual reapproval by a majority of the
12b-1 Trustees and is terminable at any time with respect to the Fund by a vote
of a majority of such Trustees or by vote of the holders of a majority of the
Retail B Shares of the Fund. Any agreement entered into pursuant to the 12b-1
Plan with a Service Organization is terminable with respect to the Fund without
penalty, at any time, by vote of a majority of the 12b-1 Trustees, by vote of
the holders of a majority of the Retail B Shares of the Fund, by PDI 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 the 12b-1 Trustees.
DISTRIBUTOR
PDI serves as Galaxy's distributor. PDI is a registered broker-dealer with
principal offices located at Four Falls Corporate Center, 6th floor, West
Conshohocken, Pennsylvania 19428-2961. Jane Haegele is the sole shareholder of
PDI.
Unless otherwise terminated, the Distribution Agreement between Galaxy and
PDI remains in effect until November 30, 2000, 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.
PDI 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 and this
Statement of Additional Information. Prior to ______, 1999, First Data
Distributors, Inc. ("FD Distributors"), a wholly-owned subsidiary of Investor
Services Group, served as Galaxy's distributor and was entitled to the payment
of the front-end sales charge on Retail A Shares of the Funds. During the last
three fiscal years, FD Distributors received front-end sales charges in
connection with Retail A Share purchases as follows:
-72-
<PAGE>
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Tax-Exempt Bond.............................. $ $ 18,288 $ 19,403
New Jersey Municipal Bond.................... $ $ 4,020(1) *
New York Municipal Bond...................... $ $ 71,005 $ 49,295
Connecticut Municipal Bond................... $ $ 54,683 $ 46,322
Massachusetts Municipal Bond................. $ $175,611 $140,492
Rhode Island Municipal Bond.................. $ $ 38,348 $ 22,941
</TABLE>
- ----------------------
* Not in operation during the period.
(1) For the period from April 3, 1998 (commencement of operations)
through October 31, 1998.
FD Distributors retained none of the amounts shown in the table above.
PDI is also entitled to the payment of contingent deferred sales charges
upon the redemption of Retail B Shares of the Tax-Exempt Bond Fund. Prior to
______, 1999, FD Distributors was entitled to the payment of such contingent
deferred sales charges. For the fiscal years ended October 31, 1999, October 31,
1998 and October 31, 1997, FD Distributors received contingent deferred sales
charges in connection with Retail B Share redemptions of the Tax-Exempt Bond
Fund in the amounts of $_________ , $7,124 and $5,353, respectively. FD
Distributors retained none of this amount.
-73-
<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, 1999:
<TABLE>
<CAPTION>
Net Underwriting Compensation on Brokerage Commissions
Discounts and Redemption and in Connection with Other
Fund Commissions(1) Repurchase(2) Fund Transactions Compensation(3)
---- ---------------- --------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Tax-Exempt
Bond
$ $ $ $
New Jersey
Municipal
Bond
$ $ $ $
New York
Municipal
Bond
$ $ $ $
Connecticut
Municipal
Bond
$ $ $ $
Massachusetts
Municipal
Bond
$ $ $ $
Rhode Island
Municipal
Bond
$ $ $ $
</TABLE>
- ----------------------
(1) Represents amounts received from front-end sales charges on Retail A
Shares and commissions received in connection with sales of Retail B
Shares.
(2) Represents amounts received from contingent deferred sales charges on
Retail B Shares. The basis on which such sales charges are paid is
described in the Prospectus relating to Retail B Shares. All such
amounts were paid to affiliates of Fleet.
(3) Represents payments made under the Shareholder Services Plan and
Distribution and Services Plan during the fiscal year ended October 31,
1999, which includes fees accrued in the fiscal year ended October 31,
1998 which were paid in 1999 (see "Shareholder Services Plan" and
"Distribution and Services Plan" above).
AUDITORS
[ ], independent auditors, with offices at [ ],
serve as auditors for 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 with respect to the Funds
(the "Annual Report") and
-74-
<PAGE>
[ ] into this Statement of Additional Information for the
fiscal year ended October 31, 1999 have been audited by [ ].
For the respective fiscal years and periods prior to October 31, 1999, the
financial highlights for the Funds included in the Prospectuses and the
financial statements for such years and periods contained in the Annual
Report were audited by [ ], Galaxy's former auditors.
COUNSEL
Drinker Biddle & Reath LLP (of which W. Bruce McConnel, III, Secretary of
Galaxy, is a partner), One Logan Square, 18th & Cherry Streets, Philadelphia,
Pennsylvania 19103, are counsel to Galaxy, will pass upon certain legal matters
on its behalf, and has reviewed the portion of this Statement of Additional
Information and the Prospectuses with respect to the New Jersey Municipal Bond
Fund concerning New Jersey taxes and the description of special considerations
relating to New Jersey Municipal Securities. The law firm of Willkie Farr &
Gallagher, One Citicorp Center, 153 East 53rd Street, New York, New York 10022,
serves as special New York counsel to Galaxy and has reviewed the portion of
this Statement of Additional Information and the Prospectuses with respect to
the New York Municipal Bond Fund concerning New York taxes and the description
of special considerations relating to New York Municipal Securities. The law
firm of Day, Berry & Howard, Cityplace, Hartford, Connecticut 06103-3499 serves
as special Connecticut counsel to Galaxy and has reviewed the portion of this
Statement of Additional Information and the Prospectuses with respect to the
Connecticut Municipal Bond Fund concerning Connecticut taxes and the description
of special considerations relating to Connecticut Municipal Securities. The law
firm of Ropes & Gray, One International Place, Boston, Massachusetts 02110-2624
serves as special Massachusetts counsel and special Rhode Island counsel to
Galaxy and has reviewed the portion of this Statement of Additional Information
and the Prospectuses with respect to the Massachusetts Municipal Bond Fund
concerning Massachusetts taxes and the description of special considerations
relating to Massachusetts Municipal Securities and the portion of this Statement
of Additional Information and the Prospectus with respect to the Rhode Island
Municipal Bond Fund concerning Rhode Island taxes and the description of Special
Considerations relating to Rhode Island Municipal Securities.
PERFORMANCE AND YIELD INFORMATION
Investment returns and principal values will vary with market conditions so
that an investor's shares, when redeemed, may be worth more or less than their
original cost. 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.
The Funds' 30-day (or one month) standard yields are calculated separately
for each series of shares in each Fund in accordance with the method prescribed
by the SEC for mutual funds:
-75-
<PAGE>
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 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
-76-
<PAGE>
to actual monthly pay-downs are accounted for as an increase or decrease to
interest income during the period, and (ii) each Fund may elect either (a) to
amortize the discount and premium on the remaining security, based on the cost
of the security, to the weighted average maturity date, if such information is
available, or to the remaining term of the security, if any, if the weighted
average date is not available or (b) not to amortize discount or premium on the
remaining security.
The "tax-equivalent" yield of the New Jersey Municipal Bond, New York
Municipal Bond, Connecticut Municipal Bond, Massachusetts Municipal Bond and
Rhode Island Municipal Bond Funds is computed by: (a) dividing the portion of
each Fund's yield (calculated as above) that is exempt from both federal and
state income taxes by one minus a stated combined federal and state income tax
rate; (b) dividing the portion of the Fund's yield (calculated as above) that is
exempt from federal income tax only by one minus a stated federal income tax
rate; and (c) adding the figures resulting from (a) and (b) above to that
portion, if any, of the yield that is not exempt from federal income tax. The
tax-equivalent yield of the Tax-Exempt Bond Fund is computed by (a) dividing the
portion of the yield (calculated as above) that is exempt from federal income
tax by one minus a stated federal income tax rate and (b) adding that figure to
that portion, if any, of the yield that is not exempt from federal income tax.
Based on the foregoing calculations, the standard yields and tax-equivalent
yields for Retail A Shares and Trust Shares of the Funds for the 30-day period
ended October 31, 1999 were as set forth below:
<TABLE>
<CAPTION>
RETAIL A TRUST
FUND STANDARD TAX-EQUIVALENT STANDARD TAX-EQUIVALENT
- ---- -------- -------------- -------- --------------
<S> <C> <C> <C> <C>
Tax-Exempt Bond...................... % % % %
New Jersey Municipal Bond............ % % % %
New York Municipal Bond.............. % % % %
Connecticut Municipal Bond........... % % % %
Massachusetts Municipal Bond......... % % % %
Rhode Island Municipal Bond.......... % % * *
</TABLE>
- ----------------------
* The Rhode Island Municipal Bond Fund does not offer Trust Shares.
Based on the foregoing calculations, (i) the standard yield for Retail B
Shares of the Tax-Exempt Bond Fund for the 30-day period ended October 31, 1999
was ____%, and (ii) the tax-equivalent yield for Retail B Shares of the
Tax-Exempt Bond Fund for the 30-day period ended October 31, 1999 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]
-77-
<PAGE>
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) period at the end
of the applicable period (or a fractional
portion thereof);
P = hypothetical initial payment of $1,000; and
n = period covered by the computation, expressed in years.
Each Fund that advertises its "aggregate total return" computes such
returns separately for each series of shares by determining the aggregate
compounded rates of return during specified periods that likewise equate the
initial amount invested to the ending redeemable value of such investment. The
formula for calculating aggregate total return is as follows:
Aggregate Total Return = [(ERV/P)-1]
The calculations are made assuming that (1) all dividends and capital gain
distributions are reinvested on the reinvestment dates at the price per share
existing on the reinvestment date, (2) all recurring fees charged to all
shareholder accounts are included, and (3) for any account fees that vary with
the size of the account, a mean (or median) account size in the Fund during the
periods is reflected. The ending redeemable value (variable "ERV" in the
formula) is determined by assuming complete redemption of the hypothetical
investment after deduction of all nonrecurring charges at the end of the
measuring period. In addition, the Funds' Retail Shares average annual 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, as the case may be.
The aggregate total returns for Retail A Shares and Trust Shares of the
Funds from the date of initial public offering through October 31, 1999 are set
forth below:
<TABLE>
<CAPTION>
FUND RETAIL A TRUST
- ---- -------- -----
<S> <C> <C>
Tax-Exempt Bond...................... %(1) %(1)
New Jersey Municipal Bond............ %(2) %(2)
New York Municipal Bond.............. %(3) %(3)
Connecticut Municipal Bond........... %(4) %(4)
Massachusetts Municipal Bond......... %(5) %(5)
Rhode Island Municipal Bond.......... %(6) %*
</TABLE>
- ----------------------
* The Rhode Island Municipal Bond Fund does not offer Trust Shares.
(1) For the period from December 30, 1991 (initial public offering date)
through October 31, 1999.
(2) For the period from April 3, 1998 (initial public offering date)
through October 31, 1999.
(3) For the period from December 31, 1991 (initial public offering date)
through October 31, 1999.
(4) For the period from March 16, 1993 (initial public offering date)
through October 31, 1999.
(5) For the period from March 12, 1993 (initial public offering date)
through October 31, 1999.
(6) For the period from December 20, 1994 (initial public offering date)
through October 31, 1999.
The aggregate total return for Retail B Shares of the Tax-Exempt Bond Fund
from March 4, 1996 (initial public offering date) through October 31, 1999 was
_____%.
-78-
<PAGE>
The average annual total returns for Retail A Shares and Trust Shares (as
applicable) of the Funds for the one-year and five-year periods (as applicable)
ended October 31, 1999 are as set forth below:
<TABLE>
<CAPTION>
RETAIL A TRUST
FUND ONE-YEAR FIVE-YEAR ONE-YEAR FIVE-YEAR
- ---- -------- --------- -------- ---------
<S> <C> <C> <C> <C>
Tax-Exempt Bond.............................. % % % %
New Jersey Municipal Bond.................... % %* % %*
New York Municipal Bond...................... % % % %
Connecticut Municipal Bond................... % % % %
Massachusetts Municipal Bond................. % % % %
Rhode Island Municipal Bond.................. % %* %** %**
</TABLE>
- ----------------------
* Not offered during the full period.
** The Rhode Island Municipal Bond Fund does not offer Trust Shares.
The average annual total return for Retail B Shares of the Tax-Exempt
Bond Fund for the one-year period ended October 31, 1999 was ____%.
TAX EQUIVALENCY TABLES - NEW JERSEY MUNICIPAL BOND AND NEW YORK MUNICIPAL BOND
FUNDS
The New Jersey Municipal Bond and New York Municipal Bond Funds may use
tax-equivalency tables in advertising and sales. These tables are intended to
demonstrate the advantages of investing in tax free investments such as the New
Jersey Municipal Bond and New York Municipal Bond Funds. The tax exempt yields
used here are hypothetical and no assurance can be made that the Fund will
obtain any particular yield. A Fund's yield fluctuates as market conditions
change.
The tax brackets and related yield calculations are based on the expected
2000 Federal and state marginal tax rates. The combined Federal and state rate
reflects an assumed deduction of the state tax liability. In fact, however,
certain limitations on this deductibility may apply. Also, the tables do not
reflect the phase out of personal exemptions and itemized deductions which will
apply to certain higher income taxpayers.
Investors are urged to consult their tax advisors as to these matters.
-79-
<PAGE>
New Jersey 1999
Equivalent yields: Tax-exempt
<TABLE>
<CAPTION>
New Jersey New Jersey Tax Equivalent Yields:**
$ Taxable Income* State Federal & Federal -----------------------------------
Single Rate Rate Effective Rate 1.5%
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
0-20,000 1.40% 15.0% 16.19% 1.79%
20,001-25,750 1.75% 15.0% 16.49% 1.80%
25,751-35,000 1.75% 28.0% 29.26% 2.12%
35,001-40,000 3.50% 28.0% 30.52% 2.16%
40,001-62,450 5.525% 28.0% 31.98% 2.21%
62,451-75,000 5.525% 31.0% 34.81% 2.30%
75,001-130,250 6.37% 31.0% 35.40% 2.32%
130,251-283,150 6.37% 36.0% 40.08% 2.50%
Over 283,150 6.37% 39.6% 43.45% 2.65%
- --------------------------------------------------------------------------------------------
<CAPTION>
New Jersey Tax Equivalent Yields:**
$ Taxable Income* -----------------------------------------------------------------------
Single 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0%
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0-20,000 2.39% 2.98% 3.58% 4.18% 4.77% 5.37% 5.97% 6.56% 7.16%
20,001-25,750 2.39% 2.99% 3.59% 4.19% 4.79% 5.39% 5.99% 6.59% 7.18%
25,751-35,000 2.83% 3.53% 4.24% 4.95% 5.65% 6.36% 7.07% 7.77% 8.48%
35,001-40,000 2.88% 3.60% 4.32% 5.04% 5.76% 6.48% 7.20% 7.92% 8.64%
40,001-62,450 2.94% 3.68% 4.41% 5.15% 5.88% 6.62% 7.35% 8.09% 8.82%
62,451-75,000 3.07% 3.84% 4.60% 5.37% 6.14% 6.90% 7.67% 8.44% 9.20%
75,001-130,250 3.10% 3.87% 4.64% 5.42% 6.19% 6.97% 7.74% 8.51% 9.29%
130,251-283,150 3.34% 4.17% 5.01% 5.84% 6.68% 7.51% 8.34% 9.18% 10.01%
Over 283,150 3.54% 4.42% 5.30% 6.19% 7.07% 7.96% 8.84% 9.73% 10.61%
- -------------------------------------------------------------------------------------------
<CAPTION>
New Jersey New Jersey Tax Equivalent Yields:**
$ Taxable Income State Federal & Federal -----------------------------------
Married Filing Jointly Rate Rate Effective rate 1.5% 2.0%
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
0-20,000 1.40% 15.0% 16.19% 1.79% 2.39%
20,001-43,050 1.75% 15.0% 16.49% 1.80% 2.39%
43,051-50,000 1.75% 28.0% 29.26% 2.12% 2.83%
50,001-70,000 2.45% 28.0% 29.76% 2.14% 2.85%
70,001-80,000 3.50% 28.0% 30.52% 2.16% 2.88%
80,001-104,050 5.525% 28.0% 31.98% 2.21% 2.94%
104,051-150,000 5.525% 31.0% 34.81% 2.30% 3.07%
150,001-158,550 6.37% 31.0% 35.40% 2.32% 3.10%
158,551-283,150 6.37% 36.0% 40.08% 2.50% 3.34%
Over 283,150 6.37% 39.6% 43.45% 2.65% 3.54%
- ------------------------------------------------------------------------------------------------------
<CAPTION>
New Jersey Tax Equivalent Yields:**
$ Taxable Income ---------------------------------------------------------------
Married Filing Jointly 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0%
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0-20,000 2.98% 3.58% 4.18% 4.77% 5.37% 5.97% 6.56% 7.16%
20,001-43,050 2.99% 3.59% 4.19% 4.79% 5.39% 5.99% 6.59% 7.18%
43,051-50,000 3.53% 4.24% 4.95% 5.65% 6.36% 7.07% 7.77% 8.48%
50,001-70,000 3.56% 4.27% 4.98% 5.70% 6.41% 7.12% 7.83% 8.54%
70,001-80,000 3.60% 4.32% 5.04% 5.76% 6.48% 7.20% 7.92% 8.64%
80,001-104,050 3.68% 4.41% 5.15% 5.88% 6.62% 7.35% 8.09% 8.82%
104,051-150,000 3.84% 4.60% 5.37% 6.14% 6.90% 7.67% 8.44% 9.20%
150,001-158,550 3.87% 4.64% 5.42% 6.19% 6.97% 7.74% 8.51% 9.29%
158,551-283,150 4.17% 5.01% 5.84% 6.68% 7.51% 8.34% 9.18% 10.01%
Over 283,150 4.42% 5.30% 6.19% 7.07% 7.96% 8.84% 9.73% 10.61%
- -------------------------------------------------------------------------------------------
</TABLE>
* This amount represents taxable income as defined in the Internal Revenue
Code. It is assumed that taxable income for New Jersey tax purposes is
the same as defined in the Internal Revenue Code. In fact, however, New
Jersey taxable income may differ due to differences in exemptions,
itemized deductions and other items.
** Each entry represents the taxable yield that is the equivalent to the
specified Federal and New Jersey tax-exempt yield for a New Jersey
taxpayer in the specified income bracket.
-80-
<PAGE>
NEW YORK STATE AND CITY: 1999
Equivalent yields: Tax-exempt
<TABLE>
<CAPTION>
Taxable Income* State New York State New York State
- ------------------------------ State City Federal and Federal City and Federal
Single City rate*** rate Combined rate Effective Date Effective Rate**
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
0 - 8,000 3.05% 4% 7.04950% 15% 18.40% 20.99%
8,001 - 11,000 3.05% 4.5% 7.54950% 15% 18.83% 21.42%
11,001 - 12,000 3.05% 5.25% 8.29950% 15% 19.46% 22.05%
12,001 - 13,000 3.71% 5.25% 8.96355% 15% 19.46% 22.62%
13,001 - 20,000 3.71% 5.9% 9.61355% 15% 20.02% 23.17%
20,001 - 25,000 3.71% 6.85% 10.56355% 15% 20.82% 23.98%
25,001 - 25,750 3.77% 6.85% 10.62055% 15% 20.82% 24.03%
25,751 - 50,000 3.77% 6.85% 10.62055% 28% 32.93% 35.65%
50,001 - 61,450 3.83% 6.85% 10.62055% 28% 32.93% 35.69%
61,451 - 130,250 3.83% 6.85% 10.67755% 31% 35.73% 38.37%
130,251 - 283,150 3.83% 6.85% 10.67755% 36% 40.38% 42.83%
over 283,150 3.83% 6.85% 10.67755% 39.6% 43.74% 46.05%
- ---------------------------------------------------------------------------------------------
<CAPTION>
New York Tax Equivalent Yields:****
Taxable Income*
- ------------------ ---------------------------------------------------------------------------
Single 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 5.0% 5.5% 6.0%
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 - 8,000 1.90% 2.53% 3.16% 3.80% 4.43% 5.06% 6.33% 6.96% 7.59%
8,001 - 11,000 1.91% 2.55% 3.18% 3.82% 4.45% 5.09% 6.36% 7.00% 7.64%
11,001 - 12,000 1.92% 2.57% 3.21% 3.85% 4.49% 5.13% 6.41% 7.06% 7.70%
12,001 - 13,000 1.94% 2.58% 3.23% 3.88% 4.52% 5.17% 6.46% 7.11% 7.75%
13,001 - 20,000 1.95% 2.60% 3.25% 3.90% 4.56% 5.21% 6.51% 7.16% 7.81%
20,001 - 25,000 1.97% 2.63% 3.29% 3.95% 4.60% 5.26% 6.58% 7.23% 7.89%
25,001 - 25,750 1.97% 2.63% 3.29% 3.95% 4.61% 5.27% 6.58% 7.24% 7.90%
25,751 - 50,000 2.33% 3.11% 3.88% 4.66% 5.44% 6.22% 7.77% 8.55% 9.32%
50,001 - 61,450 2.33% 3.11% 3.89% 4.66% 5.44% 6.22% 7.77% 8.55% 9.33%
61,451 - 130,250 2.43% 3.25% 4.06% 4.87% 5.68% 6.49% 8.11% 8.92% 9.74%
130,251 - 283,150 2.62% 3.50% 4.37% 5.25% 6.12% 7.00% 8.75% 9.62% 10.50%
over 283,150 2.78% 3.71% 4.63% 5.55% 6.49% 7.41% 9.27% 10.19% 11.12%
- ------------------------------------------------------------------------------------------------
<CAPTION>
Taxable Income* State New York State New York State
- ------------------------------ State City Federal and Federal City and Federal
Joint City rate*** rate Combined rate Effective Date Effective Rate**
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
0 - 16,000 3.05% 4% 7.04950% 15% 18.40% 20.99%
16,001 - 21,600 3.05% 4.5% 7.54950% 15% 18.83% 21.42%
21,601 - 22,000 3.71% 4.5% 8.21355% 15% 18.83% 21.88%
22,001 - 26,000 3.71% 5.25% 8.96355% 15% 19.46% 22.62%
26,001 - 40,000 3.71% 5.9% 9.61355% 15% 20.02% 23.17%
40,001 - 43,050 3.71% 6.85% 10.56355% 15% 20.82% 23.98%
43,051 - 45,000 3.71% 6.85% 10.56355% 28% 32.93% 35.61%
45,001 - 90,000 3.77% 6.85% 10.62055% 28% 32.93% 35.65%
90,001 - 104,050 3.83% 6.85% 10.67755% 28% 32.93% 35.69%
104,051 - 158,550 3.83% 6.85% 10.67755% 31% 35.73% 38.37%
158,551 - 283,150 3.83% 6.85% 10.67755% 36% 40.38% 42.83%
over 283,150 3.83% 6.85% 10.67755% 39.6% 43.74% 46.05%
- ---------------------------------------------------------------------------------------------
<CAPTION>
New York Tax Equivalent Yields:****
Taxable Income*
- ------------------ ---------------------------------------------------------------------------
Joint 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 5.0% 5.5% 6.0%
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 - 16,000 1.90% 2.53% 3.16% 3.80% 4.43% 5.06% 6.33% 6.96% 7.59%
16,001 - 21,600 1.91% 2.55% 3.18% 3.82% 4.45% 5.09% 6.36% 7.00% 7.64%
21,601 - 22,000 1.92% 2.56% 3.20% 3.85% 4.49% 5.13% 6.41% 7.05% 7.69%
22,001 - 26,000 1.94% 2.59% 3.23% 3.88% 4.52% 5.17% 6.46% 7.11% 7.75%
26,001 - 40,000 1.95% 2.60% 3.25% 3.90% 4.56% 5.21% 6.51% 7.16% 7.81%
40,001 - 43,050 1.97% 2.63% 3.29% 3.95% 4.60% 5.26% 6.58% 7.23% 7.89%
43,051 - 45,000 2.33% 3.11% 3.88% 4.66% 5.44% 6.21% 7.76% 8.54% 9.32%
45,001 - 90,000 2.33% 3.11% 3.88% 4.66% 5.44% 6.22% 7.77% 8.55% 9.32%
90,001 - 104,050 2.33% 3.11% 3.89% 4.66% 5.44% 6.22% 7.77% 8.55% 9.33%
104,051 - 158,550 2.43% 3.25% 4.06% 4.87% 5.68% 6.49% 8.11% 8.92% 9.74%
158,551 - 283,150 2.62% 3.50% 4.37% 5.25% 6.12% 7.00% 8.75% 9.62% 10.50%
over 283,150 2.78% 3.71% 4.63% 5.56% 6.49% 7.41% 9.27% 10.19% 11.12%
- ------------------------------------------------------------------------------------------------
</TABLE>
* This amount represents taxable income as defined in the Internal
Revenue Code. It is assumed that taxable income as defined in the
Internal Revenue Code is the same as under the New York State or City
Personal Income Tax law; however, New York state or city taxable income
may differ due to differences in exemptions, itemized deductions, and
other items.
** For federal tax purposes, these combined rates reflect the applicable
marginal rates for 1998, including indexing for inflation. These rates
include the effect of deducting state and city taxes on your Federal
return. For New York purposes, these combined rates reflect the
expected New York State and New York City tax and surcharge rates for
1998.
*** The New York city rate is comprised of the tax base rate, city
surcharge, and the additional city surcharge for 1998.
**** These represent New York State, City, and Federal Equivalent Yields.
-81-
<PAGE>
TAX-EQUIVALENCY TABLES - CONNECTICUT MUNICIPAL BOND, MASSACHUSETTS MUNICIPAL
BOND, AND RHODE ISLAND MUNICIPAL BOND FUNDS
The Connecticut Municipal Bond, Massachusetts Municipal Bond and Rhode
Island Municipal Bond Funds may use tax-equivalency tables in advertising and
sales literature. The interest earned by the Municipal Securities in the Funds'
respective portfolios generally remains free from federal regular income tax,
and from the regular personal income tax imposed by Connecticut, Massachusetts
and Rhode Island, respectively. Some portion of the Funds' income may, however,
be subject to the federal alternative minimum tax and state and local regular or
alternative minimum taxes. As the tables below indicate, "tax-free" investments
may be attractive choices for investors, particularly in times of narrow spreads
between "tax-free" and taxable yields.
The charts below are for illustrative purposes only and use tax brackets
that were in effect beginning January 1, 1999. These are not indicators of past
or future performance of the Connecticut Municipal Bond, Massachusetts Municipal
Bond and Rhode Island Municipal Bond Funds.
Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent for each chart. Furthermore, additional
state and local taxes paid on comparable taxable investments were not used to
increase federal deductions. Moreover, the charts do not reflect the possible
effect of all items relating to the effective marginal tax rate, such as
alternative minimum tax, personal exemptions, tax credits, the phase-out of
exemptions or credits, itemized deductions (including the federal deduction for
state taxes paid) or the possible partial disallowance of deductions.
Connecticut Note: The charts below do not address taxable equivalent
yields applicable to married taxpayers filing separate returns or heads of
households.
Investors are urged to consult their own tax advisors as to these
matters.
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1999
STATE OF CONNECTICUT
<S> <C> <C> <C> <C> <C>
Federal Tax Bracket: 15.00% 28.00% 31.00% 36.00% 39.60%
Combined Federal and State: 19.50% 32.50% 35.50% 40.50% 44.10%
Joint Return: $1-43,050 $43,051-104,050 $104,051-158,550 $158,551-283,150 Over $283,151
Single Return: $1-25,750 $25,751-62,450 $62,451-130,250 $130,251-283,150 Over $283,151
Tax-Exempt Yield:
</TABLE>
-82-
<PAGE>
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT
<S> <C> <C> <C> <C> <C>
1.50% 1.86% 2.22% 2.33% 2.52% 2.68%
2.00% 2.48% 2.96% 3.10% 3.36% 3.58%
2.50% 3.11% 3.70% 3.88% 4.20% 4.47%
3.00% 3.73% 4.44% 4.65% 5.04% 5.37%
3.50% 4.35% 5.19% 5.43% 5.88% 6.26%
4.00% 4.97% 5.93% 6.20% 6.72% 7.16%
4.50% 5.59% 6.67% 6.98% 7.56% 8.05%
5.00% 6.21% 7.41% 7.75% 8.40% 8.94%
5.50% 6.83% 8.15% 8.53% 9.24% 9.84%
6.00% 7.45% 8.89% 9.30% 10.08% 10.73%
</TABLE>
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1999
COMMONWEALTH OF MASSACHUSETTS
<S> <C> <C> <C> <C> <C>
Federal Tax Bracket: 15.00% 28.00% 31.00% 36.00% 39.60%
Combined Federal and State: 20.95% 33.95% 36.95% 41.95% 45.55%
Joint Return: $1-43,050 $43,051-104,050 $104,051-158,550 $158,551-283,150 Over $283,151
Single Return: $1-25,750 $25,751-62,450 $62,451-130,250 $130,251-283,150 Over $283,151
Tax-Exempt Yield:
</TABLE>
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT
<S> <C> <C> <C> <C> <C>
1.50% 1.90% 2.27% 2.38% 2.58% 2.75%
2.00% 2.53% 3.03% 3.17% 3.45% 3.67%
2.50% 3.16% 3.79% 3.97% 4.31% 4.59%
3.00% 3.80% 4.54% 4.76% 5.17% 5.51%
3.50% 4.43% 5.30% 5.55% 6.03% 6.43%
4.00% 5.06% 6.06% 6.34% 6.89% 7.35%
4.50% 5.69% 6.81% 7.14% 7.75% 8.26%
5.00% 6.33% 7.57% 7.93% 8.61% 9.18%
5.50% 6.96% 8.33% 8.72% 9.47% 10.10%
6.00% 7.59% 9.08% 9.52% 10.34% 11.02%
</TABLE>
-83-
<PAGE>
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1999
STATE OF RHODE ISLAND
<S> <C> <C> <C> <C> <C>
Federal Tax Bracket: 15.00% 28.00% 31.00% 36.00% 39.60%
Combined Federal and State: 18.98% 35.42% 39.22% 45.54% 50.09%
Joint Return: $0-43,050 $43,051-104,050 $104,051-158,550 $158,551-283,150 Over $283,151
Single Return: $0-25,750 $25,751-62,450 $62,451-130,250 $130,251-283,150 Over $283,151
Tax-Exempt Yield:
</TABLE>
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT
<S> <C> <C> <C> <C> <C>
1.50% 1.85% 2.32% 2.47% 2.75% 3.01%
2.00% 2.47% 3.10% 3.29% 3.67% 4.01%
2.50% 3.09% 3.87% 4.11% 4.59% 5.01%
3.00% 3.70% 4.65% 4.94% 5.51% 6.01%
3.50% 4.32% 5.42% 5.76% 6.43% 7.01%
4.00% 4.94% 6.19% 6.58% 7.34% 8.01%
4.50% 5.55% 6.97% 7.40% 8.26% 9.02%
5.00% 6.17% 7.74% 8.23% 9.18% 10.02%
5.50% 6.79% 8.52% 9.05% 10.10% 11.02%
6.00% 7.41% 9.29% 9.87% 11.02% 12.02%
</TABLE>
-84-
<PAGE>
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, Retail B
Shares, Prime A Shares and Prime B Shares of the Funds.
The standard yield is computed as described above. Each Fund may also
advertise its "effective yield" which is calculated similarly but, when
annualized, the income earned by an investment in a Fund is assumed to be
reinvested. Each Fund may also quote its "tax equivalent yield" which
demonstrates the level of taxable yield necessary to produce an after-tax
equivalent yield to the Fund's tax-free yield. It is calculated as described
above. A Fund's tax-equivalent yield will always be higher than its yield.
The Funds may also advertise their performance using "average annual
total return" figures over various periods of time. Such total return figures
reflect the average percentage change in the value of an investment in a Fund
from the beginning date of the measuring period to the end of the measuring
period and are calculated as described above. Average total return figures will
be given for the most recent one-, five- and ten-year periods (if applicable),
and may be given for other periods as well, such as from the commencement of a
Fund's operations, or on a year-by-year basis. Each Fund may also use "aggregate
total return" figures for various periods, representing the cumulative change in
the value of an investment in a Fund for the specified period. Both methods of
calculating total return reflect the maximum front-end sales load charged by the
Funds for Retail A Shares and the applicable contingent deferred sales charge
for Retail B Shares of the Tax-Exempt Bond Fund and assume that dividends and
capital gains distributions made by a Fund during the period are reinvested in
Fund shares.
The Funds may also advertise total return data without reflecting the
sales charges imposed on the purchase of Retail A Shares or the redemption of
Retail B Shares in accordance with the rules of the SEC. Quotations that do not
reflect the sales charges will be higher than quotations that do reflect the
sales charges.
The performance of the Funds will fluctuate and any quotation of
performance should not be considered as representative of 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
-85-
<PAGE>
guaranteed fixed yield for a stated period of time. Shareholders should remember
that performance data are generally functions of the kind and quality of the
instruments held in a portfolio, portfolio maturity, operating expenses, and
market conditions. Any additional fees charged by institutions with respect to
accounts of customers that have invested in shares of a Fund will not be
included in performance calculations.
The portfolio managers of the Funds and other investment professionals
may from time to time discuss in advertising, sales literature or other
material, including periodic publications, various topics of interest to
shareholders and prospective investors. The topics may include but are not
limited to the advantages and disadvantages of investing in tax-deferred and
taxable investments; Fund performance and how such performance may compare to
various market indices; shareholder profiles and hypothetical investor
scenarios; the economy; the financial and capital markets; investment strategies
and techniques; investment products; and tax, retirement and investment
planning.
MISCELLANEOUS
As used in this Statement of Additional Informational, "assets belonging
to" a particular Fund or series of a Fund means the consideration received by
Galaxy upon the issuance of shares in that particular Fund or 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.
Shareholders will receive unaudited semi-annual reports describing the
Funds' investment operations and annual financial statements audited by
independent certified public accountants.
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.
As of November 30, 1999, 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 Government 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 (99.87%); 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 14638, Account 00000012621 (98.58%); Equity Value Fund -- Gales &
Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000000064 (76.43%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000003204 (14.55%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000011551 (7.23%); Equity Growth Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000082 (70.31%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000010017 (15.31%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000030718 (14.04%); Equity Income Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000015771 (48.75%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000003748 (36.92%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000000037 (13.37%); International Equity Fund --Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000073 (42.99%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000000876 (39.29%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000004088 (14.13%); Growth and Income Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 05000503793 (76.73%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 05000503873 (19.78%); Asset Allocation Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000073 (93.27%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000002598 (5.98%); Small Company Equity -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000046 (66.04%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000001492 (24.41%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000006102 (7.33%); Institutional Treasury Money Market Fund -- Fleet
New York, Fleet Investment Services, 159 East Main Street, NY/RO/TO3C,
Rochester, NY 14638, Account 00000000019 (91.11%); Luitpold Pharmaceuticals
Inc., Kirk Sobecki, CFO, Attn: Harold Noviello, One Luitpold Drive, Shirley,
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NY 11967, Account 05100281441 (7.02%); Small Cap Value Fund -- Gales & Co.,
Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 05000503999 (48.74%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 05000503917 (31.01%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 05000503953 (19.77%); Strategic Equity Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 5100115522 (97.48%); Intermediate Government Income
Fund -- Gales & Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A,
159 East Main Street, Rochester, NY 14638, Account 00000038408 (38.48%); Gales &
Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000007183 (34.80%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000037 (26.20%); High Quality Bond Fund --
Gales & Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East
Main Street, Rochester, NY 14638, Account 00000000037 (62.76%); Gales & Co.,
Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000001465 (24.53%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000006095 (12.37%); Short-Term Bond Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000008627 (31.48%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000000064 (46.43%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000001090 (21.82%); Tax-Exempt Bond Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000005899 (34.38%) Gales & Co, Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000000028 (38.95%); Gales and Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000000670 (26.42%); Connecticut Municipal Bond Fund -- Gales & Co.,
Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000019 (74.69%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000000037 (24.84%); Massachusetts Municipal Bond Fund -- Gales
& Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000000019 (48.96%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000073 (49.06%); Corporate Bond Fund -- Gales
& Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000000046 (44.33%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000006102 (36.50%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000001492 (12.65%); New Jersey Municipal Bond Fund -- Gales &
Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/T04A, 159 East Main
Street, Rochester, NY 14638, Account 5100115489 (51.69%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 5100115504 (35.56%); BOB & Co., c/o Bank
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of Boston, Attn: Mutual Fund Dept. 45-02-06, P.O. Box 1809, Boston, MA 02105,
Account 5102076990 (12.74%); and New York Municipal Bond Fund -- Gales & Co.,
Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000019 (9.36%); Gales & Co., Fleet Investment
Services, Mutual Fund Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000001107 (70.04%); Gales & Co., Fleet Investment Services,
Mutual Fund Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000005292 (14.85%); BOB & Co., c/o Bank of Boston, Attn: Mutual Fund
Dept. 45-02-06, P.O. Box 1809, Boston, MA 02105, Account 5102076990 (5.68%).
As of November 30, 1999, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding Retail A
Shares of each of Galaxy's investment portfolios (including shares of the
Connecticut Municipal Money Market and Massachusetts Municipal Money Market
Funds) were as follows: Tax-Exempt Money Market Fund -- Ellsworth Kelly, P.O.
Box 151, 45 South Street, Spencertown, NY 12165, Account 0000063825 (6.99%);
U.S. Treasury Money Market Fund -- US Clearing, a Division of Fleet Securities
Inc., 26 Broadway, New York, NY 10004, Account 05100115684 (10.40%);
Massachusetts Municipal Money Market Fund -- Fleet New York, Fleet Investment
Services, 159 East Main St., NY/RO/TO3C, Rochester, NY 14638, Account
05100058503 (61.34%); Connecticut Municipal Money Market Fund -- Fleet New York,
Fleet Investment Services, 159 East Main St., NY/RO/TO3C, Rochester, NY 14638,
Account 05100058521 (48.64%); William L. Bucknall & Norma Lee Bucknall, 5 Oak
Ridge Drive, Bethany, CT 06524, Account 0000002259 (5.16%); 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
(40.88%); James R. McCulloch, c/o Microfibre, PO Box 1208, Pawtucket, RI 02860,
Account 05000414933 (9.11%); New York Municipal Bond Fund -- Marilyn J.
Brantley, 5954 Van Allen Road, Belfast, NY 14711, Account 05100977627 (11.78%);
New Jersey Municipal Bond Fund -- Jeffery W. Golden, 7 Hampton Ridge CT, Old
Tappan, NJ 07675, Account 05100780704 (16.09%); John W. Maki & Kimberly McGrath
Maki JT, 1 Connet Lane, Mendham, NJ, 07945, Account 05100011377 (33.47%); US
Clearing Corp., FBO 979-06374-12, 26 Broadway, New York, NY 10004-1798, Account
07000100574 (27.89%); Serene W. Peng, 70 Chelsea, Watchung, NJ 07060, Account
5101583480 (17.19%); Tax-Exempt Bond Fund -- Danny Schulman, 9 Corn Mill Ct.,
Upper Saddle River, NJ 07458, Account 510116598 (6.11%); and Massachusetts
Municipal Bond Fund -- New England Realty Assoc., Robert Blank, Ronald Brown,
Harold Brown and Carl Veleri, 39 Brighton Ave., Boston MA 02134, Account
5100587013 (6.59%).
As of November 30, 1999, 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 -- Worldmark Master Fund, LLC, D. Dean Rhodes auth. officer or Richard J.
Gates (investment adviser), 11466 Old Harber Road, N. Palm Beach, FL 33408,
Account 5102031823 (18.24%); Worldmark Master Fund, LLC, D. Dean Rhodes auth.
officer or Richard J. Gates (investment adviser) 11465 Old Harbor Road, N. Palm
Beach, FL 33408, Account 5102074064 (20.78%); Intermediate Government Income
Fund; Adriana Vita, 345 Park Avenue, New York, NY 10154, Account 05101563377
(8.84%); Short-Term Bond Fund -- Elizabeth Mugar, 10 Chestnut St., Apt. 1808,
Springfield, MA 01103,
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Account 5100760012 (7.15%); Chelsea Police Relief Assoc., John R. Phillips,
Treasurer, and Michael McCona, Clerk, 180 Crescent Avenue, Chelsea, MA 02150,
Account 0970036155 (13.23%); Josve Colon, Cust., Hazel Colon UGMA CT, 400
LaSalle Street, New Britain, CT 06051, Account 5101157039 (7.37%); U.S. Clearing
Corp., FBO 978-02086-18, Eugene J. Margaret Dunscomb, 505 Apple Tree Lane,
Brewster, NY 10509-6004, Account 70000100609 (7.09%); Tax-Exempt Bond Fund --
David Fendler & Sylvia Fendler JT WROS, 72 Brinkerhoff Ave., Stamford, CT 06905,
Account 05100255354 (7.48%); Frances E. Stady, P.O. Box 433, 3176 Main Street,
Yorkshire, NY 14173, Account 05102027437 (5.84%); and Strategic Equity Fund --
Betsey Tan, 7 Donovan's Lane, Natick, MA 01760, Account 05101043778 (7.41%).
As of November 30, 1999, 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
Street, Rochester, NY 14638, (12.05%); Hope-Sayles Trust, c/o Norstar Trust Co.,
Gales & Co., 159 East Main Street, Rochester, NY 14638, (10.65%); Government
Money Fund -- AMS Trust Account, c/o Norstar Trust Co., Gales & Co., 159 East
Main Street, Rochester, NY 14638, (9.76%); Beacon Mutual Insurance Co., c/o
Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638 (6.33%); U.S.
Treasury Money Fund -- Loring Walcott Client Sweep Acct., c/o Norstar Trust Co.,
Gales & Co., 159 East Main, Rochester, NY 14638, (23.17%); Equity Value
Fund--Fleet Savings Plus-Equity Value, c/o Norstar Trust Co., Gales & Co., 159
East Main, Rochester, NY 14638, (24.21%); Equity Growth Fund--Fleet Savings
Plus-Equity Growth, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (23.54%); Nusco Retiree Health VEBA Trust, c/o Norstar
Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638, (6.82%);
International Equity Fund--FFG International Equity Fund, c/o Norstar Trust Co.,
Gales & Co., 159 East Main, Rochester, NY 14638, (12.68%); Fleet Savings
Plus-Intl. Equity, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester,
NY 14638, (9.82%); Intermediate Government Income Fund -- Nusco Retiree Health
VEBA Trust, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY
14638 (6.44%); Strategic Equity Fund--FFG Retirement & Pension VDG, c/o Fleet
Financial Group, 159 East Main, Rochester, NY 14638, (93.39%); High Quality Bond
Fund--Fleet Savings Plus Plan-HQ Bond, c/o Norstar Trust Co., Gales & Co., 159
East Main, Rochester, NY 14638 (19.60%); Asset Allocation Fund--Fleet Savings
Plus-Asset Allocation, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (26.52%); Small Company Equity Fund--Fleet Savings
Plus-Small Company, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (33.58%); Tax Exempt Bond Fund -- Nusco Retiree Health VEBA
Trust, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638,
(37.64%); Corporate Bond Fund--Cole Hersee Pension Plan, c/o Norstar Trust Co.,
Gales & Co., 159 East Main, Rochester, NY 14638, (8.40%); Growth Income
Fund--Fleet Savings Plus-Growth Income, c/o Norstar Trust Co., Gales & Co., 159
East Main, Rochester, NY 14638, (43.81%); Crumpton & Knowles IARP, c/o Norstar
Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638 (10.11%); Small Cap
Value Fund--FFG Emp. Ret. Misc. Assets SNC, c/o Norstar Trust Co., Gales & Co.,
159 East Main, Rochester, NY 14638, (25.16%); Institutional Government Fund --
IBEW Local #99 Annuity, c/o Norstar Trust Co., Gales & Co., 159 East Main
Street, Rochester, NY 14638 (5.26%); New Jersey Municipal Bond Fund--Perillo
Tours, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638,
(22.47%); Royal Chambord IMA, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY, 14638, (11.24%); McKee Wendell A. Marital Trust, c/o Norstar
Trust Co., Gales & Co., 159 East Main, Rochester,
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NY 14638, (11.16%); Varco Inc. IMA, c/o Norstar Trust Co., Gales & Co., 159 East
Main, Rochester, NY 14638, (5.62%); and Tiernan Diana V IA, c/o Norstar Trust
Co., Gales & Co., 159 East Main, Rochester, NY 14638, (5.10%).
As of November 30, 1999, the name, address and share ownership of the
entities or persons that held of record or beneficially more than 5% of the
outstanding A Prime Shares of Galaxy's Asset Allocation, Equity Income, Growth
and Income, Strategic Equity, Equity Value, Equity Growth, International Equity,
Small Cap Value, Small Company Equity, Short-Term Bond, Intermediate Government
Income, High Quality Bond and Tax-Exempt Bond Funds were as follows: Asset
Allocation Fund--U.S. Clearing, A Division of Fleet Securities, Inc., FBO
#147-97697-11, Ray Wayne Prince, 11010 Stephens Road, Berlin Heights, OH
44814-9673 (18.52%); U.S. Clearing, A Division of Fleet Securities, Inc., FBO
#135-29801-11, Joseph P. Quinn & Genevieve H. Quinn Trust, 725 N. Riverside
Drive, Apt. 405, Pompano Beach, FL 33062-4536 (12.47%); U.S. Clearing, A
Division of Fleet Securities, Inc., FBO #175-97327-10, Margaret Ann Gillenwater,
2525 E. Prince Road #23, Tucson, AZ 85716-1146 (11.92%); U.S. Clearing, A
Division of Fleet Securities, Inc., FBO #114-97238-17, Sara Mallow, 936
Broadway, New York, NY 10010-6013 (25.26%); U.S. Clearing, A Division of Fleet
Securities, Inc., FBO #166-88586-13, Pamela Ann Radamaker, 1001 Tramway Blvd.
NE, Albuquerque, NM 87112-6280 (10.72%); U.S. Clearing, A Division of Fleet
Securities, Inc., FBO #114-23817-12, John R. Johnson, P.O. Box 4338, Deerfield
Beach, FL 33442-4338 (8.31%); Growth and Income Fund--U.S. Clearing, A Division
of Fleet Securities Inc., FBO #160-27022-17, Linda Shaw, Trustee for the Linda
J. Shaw Trust, 920 Meadows Road, Geneva, IL 60134-3052 (34.66%); U.S. Clearing,
A Division of Fleet Securities Inc., FBO #113-27816-16, Pamela M. Fein, 68 Oak
Ridge Drive, Bethany, CT 06524-3118 (29.85%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO #175-97327-10, Margaret Ann Gillenwater, 2525 E. Prince
Road #23, Tucson, AZ 85716-1146 (23.43%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO #103-80080-19, Saint Clare School Endowment Fund, Attn: Fr.
O'Shea/Andrew J. Houvouras and/or Bruce Blatman, 821 Prosperity Farms Road, No.
Palm Beach, FL 33408-4299 (6.09%); Equity Growth Fund--U.S. Clearing, A Division
of Fleet Securities Inc., FBO #104-32732-16, Hilda Brandt, 3900 North Charles
Street, Baltimore, MD 21218-1724 (50.91%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO #114-97236-17, Sara Mallow, 936 Broadway, New York, NY
10010-6013 (26.57%); U.S. Clearing, A Division of Fleet Securities Inc., FBO
#120-97689-18, Yook Y. Doo, 4634 Robinson St., Flushing, NY 11355-3445 (8.84%);
U.S. Clearing, A Division of Fleet Securities Inc., FBO #021-90471-15, Mabel L.
Bowman, 35634 Meyers Ct., Fremont, CA 84536-2540 (7.00%); U.S. Clearing, A
Division of Fleet Securities Inc., FBO #143-27206-11, Mary V. Mastroianni &
Pasqual Mastroianni JT Ten, 1811 Randolph Road, Schenectady, NY 12308-2021
(5.44%); International Equity Fund--U.S. Clearing, A Division of Fleet
Securities Inc., FBO #125-98055-11, Albert F. Twanmo, 6508 81st St., Cabin John,
MD 20818-1203 (94.66%); Small Cap Value Fund U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 104-32732-16, Hilda Brandt, 3900 North Charles Street,
Baltimore, MD 21218-1724 (26.87%); U.S. Clearing, A Division of Fleet Securities
Inc., FBO # 150-98301-11, N. Clifford Nelson Jr., 58 Middlebury Road, Orchard
Park, NY 14127-3581 (16.93%); U.S. Clearing, A Division of Fleet Securities
Inc., FBO # 102-60254-19, Frederick W. Geissinger, 601 NW 2nd Street,
Evansville, IN 47708-1013 (16.81%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 103-97564-14, Thomas X. McKenna, 170 Turtle Creek Drive,
Tequesta, FL 33469-1547 (12.55%); U.S. Clearing, A Division of Fleet Securities
Inc., FBO # 103-31296-18, Edward U.
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Roddy III, 109 Angler Avenue, Palm Beach, FL 33480-3101 (8.27%); U.S. Clearing,
A Division of Fleet Securities Inc., FBO # 180-24606-24, Gary R. Plemons, P.O.
Box 190, Madisonville, TN 37354-0190 (5.56%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 165-26664-29, Special Risk Underwriters, P.O. Box 54699,
Phoenix, AZ 85078-4699 (5.31%); High Quality Bond Fund - U.S. Clearing, A
Division of Fleet Securities Inc., FBO # 103-30971-12, Doris G. Schack, FBO #
103-30971-12, Doris G. Schack Living Trust, 9161 East Evans, Scottsdale, AZ
85260-7575 (72.18%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #
013-02964-11, Jane L. Grayhurst, 770 Boylston St., Apt. 10G, Boston, MA
02199-7709 (15.46%); U.S. Clearing, A Division of Fleet Securities, Inc., FBO
#132-90090-11, Virginia Holmes, 303 Bella Vista Drive, Ithaca, NY 14850-5774
(12.10%).
As of November 30, 1999, the name, address and share ownership of the
entities or persons that held of record or beneficially more than 5% of the
outstanding B Prime Shares of Galaxy's Asset Allocation, Equity Income, Growth
and Income, Strategic Equity, Equity Value, Equity Growth, International Equity,
Small Cap Value, Small Company Equity, Short-Term Bond, Intermediate Government
Income, High Quality Bond and Tax-Exempt Bond Funds were as follows: Asset
Allocation Fund -- U.S. Clearing, A Division of Fleet Securities Inc., FBO #
138-97818-14, Carol Y. Foster, 524 Marie Ave., Blountstown, FL 32424-1218
(10.07%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #
102-92974-11, Ann E. Herzog, 74 Tacoma St., Staten Island, NY 10304-4222
(9.61%); U.S. Clearing, A Division of Fleet Securities Inc., FBO # 166-98559-16,
Ann P. Sargent, 422 Los Encinos Ave., San Jose, CA 95134-1336 (6.40%); U.S.
Clearing, A Division of Fleet Securities Inc., FBO # 166-97970-19, Alicia E.
Schober, 10139 Ridgeway Drive, Cupertino, CA 95014-2658 (6.22%); U.S. Clearing,
A Division of Fleet Securities Inc., FBO # 19414889-16, Paul R. Thornton & Karin
Z. Thornton, JT TEN, 1207 Oak Glen Lane, Sugar Land, TX 77479-6175 (5.70%); U.S.
Clearing, A Division of Fleet Securities, Inc., FBO #147-29049-19, Randall
Prince, Rt. 1, Box 865, Turtletown, TN 37391-9700 (6.06%); Growth and Income
Fund - U.S. Clearing, A Division of Fleet Securities Inc., FBO # 147-97497-13,
Martin Allen Sante, 15222 Birch Lakeshore Drive, Vandalia, MI 49095-9741
(27.18%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #103-31744-16,
Irwin Luftig & Elaine Luftig, 6119 Bear Creek Ct., Lake Worth, FL 33467-6812
(19.02%); Linda M. Berke & Michael E. Berke, JT WROS, 30941 Westwood Rd.,
Farmington Hills, MI 48331-1466 (15.25%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 147-29019-15, Walter W. Quan, 2617 Skyline Drive, Lorain,
OH 44053-2243 (14.87%); U.S. Clearing, A Division of Fleet Securities Inc., FBO
#014-90365-19, Peter Burr Bickford, 65 A Lazell St., Hingham, MA 02043-4403
(7.44%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #108-00116-10,
Michael Kennedy & Carleen Kennedy, JT WROS, 12 Walton Avenue, Locust Valley, NY
11560-1227 (5.48%); Equity Growth Fund - U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 111-98315-17, Thomas J. Bernfeld, 185 West End Ave., Apt.
21D, New York, NY 10023-5548 (29.52%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 166-31108-13, Frank Catanho, Trustee of the Frank Catanho
1996 Trust dated 10/22/96, 24297 Mission Blvd., Hayward, CA 94544-1020 (19.07%);
U.S. Clearing, A Division of Fleet Securities Inc., FBO # 183-97247-11, W.P.
Fleming, 66500 E. 253rd, Grove, OK 74344-6163 (8.77%); U.S. Clearing, A Division
of Fleet Securities Inc., FBO # 131-96122-18, Elaine B. Odessa, 9 Newman Rd.,
Pawtucket, RI 02860-8183 (6.66%); International Equity Fund - U.S. Clearing, A
Division of Fleet Securities Inc., FBO # 102-5924-17, Church & Friary of St.
Francis of Assisi, c/o Fr.
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Ronald P. Stark OFM, 135 West 31st St., New York, NY 10001-3405 (82.40%); Small
Cap Value Fund - U.S. Clearing, A Division of Fleet Securities Inc., FBO #
147-97574-19, Ray William Mominey, 1340 San Cristobal Villa, Punta Gorda, FL
33983-6616 (15.90%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #
111-98315-17, Thomas J. Bernfeld, 185 West End Ave., Apt. 21D, New York, NY
10023-5548 (10.13%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #
107-30623-15, Andrejs Zvejnieks, 2337 Christopher Walk, Atlanta, GA 30327-1110
(6.86%); E-Trade: Cust. for the rollover IRA, FBO Rufus O. Eddins, Jr., A/C #
11042697, 360 Dominion Circle, Knoxville, TN 37922-2750 (5.34%); U.S. Clearing,
A Division of Fleet Securities Inc., FBO # 221-97250-13, Micheal A. Veschi, 106
Exmoor Court, Leesburg, VA 20176-2049 (5.13%); High Quality Bond Fund - U.S.
Clearing, A Division of Fleet Securities Inc., FBO # 200-70099-19, Neil C.
Feldman, 41 Windham Way, Englishtown, NJ 07726-8216 (25.37%); U.S. Clearing, A
Division of Fleet Securities Inc., FBO # 119-97697-10, Ira Sornborg, 4219
Nautilus Ave., Brooklyn, NY 11224-1019 (10.23%); U.S. Clearing, A Division of
Fleet Securities Inc., FBO # 216-12779-14, Les H. Galex & Nan Galex, JT TEN,
7540 Farragut St., Hollywood, FL 33024-2626 (8.11%); U.S. Clearing, A Division
of Fleet Securities Inc., FBO # 102-93287-11, Marjorie Dion, 301 Raimond St.,
Yaphank, NY 11980-9725 (7.31%); U.S. Clearing, A Division of Fleet Securities
Inc., FBO # 102-68909-11, Marjorie Dion, 301 Raimond St., Yaphank, NY 11980-9725
(8.61%); U.S. Clearing, A Division of Fleet Securities Inc., FBO # 147-24459-13,
Jay Robert Klein, 26800 Amhearst Circle, #209, Cleveland, OH 44122-7572 (8.40%);
U.S. Clearing, A Division of Fleet Securities Inc., FBO # 157-98031-13, Patricia
Fusco, 112 E. Chapel Ave., Cherry Hill, NJ 08034-1204 (6.53%); U.S. Clearing, A
Division of Fleet Securities, Inc., FBO # 216-13463-13, Jerry H. Dunmire, 5151
SW 89 Terrace, Cooper City, FL 33328-3631 (6.48%).
As of November 30, 1999, the name, address and share ownership of the
entities or persons that held of record or beneficially more than 5% of the
outstanding shares of Galaxy's Prime Reserves, Government Reserves and Tax
Exempt Reserves were as follows: Prime Reserves -- U.S. Clearing, 26 Broadway,
New York, NY 10004 (6.96%); Government Reserves -- U.S. Clearing, 26 Broadway,
New York, NY 10004 (100.00%); and Tax Exempt Reserves -- U.S. Clearing, 26
Broadway, New York, NY 10004 (100.00%).
As of November 30, 1999, no entity or person held of record or
beneficially more than 5% of the outstanding Retail A and Retail B Shares of
Galaxy's Equity Income, New York Municipal Bond, Connecticut Municipal Bond,
Massachusetts Municipal Bond, Rhode Island Municipal Bond, Massachusetts
Municipal Money Market, Connecticut Municipal Money Market and Short Term Bond
Funds.
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FINANCIAL STATEMENTS
Galaxy's Annual Report to Shareholders with respect to the Funds for the
fiscal year ended October 31, 1999 [has been filed] with the SEC. The financial
statements contained in such Annual Reports are [ ] into this
Statement of Additional Information. The financial statements and financial
highlights for the Funds for the fiscal year ended October 31, 1999 have been
audited by Galaxy's independent accountants, [ ], whose
reports thereon also appears in such Annual Report and [ ].
The financial statements in such Annual Report have been [ ] in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
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APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's ("S&P") commercial paper rating is a current
assessment of the likelihood of timely payment of debt having an original
maturity of no more than 365 days. The following summarizes the rating
categories used by Standard and Poor's for commercial paper:
"A-1" - Obligations are rated in the highest category indicating that
the obligor's capacity to meet its financial commitment on the obligation is
strong. Within this category, certain obligations are designated with a plus
sign (+). This indicates that the obligor's capacity to meet its financial
commitment on these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rating categories. However, the obligor's capacity to meet its financial
commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
"B" - Obligations are regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and are
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.
"D" - Obligations are in payment default. The "D" rating category is
used when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The "D" rating will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually senior debt obligations not having an original
maturity in excess of one year, unless explicitly noted. The following
summarizes the rating categories used by Moody's for commercial paper:
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"Prime-1" - Issuers (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well-established industries; high rates of return on
funds employed; conservative capitalization structure with moderate reliance on
debt and ample asset protection; broad margins in earnings 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.
"Prime-2" - Issuers (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an acceptable
ability for repayment of senior short-term debt obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
"Not Prime" - Issuers do not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps
employs three designations, "D-1+," "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"D-1+" - Debt possesses the highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
"D-2" - Debt possesses 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.
"D-3" - Debt possesses satisfactory liquidity and other protection
factors qualify issues as to investment grade. Risk factors are larger and
subject to more variation. Nevertheless, timely payment is expected.
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"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to insure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or interest
payments.
Fitch IBCA short-term ratings apply to debt obligations that have time
horizons of less than 12 months for most obligations, or up to three years for
U.S. public finance securities. The following summarizes the rating categories
used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This designation
indicates the strongest capacity for timely payment of financial commitments and
may have an added "+" to denote any exceptionally strong credit feature.
"F2" - Securities possess good credit quality. This designation
indicates a satisfactory capacity for timely payment of financial commitments,
but the margin of safety is not as great as in the case of the higher ratings.
"F3" - Securities possess fair credit quality. This designation
indicates that the capacity for timely payment of financial commitments is
adequate; however, near-term adverse changes could result in a reduction to
non-investment grade.
"B" - Securities possess speculative credit quality. This designation
indicates minimal capacity for timely payment of financial commitments, plus
vulnerability to near-term adverse changes in financial and economic conditions.
"C" - Securities possess high default risk. This designation indicates
that default is a real possibility and that the capacity for meeting financial
commitments is solely reliant upon a sustained, favorable business and economic
environment.
"D" - Securities are in actual or imminent payment default.
Thomson BankWatch short-term ratings assess the likelihood of an
untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest
category and indicates a very high likelihood that principal and interest will
be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
A-3
<PAGE>
"TBW-3" - This designation represents Thomson BankWatch's lowest
investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's lowest
rating category and indicates that the obligation is regarded as non-investment
grade and therefore speculative.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
Obligations rated "BB," "B," "CCC," "CC" and "C" are regarded as
having significant speculative characteristics. "BB" indicates the least degree
of speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
"BB" - An obligation rated "BB" is less vulnerable to nonpayment than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to the obligor's inadequate capacity to meet its financial commitment on the
obligation.
"B" - An obligation rated "B" is more vulnerable to nonpayment than
obligations rated "BB," but the obligor currently has the capacity to meet its
financial commitment on the
A-4
<PAGE>
obligation. Adverse business, financial or economic conditions will likely
impair the obligor's capacity or willingness to meet its financial commitment on
the obligation.
"CCC" - An obligation rated "CCC" is currently vulnerable to
nonpayment, and is dependent upon favorable business, financial and economic
conditions for the obligor to meet its financial commitment on the obligation.
In the event of adverse business, financial, or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the
obligation.
"CC" - An obligation rated "CC" is currently highly vulnerable to
nonpayment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
"D" - An obligation rated "D" is in payment default. The "D" rating
category is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. The "D" rating also will be
used upon the filing of a bankruptcy petition or the taking of a similar action
if payments on an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
"r" - This symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or volatility of
expected returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk - such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or
A-5
<PAGE>
fluctuation of protective elements may be of greater amplitude or there may be
other elements present which make the long-term risk appear somewhat larger than
the "Aaa" securities.
"A" - Bonds 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
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds 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.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" are of poor standing; "Ca" represents obligations
which are speculative in a high degree; and "C" represents the lowest rated
class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (---) - Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic
rating classification from "Aa" through "Caa." The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the
lower end of its generic rating category.
The following summarizes the long-term debt ratings used by Duff &
Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered to be of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable in periods of greater economic
stress.
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"BBB" - Debt possesses below-average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt rated
"B" possesses the risk that obligations will not be met when due. Debt rated
"CCC" is well below investment grade and has considerable uncertainty as to
timely payment of principal, interest or preferred dividends. Debt rated "DD" is
a defaulted debt obligation, and the rating "DP" represents preferred stock with
dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch IBCA for corporate
and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. These ratings denote the lowest expectation of credit risk and
are assigned only in case of exceptionally strong capacity for timely payment of
financial commitments. This capacity is highly unlikely to be adversely affected
by foreseeable events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. These ratings denote a very low expectation of credit risk and indicate
very strong capacity for timely payment of financial commitments. This capacity
is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high credit
quality. These ratings denote a low expectation of credit risk and indicate
strong capacity for timely payment of financial commitments. This capacity may,
nevertheless, be more vulnerable to changes in circumstances or in economic
conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good credit
quality. These ratings denote that there is currently a low expectation of
credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity.
"BB" - Bonds considered to be speculative. These ratings indicate that
there is a possibility of credit risk developing, particularly as the result of
adverse economic changes over time; however, business or financial alternatives
may be available to allow financial commitments to be met. Securities rated in
this category are not investment grade.
A-7
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"B" - Bonds are considered highly speculative. These ratings indicate
that significant credit risk is present, but a limited margin of safety remains.
Financial commitments are currently being met; however, capacity for continued
payment is contingent upon a sustained, favorable business and economic
environment.
"CCC," "CC," "C" - Bonds have high default risk. Default is a real
possibility, and capacity for meeting financial commitments is solely reliant
upon sustained, favorable business or economic developments. "CC" ratings
indicate that default of some kind appears probable, and "C" ratings signal
imminent default.
"DDD," "DD" and "D" - Bonds are in default. Securities are not meeting
obligations and are extremely speculative. "DDD" designates the highest
potential for recovery of amounts outstanding on any securities involved and "D"
represents the lowest potential for recovery.
To provide more detailed indications of credit quality, the Fitch IBCA
ratings from and including "AA" to "B" may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major rating
categories.
Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes the
rating categories used by Thomson BankWatch for long-term debt ratings:
"AAA" - This designation indicates that the ability to repay principal
and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis, with limited incremental risk compared
to issues rated in the highest category.
"A" - This designation indicates that the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BBB" - This designation represents the lowest investment-grade
category and indicates an acceptable capacity to repay principal and interest.
Issues rated "BBB" are more vulnerable to adverse developments (both internal
and external) than obligations with higher ratings.
"BB," "B," "CCC," and "CC" - These designations are assigned by
Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
A-8
<PAGE>
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's rating reflects the liquidity concerns and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest, with some vulnerability to adverse
financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
"MIG-1"/"VMIG-1" - This designation denotes best quality. There is
present strong protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high quality, with margins
of protection that are ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes 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.
A-9
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"MIG-4"/"VMIG-4" - This designation denotes adequate quality.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt instruments
in this category lack of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
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APPENDIX B
As stated above, 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
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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
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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. MUNICIPAL BOND INDEX FUTURES CONTRACTS
A municipal bond index assigns relative values to the bonds included in
the index and the index fluctuates with changes in the market values of the
bonds so included. The Chicago Board of Trade has designed a futures contract
based on the Bond Buyer Municipal Bond Index. This Index is composed of 40 term
revenue and general obligation bonds, and its composition is updated regularly
as new bonds meeting the criteria of the Index are issued and existing bonds
mature. The Index is intended to provide an accurate indicator of trends and
changes in the municipal bond market. Each bond in the Index is independently
priced by six dealer-to-dealer
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municipal bond brokers daily. The 40 prices then are averaged and multiplied by
a coefficient. The coefficient is used to maintain the continuity of the Index
when its composition changes. The Chicago Board of Trade, on which futures
contracts based on this Index are traded, as well as other U.S. commodities
exchanges, are regulated by the Commodity Futures Trading Commission.
Transactions on such exchange are cleared through a clearing corporation, which
guarantees the performance of the parties to each contract.
The Tax-Exempt Bond Fund, New Jersey Municipal Bond, New York Municipal
Bond Fund, Connecticut Municipal Bond Fund, Massachusetts Municipal Bond Fund
and Rhode Island Municipal Bond Fund will sell index futures contracts in order
to offset a decrease in market value of their respective portfolio securities
that might otherwise result from a market decline. A Fund may do so either to
hedge the value of its portfolio as a whole, or to protect against declines
occurring prior to sales of securities, in the value of the securities to be
sold. Conversely, a Fund will purchase index futures contracts in anticipation
of purchases of securities. In a substantial majority of these transactions, a
Fund will purchase such securities upon termination of the long futures
position, but a long futures position may be terminated without a corresponding
purchase of securities.
Closing out a futures contract sale prior to the settlement date may be
effected by a Fund's entering into a futures contract purchase for the same
aggregate amount of the index involved and the same delivery date. If the price
in the sale exceeds the price in the offsetting purchase, the Fund is paid the
difference and thus realizes a gain. If the offsetting purchase price exceeds
the sale price, the Fund pays the difference and realizes a loss. Similarly, the
closing out of a futures contract purchase is effected by a Fund's entering into
a futures contract sale. If the offsetting sale price exceeds the purchase
price, the Fund realizes a gain, and if the purchase price exceeds the
offsetting sale price, the Fund realizes a loss.
EXAMPLE OF A MUNICIPAL BOND INDEX FUTURES CONTRACT
Consider a portfolio manager holding $1 million par value of each of the
following municipal bonds on February 2 in a particular year.
<TABLE>
<CAPTION>
Current Price
(points and
Maturity thirty-seconds
Issue Coupon Issue Date Date of a point)
- ------------------------------------------------------ --------------------------------
<S> <C> <C> <C> <C>
Ohio HFA 9 3/8 5/05/83 5/1/13 94-2
NYS Power 9 3/4 5/24/83 1/1/17 102-0
San Diego, CA IDR 10 6/07/83 6/1/18 100-14
Muscatine, IA Elec 10 5/8 8/24/83 1/1/08 103-16
Mass Health & Ed 10 9/23/83 7/1/16 100-12
</TABLE>
The current value of the portfolio is $5,003,750.
B-4
<PAGE>
To hedge against a decline in the value of the portfolio, resulting from
a rise in interest rates, the portfolio manager can use the municipal bond index
futures contract. The current value of the Municipal Bond Index is 86-09.
Suppose the portfolio manager takes a position in the futures market opposite to
his or her cash market position by selling 50 municipal bond index futures
contracts (each contract represents $100,000 in principal value) at this price.
On March 23, the bonds in the portfolio have the following values:
<TABLE>
<S> <C>
Ohio HFA 81-28
NYS Power 98-26
San Diego, CA IDB 98-11
Muscatine, IA Elec 99-24
Mass Health & Ed 97-18
</TABLE>
The bond prices have fallen, and the portfolio has sustained a loss of
$130,312. This would have been the loss incurred without hedging. However, the
Municipal Bond Index also has fallen, and its value stands at 83-27. Suppose now
the portfolio manager closes out his or her futures position by buying back 50
municipal bond index futures contracts at this price.
The following table provides a summary of transactions and the results of
the hedge.
<TABLE>
<CAPTION>
Cash Market Futures Market
----------- --------------
<S> <C> <C>
February 2 $5,003,750 long posi- Sell 50 Municipal Bond
tion in municipal futures contracts at
bonds 86-09
March 23 $4,873,438 long posi- Buy 50 Municipal Bond
tion in municipal futures contracts at
bonds 83-27
--------------------- ---------------------
$130,312 Loss $121,875 Gain
</TABLE>
While the gain in the futures market did not entirely offset the loss in
the cash market, the $8,437 loss is significantly lower than the loss which
would have been incurred without hedging.
The numbers reflected in this appendix do not take into account the
effect of brokerage fees or taxes.
III. MARGIN PAYMENTS
Unlike purchases or sales of portfolio securities, no price is paid or
received by a Fund upon the purchase or sale of a futures contract. Initially,
the Fund will be required to deposit with the broker or in a segregated account
with Galaxy's custodian an amount of cash or cash equivalents, known as initial
margin, based on the value of the contract. The nature of initial margin in
futures transactions is different from that of margin in security transactions
in that
B-5
<PAGE>
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 futures contract has declined in response
to a decrease in the underlying instruments, the position would be less valuable
and the Fund would be required to make a variation margin payment to the broker.
At any time prior to expiration of the futures contract, Fleet may elect to
close the position by taking an opposite position, subject to the availability
of a secondary market, which will operate to terminate the Fund's position in
the futures contract. A final determination of variation margin is then made,
additional cash is required to be paid by or released to the Fund, and the Fund
realizes a loss or gain.
IV. RISKS OF TRANSACTIONS IN FUTURES CONTRACTS
There are several risks in connection with the use of futures by the
Funds as hedging devices. One risk arises because of the imperfect correlation
between movements in the price of the futures and movements in the price of the
instruments that are the subject of the hedge. The price of the futures may move
more than or less than the price of the instruments being hedged. If the price
of the futures moves less than the price of the instruments which are the
subject of the hedge, the hedge will not be fully effective but, if the price of
the instruments being hedged has moved in an unfavorable direction, a Fund would
be in a better position than if it had not hedged at all. If the price of the
instruments being hedged has moved in a favorable direction, this advantage will
be partially offset by the loss on the futures. If the price of the futures
moves more than the price of the hedged instruments, the Funds involved will
experience either a loss or gain on the futures, which will not be completely
offset by movements in the price of the instruments which are the subject of the
hedge. To compensate for the imperfect correlation of movements in the price of
instruments being hedged and movements in the price of futures contracts, a Fund
may buy or sell futures contracts in a greater dollar amount than the dollar
amount of instruments being hedged if the volatility over a particular time
period of the prices of such instruments has been greater than the volatility
over such time period of the futures, or if otherwise deemed to be appropriate
by the investment adviser. Conversely, a Fund may buy or sell fewer futures
contracts if the volatility over a particular time period of the prices of the
instruments being hedged is less than the volatility over such time period of
the futures contract being used, or if otherwise deemed to be appropriate by
Fleet. It is also possible that, where a Fund had sold futures to hedge its
portfolio against a decline in the market, the market may advance and the value
of instruments held in the Fund may decline. If this occurred, the Fund would
lose money on the futures and also experience a decline in value in its
portfolio securities.
B-6
<PAGE>
Where futures are purchased to hedge against a possible increase in the
price of securities before a Fund is able to invest its cash (or cash
equivalents) in an orderly fashion, it is possible that the market may decline
instead; if the Fund then concludes not to invest its cash at that time because
of concern as to possible further market decline or for other reasons, the Fund
will realize a loss on the futures contract that is not offset by a reduction in
the price of the instruments that were to be purchased.
In instances involving the purchase of futures contracts by a Fund, an
amount of cash and cash equivalents, equal to the market value of the futures
contracts, will be deposited in a segregated account with Galaxy's custodian
and/or in a margin account with a broker to collateralize the position and
thereby insure that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and the
instruments being hedged, the price of futures may not correlate perfectly with
movement in the cash market due to certain market distortions. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts through off-setting transactions that could distort the normal
relationship between the cash and futures markets. Second, with respect to
financial futures contracts, the liquidity of the futures market depends on
participants entering into off-setting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced thus producing distortions. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price distortion in the
futures market, and because of the imperfect correlation between the movements
in the cash market and movements in the price of futures, a correct forecast of
general market trends or interest rate movements by the adviser may still not
result in a successful hedging transaction over a short time frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Funds
intend to purchase or sell futures 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-7
<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-8
<PAGE>
THE GALAXY FUND
STATEMENT OF ADDITIONAL INFORMATION
_____________, 2000
GALAXY MONEY MARKET FUND RETAIL A SHARES, RETAIL B
SHARES AND TRUST SHARES
GALAXY GOVERNMENT FUND RETAIL A SHARES AND TRUST
GALAXY U.S. TREASURY FUND SHARES
GALAXY TAX-EXEMPT FUND
GALAXY CONNECTICUT MUNICIPAL MONEY MARKET FUND RETAIL A SHARES AND PRIME
GALAXY MASSACHUSETTS MUNICIPAL MONEY MARKET FUND SHARES
GALAXY NEW YORK MUNICIPAL MONEY MARKET FUND
GALAXY INSTITUTIONAL GOVERNMENT MONEY MARKET FUND SHARES
This Statement of Additional Information is not a prospectus. The
prospectuses for the Funds as listed below, as they may be supplemented or
revised from time to time (the "Prospectuses"), as well as the Funds' Annual
Report to Shareholders dated October 31, 1999 (the "Annual Report") may be
obtained, without charge, by writing:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
or by calling 1-877-BUY-GALAXY (1-877-289-4252)
CURRENT PROSPECTUSES
- - Prospectus for Retail A Shares and Retail B Shares of the Money Market Fund
and Retail A Shares of the Government, U.S. Treasury, Tax-Exempt,
Connecticut Municipal Money Market, Massachusetts Municipal Money Market and
New York Municipal Money Market Funds dated ___________, 2000
- - Prospectus for Trust Shares of the Money Market, Government, U.S. Treasury
and Tax-Exempt Funds and Shares of the Institutional Government Money Market
Fund dated __________, 2000
- - Prospectus for Prime Shares of the Connecticut Municipal Money Market,
Massachusetts Municipal Money Market and New York Municipal Money Market
Funds dated _______________, 2000
The ________________________ and the report thereon of ___________________, The
Galaxy Funds' independent accountants, are incorporated by reference into this
Statement of Additional Information.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
GENERAL INFORMATION.........................................................................1
DESCRIPTION OF GALAXY AND ITS SHARES........................................................1
INVESTMENT STRATEGIES, POLICIES AND RISKS...................................................4
Money Market Fund...........................................................................4
Government Fund.............................................................................4
U.S. Treasury Fund..........................................................................4
Tax-Exempt Fund.............................................................................5
Institutional Government Money Market Fund..................................................5
Connecticut Municipal Money Market Fund.....................................................6
Massachusetts Municipal Money Market Fund...................................................6
New York Municipal Money Market Fund........................................................7
Other Investment Policies and Risk Considerations...........................................7
Quality Requirements........................................................................7
U.S. Government Obligations.................................................................8
Money Market Instruments....................................................................9
Municipal Securities.......................................................................10
Stand-By Commitments.......................................................................13
Tender Option Bonds........................................................................14
Variable and Floating Rate Instruments.....................................................14
Repurchase and Reverse Repurchase Agreements...............................................15
When-Issued and Delayed Settlement Transactions............................................16
Securities Lending -- Money Market.........................................................17
Guaranteed Investment Contracts -- Money Market Fund.......................................17
Asset-Backed Securities -- Money Market Fund...............................................17
Investment Company Securities -- Tax-Exempt Money Market Funds and Institutional
Government Money Market Fund.........................................................18
Non-Diversification - Connecticut Municipal Money Market, Massachusetts Municipal
Money Market and New York Municipal Money Market Funds...............................19
Connecticut Investment Risks...............................................................19
Massachusetts Investment Risks.............................................................22
New York Investment Risks..................................................................23
Portfolio Securities Generally.............................................................36
INVESTMENT LIMITATIONS.....................................................................36
NET ASSET VALUE............................................................................44
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.............................................45
Purchases of Retail Shares and Prime Shares................................................45
Other Purchase Information.................................................................46
Applicable Sales Charges - Retail B Shares.................................................46
Purchases of Shares of the Institutional Government Money Market Fund......................48
Purchases of Trust Shares -- Money Market, Government, U.S. Treasury and Tax-
Exempt Funds.........................................................................48
INVESTOR PROGRAMS..........................................................................50
-i-
<PAGE>
Exchange Privilege - Retail Shares and Shares of the Institutional Government Money
Market Fund..........................................................................50
Retirement Plans -- Retail Shares..........................................................51
Automatic Investment Program and Systematic Withdrawal Plan -- Retail Shares...............51
College Investment Program -- Retail Shares................................................52
Checkwriting -- Retail Shares..............................................................52
Direct Deposit Program -- Retail Shares....................................................53
TAXES......................................................................................53
State and Local............................................................................54
Miscellaneous..............................................................................56
TRUSTEES AND OFFICERS......................................................................56
Shareholder and Trustee Liability..........................................................60
INVESTMENT ADVISER.........................................................................61
Authority to Act as Investment Adviser.....................................................63
ADMINISTRATOR..............................................................................64
CUSTODIAN AND TRANSFER AGENT...............................................................65
EXPENSES...................................................................................67
PORTFOLIO TRANSACTIONS.....................................................................67
SHAREHOLDER SERVICES PLAN -- RETAIL A SHARES...............................................68
DISTRIBUTION AND SERVICES PLANS............................................................70
Retail B Share Plan........................................................................70
Prime Share Plan...........................................................................71
Retail B Share Plan and Prime Share Plan...................................................72
DISTRIBUTOR................................................................................73
AUDITORS...................................................................................74
COUNSEL....................................................................................75
PERFORMANCE AND YIELD INFORMATION..........................................................75
Tax-Equivalency Tables - Connecticut Municipal Money Market, Massachusetts
Municipal Money Market and New York Municipal Money Market Funds.....................77
Performance Reporting......................................................................81
MISCELLANEOUS..............................................................................82
FINANCIAL STATEMENTS.......................................................................88
APPENDIX A................................................................................A-1
</TABLE>
-ii-
<PAGE>
GENERAL INFORMATION
This Statement of Additional Information should be read in conjunction
with a current Prospectus. This Statement of Additional Information relates to
the Prospectuses described on the cover page. No investment in shares of the
Funds should be made without reading a Prospectus.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, FLEETBOSTON CORPORATION. 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. ALTHOUGH THE FUNDS SEEK TO
PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO
LOSE MONEY BY INVESTING IN THE FUNDS.
DESCRIPTION OF GALAXY AND ITS SHARES
The Galaxy Fund ("Galaxy") is an open-end management investment company
currently offering shares of beneficial interest in twenty-nine 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, 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. Galaxy
is also authorized to issue shares of beneficial interest in two additional
investment portfolios, the MidCap Equity Fund and the New York Municipal Money
Market Fund. As of the date of this Statement of Additional Information,
however, the MidCap Equity Fund and the New York Municipal Money Market Fund had
not commenced investment operations.
Prior to the date of this Statement of Additional Information, the
Connecticut Municipal Money Market, Massachusetts Municipal Money Market and New
York Municipal Money Market Funds had not offered Prime 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 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 an
unlimited number of shares in each of the series in the Funds as follows: Class
A Shares (Retail A Shares), Class A --
<PAGE>
Special Series 1 Shares (Trust Shares) and Class A -- Special Series 2 Shares
(Retail B Shares), each series representing interests in the Money Market Fund;
Class B Shares (Retail A Shares) and Class B -- Special Series 1 Shares (Trust
Shares), each series representing interests in the Government Fund; Class E
Shares (Retail A Shares) and Class E -- Special Series 1 Shares (Trust Shares),
each series representing interests in the Tax-Exempt Fund; Class F Shares
(Retail A Shares) and Class F -- Special Series 1 Shares (Trust Shares), each
series representing interests in the U.S. Treasury Fund; Class S Shares
representing interests in the Institutional Government Money Market Fund; Class
V Shares (Retail A Shares) and Class V -- Special Series 1 Shares (Prime
Shares), representing interests in the Connecticut Municipal Money Market Fund;
Class W Shares (Retail A Shares) and Class W -- Special Series 1 Shares (Prime
Shares), representing interests in the Massachusetts Municipal Money Market
Fund; Class EE -- Series 1 Shares (Retail A Shares) and Class EE -- Series 2
Shares (Prime Shares), each series representing interests in the New York
Municipal Money Market Fund. Each Fund (other than the Connecticut Municipal
Money Market, Massachusetts Municipal Money Market and New York Municipal Money
Market Funds) is classified as a diversified company under the Investment
Company Act of 1940, as amended (the "1940 Act"). The Connecticut Municipal
Money Market, Massachusetts Municipal Money Market and New York Municipal Money
Market Funds are classified as non-diversified investment companies under the
1940 Act.
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.
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 in a Fund (i.e., Retail A Shares, Retail B
Shares, Trust Shares and Prime Shares) bear pro rata the same expenses and are
entitled equally to the 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), holders of Retail B Shares will bear the expenses of the
Distribution and Services Plan for Retail B Shares, and holders of Prime Shares
will bear the expenses of the Distribution and Services Plan for Prime Shares.
In addition, each series may incur differing transfer agency fees and may have
differing sales charges. Standardized yield and total return quotations are
computed separately for each series of shares. The differences in expenses paid
by the respective series will affect their performance. See "Shareholder
Services Plan" and "Distribution and Services Plans" below.
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 of a Fund will be entitled to vote on matters
submitted to a vote of shareholders pertaining to any distribution and/or
shareholder servicing plan for such series (e.g., only Retail A Shares and Trust
Shares of a
-2-
<PAGE>
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, only Retail B Shares of the Money Market Fund will be entitled to vote
on matters pertaining to Galaxy's Distribution and Services Plan for Retail B
Shares, and only Prime 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 Prime 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 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.
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 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. 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
-3-
<PAGE>
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.
INVESTMENT STRATEGIES, POLICIES AND RISKS
Fleet Investment Advisors Inc. ("Fleet"), the Fund's investment adviser,
will use its best efforts to achieve each Fund's investment objective, although
such achievement cannot be assured. The investment objective of a Fund, as
described in its Prospectus(es), may not be changed without the approval of the
holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Except as noted herein under "Tax-Exempt Fund," "Connecticut
Municipal Money Market Fund," "Massachusetts Municipal Money Market Fund," and
"New York Municipal Money Market Fund" and below under "Investment Limitations,"
a Fund's investment policies may be changed without shareholder approval. An
investor should not consider an investment in the Funds to be a complete
investment program. Each Fund will maintain a dollar-weighted average portfolio
maturity of 90 days or less in an effort to maintain a stable net asset value
per share of $1.00. The value of the Funds' portfolio securities will generally
vary inversely with changes in prevailing interest rates. The following
investment strategies, policies and risks supplement those set forth in the
Funds' Prospectuses.
MONEY MARKET FUND
Instruments in which the Money Market Fund invests have remaining
maturities of 397 days or less (except for certain variable and floating rate
notes and securities underlying certain repurchase agreements). For more
information, including applicable quality requirements, see "Other Investment
Policies and Risk Considerations" below.
GOVERNMENT FUND
Instruments in which the Government Fund invests have remaining
maturities of 397 days or less (except for certain variable and floating rate
notes and securities underlying certain repurchase agreements). See "Other
Investment Policies and Risk Considerations" below.
U.S. TREASURY FUND
Instruments in which the U.S. Treasury Fund invests may include, but are
not limited to, securities issued by the U.S. Treasury and by certain U.S.
Government agencies or instrumentalities such as the Federal Home Loan Banks and
Federal Farm Credit Banks. The Fund invests at least 65% of its total assets in
direct U.S. Government obligations. Shareholders
-4-
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residing in a particular state that has an income tax law should determine
through consultation with their own tax advisers whether such interest income,
when distributed by the Fund, will be considered by the state to have retained
exempt status and whether the Fund's capital gain and other income, if any, when
so distributed will be subject to the state's income tax. See "Taxes."
Portfolio securities held by the Fund have remaining maturities of 397
days or less (with certain exceptions). The Fund may also invest in certain
variable and floating rate instruments. For more information, including
applicable quality requirements, see "Other Investment Policies and Risk
Considerations" below.
TAX-EXEMPT FUND
Municipal Securities in which the Tax-Exempt Fund invests present minimal
credit risk and meet the rating criteria described under "Other Investment
Policies and Risk Considerations - Quality Requirements" below. Municipal
Securities, as that term is used in this Statement of Additional Information,
are debt obligations issued by or on behalf of states, territories and
possessions of the United States, the District of Columbia, and their
authorities, agencies, instrumentalities and political subdivisions, the
interest on which, in the opinion of bond counsel or counsel to the issuer, is
exempt from federal income tax.
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Fund's shareholders, the Fund will invest, except
during temporary defensive periods, at least 80% of its assets in Municipal
Securities. The Fund's investments in private activity bonds will not be treated
as investments in Municipal Securities for purposes of the 80% requirement
mentioned above and, under normal market conditions, will not exceed 20% of the
Fund's net assets when added together with any taxable investments held by the
Fund.
Although the Fund does not presently intend to do so on a regular basis,
it may invest more than 25% of its assets in Municipal Securities the interest
on which is paid solely from revenues of similar projects. To the extent that
the Fund's assets are concentrated in Municipal Securities payable from revenues
on similar projects, the Fund will be subject to the peculiar risks presented by
such projects to a greater extent than it would be if its assets were not so
invested.
The Fund's portfolio securities will generally have remaining maturities
of 397 days or less (except for certain variable and floating rate notes and
securities underlying certain repurchase agreements). See "Other Investment
Policies and Risk Considerations" below.
INSTITUTIONAL GOVERNMENT MONEY MARKET FUND
Instruments in which the Institutional Government Money Market Fund
invests have remaining maturities of 397 days or less (except for certain
variable and floating rate notes and securities underlying certain repurchase
agreements). See "Other Investment Policies and Risk Considerations" below.
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The Fund's portfolio securities will generally have remaining maturities
of 397 days or less (except for certain variable and floating rate notes and
securities underlying certain repurchase agreements). See "Other Investment
Policies and Risk Considerations" below.
CONNECTICUT MUNICIPAL MONEY MARKET FUND
The Connecticut Municipal Money Market Fund attempts to achieve its
objective by investing in a portfolio of debt obligations issued by or on behalf
of the State of Connecticut, its political subdivisions, or public
instrumentalities, state or local authorities, districts or similar public
entities created under Connecticut law, and obligations of territories and
possessions of the United States and any political sub-division or financing
authority of any of these, the interest income from which is, in the opinion of
qualified legal counsel, exempt from both federal regular income tax and the
Connecticut state income tax on individuals, trusts and estates ("Connecticut
Municipal Securities") with remaining maturities of 397 days or less at the time
of purchase (with certain exceptions). Examples of Connecticut Municipal
Securities include, but are not limited to, municipal commercial paper and other
short-term notes; variable rate demand notes; municipal bonds (including bonds
having remaining maturities of less than 397 days without demand features); and
tender option bonds. See "Other Investment Policies and Risk Considerations"
below. As a matter of fundamental policy that cannot be changed without
shareholder approval, the Fund invests its assets so that at least 80% of its
annual interest income is exempt from federal regular income tax or at least 80%
of the total value of its assets is invested in obligations the interest income
from which is exempt from federal regular income tax.
MASSACHUSETTS MUNICIPAL MONEY MARKET FUND
The Massachusetts Municipal Money Market Fund attempts to achieve its
objective by investing in a portfolio of debt obligations issued by or on behalf
of the Commonwealth of Massachusetts and its political subdivisions and
financing authorities, and obligations of other states, territories and
possessions of the United States, including the District of Columbia, and any
political sub-division or financing authority of any of these, the interest
income from which
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is, in the opinion of qualified legal counsel, exempt from federal regular
income tax and the income taxes imposed by the Commonwealth of Massachusetts
upon non-corporate taxpayers ("Massachusetts Municipal Securities") with
remaining maturities of 397 days or less at the time of purchase (with certain
exceptions). Examples of Massachusetts Municipal Securities include, but are not
limited to, municipal commercial paper and other short-term notes; variable rate
demand notes; municipal bonds (including bonds having remaining maturities of
less than 397 days without demand features); and tender option bonds. See "Other
Investment Policies and Risk Considerations" below. As a matter of fundamental
policy that cannot be changed without shareholder approval, the Fund invests its
assets so that at least 80% of its annual interest income is exempt from federal
regular income tax or at least 80% of the total value of its assets are invested
in obligations the interest income from which is exempt from federal regular
income tax.
NEW YORK MUNICIPAL MONEY MARKET FUND
The New York Municipal Money Market Fund attempts to achieve its
objective by investing in a portfolio of debt obligations issued by or on behalf
of the State of New York, its political sub-divisions, or public
instrumentalities, state or local authorities, and obligations of other states,
territories and possessions of the United States, including the District of
Columbia, and any political sub-division or financial authority of any of these,
the interest income from which is, in the opinion of qualified legal counsel,
exempt from regular federal income tax, and New York State and New York City
personal income taxes ("New York Municipal Securities") with remaining
maturities of 397 days or less at the time of purchase (with certain
exceptions). Examples of New York Municipal Securities include, but are not
limited to, municipal commercial paper and other short-term notes; variable rate
demand notes; municipal bonds (including bonds having remaining maturities of
less than 397 days without demand features); and tender option bonds. See "Other
Investment Policies and Risk Considerations" below. As a matter of fundamental
policy that cannot be changed without shareholder approval, the Fund invests its
assets so that at least 80% of its annual interest income is exempt from federal
regular income tax or at least 80% of the total value of its assets is invested
in obligations the interest income from which is exempt from federal regular
income tax.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in the Prospectuses and this Statement of
Additional Information 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.
QUALITY REQUIREMENTS
Each Fund will purchase only those instruments which meet the applicable
quality requirements described below. The Money Market Fund will not purchase a
security (other than a U.S. Government security) unless the security or the
issuer with respect to comparable
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securities (i) is rated by at least two nationally recognized statistical rating
organizations ("Rating Agencies") (such as Standard & Poor's Ratings Group
("S&P"), Moody's Investors Service, Inc. ("Moody's") or Fitch IBCA, Inc. ("Fitch
IBCA") in the highest category for short-term debt securities, (ii) is rated by
the only Rating Agency that has issued a rating with respect to such security or
issuer in such Rating Agency's highest category for short-term debt, or (iii) if
not rated, the security is determined to be of comparable quality. The
Tax-Exempt Fund, Connecticut Municipal Money Market Fund, Massachusetts
Municipal Money Market Fund and New York Municipal Money Market Fund
(collectively, the "Tax-Exempt Money Market Funds") will not purchase a security
(other than a U.S. Government security) unless the security (i) is rated by at
least two such Rating Agencies in one of the two highest categories for
short-term debt securities, (ii) is rated by the only Rating Agency that has
assigned a rating with respect to such security in one of such Rating Agency's
two highest categories for short-term debt securities, or (iii) if not rated,
the security is determined to be of comparable quality. These rating categories
are determined without regard to sub-categories and gradations. The Funds will
follow applicable regulations in determining whether a security rated by more
than one Rating Agency can be treated as being in the highest or, with respect
to the Tax-Exempt Money Market Funds one of the two highest, short-term rating
categories. See "Investment Limitations" below.
Determinations of comparable quality will be made in accordance with
procedures established by the Board of Trustees. Generally, if a security has
not been rated by a Rating Agency, Fleet will acquire the security if it
determines that the security is of comparable quality to securities that have
received the requisite ratings. For example, with respect to the Connecticut
Municipal Money Market, Massachusetts Municipal Money Market and New York
Municipal Money Market Funds, Fleet will generally treat Connecticut Municipal
Securities, Massachusetts Municipal Securities or New York Municipal Securities,
as the case may be, as eligible portfolio securities if the issuer has received
long-term bond ratings within the three highest rating categories assigned by a
Rating Agency with respect to other bond issues. Fleet also considers other
relevant information in its evaluation of unrated short-term securities.
U.S. GOVERNMENT OBLIGATIONS
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.
U.S. Treasury securities differ only in their interest rates, maturities
and time of issuance: Treasury Bills have initial maturities of one year or
less; Treasury Notes have initial maturities of one to ten years; and Treasury
Bonds generally have initial maturities of more than 10 years. Obligations of
certain agencies and instrumentalities of the U.S. Government, such as the
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Government National Mortgage Association, are supported by the full faith and
credit of the U.S. Treasury; others, such as those of the Federal Home Loan
Banks, are supported by the right of the issuer to borrow from the Treasury;
others, such as those of the Federal National Mortgage Association, are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; still others, such as those of the Federal Home Loan
Mortgage Corporation, are supported only by the credit of the instrumentality.
No assurance can be given that the U.S. Government would provide financial
support to U.S. Government-sponsored instrumentalities if it is not obligated to
do so by law. Some U.S. Government obligations may be issued as variable or
floating rate instruments.
Securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities have historically involved little risk of loss of principal.
However, due to fluctuations in interest rates, the market value of such
securities may vary during the period a shareholder owns shares of the Funds.
The U.S. Treasury Fund will invest in those securities issued or
guaranteed as to principal and interest by the U.S. Government or by agencies or
instrumentalities thereof, the interest income from which, under current law,
generally will not be subject to state income tax by reason of federal law.
MONEY MARKET INSTRUMENTS
"Money market" instruments include bank obligations and corporate
obligations, including commercial paper and corporate bonds with remaining
maturities of 397 days or less.
Bank obligations include bankers' acceptances, negotiable certificates of
deposit and non-negotiable time deposits issued for a definite period of time
and earning a specified return by a U.S. bank that is a member of the Federal
Reserve System or is insured by the Federal Deposit Insurance Corporation
("FDIC"), or by a savings and loan association or savings bank that is insured
by the FDIC. Bank obligations also include U.S. dollar-denominated obligations
of foreign branches of U.S. banks or of U.S. branches of foreign banks, all of
the same type as domestic bank obligations. Investments in bank obligations are
limited to the obligations of financial institutions having more than $1 billion
in total assets at the time of purchase. Investments in non-negotiable time
deposits are limited to no more than 5% of the Money Market Fund's total assets
at the time of purchase. For the purposes of the Money Market Fund's investment
policies with respect to bank obligations, the assets of a bank or savings
institution will be deemed to include the assets of its U.S. and foreign
branches.
Domestic and foreign banks are subject to extensive but different
government regulations which may limit the amount and types of their loans and
the interest rates that may be charged. In addition, the profitability of the
banking industry is largely dependent upon the availability and cost of funds to
finance lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and of U.S.
branches of foreign banks may subject a Fund to additional investment risks,
including future political and
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economic developments, the possible imposition of withholding taxes on interest
income, possible seizure or nationalization of foreign deposits, the possible
establishment of exchange controls, or the adoption of other foreign
governmental restrictions which might adversely affect the payment of principal
and interest on such obligations. In addition, foreign branches of U.S. banks
and U.S. branches of foreign banks may be subject to less stringent reserve
requirements and to different accounting, auditing, reporting and recordkeeping
standards than those applicable to domestic branches of U.S. banks. Investments
in the obligations of U.S. branches of foreign banks or foreign branches of U.S.
banks will be made only when Fleet believes that the credit risk with respect to
the instrument is minimal.
Commercial paper may include securities issued by corporations without
registration under the Securities Act of 1933, as amended, (the "1933 Act") in
reliance on the so-called "private placement" exemption in Section 4(2)
("Section 4(2) Paper"). Section 4(2) Paper is restricted as to disposition under
the federal securities laws in that any resale must similarly be made in an
exempt transaction. Section 4(2) Paper is normally resold to other institutional
investors through or with the assistance of investment dealers who make a market
in Section 4(2) Paper, thus providing liquidity. For purposes of each Fund's 10%
limitation on purchases of illiquid instruments described below, Section 4(2)
Paper will not be considered illiquid if Fleet has determined, in accordance
with guidelines approved by the Board of Trustees, that an adequate trading
market exists for such securities. The Money Market Fund and each Tax-Exempt
Money Market Fund may also purchase Rule 144A securities. See "Investment
Limitations" below.
MUNICIPAL SECURITIES
Municipal Securities are generally issued to finance public works, such
as airports, bridges, highways, housing, health-related entities,
transportation-related projects, educational programs, water and pollution
control and sewer works. They are also issued to repay outstanding obligations,
to raise funds for general operating expenses and to make loans to other public
institutions and for other facilities. Municipal Securities include private
activity bonds issued by or on behalf of public authorities to provide financing
aid to acquire sites or construct and equip facilities for privately or publicly
owned corporations. The availability of this financing encourages these
corporations to locate within the sponsoring communities and thereby increases
local employment.
The two principal classifications of Municipal Securities that may be
held by the Tax-Exempt Money Market Funds are "general obligation" securities
and "revenue" securities. General obligation securities are secured by the
issuer's pledge of its full faith, credit and taxing power for the payment of
principal and interest. Revenue securities are payable only from the revenues
derived from a particular facility or class of facilities or, in some cases,
from the proceeds of a special excise tax or other specific revenue source such
as the user of the facility being financed. Private activity bonds are in most
cases revenue securities and are not payable from the unrestricted revenues of
the issuer. Consequently, the credit quality of private activity bonds is
usually directly related to the credit standing of the corporate user of the
facility involved.
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The Funds' portfolios may also include "moral obligation" securities,
which are normally issued by special-purpose public authorities. If the issuer
of moral obligation securities is unable to meet its debt service obligations
from current revenues, it may draw on a reserve fund, the restoration of which
is a moral commitment, but not a legal obligation, of the state or municipality
which created the issuer. There is no limitation on the amount of moral
obligation securities that may be held by the Funds.
Municipal Securities may include variable rate demand notes, which are
long-term Municipal Securities that have variable or floating interest rates and
provide a Fund with the right to tender the security for repurchase at its
stated principal amount plus accrued interest. Such securities typically bear
interest at a rate that is intended to cause the securities to trade at par. The
interest rate may float or be adjusted at regular intervals (ranging from daily
to annually), and is normally based on an applicable interest index or another
published interest rate or interest rate index. Most variable rate demand notes
allow a Fund to demand the repurchase of the security on not more than seven
days prior notice. Other notes only permit a Fund to tender the security at the
time of each interest rate adjustment or at other fixed intervals. The
Tax-Exempt Money Market Funds treat variable rate demand notes as maturing on
the later of the date of the next interest rate adjustment or the date on which
a Fund may next tender the security for repurchase. Variable interest rates
generally reduce changes in the market value of Municipal Securities from their
original purchase prices. Accordingly, as interest rates decrease or increase,
the potential for capital appreciation or depreciation is less for variable rate
Municipal Securities than for fixed income obligations. The terms of these
variable rate demand instruments require payment of principal and accrued
interest from the issuer of the Municipal Securities, the issuer of the
participation interest or a guarantor of either issuer.
Municipal Securities purchased by the Tax-Exempt Money Market Funds in
some cases may be insured as to the timely payment of principal and interest.
There is no guarantee, however, that the insurer will meet its obligations in
the event of a default in payment by the issuer. In other cases, Municipal
Securities may be backed by letters of credit or guarantees issued by domestic
or foreign banks or other financial institutions which are not subject to
federal deposit insurance. Adverse developments affecting the banking industry
generally or a particular bank or financial institution that has provided its
credit or guarantee with respect to a Municipal Security held by a Tax-Exempt
Money Market Fund, including a change in the credit quality of any such bank or
financial institution, could result in a loss to the Fund and adversely affect
the value of its shares. As described above under "Money Market Instruments,"
letters of credit and guarantees issued by foreign banks and financial
institutions involve certain risks in addition to those of similar instruments
issued by domestic banks and financial institutions.
There are, of course, variations in the quality of Municipal Securities,
both within a particular category and between categories, and the yields on
Municipal Securities depend upon a variety of factors, including general market
conditions, the financial condition of the issuer, general conditions of the
municipal bond market, the size of a particular offering, the maturity of the
obligation, and the rating of the issue. The ratings of a Rating Agency, such as
Moody's, S&P and Fitch IBCA described in Appendix A hereto, represent such
Rating Agency's opinion
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as to the quality of Municipal Securities. It should be emphasized that these
ratings are general and are not absolute standards of quality. Municipal
Securities with the same maturity, interest rate and rating may have different
yields. Municipal Securities of the same maturity and interest rate with
different ratings may have the same yield.
The payment of principal and interest on most securities purchased by the
Tax-Exempt Money Market Funds will depend upon the ability of the issuers to
meet their obligations. Each state, the District of Columbia, each of their
political subdivisions, agencies, instrumentalities and authorities and each
multistate agency of which a state is a member is a separate "issuer" as that
term is used in this Statement of Additional Information and the Tax-Exempt
Money Market Funds' Prospectuses. The non-governmental user of facilities
financed by private activity bonds is also considered to be an "issuer." An
issuer's obligations under its Municipal Securities are subject to the
provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the federal Bankruptcy Code and laws, if any,
which may be enacted by federal or state legislatures extending the time for
payment of principal or interest, or both, or imposing other constraints upon
enforcement of such obligations or upon the ability of municipalities to levy
taxes. The power or ability of an issuer to meet its obligations for the payment
of interest on and principal of its Municipal Securities may be materially
adversely affected by litigation or other conditions.
Among other instruments, the Tax-Exempt Money Market Funds may purchase
short-term general obligation notes, tax anticipation notes, bond anticipation
notes, revenue anticipation notes, tax-exempt commercial paper, construction
loan notes and other forms of short-term loans. Such instruments are issued with
a short-term maturity in anticipation of the receipt of tax funds, the proceeds
of bond placements or other revenues. In addition, the Tax-Exempt Money Market
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 Prospectuses for the Funds including applicable maturity
restrictions.
Private activity bonds are or have been issued to obtain funds to
provide, among other things, privately operated housing facilities, pollution
control facilities, convention or trade show facilities, mass transit, airport,
port or parking facilities and certain local facilities for water supply, gas,
electricity or sewage or solid waste disposal. Private activity bonds are also
issued to privately held or publicly owned corporations in the financing of
commercial or industrial facilities. State and local governments are authorized
in most states to issue private activity bonds for such purposes in order to
encourage corporations to locate within their communities. The principal and
interest on these obligations may be payable from the general revenues of the
users of such facilities.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on Municipal Securities. For example, under the Tax Reform Act of 1986,
interest on certain private activity bonds must be included in an investor's
federal alternative minimum taxable income, and corporate investors must include
all tax-exempt interest in their federal alternative minimum taxable income.
Galaxy cannot, of course, predict what legislation may be proposed in the future
regarding the
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income tax status of interest on Municipal Securities, or which proposals, if
any, might be enacted. Such proposals, while pending or if enacted, might
materially and adversely affect the availability of Municipal Securities for
investment by the Tax-Exempt Money Market Funds and the liquidity and value of
their respective portfolios. In such an event, a Fund would re-evaluate its
investment objective and policies and consider possible changes in its structure
or possible dissolution.
Opinions relating to the validity of Municipal Securities and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the
Tax-Exempt Money Market Funds nor Fleet will review the proceedings relating to
the issuance of Municipal Securities or the bases for such opinions.
MUNIPREFERRED SECURITIES. The Connecticut Municipal Money Market,
Massachusetts Municipal Money Market and New York Municipal Money Market Funds
may purchase interests in Municipal Securities that are offered in the form of a
security representing a diversified portfolio of investment grade bonds. These
securities provide investors, such as the Funds, with liquidity and income
exempt from federal regular income tax and some state income taxes.
STAND-BY COMMITMENTS
Each Tax-Exempt Money Market Fund may acquire "stand-by commitments" with
respect to Municipal Securities held by it. Under a stand-by commitment, a
dealer agrees to purchase from a Fund, at the Fund's option, specified Municipal
Securities at a specified price. Each Fund will acquire stand-by commitments
solely to facilitate portfolio liquidity and does not intend to exercise its
rights thereunder for trading purposes. Stand-by commitments acquired by a Fund
would be valued at zero in determining the Fund's net asset value. The default
or bankruptcy of a securities dealer giving such a commitment would not affect
the quality of the Municipal Securities purchased by a Fund. However, without a
stand-by commitment, these securities could be more difficult to sell. A Fund
will enter into stand-by commitments only with those dealers whose credit Fleet
believes to be of high quality.
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
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.
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TENDER OPTION BONDS
The Tax-Exempt Money Market Funds may purchase tender option bonds and
similar securities. A tender option bond generally has a long maturity and bears
interest at a fixed rate substantially higher than prevailing short-term
tax-exempt rates, and is coupled with an agreement by a third party, such as a
bank, broker-dealer or other financial institution, pursuant to which such
institution grants the security holders the option, usually upon not more than
seven days notice or at periodic intervals, to tender their securities to the
institution and receive the face value of the securities. In providing the
option, the financial institution receives a fee that reduces the fixed rate of
the underlying bond and results in a Fund effectively receiving a demand
obligation that bears interest at the prevailing short-term tax-exempt rate.
Fleet will monitor, on an ongoing basis, the creditworthiness of the issuer of
the tender option bond, the financial institution providing the option, and any
custodian holding the underlying long-term bond. The bankruptcy, receivership or
default of any of the parties to a tender option bond will adversely affect the
quality and marketability of the security.
VARIABLE AND FLOATING RATE INSTRUMENTS
Securities purchased by the Funds may include variable and floating rate
instruments. Variable rate instruments provide for periodic adjustments in the
interest rate. Floating rate instruments provide for automatic adjustment of the
interest rate whenever some other specified interest rate changes. Some variable
and floating rate obligations are direct lending arrangements between the
purchaser and the issuer and there may be no active secondary market. However,
in the case of variable and floating rate obligations with a demand feature, a
Fund may demand payment of principal and accrued interest at a time specified in
the instrument or may resell the instrument to a third party. In the event an
issuer of a variable or floating rate obligation defaulted on its payment
obligation, a Fund might be unable to dispose of the note because of the absence
of a secondary market and could, for this or other reasons, suffer a loss to the
extent of the default. Variable or floating rate instruments issued or
guaranteed by the U.S. Government or its agencies or instrumentalities are
similar in form but may have a more active secondary market. Substantial
holdings of variable and floating rate instruments could reduce portfolio
liquidity.
If a variable or floating rate instrument is not rated, Fleet must
determine that such instrument is comparable to rated instruments eligible
for purchase by the Funds and will consider the earning power, cash flows and
other liquidity ratios of the issuers and guarantors of such notes and will
continuously monitor their financial status in order to meet payment on
demand. In determining average weighted portfolio maturity of each of these
Funds, a variable or floating rate instrument issued or guaranteed by the
U.S. Government or an agency or instrumentality thereof will be deemed to
have a maturity equal to the period remaining until the obligations next
interest rate adjustment.
Long-term variable and floating rate obligations held by the Funds may
have maturities of more than 397 days, provided the Funds are entitled to
payment of principal upon not more
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than 30 days' notice or at specified intervals not exceeding one year (upon not
more than 30 days' notice).
Variable and floating rate obligations with a demand feature held by the
Funds will be deemed to have a maturity equal to the longer of the period
remaining to the next interest rate adjustment or the demand notice period.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
Each Fund, except the U.S. Treasury Fund, may purchase portfolio
securities subject to the seller's agreement to repurchase them at a mutually
specified date and price ("repurchase agreements"). Repurchase agreements will
only be entered into with financial institutions such as banks and
broker/dealers that are deemed to be creditworthy by Fleet. No Fund will enter
into repurchase agreements with Fleet or any of its affiliates. Unless a
repurchase agreement has a remaining maturity of seven days or less or may be
terminated on demand upon notice of seven days or less, the repurchase agreement
will be considered an illiquid security and will be subject to the 10% limit
described in Investment Limitations Nos. 11, 16 and 37 under "Investment
Limitations" below with respect to the Money Market, Government, U.S. Treasury,
Tax-Exempt and Institutional Government Money Market Funds, and to the 10% limit
described under "Investment Limitations" below with respect to the Connecticut
Municipal Money Market, Massachusetts Municipal Money Market and New York
Municipal Money Market Funds.
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by a Fund at
not less than the agreed upon repurchase price. If the seller defaulted on its
repurchase obligation, the Fund holding such obligation would suffer a loss to
the extent that the proceeds from a sale of the underlying securities (including
accrued interest) were less than the repurchase price (including accrued
interest) under the agreement. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by a Fund
might be delayed pending court action. Income on repurchase agreements is
taxable. Investments by a Tax-Exempt Money Market Fund in repurchase agreements
will be, under normal market conditions, subject to a 20% overall limit on
taxable obligations.
The repurchase price under a repurchase agreement generally equals the
price paid by a Fund plus interest negotiated on the basis of current short-term
rates (which may be more or less than the rate on the securities underlying the
repurchase agreements). Securities subject to repurchase agreements will be held
by a Fund's custodian or sub-custodian in a segregated account or in the Federal
Reserve/Treasury book-entry system. Repurchase agreements are considered to be
loans by a Fund under the 1940 Act.
The Money Market and Government Funds may also borrow funds for temporary
purposes by selling portfolio securities to financial institutions such as banks
and broker/dealers and agreeing to repurchase them at a mutually specified date
and price ("reverse repurchase agreements"). A reverse repurchase agreement
involves the risk that the market value of the
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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.
Whenever a Fund enters into a reverse repurchase agreement, the Fund will
place in a segregated custodial account liquid assets such as cash or liquid
securities equal to the repurchase price (including accrued interest). The Fund
will monitor the account to ensure such equivalent values are maintained.
Reverse repurchase agreements are considered to be borrowings by a Fund under
the 1940 Act.
WHEN-ISSUED AND DELAYED SETTLEMENT TRANSACTIONS
Each Fund may purchase securities on a "when-issued" or "delayed
settlement" basis. When-issued transactions, which involve a commitment by a
Fund to purchase particular securities with payment and delivery taking place at
a future date (perhaps one or two months later) permit the Fund to lock in a
price or yield on a security it intends to purchase, regardless of future
changes in interest rates. Delayed settlement describes settlement of a
securities transaction in the secondary market sometime in the future.
When-issued and delayed settlement transactions involve the risk, however, that
the yield or price obtained in a transaction may be less favorable than the
yield or price available in the market when the securities delivery takes place.
It is expected that, absent unusual market conditions, commitments by a Fund to
purchase securities on a when-issued or delayed settlement basis will not exceed
25% of the value of its total assets. These transactions will not be entered
into for speculative purposes, but only in furtherance of a Fund's investment
objective.
When a Fund agrees to purchase securities on a "when-issued" or "delayed
settlement" basis, the Fund's custodian will set aside cash or liquid portfolio
securities equal to the amount of the commitment in a separate account. In the
event of a decline in the value of the securities that the custodian has set
aside, the Fund may be required to place additional assets in the separate
account in order to ensure that the value of the account remains equal to the
amount of the Fund's commitment. A Fund's net assets may fluctuate to a greater
degree if it sets aside portfolio securities to cover such purchase commitments
than if it sets aside cash. Because the Fund sets aside liquid assets to satisfy
its purchase commitments in the manner described, its liquidity and ability to
manage its portfolio might be affected in the event its commitments to purchase
securities on a when-issued or delayed settlement basis exceeded 25% of the
value of its assets.
When a Fund engages in when-issued or delayed settlement transactions, it
relies on the seller to consummate the trade. Failure of the seller to do so may
result in the Fund's incurring a loss or missing an opportunity to obtain a
price considered to be advantageous for a security. For purposes of determining
the average weighted maturity of a Fund's portfolio, the maturity of securities
purchased on a when-issued or delayed settlement basis is calculated from the
date of settlement of the purchase to the maturity date.
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SECURITIES LENDING -- MONEY MARKET
The Money Market and Government Funds may lend their portfolio securities
to financial institutions such as banks and broker/dealers in accordance with
their investment limitations. Such loans would involve risks of delay in
receiving additional collateral or in recovering the securities loaned or even
loss of rights in the collateral should the borrower of the securities fail
financially. Any portfolio securities purchased with cash collateral would also
be subject to possible depreciation. Loans will generally be short-term, and
will be made only to borrowers deemed by Fleet to be of good standing and only
when, in Fleet's judgment, the income to be earned from the loan justifies the
attendant risks. The Funds currently intend to limit the lending of their
portfolio securities so that, at any given time, securities loaned by a Fund
represent not more than one-third of the value of its total assets.
A Fund that loans portfolio securities would continue to accrue interest
on the securities loaned and would also earn income on the loans. Any cash
collateral received by the Government Fund in connection with such loans would
be invested in short-term obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities; cash collateral received by the
other Funds would be invested in high quality, short-term "money market"
instruments.
GUARANTEED INVESTMENT CONTRACTS -- MONEY MARKET FUND
The Money Market Fund may invest in guaranteed investment contracts
("GICs") issued by United States insurance companies. Pursuant to such
contracts, the Fund makes cash contributions to a deposit fund of the insurance
company's general account. The insurance company then credits to the Fund
payments at negotiated, floating or fixed interest rates. A GIC is a general
obligation of the issuing insurance company and not a separate account. The
purchase price paid for a GIC becomes part of the general assets of the
insurance company, and the contract is paid from the company's general assets.
The Fund will only purchase GICs that are issued or guaranteed by insurance
companies that at the time of purchase are rated in accordance with the
applicable quality requirements described above under "Quality Requirements."
GICs are considered illiquid securities and will be subject to the Fund's 10%
limitation on illiquid investments, unless there is an active and substantial
secondary market for the particular instrument and market quotations are readily
available.
ASSET-BACKED SECURITIES -- MONEY MARKET FUND
The Money Market Fund may purchase asset-backed securities which
represent a participation in, or are secured by and payable from, a stream of
payments generated by particular assets, most often a pool of assets similar to
one another, such as motor vehicle receivables and credit card receivables. The
Fund will only purchase asset-backed securities that meet the applicable quality
requirements described above under "Quality Requirements."
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,
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which are also known as collateralized obligations, and are generally issued as
the debt of a special purpose entity organized solely for the purpose of owning
such assets and issuing such debt. Asset-backed securities are often backed by a
pool of assets representing the obligations of a number of different parties.
The yield characteristics of asset-backed securities differ from
traditional debt securities. A major difference is that the principal amount of
the obligations may be prepaid at any time because the underlying assets (i.e.,
loans) generally may be prepaid at any time. As a result, if an asset-backed
security is purchased at a premium, a prepayment rate that is faster than
expected will reduce yield to maturity, while a prepayment rate that is slower
than expected will have the opposite effect of increasing yield to maturity.
Conversely, if an asset-backed security is purchased at a discount, faster than
expected prepayments will increase, while slower than expected prepayments will
decrease, yield to maturity.
Prepayments on asset-backed securities generally increase with falling
interest rates and decrease with rising interest rates; furthermore, prepayment
rates are influenced by a variety of economic and social factors. In general,
the collateral supporting non-mortgage asset-backed securities is of shorter
maturity than mortgage loans and is less likely to experience substantial
prepayments. Like other fixed income securities, when interest rates rise, the
value of an asset-backed security generally will decline; however, when interest
rates decline, the value of an asset-backed security with prepayment features
may not increase as much as that of other fixed income securities.
Asset-backed securities are subject to greater risk of default during
periods of economic downturn. Also, the secondary market for certain
asset-backed securities may not be as liquid as the market for other types of
securities, which could result in the Fund's experiencing difficulty in valuing
or liquidating such securities. For these reasons, under certain circumstances,
asset-backed securities may be considered illiquid securities.
INVESTMENT COMPANY SECURITIES -- TAX-EXEMPT MONEY MARKET FUNDS AND INSTITUTIONAL
GOVERNMENT MONEY MARKET FUND
The Tax-Exempt Money Market Funds may invest in securities issued by
other investment companies limited, with respect to the Tax-Exempt Funds, to
open-end investment companies that invest in high quality, short-term Municipal
Securities that meet the applicable quality requirements described above under
"Quality Requirements" and that determine their net asset value per share based
on the amortized cost or penny-rounding method. Such securities may be acquired
by a Fund within the limits prescribed by the 1940 Act. Except as otherwise
permitted under the 1940 Act, each Fund currently intends to limit its
investments in other investment companies so that, as determined immediately
after a securities purchase is made: (a) not more than 5% of the value of its
total assets will be invested in the securities of any one investment company;
(b) not more than 10% of the value of its total assets will be invested in the
aggregate in securities of investment companies as a group; and (c) not more
than 3% of the outstanding voting stock of any one investment company will be
owned by the Fund. A Fund will invest in other investment companies primarily
for the purpose of investing its short-term
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cash which has not as yet been invested in other portfolio instruments. However,
from time to time, on a temporary basis, the Connecticut Municipal Money Market
Fund, Massachusetts Municipal Money Market Fund and New York Municipal Money
Market Fund may invest exclusively in one other investment company managed
similarly to the particular Fund.
The Institutional Government Money Market Fund may invest up to 5% of its
total assets in securities issued by other open-end investment companies that
invest in the types of obligations in which the Fund may invest and that
determine their net asset value per share based on the amortized cost or
penny-rounding method.
Investments in other investment companies will cause a Fund (and,
indirectly, the Fund's shareholders) to bear proportionately the costs incurred
in connection with the investment companies' operations.
NON-DIVERSIFICATION - CONNECTICUT MUNICIPAL MONEY MARKET, MASSACHUSETTS
MUNICIPAL MONEY MARKET AND NEW YORK MUNICIPAL MONEY MARKET FUNDS
The Connecticut Municipal Money Market, Massachusetts Municipal Money
Market and New York Municipal Money Market Funds are non-diversified investment
portfolios. As such, there is no limit on the percentage of assets which can be
invested in any single issuer. An investment in one of these Funds, therefore,
entails greater risk than would exist in a diversified investment portfolio
because the higher percentage of investments among fewer issuers may result in
greater fluctuation in the total market value of the Fund's portfolio. Any
economic, political, or regulatory developments affecting the value of the
securities in a Fund's portfolio will have a greater impact on the total value
of the portfolio than would be the case if the portfolio was diversified among
more issuers. The Connecticut Municipal Money Market, Massachusetts Municipal
Money Market and New York Municipal Money Market Funds intend to comply with
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). This
undertaking requires that at the end of each quarter of a Fund's taxable year,
with regard to at least 50% of its total assets, no more than 5% of its total
assets are invested in the securities of a single issuer; beyond that, no more
than 25% of its total assets are invested in the securities of a single issuer.
CONNECTICUT INVESTMENT RISKS
The following information is a brief summary of factors affecting the
economies and financial strengths of the State of Connecticut, its
municipalities and its political subdivisions and does not purport to be a
complete description of such factors. Other factors will affect issuers. The
summary is based primarily upon one or more publicly available offering
statements relating to debt offerings of the State of Connecticut that were
available prior to the date of this Statement of Additional Information. The
accuracy and completeness of the information contained in such offering
statements have not been independently verified.
The ability of the issuers of Connecticut Municipal Securities to pay the
principal and interest on their obligations may be impacted by a variety of
factors relating to the economy of
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Connecticut and to the fiscal stability of issuers of Connecticut Municipal
Securities. The latter may include such matters as the ability of issuers to
raise sufficient tax and other revenues to meet their needs, the availability
of aid from other governmental bodies, and the burdens that may be imposed on
issuers by law or necessity. To the extent that the Connecticut Municipal
Money Market Fund invests in obligations that are not general obligations of
their issuers, payments of principal and interest will depend on all factors
affecting the revenue sources from which payments thereon are to be derived.
The value of the obligations held by the Fund would be adversely affected not
only by any actual inability of their issuers to pay the principal and
interest thereon, but also by a public perception that such ability is in
doubt.
Manufacturing has historically been of prime economic importance to
Connecticut (sometimes referred to as the "State"). The State's manufacturing
industry is diversified, with transportation equipment (primarily aircraft
engines, helicopters and submarines) the dominant industry, followed by
fabricated metals, non-electrical machinery, and electrical equipment. As a
result of a rise in employment in service-related industries and a decline in
manufacturing employment, however, manufacturing accounted for only 17.09% of
total non-agricultural employment in Connecticut in 1997. Defense-related
business represents a relatively high proportion of the manufacturing sector.
On a per capita basis, defense awards to Connecticut have traditionally been
among the highest in the nation, and reductions in defense spending have had
a substantial adverse impact on Connecticut's economy.
The average annual unemployment rate in Connecticut increased from a low
of 3.0% in 1988 to a high of 7.6% in 1992 and, after a number of important
changes in the method of calculation, was reported to be 5.8% in 1996.
Average per capita personal income of Connecticut residents increased in
every year from 1989 to 1997, rising from $25,443 to $36,434. However,
pockets of significant unemployment and poverty exist in several Connecticut
cities and towns.
For the four fiscal years ended June 30, 1991, the General Fund
experienced operating deficits but, for the eight fiscal years ended June 30,
1999, the General Fund recorded operating surpluses, based on Connecticut's
budgetary method of accounting. General Fund budgets adopted for the biennium
ending June 30, 2001, authorize expenditures of $10,581,600,000 for the
1999-2000 fiscal year and $11,085,200,000 for the 2000-2001 fiscal year and
project surpluses of $64,400,000 and $4,800,000, respectively, for those
years. As of August 31, 1999, the Comptroller estimated expenditures of
$10,689,600,000 and a surplus of only $11,200,000 for the 1999-2000 fiscal
year. Connecticut's general obligation bonds are rated Aa3 by Moody's and AA
by Fitch. On October 8, 1998, S&P upgraded its ratings of Connecticut's
general obligations bonds from AA- to AA.
The State's primary method for financing capital projects is through the
sale of general obligation bonds. These bonds are backed by the full faith
and credit of the State. As of October 15, 1999, the State had authorized
direct general obligation bond indebtedness totaling
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$13,310,385,000, of which $11,144,149,000 had been approved for issuance by
the State Bond Commission and $9,625,537,000 had been issued. As of October
15, 1999, net State direct general obligation indebtedness outstanding was
$6,890,968,000.
In 1995, the State established the University of Connecticut as a
separate corporate entity to issue bonds and construct certain infrastructure
improvements. The University was authorized to issue bonds totaling
$962,000,000 by June 30, 2005, that are secured by a State debt service
commitment to finance the improvements, $359,475,000 of which were
outstanding on October 15, 1999.
In addition, the State has limited or contingent liability on a
significant amount of other bonds. Such bonds have been issued by the
following quasi-public agencies: the Connecticut Housing Finance Authority,
the Connecticut Development Authority, the Connecticut Higher Education
Supplemental Loan Authority, the Connecticut Resources Recovery Authority and
the Connecticut Health and Educational Facilities Authority. Such bonds have
also been issued by the cities of Bridgeport and West Haven and the
Southeastern Connecticut Water Authority. As of December 1, 1998, the amount
of bonds outstanding on which the State has limited or contingent liability
totaled $4,154,900,000.
In 1984, the State established a program to plan, construct and improve
the State's transportation system (other than Bradley International Airport).
The total cost of the program through June 30, 2002, is currently estimated
to be $12.6 billion, to be met from federal, state, and local funds. The
State expects to finance most of its $5.1 billion share of such cost by
issuing $4.6 billion of special tax obligation ("STO") bonds. The STO bonds
are payable solely from specified motor fuel taxes, motor vehicle receipts,
and license, permit and fee revenues pledged therefor and credited to the
Special Transportation Fund, which was established to budget and account for
such revenues.
The State, its officers and its employees are defendants in numerous
lawsuits. Although it is not possible to determine the outcome of these
lawsuits, the Attorney General has opined that an adverse decision in any of
the following cases might have a significant impact on the State's financial
position: (i) an action on behalf of all persons with traumatic brain injury
who have been placed in certain State hospitals, and other persons with
acquired brain injury who are in the custody of the Department of Mental
Health and Addiction Services, claiming that their constitutional rights are
violated by placement in State hospitals alleged not to provide adequate
treatment and training, and seeking placement in community residential
settings with appropriate support services; (ii) litigation involving claims
by Indian tribes to portions of the State's land area; (iii) an action by
certain students and municipalities claiming that the State's formula for
financing public education violates the State's Constitution and seeking a
declaratory judgment and injuctive relief; (iv) an action for money damages
for the death of a young physician killed in an automobile accident allegedly
as a result of negligence of the State; and (v) actions by several hospitals
claiming partial refunds of taxes imposed on hospital gross earnings to the
extent such taxes related to tangible personal property transferred in the
provision of services to patients.
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As a result of litigation on behalf of black and Hispanic school
children in the City of Hartford seeking "integrated education" within the
Greater Hartford metropolian area, on July 9, 1996, the State Supreme Court
directed the legistature to develop appropriate measures to remedy the racial
and ethic segregation in the Hartford public schools. The Superior Court
ordered the State to show cause as to whether there has been compliance with
the Supreme Court's ruling and concluded that the State had complied but that
the plaintiffs had not allowed the State sufficient time to take additional
remedial steps. Accordingly, the plaintiffs might be able to pursue their
claim at a later date. The fiscal impact of this matter might be significant
but is not determinable at this time.
The State's Department of Information Technology is reviewing the
State's Year 2000 exposure and developing plans for modification or
replacement of existing software that it believes will prevent significant
operations problems. There is a risk that the plan will not be completed on
time, that planned testing will not reveal all problems, or that systems of
others on whom the State relies will not be timely updated. If the necessary
remediations are not completed in a timely fashion, the Year 2000 problem may
have a material impact on the operations of the State.
General obligation bonds issued by municipalities are payable primarily
from ad valorem taxes on property located in the municipality. A
municipality's property tax base is subject to many factors outside the
control of the municipality, including the decline in Connecticut's
manufacturing industry. Certain Connecticut municipalities have experienced
severe fiscal difficulties and have reported operating and accumulated
deficits. The most notable of these is the City of Bridgeport, which filed a
bankruptcy petition on June 7, 1991. The State opposed the petition. The
United States Bankruptcy Court for the District of Connecticut held that
Bridgeport had authority to file such a petition but that its petition should
be dismissed on the grounds that Bridgeport was not insolvent when the
petition was filed. State legislation enacted in 1993 prohibits municipal
bankruptcy filings without the prior written consent of the Governor. Regional
economic difficulties, reductions in revenues, and increased expenses could
lead to further fiscal problems for the State and its political subdivisions,
authorities, and agencies. Difficulties in payment of debt service on
borrowings could result in declines, possibly severe, in the value of their
outstanding obligations, increases in their future borrowing costs, and
impairment of their ability to pay debt service on their obligations.
In addition to general obligation bonds backed by the full faith and
credit of the municipality, certain municipal authorities finance projects by
issuing bonds that are not considered to be debts of the municipality. Such
bonds may be repaid only from revenues of the financed project, the revenues
from which may be insufficient to service the related debt obligations.
MASSACHUSETTS INVESTMENT RISKS
The Massachusetts Municipal Money Market Fund's ability to achieve its
investment objective depends on the ability of issuers of Massachusetts
Municipal Securities to meet their continuing obligations to pay principal and
interest. Since the Fund invests primarily in Massachusetts Municipal
Securities, the value of the Fund's shares may be especially affected by factors
pertaining to the economy of Massachusetts and other factors specifically
affecting the ability of issuers of Massachusetts Municipal Securities to meet
their obligations. As a result, the
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the value of the Fund's shares may fluctuate more widely than the value of
shares of a portfolio investing in securities of issuers in a number of
different states. The ability of Massachusetts and its political subdivisions to
meet their obligations will depend primarily on the availability of tax and
other revenues to those governments and on their fiscal conditions generally.
The amount of tax and other revenues available to governmental issuers of
Massachusetts Municipal Securities may be affected from time to time by
economic, political and demographic conditions within Massachusetts. In
addition, constitutional or statutory restrictions may limit a government's
power to raise revenues or increase taxes. The availability of federal, state
and local aid to an issuer of Massachusetts Municipal Securities may also affect
that issuer's ability to meet its obligations. Payments of principal and
interest on limited obligation bonds will depend on the economic condition of
the facility or specific revenue source from whose revenues the payments will be
made, which in turn could be affected by economic, political and demographic
conditions in Massachusetts or a particular locality. Any reduction in the
actual or perceived ability of an issuer of Massachusetts Municipal Securities
to meet its obligations (including a reduction in the rating of its outstanding
securities) would likely affect adversely the market value and marketability of
its obligations and could affect adversely the values of other Massachusetts
Municipal Securities as well.
NEW YORK INVESTMENT RISKS
Certain substantial issuers of New York municipal securities
(including issuers whose obligations may be acquired by the Fund) have
experienced serious financial difficulties in recent years. These difficulties
have at times jeopardized the credit standing and impaired the borrowing
abilities of all New York issuers and have generally contributed to higher
interest costs for their borrowings and fewer markets for their outstanding
debt obligations. Although several different issues of municipal securities
of New York State and its agencies and instrumentalities and of New York City
have been downgraded by Standard & Poor's and Moody's in recent years,
Standard & Poor's and Moody's have recently placed the debt obligations of
New York State and New York City on CreditWatch with positive implications
and upgraded the debt obligations of New York City, respectively. Strong
demand for New York municipal securities has also at times had the effect of
permitting New York municipal securities to be issued with yields relatively
lower, and after issuance, to trade in the market at prices relatively higher,
than comparably rated municipal obligations issued by other jurisdictions. A
recurrence of the financial difficulties previously experienced by certain
issuers of New York municipal securities could result in defaults or declines
in the market values of those issuers' existing obligations and, possibly, in
the obligations of other issuers of New York municipal securities. Although
as of the date of this statement of additional information, no issuers of New
York municipal securities are in default with respect to the payment of their
municipal securities, the occurrence of any such default could affect adversely
the market values and marketability of all New York municipal securities and,
consequently, the net asset value of the Fund's portfolio.
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Some of the significant financial considerations relating to the New York
Tax Exempt Fund's investments in New York Municipal Securities are summarized
below. This summary information is not intended to be a complete description and
is principally derived from the Annual Information Statement of the State of New
York as supplemented and contained in official statements relating to issues of
New York Municipal Securities that were available prior to the date of this
Statement of Additional Information. The accuracy and completeness of the
information contained in those official statements have not been independently
verified.
STATE ECONOMY. New York is one of the most populous states in the nation
and has a relatively high level of personal wealth. The State's economy is
diverse with a comparatively large share of the nation's finance, insurance,
transportation, communications and services employment, and a very small share
of the nation's farming and mining activity. The State's location and its
excellent air transport facilities and natural harbors have made it an important
link in international commerce. Travel and tourism constitute an important part
of the economy. Like the rest of the nation, New York has a declining proportion
of its workforce engaged in manufacturing, and an increasing proportion engaged
in service industries.
State per capita personal income has historically been significantly higher
than the national average, although the ratio has varied substantially. Because
New York City (the "City") is a regional employment center for a multi-state
region, State personal income measured on a residence basis understates the
relative importance of the State to the national economy and the size of the
base to which State taxation applies.
There can be no assurance that the State economy will not experience
worse-than-predicted results, with corresponding material and adverse effects on
the State's projections of receipts and disbursements.
STATE BUDGET. The State Constitution requires the governor (the "Governor")
to submit to the State legislature (the "Legislature") a balanced executive
budget which contains a complete plan of expenditures for the ensuing fiscal
year and all moneys and revenues estimated to be available therefor, accompanied
by bills containing all proposed appropriations or reappropriations and any new
or modified revenue measures to be enacted in connection with the executive
budget. The entire plan constitutes the proposed State financial plan for that
fiscal year. The Governor is required to submit to the Legislature quarterly
budget updates which include a revised cash-basis state financial plan, and an
explanation of any changes from the previous state financial plan.
State law requires the Governor to propose a balanced budget each year. In
recent years, the State has closed projected budget gaps of $5.0 billion
(1995-96), $3.9 billion (1996-97), $2.3 billion (1997-98), and less than $1
billion (1998-99). The State's current fiscal year began on April 1, 1999 and
ends on March 31, 2000. On March 31, 1999, the State adopted the debt service
portion of the State budget for the 1999-2000 fiscal year; four months later, on
August 4, 1999, it enacted the remainder of the budget. The Governor approved
the budget as
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passed by the Legislature. Prior to passing the budget in its entirety for the
current fiscal year, the State enacted appropriations that permitted the State
to continue its operations.
In 1999-2000, General Fund disbursements, including transfer to support
capital projects, debt service and other funds, are estimated at $37.36 billion,
an increase of $868 million or 2.38 percent over 1998-99. Projected spending
under the 1999-2000 enacted budget is $215 million above the Governor's
Executive Budget recommendations, including 30-day amendments. This change is
the net result of spending actions that occurred during negotiations on the
Budget. The increase in General Fund spending is comprised of $1.1 billion in
legislative additions to the Executive Budget (primarily in education), offset
by various actions, including re-estimates of required spending based on
year-to-date results and the identification of certain other resources that
offset spending, such as $250 million from commencing the process of privatizing
the Medical Malpractice Insurance Association (MMIA), $250 million from the
retention of the Debt Reduction Reserve Fund within the General Fund and about
$100 million in excess fund balances. The MMIA was established in 1983 to
provide excess liability insurance to doctors and medical providers. Legislation
enacted with the 1999-2000 budget initiates the process of MMIA privatization
and transfers excess fund balances to the State.
The 1999-2000 enacted budget provides for $831 million in new funding for
public schools, the largest year-to-year increase in State history. The budget
also enacts several new tax cuts valued at $375 million when fully phased in by
2003-04. None of the $1.82 billion cash surplus from 1998-99 is assumed to
support spending in 1999-2000, but instead is reserved to help offset the costs
of previously enacted tax cuts that take effect after 1999-2000.
The 1999-2000 Financial Plan projects a closing balance of $2.85 billion in
the General Fund. The balance is comprised of the $1.82 billion surplus from
1998-99 that has been set aside to finance already-enacted tax cuts, $473
million in the Tax Stabilization Reserve Fund (TSRF), $250 million in the Debt
Reduction Reserve Fund (DRRF), $107 million in the Contingency Reserve Fund
(CRF), and $200 million in the Community Projects Fund (CPF), which finances
legislative initiatives. The State expects to close 1999-2000 with cash balances
in these funds at their highest level ever.
Preliminary analysis by Division of Budget ("DOB") indicates that the State
will have a 2000-01 budget gap of approximately $1.9 billion, or about $300
million above the 1999-2000 Executive Budget estimate (after adjusting for the
projected costs of collective bargaining). This estimate includes an assumption
for the projected costs of new collective bargaining agreements, $500 million in
assumed operating efficiencies, as well as the planned application of
approximately $615 million of the $1.82 billion tax reduction reserve. In recent
years, the State has closed projected budget gaps which DOB estimates at $5.0
billion (1995-96), $3.9 billion (1996-97), $2.3 billion (1997-98), and less than
$1 billion (1998-99). DOB will formally update its projections of receipts and
disbursements for future years as part of the Governor's 2000-01 Executive
Budget submission. The revised expectations for these years will reflect the
cumulative impact of tax reductions and spending commitments enacted over the
last several years as well as new 2000-01 Executive Budget recommendations.
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The General Fund is the principal operating fund of the State and is used
to account for all financial transactions except those required to be accounted
for in another fund. It is the State's largest fund and received almost all
State taxes and other resources not dedicated to particular purposes. In the
State's 1999-2000 fiscal year, the General Fund (exclusive of transfers) is
expected to account for approximately 47.1 percent of all Governmental Funds
disbursements and 69.3 percent of total State Funds disbursements. General Fund
moneys are also transferred to other funds, primarily to support certain capital
projects and debt service payments in other fund types.
Total receipts and transfers from other funds are projected to be $39.31
billion in 1999-2000, an increase of $2.57 billion over 1998-99. Total General
Fund disbursements and transfers to other funds are projected to be $37.36
billion, an increase of $868 million over 1998-99. Total General Fund receipts
and transfers in 1999-2000 are now projected to be $39.31 billion, an increase
of $2.57 billion from the $36.74 billion recorded in 1998-99. This total
includes $35.93 billion in tax receipts, $1.36 billion in miscellaneous
receipts, and $2.02 billion in transfers from other funds. The transfer of the
$1.82 billion surplus recorded in 1998-99 to the 1999-2000 fiscal period has the
effect of exaggerating the growth in State receipts from year to year by
depressing reported 1998-99 figures and inflating 1999-2000 projections.
Receipts from user taxes and fees are projected to total $7.35 billion, an
increase of $105 million from reported collections in the prior year. The sales
tax component of this category accounts for virtually all of the 1999-2000
growth. Growth in base sales tax yield, after adjusting for tax law and other
changes, is projected at 5.6 percent. Modest increases in motor fuel and auto
rental tax receipts over 1998-99 levels are also expected. However, receipts
from other user taxes and fees are estimated to decline by $177 million.
The yield of other excise taxes in this category, particularly the
cigarette and alcoholic beverage taxes, show long-term declining trends. General
Fund declines in 1999-2000 motor vehicle fee receipts, in contrast, reflect
statutory fee reductions and an increased amount of collections earmarked to the
Dedicated Highway and Bridge Trust Fund.
Significant statutory changes in this category during the 1999-2000
legislative session include: delaying until March 1, 2000 the implementation of
the exemption from State sales tax of clothing and footwear priced under $110;
providing week-long sales tax exemptions in September 1999 and January 2000 for
clothing and footwear priced under $500; enactment of a variety of small sales
tax exemptions including certain equipment used in providing telecommunications
service for sale, property and services used in theatrical productions, computer
hardware used to design Internet web sites, and building materials used in
farming; a reduction in the beer tax rate; and an expanded exemption from the
alcoholic beverage tax for small brewers.
Following the pattern of the last two fiscal years, education programs
receive the largest share of new funding contained in the 1999-2000 Financial
Plan. School aid is expected to grow by $831 million or 8.58 percent over
1998-99 levels (on a State fiscal year basis). Outside of education, the largest
growth in spending is for State Operations ($207 million, including $100 million
reserved for possible collective bargaining costs); Debt Service ($183
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million), and mental hygiene programs, including funding for a cost of living
increase for care providers ($114 million). These increases were offset, in
part, by spending reductions or actions in health and social welfare ($280
million), and in general State charges ($222 million).
Under the 1999-2000 enacted budget, General Fund spending on school aid is
projected at $10.52 billion on a State fiscal year basis, an increase of $831
million from the prior year. The budget provides additional funding for
operating aid, building aid, and several other targeted aid programs. It also
funds the balance of aid payable for the 1998-99 school year that is due
primarily in the first quarter of the 1999-2000 fiscal year. For all other
educational programs, disbursements are projected to grow by $78 million to
$2.99 billion.
Many complex political, social and economic forces influence the State's
economy and finances, which may in turn affect the State's Financial Plan. These
forces may affect the State unpredictably from fiscal year to fiscal year and
are influenced by governments, institutions, and organizations that are not
subject to the State's control. The State Financial Plan is also necessarily
based upon forecasts of national and State economic activity. Economic forecasts
have frequently failed to predict accurately the timing and magnitude of changes
in the national and the State economies. The DOB believes that its projections
of receipts and disbursements relating to the current State Financial Plan, and
the assumptions on which they are based, are reasonable. The projections assume
no changes in federal tax law, which could substantially alter the current
receipts forecast. In addition, these projections do not include funding for new
collective bargaining agreements after the current contracts expire. Actual
results, however, could differ materially and adversely from their projections,
and those projections may be changed materially and adversely from time to time.
DEBT LIMITS AND OUTSTANDING DEBT. There are a number of methods by which
the State of New York may incur debt. Under the State Constitution, the State
may not, with limited exceptions for emergencies, undertake long-term general
obligation borrowing (I.E., borrowing for more than one year) unless the
borrowing is authorized in a specific amount for a single work or purpose by the
Legislature and approved by the voters. There is no limitation on the amount of
long-term general obligation debt that may be so authorized and subsequently
incurred by the State.
The State may undertake short-term borrowings without voter approval (i) in
anticipation of the receipt of taxes and revenues, by issuing tax and revenue
anticipation notes, and (ii) in anticipation of the receipt of proceeds from the
sale of duly authorized but unissued general obligation bonds, by issuing bond
anticipation notes. The State may also, pursuant to specific constitutional
authorization, directly guarantee certain obligations of the State of New York's
authorities and public benefit corporations ("Authorities"). Payments of debt
service on New York State general obligation and New York State-guaranteed bonds
and notes are legally enforceable obligations of the State of New York.
The State employs additional long-term financing mechanisms, lease-purchase
and contractual-obligation financings, which involve obligations of public
authorities or municipalities that are State-supported but are not general
obligations of the State. Under these financing arrangements, certain public
authorities and municipalities have issued obligations to
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finance the construction and rehabilitation of facilities or the acquisition and
rehabilitation of equipment, and expect to meet their debt service requirements
through the receipt of rental or other contractual payments made by the State.
Although these financing arrangements involve a contractual agreement by the
State to make payments to a public authority, municipality or other entity, the
State's obligation to make such payments is generally expressly made subject to
appropriation by the Legislature and the actual availability of money to the
State for making the payments. The State has also entered into a
contractual-obligation financing arrangement with the LGAC to restructure the
way the State makes certain local aid payments.
Sustained growth in the State's economy could contribute to closing
projected budget gaps over the next several years, both in terms of
higher-than-projected tax receipts and in lower-than-expected entitlement
spending. The State assumes that the 2000-01 Financial Plan will achieve $500
million in savings from initiatives by State agencies to deliver services more
efficiently, workforce management efforts, maximization of federal and
non-General Fund spending offsets, and other actions necessary to help bring
projected disbursements and receipts into balance. The projections do not assume
any gap-closing benefit from the potential settlement of State claims against
the tobacco industry.
Spending from Debt Service Funds are estimated at $3.64 billion in
1999-2000, up $370 million or 11.31 percent from 1998-99. Transportation
purposes, including debt service on bonds issued for State and local highway and
bridge programs financed through the New York State Thruway Authority and
supported by the Dedicated Highway and Bridge Trust Fund, account for $124
million of the year-to-year growth. Debt service for educational purposes,
including State and City University programs financed through the Dormitory
Authority, will increase by $80 million. The remaining growth is for a variety
of programs in mental health and corrections, and for general obligation
financings.
On January 13, 1992, S&P reduced its ratings on the State's general
obligation bonds from A to A- and, in addition, reduced its ratings on the
State's moral obligation, lease purchase, guaranteed and contractual obligation
debt. On August 28, 1997, S&P revised its ratings on the State's general
obligation bonds from A- to A and revised its ratings on the State's moral
obligation, lease purchase, guaranteed and contractual obligation debt. On March
5, 1999, S&P affirmed its A rating on the State's outstanding bonds.
On January 6, 1992, Moody's reduced its ratings on outstanding
limited-liability State lease purchase and contractual obligations from A to
Baal. On February 28, 1994, Moody's reconfirmed its A rating on the State's
general obligation long-term indebtedness. On March 20, 1998, Moody's assigned
the highest commercial paper rating of P-1 to the short-term notes of the State.
On March 5, 1999, Moody's affirmed its A2 rating with a stable outlook to the
State's general obligations.
New York State has never defaulted on any of its general obligation
indebtedness or its obligations under lease-purchase or contractual-obligation
financing arrangements and has never been called upon to make any direct
payments pursuant to its guarantees.
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LITIGATION. Certain litigation pending against New York State or its
officers or employees could have a substantial or long-term adverse effect on
New York State finances. Among the more significant of these cases are those
that involve (1) the validity of agreements and treaties by which various Indian
tribes transferred title to New York State of certain land in central and
upstate New York; (2) certain aspects of New York State's Medicaid policies,
including its rates, regulations and procedures; (3) challenges to the
constitutionality of Public Health Law 2807-d, which imposes a gross receipts
tax from certain patient care services; (4) action seeking enforcement of
certain sales and excise taxes and tobacco products and motor fuel sold to
non-Indian consumers on Indian reservations; (5) a challenge to the Governor's
application of his constitutional line item veto authority; and (6) a challenge
to the enactment of the CLEAN WATER/CLEAN AIR BOND ACT OF 1996.
Several actions challenging the constitutionality of legislation enacted
during the 1990 legislative session which changed actuarial funding methods for
determining state and local contributions to state employee retirement systems
have been decided against the State. As a result, the Comptroller developed a
plan to restore the State's retirement systems to prior funding levels. Such
funding is expected to exceed prior levels by $116 million in fiscal 1996-97,
$193 million in fiscal 1997-98, peaking at $241 million in fiscal 1998-99.
Beginning in fiscal 2001-02, State contributions required under the
Comptroller's plan are projected to be less than that required under the prior
funding method. As a result of the United States Supreme Court decision in the
case of STATE OF DELAWARE V. STATE OF NEW YORK, on January 21, 1994, the State
entered into a settlement agreement with various parties. Pursuant to all
agreements executed in connection with the action, the State was required to
make aggregate payments of $351.4 million. Annual payments to the various
parties will continue through the State's 2002-03 fiscal year in amounts which
will not exceed $48.4 million in any fiscal year subsequent to the State's
1994-95 fiscal year. Litigation challenging the constitutionality of the
treatment of certain moneys held in a reserve fund was settled in June 1996 and
certain amounts in a Supplemental Reserve Fund previously credited by the State
against prior State and local pension contributions were paid in 1998.
The legal proceedings noted above involve State finances, State programs
and miscellaneous cure rights, tort, real property and contract claims in which
the State is a defendant and the monetary damages sought are substantial,
generally in excess of $100 million. These proceedings could affect adversely
the financial condition of the State in the current fiscal year or thereafter.
Adverse developments in these proceedings, other proceedings for which there are
unanticipated, unfavorable and material judgments, or the initiation of new
proceedings could affect the ability of the State to maintain a balanced
financial plan. An adverse decision in any of these proceedings could exceed the
amount of the reserve established in the State's financial plan for the payment
of judgments and, therefore, could affect the ability of the State to maintain a
balanced financial plan.
Although other litigation is pending against New York State, except as
described herein, no current litigation involves New York State's authority, as
a matter of law, to contract indebtedness, issue its obligations, or pay such
indebtedness when it matures, or affects New York State's power or ability, as a
matter of law, to impose or collect significant amounts of taxes and revenues.
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AUTHORITIES. The fiscal stability of New York State is related, in part, to
the fiscal stability of its Authorities, which generally have responsibility for
financing, constructing and operating revenue-producing public benefit
facilities. Authorities are not subject to the constitutional restrictions on
the incurrence of debt which apply to the State itself, and may issue bonds and
notes within the amounts of, and as otherwise restricted by, their legislative
authorization. The State's access to the public credit markets could be
impaired, and the market price of its outstanding debt may be materially and
adversely affected, if any of the Authorities were to default on their
respective obligations, particularly with respect to debt that is
State-supported or State-related.
Authorities are generally supported by revenues generated by the projects
financed or operated, such as fares, user fees on bridges, highway tolls and
rentals for dormitory rooms and housing. In recent years, however, New York
State has provided financial assistance through appropriations, in some cases of
a recurring nature, to certain of the Authorities for operating and other
expenses and, in fulfillment of its commitments on moral obligation indebtedness
or otherwise, for debt service. This operating assistance is expected to
continue to be required in future years. In addition, certain statutory
arrangements provide for State local assistance payments otherwise payable to
localities to be made under certain circumstances to certain Authorities. The
State has no obligation to provide additional assistance to localities whose
local assistance payments have been paid to Authorities under these
arrangements. However, in the event that such local assistance payments are so
diverted, the affected localities could seek additional State funds.
In February 1997, the Job Development Authority ("JDA") issued
approximately $85 million of State-guaranteed bonds to refinance certain of its
outstanding bonds and notes in order to restructure and improve JDA's capital
structure. Due to concerns regarding the economic viability of its programs,
JDA's loan and loan guarantee activities had been suspended since 1995. As a
result of the structural imbalances in JDA's capital structure, and defaults in
its loan portfolio and loan guarantee program incurred between 1991 and 1996,
JDA would have experienced a debt service cash flow shortfall had it not
completed its recent refinancing. JDA anticipates that it will transact
additional refinancings in 1999, 2000 and 2003 to complete its long-term plan of
finance and further alleviate cash flow imbalances which are likely to occur in
future years. JDA recently resumed its lending activities under a revised set of
lending programs and underwriting guidelines.
NEW YORK CITY AND OTHER LOCALITIES. The fiscal health of the State may also
be impacted by the fiscal health of its localities, particularly the City, which
has required and continues to require significant financial assistance from the
State. The City depends on State aid both to enable the City to balance its
budget and to meet its cash requirements. There can be no assurance that there
will not be reductions in State aid to the City from amounts currently projected
or that State budgets will be adopted by the April 1 statutory deadline or that
any such reductions or delays will not have adverse effects on the City's cash
flow or expenditures. In addition, the Federal budget negotiation process could
result in a reduction in or a delay in the receipt of Federal grants which could
have additional adverse effects on the City's cash flow or revenues.
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In 1975, New York City suffered a fiscal crisis that impaired the borrowing
ability of both the City and New York State. In that year the City lost access
to the public credit markets. The City was not able to sell short-term notes to
the public again until 1979. In 1975, S&P suspended its A rating of City bonds.
This suspension remained in effect until March 1981, at which time the City
received an investment grade rating of BBB from S&P.
On July 2, 1985, S&P revised its rating of City bonds upward to BBB+ and on
November 19, 1987, to A-. On February 3, 1998 and again on May 27, 1998, S&P
assigned a BBB+ rating to the City's general obligation debt and placed the
ratings on CreditWatch with positive implications. On March 9, 1999, S&P
assigned its A- rating to Series 1999H of New York City general obligation bonds
and affirmed the A- rating on various previously issued New York City bonds.
Moody's ratings of City bonds were revised in November 1981 from B (in
effect since 1977) to Bal, in November 1983 to Baa, in December 1985 to Baal, in
May 1988 to A and again in February 1991 to Baal. On February 25, 1998, Moody's
upgraded approximately $28 billion of the City's general obligations from Baal
to A3. On June 9, 1998, Moody's affirmed its A3 rating to the City's general
obligations and stated that its outlook was stable.
On March 8, 1999, Fitch IBCA upgraded New York City's $26 billion
outstanding general obligation bonds from A- to A.
New York City is heavily dependent on New York State and federal assistance
to cover insufficiencies in its revenues. There can be no assurance that in the
future federal and State assistance will enable the City to make up its budget
deficits. To help alleviate the City's financial difficulties, the Legislature
created the Municipal Assistance Corporation ("MAC") in 1975. Since its
creation, MAC has provided, among other things, financing assistance to the City
by refunding maturing City short-term debt and transferring to the City funds
received from sales of MAC bonds and notes. MAC is authorized to issue bonds and
notes payable from certain stock transfer tax revenues, from the City's portion
of the State sales tax derived in the City and, subject to certain prior claims,
from State per capita aid otherwise payable by the State to the City. Failure by
the State to continue the imposition of such taxes, the reduction of the rate of
such taxes to rates less than those in effect on July 2, 1975, failure by the
State to pay such aid revenues and the reduction of such aid revenues below a
specified level are included among the events of default in the resolutions
authorizing MAC's long-term debt. The occurrence of an event of default may
result in the acceleration of the maturity of all or a portion of MAC's debt.
MAC bonds and notes constitute general obligations of MAC and do not constitute
an enforceable obligation or debt of either the State or the City.
Since 1975, the City's financial condition has been subject to oversight
and review by the New York State Financial Control Board (the "Control Board")
and since 1978 the City's financial statements have been audited by independent
accounting firms. To be eligible for guarantees and assistance, the City is
required during a "control period" to submit annually for Control Board
approval, and when a control period is not in effect for Control Board review, a
financial plan for the next four fiscal years covering the City and certain
agencies showing
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balanced budgets determined in accordance with GAAP. New York State also
established the Office of the State Deputy Comptroller for New York City
("OSDC") to assist the Control Board in exercising its powers and
responsibilities. On June 30, 1986, the City satisfied the statutory
requirements for termination of the control period. This means that the Control
Board's powers of approval are suspended, but the Board continues to have
oversight responsibilities.
On June 10, 1997, the City submitted to the Control Board the Financial
Plan (the "1998-2001 Financial Plan") for the 1998 through 2001 fiscal years,
relating to the City, the Board of Education ("BOE") and City University of New
York ("CUNY") and reflected the City's expense and capital budgets for the 1998
fiscal year, which were adopted on June 6, 1997. The 1998-2001 Financial Plan
projected revenues and expenditures for the 1998 fiscal year balanced in
accordance with GAAP. The 1998-99 Financial Plan projected General Fund receipts
(including transfers from other funds) of $36.22 billion, an increase of $1.02
billion over the estimated 1997-1998 level. Recurring growth in the State
General Fund tax base is projected to be approximately six percent during
1998-99, after adjusting for tax law and administrative changes. This growth
rate is lower than the rates for 1996-97 or 1997-98, but roughly equivalent to
the rate for 1995-96.
Although the City has consistently maintained balanced budgets and is
projected to achieve balanced operating results for the current fiscal year,
there can be no assurance that the gap-closing actions proposed in the 1998-2001
Financial Plan can be successfully implemented or that the City will maintain a
balanced budget in future years without additional State aid, revenue increases
or expenditure reductions. Additional tax increases and reductions in essential
City services could adversely affect the City's economic base.
The projections set forth in the 1998-2001 Financial Plan were based on
various assumptions and contingencies which are uncertain and which may not
materialize. Changes in major assumptions could significantly affect the City's
ability to balance its budget as required by State law and to meet its annual
cash flow and financing requirements. Such assumptions and contingencies include
the condition of the regional and local economies, the impact on real estate tax
revenues of the real estate market, wage increases for City employees consistent
with those assumed in the 1998-2001 Financial Plan, employment growth, the
ability to implement proposed reductions in City personnel and other cost
reduction initiatives, the ability of the Health and Hospitals Corporation and
the BOE to take actions to offset reduced revenues, the ability to complete
revenue generating transactions, provision of State and Federal aid and mandate
relief and the impact on City revenues and expenditures of Federal and State
welfare reform and any future legislation affecting Medicare or other
entitlements.
Implementation of the 1998-2001 Financial Plan is also dependent upon the
City's ability to market its securities successfully. The City's financing
program for fiscal years 1998 through 2001 contemplates the issuance of $5.7
billion of general obligation bonds and $5.7 billion of bonds to be issued by
the proposed New York City Transitional Finance Authority (the "Finance
Authority") to finance City capital projects. The Finance Authority, was created
as part of the City's effort to assist in keeping the City's indebtedness within
the forecast level of the constitutional restrictions on the amount of debt the
City is authorized to incur. Despite this additional financing mechanism, the
City currently projects that, if no further action is taken, it
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will reach its debt limit in City fiscal year 1999-2000. Indebtedness subject to
the constitutional debt limit includes liability on capital contracts that are
expected to be funded with general obligation bonds, as well as general
obligation bonds. On June 2, 1997, an action was commenced seeking a declaratory
judgment declaring the legislation establishing the Transitional Finance
Authority to be unconstitutional. If such legislation which is currently on
appeal to the Court of Appeals were voided, projected contracts for the City
capital projects would exceed the City's debt limit. Future developments
concerning the City or entities issuing debt for the benefit of the City, and
public discussion of such developments, as well as prevailing market conditions
and securities credit ratings, may affect the ability or cost to sell securities
issued by the City or such entities and may also affect the market for their
outstanding securities.
The City Comptroller and other agencies and public officials have issued
reports and made public statements which, among other things, state that
projected revenues and expenditures may be different from those forecast in the
City's financial plans. It is reasonable to expect that such reports and
statements will continue to be issued and to engender public comment.
The City since 1981 has fully satisfied its seasonal financing needs in the
public credit markets, repaying all short-term obligations within their fiscal
year of issuance. Although the City's 1998 fiscal year financial plan projected
$2.4 billion of seasonal financing, the City expected to undertake only
approximately $1.4 billion of seasonal financing. The City issued $2.4 billion
of short-term obligations in fiscal year 1997. The delay in the adoption of the
State's budget in certain past fiscal years has required the City to issue
short-term notes in amounts exceeding those expected early in such fiscal years.
Certain localities, in addition to the City, have experienced financial
problems and have requested and received additional New York State assistance
during the last several State fiscal years. The potential impact on the State of
any future requests by localities for additional assistance is not included in
the State's projections of its receipts and disbursements for the fiscal year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers") resulted
in the re-establishment of the Financial Control Board for the City of Yonkers
(the "Yonkers Board") by New York State in 1984. The Yonkers Board is charged
with oversight of the fiscal affairs of Yonkers. Future actions taken by the
State to assist Yonkers could result in increased State expenditures for
extraordinary local assistance.
On June 30, 1998, the City of Yonkers satisfied the statutory conditions
for ending the supervision of its finances by a State-ordered control board.
Pursuant to State law, the control board's powers over City finances lapsed six
months after the satisfaction of these conditions, on December 31, 1998.
Beginning in 1990, the City of Troy experienced a series of budgetary
deficits that resulted in the establishment of a Supervisory Board for the City
of Troy in 1994. The Supervisory Board's powers were increased in 1995, when
Troy MAC was created to help Troy avoid default on certain obligations. The
legislation creating Troy MAC prohibits the city of
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Troy from seeking federal bankruptcy protection while Troy MAC bonds are
outstanding. Troy MAC has issued bonds to effect a restructuring of the City of
Troy's obligations.
The 1998-99 budget included $29.4 million in unrestricted aid targeted to
57 municipalities across the State. Other assistance for municipalities with
special needs totals more than $25.6 million. Twelve upstate cities received
$24.2 million in one-time assistance from a cash flow acceleration of State aid.
Municipalities and school districts have engaged in substantial short-term
and long-term borrowings. State law requires the Comptroller to review and make
recommendations concerning the budgets of those local government units other
than New York City that are authorized by State law to issue debt to finance
deficits during the period that such deficit financing is outstanding.
From time to time, federal expenditure reductions could reduce, or in some
cases eliminate, federal funding of some local programs and accordingly might
impose substantial increased expenditure requirements on affected localities. If
the State, the City or any of the Authorities were to suffer serious financial
difficulties jeopardizing their respective access to the public credit markets,
the marketability of notes and bonds issued by localities within the State could
be adversely affected. Localities also face anticipated and potential problems
resulting from certain pending litigation, judicial decisions and long-range
economic trends. Long-range potential problems of declining urban population,
increasing expenditures and other economic trends could adversely affect
localities and require increasing the State assistance in the future.
YEAR 2000 COMPLIANCE. The State is currently addressing Year 2000 ("Y2K")
data processing compliance issues. Since its inception, the computer industry
has used a two-digit date convention to represent the year. In the year 2000,
the date field will contain "00" and, as a result, many computer systems and
equipment may not be able to process dates properly or may fail since they may
not be able to distinguish between the years 1900 and 2000. The Year 2000 issue
not only affects computer programs, but also the hardware, software and networks
on which they operate. In addition, any system or equipment that is dependent on
an embedded chip, such as telecommunication equipment and security systems, may
also be adversely affected.
In April 1999, the State Comptroller released an audit on the State's Year
2000 compliance. The audit, which reviewed the State's Y2K compliance activities
through October 1998, found that the State had made progress in achieving Y2K
compliance, but needed to improve its activities in several areas, including
data interchanges and contingency planning.
The Office for Technology (OFT) will continue to monitor compliance
progress for the States mission-critical and high-priority systems and is
reporting compliance progress to the Governor's Office on a quarterly basis. The
1999-2000 enacted budget allocates $19 million for priority embedded systems and
$20 million for unanticipated expenses related to bringing technology into Y2K
compliance. OFT reports that as of June 1999, the State had completed over 98
percent of the overall compliance effort for its mission-critical systems; 55 of
the 56 systems are now Year 2000 compliant. As of June 1999, the State had
completed 87 percent of
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the overall compliance effort on the high-priority systems; 236 systems are now
Year 2000 compliant. The State has also procured independent validation and
verification services from a qualified vendor to perform an automated review of
code that has been fixed and a testing review process for all mission-critical
systems which is scheduled to be completed by September 1999.
While New York State is taking what it believes to be appropriate action to
address Year 2000 compliance, there can be no guarantee that all of the State's
systems and equipment will be Year 2000 compliant and that there will not be an
adverse impact upon State operations or finances as a result. Since Year 2000
compliance by outside parties is beyond the State's control to remediate, the
failure of outside parties to achieve Year 2000 compliance could have an adverse
impact on State operations or finances as well.
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PORTFOLIO SECURITIES GENERALLY
Subsequent to its purchase by a Fund, an issue of securities may cease to
be rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Board of Trustees or Fleet, pursuant to guidelines
established by the Board, will promptly consider such an event in determining
whether the Fund involved should continue to hold the obligation. The Board of
Trustees or Fleet may determine that it is appropriate for the Fund to continue
to hold the obligation if retention is in accordance with the interests of the
Fund and applicable regulations of the Securities and Exchange Commission
("SEC").
INVESTMENT LIMITATIONS
In addition to each Fund's investment objective as stated in its
Prospectus(es), the following investment limitations are matters of fundamental
policy and may not be changed with respect to a Fund without the affirmative
vote of the holders of a majority of its outstanding shares (as defined under
"Miscellaneous").
Each of the Money Market, Government, U.S. Treasury, Tax-Exempt and
Institutional Government Money Market Funds may not:
1. Make loans, except that (i) each Fund may purchase or hold
debt instruments in accordance with its investment objective and
policies, (ii) each Fund, except the U.S. Treasury Fund, may enter
into repurchase agreements with respect to portfolio securities,
and (iii) the Money Market and Government Funds each may lend
portfolio securities against collateral consisting of cash or
securities that are consistent with the Fund's permitted
investments, where the value of the collateral is equal at all
times to at least 100% of the value of the securities loaned.
2. Purchase foreign securities, except that the Money Market
Fund may purchase certificates of deposit, bankers' acceptances,
or other similar obligations issued by U.S. branches of foreign
banks or foreign branches of U.S. banks.
3. 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.
4. 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
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securities directly from the issuer thereof in accordance with the
Fund's investment objective, policies and limitations may be
deemed to be underwriting.
5. Purchase or sell real estate; except that each taxable Fund
may purchase securities that are secured by real estate, and the
Money Market Fund may purchase securities of issuers which deal in
real estate or interests therein; and except that the Tax-Exempt
Fund may invest in Municipal Securities secured by real estate or
interests therein; however the Funds will not purchase or sell
interests in real estate limited partnerships.
6. Purchase or sell commodities or commodity contracts or
invest in oil, gas or other mineral exploration or development
programs or mineral leases.
7. Invest in or sell put options, call options, straddles,
spreads, or any combination thereof.
8. Invest in companies for the purpose of exercising
management or control.
9. Purchase securities of other investment companies except in
connection with a merger, consolidation, reorganization or
acquisition of assets; provided, however, that the Tax-Exempt and
Institutional Government Money Market Funds may acquire such
securities in accordance with the 1940 Act; and provided, further,
that the Institutional Government Money Market Fund may only
invest up to 5% of its total assets in shares of other investment
companies which are registered under the 1940 Act and which invest
only in securities that the Fund could acquire directly.
Each of the Money Market, Government, U.S. Treasury and Institutional
Government Money Market Funds may not:
10. Borrow money or issue senior securities, except that each
Fund may borrow from domestic banks for temporary purposes and
then in amounts not in excess of 10% of the value of a Fund's
total assets at the time of such borrowing (provided that the
Money Market and Government Funds may borrow pursuant to reverse
repurchase agreements in accordance with their investment policies
and in amounts not in excess of 10% of the value of their
respective total assets at the time of such borrowing); or
mortgage, pledge, or hypothecate any assets except in connection
with any such borrowing and in amounts not in excess of the lesser
of the dollar amounts borrowed or 10% of the value of a Fund's
total assets at the time of such borrowing. A Fund will not
purchase securities while borrowings (including reverse repurchase
agreements with respect to the Money Market and Government Funds)
in excess of 5% of its total assets are outstanding.
11. Invest more than 10% of the value of its total assets in
illiquid securities, including, with respect to the Money Market,
Government and U.S. Treasury Funds, repurchase agreements with
remaining maturities in excess of seven days,
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time deposits with maturities in excess of seven days, restricted
securities, non-negotiable time deposits and other securities
which are not readily marketable.
With respect to Investment Limitation No. 10 above, each of the Money
Market and Government Funds intends to limit any borrowings, including reverse
repurchase agreements, to not more than 10% of the value of its total assets at
the time of such borrowing.
With respect to Investment Limitation No. 11 above, the Institutional
Government Money Market Fund intends to limit investments in illiquid securities
to not more than 10% of the value of its net assets.
Each of the Money Market, Government, U.S. Treasury and Tax-Exempt Funds
may not:
12. Purchase securities of any one issuer if immediately after
such purchase more than 5% of the value of its total assets would
be invested in the securities of such issuer (the "5%
limitation"), except that up to 25% of the value of its total
assets may be invested without regard to the 5% limitation;
notwithstanding the foregoing restriction, each Fund may invest
without regard to the 5% limitation in U.S. Government obligations
and as otherwise permitted in accordance with Rule 2a-7 under the
1940 Act or any successor rule.
With respect to Investment Limitation No. 12 above, (a) a security is
considered to be issued by the governmental entity or entities whose assets and
revenues back the security or, with respect to a private activity bond that is
backed only by the assets and revenues of a non-governmental user, such
non-governmental user; (b) in certain circumstances, the guarantor of a
guaranteed security may also be considered to be an issuer in connection with
such guarantee; and (c) securities issued or guaranteed by the U.S. Government,
its agencies or instrumentalities (including securities backed by the full faith
and credit of the United States) are deemed to be U.S. Government obligations.
The Money Market Fund may not:
13. Purchase any securities other than "money-market"
instruments, some of which may be subject to repurchase
agreements, but the Fund may make interest-bearing savings
deposits not in excess of 5% of the value of its total assets at
the time of deposit and may make time deposits.
The Government Fund may not:
14. Purchase securities other than obligations issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities, some of which may be subject to repurchase
agreements.
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The Tax-Exempt Fund may not:
15. Borrow money or issue senior securities, except that the
Fund may borrow from banks for temporary purposes, and then in
amounts not in excess of 10% of the value of its total assets at
the time of such borrowing; or mortgage, pledge, or hypothecate
any assets except in connection with any such borrowing and in
amounts not in excess of the lesser of the dollar amounts borrowed
or 10% of the value of its total assets at the time of such
borrowing. The Fund will not purchase any portfolio securities
while borrowings in excess of 5% of its total assets are
outstanding.
16. Knowingly invest more than 10% of the value of its total
assets in illiquid securities, including repurchase agreements
with remaining maturities in excess of seven days and other
securities which are not readily marketable.
17. Purchase any securities that would cause 25% or more of the
value of its total assets at the time of purchase to be invested
in the securities of one or more issuers conducting their
principal business activities in the same industry; provided,
however, that there is no limitation with respect to securities
issued or guaranteed by the United States, any state, territory or
possession of the U.S. Government, the District of Columbia, or
any of their authorities, agencies, instrumentalities, or
political subdivisions.
18. Invest in industrial revenue bonds where the payment of
principal and interest are the responsibility of a company
(including its predecessors) with less than three years of
continuous operation.
The Institutional Government Money Market Fund may not:
19. Invest in obligations having remaining maturities in excess
of 397 days, except that certain variable and floating rate
instruments may bear longer maturities (provided certain
provisions are met).
The Connecticut Municipal Money Market, Massachusetts Municipal Money
Market and New York Municipal Money Market Funds may not:
20. Borrow money directly or pledge securities except, under
certain circumstances, each Fund may borrow up to one-third of the
value of its total assets and pledge up to 10% of the value of its
total assets to secure such borrowings.
21. Sell any securities short or purchase any securities on
margin, but each Fund may obtain such short-term credits as may be
necessary for clearance of transactions.
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22. 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. No Fund will borrow money or engage in reverse
repurchase agreements for investment leverage, but rather as a
temporary, extraordinary, or emergency measure to facilitate
management of the portfolio by enabling a Fund to meet redemption
requests when the liquidation of portfolio securities is deemed to
be inconvenient or disadvantageous. No Fund will purchase any
securities while borrowings in excess of 5% of its total assets
are outstanding.
23. 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.
24. 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.
25. Purchase or sell commodities, commodity contracts, or
commodity futures contracts.
26. 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.
27. Lend any of its assets except that a Fund may acquire
publicly or non-publicly issued Connecticut, Massachusetts or New
York Municipal Securities or temporary investments or enter into
repurchase agreements, in accordance with their respective
investment objectives, policies, limitations and Galaxy's
Declaration of Trust.
28. With respect to at least 50% of its total assets, invest
more than 5% of its total assets in the securities of a single
issuer and more than 25% of its total assets in the securities of
a single issuer at the close of each quarter of each fiscal year.
Under this limitation, each governmental subdivision, including
states, territories and possessions of the United States, or their
political subdivisions, agencies, authorities, instrumentalities,
or similar entities will be considered a separate issuer if its
assets and revenues are separate from those of the governmental
body creating it and the security is backed only by its own assets
and revenues. Industrial development bonds backed only by the
assets and revenue of a non-governmental user are considered to be
issued solely by that user. If, in the case of an industrial
development bond or government-issued security, a governmental or
other entity guarantees the security, such guarantee would be
considered a
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separate security issued by the guarantor, as well as the other
issuer, subject to limited exclusions allowed by the 1940 Act.
29. Purchase securities, if, as a result of such purchase, 25%
or more of the value of the Fund's total assets would be invested
in any one industry or in industrial development bonds or other
securities, the interest upon which is paid from revenues of
similar types of projects. However, a Fund may invest as temporary
investments more than 25% of the value of its assets in cash or
cash items, securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, or instruments
secured by these money market instruments and repurchase
agreements.
30. Invest more than 10% of its net assets in securities
subject to restrictions on resale under the Securities Act of
1933.
The following investment limitations with respect to the Connecticut
Municipal Money Market, Massachusetts Municipal Money Market and New York
Municipal Money Market Funds may be changed by Galaxy's Board of Trustees
without shareholder approval (shareholders will be notified before any material
change in this limitation becomes effective):
31. No Fund will invest more than 5% of its total assets in
industrial development bonds or other Municipal Securities when
the payment of principal and interest is the responsibility of
companies (or guarantors, where applicable) with less than three
years of continuous operations, including the operation of any
predecessor.
32. Each Fund will limit its investments in other investment companies
to not more than 3% of the total outstanding voting stock of any
investment company; will invest no more than 5% of its total
assets in any one investment company; and will invest no more than
10% of its total assets in investment companies in general.
However, these limitations are not applicable if the securities
are acquired in a merger, consolidation, reorganization or
acquisition of assets. The Funds will limit their respective
investments in the securities of other investment companies to
those of money market funds which are of comparable or better
portfolio quality and have investment objectives and policies
similar to their own. Rule 2a-7 under the 1940 Act requires that
the Funds limit their investments to instruments that, in the
opinion of the Board of Trustees, present minimal credit risk and
that, if rated, meet minimum rating standards set forth in Rule
2a-7 under the 1940 Act. If the instruments are not rated, the
Trustees must determine that they are of comparable quality.
Shares of investment companies purchased by the Funds will meet
these same criteria and will have investment policies consistent
with Rule 2a-7 of the 1940 Act.
33. No Fund may purchase or retain the securities of any issuer if the
officers and Trustees of Galaxy or Fleet, owning individually more
than 1/2 of 1% of the issuer's securities, together own more than
5% of the issuer's securities.
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34. No Fund may purchase or sell interests in oil, gas, or other
mineral exploration or development programs or leases.
35. No Fund may purchase or sell puts, calls, straddles, spreads, or
any combination thereof, except that each such Fund may purchase
Municipal Securities accompanied by agreements of sellers to
repurchase them at the Fund's option.
36. No Fund may invest more than 5% of the value of its total assets
in industrial development bonds where the payment of principal and
interest are the responsibility of companies (or guarantors, where
applicable) with less than three years of continuous operations,
including the operation of any predecessor.
37. No Fund may invest more than 10% of the value of its respective
net assets in illiquid securities, including repurchase agreements
providing for settlement in more than seven days after notice,
non-negotiable fixed time deposits with maturities over seven
days, and certain securities not determined by the Board of
Trustees to be liquid.
The Connecticut Municipal Money Market, Massachusetts Municipal Money
Market and New York Municipal Money Funds may purchase restricted securities,
which are any securities in which a Fund may otherwise invest pursuant to its
investment objective and policies but which are subject to restrictions on
resale under federal securities laws. Certain restricted securities may be
considered liquid pursuant to guidelines established by the Board of Trustees.
To the extent restricted securities are deemed illiquid, each such Fund will
limit its purchase, together with other securities considered to be illiquid, to
10% of its net assets.
In addition to the foregoing limitations, (a) the Money Market Government
and U.S. Treasury Funds may not purchase securities that would cause 25% or more
of the value of a Fund's total assets at the time of purchase to be invested in
the securities of one or more issuers conducting their principal business
activities in the same industry; provided, however, that (i) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, or, with respect to the Money
Market Fund, by domestic banks or by U.S. branches of foreign banks that are
subject to the same regulation as domestic banks; (ii) with respect to the Money
Market Fund wholly-owned finance companies will be considered to be in the
industries of their parents if their activities are primarily related to
financing the activities of the parents; and (iii) with respect to the Money
Market Fund utilities will be classified according to their services (for
example, gas, gas transmission, electric and gas, electric and telephone each
will be considered a separate industry); (b) the Connecticut Municipal Money
Market, Massachusetts Municipal Money Market and New York Municipal Money Market
Funds may not purchase securities that would cause 25% or more of the value of a
Fund's total assets at the time of purchase to be invested in the securities of
one or more issuers conducting their principal business activities in the same
industry; provided, however, that there is no limitation with respect to
obligations issued or guaranteed by the U.S. Government, any state, territory or
possession of the U.S. Government, the District of Columbia, or any of their
authorities, agencies, instrumentalities or political subdivisions; and (c) the
Institutional Government Money Market Fund may not purchase securities that
would cause 25% or more of
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the value of its total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business activities
in the same industry; provided, however, that there is no limitation with
respect to obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities.
Except as stated otherwise, 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. If the value of a Fund's holdings of
illiquid securities at any time exceeds the percentage limitation applicable at
the time of acquisition due to subsequent fluctuations in value or other
reasons, the Board of Trustees will consider what actions, if any, are
appropriate to maintain adequate liquidity. With respect to borrowings, if a
Fund's asset coverage at any time falls below that required by the 1940 Act, the
Fund will reduce the amount of its borrowings in the manner required by the 1940
Act to the extent necessary to satisfy the asset coverage requirement.
Each Fund may follow non-fundamental operating policies that are more
restrictive than its fundamental investment limitations, as set forth in the
Prospectuses and this Statement of Additional Information, in order to comply
with applicable laws and regulations, including the provisions of and
regulations under the 1940 Act. In particular, each Fund will comply with the
various requirements of Rule 2a-7 under the 1940 Act which regulates money
market funds. In accordance with Rule 2a-7, the Money Market Fund is subject to
the 5% limitation contained in Investment Limitation No. 13 above as to all of
its assets; however in accordance with such Rule, the Money Market Fund will be
able to invest more than 5% (but no more than 25%) of its total assets in the
securities of a single issuer for a period of up to three business days after
the purchase thereof, provided that the Fund may not hold more than one such
investment at any one time. Adherence by a Fund to the diversification
requirements of Rule 2a-7 is deemed to constitute adherence to the
diversification requirements of Investment Limitation No. 13 above. Each Fund
will determine the effective maturity of its respective investments, as well as
its ability to consider a security as having received the requisite short-term
ratings by Rating Agencies, according to Rule 2a-7. A Fund may change these
operating policies to reflect changes in the laws and regulations without the
approval of its shareholders.
Rule 144A under the 1933 Act allows for a broader institutional trading
market for securities otherwise subject to restrictions on resale to the general
public. Rule 144A establishes a "safe harbor" from the registration requirements
of the 1933 Act for resales of certain securities to qualified institutional
buyers. Investment by the Money Market Fund or any Tax-Exempt Money Market Fund
in Rule 144A securities could have the effect of increasing the level of
illiquidity of the Fund during any period that qualified institutional buyers
were no longer interested in purchasing these securities. For purposes of each
Fund's 10% limitation on purchases of illiquid securities described above, Rule
144A securities will not be considered to be illiquid if Fleet has determined,
in accordance with guidelines established by the Board of Trustees, that an
adequate trading market exists for such securities.
The Connecticut Municipal Money Market, Massachusetts Municipal Money
Market and New York Municipal Money Market Funds do not intend to borrow money
in excess of 5%
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of the value of their respective assets or to invest more than 5% of their
respective total assets in securities of foreign issuers during the next twelve
months.
NET ASSET VALUE
Galaxy uses the amortized cost method of valuation to value shares of the
Funds. In order to use the amortized cost method, the Funds comply with the
various quality and maturity restrictions specified in Rule 2a-7 promulgated
under the 1940 Act. Pursuant to this method, a security is valued at its initial
acquisition cost, as adjusted for amortization of premium or accretion of
discount, regardless of the impact of fluctuating interest rates on the market
value of the security. Where it is not appropriate to value a security by the
amortized cost method, the security will be valued either by market quotations
or by fair value as determined by or under the direction of Galaxy's Board of
Trustees. This method may result in periods during which value, as determined by
amortized cost, is higher or lower than the price a Fund would receive if it
sold the security. The value of securities in each of these Funds can be
expected to vary inversely with changes in prevailing interest rates. Thus, if
interest rates have increased from the time a security was purchased, such
security, if sold, might be sold at a price less than its cost. Similarly, if
interest rates have declined from the time a security was purchased, such
security, if sold, might be sold at a price greater than its purchase cost. In
either instance, if the security is held to maturity, no gain or loss will be
realized.
The Funds invest only in instruments that meet the applicable quality
requirements of Rule 2a-7 and maintain a dollar-weighted average portfolio
maturity appropriate to their objective of maintaining a stable net asset value
per share, provided that none of the Funds will purchase any security deemed to
have a remaining maturity (as defined in the 1940 Act) of more than 397 days nor
maintain a dollar-weighted average portfolio maturity which exceeds 90 days.
Galaxy's Board of Trustees has established procedures reasonably designed,
taking into account current market conditions and each Fund's investment
objective, to stabilize the net asset value per share of each Fund for purposes
of sales and redemptions at $1.00. These procedures include review by the Board
of Trustees, at such intervals as it deems appropriate, to determine the extent,
if any, to which the net asset value per share of each Fund, calculated by using
available market quotations, deviates from $1.00 per share. In the event such
deviation exceeds one-half of one percent, the Board of Trustees will promptly
consider what action, if any, should be initiated. If the Board of Trustees
believes that the extent of any deviation from a Fund's $1.00 amortized cost
price per share may result in material dilution or other unfair results to new
or existing investors, it has agreed to take such steps as it considers
appropriate to eliminate or reduce, to the extent reasonably practicable, any
such dilution or unfair results. These steps may include selling portfolio
instruments prior to maturity; shortening the average portfolio maturity;
withholding or reducing dividends; redeeming shares in kind; reducing the number
of a Fund's outstanding shares without monetary consideration; or utilizing a
net asset value per share determined by using available market quotations.
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ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares in each Fund are sold on a continuous basis by Galaxy's
distributor, Provident Distributors, Inc. ("PDI"). PDI is a registered
broker/dealer with its principal offices at Four Falls Corporate Center, 6th
Floor, West Conshohocken, Pennsylvania 19428.
PURCHASES OF RETAIL SHARES AND PRIME SHARES
Investments in Retail A Shares of the Money Market, Government, U.S.
Treasury, Tax-Exempt, Connecticut Municipal Money Market, Massachusetts
Municipal Money Market and New York Municipal Money Market Funds ("Retail A
Shares") (collectively, Retail A Shares and Retail B Shares of the Money Market
Fund may be referred to as "Retail Shares"), and Prime Shares of the Connecticut
Municipal Money Market, Massachusetts Municipal Money Market and New York
Municipal Money Market Funds ("Prime Shares") are not subject to any sales
charge. Investments in Retail B Shares of the Money Market Fund are subject to a
back-end sales charge. This back-end sales charge declines over time and is
known as a "contingent deferred sales charge." See "Applicable Sales Charge --
Retail B Shares" below. RETAIL B SHARES OF THE MONEY MARKET FUND HAVE HIGHER
OPERATING EXPENSES THAN RETAIL A SHARES OF THE FUND AND MAY NOT BE APPROPRIATE
FOR INVESTORS THAT DO NOT PLAN TO EXCHANGE INTO RETAIL B SHARES OF CERTAIN OF
GALAXY'S NON-MONEY MARKET PORTFOLIOS.
PDI has established procedures to enable different types of investors
to purchase Retail Shares and Prime Shares. Retail Shares may be purchased by
FIS Securities, Inc., Fleet Securities, Inc., Fleet Enterprises, Inc.,
FleetBoston Corporation, its affiliates, their correspondent banks and other
qualified banks, saving and loan associations and broker/dealers on behalf of
their customers. Retail Shares may also be purchased by individuals,
corporations or other entities, who submit a purchase application to Galaxy,
purchasing directly for their own accounts or for the accounts of others.
Purchases of Retail Shares may take place only on days on which PDI, 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 PDI on a Business Day in accordance with PDI's procedures.
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.
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Customers wishing to purchase Retail Shares through their institution should
contact such entity directly for appropriate purchase instructions.
Purchase orders for Prime Shares are placed by investors through selected
broker/dealers. The broker/dealer is responsible for transmitting its customers'
purchase orders to PDI and for wiring required funds in payment to Galaxy's
custodian on a timely basis. PDI is responsible for transmitting such orders to
Galaxy's transfer agent for execution. Prime Shares purchased by a broker/dealer
on behalf of its customers will normally be held of record by the broker/dealer
and reflected in the account statements provided to its customers. Depending on
the terms of the arrangement between a particular broker/dealer and Galaxy's
transfer agent, confirmations of Prime Share purchases and redemptions and
pertinent account statements will either be sent by Galaxy's transfer agent
directly to a shareholder with a copy to the broker/dealer, or will be furnished
directly to the shareholder by the broker/dealer. Other procedures for the
purchase of Prime Shares established by broker/dealers may apply. Purchases of
Prime Shares will be effected only on days on which PDI and Galaxy's custodian
are open for business. 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
On a Business Day when the New York Stock Exchange (the "Exchange")
closes early due to a partial holiday or otherwise, Galaxy will advance the time
at which purchase orders must be received in order to be processed on that
Business Day.
APPLICABLE SALES CHARGES - RETAIL B SHARES
The public offering price for Retail B Shares of the Money Market Fund is
the net asset value of the Retail B Shares purchased. Although investors 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 PDI
in connection with sales of Retail B Shares. These commissions may be different
than the reallowances or placement fees paid to dealers in connection with sales
of Retail A Shares of Galaxy's non-money market portfolios. Certain affiliates
of Fleet may, at their own expense, provide additional compensation to Fleet
Enterprises, Inc., a broker-dealer affiliate of Fleet, whose customers purchase
significant amounts of Retail B Shares of the Fund. Such compensation will not
represent an additional expense to the Fund or its shareholders, since it will
be paid from the assets of Fleet's affiliates. The contingent deferred sales
charge on Retail B Shares is based on the lesser of the offering price or the
net asset value of the Shares on the redemption date. As a result, no sales
charge is imposed on any increase in the principal value of an investor'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.
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The proceeds from the contingent deferred sales charge that an investor
may pay upon redemption go to PDI, 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. In addition to the sales charge exemptions described in the applicable
Prospectus, the contingent deferred sales charge with respect to Retail B Shares
is not assessed on: (i) 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 Code; (ii) 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; (iii) redemptions effected pursuant to the
Money Market Fund's right to liquidate a shareholder's account if the aggregate
net asset value of Retail B Shares held in the account is less than the minimum
account size; (iv) redemptions in connection with the combination of the Money
Market Fund with any other investment company registered under the 1940 Act by
merger, acquisition of assets, or by any other transaction; (v) redemptions
resulting from a tax-free return of an excess contribution pursuant to Section
408(d)(4) or (5) of the Code; or (vi) any redemption of Retail B Shares held by
an investor, provided the investor was the beneficial owner of shares of the
Money Market Fund (or any of the other portfolios offered by Galaxy or otherwise
advised by Fleet or its affiliates) before December 1, 1995. In addition to the
foregoing exemptions, no contingent deferred sales charge will be imposed on
redemptions made pursuant to the Systematic Withdrawal Plan, subject to the
limitations set forth under "Investor Programs - Retail Shares - Automatic
Investment Program and Systematic Withdrawal Plan" below.
Six years after purchase, Retail B Shares of the Money Market Fund will
convert automatically to Retail A Shares of the Fund. The purpose of the
conversion is to relieve a holder of Retail B Shares of the higher ongoing
expenses charged to those Shares. The conversion from Retail B Shares to Retail
A Shares takes place at net asset value, as a result of which an investor
receives dollar-for-dollar the same value of Retail A Shares as he or she had of
Retail B Shares. The conversion occurs six years after the beginning of the
calendar month in which the Retail B Shares are purchased. Upon conversion, an
investor would hold Retail A Shares subject to the operating expenses for Retail
A Shares.
Retail B Shares of the Money Market Fund acquired through a reinvestment
of dividends or distributions are also converted at the earlier of two dates --
six years after the beginning of the calendar month in which the reinvestment
occurred or the date of conversion of the most recently purchased Retail B
Shares that were not acquired through reinvestment of dividends or
distributions. For example, if an investor makes a one-time purchase of Retail B
Shares of the Fund, and subsequently acquires additional Retail B Shares of the
Fund only through reinvestment of dividends and/or distributions, all of such
investor's Retail B Shares in the Fund,
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including those acquired through reinvestment, will convert to Retail A Shares
of the Fund on the same date.
PURCHASES OF SHARES OF THE INSTITUTIONAL GOVERNMENT MONEY MARKET FUND
Investments in Shares of the Institutional Government Money Market Fund
(referred to in the Prospectus for the Fund as Trust Shares) are not subject to
any sales charge. Shares of the Institutional Government Money Market Fund may
be purchased by FIS Securities, Inc., Fleet Securities, Inc., Fleet Enterprises,
Inc., FleetBoston Corporation, its affiliates, their correspondent banks and
other qualified banks, saving and loan associations and broker/dealers on behalf
of their customers. Purchases of Shares may take place only on days on which
PDI, 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 PDI on a Business Day in accordance with PDI's procedures.
Shares of the Institutional Government Money Market Fund purchased by
institutions on behalf of their customers will normally be held of record by the
institution and beneficial ownership of such Shares will be recorded by the
institution and reflected in the account statements provided to its customers.
Depending on the terms of the arrangement between a particular institution and
Galaxy's transfer agent, confirmations of Share purchases and redemptions and
pertinent account statements will either be sent by Galaxy's transfer agent
directly to a customer with a copy to the institution, or will be furnished
directly to the customer by the institution. Other procedures for the purchase
of Shares established by institutions in connection with the requirements of
their customer accounts may apply. Customers wishing to purchase Shares through
their institution should contact such entity directly for appropriate purchase
instructions.
PURCHASES OF TRUST SHARES - MONEY MARKET,
GOVERNMENT, U.S. TREASURY AND TAX-EXEMPT FUNDS
Trust Shares of the Money Market, Government, U.S. Treasury and
Tax-Exempt Funds are sold to investors maintaining qualified accounts at bank
and trust institutions, including subsidiaries of FleetBoston Corporation
and, with respect to each Fund other than the Tax-Exempt Fund, to participants
in employer-sponsored defined contribution plans (such institutions and plans
are referred to herein collectively as "Institutions"). Trust Shares sold to
such investors ("Customers") will be held of record by Institutions. Purchases
of Trust Shares will be effected only on days on which PDI, Galaxy's custodian
and the purchasing Institution are open for business ("Trust Business Days"). If
an Institution accepts a purchase order from its Customer on a non-Trust
Business Day, the order will not be executed until it is received and accepted
by PDI on a Trust Business Day in accordance with the foregoing procedures.
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On a Trust 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 Trust Business Day.
REDEMPTIONS
Redemption orders are effected at the net asset value per share next
determined after receipt of the order by PDI, except that proceeds from the
redemption of Retail B Shares of the Money Market Fund will be reduced by the
amount of any applicable contingent deferred sales charge. On a Business Day or
Trust 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 or Trust Business Day.
Galaxy may require any information reasonably necessary to ensure that a
redemption has been duly authorized. When redeeming Retail Shares in the Money
Market Fund, investors should indicate whether they are redeeming Retail A
Shares or Retail B Shares of the Fund. If an investor owns both Retail A Shares
and Retail B Shares of the Money Market Fund, the Retail A Shares will be
redeemed first unless the investor indicates otherwise. Galaxy reserves the
right to transmit redemption proceeds within seven days after receiving the
redemption order if, in its judgment, an earlier payment could adversely affect
a Fund.
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. However, Galaxy has filed an election with the SEC to pay in cash all
redemptions requested by any shareholder of record limited in amount during any
90-day period to the lesser of $250,000 or 1% of the net assets of a Fund at the
beginning of such period. Such commitment cannot be revoked without the prior
approval of the SEC.
With respect to Institutional Shares, Galaxy requires that an institution
maintain an average balance of $2,000,000 in an account. If the balance in such
account falls below that minimum, the institution may be obliged by Galaxy to
redeem all of the shares in the account. In addition, Galaxy may redeem shares
involuntarily or make payment for redemption in securities if it appears
appropriate to do so in light of Galaxy's responsibilities under the 1940 Act.
See "Net Asset Value" above for examples of when such redemptions might be
appropriate.
Investors may redeem all or part of their Prime Shares in accordance with
procedures governing their accounts at their broker/dealers. It is the
responsibility of the broker/dealers to transmit redemption orders to FD
Distributors and credit their customers' accounts with redemption proceeds on a
timely basis. There is no sales charge imposed upon the redemption of Prime
Shares.
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 SEC, exists
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making disposal of a Fund's investments or determination of its net asset value
not reasonably practicable; (b) the Exchange is closed (other than customary
weekend and holiday closings); or (c) the SEC by order has permitted such
suspension.
INVESTOR PROGRAMS
The following information supplements the description in the applicable
Prospectus as to various Investor Programs available to holders of Retail Shares
and Shares of the Institutional Government Money Market Fund.
EXCHANGE PRIVILEGE - RETAIL SHARES AND SHARES OF THE INSTITUTIONAL GOVERNMENT
MONEY MARKET FUND
The minimum initial investment to establish a new account in another
eligible fund by exchange, except for the Institutional Government Money Market
Fund, is $2,500, unless, with respect to Retail Shares, (i) the Retail Shares
being redeemed were purchased through a registered representative who is a Fleet
Bank employee, in which event there is no minimum investment requirement, or
(ii) at the time of the exchange the investor elects, with respect to the Fund
into which the exchange is being made, to participate in the Automatic
Investment Program described below, in which event there is no minimum initial
investment requirement, or in the College Investment Program described below, in
which event the minimum initial investment is generally $100. The minimum
initial investment to establish an account by exchange in the Institutional
Government Money Market Fund is $2 million.
An exchange involves a redemption of all or a portion of Retail Shares or
Shares and the investment of the redemption proceeds in 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
shares of a Fund or portfolio to be acquired will be purchased at the net asset
value per share next determined after acceptance of the exchange request, plus
any applicable sales charge.
Investors may find the exchange privilege useful if their investment
objectives or market outlook should change after they invest in any of the
Funds. For further information regarding Galaxy's exchange privilege,
investors should call PFPC Inc. ("PFPC"), Galaxy's administrator, at
1-877-BUY-GALAXY (1-877-289-4252). Customers of institutions should call
their institution for such information. Investors exercising the exchange
privilege into other portfolios should request and review the prospectuses
for these portfolios prior to making an exchange. Telephone 1-877-BUY-GALAXY
(1-877-289-4252) for a prospectus or to make an exchange.
In order to prevent abuse of this privilege to the disadvantage of other
shareholders, Galaxy reserves the right to terminate the exchange privilege of
any shareholder who requests more than three exchanges a year. Galaxy will
determine whether to do so based on a consideration of both the number of
exchanges that any particular shareholder or group of
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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.
For federal income tax purposes, an exchange of shares is a taxable event
and, accordingly, a capital gain or loss may be realized by an investor. Before
making an exchange request, an investor should consult a tax or other financial
adviser to determine the tax consequences.
RETIREMENT PLANS - RETAIL SHARES
Retail Shares of the Funds, other than the Tax-Exempt Money Market Funds,
are available for purchase in connection with the following tax-deferred
prototype retirement plans:
INDIVIDUAL RETIREMENT ACCOUNTS ("IRAS") (including traditional, Roth and
Education IRAs and "rollovers" from existing retirement plans), a retirement
savings vehicle for qualifying individuals. The minimum initial investment for
an IRA account is $500 (including a spousal account).
SIMPLIFIED EMPLOYEE PENSION PLANS ("SEPS"), a form of retirement plan for
sole proprietors, partnerships and corporations. The minimum initial investment
for a SEP account is $500.
MULTI-EMPLOYEE RETIREMENT PLANS ("MERPS"), a retirement vehicle
established by employers for their employees which is qualified under Sections
401(k) and 403(b) of the 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 in the applicable
Prospectus. Detailed information concerning eligibility, service fees and other
matters related to these plans, and the form of application, is available from
PDI (call 1-877-BUY-GALAXY (1-877-289-4252)) with respect to IRAs, SEPs and
Keogh Plans and from Fleet Securities, Inc. (call 1-800-221-8210) with respect
to MERPs.
AUTOMATIC INVESTMENT PROGRAM AND SYSTEMATIC WITHDRAWAL PLAN - RETAIL SHARES
The Automatic Investment Program permits an investor to purchase Retail
Shares of a Fund each month or each quarter. Provided an investor's financial
institution allows automatic withdrawals, Retail Shares are purchased by
transferring funds from the investor's checking, bank money market, NOW or
savings account designated by the investor. The account
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<PAGE>
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 the
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 ("ACH") member may be so designated.
The Systematic Withdrawal Plan permits an investor to automatically
redeem Retail Shares on a monthly, quarterly, semi-annual, or annual basis on
any Business Day designated by the investor. If the designated day falls on a
weekend or holiday, the redemption will be made on the Business Day closest to
the designated day. Proceeds of the redemption will be sent to the shareholder's
address of record or financial institution within three Business Days of the
redemption. If redemptions exceed purchases and dividends, the number of shares
in the account will be reduced. Investors may terminate the Systematic
Withdrawal Plan at any time upon written notice to Galaxy's transfer agent (but
not less than five days before a payment date). No contingent deferred sales
charge will be assessed on redemptions of Retail B Shares of the Money Market
Fund made through the Systematic Withdrawal Plan that do not exceed 12% of an
account's net asset value on an annualized basis. For example, monthly,
quarterly and semi-annual Systematic Withdrawal Plan redemptions of Retail B
Shares will not be subject to the contingent deferred sales charge if they do
not exceed 1%, 3% and 6%, respectively, of an account's net asset value on the
redemption date. Systematic Withdrawal Plan redemptions of Retail B Shares in
excess of this limit are still subject to the applicable contingent deferred
sales charge.
COLLEGE INVESTMENT PROGRAM - RETAIL SHARES
Galaxy reserves the right to redeem accounts participating in the College
Investment 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. Investors participating in the College Investment Program
will receive consolidated monthly statements of their accounts. Detailed
information concerning College Investment Program accounts and applications may
be obtained from PDI (call 1-877-BUY-GALAXY (1-877-289-4252)).
CHECKWRITING - RETAIL SHARES
Checkwriting is available for investors in Retail Shares. A charge for
use of the checkwriting privilege may be imposed by Galaxy. There is no limit to
the number of checks an investor may write per month in an amount per check of
$250 or more. To obtain checks, an investor must complete the signature card
that accompanies the account application. To establish this checkwriting service
after opening an account in a Fund, investors must contact PDI by telephone
(1-877-BUY-GALAXY (1-877-289-4252)) or mail to obtain a signature card. A
signature guarantee may be required. An investor will receive the daily
dividends declared on the Retail Shares to be redeemed up to the day that a
check is presented to Galaxy's custodian for payment. Upon 30 days' written
notice to investors, the checkwriting privilege may be modified or terminated.
An account in a Fund may not be closed by writing a check.
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<PAGE>
DIRECT DEPOSIT PROGRAM - RETAIL SHARES
Death or legal incapacity will terminate an investor's participation in
the Direct Deposit Program. An investor may elect at any time to terminate his
or her participation by notifying in writing the Social Security Administration.
Further, Galaxy may terminate an investor's participation upon 30 days' notice
to the investor.
TAXES
Each Fund qualified during its last taxable year and intends to continue
to qualify as a regulated investment company under Subchapter M of the Code, and
to distribute out its income to shareholders each year, so that each Fund itself
generally will be relieved of federal income and excise taxes. If a Fund were to
fail to so qualify: (1) the Fund would be taxed at regular corporate rates
without any deduction for distributions to shareholders; and (2) shareholders
would be taxed as if they received ordinary dividends, although corporate
shareholders could be eligible for the dividends received deduction.
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 one year period ending October 31 of
such calendar year. Each Fund intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and any capital gain net income
prior to the end of each calendar year to avoid liability for this excise tax.
The Funds will be required in certain cases to withhold and remit to the
United States Treasury 31% of taxable dividends or gross sale proceeds paid to
any shareholder who (i) has failed to provide a correct tax identification
number, (ii) is subject to withholding by the Internal Revenue Service for
failure to properly include on his or her return payments of taxable interest or
dividends, or (iii) has failed to certify to the Funds that he or she is not
subject to back up withholding when required to do so or that he or she is an
"exempt recipient."
THE TAX-EXEMPT MONEY MARKET FUNDS. It is the policy of each Tax-Exempt
Money Market Fund to pay dividends with respect to each taxable year equal to at
least the sum of 90% of its net exempt-interest income and 90% of its investment
company taxable income, if any. Dividends derived from exempt-interest income
("exempt-interest dividends") may be treated by a Fund's shareholders as items
of interest excludable from their gross income under Section 103(a) of the Code,
unless, under the circumstances applicable to a particular shareholder,
exclusion would be disallowed.
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<PAGE>
An investment in a Tax-Exempt Money Market Fund is not intended to
constitute a balanced investment program. Shares of the Funds would not be
suitable for tax-exempt institutions and may not be suitable for retirement
plans qualified under Section 401 of the Code, H.R. 10 plans and individual
retirement accounts because such plans and accounts are generally tax-exempt
and, therefore, not only would the shareholder not gain any additional benefit
from the Funds' dividends being tax-exempt, but such dividends would be
ultimately taxable to the beneficiaries when distributed. In addition, the Funds
may not be an appropriate investment for entities which are "substantial users"
of facilities financed by "private activity bonds" or "related persons" thereof.
"Substantial user" is defined under U.S. Treasury Regulations to include a
non-exempt person who (i) regularly uses a part of such facilities in his or her
trade or business and whose gross revenues derived with respect to the
facilities financed by the issuance of bonds are more than 5% of the total
revenues derived by all users of such facilities, (ii) occupies more than 5% of
the usable area of such facilities or (iii) are persons for whom such facilities
or a part thereof were specifically constructed, reconstructed or acquired.
"Related persons" include certain related natural persons, affiliated
corporations, a partnership and its partners and an S corporation and its
shareholders.
In order for the Funds to pay exempt-interest dividends for any taxable
year, at the close of each taxable quarter, at least 50% of the aggregate value
of a Fund's portfolio must consist of exempt-interest obligations. Within 60
days after the close of its taxable year, each Fund will notify its shareholders
of the portion of the dividends paid by the Fund which constitutes
exempt-interest dividends with respect to such taxable year. However, the
aggregate amount of dividends so designated by a Fund cannot exceed the excess
of the amount of interest exempt from tax under Section 103 of the Code received
by the Fund over any amounts disallowed as deductions under Sections 265 and
171(a)(2) of the Code. The percentage of total dividends paid by a Fund with
respect to any taxable year that qualifies as federal exempt-interest dividends
will be the same for all shareholders receiving dividends from the Fund for such
year.
STATE AND LOCAL
Exempt-interest dividends and other distributions paid by the Tax-Exempt
Money Market Funds may be taxable to shareholders under state or local law as
dividend income, even though all or a portion of such distributions may be
derived from interest on tax-exempt obligations which, if realized directly,
would be exempt from such income taxes.
Dividends paid by the Connecticut Municipal Money Market Fund that
qualify as exempt-interest dividends for federal income tax purposes will not be
subject to the Connecticut personal income tax imposed on resident and
nonresident individuals, trusts and estates to the extent that they are derived
from Connecticut Municipal Securities (as defined above). Other Fund dividends
and distributions, whether received in cash or additional shares, are subject to
this tax, except that, in the case of shareholders who hold their shares as
capital assets, distributions treated as capital gain dividends for federal
income tax purposes are not subject to the tax to the extent that they are
derived from obligations issued by or on behalf of the State of
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<PAGE>
Connecticut, its political subdivisions, or public instrumentalities, state or
local authorities, districts or similar public entities created under
Connecticut law. Dividends and distributions paid by the Fund that constitute
items of tax preference for purposes of the federal alternative minimum tax,
other than any derived from Connecticut Municipal Securities, could cause
liability for the net Connecticut minimum tax applicable to investors subject to
the Connecticut personal income tax who are required to pay the federal
alternative minimum tax. Dividends paid by the Connecticut Municipal Money
Market Fund, including those that qualify as exempt-interest dividends for
federal income tax purposes, are taxable for purposes of the Connecticut
Corporation Business Tax; however, 70% (100% if the investor owns at least 20%
of the total voting power and value of the Fund's shares) of amounts that are
treated as dividends and not as exempt-interest dividends or capital gain
dividends for federal income tax purposes are deductible for purposes of this
tax, but no deduction is allowed for expenses related thereto. Shares of the
Fund are not subject to property taxation by Connecticut or its political
subdivisions.
Distributions by the Massachusetts Municipal Money Market Fund to its
shareholders are exempt from Massachusetts personal income taxation to the
extent they are derived from (and designated by the Fund as being derived from)
(i) interest on Massachusetts Municipal Securities, or (ii) capital gains
realized by the Fund from the sale of certain Massachusetts Municipal
Securities. Distributions from the Fund's other net investment income and
short-term capital gains will be taxable as ordinary income. Distributions from
the Fund's net long-term capital gains will be taxable as long-term capital
gains regardless of how long the shareholder has owned Fund shares. The tax
treatment of distributions is the same whether distributions are paid in cash or
in additional shares of the Fund. Distributions by the Fund to corporate
shareholders, including exempt-interest dividends, may be subject to
Massachusetts corporate excise tax.
With respect to the New York Municipal Money Market Fund, exempt-interest
dividends (as defined for federal income tax purposes), derived from interest on
New York Municipal Securities (as defined above) will be exempt from New York
State and New York City personal income taxes (but not corporate franchise
taxes), provided the interest on such obligations is and continues to be exempt
from applicable federal, New York State and New York City income taxes. To the
extent that investors are subject to state and local taxes outside of New York
State and New York City, dividends by the Fund may be taxable income for
purposes thereof. Dividends and distributions derived from income (including
capital gains on all New York Municipal Securities) other than interest on New
York Municipal Securities described above are not exempt from New York State and
New York City taxes. Interest or indebtedness incurred or continued by a
shareholder to purchase or carry shares of the Fund is not deductible for
federal, New York State or New York City personal income tax purposes.
The U.S. Treasury Fund is structured to provide shareholders, to the
extent permissible by federal and state law, with income that is exempt or
excluded from taxation at the state and local level. Many states, by statute,
judicial decision or administrative action, have taken the position that
dividends of a regulated investment company, such as the Fund, that are
attributable to interest on direct U.S. Treasury obligations or obligations of
certain U.S. Government
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<PAGE>
agencies, are the functional equivalent of interest from such obligations and
are, therefore, exempt from state and local income taxes. Shareholders should
consult their own tax advisers about the status of distributions from the Fund
in their own state.
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.
MISCELLANEOUS
Shareholders will be advised at least annually as to the federal income
tax consequences of distributions made each year. Shareholders of the
Connecticut Municipal Money Market, Massachusetts Municipal Money Market and New
York Municipal Money Market Funds will also be advised as to the Connecticut
personal income tax, Massachusetts personal income tax and New York personal
income tax consequences, respectively, of distributions made each year.
TRUSTEES AND OFFICERS
The business and affairs of the Funds are managed under the direction of
Galaxy's Board of Trustees in accordance with the laws of the Commonwealth of
Massachusetts and the Trust's Declaration of Trust. 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>
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 &
Vicks Lithograph & Printing Corporation (book manufacturing
Printing Corporation and commercial printing); Director, Utica
Commercial Drive Fire Insurance Company; Trustee, Savings
P.O. Box 270 Bank of Utica; Director, Monitor Life
Yorkville, NY 13495 Insurance Company; Director, Commercial
Age 66 Travelers Mutual Insurance Company;
Trustee, The Galaxy VIP Fund; Trustee,
Galaxy Fund II.
John T. O'Neill President, Executive Vice President and CFO, Hasbro,
Hasbro, Inc. Treasurer & Inc. (toy and game manufacturer); Trustee,
1011 Newport Avenue Trustee The Galaxy VIP Fund; Trustee, Galaxy Fund
Pawtucket, RI 02862 II.
Age 55
Louis DeThomasis Trustee President, Saint Mary's College of
Saint Mary's College Minnesota; Director, Bright Day Travel,
of Minnesota Inc.; Trustee, Religious Communities Trust;
Winona, MN 55987 Trustee, The Galaxy VIP Fund; Trustee,
Age 59 Galaxy Fund II.
Donald B. Miller Trustee Chairman, Horizon Media, Inc. (broadcast
10725 Quail Covey Road services); Director/Trustee, Lexington
Boynton Beach, FL 33436 Funds; Chairman, Executive Committee,
Age 74 Compton International, Inc. (advertising
agency); Trustee, Keuka College; Trustee,
The Galaxy VIP Fund; Trustee, Galaxy Fund
II.
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<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 Astra Projects,
The Astra Ventures, Inc. Incorporated (land development); President,
One Citizens Plaza The Astra Ventures, Incorporated
Providence, RI 02903 (previously, Buffinton Box Company -
Age 58 manufacturer of cardboard boxes);
Commissioner, Rhode Island Investment
Commission; Trustee, The Galaxy VIP Fund;
Trustee, Galaxy Fund II.
Bradford S. Wellman(1) Trustee Private Investor; Vice President and
2468 Ohio Street Director, Acadia Management Company
Bangor, ME 04401 (investment services); Director, Essex
Age 68 County Gas Company, until January 1994;
Director, Maine Mutual Fire Insurance Co.;
Member, Maine Finance Authority; Trustee,
The Galaxy VIP Fund; Trustee, Galaxy Fund
II.
W. Bruce McConnel, III Secretary Partner of the law firm Drinker Biddle &
One Logan Square Reath LLP, Philadelphia, Pennsylvania.
18th and Cherry Streets
Philadelphia, PA 19103
Age 57
Jylanne Dunne Vice President Vice President, PFPC Inc., 1990 to present.
PFPC Inc. and Assistant
4400 Computer Drive Treasurer
Westborough, MA 01581-5108
Age 40
</TABLE>
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<TABLE>
<CAPTION>
Positions Principal Occupation
with The During Past 5 Years
Name and Address Galaxy Fund and Other Affiliations
- ---------------- ----------- ----------------------
<S> <C> <C>
William Greilich Vice President Vice President, PFPC, Inc., 1991-96;
PFPC Inc. Vice President and Division
4400 Computer Drive Manager, PFPC Inc., 1996-present.
Westborough, MA 01581-5108
Age 46
</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 May 28, 1999, each trustee receives an annual aggregate fee of
$45,000 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 $3,500 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 May 28,
1999, each Trustee was entitled to receive an annual aggregate fee of $40,000
for his services as a Trustee of the Trusts plus an additional $2,500 for each
in-person Galaxy Board meeting attended, with all other fees being the same as
those currently in effect.
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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No employee of PFPC receives any compensation from Galaxy for acting
as an officer. No person who is an officer, director or employee of Fleet, or
any of its affiliates, serves as a trustee, officer or employee of Galaxy.
The trustees and officers of Galaxy own less than 1% of its outstanding
shares.
The following chart provides certain information about the fees received
by Galaxy's trustees in the most recently completed fiscal year.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Pension or
Retirement Total Compensation
Benefits Accrued from Galaxy and Fund
Aggregate Compensation as Part of Fund Complex Paid to
Name of Person/Position from Galaxy Expenses Trustees
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bradford S. Wellman $_______ None $_______
Trustee
- ------------------------------------------------------------------------------------------------------------
Dwight E. Vicks, Jr. $_______ None $_______
Chairman and Trustee
- ------------------------------------------------------------------------------------------------------------
Donald B. Miller** $_______ None $_______
Trustee
- ------------------------------------------------------------------------------------------------------------
Rev. Louis DeThomasis $_______ None $_______
Trustee
- ------------------------------------------------------------------------------------------------------------
John T. O'Neill $_______ None $_______
President, Treasurer
and Trustee
- ------------------------------------------------------------------------------------------------------------
James M. Seed** $_______ None $_______
Trustee
- ------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------
* The "Fund Complex" consists of Galaxy, The Galaxy VIP Fund and Galaxy
Fund II, which comprised a total of 43 separate portfolios at the end of
the fiscal year.
** Deferred compensation (including interest) in the amounts of $______ and
$______ accrued during Galaxy's fiscal year ended October 31, 1999 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
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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.
INVESTMENT ADVISER
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" below.
For the services provided and expenses assumed, Fleet is entitled to
receive advisory fees, computed daily and paid monthly, at the following annual
rates:
- - with respect to the Money Market, Government and Tax-Exempt Funds, .40% of
the average daily net assets of each Fund;
- - with respect to the U.S. Treasury, Connecticut Municipal Money Market,
Massachusetts Municipal Money Market and New York Municipal Money Market
Funds, .40% of the first $750,000,000 of average daily net assets of each
Fund plus .35% of the average daily net assets of each Fund in excess of
$750,000,000; and
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<PAGE>
- - with respect to the Institutional Government Money Market Fund, .20% of the
average daily net assets of the Fund.
Fleet has advised Galaxy that, with respect to the Money Market,
Government and Tax-Exempt Funds, it intends to waive advisory fees payable to it
by each Fund in an amount equal to 0.05% of the average daily net assets of each
Fund to the extent that a Fund's net assets exceed $750,000,000.
During the last three fiscal years, Galaxy paid advisory fees (net of fee
waivers and/or expense reimbursements) to Fleet as set forth below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999(1) 1998 1997
- ---- ------- ---- ----
<S> <C> <C> <C>
Money Market........................................... $11,668,106 $9,458,596
Government............................................. $4,200,651 $4,214,959
U. S. Treasury......................................... $3,727,152 $3,439,391
Tax-Exempt............................................. $1,514,545 41,275,727
Institutional Government Money Market.................. $128,172 $350,902
Connecticut Municipal Money Market..................... $567,175 $497,713
Massachusetts Municipal Money Market................... $361,928 $251,050
</TABLE>
- ---------------
(1) As of the end of the fiscal year ended October 31, 1999, the New York
Municipal Money Market Fund had not yet commenced operations.
During the last three fiscal years, Fleet waived advisory fees as set
forth below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Money Market........................................... $1,238,301 $922,657
Government............................................. $171,522 $173,566
U. S. Treasury......................................... $ 0 $ 0
Tax-Exempt............................................. $ 0 $ 0
Institutional Government Money Market.................. $151,744 $350,901
Connecticut Municipal Money Market..................... $ 0 $ 0
Massachusetts Municipal Money Market................... $ 0 $ 0
</TABLE>
-62-
<PAGE>
During the last three fiscal years, Fleet reimbursed expenses as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Money Market........................................... $ 0 $17
Government............................................. $ 0 $542
U. S. Treasury......................................... $ 0 $25,108
Tax-Exempt............................................. $ 0 $15,751
Institutional Government Money Market.................. $23,572 $18,206
Connecticut Municipal Money Market..................... $54,320 $62.664
Massachusetts Municipal Money Market................... $58,991 $54,862
</TABLE>
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.
Fleet is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, to the extent permitted
by law or order of the SEC, financial institutions that are affiliated with
Fleet or that have sold shares of the Funds, if Fleet believes that the quality
of the transaction and the commission are comparable to what they would be with
other qualified brokerage firms.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling or distributing securities such as shares of
the Funds, but such banking laws and regulations do not prohibit such a bank
holding company or 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
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<PAGE>
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
PFPC (formerly known as First Data Investor Services Group, Inc.),
located at 4400 Computer Drive, Westborough, Massachusetts 01581-5108, serves
as the Funds' administrator. PFPC is a majority-owned subsidiary of PNC Bank
Corp.
PFPC generally assists the Funds in their administration and
operation. PFPC also serves as administrator to the other portfolios of
Galaxy. For the services provided to the Funds, PFPC is entitled to receive
administration fees based on the combined average daily net assets of the
Funds and the other portfolios offered by Galaxy with an October 31 fiscal
year end, computed daily and paid monthly, at the following annual rates
effective September 10, 1998:
<TABLE>
<CAPTION>
COMBINED AVERAGE DAILY NET ASSETS ANNUAL RATE
--------------------------------- -----------
<S> <C>
Up to $2.5 billion.......................... 0.090%
From $2.5 to $5 billion..................... 0.085%
From $5 to $12 billion...................... 0.075%
From $12 to $15 billion..................... 0.065%
From $15 to $18 billion..................... 0.060%
Over $18 billion............................ 0.0575%
</TABLE>
Prior to September 10, 1998, Galaxy paid PFPC administration fees
based on the combined average daily net assets of the Funds and all other
portfolios offered by Galaxy at the following annual rates:
<TABLE>
<CAPTION>
COMBINED AVERAGE DAILY NET ASSETS ANNUAL RATE
--------------------------------- -----------
<S> <C>
Up to $2.5 billion.......................... 0.090%
From $2.5 to $5 billion..................... 0.085%
Over $5 billion............................. 0.075%
</TABLE>
In addition, PFPC also receives a separate annual fee from each Galaxy
portfolio for certain fund accounting services.
From time to time, PFPC may waive voluntarily all or a portion of the
administration fee payable to it by the Funds. For the fiscal year ended
October 31, 1999 the Money Market, Government, Tax-Exempt, U.S. Treasury,
Connecticut Municipal Money Market and Massachusetts Municipal Money Market
Funds paid PFPC administration fees at the effective annual rate of _____% of
each Fund's average daily net assets, and the Institutional Government Money
Market Fund paid PFPC administration fees
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<PAGE>
(after fee waivers) at the effective annual rate of % of the Fund's
average daily net assets. During this same period, the New York Municipal
Money Market Fund had not yet commenced operations.
During the last three fiscal years, PFPC received administration fees
(net of fee waivers) as set forth below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999(2) 1998 1997
- ---- ------- ---- ----
<S> <C> <C> <C>
Money Market................................................. $2,596,354 $2,118,433
Government................................................... $879,555 $895,995
U. S. Treasury............................................... $770,823 $720,691
Tax-Exempt................................................... $304,716 $263,643
Institutional Government Money Market(1)..................... $74,925 $173,799
Connecticut Municipal Money Market........................... $124,998 $101,578
Massachusetts Municipal Money Market......................... $84,643 $51,212
</TABLE>
(1) For the fiscal years ended October 31, 1999, October 31, 1998 and October
31, 1997, PFPC waived administration fees of $________, $61,161 and
$142,012 respectively, with respect to the Institutional Government Money
Market Fund.
(2) As of the fiscal year ended October 31, 1999, the New York Municipal
Money Market Fund had not commenced operations.
Under the administration agreement between Galaxy and PFPC (the
"Administration Agreement"), PFPC 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. PFPC 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. Unless otherwise
terminated, the Administration Agreement will remain in effect until May 31,
2001 and thereafter will continue from year to year upon annual approval of
Galaxy's Board of Trustees.
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
pursuant to a Global Custody Agreement.
Under the Global 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
-65-
<PAGE>
relating to its duties; and (vi) make periodic reports to the Board of Trustees
concerning the Funds' operations. Chase Manhattan is authorized to select one or
more banks or trust companies to serve as sub-custodian for the Funds, provided
that Chase Manhattan shall remain responsible for the performance of all of its
duties under the custodian agreement and shall be liable to the Funds for any
loss which shall occur as a result of the failure of a sub-custodian to exercise
reasonable care with respect to the safekeeping of the Funds' assets. The assets
of the Funds are held under bank custodianship in compliance with the 1940 Act.
PFPC, serves as the Funds' transfer and dividend disbursing agent,
pursuant to a Transfer Agency and Services Agreement (the "Transfer Agency
Agreement"). Communications to PFPC should be directed to PFPC at P.O. Box
5108, 4400 Computer Drive, Westborough, Massachusetts 01581. Under the
Transfer Agency Agreement, PFPC 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.
PFPC may enter into agreements with one or more entities, including
affiliates of Fleet, pursuant to which such entities agree to perform certain
sub-account and administrative functions ("Sub-Account Services") on a per
account basis with respect to Trust Shares of the Money Market, Government
and U.S. Treasury Funds held by defined contribution plans, including
maintaining records reflecting separately with respect to each plan
participant's sub-account all purchases and redemptions of Trust Shares and
the dollar value of Trust Shares in each sub-account; crediting to each
participant's sub-account all dividends and distributions with respect to
that sub-account; and transmitting to each participant a periodic statement
regarding the sub-account as well as any proxy materials, reports and other
material Fund communications. Such entities are compensated by PFPC for the
Sub-Account Services and in connection therewith the transfer agency fees
payable by Trust Shares of the Money Market, Government and U.S. Treasury
Funds to PFPC 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.
Fleet Bank, an affiliate of Fleet, is paid a fee for Sub-Account
Services performed with respect to Trust Shares of the Money Market,
Government and U.S. Treasury Funds held by defined contribution plans.
Pursuant to an agreement between Fleet Bank and PFPC, Fleet Bank is paid
$21.00 per year for each defined contribution plan participant account. For
the fiscal year ended October 31, 1999, Fleet Bank received $___________ for
Sub-Account Services. PFPC bears this expense directly, and shareholders of
Trust Shares of the Funds, except the Tax-Exempt Fund, bear this expense
indirectly through fees paid to PFPC for transfer agency services.
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<PAGE>
EXPENSES
Fleet and PFPC bear all expenses in connection with the performance of
their services for the Funds, except that 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 PFPC); SEC
fees; state securities fees; costs of preparing and printing prospectuses for
regulatory purposes and for distribution to existing shareholders; advisory,
administration, shareholder servicing, Rule 12b-1 distribution (if
applicable), fund accounting and custody fees; charges of the transfer agent
and dividend disbursing agent; certain insurance premiums; outside auditing
and legal expenses; costs of independent pricing services; costs of
shareholder reports and meetings; and any extraordinary expenses. The Funds
also pay for brokerage fees and commissions in connection with the purchase
of portfolio securities.
PORTFOLIO TRANSACTIONS
Debt securities purchased or sold by the Funds are generally traded in
the over-the-counter market on a net basis (i.e., without commission) through
dealers, or otherwise involve transactions directly with the issuer of an
instrument. The cost of securities purchased from underwriters includes an
underwriting commission or concession, and the prices at which securities are
purchased from and sold to dealers include a dealer's mark-up or mark-down.
Transactions in the over-the-counter market are generally principal
transactions with dealers and the costs of such transactions involve dealer
spreads rather than brokerage commissions. With respect to over-the-counter
transactions, Fleet will normally deal directly with the dealers who make a
market in the securities involved except in those circumstances where better
prices and execution are available elsewhere or as described below.
The Funds do not intend to seek profits from short-term trading. Their
annual portfolio turnover will be relatively high, but since brokerage
commissions are normally not paid on money market instruments, it should not
have a material effect on the net income of any of these Funds.
In purchasing or selling securities for the Funds, Fleet will seek to
obtain the best net price and the most favorable execution of orders. To the
extent that the execution and price offered by more than one broker/dealer are
comparable, Fleet may effect transactions in portfolio securities with
broker/dealers who provide research, advice or other services such as market
investment literature.
Except as permitted by the SEC or applicable law, the Funds will not
acquire portfolio securities from, make savings deposits in, enter into
repurchase or reverse repurchase agreements with, or sell securities to,
Fleet, PFPC, or their affiliates, and will not give preference to affiliates
and correspondent banks of Fleet with respect to such transactions.
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<PAGE>
Galaxy is required to identify any securities of its "regular brokers or
dealers" that the Funds have acquired during Galaxy's most recent fiscal year.
During the fiscal year ended October 31, 1999, [TO BE PROVIDED BY FIRST DATA]
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 -- RETAIL A SHARES
Galaxy has adopted a Shareholder Services Plan with respect to Retail
A Shares of each Fund that offers Retail A Shares pursuant to which Galaxy
intends to enter into servicing agreements with institutions (including Fleet
Bank and its affiliates). Pursuant to these servicing agreements,
institutions render certain administrative and support services to customers
who are the beneficial owners of Retail A Shares in consideration for payment
of up to .25% (on an annualized basis) of the average daily net asset value
of Retail A Shares of a Fund beneficially owned by such customers. Services
under the Shareholder Services Plan may include: aggregating and processing
purchase and redemption requests and placing net purchase and redemption
orders with PDI; processing dividend payments from a Fund; providing
customers with information as to their positions in Retail A Shares;
providing sub-accounting with respect to Retail A Shares or the information
necessary for sub-accounting; and providing periodic mailings to customers.
Such services are intended to supplement the services provided by PFPC as
administrator and transfer agent.
Although the Shareholder Services Plan has been approved with respect to
Retail A Shares of the Funds and Trust Shares of the Money Market, Government,
U.S. Treasury and Tax-Exempt Funds, as of the date of this Statement of
Additional Information, Galaxy intends to enter into servicing agreements under
the Shareholder Services Plan only with respect to Retail A Shares of each Fund,
and to limit the payment under these servicing agreements for each Fund to no
more than .10% (on an annualized basis) of the average daily net asset value of
the Retail A Shares of the Fund beneficially owned by customers of institutions.
Galaxy understands that institutions may charge fees to their customers who are
the beneficial owners of Retail A Shares in connection with their accounts with
such institutions. Any such fees would be in addition to any amounts which may
be received by an institution under the Shareholder Services Plan. Under the
terms of each servicing agreement entered into with Galaxy, institutions are
required to provide to their customers a schedule of any fees that they may
charge
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<PAGE>
in connection with customer investments in Retail A Shares. As of October 31,
1999, Galaxy had entered into Servicing Agreements only with Fleet Bank and
affiliates.
Each Servicing Agreement between Galaxy and an institution relating to
the Shareholder Services Plan requires that, with respect to those Funds which
declare dividends on a daily basis, the institution agree to waive a portion of
the servicing fee payable to it under the Shareholder 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.
During the last three fiscal years, Galaxy made payments to institutions
with respect to Retail A Shares of the Money Market, Government, U.S. Treasury,
Tax-Exempt, Connecticut Municipal Money Market and Massachusetts Municipal Money
Market Funds as shown in the table below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999(1) 1998 1997
- ---- ------- ---- ----
<S> <C> <C> <C>
Money Market................................................. $2,057,474 $1,430,359
Government................................................... $364,278 $346,517
U. S. Treasury............................................... $569,986 $507,400
Tax-Exempt................................................... $163,842 $133,048
Connecticut Municipal Money Market........................... $155,374 $111,361
Massachusetts Municipal Money Market......................... $105,230 $58,905
</TABLE>
- -------------------------
(1) As of the fiscal year ended October 31, 1999, the New York Municipal
Money Market Fund had not yet commenced operations.
Galaxy's Servicing Agreements are governed by the Shareholder 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 Shareholder 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 institutions 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
institutions 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
institutions 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 institutions are in effect,
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<PAGE>
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 PLANS
RETAIL B SHARE PLAN
Galaxy has adopted a Distribution and Services Plan pursuant to Rule
12b-1 under the 1940 Act ( the "Rule") with respect to Retail B Shares of the
Money Market Fund (the "Retail B Share Plan"). Under the Retail B Share Plan,
Galaxy may pay (a) PDI or another person for expenses and activities intended to
result in the sale of Retail B Shares, including the payment of commissions to
broker-dealers and other industry professionals who sell Retail B Shares and the
direct or indirect cost of financing such payments, (b) institutions for
shareholder liaison services, which means personal services for holders of
Retail B Shares and/or the maintenance of shareholder accounts, such as
responding to customer inquiries and providing information on accounts, and (c)
institutions for administrative support services, which include but are not
limited to (i) transfer agent and sub-transfer agent services for beneficial
owners of Retail B Shares; (ii) aggregating and processing purchase and
redemption orders; (iii) providing beneficial owners with statements showing
their positions in Retail B Shares; (iv) processing dividend payments; (v)
providing sub-accounting services for Retail B Shares held beneficially; (vi)
forwarding shareholder communications, such as proxies, shareholder reports,
dividend and tax notices, and updating prospectuses to beneficial owners; and
(vii) receiving, translating and transmitting proxies executed by beneficial
owners.
Under the Retail B Share Plan, payments by Galaxy (i) for distribution
expenses may not exceed the annualized rate of .65% of the average daily net
assets attributable to the Money Market Fund's outstanding Retail B Shares, and
(ii) to an institution for shareholder liaison services and/or administrative
support services may not exceed the annual rates of .25% and .25%, respectively,
of the average daily net assets attributable to the Money Market Fund's
outstanding Retail B Shares which are owned of record or beneficially by that
institution's customers for whom the institution is the dealer of record or
shareholder of record or with whom it has a servicing relationship. As of the
date of this Statement of Additional Information, Galaxy intends to limit the
Money Market Fund's payments for shareholder liaison and administrative support
services under the Retail B Share Plan to an aggregate fee of not more than .10%
(on an annualized basis) of the average daily net asset value of Retail B Shares
owned of record or beneficially by customers of institutions.
During the last three fiscal years, Retail B Shares of the Money Market
Fund bore distribution fees and shareholder servicing fees under the Retail B
Share Plan as set forth in the table below:
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<PAGE>
<TABLE>
<CAPTION>
SHAREHOLDER
FOR THE FISCAL YEAR ENDED OCTOBER 31: DISTRIBUTION FEES SERVICES FEES
- ------------------------------------- ----------------- -------------
<S> <C> <C>
1999.............................................. $ $
1998.............................................. $4,377 $674
1997(1)........................................... $ $
</TABLE>
- ----------------------
(1) For the period March 6, 1997 (date of initial public offering of Retail B
Shares of the Galaxy Market Fund) through October 31, 1997.
During this period, all amounts paid under the Retail B Share Plan were
attributable to payments to broker-dealers.
PRIME SHARE PLAN
Galaxy has also adopted a Distribution and Services Plan pursuant to the
Rule with respect to Prime Shares of the Connecticut Municipal Money Market,
Massachusetts Municipal Money Market and New York Municipal Money Market Funds
(the "Prime Share Plan"). Under the Prime Share Plan, Galaxy may pay (i) PDI or
another person for distribution services provided and expenses assumed, and (ii)
broker-dealers, financial institutions, or other organizations for shareholder
administrative support services provided to holders of Prime Shares of the
Funds. Payments to PDI are to compensate it for distribution assistance and
expenses assumed and activities primarily intended to result in the sale of
shares, including compensating dealers and other sales personnel, direct
advertising and marketing expenses and expenses incurred in connection with
preparing printing, mailing and distributing or publishing advertisements and
sales literature, for printing and mailing Prospectuses and Statements of
Additional Information (except those used for regulatory purposes or for
distribution to existing shareholders), and costs associated with implementing
and operating the Prime Share Plan.
The servicing agreements adopted under the Prime Share Plan require the
organizations receiving such compensation to perform certain services, including
providing administrative services with respect to the beneficial owners of Prime
Shares of the Funds, such as establishing and maintaining accounts and records
for their customers who invest in such shares, assisting customers in processing
purchase, exchange and redemption requests and/or in changing dividend options
and account descriptions, developing, maintaining and supporting systems
necessary to support cash management services, such as sweep arrangements, and
responding to customer inquiries concerning their investments.
Under the Prime Share Plan, payments by Galaxy (i) for distribution
expenses may not exceed .75% (annualized) of the average daily net assets
attributable to each Fund's Prime Shares, and (ii) to a broker-dealer, financial
institution, or other organizations for shareholder administrative support
services may not exceed .25% (annualized) of the average daily net assets
attributable to each Fund's outstanding Prime Shares which are owned of record
or beneficially by that organization's customers for whom the organization is
the dealer of record or shareholder of record or with whom it has a servicing
relationship. As of the date of this Statement of
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<PAGE>
Additional Information, Galaxy intends to limit the payments under the Prime
Share Plan to an aggregate fee of not more than ____% (on an annualized basis)
of the average daily net assets of each Fund's Prime Shares. In addition, Fleet
may make payments for distribution assistance and for shareholder administrative
support services from its own resources, which may include the advisory fee paid
by each Fund.
RETAIL B SHARE PLAN AND PRIME SHARE PLAN
Payments for distribution expenses under the Retail B Share Plan and
Prime Share Plan (together the "12b-1 Plans") are subject to the Rule. The Rule
defines distribution expenses to include the cost of "any activity which is
primarily intended to result in the sale of shares issued by" Galaxy. 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 Plans provide that reports of the amounts expended under the
12b-1 Plans, and the purposes for which such expenditures were incurred, will be
made to the Board of Trustees for its review at least quarterly. Each 12b-1 Plan
provides that it may not be amended to increase materially the costs which
Retail B Shares of the Money Market Fund and Prime Shares of the Connecticut
Municipal Money Market, Massachusetts Municipal Money Market and New York
Municipal Money Market Funds may bear for distribution pursuant to the 12b-1
Plans 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 Plans or in any related agreements (the "12b-1
Trustees"), by vote cast in person at a meeting called for the purpose of
considering such amendments.
Galaxy's Board of Trustees has concluded that there is a reasonable
likelihood that the 12b-1 Plans will benefit the Money Market, Connecticut
Municipal Money Market, Massachusetts Municipal Money Market and New York
Municipal Money Market Funds and holders of Retail B Shares and Prime Shares.
The 12b-1 Plans are subject to annual reapproval by a majority of the 12b-1
Trustees and are terminable at any time with respect to the Funds by a vote of a
majority of the 12b-1 Trustees or by vote of the holders of a majority of Retail
B Shares with respect to the Retail B Share Plan, or by vote of the holders of a
majority of Prime Shares with respect to the Prime Share Plan. Agreements
entered into pursuant to the 12b-1 Plans with a broker-dealer, financial
institution, or other organization are terminable with respect to the Funds
without penalty, at any time, by vote of a majority of the 12b-1 Trustees, by
vote of the holders of a majority of the Retail B Shares with respect to the
Retail B Share Plan, or by vote of the holders of a majority of Prime Shares
with respect to the Prime Share Plan, by PDI, or by the broker-dealer, financial
institution, or other organization. An agreement will also terminate
automatically in the event of its assignment.
As long as the 12b-1 Plans are 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 the 12b-1 Trustees.
-72-
<PAGE>
DISTRIBUTOR
PDI serves as Galaxy's distributor. PDI is a registered broker-dealer
with principal offices located at Four Falls Corporate Center, 6th floor, West
Conshohocken, Pennsylvania 19428-2961. Jane Haegele is the sole shareholder of
PDI.
Unless otherwise terminated, the Distribution Agreement between Galaxy
and PDI remains in effect until November 30, 2000, 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.
PDI is entitled to the payment of contingent deferred sales charges
upon the redemption of Retail B Shares of the Money Market Fund. Prior to
December 1, 1999, First Data Distributors, Inc. ("FD Distributors"), a
wholly-owned subsidiary of PFPC, served as Galaxy's distributor and was
entitled to the payment of the contingent deferred sales charges upon the
redemption of Retail B Shares of the Money Market Fund. For the fiscal years
ended October 31, 1999 and October 31, 1998, and for the period March 6, 1997
(date of initial public offering) through October 31, 1997, FD Distributors
received contingent deferred sales charges of $____________, $12,243 and
$655, respectively, in connection with Retail B Share redemptions in the
Money Market Fund.
-73-
<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, 1999*:
<TABLE>
<CAPTION>
Net Underwriting Compensation on Brokerage Commissions
Discounts and Redemption and in Connection with Other
Fund Commissions(1) Repurchase(2) Fund Transactions Compensation(3)
---- -------------- ------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Money Market $ $ $0 $
Government N/A N/A $0 $
Tax-Exempt N/A N/A $0 $
U.S. Treasury N/A N/A $0 $
Institutional N/A N/A $0 N/A
Government
Money Market
Connecticut N/A N/A $0 $
Municipal Money
Market
Massachusetts N/A N/A $0 $
Municipal Money
Market
</TABLE>
- ----------------
* The New York Municipal Money Market Fund was not in operation and the
Connecticut Municipal Money Market and Massachusetts Municipal Money
Market Funds did not offer Prime Shares during the fiscal year ended
October 31, 1999.
(1) Represents amounts received from commissions received in connection with
sales of Retail B Shares.
(2) Represents amounts received from contingent deferred sales charges on
Retail B Shares. The basis on which such sales charges are paid is
described in the Prospectus relating to Retail B Shares.
(3) Represents payments made under the Shareholder Services Plan and
Distribution and Services Plan for Retail B Shares during the fiscal year
ended October 31, 1999, which includes fees accrued in the fiscal year
ended October 31, 1998, which were paid in 1999 (see "Shareholder
Services Plan - Retail A Shares" and "Distribution and Services Plans -
Retail B Shares" above).
AUDITORS
[ ], independent auditors, with offices at
[ ], serve as auditors for Galaxy. The financial highlights
for the respective Funds included in their Prospectuses and the financial
statements for the Funds contained in Galaxy's Annual Reports to Shareholders
with respect to the Funds (the "Annual Reports") and [ ] into
this Statement of Additional Information for the fiscal year ended October
31, 1999 have been audited by [ ]. For the respective fiscal
years and periods prior to October 31, 1999, the financial highlights for the
Funds included
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<PAGE>
in the Prospectuses and the financial statements for such years and periods
contained in the Annual Reports were audited by [ ], Galaxy's
former auditors.
COUNSEL
Drinker Biddle & Reath LLP (of which W. Bruce McConnel, III, Secretary of
Galaxy, is a partner), One Logan Square, 18th and Cherry Streets, Philadelphia,
Pennsylvania 19103-6996, are counsel to Galaxy and will pass upon certain legal
matters on its behalf. The law firm of Day, Berry & Howard LLP, CityPlace,
Hartford, Connecticut 06103-3499, serves as special Connecticut counsel to
Galaxy and has reviewed the portion of this Statement of Additional Information
and the Prospectuses with respect to the Connecticut Municipal Money Market Fund
concerning Connecticut taxes and the description of special considerations
relating to Connecticut Municipal Securities. The law firm of Ropes & Gray, One
International Place, Boston, Massachusetts 02110-2624, serves as special
Massachusetts counsel to Galaxy and has reviewed the portion of this Statement
of Additional Information and the Prospectuses with respect to the Massachusetts
Municipal Money Market Fund concerning Massachusetts taxes and the description
of special considerations relating to Massachusetts Municipal Securities. The
law firm of Willkie Farr and Gallagher, One Citicorp Center, 153 East 53rd
Street, New York, New York 10022, serves as special New York counsel to Galaxy
and has reviewed the portion of this Statement of Additional Information and the
Prospectuses with respect to the New York Municipal Money Market Fund concerning
New York taxes and the description of special considerations relating to New
York Municipal Securities.
PERFORMANCE AND YIELD INFORMATION
The standardized annualized seven-day yields for the Funds are computed
by: (1) determining the net change, exclusive of capital changes and income
other than investment income, in the value of a hypothetical pre-existing
account in a Fund having a balance of one share at the beginning of a seven-day
period, for which the yield is to be quoted, (2) dividing the net change in
account value by the value of the account at the beginning of the base period to
obtain the base period return, and (3) annualizing the results (i.e.,
multiplying the base period return by (365/7)). The net change in the value of
the account in each Fund includes the value of additional shares purchased with
dividends from the original share and dividends declared on both the original
share and any such additional shares, and all fees that are charged by a Fund to
all shareholder accounts in proportion to the length of the base period, other
than non-recurring account and sales charges. For any account fees that vary
with the size of the account, the amount of fees charged is computed with
respect to the Fund's mean (or median) account size. The capital changes to be
excluded from the calculation of the net change in account value are realized
gains and losses from the sale of securities and unrealized appreciation and
depreciation. The effective compound yield quotation for each Fund is computed
by adding 1 to the unannualized base period return (calculated as described
above), raising the sum to a power equal to 365 divided by 7, and subtracting 1
from the result.
In addition, the Tax-Exempt, Connecticut Municipal Money Market,
Massachusetts Municipal Money Market and New York Municipal Money Market Funds
may calculate a "tax
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<PAGE>
equivalent yield." The tax equivalent yield is computed by dividing that
portion of a Fund's yield which is tax-exempt by one minus a stated income
tax rate and adding the product to that portion, if any, of the Fund's
computed yield that is not tax-exempt. Tax equivalent yields assume the
payment of federal income taxes at a rate of 31%. Tax equivalent yields of
the Connecticut Municipal Money Market, Massachusetts Municipal Money Market
and New York Municipal Money Market Funds assume ___, ___% and ___% combined
federal and state tax rates, respectively, and indicate what each Fund would
have had to earn to equal its actual yield, assuming that income earned by a
Fund is 100% tax-exempt.
The current yields for the Funds may be obtained by calling PDI at
1-877-BUY-GALAXY (1-877-289-4252).
For the seven-day period ended October 31, 1999, the annualized yields
and effective yields for Retail A Shares of the Money Market, Government, U.S.
Treasury, Tax-Exempt, Connecticut Municipal Money Market, Massachusetts
Municipal Money Market and Institutional Government Money Market Funds, and the
tax-equivalent yield for Retail A Shares of the Tax-Exempt Fund, Connecticut
Municipal Money Market and Massachusetts Municipal Money Market Funds were as
set forth below:
<TABLE>
<CAPTION>
TAX-
ANNUALIZED EFFECTIVE EQUIVALENT
FUND YIELD YIELD YIELD
- ---- ----- ----- -----
<S> <C> <C> <C>
Money Market.................................................... % % *
Government...................................................... % % *
U. S. Treasury.................................................. % % *
Tax-Exempt...................................................... % % %
Institutional Government Money Market........................... % % *
Connecticut Municipal Money Market.............................. % % %
Massachusetts Municipal Money Market............................ % % %
New York Municipal Money Market................................. % % %
</TABLE>
- ----------------------
* Not applicable
As of October 31, 1999, the New York Municipal Money Market Fund had not
yet commenced operations.
-76-
<PAGE>
For the seven-day period ended October 31, 1999, the annualized yields
and effective yields for Trust Shares of the Money Market, Government, U.S.
Treasury and Tax-Exempt Funds, and the tax-equivalent yield for Trust Shares of
the Tax-Exempt Fund were as set forth below:
<TABLE>
<CAPTION>
TAX-
ANNUALIZED EFFECTIVE EQUIVALENT
FUND YIELD YIELD YIELD
- ---- ----- ----- -----
<S> <C> <C> <C>
Money Market % % *
Government % % *
U. S. Treasury % % *
Tax-Exempt % % %
</TABLE>
- ----------------------
* Not applicable
For the seven-day period ended October 31, 1999, the annualized yield and
effective yield for Retail B Shares of the Money Market Fund were ____% and
____%, respectively.
For the seven day period ended October 31, 1999, the annualized yield and
effective yield for Shares of the Institutional Government Money Market Fund
were ____% and _____%, respectively.
The U.S. Treasury Fund may calculate a "state flow through yield," which
shows the level of taxable yield needed to produce an after-tax yield equivalent
to a particular state's tax-exempt yield achieved by the Fund. The state flow
through yield refers to that portion of income that is derived from interest
income on direct obligations of the U.S. Government, its agencies or
instrumentalities and which qualifies for exemption from state taxes. The yield
calculation assumes that 100% of the interest income is exempt from state
personal income tax. A state flow through yield is computed by dividing that
portion of the Fund's yield which is tax-exempt by one minus a stated income tax
rate. Based on the foregoing calculation and assuming, for purposes of
illustration, state income tax rates of 3%, 7% and 11%, the state flow through
yields for the seven-day period ended October 31, 1999 for Retail A Shares and
Trust Shares of the U.S. Treasury Fund were as set forth below:
<TABLE>
<CAPTION>
SERIES 3% 7% 11%
- ------ -- -- ---
<S> <C> <C> <C>
Retail A Shares % % %
Trust Shares % % %
</TABLE>
Prime Shares of the Connecticut Municipal Money Market, Massachusetts
Municipal Money Market and New York Municipal Money Market Funds were not
offered prior to the date of this Statement of Additional Information.
TAX-EQUIVALENCY TABLES - CONNECTICUT MUNICIPAL MONEY MARKET, MASSACHUSETTS
MUNICIPAL MONEY MARKET AND NEW YORK MUNICIPAL MONEY MARKET FUNDS
The Connecticut Municipal Money Market, Massachusetts Municipal Money
Market and New York Municipal Money Market Funds may use tax-equivalency tables
in advertising and sales literature. The interest earned by the Municipal
Securities in the Funds' respective
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<PAGE>
portfolios generally remains free from federal regular income tax, and from the
regular personal income tax imposed by Connecticut, Massachusetts and New York.
Some portion of either Fund's income may, however, be subject to the federal
alternative minimum tax and state and local regular or alternative minimum
taxes. As the tables below indicate, "tax-free" investments may be attractive
choices for investors, particularly in times of narrow spreads between
"tax-free" and taxable yields.
The charts below are for illustrative purposes only and use tax
brackets that were in effect beginning January 1, 1999. These are not indicators
of past or future performance of the Connecticut Municipal Money Market,
Massachusetts Municipal Money Market and New York Municipal Money Market Funds.
Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent for each chart. Furthermore, additional
state and local taxes paid on comparable taxable investments were not used to
increase federal deductions. Moreover, the charts do not reflect the possible
effect of all items relating to the effective marginal tax rate, such as
alternative minimum tax, personal exemptions, tax credits, the phase-out of
exemptions or credits, itemized deductions (including the federal deduction for
state taxes paid) or the possible partial disallowance of deductions.
Connecticut Note: The charts below do not address taxable equivalent
yields applicable to married taxpayers filing separate returns or heads of
households.
Investors are urged to consult their own tax advisors as to these
matters.
TAXABLE YIELD EQUIVALENT FOR 1999
STATE OF CONNECTICUT
<TABLE>
<S> <C> <C> <C> <C> <C>
Federal Tax Bracket: 15.00% 28.00% 31.00% 36.00% 39.60%
Combined Federal and State: 19.50% 32.50% 35.50% 40.50% 44.10%
Joint Return: $1-43,050 $43,051-104,050 $104,051-158,550 $158,551-283,150 Over $283,150
Single Return: $1-25,750 $25,751-62,450 $62,451-130,250 $130,251-283,150 Over $283,150
Tax-Exempt Yield:
</TABLE>
Taxable Yield Equivalent
<TABLE>
<S> <C> <C> <C> <C> <C>
1.50% 1.86% 2.22% 2.33% 2.52% 2.68%
2.00% 2.48% 2.96% 3.10% 3.36% 3.58%
2.50% 3.11% 3.70% 3.88% 4.20% 4.47%
3.00% 3.73% 4.44% 4.65% 5.04% 5.37%
3.50% 4.35% 5.19% 5.43% 5.88% 6.26%
4.00% 4.97% 5.93% 6.20% 6.72% 7.16%
4.50% 5.59% 6.67% 6.98% 7.56% 8.05%
5.00% 6.21% 7.41% 7.75% 8.40% 8.94%
5.50% 6.83% 8.15% 8.53% 9.24% 9.84%
6.00% 7.45% 8.89% 9.30% 10.08% 10.73%
</TABLE>
-78-
<PAGE>
TAXABLE YIELD EQUIVALENT FOR 1999
STATE OF MASSACHUSETTS
<TABLE>
<S> <C> <C> <C> <C> <C>
Federal Tax Bracket: 15.00% 28.00% 31.00% 36.00% 39.60%
Combined Federal and State: 20.95% 33.95% 36.95% 41.95% 45.55%
Joint Return: $1-43,050 $43,051-104,050 $104,051-158,550 $158,551-283,150 Over $283,151
Single Return: $1-25,750 $25,751-62,450 $62,451-130,250 $130,251-283,150 Over $283,151
Tax-Exempt Yield:
</TABLE>
Taxable Yield Equivalent
<TABLE>
<S> <C> <C> <C> <C> <C>
1.50% 1.90% 2.27% 2.38% 2.58% 2.75%
2.00% 2.53% 3.03% 3.17% 3.45% 3.67%
2.50% 3.16% 3.79% 3.97% 4.31% 4.59%
3.00% 3.80% 4.54% 4.76% 5.17% 5.51%
3.50% 4.43% 5.30% 5.55% 6.03% 6.43%
4.00% 5.06% 6.06% 6.34% 6.89% 7.35%
4.50% 5.69% 6.81% 7.14% 7.75% 8.26%
5.00% 6.33% 7.57% 7.93% 8.61% 9.18%
5.50% 6.96% 8.33% 8.72% 9.47% 10.10%
6.00% 7.59% 9.08% 9.52% 10.34% 11.02%
</TABLE>
-79-
<PAGE>
NEW YORK STATE AND CITY: 1999
Equivalent yields: Tax-exempt
<TABLE>
<CAPTION>
State New York State New York State
Taxable Income* State City Federal and Federal City and Federal
Single City rate*** Rate Combined rate Effective Date Effective Rate**
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
0 - 8,000 3.05% 4% 7.04950% 15% 18.40% 20.99%
8,001 - 11,000 3.05% 4.5% 7.54950% 15% 18.83% 21.42%
11,001 - 12,000 3.05% 5.25% 8.29950% 15% 19.46% 22.05%
12,001 - 13,000 3.71% 5.25% 8.96355% 15% 19.46% 22.62%
13,001 - 20,000 3.71% 5.9% 9.61355% 15% 20.02% 23.17%
20,001 - 25,000 3.71% 6.85% 10.56355% 15% 20.82% 23.98%
25,001 - 25,750 3.77% 6.85% 10.62055% 15% 20.82% 24.03%
25,751 - 50,000 3.77% 6.85% 10.62055% 28% 32.93% 35.65%
50,001 - 61,450 3.83% 6.85% 10.62055% 28% 32.93% 35.69%
61,451 - 130,250 3.83% 6.85% 10.67755% 31% 35.73% 38.37%
130,251 - 283,150 3.83% 6.85% 10.67755% 36% 40.38% 42.83%
OVER 283,150 3.83% 6.85% 10.67755% 39.6% 43.74% 46.05%
---------------------------------------------------------------------------------------------------------
<CAPTION>
New York Tax Equivalent Yields:****
--------------------------------------------------------------------------------------
1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 5.0% 5.5% 6.0%
--------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
1.90% 2.53% 3.16% 3.80% 4.43% 5.06% 6.33% 6.96% 7.59%
1.91% 2.55% 3.18% 3.82% 4.45% 5.09% 6.36% 7.00% 7.64%
1.92% 2.57% 3.21% 3.85% 4.49% 5.13% 6.41% 7.06% 7.70%
1.94% 2.58% 3.23% 3.88% 4.52% 5.17% 6.46% 7.11% 7.75%
1.95% 2.60% 3.25% 3.90% 4.56% 5.21% 6.51% 7.16% 7.81%
1.97% 2.63% 3.29% 3.95% 4.60% 5.26% 6.58% 7.23% 7.89%
1.97% 2.63% 3.29% 3.95% 4.61% 5.27% 6.58% 7.24% 7.90%
2.33% 3.11% 3.88% 4.66% 5.44% 6.22% 7.77% 8.55% 9.32%
2.33% 3.11% 3.89% 4.66% 5.44% 6.22% 7.77% 8.55% 9.33%
2.43% 3.25% 4.06% 4.87% 5.68% 6.49% 8.11% 8.92% 9.74%
2.62% 3.50% 4.37% 5.25% 6.12% 7.00% 8.75% 9.62% 10.50%
2.78% 3.71% 4.63% 5.55% 6.49% 7.41% 9.27% 10.19% 11.12%
-------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
State New York State New York State
Taxable Income* State City Federal and Federal City and Federal
Single City rate*** Rate Combined rate Effective Date Effective Rate**
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
0 - 16,000 3.05% 4% 7.04950% 15% 18.40% 20.99%
16,001 - 21,600 3.05% 4.5% 7.54950% 15% 18.83% 21.42%
21,601 - 22,000 3.71% 4.5% 8.21355% 15% 18.83% 21.88%
22,001 - 26,000 3.71% 5.25% 8.96355% 15% 19.46% 22.62%
26,001 - 40,000 3.71% 5.9% 9.61355% 15% 20.02% 23.17%
40,001 - 43,050 3.71% 6.85% 10.56355% 15% 20.82% 23.98%
43,051 - 45,000 3.71% 6.85% 10.56355% 28% 32.93% 35.61%
45,001 - 90,000 3.77% 6.85% 10.62055% 28% 32.93% 35.65%
90,001 - 104,050 3.83% 6.85% 10.67755% 28% 32.93% 35.69%
104,051 - 158,550 3.83% 6.85% 10.67755% 31% 35.73% 38.37%
158,551 - 283,150 3.83% 6.85% 10.67755% 36% 40.38% 42.83%
OVER 283,150 3.83% 6.85% 10.67755% 39.6% 43.74% 46.05%
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
New York Tax Equivalent Yields:****
--------------------------------------------------------------------------------------
1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 5.0% 5.5% 6.0%
--------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
1.90% 2.53% 3.16% 3.80% 4.43% 5.06% 6.33% 6.96% 7.59%
1.91% 2.55% 3.18% 3.82% 4.45% 5.09% 6.36% 7.00% 7.64%
1.92% 2.56% 3.20% 3.85% 4.49% 5.13% 6.41% 7.05% 7.69%
1.94% 2.59% 3.23% 3.88% 4.52% 5.17% 6.46% 7.11% 7.75%
1.95% 2.60% 3.25% 3.90% 4.56% 5.21% 6.51% 7.16% 7.81%
1.97% 2.63% 3.29% 3.95% 4.60% 5.26% 6.58% 7.23% 7.89%
2.33% 3.11% 3.88% 4.66% 5.44% 6.21% 7.76% 8.54% 9.32%
2.33% 3.11% 3.88% 4.66% 5.44% 6.22% 7.77% 8.55% 9.32%
2.33% 3.11% 3.89% 4.66% 5.44% 6.22% 7.77% 8.55% 9.33%
2.43% 3.25% 4.06% 4.87% 5.68% 6.49% 8.11% 8.92% 9.74%
2.62% 3.50% 4.37% 5.25% 6.12% 7.00% 8.75% 9.62% 10.50%
2.78% 3.71% 4.63% 5.56% 6.49% 7.41% 9.27% 10.19% 11.12%
-------------------------------------------------------------------------------------
</TABLE>
* This amount represents taxable income as defined in the Internal
Revenue Code. It is assumed that taxable income as defined in the
Internal Revenue Code is the same as under the New York State or City
Personal Income Tax law; however, New York state or city taxable income
may differ due to differences in exemptions, itemized deductions, and
other items.
** For federal tax purposes, these combined rates reflect the applicable
marginal rates for 1998, including indexing for inflation. These rates
include the effect of deducting state and city taxes on your Federal
return. For New York purposes, these combined rates reflect the
expected New York State and New York City tax and surcharge rates for
1998.
*** The New York city rate is comprised of the tax base rate, city
surcharge, and the additional city surcharge for 1998.
**** These represent New York State, City, and Federal Equivalent Yields.
-80-
<PAGE>
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders,
the yields of the Funds, as a measure of their performance, may be quoted and
compared to those of other mutual funds with similar investment objectives
and to other relevant indexes or to rankings prepared by independent services
or other financial or industry publications that monitor the performance of
mutual funds. For example, such data is reported in national financial
publications such as DONOGHUE'S MONEY FUND REPORT-Registered Trademark-, a
widely recognized independent publication that monitors the performance of
mutual funds. Also, the Funds' yield data may be reported in national
financial publications including, but not limited to, MONEY MAGAZINE, FORBES,
BARRON'S, THE WALL STREET JOURNAL, and THE NEW YORK TIMES, or in publications
of a local or regional nature. The performance of the Money Market,
Government, U.S. Treasury and Institutional Government Money Market Funds may
also be compared to the average yields reported by the BANK RATE MONITOR for
money market deposit accounts offered by the 50 leading banks and thrift
institutions in the top five standard metropolitan statistical areas. Yield
data will be calculated separately for Trust Shares, Retail A Shares and/or
Retail B Shares of the Money Market, Government, U.S. Treasury and Tax-Exempt
Funds and for Retail A Shares and Prime Shares of the Connecticut Municipal
Money Market, Massachusetts Municipal Money Market and New York Municipal
Money Market Funds.
The yield of a Fund refers to the income generated over a seven-day
period identified in the advertisement and is calculated as described above.
Each Fund may also advertise its "effective yield" which is calculated as
described above. The "effective yield" will be slightly higher because of the
compounding effect of the assumed reinvestment. Also, each Tax-Exempt Money
Market Fund may from time to time advertise a "tax-equivalent yield" to
demonstrate the level of taxable yield necessary to produce an after-tax yield
equivalent to that achieved by the Fund. The "tax-equivalent yield" is computed
as described above. The U.S. Treasury Fund may also advertise a "state flow
through yield," as discussed above.
The Funds' yields will fluctuate and any quotation of yield should not
be considered as representative of the future performance of the Funds. Since
yields fluctuate, yield data cannot necessarily be used to compare an investment
in a Fund's shares with bank deposits, savings accounts and similar investment
alternatives which often provide an agreed or guaranteed fixed yield for a
stated period of time. Shareholders should remember that performance is
generally a function of the kind and quality of the instruments held in a
portfolio, portfolio maturity, operating expenses, and market conditions. Any
fees charged directly by institutions to accounts of customers that have
invested in shares of a Fund will not be included in calculations of yield.
The portfolio managers of the Funds and other investment professionals
may from time to time discuss in advertising, sales literature or other
material, including periodic publications, various topics of interest to
shareholders and prospective investors. The topics may include but are not
limited to the advantages and disadvantages of investing in tax-deferred and
taxable investments; Fund performance and how such performance may compare to
various market indices; shareholder profiles and hypothetical investor
scenarios; the economy; the financial and capital markets; investment strategies
and techniques; investment products; and tax, retirement and investment
planning.
-81-
<PAGE>
MISCELLANEOUS
As used in this Statement of Additional Information, "assets belonging
to" a particular Fund or series of a Fund means the consideration received by
Galaxy upon the issuance of shares in that particular Fund or 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.
Shareholders will receive unaudited semi-annual reports describing the
Funds' investment operations and annual financial statements audited by
independent certified public accountants.
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.
As of November 30, 1999, 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 Government 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 (99.87%); 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 14638, Account 00000012621 (98.58%); Equity Value Fund -- Gales &
Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000000064 (76.43%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000003204 (14.55%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000011551 (7.23%); Equity Growth Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000082 (70.31%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000010017 (15.31%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000030718 (14.04%); Equity Income Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000015771 (48.75%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000003748 (36.92%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000000037 (13.37%); International Equity Fund --Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000073 (42.99%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000000876 (39.29%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000004088 (14.13%); Growth and Income Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 05000503793 (76.73%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 05000503873 (19.78%); Asset Allocation Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000073 (93.27%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000002598 (5.98%); Small Company Equity -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000046 (66.04%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000001492 (24.41%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000006102 (7.33%); Institutional Treasury Money Market Fund -- Fleet
New York, Fleet Investment Services, 159 East Main Street, NY/RO/TO3C,
Rochester, NY 14638, Account 00000000019 (91.11%); Luitpold Pharmaceuticals
Inc., Kirk Sobecki, CFO, Attn: Harold Noviello, One Luitpold Drive, Shirley,
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NY 11967, Account 05100281441 (7.02%); Small Cap Value Fund -- Gales & Co.,
Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 05000503999 (48.74%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 05000503917 (31.01%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 05000503953 (19.77%); Strategic Equity Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 5100115522 (97.48%); Intermediate Government Income
Fund -- Gales & Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A,
159 East Main Street, Rochester, NY 14638, Account 00000038408 (38.48%); Gales &
Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000007183 (34.80%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000037 (26.20%); High Quality Bond Fund --
Gales & Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East
Main Street, Rochester, NY 14638, Account 00000000037 (62.76%); Gales & Co.,
Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000001465 (24.53%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000006095 (12.37%); Short-Term Bond Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000008627 (31.48%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000000064 (46.43%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000001090 (21.82%); Tax-Exempt Bond Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000005899 (34.38%) Gales & Co, Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000000028 (38.95%); Gales and Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000000670 (26.42%); Connecticut Municipal Bond Fund -- Gales & Co.,
Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000019 (74.69%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000000037 (24.84%); Massachusetts Municipal Bond Fund -- Gales
& Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000000019 (48.96%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000073 (49.06%); Corporate Bond Fund -- Gales
& Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000000046 (44.33%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000006102 (36.50%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000001492 (12.65%); New Jersey Municipal Bond Fund -- Gales &
Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/T04A, 159 East Main
Street, Rochester, NY 14638, Account 5100115489 (51.69%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 5100115504 (35.56%); BOB & Co., c/o Bank
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of Boston, Attn: Mutual Fund Dept. 45-02-06, P.O. Box 1809, Boston, MA 02105,
Account 5102076990 (12.74%); and New York Municipal Bond Fund -- Gales & Co.,
Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000019 (9.36%); Gales & Co., Fleet Investment
Services, Mutual Fund Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000001107 (70.04%); Gales & Co., Fleet Investment Services,
Mutual Fund Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000005292 (14.85%); BOB & Co., c/o Bank of Boston, Attn: Mutual Fund
Dept. 45-02-06, P.O. Box 1809, Boston, MA 02105, Account 5102076990 (5.68%).
As of November 30, 1999, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding Retail A
Shares of each of Galaxy's investment portfolios (including shares of the
Connecticut Municipal Money Market and Massachusetts Municipal Money Market
Funds) were as follows: Tax-Exempt Money Market Fund -- Ellsworth Kelly, P.O.
Box 151, 45 South Street, Spencertown, NY 12165, Account 0000063825 (6.99%);
U.S. Treasury Money Market Fund -- US Clearing, a Division of Fleet Securities
Inc., 26 Broadway, New York, NY 10004, Account 05100115684 (10.40%);
Massachusetts Municipal Money Market Fund -- Fleet New York, Fleet Investment
Services, 159 East Main St., NY/RO/TO3C, Rochester, NY 14638, Account
05100058503 (61.34%); Connecticut Municipal Money Market Fund -- Fleet New York,
Fleet Investment Services, 159 East Main St., NY/RO/TO3C, Rochester, NY 14638,
Account 05100058521 (48.64%); William L. Bucknall & Norma Lee Bucknall, 5 Oak
Ridge Drive, Bethany, CT 06524, Account 0000002259 (5.16%); 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
(40.88%); James R. McCulloch, c/o Microfibre, PO Box 1208, Pawtucket, RI 02860,
Account 05000414933 (9.11%); New York Municipal Bond Fund -- Marilyn J.
Brantley, 5954 Van Allen Road, Belfast, NY 14711, Account 05100977627 (11.78%);
New Jersey Municipal Bond Fund -- Jeffery W. Golden, 7 Hampton Ridge CT, Old
Tappan, NJ 07675, Account 05100780704 (16.09%); John W. Maki & Kimberly McGrath
Maki JT, 1 Connet Lane, Mendham, NJ, 07945, Account 05100011377 (33.47%); US
Clearing Corp., FBO 979-06374-12, 26 Broadway, New York, NY 10004-1798, Account
07000100574 (27.89%); Serene W. Peng, 70 Chelsea, Watchung, NJ 07060, Account
5101583480 (17.19%); Tax-Exempt Bond Fund -- Danny Schulman, 9 Corn Mill Ct.,
Upper Saddle River, NJ 07458, Account 510116598 (6.11%); and Massachusetts
Municipal Bond Fund -- New England Realty Assoc., Robert Blank, Ronald Brown,
Harold Brown and Carl Veleri, 39 Brighton Ave., Boston MA 02134, Account
5100587013 (6.59%).
As of November 30, 1999, 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 -- Worldmark Master Fund, LLC, D. Dean Rhodes auth. officer or Richard J.
Gates (investment adviser), 11466 Old Harber Road, N. Palm Beach, FL 33408,
Account 5102031823 (18.24%); Worldmark Master Fund, LLC, D. Dean Rhodes auth.
officer or Richard J. Gates (investment adviser) 11465 Old Harbor Road, N. Palm
Beach, FL 33408, Account 5102074064 (20.78%); Intermediate Government Income
Fund; Adriana Vita, 345 Park Avenue, New York, NY 10154, Account 05101563377
(8.84%); Short-Term Bond Fund -- Elizabeth Mugar, 10 Chestnut St., Apt. 1808,
Springfield, MA 01103,
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Account 5100760012 (7.15%); Chelsea Police Relief Assoc., John R. Phillips,
Treasurer, and Michael McCona, Clerk, 180 Crescent Avenue, Chelsea, MA 02150,
Account 0970036155 (13.23%); Josve Colon, Cust., Hazel Colon UGMA CT, 400
LaSalle Street, New Britain, CT 06051, Account 5101157039 (7.37%); U.S. Clearing
Corp., FBO 978-02086-18, Eugene J. Margaret Dunscomb, 505 Apple Tree Lane,
Brewster, NY 10509-6004, Account 70000100609 (7.09%); Tax-Exempt Bond Fund --
David Fendler & Sylvia Fendler JT WROS, 72 Brinkerhoff Ave., Stamford, CT 06905,
Account 05100255354 (7.48%); Frances E. Stady, P.O. Box 433, 3176 Main Street,
Yorkshire, NY 14173, Account 05102027437 (5.84%); and Strategic Equity Fund --
Betsey Tan, 7 Donovan's Lane, Natick, MA 01760, Account 05101043778 (7.41%).
As of November 30, 1999, 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 Street, Rochester, NY 14638, (12.05%); Hope-Sayles Trust, c/o Norstar
Trust Co., Gales & Co., 159 East Main Street, Rochester, NY 14638, (10.65%);
Government Money Fund -- AMS Trust Account, c/o Norstar Trust Co., Gales &
Co., 159 East Main Street, Rochester, NY 14638, (9.76%); Beacon Mutual
Insurance Co., c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester,
NY 14638 (6.33%); U.S. Treasury Money Fund -- Loring Walcott Client Sweep
Acct., c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY
14638, (23.17%); Equity Value Fund--Fleet Savings Plus-Equity Value, c/o
Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638, (24.21%);
Equity Growth Fund--Fleet Savings Plus-Equity Growth, c/o Norstar Trust Co.,
Gales & Co., 159 East Main, Rochester, NY 14638, (23.54%); Nusco Retiree
Health VEBA Trust, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (6.82%); International Equity Fund--FFG International
Equity Fund, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY
14638, (12.68%); Fleet Savings Plus-Intl. Equity, c/o Norstar Trust Co.,
Gales & Co., 159 East Main, Rochester, NY 14638, (9.82%); Intermediate
Government Income Fund -- Nusco Retiree Health VEBA Trust, c/o Norstar Trust
Co., Gales & Co., 159 East Main, Rochester, NY 14638 (6.44%); Strategic
Equity Fund--FFG Retirement & Pension VDG, c/o Fleet Financial Group, 159
East Main, Rochester, NY 14638, (93.39%); High Quality Bond Fund--Fleet
Savings Plus Plan-HQ Bond, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638 (19.60%); Asset Allocation Fund--Fleet Savings Plus-Asset
Allocation, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY
14638, (26.52%); Small Company Equity Fund--Fleet Savings Plus-Small Company,
c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638,
(33.58%); Tax Exempt Bond Fund -- Nusco Retiree Health VEBA Trust, c/o
Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638, (37.64%);
Corporate Bond Fund--Cole Hersee Pension Plan, c/o Norstar Trust Co., Gales &
Co., 159 East Main, Rochester, NY 14638, (8.40%); Growth Income Fund--Fleet
Savings Plus-Growth Income, c/o Norstar Trust Co., Gales & Co., 159 East
Main, Rochester, NY 14638, (43.81%); Crumpton & Knowles IARP, c/o Norstar
Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638 (10.11%); Small
Cap Value Fund--FFG Emp. Ret. Misc. Assets SNC, c/o Norstar Trust Co., Gales
& Co., 159 East Main, Rochester, NY 14638, (25.16%); Institutional Government
Fund --IBEW Local #99 Annuity, c/o Norstar Trust Co., Gales & Co., 159 East
Main Street, Rochester, NY 14638 (5.26%); New Jersey Municipal Bond
Fund--Perillo Tours, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (22.47%); Royal Chambord IMA, c/o Norstar Trust Co.,
Gales & Co., 159 East Main, Rochester, NY, 14638, (11.24%); McKee Wendell A.
Marital Trust, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester,
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NY 14638, (11.16%); Varco Inc. IMA, c/o Norstar Trust Co., Gales & Co., 159
East Main, Rochester, NY 14638, (5.62%); and Tiernan Diana V IA, c/o Norstar
Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638, (5.10%).
As of November 30, 1999, the name, address and share ownership of the
entities or persons that held of record or beneficially more than 5% of the
outstanding A Prime Shares of Galaxy's Asset Allocation, Equity Income, Growth
and Income, Strategic Equity, Equity Value, Equity Growth, International Equity,
Small Cap Value, Small Company Equity, Short-Term Bond, Intermediate Government
Income, High Quality Bond and Tax-Exempt Bond Funds were as follows: Asset
Allocation Fund--U.S. Clearing, A Division of Fleet Securities, Inc., FBO
#147-97697-11, Ray Wayne Prince, 11010 Stephens Road, Berlin Heights, OH
44814-9673 (18.52%); U.S. Clearing, A Division of Fleet Securities, Inc., FBO
#135-29801-11, Joseph P. Quinn & Genevieve H. Quinn Trust, 725 N. Riverside
Drive, Apt. 405, Pompano Beach, FL 33062-4536 (12.47%); U.S. Clearing, A
Division of Fleet Securities, Inc., FBO #175-97327-10, Margaret Ann Gillenwater,
2525 E. Prince Road #23, Tucson, AZ 85716-1146 (11.92%); U.S. Clearing, A
Division of Fleet Securities, Inc., FBO #114-97238-17, Sara Mallow, 936
Broadway, New York, NY 10010-6013 (25.26%); U.S. Clearing, A Division of Fleet
Securities, Inc., FBO #166-88586-13, Pamela Ann Radamaker, 1001 Tramway Blvd.
NE, Albuquerque, NM 87112-6280 (10.72%); U.S. Clearing, A Division of Fleet
Securities, Inc., FBO #114-23817-12, John R. Johnson, P.O. Box 4338, Deerfield
Beach, FL 33442-4338 (8.31%); Growth and Income Fund--U.S. Clearing, A Division
of Fleet Securities Inc., FBO #160-27022-17, Linda Shaw, Trustee for the Linda
J. Shaw Trust, 920 Meadows Road, Geneva, IL 60134-3052 (34.66%); U.S. Clearing,
A Division of Fleet Securities Inc., FBO #113-27816-16, Pamela M. Fein, 68 Oak
Ridge Drive, Bethany, CT 06524-3118 (29.85%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO #175-97327-10, Margaret Ann Gillenwater, 2525 E. Prince
Road #23, Tucson, AZ 85716-1146 (23.43%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO #103-80080-19, Saint Clare School Endowment Fund, Attn: Fr.
O'Shea/Andrew J. Houvouras and/or Bruce Blatman, 821 Prosperity Farms Road, No.
Palm Beach, FL 33408-4299 (6.09%); Equity Growth Fund--U.S. Clearing, A Division
of Fleet Securities Inc., FBO #104-32732-16, Hilda Brandt, 3900 North Charles
Street, Baltimore, MD 21218-1724 (50.91%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO #114-97236-17, Sara Mallow, 936 Broadway, New York, NY
10010-6013 (26.57%); U.S. Clearing, A Division of Fleet Securities Inc., FBO
#120-97689-18, Yook Y. Doo, 4634 Robinson St., Flushing, NY 11355-3445 (8.84%);
U.S. Clearing, A Division of Fleet Securities Inc., FBO #021-90471-15, Mabel L.
Bowman, 35634 Meyers Ct., Fremont, CA 84536-2540 (7.00%); U.S. Clearing, A
Division of Fleet Securities Inc., FBO #143-27206-11, Mary V. Mastroianni &
Pasqual Mastroianni JT Ten, 1811 Randolph Road, Schenectady, NY 12308-2021
(5.44%); International Equity Fund--U.S. Clearing, A Division of Fleet
Securities Inc., FBO #125-98055-11, Albert F. Twanmo, 6508 81st St., Cabin John,
MD 20818-1203 (94.66%); Small Cap Value Fund U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 104-32732-16, Hilda Brandt, 3900 North Charles Street,
Baltimore, MD 21218-1724 (26.87%); U.S. Clearing, A Division of Fleet Securities
Inc., FBO # 150-98301-11, N. Clifford Nelson Jr., 58 Middlebury Road, Orchard
Park, NY 14127-3581 (16.93%); U.S. Clearing, A Division of Fleet Securities
Inc., FBO # 102-60254-19, Frederick W. Geissinger, 601 NW 2nd Street,
Evansville, IN 47708-1013 (16.81%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 103-97564-14, Thomas X. McKenna, 170 Turtle Creek Drive,
Tequesta, FL 33469-1547 (12.55%); U.S. Clearing, A Division of Fleet Securities
Inc., FBO # 103-31296-18, Edward U.
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Roddy III, 109 Angler Avenue, Palm Beach, FL 33480-3101 (8.27%); U.S. Clearing,
A Division of Fleet Securities Inc., FBO # 180-24606-24, Gary R. Plemons, P.O.
Box 190, Madisonville, TN 37354-0190 (5.56%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 165-26664-29, Special Risk Underwriters, P.O. Box 54699,
Phoenix, AZ 85078-4699 (5.31%); High Quality Bond Fund - U.S. Clearing, A
Division of Fleet Securities Inc., FBO # 103-30971-12, Doris G. Schack, FBO #
103-30971-12, Doris G. Schack Living Trust, 9161 East Evans, Scottsdale, AZ
85260-7575 (72.18%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #
013-02964-11, Jane L. Grayhurst, 770 Boylston St., Apt. 10G, Boston, MA
02199-7709 (15.46%); U.S. Clearing, A Division of Fleet Securities, Inc., FBO
#132-90090-11, Virginia Holmes, 303 Bella Vista Drive, Ithaca, NY 14850-5774
(12.10%).
As of November 30, 1999, the name, address and share ownership of the
entities or persons that held of record or beneficially more than 5% of the
outstanding B Prime Shares of Galaxy's Asset Allocation, Equity Income, Growth
and Income, Strategic Equity, Equity Value, Equity Growth, International Equity,
Small Cap Value, Small Company Equity, Short-Term Bond, Intermediate Government
Income, High Quality Bond and Tax-Exempt Bond Funds were as follows: Asset
Allocation Fund -- U.S. Clearing, A Division of Fleet Securities Inc., FBO #
138-97818-14, Carol Y. Foster, 524 Marie Ave., Blountstown, FL 32424-1218
(10.07%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #
102-92974-11, Ann E. Herzog, 74 Tacoma St., Staten Island, NY 10304-4222
(9.61%); U.S. Clearing, A Division of Fleet Securities Inc., FBO # 166-98559-16,
Ann P. Sargent, 422 Los Encinos Ave., San Jose, CA 95134-1336 (6.40%); U.S.
Clearing, A Division of Fleet Securities Inc., FBO # 166-97970-19, Alicia E.
Schober, 10139 Ridgeway Drive, Cupertino, CA 95014-2658 (6.22%); U.S. Clearing,
A Division of Fleet Securities Inc., FBO # 19414889-16, Paul R. Thornton & Karin
Z. Thornton, JT TEN, 1207 Oak Glen Lane, Sugar Land, TX 77479-6175 (5.70%); U.S.
Clearing, A Division of Fleet Securities, Inc., FBO #147-29049-19, Randall
Prince, Rt. 1, Box 865, Turtletown, TN 37391-9700 (6.06%); Growth and Income
Fund - U.S. Clearing, A Division of Fleet Securities Inc., FBO # 147-97497-13,
Martin Allen Sante, 15222 Birch Lakeshore Drive, Vandalia, MI 49095-9741
(27.18%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #103-31744-16,
Irwin Luftig & Elaine Luftig, 6119 Bear Creek Ct., Lake Worth, FL 33467-6812
(19.02%); Linda M. Berke & Michael E. Berke, JT WROS, 30941 Westwood Rd.,
Farmington Hills, MI 48331-1466 (15.25%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 147-29019-15, Walter W. Quan, 2617 Skyline Drive, Lorain,
OH 44053-2243 (14.87%); U.S. Clearing, A Division of Fleet Securities Inc., FBO
#014-90365-19, Peter Burr Bickford, 65 A Lazell St., Hingham, MA 02043-4403
(7.44%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #108-00116-10,
Michael Kennedy & Carleen Kennedy, JT WROS, 12 Walton Avenue, Locust Valley, NY
11560-1227 (5.48%); Equity Growth Fund - U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 111-98315-17, Thomas J. Bernfeld, 185 West End Ave., Apt.
21D, New York, NY 10023-5548 (29.52%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 166-31108-13, Frank Catanho, Trustee of the Frank Catanho
1996 Trust dated 10/22/96, 24297 Mission Blvd., Hayward, CA 94544-1020 (19.07%);
U.S. Clearing, A Division of Fleet Securities Inc., FBO # 183-97247-11, W.P.
Fleming, 66500 E. 253rd, Grove, OK 74344-6163 (8.77%); U.S. Clearing, A Division
of Fleet Securities Inc., FBO # 131-96122-18, Elaine B. Odessa, 9 Newman Rd.,
Pawtucket, RI 02860-8183 (6.66%); International Equity Fund - U.S. Clearing, A
Division of Fleet Securities Inc., FBO # 102-5924-17, Church & Friary of St.
Francis of Assisi, c/o Fr.
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Ronald P. Stark OFM, 135 West 31st St., New York, NY 10001-3405 (82.40%); Small
Cap Value Fund - U.S. Clearing, A Division of Fleet Securities Inc., FBO #
147-97574-19, Ray William Mominey, 1340 San Cristobal Villa, Punta Gorda, FL
33983-6616 (15.90%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #
111-98315-17, Thomas J. Bernfeld, 185 West End Ave., Apt. 21D, New York, NY
10023-5548 (10.13%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #
107-30623-15, Andrejs Zvejnieks, 2337 Christopher Walk, Atlanta, GA 30327-1110
(6.86%); E-Trade: Cust. for the rollover IRA, FBO Rufus O. Eddins, Jr., A/C #
11042697, 360 Dominion Circle, Knoxville, TN 37922-2750 (5.34%); U.S. Clearing,
A Division of Fleet Securities Inc., FBO # 221-97250-13, Micheal A. Veschi, 106
Exmoor Court, Leesburg, VA 20176-2049 (5.13%); High Quality Bond Fund - U.S.
Clearing, A Division of Fleet Securities Inc., FBO # 200-70099-19, Neil C.
Feldman, 41 Windham Way, Englishtown, NJ 07726-8216 (25.37%); U.S. Clearing, A
Division of Fleet Securities Inc., FBO # 119-97697-10, Ira Sornborg, 4219
Nautilus Ave., Brooklyn, NY 11224-1019 (10.23%); U.S. Clearing, A Division of
Fleet Securities Inc., FBO # 216-12779-14, Les H. Galex & Nan Galex, JT TEN,
7540 Farragut St., Hollywood, FL 33024-2626 (8.11%); U.S. Clearing, A Division
of Fleet Securities Inc., FBO # 102-93287-11, Marjorie Dion, 301 Raimond St.,
Yaphank, NY 11980-9725 (7.31%); U.S. Clearing, A Division of Fleet Securities
Inc., FBO # 102-68909-11, Marjorie Dion, 301 Raimond St., Yaphank, NY 11980-9725
(8.61%); U.S. Clearing, A Division of Fleet Securities Inc., FBO # 147-24459-13,
Jay Robert Klein, 26800 Amhearst Circle, #209, Cleveland, OH 44122-7572 (8.40%);
U.S. Clearing, A Division of Fleet Securities Inc., FBO # 157-98031-13, Patricia
Fusco, 112 E. Chapel Ave., Cherry Hill, NJ 08034-1204 (6.53%); U.S. Clearing, A
Division of Fleet Securities, Inc., FBO # 216-13463-13, Jerry H. Dunmire, 5151
SW 89 Terrace, Cooper City, FL 33328-3631 (6.48%).
As of November 30, 1999, the name, address and share ownership of the
entities or persons that held of record or beneficially more than 5% of the
outstanding shares of Galaxy's Prime Reserves, Government Reserves and Tax
Exempt Reserves were as follows: Prime Reserves -- U.S. Clearing, 26 Broadway,
New York, NY 10004 (6.96%); Government Reserves -- U.S. Clearing, 26 Broadway,
New York, NY 10004 (100.00%); and Tax Exempt Reserves -- U.S. Clearing, 26
Broadway, New York, NY 10004 (100.00%).
As of November 30, 1999, no entity or person held of record or
beneficially more than 5% of the outstanding Retail A and Retail B Shares of
Galaxy's Equity Income, New York Municipal Bond, Connecticut Municipal Bond,
Massachusetts Municipal Bond, Rhode Island Municipal Bond, Massachusetts
Municipal Money Market, Connecticut Municipal Money Market and Short Term Bond
Funds.
FINANCIAL STATEMENTS
Galaxy's Annual Reports to Shareholders with respect to the Funds for
the fiscal year ended October 31, 1999 [has been filed] with the SEC. The
financial statements contained in such Annual Reports are [ ] into this
Statement of Additional Information. The financial statements and financial
highlights for the Funds for the fiscal year ended October 31, 1999 have been
audited by Galaxy's independent accountants, [ ], whose reports thereon also
appears in such Annual Reports and [ ]. The financial statements in such Annual
Reports have been [ ] in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
-88-
<PAGE>
APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current opinion
of credit worthiness of an obligor with respect to financial obligations having
an original maturity of no more than 365 days. The following summarizes the
rating categories used by Standard and Poor's for commercial paper:
"A-1" - Obligations are rated in the highest category indicating
that the obligor's capacity to meet its financial commitment on the obligation
is strong. Within this category, certain obligations are designated with a plus
sign (+). This indicates that the obligor's capacity to meet its financial
commitment on these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rating categories. However, the obligor's capacity to meet its financial
commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
"B" - Obligations are regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and are
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.
"D" - Obligations are in payment default. The "D" rating category
is used when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's believes that
such payments will be made during such grace period. The "D" rating will be used
upon the filing of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually senior debt obligations not having an original
maturity in excess of one year, unless explicitly noted. The following
summarizes the rating categories used by Moody's for commercial paper:
"Prime-1" - Issuers (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be
A-1
<PAGE>
evidenced by many of the following characteristics: leading market positions in
well-established industries; high rates of return on funds employed;
conservative capitalization structure with moderate reliance on debt and ample
asset protection; broad margins in earnings 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.
"Prime-2" - Issuers (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effect of industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and may require relatively high
financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuers do not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps
employs three designations, "D-1+," "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"D-1+" - Debt possesses the highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
"D-2" - Debt possesses 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.
"D-3" - Debt possesses satisfactory liquidity and other
protection factors qualify issues as to investment grade. Risk factors are
larger and subject to more variation. Nevertheless, timely payment is expected.
A-2
<PAGE>
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to insure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch IBCA short-term ratings apply to debt obligations that have
time horizons of less than 12 months for most obligations, or up to three years
for U.S. public finance securities. The following summarizes the rating
categories used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This
designation indicates the strongest capacity for timely payment of financial
commitments and may have an added "+" to denote any exceptionally strong credit
feature.
"F2" - Securities possess good credit quality. This designation
indicates a satisfactory capacity for timely payment of financial commitments,
but the margin of safety is not as great as in the case of the higher ratings.
"F3" - Securities possess fair credit quality. This designation
indicates that the capacity for timely payment of financial commitments is
adequate; however, near-term adverse changes could result in a reduction to
non-investment grade.
"B" - Securities possess speculative credit quality. This
designation indicates minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in financial and
economic conditions.
"C" - Securities possess high default risk. This designation
indicates that default is a real possibility and that the capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
"D" - Securities are in actual or imminent payment default.
Thomson BankWatch short-term ratings assess the likelihood of an
untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson Financial BankWatch:
"TBW-1" - This designation represents Thomson Financial
BankWatch's highest category and indicates a very high likelihood that principal
and interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson Financial
BankWatch's second-highest category and indicates that while the degree of
safety regarding timely repayment of
A-3
<PAGE>
principal and interest is strong, the relative degree of safety is not as high
as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's lowest
investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's lowest
rating category and indicates that the obligation is regarded as non-investment
grade and therefore speculative.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating assigned
by Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
Obligations rated "BB," "B," "CCC," "CC" and "C" are regarded as
having significant speculative characteristics. "BB" indicates the least degree
of speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
"BB" - An obligation rated "BB" is less vulnerable to nonpayment
than other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to the obligor's inadequate capacity to meet its financial commitment on the
obligation.
A-4
<PAGE>
"B" - An obligation rated "B" is more vulnerable to nonpayment
than obligations rated "BB," but the obligor currently has the capacity to meet
its financial commitment on the obligation. Adverse business, financial or
economic conditions will likely impair the obligor's capacity or willingness to
meet its financial commitment on the obligation.
"CCC" - An obligation rated "CCC" is currently vulnerable to
nonpayment, and is dependent upon favorable business, financial and economic
conditions for the obligor to meet its financial commitment on the obligation.
In the event of adverse business, financial, or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the
obligation.
"CC" - An obligation rated "CC" is currently highly vulnerable to
nonpayment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
"D" - An obligation rated "D" is in payment default. The "D"
rating category is used when payments on an obligation are not made on the date
due even if the applicable grace period has not expired, unless Standard &
Poor's believes that such payments will be made during such grace period. The
"D" rating also will be used upon the filing of a bankruptcy petition or the
taking of a similar action if payments on an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may
be modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
"r" - This symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or volatility of
expected returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk - such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as
high-grade bonds. They are rated lower
A-5
<PAGE>
than the best bonds because margins of protection may not be as large as in
"Aaa" securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-term risk
appear somewhat larger than the "Aaa" securities.
"A" - Bonds 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
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds 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.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" indicates poor standing; "Ca" represents
obligations which are speculative in a high degree; and "C" represents the
lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operating experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from "Aa" through "Caa." The modifier 1 indicates
that the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of its generic rating category.
The following summarizes the long-term debt ratings used by Duff
& Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality.
The risk factors are negligible, being only slightly more than for risk-free
U.S. Treasury debt.
"AA" - Debt is considered to be of high credit quality.
Protection factors are strong. Risk is modest but may vary slightly from time to
time because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable in periods of greater economic
stress.
A-6
<PAGE>
"BBB" - Debt possesses below-average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of
these ratings is considered to be below investment grade. Although below
investment grade, debt rated "BB" is deemed likely to meet obligations when due.
Debt rated "B" possesses the risk that obligations will not be met when due.
Debt rated "CCC" is well below investment grade and has considerable uncertainty
as to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the "AA,"
"A," "BBB," "BB" and "B" ratings may be modified by the addition of a plus (+)
or minus (-) sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch IBCA for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. These ratings denote the lowest expectation of credit
risk and are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
"AA" - Bonds considered to be investment grade and of very high
credit quality. These ratings denote a very low expectation of credit risk and
indicate very strong capacity for timely payment of financial commitments. This
capacity is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high credit
quality. These ratings denote a low expectation of credit risk and indicate
strong capacity for timely payment of financial commitments. This capacity may,
nevertheless, be more vulnerable to changes in circumstances or in economic
conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good
credit quality. These ratings denote that there is currently a low expectation
of credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity.
"BB" - Bonds considered to be speculative. These ratings indicate
that there is a possibility of credit risk developing, particularly as the
result of adverse economic changes over time; however, business or financial
alternatives may be available to allow financial commitments to be met.
Securities rated in this category are not investment grade.
A-7
<PAGE>
"B" - Bonds are considered highly speculative. These ratings
indicate that significant credit risk is present, but a limited margin of safety
remains. Financial commitments are currently being met; however, capacity for
continued payment is contingent upon a sustained, favorable business and
economic environment.
"CCC," "CC", and "C" - Bonds have high default risk. Default is a
real possibility, and capacity for meeting financial commitments is solely
reliant upon sustained, favorable business or economic developments. "CC"
ratings indicate that default of some kind appears probable, and "C" ratings
signal imminent default.
"DDD," "DD" and "D" - Bonds are in default. The ratings of
obligations in this category are based on their prospects for achieving partial
or full recovery in a reorganization or liquidation of the obligor. While
expected recovery values are highly speculative and cannot be estimated with any
precision, the following serve as general guidelines. "DDD" obligations have the
highest potential for recovery, around 90%-100% of outstanding amounts and
accrued interest. "DD" indicates potential recoveries in the range of 50%-90%,
and "D" the lowest recovery potential, i.e., below 50%.
Entities rated in this category have defaulted on some or all of
their obligations. Entities rated "DDD" have the highest prospect for resumption
of performance or continued operation with or without a formal reorganization
process. Entities rated "DD" and "D" are generally undergoing a formal
reorganization or liquidation process; those rated "DD" are likely to satisfy a
higher portion of their outstanding obligations, while entities rated "D" have a
poor prospect for repaying all obligations.
To provide more detailed indications of credit quality, the Fitch
IBCA ratings from and including "AA" to "CCC" may be modified by the addition of
a plus (+) or minus (-) sign to show relative standing within these major rating
categories.
Thomson Financial BankWatch assesses the likelihood of an
untimely repayment of principal or interest over the term to maturity of long
term debt and preferred stock which are issued by United States commercial
banks, thrifts and non-bank banks; non-United States banks; and broker-dealers.
The following summarizes the rating categories used by Thomson BankWatch for
long-term debt ratings:
"AAA" - This designation indicates that the ability to repay
principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis, with limited incremental risk compared
to issues rated in the highest category.
"A" - This designation indicates that the ability to repay
principal and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
A-8
<PAGE>
"BBB" - This designation represents the lowest investment-grade
category and indicates an acceptable capacity to repay principal and interest.
Issues rated "BBB" are more vulnerable to adverse developments (both internal
and external) than obligations with higher ratings.
"BB," "B," "CCC," and "CC" - These designations are assigned by
Thomson Financial BankWatch to non-investment grade long-term debt. Such issues
are regarded as having speculative characteristics regarding the likelihood of
timely repayment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's note rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess a
very strong capacity to pay debt service are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") and variable
rate demand obligations are designated Variable Moody's Investment Grade
("VMIG"). Such ratings recognize the differences between short-term credit risk
and long-term risk. The following summarizes the ratings by Moody's Investors
Service, Inc. for short-term notes:
A-9
<PAGE>
"MIG-1"/"VMIG-1" - This designation denotes best quality. There
is present strong protection by established cash flows, superior liquidity
support or demonstrated broad-based access to the market for refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high quality. Margins
of protection are ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes 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.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt
instruments in this category lack of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
A-10
<PAGE>
THE GALAXY FUND
FORM N-1A
PART C. OTHER INFORMATION
Item 23. Exhibits
(a) (1) Declaration of Trust dated March 31, 1986.(4)
(2) Amendment No. 1 to the Declaration of Trust dated as
of April 26, 1988.(4)
(3) Certificate pertaining to Classification of Shares
dated May 5, 1986 pertaining to Class A and Class B
shares.(4)
(4) Certificate of Classification of Shares dated December
9, 1987 pertaining to Class C, Class D and Class E
shares.(4)
(5) Certificate of Classification of Shares dated November
8, 1989 pertaining to Class C - Special Series 1 and
Class D - Special Series 1 shares.(4)
(6) 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)
(7) 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)
(8) 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)
<PAGE>
(9) Certificate of Classification of Shares dated December
7, 1994 pertaining to Class T - Series 1 shares and
Class T - Series 2 shares.(4)
(10) 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.(8)
(11) 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.(8)
(l2) Certificate of Classification of Shares pertaining to
Class A - Special Series 2 shares.(8)
(13) 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.(8)
(14) Certificate of Classification of Shares pertaining to
Class BB; Class CC and Class DD shares.(8)
(15) 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.(8)
(16) 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.(8)
(17) Certificate of Classification of Shares pertaining to
Class EE - Series shares and Class EE - Series 2
shares; Class N - Special Series 1 shares; and
Class W - Special Series 1 shares.
-2-
<PAGE>
(b) Code of Regulations.(4)
(c) Article V, Section 5.1, and Article VIII, Section 8.1,
of Registrant's Declaration of Trust incorporated
herein by reference as Exhibit (a)(1), and Amendment
No. 1 to Registrant's Declaration of Trust
incorporated herein by reference as Exhibit (a)(2).
(d) (1) 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)
(2) 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)
(3) Addendum No. 2 to Advisory Agreement between the
Registrant and Fleet Investment Advisors Inc. with
respect to the New Jersey Municipal Bond Fund, MidCap
Equity Fund and Strategic Equity Fund dated as of
March 3, 1998.(5)
(4) Addendum No. 3 to Advisory Agreement dated September
18, 1998 between the Registrant and Fleet Investment
Advisors Inc. with respect to the Prime Reserves,
Government Reserves and Tax-Exempt Reserves.(8)
(5) Form of Addendum No. 4 to Advisory Agreement between
the Registrant and Fleet Investment Advisors Inc. with
respect to the New York Municipal Money Market Fund.
(6) Sub-Advisory Agreement between Fleet Investment
Advisors Inc. and Oechsle International Advisors, LLC
with respect to the International Equity Fund dated as
of October 8, 1998.(8)
-3-
<PAGE>
(e) (1) Distribution Agreement between the Registrant and
First Data Distributors, Inc. dated as of June 1,
1997.(3)
(2) 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)
(3) Amendment No. 2 dated September 18, 1998 to
Distribution Agreement between the Registrant and
First Data Distributors, Inc. with respect to the
Prime Reserves, Government Reserves and Tax-Exempt
Reserves.(8)
(4) Amendment No. 3 dated December 3, 1998 to Distribution
Agreement between the Registrant and First Data
Distributors, Inc.(8)
(5) Form of Distribution Agreement between Registrant and
Provident Distributors, Inc.(10)
(6) Form of Amendment No. 1 to Distribution Agreement
between the Registrant and Provident Distributors,
Inc. with respect to the New York Municipal Money
Market Fund.
(f) The Galaxy Fund/The Galaxy VIP Fund/Galaxy Fund II
Deferred Compensation Plan and Related Agreement
effective as of January 1, 1997.(2)
(g) (1) Global Custody Agreement between the Registrant
and The Chase Manhattan Bank dated as of November 1,
1991.(4)
(2) 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)
(3) 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)
(4) Form of Amendment to Global Custody Agreement between
the Registrant and The Chase Manhattan Bank with
respect to the New York Municipal Money Market Fund.
-4-
<PAGE>
(5) Amendment dated December 2, 1998 to Global Custody
Agreement between the Registrant and The Chase
Manhattan Bank with respect to foreign custody
monitoring delegation.(9)
(6) 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)
(h) (1) Administration Agreement between the Registrant and
PFPC Inc. (formerly known as First Data Investor
Services Group, Inc.) dated as of June 1, 1997.(3)
(2) Amendment No. 1 dated March 3, 1998 to Administration
Agreement between the Registrant and PFPC Inc.
(formerly known as First Data Investor Services Group,
Inc.) with respect to the New Jersey Municipal Bond
Fund, MidCap Equity Fund and Strategic Equity Fund.(5)
(3) Amendment No. 2 dated as of March 5, 1998 to
Administration Agreement between the Registrant and
PFPC Inc. (formerly known as First Data Investor
Services Group, Inc.)(6)
(4) Amendment No. 3 dated as of September 18, 1998 to
Administration Agreement between the Registrant and
PFPC Inc. (formerly known as First Data Investor
Services Group, Inc.) with respect to the Prime
Reserves, Government Reserves and Tax-Exempt Reserves
Fund.(8)
(5) Amendment No. 4 dated as of September 10, 1998 to
Administration Agreement between the Registrant and
PFPC Inc. (formerly known as First Data Investor
Services Group, Inc.)(9)
(6) Form of Amendment No. 5 to Administration Agreement
between Registrant and PFPC Inc. (formerly known as
First Data Investor Services Group, Inc.)(10)
(7) Form of Amendment No. 6 to Administration Agreement
between Registrant and PFPC Inc. (formerly known as
First Data Investor Services Group, Inc.) with respect
to the New York Municipal Money Market Fund.
-5-
<PAGE>
(8) Transfer Agency and Services Agreement between the
Registrant and PFPC Inc. (formerly known as First Data
Investor Services Group, Inc.) dated as of June 1,
1997.(3)
(9) Amendment No. 1 dated March 3, 1998 to Transfer Agency
and Services Agreement between the Registrant and PFPC
Inc. (formerly known as First Data Investor Services
Group, Inc.) with respect to the New Jersey Municipal
Bond Fund, MidCap Equity Fund and Strategic Equity
Fund.(5)
(10) Amendment No. 2 dated as of March 5, 1998 to Transfer
Agency and Services Agreement between the Registrant
and PFPC Inc. (formerly known as First Data Investor
Services Group, Inc.)(6)
(11) Amendment No. 3 dated as of September 18, 1998 to
Transfer Agency and Services Agreement between the
Registrant and PFPC Inc. (formerly known as First Data
Investor Services Group, Inc.) with respect to the
Prime Reserves, Government Reserves and Tax-Exempt
Reserves Fund.(8)
(12) Amendment No. 4 dated as of September 10, 1998 to
Transfer Agency and Services Agreement between
Registrant and PFPC Inc. (formerly known as First
Data Investor Services Group, Inc.)(9)
(13) Form of Amendment No. 5 to Transfer Agency and
Securities Agreement between Registrant and PFPC Inc.
(formerly known as First Data Investor Services Group,
Inc.)(10)
(14) Form of Amendment No. 6 to Transfer Agency and
Securities Agreement between Registrant and PFPC Inc.
(formerly known as First Data Investor Services Group,
Inc.)
(15) Form of Amendment No. 7 to Transfer Agency and
Services Agreement between Registrant and PFPC Inc.
(formerly known as First Data Investor Services Group,
Inc.) with respect to the New York Municipal Money
Market Fund.
(16) Shareholder Services Plan for Trust Shares and Retail
A Shares and Related Forms of Servicing Agreements.
(i) (1) Opinion and consent of counsel dated
September 28, 1999.(10)
(2) Opinion and consent of counsel dated
December 3, 1999.
(j) (1) Consent of Drinker Biddle & Reath LLP.
-6-
<PAGE>
(2) Consent of Willkie, Farr & Gallagher.
(3) Consent of Ropes & Gray.
(4) Consent of Day, Berry & Howard LLP.
(k) None.
(l) (1) Purchase Agreement between the Registrant and
Shearson Lehman Brothers Inc. dated July 24, 1986.(4)
(2) 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)
(3) 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)
(4) 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 Government Money Market
(formerly Institutional Treasury Money Market)
Funds.(4)
(5) Purchase Agreement between the Registrant and 440
Financial Distributors, Inc. dated May 19, 1994 with
respect to the Corporate Bond Fund.(4)
(6) 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)
(7) Purchase Agreement between the Registrant and First
Data Distributors, Inc. with respect to the New Jersey
Municipal Bond Fund.(5)
-7-
<PAGE>
(8) Form of Purchase Agreement between the Registrant and
First Data Distributors, Inc. with respect to the
MidCap Equity Fund.(3)
(9) Purchase Agreement between the Registrant and First
Data Distributors, Inc. with respect to the Strategic
Equity Fund.(5)
(10) Purchase Agreement between the Registrant and First
Data Distributors, Inc. dated September 18, 1998 with
respect to the Prime Reserves, Government Reserves and
Tax-Exempt Reserves.(9)
(m) (1) Distribution and Services Plan for Retail B Shares
and Related Form of Servicing Agreement.(6)
(2) Distribution and Services Plan and Related Form of
Servicing Agreement with respect to the Prime
Reserves, Government Reserves and Tax-Exempt
Reserves.(5)
(3) Distribution Plan for A Prime Shares.(6)
(4) Distribution and Services Plan for B Prime Shares and
Related Form of Servicing Agreement.(6)
(5) Distribution and Services Plan and Related Form of
Servicing Agreement with respect to Prime Shares of
the New York Municipal Money Market, Connecticut
Municipal Money Market and Massachusetts Municipal
Money Market Funds.
(n) None.
(o) Amended and Restated Plan Pursuant to Rule 18f-3 for
Operation of a Multi-Class System.
- -----------------------
(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) as filed with
the Commission 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.
-8-
<PAGE>
(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 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 herein 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.
(7) Filed electronically as an Exhibit and incorporated herein by reference
to Post-Effective Amendment No. 35 to the Registrant's Registration
Statement on Form N-1A as filed with the Commission on October 6, 1998.
(8) Filed electronically as an Exhibit and incorporated herein by reference
to Post-Effective Amendment No. 36 to the Registrant's Registration
Statement on Form N-1A as filed with the Commission on December 30,
1998.
(9) Filed electronically as an Exhibit and incorporated herein by reference
to Post-Effective Amendment No. 37 to the Registrant's Registration
Statement on Form N-1A as filed with the Commission on February 26,
1999.
(10) Filed electronically as an Exhibit and incorporated herein by reference
to Post-Effective Amendment No. 38 to the Registrant's Registration
Statement on Form N-1A as filed with the Commission on September 28,
1999.
-9-
<PAGE>
Item 24. Persons Controlled By or Under Common Control with
Registrant
Registrant is controlled by its Board of Trustees.
Item 25. 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 (e)(1), in Section 12 of the Global Custody Agreement incorporated
herein by reference as Exhibit (g)(1) and in Article 10 of the Transfer Agency
and Services Agreement incorporated herein by reference as Exhibit (h)(6). 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, incorporated herein by reference as Exhibit (a)(1), 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.
-10-
<PAGE>
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 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 26. (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 26 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 26 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).
-11-
<PAGE>
Item 27. Principal Underwriter
(a) In addition to The Galaxy Fund, Provident
Distributors, Inc. (the "Distributor") currently acts as
distributor for The Galaxy VIP Fund, Galaxy Fund II,
International Dollar Reserve Fund I, Ltd., Provident
Institutional Funds Trust, Columbia Common Stock Fund, Inc.,
Columbia Growth Fund, Inc., Columbia International Stock Fund,
Inc., Columbia Special Fund, Inc., Columbia Small Cap Fund,
Inc., Columbia Real Estate Equity Fund, Inc., Columbia
Balanced Fund, Inc., Columbia Daily Income Company, Columbia
U.S. Government Securities Fund, Inc., Columbia Fixed Income
Securities Fund, Inc., Columbia Municipal Bond Fund, Inc.,
Columbia High Yield Fund, Inc., Columbia National Municipal
Bond Fund, Inc., GAMNA Series Funds, Inc., WT Investment
Trust, Kalmar Pooled Investment Trust, The RBB Fund, Inc.,
Robertson Stephens Investment Trust, HT Insight Funds Trust,
Hilliard-Lyons Government Fund, Inc., Hilliard-Lyons Growth
Fund, Inc., Hilliard-Lyons Research Trust, The BlackRock
Funds, Inc. (Distributed by BlackRock Distributors, Inc. a
wholly owned subsidiary of Provident Distributors, Inc.),
Northern Funds Trust (Distributed by Northern Funds
Distributors, LLC a wholly owned subsidiary of Provident
Distributors, Inc.), The OffitBank Investment Fund, Inc.
(Distributed by Offit Funds Distributor, Inc. a wholly owned
subsidiary of Provident Distributors, Inc.), The OffitBank
Variable Insurance Fund, Inc. (Distributed by Offit Funds
Distributor, Inc. a wholly owned subsidiary of Provident
Distributors, Inc.)
(b) The information required by this Item 27 (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.
-12-
<PAGE>
Item 28. 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).
(3) Provident Distributors Inc., Four Falls Corporate
Center, 6th Floor, West Conshohocken, Pennsylvania
19428-2961 (records relating to its functions as
distributor).
(4) PFPC Inc. (formerly known as First Data Investor
Services Group, Inc.) 53 State Street, Mail Stop
BOS 425, Boston, MA 02109 (records relating to its
functions as administrator).
(5) PFPC Inc. (formerly known as First Data Investor
Services Group, Inc.) 4400 Computer Drive, Westborough,
MA 01581-5108 (records relating to its functions as
transfer agent).
(6) Drinker Biddle & Reath LLP, One Logan Square, 18th and
Cherry Streets, Philadelphia, Pennsylvania 19103
(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 29. Management Services
Inapplicable.
Item 30. Undertakings
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.
-13-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, Registrant has duly caused
this Post-Effective Amendment No. 40 to its Registration Statement to be signed
on its behalf by the undersigned, thereto duly authorized, in Pawtucket, Rhode
Island, on the 3rd day of December, 1999.
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. 40 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 December 3, 1999
- --------------------- and Treasurer
John T. O'Neill
*Dwight E. Vicks, Jr. Chairman of the Board December 3, 1999
- --------------------- of Trustees
Dwight E. Vicks, Jr.
*Donald B. Miller Trustee December 3, 1999
- ---------------------
Donald B. Miller
*Louis DeThomasis Trustee December 3, 1999
- ---------------------
Louis DeThomasis
*Bradford S. Wellman Trustee December 3, 1999
- ---------------------
Bradford S. Wellman
*James M. Seed Trustee December 3, 1999
- ---------------------
James M. Seed
*By:/s/ John T. O'Neill
-----------------------
John T. O'Neill
Attorney-In-Fact
-14-
<PAGE>
Exhibit (a)(17)
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 27, 1999;
(3) That the following resolutions were duly adopted at the meeting
by the Board of Trustees of the Trust:
CREATION OF TWO SERIES OF CLASS EE SHARES REPRESENTING INTERESTS IN THE NEW
YORK MUNICIPAL MONEY MARKET FUND.
RESOLVED, that pursuant to Section 5.1 of Galaxy's Declaration of
Trust, an unlimited number of authorized and unissued shares of beneficial
interest in Galaxy be, and hereby are, classified into a new class of
shares denominated as Class EE shares, consisting of two separate series of
shares of beneficial interest designated as Class EE - Series 1 shares and
Class EE - Series 2 shares, both series representing interests in the New
York Municipal Money Market Fund;
FURTHER RESOLVED, that all consideration received by Galaxy for the
issue or sale of Class EE - Series 1 shares shall be invested and
reinvested with the consideration received by Galaxy for the issue and sale
of Class EE - Series 2 shares and any other shares of beneficial interest
in Galaxy hereafter designated as Class EE shares (irrespective of whether
said shares have been designated as part of a series of said class and, if
so designated, irrespective of the particular series designation), together
with all income, earnings, profits and proceeds thereof, including any
proceeds derived from the sale, exchange or liquidation thereof, 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 EE
shares (irrespective of series designation) by the Board of Trustees in
accordance with Galaxy's Declaration of Trust, and each Class EE - Series 1
share and Class EE - Series 2 share shall share in
<PAGE>
proportion to their respective net asset values with each such other share
in such consideration and other assets, income, earnings, profits and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation thereof, and any assets derived from any reinvestment of such
proceeds in whatever form;
FURTHER RESOLVED, that each Class EE - Series 1 share and Class EE -
Series 2 share newly classified hereby shall have all of the preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms and conditions of redemption accorded
shares of beneficial interest in Galaxy now or hereinafter designated as
Class EE shares (irrespective of series designation); and
FURTHER RESOLVED, that each Class EE - Series 1 share and each Class
EE - Series 2 share shall be charged in proportion to their respective net
asset values with each other share of beneficial interest in Galaxy now or
hereafter designated as a Class EE share (irrespective of whether said
share has been designated as part of a series of said class and, if so
designated, irrespective of the particular series designation) with the
expenses and liabilities of Galaxy in respect of Class EE shares
(irrespective of series designation) and in respect of any general expenses
and liabilities of Galaxy allocated to Class EE shares by the Board of
Trustees in accordance with Galaxy's Declaration of Trust; PROVIDED,
HOWEVER, that to the extent permitted by rule or order of the Securities
and Exchange Commission and as the Board of Trustees may from time to time
determine:
(a) only Class EE - Series 1 shares shall bear the expenses and
liabilities relating to any agreements or arrangements entered into by
or on behalf of Galaxy pursuant to which an organization or other
person agrees to provide services exclusively with respect to shares
of Class EE - Series 1, as well as any other expenses and liabilities
directly attributable to Class EE - Series 1 shares which the Board of
Trustees determines should be borne solely by shares of such Series;
(b) only Class EE - Series 2 shares shall bear the expenses and
liabilities relating to any agreements or arrangements entered into by
or on behalf of Galaxy pursuant to which an organization or other
person agrees to provide services exclusively with respect to shares
of Class EE - Series 2, as well as any other expenses and
-2-
<PAGE>
liabilities directly attributable to Class EE - Series 2 shares which
the Board of Trustees determines should be borne solely by shares of
such Series;
(c) Class EE - Series 1 shares shall not bear the expenses and
liabilities relating to any agreements or arrangements entered into by
or on behalf of Galaxy pursuant to which an organization or other
person agrees to provide services with respect to Class EE shares
other than shares of its Series 1, as well as any other expenses and
liabilities directly attributable to shares of Class EE other than
Class EE - Series 1 shares which the Board of Trustees determines
should be borne exclusively by such other shares;
(d) Class EE - Series 2 shares shall not bear the expenses and
liabilities relating to any agreements or arrangements entered into by
or on behalf of Galaxy pursuant to which an organization or other
person agrees to provide services with respect to Class EE shares
other than shares of its Series 2, as well as any other expenses and
liabilities directly attributable to shares of Class EE other than
Class EE - Series 2 shares which the Board of Trustees determines
should be borne exclusively by such other shares;
(e) on any matter that pertains to the agreements, arrangements,
expenses or liabilities described in clause (a) above (or to any plan
or other document adopted by Galaxy relating to said agreements,
arrangements, expenses or liabilities) and that is submitted to a vote
of shareholders of Galaxy, only Class EE - Series 1 shares shall be
entitled to vote, except that: (i) if said matter affects shares of
beneficial interest in Galaxy other than Class EE - Series 1 shares,
such other affected shares in Galaxy shall also be entitled to vote
and, in such case, Class EE - Series 1 shares 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
Class EE - Series 1 shares, said shares shall not be entitled to vote
(except where otherwise required by law or permitted by the Board of
Trustees) even though the matter is submitted to a vote of the holders
of shares of beneficial interest in Galaxy other than Class EE Series
1 shares; and
(f) on any matter that pertains to the
-3-
<PAGE>
agreements, arrangements, expenses or liabilities described in clause
(b) above (or to any plan or other document adopted by Galaxy relating
to said agreements, arrangements, expenses or liabilities) and that is
submitted to a vote of shareholders of Galaxy, only Class EE - Series
2 shares shall be entitled to vote, except that: (i) if said matter
affects shares of beneficial interest in Galaxy other than Class EE -
Series 2 shares, such other affected shares in Galaxy shall also be
entitled to vote and, in such case, Class EE - Series 2 shares 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 Class EE - Series 2 shares, said shares shall not be
entitled to vote (except where otherwise required by law or permitted
by the Board of Trustees) even though the matter is submitted to a
vote of the holders of shares of beneficial interest in Galaxy other
than Class EE - Series 2 shares; and
(g) on any matter that pertains to the agreements, arrangements,
expenses or liabilities described in clause (b) above (or to any plan
or other document adopted by Galaxy relating to said agreements,
arrangements, expenses or liabilities) and that is submitted to a vote
of shareholders of Galaxy, Class EE - Series 1 shares shall not be
entitled to vote, except where otherwise required by law or permitted
by the Board of Trustees of Galaxy, and except that if said matter
affects Class EE - Series 1 shares, such shares shall be entitled to
vote, and in such case, Class EE - Series 1 shares shall be voted in
the aggregate together with all other shares of beneficial interest in
Galaxy voting on the matter and not by class or series, except where
otherwise required by law or permitted by the Board of Trustees; and
(h) on any matter that pertains to the agreements, arrangements,
expenses or liabilities described in clause (a) above (or to any plan or
other document adopted by Galaxy relating to said agreements, arrangements,
expenses or liabilities) and that is submitted to a vote of shareholders of
Galaxy, Class EE - Series 2 shares shall not be entitled to vote, except
where otherwise required by law or permitted by the Board of Trustees of
Galaxy, and except that if said matter affects Class EE - Series 2 shares,
such shares shall be entitled to vote, and in such case, Class EE - Series
2 shares shall be voted in the aggregate together with all other shares of
beneficial
-4-
<PAGE>
interest in Galaxy voting on the matter and not by class or series,
except where otherwise required by law or permitted by the Board of
Trustees.
2. 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 two additional separate series of shares
which shall be designated, respectively, Class V-Special Series 1 and
Class W-Special Series 1;
FURTHER RESOLVED, that (a) Class V-Special Series 1 shares of
beneficial interest shall represent interests in the Connecticut
Municipal Money Market Fund and (b) Class W-Special Series 1 shares of
beneficial interest shall represent interests in the Massachusetts
Municipal Money Market Fund;
FURTHER RESOLVED, that each share of Class V-Special Series 1 and
Class W-Special Series 1 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 V-Special Series 1 and Class
W-Special Series 1 shall be invested and reinvested with the
consideration received by Galaxy for the issue and sale of all other
shares now or hereafter classified as shares of Class V and Class W,
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 V
and Class W (including the Class V and Class W shares formerly
classified, Class V-Special Series 1 and Class W-Special Series 1
shares herein classified or such other shares with respect to such
Class V and Class W) 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 V and Class W and any assets
derived from any reinvestment of such
-5-
<PAGE>
proceeds in whatever form shall be allocated to the Class V-Special
Series 1 shares and Class W-Special Series 1 shares in the proportion
that the net asset value of such Special Series 1 shares of such Class
bears to the total net asset value of all shares of such Class V and
Class W (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 V and Class W shall
be allocated to the Class V-Special Series 1 shares and Class
W-Special Series 1 shares hereby classified of such Class V and Class
W in the proportion that the net asset value of such Special Series 1
shares of such Class bears to the total net asset value of all shares
of such Class V and Class W (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 V-Special Series 1 shares and Class
W-Special Series 1 shares (or any other series of shares of such
Class):
(a) only the Special Series 1 shares of Class V and Class W
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 1 shares; 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 1 shares
of Class V and Class W; and
(b) no Special Series 1 shares of Class V and Class W 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 V or
Class W other than Special Series 1 shares of such Class V and
Class W; 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 V and Class W other than the
-6-
<PAGE>
Special Series 1 shares of such Class V and Class W and which
therefore should be borne solely by such other shares of Class V
and Class W and not the Special Series 1 shares of such Class V
and Class W.
(3) PREFERENCES, CONVERSION AND OTHER RIGHTS, VOTING POWERS,
RESTRICTIONS, LIMITATIONS, QUALIFICATIONS, AND TERMS AND
CONDITIONS OF REDEMPTION. Except as provided hereby, each Special
Series 1 share of Class V and Class W 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 powers,
restrictions, limitations, qualifications, and terms and
conditions of redemption as each other share formerly, now or
hereafter classified as a share of Class V and Class W
(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 1 shares of Class V and Class W (excluding the other
shares classified as a series of such Class other than Special
Series 1) shall be entitled to vote, except that:
(i) if said matter affects shares in Galaxy other than the
Special Series 1 shares of Class V and Class W, such other
affected shares in Galaxy shall also be entitled to vote,
and in such case, such Special Series 1 shares of such Class
V and Class W 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 1 shares
of Class V and Class W, 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
-7-
<PAGE>
vote of the holders of shares in Galaxy other than said Special
Series 1 shares of Class V and Class W.
(4) That the foregoing resolutions remain in full force and effect on
the date hereof.
/s/ W. Bruce McConnel, III
--------------------------------
W. Bruce McConnel, III
Secretary
Dated: December 3, 1999
Subscribed and sworn to before
me this 3rd day of December, 1999
/s/ Dorothea A. Natale
- ----------------------------------------
Notary Public
My Commission Expires: September 4, 2000
-8-
<PAGE>
ADDENDUM NO. 4 TO ADVISORY AGREEMENT
This Addendum No. 4, dated as of the ____ day of _________, 2000, is
entered into between THE GALAXY FUND, a Massachusetts business trust, located in
Westborough, Massachusetts ("Galaxy"), and FLEET INVESTMENT ADVISORS INC., a New
York corporation, located in Boston, Massachusetts (the "Adviser").
WHEREAS, Galaxy and the Adviser have entered into an Advisory
Agreement dated as of May 19, 1994, which was extended to additional investment
portfolios of Galaxy by Addendum No. 1 dated as of December 1, 1995, Addendum
No. 2 dated as of March 3, 1998 and Addendum No. 3 dated as of September 18,
1998 (the "Advisory Agreement"), pursuant to which Galaxy appointed the Adviser
to act as investment adviser to Galaxy for its Money Market Fund, Government
Fund, Tax-Exempt Fund, U.S. Treasury Fund, Institutional Government Money Market
Fund, Short-Term Bond Fund, Intermediate Government Income Fund, High Quality
Bond Fund, Corporate Bond Fund, Tax-Exempt Bond Fund, New York Municipal Bond
Fund, Connecticut Municipal Bond Fund, Massachusetts Municipal Bond Fund, Rhode
Island Municipal Bond Fund, Equity Value Fund, Equity Growth Fund, Equity Income
Fund, International Equity Fund, Small Company Equity Fund, Asset Allocation
Fund, Growth and Income Fund, Connecticut Municipal Money Market Fund,
Massachusetts Municipal Money Market Fund, Small Cap Value Fund, New Jersey
Municipal Bond Fund, MidCap Equity Fund, Strategic Equity Fund, Prime Reserves,
Government Reserves and Tax-Exempt Reserves (each a "Fund");
WHEREAS, Galaxy has notified the Adviser that it has established a new
portfolio, namely the New York Municipal Money Market Fund, and that it desires
to retain the Adviser to act as the investment adviser therefor, and the Adviser
has notified Galaxy that it is willing to serve as investment adviser for the
New York Municipal Money Market Fund;
NOW THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. APPOINTMENT. Galaxy hereby appoints the Adviser to act as
investment adviser to Galaxy for the New York Municipal Money Market Fund for
the period and on the terms set forth in the Advisory Agreement. The Adviser
hereby accepts such appointment and agrees to render the services set forth in
the Advisory Agreement for the compensation herein provided.
2. COMPENSATION. For the services provided and the expenses assumed
pursuant to the Advisory Agreement with respect to the New York Municipal Money
Market Fund, Galaxy will pay the Adviser and the Adviser will accept as full
compensation therefor fees, computed daily and paid monthly, at the annual rate
of .40% of the first $750,000,000 of net assets of the New York Municipal Money
Market Fund plus .35% of the net assets of such Fund in excess of $750,000,000.
<PAGE>
3. CAPITALIZED TERMS. From and after the date hereof, the term "Fund"
as used in the Advisory Agreement shall be deemed to include the New York
Municipal Money Market Fund. Capitalized terms used herein and not otherwise
defined shall have the meanings ascribed to them in the Advisory Agreement.
4. MISCELLANEOUS. Except to the extent supplemented hereby, the
Advisory Agreement shall remain unchanged and in full force and effect and is
hereby ratified and confirmed in all respects as supplemented hereby.
IN WITNESS WHEREOF, the undersigned have executed this Addendum as of
the date and year first above written.
THE GALAXY FUND
By:
------------------------------
Name: John T. O'Neill
Title: President
FLEET INVESTMENT ADVISORS INC.
By:
------------------------------
Name: Thomas M. O'Neill
Title: President
-2-
<PAGE>
THE GALAXY FUND
DISTRIBUTION AGREEMENT
Amendment No. 1
____________, 2000
Provident Distributors, Inc.
Four Falls Corporate Center, 6th Floor
West Conshohocken, PA 19428-2961
Dear Sirs:
This letter is to confirm that the undersigned, The Galaxy Fund (the
"Trust"), a Massachusetts business trust, has agreed that the Distribution
Agreement between the Trust and Provident Distributors, Inc. ("PDI") dated as of
December 1, 1999 (the "Agreement") is herewith amended to provide that PDI shall
be the distributor for the Trust's New York Municipal Money Market Fund on the
terms and conditions contained in the Agreement.
If the foregoing is in accordance with your understanding, will you so
indicate by signing and returning to us the enclosed copy hereof.
Very truly yours,
THE GALAXY FUND
By: ________________________
Name: John T. O'Neill
Title: President
Accepted:
PROVIDENT DISTRIBUTORS, INC.
By: _________________________
Name:
Title:
<PAGE>
THE GALAXY FUND
Amendment to
GLOBAL CUSTODY AGREEMENT
____________, 2000
The Chase Manhattan Bank
Chase Metrotech Center
Brooklyn, NY 11245
Attn: Global Custody Division
Dear Sirs:
This letter is to confirm that the undersigned, The Galaxy Fund (the
"Trust"), a Massachusetts business trust, has agreed that the Global Custody
Agreement ("Agreement") between the Trust and The Chase Manhattan Bank (formerly
The Chase Manhattan Bank, N.A.) ("Chase") dated as of November 1, 1991 is
herewith amended to provide that Chase shall be the custodian for the Trust's
New York Municipal Money Market Fund on the terms and conditions contained in
the Agreement.
If the foregoing is in accordance with your understanding, will you so
indicate by signing and returning to us the enclosed copy thereof.
Very truly yours,
THE GALAXY FUND
By: ____________________________
Name: John T. O'Neill
Title: President
Accepted:
THE CHASE MANHATTAN BANK
By: ________________________
Name:
Title:
<PAGE>
THE GALAXY FUND
ADMINISTRATION AGREEMENT
Amendment No. 6
As of ____________, 2000
PFPC Inc.
4400 Computer Drive
Westborough, Massachusetts 01581
Dear Sirs:
This letter is to confirm that the undersigned, The Galaxy Fund
(the "Trust"), a Massachusetts business trust, has agreed that the
Administration Agreement between the Trust and PFPC Inc. (formerly known as
First Data Investor Services Group, Inc.)("PFPC") dated as of June 1, 1997
(the "Agreement") is herewith amended to provide that PFPC shall be the
administrator for the Trust's New York Municipal Money Market Fund.
If the foregoing is in accordance with your understanding, will you
so indicate by signing and returning to us the enclosed copy hereof.
Very truly yours,
THE GALAXY FUND
By:
--------------------------
Name: John T. O'Neill
Title: President
Accepted:
PFPC, INC.
By:
-------------------------
Name:
Title:
<PAGE>
AMENDMENT NO. 6 TO
TRANSFER AGENCY AND SERVICES AGREEMENT
This Amendment No. 6, dated as of December __, 1999, is entered
into between THE GALAXY FUND (the "Fund"), a Massachusetts business trust,
and PFPC INC. (formerly known as First Data Investor Services Group, Inc.)
("PFPC"), a Massachusetts corporation.
WHEREAS, the Fund and PFPC have entered into a Transfer Agency and
Services Agreement dated as of June 1, 1997, as subsequently amended (as so
amended, the "Transfer Agency Agreement"), pursuant to which the Fund appointed
PFPC to act as the transfer agent, dividend disbursing agent and agent in
connection with certain other activities for the Fund's portfolios;
WHEREAS, PFPC has developed a recordkeeping service link
("DCXCHANGE -Registered Trademark-") between investment companies and benefit
plan consultants (the "Recordkeepers") which administer employee benefit plans,
including plans qualified under Section 401 of the Internal Revenue Code of
1986, as amended (the "Plan").
WHEREAS, PFPC has entered into agreements with various Recordkeepers
relating to recordkeeping and related services performed on behalf of such Plans
in connection with daily valuation and processing of orders for investment and
reinvestment of assets of the Plans in various investment options available to
the participants (the "Participants") under such Plans (the "DCXCHANGE
- -Registered Trademark- Program");
WHEREAS, the Fund desires to participate in the DCXCHANGE -Registered
Trademark- Program and to retain PFPC to perform such services with respect to
A Prime Shares of certain of the Fund's portfolios listed on Exhibit 1 of the
Transfer Agency Agreement held by or on behalf of the Participants as further
described herein and PFPC is willing and able to furnish such services on the
terms and conditions hereinafter set forth; and
WHEREAS, Section 25.1 of the Transfer Agency Agreement provides, in
part, that no change, termination, modification or waiver of any term or
condition of the Transfer Agency Agreement shall be valid unless in writing
signed by each party;
NOW THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Article 3 of the Transfer Agency Agreement is amended by adding the
following Section 3.4:
"3.4. PFPC shall perform recordkeeping and related services (the
"DCXCHANGE -Registered Trademark- Program") for the benefit of
participants (the "Participants") under certain employee benefit
plans, including plans qualified under Section 401 of the Internal
Revenue Code of 1986, as amended (the "Plans") that hold A Prime
Shares of a Portfolio through Plans administered by certain benefit
plan consultants (the "Recordkeepers").
<PAGE>
PFPC shall subcontract with Recordkeepers to link the PFPC
recordkeeping system with the Recordkeepers in order for the
Recordkeepers to maintain Prime A Share positions in the Portfolios
for each Participant. In connection with the DCXCHANGE -Registered
Trademark- Program, the Fund agrees (i) to waive all minimum
investment requirements with respect to Prime A Shares, (ii) to offer
Prime A Shares for purchase at net asset value, and (iii) to transmit
all net asset value calculations and accruals to PFPC via the NSCC
Price Profile. PFPC agrees that no fees or out-of-pocket expenses
shall be payable to it by the Fund in connection with the services
provided by PFPC under the DCXCHANGE -Registered Trademark- Program.
PFPC may discontinue the DCXCHANGE -Registered Trademark- Program
with respect to Prime A Shares upon sixty (60) days' prior written
notice to the Fund."
2. Except to the extent amended hereby, the Transfer Agency Agreement
shall remain unchanged and in full force and effect and is hereby ratified and
confirmed in all respects as amended hereby.
IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 6
as of the day and year first above written.
THE GALAXY FUND
By:
--------------------------------
Name: John T. O'Neill
Title: President
PFPC INC.
By:
--------------------------------
Name: Jylanne M. Dunne
Title: Senior Vice President
-2-
<PAGE>
THE GALAXY FUND
TRANSFER AGENCY AND SERVICES AGREEMENT
Amendment No. 7
________________, 2000
PFPC Inc.
4400 Computer Drive
Westborough, Massachusetts 01581
Dear Sirs:
This letter is to confirm that the undersigned, The Galaxy Fund (the
"Trust"), a Massachusetts business trust, has agreed that the Transfer Agency
and Services Agreement ("Agreement") between the Trust and PFPC Inc.
(formerly known as First Data Investor Services Group, Inc.) ("PFPC") dated
as of June 1, 1997 is herewith amended to provide that PFPC shall be the
transfer agent and dividend disbursing agent for the Trust's New York
Municipal Money Market Fund on the terms and conditions contained in the
Agreement.
If the foregoing is in accordance with your understanding, will you so
indicate by signing and returning to us the enclosed copy thereof.
Very truly yours,
THE GALAXY FUND
By:
-------------------------
Name: John T. O'Neill
Title: President
Accepted:
PFPC INC.
By:
---------------------
Name:
Title:
<PAGE>
THE GALAXY FUND
SHAREHOLDER SERVICES PLAN
SECTION 1. Upon the recommendation of PFPC Inc. ("PFPC"), the
administrator of The Galaxy Fund (the "Trust"), any officer of the Trust is
authorized to execute and deliver, in the name and on behalf of the Trust,
written agreements in substantially the form attached hereto or in any other
form duly approved by the Board of Trustees ("Servicing Agreements") with
securities dealers, financial institutions and other industry professionals
that are shareholders or dealers of record or which have a servicing
relationship ("Service Organizations") with the beneficial owners of the
Retail A Shares and/or Trust Shares of the Money Market, Government,
Tax-Exempt, U.S. Treasury, Connecticut Municipal Money Market, Massachusetts
Municipal Money Market, New York Municipal Money Market, Small Company
Equity, MidCap Equity, Equity Value, Equity Growth, Equity Income, Small Cap
Value, Growth and Income, Strategic Equity, International Equity, Asset
Allocation, 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 of the Trust (the "Funds"). Pursuant to
said Agreements, Service Organizations shall provide administrative support
services as set forth therein to their customers who beneficially own Retail
A Shares and/or Trust Shares (as described in the Trust's prospectuses) of
the Funds in consideration of fees, computed and paid in the manner set forth
in the Servicing Agreements, at the annual rate of up to .50% in the
aggregate of the net asset value of the Retail A Shares or Trust Shares
beneficially owned by such customers. Any bank, trust company, thrift
institution or broker-dealer is eligible to become a Service Organization and
to receive fees under this Plan, including FleetBoston Corporation and its
affiliates. All expenses incurred by the Trust with respect to Retail A
Shares and/or Trust Shares of a particular Fund in connection with Servicing
Agreements and the implementation of this Plan shall be borne entirely by the
holders of the applicable series of Shares of the Fund. Each Servicing
Agreement will provide for a fee waiver by a Service Organization to the
extent that the net investment income of a series of Shares of a particular
Fund earned in the applicable period is less than the fee due from such
series for such period.
SECTION 2. PFPC shall monitor the arrangements pertaining to the Trust's
Servicing Agreements with Service Organizations in accordance with the terms
of the Administration Agreement between PFPC and the Trust. PFPC shall not,
however, be obliged by this Plan to recommend, and the Trust shall not be
obliged to execute, any Servicing Agreement with any qualifying Service
Organization.
SECTION 3. So long as this Plan is in effect, PFPC shall provide to the
Trust's Board of Trustees, and the trustees shall review, at least quarterly,
a written report of the amounts expended pursuant to this Plan and the
purposes for which such expenditures were made.
SECTION 4. Unless sooner terminated, this Plan shall continue until May
31, 2000 and thereafter shall continue automatically for successive annual
periods provided such continuance
<PAGE>
is approved at least annually by a majority of the Board of Trustees, including
a majority of the trustees who are not "interested persons" of the Trust and who
have no direct or indirect financial interest in the operation of this Plan or
in any Agreement related to this Plan (the "Disinterested Trustees").
SECTION 5. This Plan may be amended at any time with respect to any Fund by
the Board of Trustees, provided that any material amendments of the terms of
this Plan shall become effective only upon the approvals set forth in Section 4.
SECTION 6. This Plan is terminable at any time with respect to any Fund by
vote of a majority of the Disinterested Trustees.
SECTION 7. While this Plan is in effect, the selection and nomination of
the trustees of the Trust who are not "interested persons (as defined in the
Act) of the Trust shall be committed to the discretion of the Trust's
Disinterested Trustees.
SECTION 8. This Plan has been adopted by the Trust as of October 11, 1989
and amended and restated as of September 6, 1990, September 12, 1991, December
5, 1991, February 22, 1993, May 19, 1994, February 23, 1995, June 12, 1995, May
23, 1996, May 29, 1997, December 4, 1997 and May 27, 1999.
-2-
<PAGE>
THE GALAXY FUND
SERVICING AGREEMENT
(Money Market, Government, Tax-Exempt and U.S. Treasury Funds - Trust Shares)
Gentlemen:
We wish to enter into this Servicing Agreement with you concerning the
provision of administrative support services to your customers ("Customers") who
may from time to time beneficially own shares of the Money Market, Government,
Tax-Exempt and U.S. Treasury Funds, designated as such Funds' Class A - Special
Series 1 shares, Class B - Special Series 1 shares, Class E - Special Series 1
shares and Class F - Special Series 1 shares, respectively, offered by The
Galaxy Fund (the "Trust") to investors maintaining with us certain qualified
accounts as described in the applicable prospectuses pertaining to such shares
(such shares, which constitute a separate series of shares of the Money Market,
Government, Tax-Exempt and U.S. Treasury Funds (collectively, the "Funds"), are
hereinafter referred to as "Trust Shares").
The terms and conditions of this Servicing Agreement are as follows:
SECTION 1. You agree to offer to provide one or more of the following
administrative support services to Customers who may from time to time
beneficially own Trust Shares: (i) processing dividend payments from us on
behalf of Customers; (ii) providing information periodically to Customers
showing their positions in Trust Shares; (iii) arranging for bank wires; (iv)
responding to Customer inquiries relating to the services performed by you; (v)
providing subaccounting with respect to Trust Shares beneficially owned by
Customers or the information to us necessary for subaccounting; (vi) if required
by law, forwarding shareholder communications from us (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to Customers; (vii) forwarding to Customers proxy
statements and proxies containing any proposals regarding this Agreement or the
Shareholder Services Plan related hereto; (viii) aggregating and processing
purchase, exchange and redemption requests from Customers and placing net
purchase, exchange and redemption orders with our distributor or transfer agent;
(ix) providing Customers with a service that invests the assets of their
accounts in Trust Shares; and (x) providing such other similar services as we
may reasonably request to the extent you are permitted to do so under applicable
statutes, rules and regulations. It is understood that not all Customers may
require or wish to avail themselves of any or all such services.
SECTION 2. We recognize that you may be subject to the provisions of
the Glass-Steagall Act and other laws governing, among other things, the conduct
of activities by federally- chartered and supervised banks and other banking
organizations. As such, you are restricted in the activities you may undertake
and for which you may be paid and, therefore, you will perform
<PAGE>
only those activities which are consistent with your statutory and regulatory
obligations. You will act solely as an agent for, upon the order of, and for the
account of, your Customers.
SECTION 3. You will provide such office space and equipment, telephone
facilities and personnel (which may be any part of the space, equipment and
facilities currently used in your business, or any personnel employed by you) as
may be reasonably necessary or beneficial in order to provide the aforementioned
services to Customers.
SECTION 4. Neither you nor any of your officers, employees or agents
are authorized to make any representations concerning the Trust or Trust Shares
except those contained in the Trust's then current prospectuses and statements
of additional information pertaining to Trust Shares, copies of which will be
supplied to you, or in such supplemental literature or advertising as may be
authorized by the Trust in writing.
SECTION 5. For all purposes of this Agreement you will be deemed to be
an independent contractor, and will have no authority to act as agent for the
Trust in any matter or in any respect. By your written acceptance of this
Agreement, you agree to and do release, indemnify and hold the Trust harmless
from and against any and all direct or indirect liabilities or losses resulting
from requests, directions, actions or inactions of or by you or your officers,
employees or agents regarding your responsibilities hereunder for the purchase,
redemption, transfer or registration of Trust Shares by or on behalf of
Customers. You and your employees will, upon request, be available during normal
business hours to consult with the Trust or its designees concerning the
performance of your responsibilities under this Agreement.
SECTION 6. In consideration of the services and facilities provided by
you hereunder, the Trust will pay to you, and you will accept as full payment
therefor, a fee at the annual rate of .25% of the average daily net asset value
of the Trust Shares of the Funds beneficially owned as of the end of each month
by your Customers for whom you are the dealer of record or holder of record or
with whom you have a servicing relationship, which fee will be computed at that
time. Fees for the Funds will be payable monthly. For purposes of determining
the fees payable under this Section 6, the average daily net asset value of your
Customers' Trust Shares will be computed in the manner specified in the Trust's
Registration Statement (as the same is in effect from time to time) in
connection with the computation of the net asset value of Trust Shares for
purposes of purchases and redemptions. The fee rates stated above may be
prospectively increased or decreased by the Trust, in its sole discretion, at
any time upon notice to you. Further, the Trust may, in its discretion and
without notice, suspend or withdraw the sale of Trust Shares including the sale
of such Trust Shares to you for the account of any Customer or Customers. All
fees payable by the Trust under this Agreement with respect to the Trust Shares
of a particular Fund shall be payable entirely out of the net investment income
allocable to such Trust Shares, and no shares of the Fund involved, other than
the Trust Shares, and no other class of shares of the Trust (or a separate
series of shares of any such class) shall be responsible for such fees. In
addition, by your written acceptance of this Agreement, you agree to and do
waive such portion of the fee payable under this Section 6 as is necessary to
assure that the amount of such fee which is required to be accrued on any day
with respect to your Customers' Trust Shares does not exceed the income to be
accrued to your Customers' Trust Shares on that day.
-2-
<PAGE>
SECTION 7. Any person authorized to direct the disposition of the
monies paid or payable by the Trust pursuant to this Agreement will provide to
the Board of Trustees of the Trust, and the Board will review, at least
quarterly, a written report of the amounts so expended and the purposes for
which such expenditures were made. In addition, you will furnish the Trust or
its designees with such information as may be reasonably requested (including,
without limitation, periodic certifications confirming the provision to
Customers of the services described herein), and will otherwise cooperate with
the Trust and its designees (including, without limitation, any auditors
designated by the Trust), in connection with the preparation of reports to the
Board of Trustees concerning this Agreement and the monies paid or payable by
the Trust pursuant hereto, as well as any other reports or filings that may be
required by law.
SECTION 8. The Trust may enter into other similar Servicing Agreements
with any other person or persons without your consent.
SECTION 9. By your written acceptance of this Agreement, you
represent, warrant and agree that: (i) in no event will any of the services
provided by you hereunder be primarily intended to result in the sale of any
Trust Shares; (ii) the compensation payable to you hereunder, together with any
other compensation payable to you by Customers in connection with the investment
of their assets in Trust Shares of the Funds, will be disclosed by you to your
Customers, will be authorized by your Customers and will not result in an
excessive or unreasonable fee to you; (iii) you will not advertise or otherwise
promote your Customer accounts primarily as a means of investing in Trust Shares
or establish or maintain Customer accounts for the primary purpose of investing
in Trust Shares; (iv) in the event an issue pertaining to this Agreement or our
Shareholder Services Plan related hereto is submitted for shareholder approval,
you will vote any Trust Shares held for your own account in the same proportion
as the vote of the Trust Shares held for your Customers' accounts; and (v) you
will not engage in activities pursuant to this Agreement which constitute acting
as a broker or dealer under state law unless you have obtained the licenses
required by such law.
SECTION 10. This Agreement will become effective on the date a fully
executed copy of this Agreement is received by the Trust or its designee. Unless
sooner terminated, this Agreement will continue until May 31, 2000 and
thereafter will continue automatically for successive annual periods provided
such continuance is specifically approved at least annually by the Trust in the
manner described in Section 13 hereof. This Agreement is terminable with respect
to Trust Shares of any of the Funds, without penalty, at any time by the Trust
(which termination may be by a vote of a majority of the Disinterested Trustees
as defined in Section 13 hereof) or by you upon notice to the Trust.
SECTION 11. All notices and other communications between the parties
to this Agreement will be duly given if mailed, telegraphed, telexed or
transmitted by similar telecommunications device to the appropriate address
stated herein, or to such other address as either party shall so provide the
other.
SECTION 12. This Agreement will be construed in accordance with the
laws of the Commonwealth of Massachusetts and is nonassignable by the parties
hereto.
-3-
<PAGE>
SECTION 13. This Agreement has been approved by vote of a majority of
(i) the Board of Trustees of the Trust and (ii) those trustees who are not
"interested persons" (as defined in the Investment Company Act of 1940) of the
Trust and who have no direct or indirect financial interest in the operation of
the Shareholder Services Plan adopted by the Trust regarding the provision of
support services to the beneficial owners of Retail A Shares and/or Trust Shares
or in any agreement related thereto ("Disinterested Trustees"), cast in person
at a meeting called for the purpose of voting on such approval.
SECTION 14. The names "The Galaxy Fund" and "Trustees of The Galaxy
Fund" refer respectively to the Trust created and the Trustees, as trustees but
not individually or personally, acting from time to time under a Declaration of
Trust dated March 31, 1986 which is hereby referred to and a copy of which is on
file at the office of the State Secretary of the Commonwealth of Massachusetts
and at the principal office of the Trust. The obligations of "The Galaxy Fund"
entered into in the name or on behalf thereof by any of the Trustees,
representatives or agents are made not individually, but in such capacities, and
are not binding upon any of the Trustees, shareholders, or representatives of
the Trust personally, but bind only the Trust property, and all persons dealing
with any class of shares of the Trust must look solely to the Trust property
belonging to such class for the enforcement of any claims against the Trust.
If you agree to be legally bound by the provisions of this Agreement,
please sign a copy of this letter where indicated below and promptly return it
to the Trust, c/o Jylanne Dunne, PFPC Inc., 4400 Computer Drive, Westboro, MA
01581-5108.
Very truly yours,
THE GALAXY FUND
By:
------------------------------
Date: (Authorized Officer)
------------------------
Accepted and Agreed to:
(Name of Service Organization)
Date: By:
------------------------ ------------------------------
(Authorized Officer)
-4-
<PAGE>
THE GALAXY FUND
SERVICING AGREEMENT
(Money Market, Government, Tax-Exempt, Connecticut Municipal Money Market,
Massachusetts Municipal Money Market, New York Municipal Money Market and U.S.
Treasury Funds - Retail A Shares)
Gentlemen:
We wish to enter into this Servicing Agreement with you concerning the
provision of administrative support services to your customers ("Customers") who
may from time to time beneficially own shares of the Money Market, Government,
Tax-Exempt, Connecticut Municipal Money Market, Massachusetts Municipal Money
Market, New York Municipal Money Market and U.S. Treasury Funds designated as
such Funds' Class A shares, Class B shares, Class E shares, Class V shares,
Class W shares, Class EE shares and Class F shares, respectively, offered by The
Galaxy Fund (the "Trust") to investors maintaining with us certain qualified
accounts as described in the applicable prospectuses pertaining to such shares
(such shares, which constitute a separate series of shares of the Money Market,
Government, Tax-Exempt, Connecticut Municipal Money Market, Massachusetts
Municipal Money Market, New York Municipal Money Market and U.S. Treasury Funds
(collectively, the "Funds"), are hereinafter referred to as "Retail Shares").
The terms and conditions of this Servicing Agreement are as follows:
SECTION 1. You agree to offer to provide one or more of the following
administrative support services to Customers who may from time to time
beneficially own Retail Shares: (i) processing dividend payments from us on
behalf of Customers; (ii) providing information periodically to Customers
showing their positions in Retail Shares; (iii) arranging for bank wires; (iv)
responding to Customer inquiries relating to the services performed by you; (v)
providing subaccounting with respect to Retail Shares beneficially owned by
Customers or the information to us necessary for subaccounting; (vi) if required
by law, forwarding shareholder communications from us (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to Customers; (vii) forwarding to Customers proxy
statements and proxies containing any proposals regarding this Agreement or the
Shareholder Services Plan related hereto; (viii) aggregating and processing
purchase, exchange and redemption requests from Customers and placing net
purchase, exchange and redemption orders with our distributor or transfer agent;
(ix) providing Customers with a service that invests the assets of their
accounts in Retail Shares; and (x) providing such other similar services as we
may reasonably request to the extent you are permitted to do so under applicable
statutes, rules and regulations. It is understood that not all Customers may
require or wish to avail themselves of any or all such services.
<PAGE>
SECTION 2. We recognize that you may be subject to the provisions of
the Glass-Steagall Act and other laws governing, among other things, the conduct
of activities by federally- chartered and supervised banks and other banking
organizations. As such, you are restricted in the activities you may undertake
and for which you may be paid and, therefore, you will perform only those
activities which are consistent with your statutory and regulatory obligations.
You will act solely as an agent for, upon the order of, and for the account of,
your Customers.
SECTION 3. You will provide such office space and equipment, telephone
facilities and personnel (which may be any part of the space, equipment and
facilities currently used in your business, or any personnel employed by you) as
may be reasonably necessary or beneficial in order to provide the aforementioned
services to Customers.
SECTION 4. Neither you nor any of your officers, employees or agents
are authorized to make any representations concerning the Shares offered by the
Trust except those contained in the Trust's then current prospectuses and
statements of additional information pertaining to Retail Shares, copies of
which will be supplied to you, or in such supplemental literature or advertising
as may be authorized by the Trust in writing.
SECTION 5. For all purposes of this Agreement you will be deemed to be
an independent contractor, and will have no authority to act as agent for the
Trust in any matter or in any respect. By your written acceptance of this
Agreement, you agree to and do release, indemnify and hold the Trust harmless
from and against any and all direct or indirect liabilities or losses resulting
from requests, directions, actions or inactions of or by you or your officers,
employees or agents regarding your responsibilities hereunder for the purchase,
redemption, transfer or registration of Retail Shares by or on behalf of
Customers. You and your employees will, upon request, be available during normal
business hours to consult with the Trust or its designees concerning the
performance of your responsibilities under this Agreement.
SECTION 6. In consideration of the services and facilities provided by
you, the Trust will pay to you, and you will accept as full payment therefor, a
fee at the annual rate of .25% of the average daily net asset value of the
Retail Shares of the Funds beneficially owned as of the end of each month by
your Customers for whom you are the dealer of record or holder of record or with
whom you have a servicing relationship, which fee will be computed at that time.
Fees for the Funds will be payable monthly. For purposes of determining the fees
payable under this Section 6, the average daily net asset value of your
Customers' Retail Shares will be computed in the manner specified in the Trust's
Registration Statement (as the same is in effect from time to time) in
connection with the computation of the net asset value of Retail Shares for
purposes of purchases and redemptions. The fee rates stated above may be
prospectively increased or decreased by the Trust, in its sole discretion, at
any time upon notice to you. Further, the Trust may, in its discretion and
without notice, suspend or withdraw the sale of Retail Shares including the sale
of such Retail Shares to you for the account of any Customer or Customers. All
fees payable by the Trust under this Agreement with respect to the Retail Shares
of a particular Fund shall be payable entirely out of the net investment income
allocable to such Retail Shares, and no shares of the Fund involved, other than
the Retail Shares, and no other class of shares of the Trust (or a separate
series of shares of any such class) shall be responsible for such fees. In
addition, by your written acceptance of this Agreement, you agree to and do
-2-
<PAGE>
waive such portion of the fee payable under this Section 6 as is necessary to
assure that the amount of such fee which is required to be accrued on any day
with respect to your Customers' Retail Shares does not exceed the income to be
accrued to your Customers' Retail Shares on that day.
SECTION 7. Any person authorized to direct the disposition of the
monies paid or payable by the Trust pursuant to this Agreement will provide to
the Board of Trustees of the Trust, and the Board will review, at least
quarterly, a written report of the amounts so expended and the purposes for
which such expenditures were made. In addition, you will furnish the Trust or
its designees with such information as may be reasonably requested (including,
without limitation, periodic certifications confirming the provision to
Customers of the services described herein), and will otherwise cooperate with
the Trust and its designees (including, without limitation, any auditors
designated by the Trust), in connection with the preparation of reports to the
Board of Trustees concerning this Agreement and the monies paid or payable by
the Trust pursuant hereto, as well as any other reports or filings that may be
required by law.
SECTION 8. The Trust may enter into other similar Servicing Agreements
with any other person or persons without your consent.
SECTION 9. By your written acceptance of this Agreement, you
represent, warrant and agree that: (i) in no event will any of the services
provided by you hereunder be primarily intended to result in the sale of any
Retail Shares; (ii) the compensation payable to you hereunder, together with any
other compensation payable to you by Customers in connection with the investment
of their assets in Retail Shares of the Funds, will be disclosed by you to your
Customers, will be authorized by your Customers and will not result in an
excessive or unreasonable fee to you; (iii) you will not advertise or otherwise
promote your Customer accounts primarily as a means of investing in Retail
Shares or establish or maintain Customer accounts for the primary purpose of
investing in Retail Shares; (iv) in the event an issue pertaining to this
Agreement or our Shareholder Services Plan related hereto is submitted for
shareholder approval, you will vote any Retail Shares held for your own account
in the same proportion as the vote of the Retail Shares held for your Customers'
accounts; and (v) you will not engage in activities pursuant to this Agreement
which constitute acting as a broker or dealer under state law unless you have
obtained the licenses required by such law.
SECTION 10. This Agreement will become effective on the date a fully
executed copy of this Agreement is received by the Trust or its designee. Unless
sooner terminated, this Agreement will continue until May 31, 2000 and
thereafter will continue automatically for successive annual periods provided
such continuance is specifically approved at least annually by the Trust in the
manner described in Section 13 hereof. This Agreement is terminable with respect
to Retail Shares of any of the Funds, without penalty, at any time by the Trust
(which termination may be by a vote of a majority of the Disinterested Trustees
as defined in Section 13 hereof) or by you upon notice to the Trust.
SECTION 11. All notices and other communications between the parties
to this Agreement will be duly given if mailed, telegraphed, telexed or
transmitted by similar
-3-
<PAGE>
telecommunications device to the appropriate address stated herein, or to such
other address as either party shall so provide the other.
SECTION 12. This Agreement will be construed in accordance with the
laws of the Commonwealth of Massachusetts and is nonassignable by the parties
hereto.
SECTION 13. This Agreement has been approved by vote of a majority of
(i) the Board of Trustees of the Trust and (ii) those trustees who are not
"interested persons" (as defined in the Investment Company Act of 1940) of the
Trust and who have no direct or indirect financial interest in the operation of
the Shareholder Services Plan adopted by the Trust regarding the provision of
support services to the beneficial owners of Retail A Shares and/or Trust Shares
or in any agreement related thereto ("Disinterested Trustees"), cast in person
at a meeting called for the purpose of voting on such approval.
SECTION 14. The names "The Galaxy Fund" and "Trustees of The Galaxy
Fund" refer respectively to the Trust created and the Trustees, as trustees but
not individually or personally, acting from time to time under a Declaration of
Trust dated March 31, 1986 which is hereby referred to and a copy of which is on
file at the office of the State Secretary of the Commonwealth of Massachusetts
and at the principal office of the Trust. The obligations of "The Galaxy Fund"
entered into in the name or on behalf thereof by any of the Trustees,
representatives or agents are made not individually, but in such capacities, and
are not binding upon any of the Trustees, shareholders, or representatives of
the Trust personally, but bind only the Trust property, and all persons dealing
with any class of shares of the Trust must look solely to the Trust property
belonging to such class for the enforcement of any claims against the Trust.
If you agree to be legally bound by the provisions of this Agreement,
please sign a copy of this letter where indicated below and promptly return it
to the Trust, c/o Jylanne Dunne, PFPC Inc., 4400 Computer Drive, Westboro, MA
01581-5108.
Very truly yours,
THE GALAXY FUND
By:
------------------------------
Date: (Authorized Officer)
------------------------
Accepted and Agreed to:
(Name of Service Organization)
Date: By:
------------------------ ------------------------------
(Authorized Officer)
-4-
<PAGE>
THE GALAXY FUND
SERVICING AGREEMENT
(Small Company Equity, MidCap Equity, Equity Value, Equity Growth, Equity
Income, International Equity, Asset Allocation, Small Cap Value, Growth and
Income, Strategic Equity, Short-Term Bond, Intermediate Government Income, High
Quality Bond, Corporate Bond, Tax-Exempt Bond, New Jersey Municipal Bond, New
York Municipal Bond, Connecticut Municipal Bond, Massachusetts Municipal Bond
and Rhode Island Municipal Bond Funds - Trust Shares)
Gentlemen:
We wish to enter into this Servicing Agreement with you concerning the
provision of administrative support services to your customers ("Customers") who
may from time to time beneficially own shares of the Small Company Equity,
MidCap Equity, Equity Value, Equity Growth, Equity Income, International Equity,
Asset Allocation, Small Cap Value, Growth and Income, Strategic Equity,
Short-Term Bond, Intermediate Government Income, High Quality Bond, Corporate
Bond, Tax-Exempt Bond, New Jersey Municipal Bond, New York Municipal Bond,
Connecticut Municipal Bond, Massachusetts Municipal Bond and Rhode Island
Municipal Bond Funds, designated as such Funds' Class K - Series 1 shares, Class
Z - Series 1 shares, Class C shares, Class H - Series 1 shares, Class I -Series
1 shares, Class G - Series 1 shares, Class N - Series 1 shares, Class X - Series
1 shares, Class U - Series 1 shares, Class AA - Series 1 shares, Class L -
Series 1 shares, Class D shares, Class J - Series 1 shares, Class T - Series 2
shares, Class M - Series 1 shares, Class Y - Series 1 shares, Class O - Series 1
shares, Class P - Series 1 shares, Class Q - Series 1 shares and Class R -
Series 1 shares, respectively, offered by The Galaxy Fund (the "Trust") to
investors maintaining with us certain qualified accounts as described in the
applicable prospectuses pertaining to such shares (such shares, which constitute
a separate series of shares of the Small Company Equity, MidCap Equity, Equity
Value, Equity Growth, Equity Income, International Equity, Asset Allocation,
Small Cap Value, Growth and Income, Strategic Equity, Short-Term Bond,
Intermediate Government Income, High Quality Bond, Corporate Bond, Tax-Exempt
Bond, New Jersey Municipal Bond, New York Municipal Bond, Connecticut Municipal
Bond, Massachusetts Municipal Bond and Rhode Island Municipal Bond Funds
(collectively, the "Funds"), are hereinafter referred to as "Trust Shares").
The terms and conditions of this Servicing Agreement are as follows:
SECTION 1. You agree to offer to provide one or more of the following
administrative support services to Customers who may from time to time
beneficially own Trust Shares: (i) processing dividend payments from us on
behalf of Customers; (ii) arranging for bank wires; (iii) providing
subaccounting with respect to Trust Shares beneficially owned by Customers or
the information to us necessary for subaccounting; (iv) if required by law,
forwarding shareholder communications from us (such as proxies, shareholder
reports, annual
<PAGE>
and semi-annual financial statements and dividend, distribution and tax notices)
to Customers; (v) aggregating and processing purchase, exchange and redemption
requests from Customers and placing net purchase, exchange and redemption orders
with our distributor or transfer agent; and (vi) providing such other similar
services as we may reasonably request to the extent you are permitted to do so
under applicable statutes, rules and regulations. It is understood that not all
Customers may require or wish to avail themselves of any or all such services.
SECTION 2. You agree to offer to provide one or more of the following
services to Customers who may from time to time beneficially own Trust Shares:
(i) providing information periodically to Customers showing their positions in
Trust Shares; (ii) responding to Customer inquiries relating to the services
performed by you; (iii) providing Customers with a service that invests the
assets of their accounts in Trust Shares; and (iv) providing such other similar
services as we may reasonably request to the extent you are permitted to do so
under applicable statutes, rules and regulations. It is understood that not all
Customers may require or wish to avail themselves of any or all such services.
SECTION 3. We recognize that you may be subject to the provisions of
the Glass-Steagall Act and other laws governing, among other things, the conduct
of activities by federally- chartered and supervised banks and other banking
organizations. As such, you are restricted in the activities you may undertake
and for which you may be paid and, therefore, you will perform only those
activities which are consistent with your statutory and regulatory obligations.
You will act solely as an agent for, upon the order of, and for the account of,
your Customers.
SECTION 4. You will provide such office space and equipment, telephone
facilities and personnel (which may be any part of the space, equipment and
facilities currently used in your business, or any personnel employed by you) as
may be reasonably necessary or beneficial in order to provide the aforementioned
services to Customers.
SECTION 5. Neither you nor any of your officers, employees or agents
are authorized to make any representations concerning the Trust or Trust Shares
except those contained in the Trust's then current prospectuses and statements
of additional information pertaining to Trust Shares, copies of which will be
supplied to you, or in such supplemental literature or advertising as may be
authorized by the Trust in writing.
SECTION 6. For all purposes of this Agreement you will be deemed to be
an independent contractor, and will have no authority to act as agent for the
Trust in any matter or in any respect. By your written acceptance of this
Agreement, you agree to and do release, indemnify and hold the Trust harmless
from and against any and all direct or indirect liabilities or losses resulting
from requests, directions, actions or inactions of or by you or your officers,
employees or agents regarding your responsibilities hereunder for the purchase,
redemption, transfer or registration of Trust Shares by or on behalf of
Customers. You and your employees will, upon request, be available during normal
business hours to consult with the Trust or its designees concerning the
performance of your responsibilities under this Agreement.
-2-
<PAGE>
SECTION 7. In consideration of the services and facilities provided by
you pursuant to Section 1 hereof, the Trust will pay to you, and you will accept
as full payment therefor, a fee at the annual rate of (a) .25% of the average
daily net asset value of the Trust Shares of the Small Company Equity Fund,
MidCap Equity Fund, Equity Value Fund, Equity Growth Fund, Equity Income Fund,
International Equity Fund, Asset Allocation Fund, Small Cap Value Fund, Growth
and Income Fund and Strategic Equity Fund (collectively, "Equity Funds")
beneficially owned as of the end of each fiscal quarter by your Customers for
whom you are the dealer of record or holder of record or with whom you have a
servicing relationship, which fee will be computed at that time; and (b) .15% of
the average daily net asset value of the Trust Shares of the 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 (collectively, "Bond Funds")
beneficially owned as of the end of each month by your Customers for whom you
are the dealer of record or holder of record or with whom you have a servicing
relationship, which fee will be computed at that time. In consideration of the
additional services provided by you pursuant to Section 2 hereof, the Trust will
pay to you, and you will accept as full payment therefor, a fee at the annual
rate of (a) .25% of the average daily net asset value of the Trust Shares of the
Equity Funds; and (b) .15% of the average daily net asset value of the Trust
Shares of the Bond Funds. Fees for the Equity Funds will be payable quarterly
and for the Bond Funds, monthly. For purposes of determining the fees payable
under this Section 7, the average daily net asset value of your Customers' Trust
Shares will be computed in the manner specified in the Trust's Registration
Statement (as the same is in effect from time to time) in connection with the
computation of the net asset value of Trust Shares for purposes of purchases and
redemptions. The fee rates stated above may be prospectively increased or
decreased by the Trust, in its sole discretion, at any time upon notice to you.
Further, the Trust may, in its discretion and without notice, suspend or
withdraw the sale of Trust Shares including the sale of such Trust Shares to you
for the account of any Customer or Customers. All fees payable by the Trust
under this Agreement with respect to the Trust Shares of a particular Fund shall
be payable entirely out of the net investment income allocable to such Trust
Shares, and no shares of the Fund involved, other than the Trust Shares, and no
other class of shares of the Trust (or a separate series of shares of any such
class) shall be responsible for such fees. In addition, by your written
acceptance of this Agreement, you agree to and do waive such portion of the fee
payable under this Section 7 as is necessary to assure that the amount of such
fee which is required to be accrued on any day with respect to your Customers'
Trust Shares does not exceed the income to be accrued to your Customers' Trust
Shares on that day.
SECTION 8. Any person authorized to direct the disposition of the
monies paid or payable by the Trust pursuant to this Agreement will provide to
the Board of Trustees of the Trust, and the Board will review, at least
quarterly, a written report of the amounts so expended and the purposes for
which such expenditures were made. In addition, you will furnish the Trust or
its designees with such information as may be reasonably requested (including,
without limitation, periodic certifications confirming the provision to
Customers of the services described herein), and will otherwise cooperate with
the Trust and its designees (including, without limitation, any auditors
designated by the Trust), in connection with the preparation of reports to
-3-
<PAGE>
the Board of Trustees concerning this Agreement and the monies paid or payable
by the Trust pursuant hereto, as well as any other reports or filings that may
be required by law.
SECTION 9. The Trust may enter into other similar Servicing Agreements
with any other person or persons without your consent.
SECTION 10. By your written acceptance of this Agreement, you
represent, warrant and agree that: (i) in no event will any of the services
provided by you hereunder be primarily intended to result in the sale of any
Trust Shares; (ii) the compensation payable to you hereunder, together with any
other compensation payable to you by Customers in connection with the investment
of their assets in Trust Shares of the Funds, will be disclosed by you to your
Customers, will be authorized by your Customers and will not result in an
excessive or unreasonable fee to you; (iii) you will not advertise or otherwise
promote your Customer accounts primarily as a means of investing in Trust Shares
or establish or maintain Customer accounts for the primary purpose of investing
in Trust Shares; (iv) in the event an issue pertaining to this Agreement or our
Shareholder Services Plan related hereto is submitted for shareholder approval,
you will vote any Trust Shares held for your own account in the same proportion
as the vote of the Trust Shares held for your Customers' accounts; and (v) you
will not engage in activities pursuant to this Agreement which constitute acting
as a broker or dealer under state law unless you have obtained the licenses
required by such law.
SECTION 11. This Agreement will become effective on the date a fully
executed copy of this Agreement is received by the Trust or its designee. Unless
sooner terminated, this Agreement will continue until May 31, 2000 and
thereafter will continue automatically for successive annual periods provided
such continuance is specifically approved at least annually by the Trust in the
manner described in Section 14 hereof. This Agreement is terminable with respect
to Trust Shares of any of the Funds, without penalty, at any time by the Trust
(which termination may be by a vote of a majority of the Disinterested Trustees
as defined in Section 14 hereof) or by you upon notice to the Trust.
SECTION 12. All notices and other communications between the parties
to this Agreement will be duly given if mailed, telegraphed, telexed or
transmitted by similar telecommunications device to the appropriate address
stated herein, or to such other address as either party shall so provide the
other.
SECTION 13. This Agreement will be construed in accordance with the
laws of the Commonwealth of Massachusetts and is nonassignable by the parties
hereto.
SECTION 14. This Agreement has been approved by vote of a majority of
(i) the Board of Trustees of the Trust and (ii) those trustees who are not
"interested persons" (as defined in the Investment Company Act of 1940) of the
Trust and who have no direct or indirect financial interest in the operation of
the Shareholder Services Plan adopted by the Trust regarding the provision of
support services to the beneficial owners of Retail A Shares and/or
-4-
<PAGE>
Trust Shares or in any agreement related thereto ("Disinterested Trustees"),
cast in person at a meeting called for the purpose of voting on such approval.
SECTION 15. The names "The Galaxy Fund" and "Trustees of The Galaxy
Fund" refer respectively to the Trust created and the Trustees, as trustees
but not individually or personally, acting from time to time under a
Declaration of Trust dated March 31, 1986 which is hereby referred to and a
copy of which is on file at the office of the State Secretary of the
Commonwealth of Massachusetts and at the principal office of the Trust. The
obligations of "The Galaxy Fund" entered into in the name or on behalf
thereof by any of the Trustees, representatives or agents are made not
individually, but in such capacities, and are not binding upon any of the
Trustees, shareholders, or representatives of the Trust personally, but bind
only the Trust property, and all persons dealing with any class of shares of
the Trust must look solely to the Trust property belonging to such class for
the enforcement of any claims against the Trust.
If you agree to be legally bound by the provisions of this Agreement,
please sign a copy of this letter where indicated below and promptly return it
to the Trust, c/o Jylanne Dunne, PFPC Inc., 4400 Computer Drive, Westboro, MA
01581-5108.
Very truly yours,
THE GALAXY FUND
By:
------------------------------
Date: (Authorized Officer)
------------------
Accepted and Agreed to:
(Name of Service Organization)
Date: By:
------------------- ------------------------------
(Authorized Officer)
-5-
<PAGE>
THE GALAXY FUND
SERVICING AGREEMENT
(Small Company Equity, MidCap Equity, Equity Value, Equity Growth, Equity
Income, International Equity, Asset Allocation, Small Cap Value, Growth and
Income, Strategic Equity, Short-Term Bond, Intermediate Government Income, High
Quality Bond, Corporate Bond, Tax-Exempt Bond, New Jersey Municipal Bond, New
York Municipal Bond, Connecticut Municipal Bond, Massachusetts Municipal Bond
and Rhode Island Municipal Bond Funds - Retail A Shares)
Gentlemen:
We wish to enter into this Servicing Agreement with you concerning the
provision of administrative support services to your customers ("Customers") who
may from time to time beneficially own shares of the Small Company Equity,
MidCap Equity, Equity Value, Equity Growth, Equity Income, International Equity,
Asset Allocation, Small Cap Value, Growth and Income, Strategic Equity,
Short-Term Bond, Intermediate Government Income, High Quality Bond, Corporate
Bond, Tax-Exempt Bond, New Jersey Municipal Bond, New York Municipal Bond,
Connecticut Municipal Bond, Massachusetts Municipal Bond and Rhode Island
Municipal Bond Funds, designated as such Funds' Class K - Series 2 shares, Class
Z - Series 2 shares, Class C - Special Series 1 shares, Class H Series 2 shares,
Class I - Series 2 shares, Class G - Series 2 shares, Class N - Series 2 shares,
Class X Series 2 shares, Class U - Series 2 shares, Class AA - Series 2 shares,
Class L - Series 2 shares, Class D Special Series 1 shares, Class J - Series 2
shares, Class T - Series 2 shares, Class M - Series 2 shares, Class Y - Series 2
shares, Class O - Series 2 shares, Class P - Series 2 shares, Class Q - Series 2
shares and Class R Series 2 shares, respectively, offered by The Galaxy Fund
(the "Trust") to investors maintaining with us certain qualified accounts as
described in the applicable prospectuses pertaining to such shares (such shares,
which constitute a separate series of shares of the Small Company Equity, MidCap
Equity, Equity Value, Equity Growth, Equity Income, International Equity, Asset
Allocation, Small Cap Value, Growth and Income, Strategic Equity, Short-Term
Bond, Intermediate Government Income, High Quality Bond, Corporate Bond,
Tax-Exempt Bond, New Jersey Municipal Bond, New York Municipal Bond, Connecticut
Municipal Bond, Massachusetts Municipal Bond and Rhode Island Municipal Bond
Funds (collectively, the "Funds"), are hereinafter referred to as "Retail
Shares").
The terms and conditions of this Servicing Agreement are as follows:
SECTION 1. You agree to offer to provide one or more of the following
administrative support services to Customers who may from time to time
beneficially own Retail Shares: (i) processing dividend payments from us on
behalf of Customers; (ii) arranging for bank wires; (iii) providing
subaccounting with respect to Retail Shares beneficially owned by Customers or
the information to us necessary for subaccounting; (iv) if required by law,
forwarding shareholder communications from us (such as proxies, shareholder
reports, annual and semi-annual financial statements and dividend, distribution
and tax notices) to Customers; (v) aggregating and
<PAGE>
processing purchase, exchange and redemption requests from Customers and placing
net purchase, exchange and redemption orders with our distributor or transfer
agent; and (vi) providing such other similar services as we may reasonably
request to the extent you are permitted to do so under applicable statutes,
rules and regulations. It is understood that not all Customers may require or
wish to avail themselves of any or all such services.
SECTION 2. You agree to offer to provide one or more of the following
services to Customers who may from time to time beneficially own Retail Shares:
(i) providing information periodically to Customers showing their positions in
Retail Shares; (ii) responding to Customer inquiries relating to the services
performed by you; (iii) providing Customers with a service that invests the
assets of their accounts in Retail Shares; and (iv) providing such other similar
services as we may reasonably request to the extent you are permitted to do so
under applicable statutes, rules and regulations. It is understood that not all
Customers may require or wish to avail themselves of any or all such services.
SECTION 3. We recognize that you may be subject to the provisions of
the Glass-Steagall Act and other laws governing, among other things, the conduct
of activities by federally- chartered and supervised banks and other banking
organizations. As such, you are restricted in the activities you may undertake
and for which you may be paid and, therefore, you will perform only those
activities which are consistent with your statutory and regulatory obligations.
You will act solely as an agent for, upon the order of, and for the account of,
your Customers.
SECTION 4. You will provide such office space and equipment, telephone
facilities and personnel (which may be any part of the space, equipment and
facilities currently used in your business, or any personnel employed by you) as
may be reasonably necessary or beneficial in order to provide the aforementioned
services to Customers.
SECTION 5. Neither you nor any of your officers, employees or agents
are authorized to make any representations concerning Shares offered by the
Trust except those contained in the Trust's then current prospectuses and
statements of additional information pertaining to Retail Shares, copies of
which will be supplied to you, or in such supplemental literature or advertising
as may be authorized by the Trust in writing.
SECTION 6. For all purposes of this Agreement you will be deemed to be
an independent contractor, and will have no authority to act as agent for the
Trust in any matter or in any respect. By your written acceptance of this
Agreement, you agree to and do release, indemnify and hold the Trust harmless
from and against any and all direct or indirect liabilities or losses resulting
from requests, directions, actions or inactions of or by you or your officers,
employees or agents regarding your responsibilities hereunder for the purchase,
redemption, transfer or registration of Retail Shares by or on behalf of
Customers. You and your employees will, upon request, be available during normal
business hours to consult with the Trust or its designees concerning the
performance of your responsibilities under this Agreement.
SECTION 7. In consideration of the services and facilities provided by
you pursuant to Section 1 hereof, the Trust will pay to you, and you will accept
as full payment therefor, a fee at the annual rate of (a) .25% of the average
daily net asset value of the Retail Shares of the Small
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<PAGE>
Company Equity Fund, MidCap Equity Fund, Equity Value Fund, Equity Growth Fund,
Equity Income Fund, International Equity Fund, Asset Allocation Fund, Small Cap
Value Fund, Growth and Income Fund and Strategic Equity Fund (collectively,
"Equity Funds") beneficially owned as of the end of each fiscal quarter by your
Customers for whom you are the dealer of record or holder of record or with whom
you have a servicing relationship, which fee will be computed at that time; and
(b) .15% of the average daily net asset value of the Retail Shares of the
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 (collectively, "Bond
Funds") beneficially owned as of the end of each month by your Customers for
whom you are the dealer of record or holder of record or with whom you have a
servicing relationship, which fee will be computed at that time. In
consideration of the additional services provided by you pursuant to Section 2
hereof, the Trust will pay to you, and you will accept as full payment therefor,
a fee at the annual rate of (a) .25% of the average daily net asset value of the
Retail Shares of the Equity Funds; and (b) .15% of the average daily net asset
value of the Retail Shares of the Bond Funds. Fees for the Equity Funds will be
payable quarterly and for the Bond Funds, monthly. For purposes of determining
the fees payable under this Section 7, the average daily net asset value of your
Customers' Retail Shares will be computed in the manner specified in the Trust's
Registration Statement (as the same is in effect from time to time) in
connection with the computation of the net asset value of Retail Shares for
purposes of purchases and redemptions. The fee rates stated above may be
prospectively increased or decreased by the Trust, in its sole discretion, at
any time upon notice to you. Further, the Trust may, in its discretion and
without notice, suspend or withdraw the sale of Retail Shares including the sale
of such Retail Shares to you for the account of any Customer or Customers. All
fees payable by the Trust under this Agreement with respect to the Retail Shares
of a particular Fund shall be payable entirely out of the net investment income
allocable to such Retail Shares, and no shares of the Fund involved, other than
the Retail Shares, and no other class of shares of the Trust (or a separate
series of shares of any such class) shall be responsible for such fees. In
addition, by your written acceptance of this Agreement, you agree to and do
waive such portion of the fee payable under this Section 7 as is necessary to
assure that the amount of such fee which is required to be accrued on any day
with respect to your Customers' Retail Shares does not exceed the income to be
accrued to your Customers' Retail Shares on that day.
SECTION 8. Any person authorized to direct the disposition of the
monies paid or payable by the Trust pursuant to this Agreement will provide to
the Board of Trustees of the Trust, and the Board will review, at least
quarterly, a written report of the amounts so expended and the purposes for
which such expenditures were made. In addition, you will furnish the Trust or
its designees with such information as may be reasonably requested (including,
without limitation, periodic certifications confirming the provision to
Customers of the services described herein), and will otherwise cooperate with
the Trust and its designees (including, without limitation, any auditors
designated by the Trust), in connection with the preparation of reports to the
Board of Trustees concerning this Agreement and the monies paid or payable by
the Trust pursuant hereto, as well as any other reports or filings that may be
required by law.
-3-
<PAGE>
SECTION 9. The Trust may enter into other similar Servicing Agreements
with any other person or persons without your consent.
SECTION 10. By your written acceptance of this Agreement, you
represent, warrant and agree that: (i) in no event will any of the services
provided by you hereunder be primarily intended to result in the sale of any
Retail Shares; (ii) the compensation payable to you hereunder, together with any
other compensation payable to you by Customers in connection with the investment
of their assets in Retail Shares of the Funds, will be disclosed by you to your
Customers, will be authorized by your Customers and will not result in an
excessive or unreasonable fee to you; (iii) you will not advertise or otherwise
promote your Customer accounts primarily as a means of investing in Retail
Shares or establish or maintain Customer accounts for the primary purpose of
investing in Retail Shares; (iv) in the event an issue pertaining to this
Agreement or our Shareholder Services Plan related hereto is submitted for
shareholder approval, you will vote any Retail Shares held for your own account
in the same proportion as the vote of the Retail Shares held for your Customers'
accounts; and (v) you will not engage in activities pursuant to this Agreement
which constitute acting as a broker or dealer under state law unless you have
obtained the licenses required by such law.
SECTION 11. This Agreement will become effective on the date a fully
executed copy of this Agreement is received by the Trust or its designee. Unless
sooner terminated, this Agreement will continue until May 31, 2000 and
thereafter will continue automatically for successive annual periods provided
such continuance is specifically approved at least annually by the Trust in the
manner described in Section 14 hereof. This Agreement is terminable with respect
to Retail Shares of any of the Funds, without penalty, at any time by the Trust
(which termination may be by a vote of a majority of the Disinterested Trustees
as defined in Section 14 hereof) or by you upon notice to the Trust.
SECTION 12. All notices and other communications between the parties to
this Agreement will be duly given if mailed, telegraphed, telexed or transmitted
by similar telecommunications device to the appropriate address stated herein,
or to such other address as either party shall so provide the other.
SECTION 13. This Agreement will be construed in accordance with the
laws of the Commonwealth of Massachusetts and is nonassignable by the parties
hereto.
SECTION 14. This Agreement has been approved by vote of a majority of
(i) the Board of Trustees of the Trust and (ii) those trustees who are not
"interested persons (as defined in the Investment Company Act of 1940) of the
Trust and who have no direct or indirect financial interest in the operation of
the Shareholder Services Plan adopted by the Trust regarding the provision of
support services to the beneficial owners of Retail A Shares and/or Trust Shares
or in any agreement related thereto (the "Disinterested Trustees"), cast in
person at a meeting called for the purpose of voting on such approval.
SECTION 15. The names "The Galaxy Fund" and "Trustees of The Galaxy
Fund" refer respectively to the Trust created and the Trustees, as trustees but
not individually or personally acting from time to time under a Declaration of
Trust dated March 31, 1986 which is hereby
-4-
<PAGE>
referred to and a copy of which is on file at the office of the State
Secretary of the Commonwealth of Massachusetts and at the principal office of
the Trust. The obligations of "The Galaxy Fund" entered into in the name or
on behalf thereof by any of the Trustees, representatives or agents are made
not individually, but in such capacities, and are not binding upon any of the
Trustees, shareholders, or representatives of the Trust personally but bind
only the Trust property, and all persons dealing with any class of shares of
the Trust must look solely to the Trust property belonging to such class for
the enforcement of any claims against the Trust.
If you agree to be legally bound by the provisions of this Agreement,
please sign a copy of this letter where indicated below and promptly return it
to the Trust, c/o Jylanne Dunne, PFPC Inc., 4400 Computer Drive, Westboro, MA
01581-5108.
Very truly yours,
THE GALAXY FUND
By:
------------------------------
Date: (Authorized Officer)
------------------
Accepted and Agreed to:
(Name of Service Organization)
Date: By:
------------------- ------------------------------
(Authorized Officer)
-5-
<PAGE>
DRINKER BIDDLE & REATH LLP
One Logan Square
18th & Cherry Streets
Philadelphia, PA 19103-6996
215-988-2700
215-988-2757 FAX
www.dbr.com
December 3, 1999
The Galaxy Fund
4400 Computer Drive
Westborough, MA 01581-5108
RE: THE GALAXY FUND - SHARES OF BENEFICIAL INTEREST
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. 40 (the "Amendment") to the Trust's
Registration Statement on Form N-1A under the Securities Act of 1933, as
amended, registering shares of beneficial interest (i) designated as Class EE
- -- Series 1 shares and Class EE -- Series 2 shares, representing interests in
the New York Municipal Money Market Fund and (ii) Class V -- Special Series
1 shares and Class W -- Special Series 1 shares, representing interests in the
Connecticut Municipal Money Market Fund and Massachusetts Municipal Money
Market Fund, respectively (collectively, the "Shares"). 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 prospectuses 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
<PAGE>
The Galaxy Fund
December 3, 1999
Page 2
obligations of such trust 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
<PAGE>
Exhibit (j)(1)
CONSENT OF COUNSEL
We hereby consent to (i) the use of our name and the references to our
firm under the caption "Counsel" in the Statements of Additional Information
that are included in Post-Effective Amendment No. 40 to the Registration
Statement on Form N-1A under the Investment Company Act of 1940, as amended,
of The Galaxy Fund and (ii) the use and incorporation by reference in said
Post-Effective Amendment No. 40 of our firm's opinion of counsel filed as
Exhibit (i) to Post-Effective Amendment No. 38 to the Registration Statement
on Form N-1A under the Investment Company Act of 1940, as amended, of The
Galaxy Fund.
/s/ Drinker Biddle & Reath LLP
------------------------------
Philadelphia, Pennsylvania Drinker Biddle & Reath LLP
December 3, 1999
<PAGE>
Exhibit (j)(2)
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the references to our Firm
under the caption "Counsel" included in the Statement of Additional Information
that is included in Post-Effective Amendment No. 40 to the Registration
Statement on Form N-1A (Securities Act File No. 33-4806, Investment Company Act
File No. 811-4636) of The Galaxy Funds -- New York Municipal Bond Fund and New
York Municipal Money Market Fund.
/s/Willkie Farr & Gallagher
---------------------------
Willkie Farr & Gallagher
December 3, 1999
New York, New York
<PAGE>
Exhibit (j)(3)
December 2, 1999
The Galaxy Fund
4400 Computer Drive
Westborough, Massachusetts 01581-5108
Ladies and Gentlemen:
We hereby consent to the reference to us under the caption "Counsel" in
the Statements of Additional Information that relate to your Massachusetts
Municipal Bond Fund, Rhode Island Municipal Bond Fund and Massachusetts
Municipal Money Market Fund that are included in Post-Effective Amendment No. 40
to your Registration Statement on Form N-1A (No. 33-4806), which you have
informed us is to be filed with the Securities and Exchange Commission.
Very truly yours,
/s/Ropes & Gray
---------------
Ropes & Gray
<PAGE>
Exhibit (j)(4)
December 1, 1999
The Galaxy Fund
4400 Computer Drive
Westborough, Massachusetts 01581-5108
Re: Connecticut Municipal Bond Fund and
Connecticut Municipal Money Market Fund
Gentlemen:
We hereby consent, without admitting that we are in the category of
persons whose consent is required, to the reference to us under the caption
"Counsel" in the Statements of Additional Information included in Post-Effective
Amendment No. 40 to your Registration Statement on Form N-1A (No. 33-4806) as
filed with the Securities and Exchange Commission.
Very truly yours,
/s/Day, Berry & Howard LLP
--------------------------
DAY, BERRY & HOWARD LLP
<PAGE>
THE GALAXY FUND
DISTRIBUTION AND SERVICES PLAN
FOR PRIME SHARES
This Distribution and Services Plan (the "Plan") has been adopted
by the Board of Trustees of The Galaxy Fund (the "Trust") with respect to the
Prime series of shares (the "Prime Shares") in each of the following
investment portfolios of the Trust: New York Municipal Money Market Fund,
Connecticut Municipal Money Market Fund and Massachusetts Municipal Money
Market Fund (collectively, the "Funds"). The Plan has been adopted pursuant
to Rule 12b-1 under the Investment Company Act of 1940, as amended (the "1940
Act").
Section 1. EXPENSES. The Trust may incur expenses under the Plan in an
amount not to exceed 1.00% annually of the average daily net assets attributable
to the outstanding Prime Shares of each of the Funds.
Section 2. DISTRIBUTION PAYMENTS. (a) The Trust may pay the
distributor of the Trust (the "Distributor") (or any other person) a fee (a
"Distribution Fee") of up to 0.75% annually of the average daily net assets
attributable to the outstanding Prime Shares of each of the Funds. The
Distribution Fee shall be calculated and accrued daily, paid monthly and shall
be in consideration for distribution services and the assumption of related
expenses (including the payment of commissions and transaction fees) in
conjunction with the offering and sale of Prime Shares of the Funds. In
determining the amounts payable on behalf of a Fund under the Plan, the net
asset value of the Fund's Prime Shares shall be computed in the manner
specified in the Trust's then current Prospectuses and Statements of Additional
Information describing such Prime Shares.
(b) Payments to the Distributor under subsection (a) above shall be
used by the Distributor to cover expenses and activities primarily intended to
result in the sale of Prime Shares of the Funds. Such expenses and
activities may include but are not limited to: (i) direct out-of-pocket
promotional expenses incurred by the Distributor in advertising and marketing
Prime Shares of the Funds; (ii) expenses incurred in connection with
preparing, printing, mailing, and distributing or publishing advertisements and
sales literature; (iii) expenses incurred in connection with printing and
mailing Prospectuses and Statements of Additional Information to other than
current shareholders; (iv) periodic payments or commissions to one or more
securities dealers, brokers, financial institutions or other industry
professionals, such as investment advisors, accountants, and estate planning
firms (each a "Distribution Organization") with respect to a Fund's
Prime Shares beneficially owned by customers for whom the Distribution
Organization is the Distribution Organization of record or shareholder of
record; (v) the direct or indirect cost of financing the payments or expenses
included in (i) and (iv) above; or (vi) such other services as may be construed
by any court or governmental agency or commission, including the Securities and
Exchange Commission (the "Commission"), to constitute distribution services
under the 1940 Act or rules and regulations thereunder.
<PAGE>
Section 3. PAYMENTS FOR ADMINISTRATIVE SERVICES COVERED BY PLAN. (a)
The Trust may also pay securities dealers, brokers, financial institutions or
other industry professionals, such as investment advisors, accountants, and
estate planning firms (each a "Service Organization") for administrative support
services provided with respect to their customers' Prime Shares. Such
administrative support services shall be provided pursuant to an agreement in
substantially the form attached hereto ("Servicing Agreement"). Any organization
providing distribution assistance may also become a Service Organization and
receive fees for administrative support services pursuant to a Servicing
Agreement under this Plan.
(b) Fees paid to a Service Organization under subsection (a) above may
be paid at an annual rate of up to 0.25% of the average daily net assets
attributable to the outstanding Prime Shares of each of the Funds, which
shares are owned of record or beneficially by that Service Organization's
customers for whom such Service Organization is the dealer of record or
shareholder of record or with whom it has a servicing relationship. Such fees
shall be calculated and accrued daily, paid monthly and computed in the manner
set forth in the Servicing Agreement.
Section 4. EXPENSES ALLOCATED; COMPLIANCE. Amounts paid by a Fund
under the Plan must be for services rendered for or on behalf of the holders of
such Fund's Prime Shares. However, joint distribution financing or other
services rendered with respect to such Prime Shares (which may involve
other investment funds or companies that are affiliated persons of the Trust or
affiliated persons of the Distributor) is authorized to the extent permitted by
law.
Section 5. REPORTS TO TRUST. So long as this Plan is in effect, the
Distributor shall provide the Trust's Board of Trustees, and the Trustees shall
review, at least quarterly, a written report of the amounts expended pursuant to
the Plan and the purposes for which such expenditures were made.
Section 6. APPROVAL OF PLAN. This Plan will become effective with
respect to a particular Fund on the date the public offering of Prime
Shares of such Fund commences upon the approval by a majority of the Board of
Trustees, including a majority of those trustees who are not "interested
persons" (as defined in the 1940 Act) of the Trust and who have no direct or
indirect financial interest in the operation of the Plan or in any agreements
entered into in connection with the Plan (the "Disinterested Trustees"),
pursuant to a vote cast in person at a meeting called for the purpose of voting
on the approval of the Plan.
Section 7. CONTINUANCE OF PLAN. Unless sooner terminated in accordance
with the terms hereof, this Plan shall continue until May 28, 2000, and
thereafter for so long as its continuance is specifically approved at least
annually by the Trust's Board of Trustees in the manner described in Section 6
hereof.
Section 8. AMENDMENTS. This Plan may be amended at any time by the
Board of Trustees provided that (a) any amendment to increase materially the
costs which the Prime Shares of a Fund may bear for distribution
pursuant to the Plan shall be effective only upon approval by a vote of a
majority of the outstanding Prime Shares affected by such
-2-
<PAGE>
matter, and (b) any material amendments of the terms of the Plan shall become
effective only upon approval in the manner described in Section 6 hereof.
Section 9. TERMINATION. This Plan, as to any Fund, is terminable
without penalty at any time by (a) a vote of a majority of the Disinterested
Trustees, or (b) a vote of a majority of the outstanding Prime Shares of such
Fund.
Section 10. SELECTION/NOMINATION OF TRUSTEES. While this Plan is in
effect, the selection and nomination of those Disinterested Trustees shall be
committed to the discretion of such Disinterested Trustees.
Section 11. MISCELLANEOUS. The captions in this Agreement are included
for convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
Adopted: May 27, 1999
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<PAGE>
THE GALAXY FUND
SERVICING AGREEMENT
to
DISTRIBUTION AND SERVICES PLAN
FOR PRIME SHARES
Ladies and Gentlemen:
We wish to enter into this Servicing Agreement with you concerning the provision
of administrative support services to your customers who may from time to time
be the record or beneficial owners of Prime Shares of one or more of our
investment portfolios (individually, a "Fund" and collectively, the "Funds"),
which are listed on Appendix A.
The terms and conditions of this Servicing Agreement are as follows:
Section 1. You agree to provide administrative support services to your
customers ("Clients") who may from time to time own of record or beneficially a
Fund's Prime Shares. Services provided may include some or all of the
following: (i) processing dividend and distribution payments from a Fund on
behalf of Clients; (ii) providing information periodically to Clients showing
their positions in the Prime Shares of a Fund; (iii) arranging for bank
wires; (iv) responding to routine Client inquiries concerning their investment
in the Prime Shares of a Fund; (v) providing sub-accounting with respect
to the Prime Shares of a Fund beneficially owned by Clients or the
information necessary for sub-accounting; (vi) if required by law, forwarding
shareholder communications from a Fund (such as proxies, shareholder reports,
annual and semi-annual financial statements and dividend, distribution and tax
notices) to Clients; (vii) aggregating and processing purchase, exchange, and
redemption requests from Clients and placing net purchase, exchange, and
redemption orders for Clients; (viii) providing Clients with a service that
invests the assets of their accounts in the Prime Shares of a Fund
pursuant to specific or pre-authorized instructions; (ix) establishing and
maintaining accounts and records relating to Clients that invest in the
Prime Shares of a Fund; (x) assisting Clients in changing dividend or
distribution options, account designations and addresses; (xi) developing,
maintaining and operating systems necessary to support sweep accounts; and (xii)
other similar services we may reasonably request to the extent you are permitted
to do so under applicable law.
Section 2. You will provide such office space and equipment, telephone and
personnel (which may be any part of the space, equipment and facilities
currently used in your business, or any personnel employed by you) as may be
reasonably necessary or beneficial in order to provide the aforementioned
services to Clients.
Section 3. Neither you nor any of your officers, employees or agents is
authorized to make any representations concerning us, a Fund, or its
Prime Shares except those contained in our
<PAGE>
then current prospectus for Prime Shares of such Fund, copies of which
will be supplied by us to you, or in such supplemental literature or advertising
as may be authorized by us in writing.
Section 4. For all purposes of this Agreement you will be deemed to be an
independent contractor, and will have no authority to act as agent for us in any
matter or in any respect. You will not engage in activities pursuant to this
Agreement which constitute acting as a broker or dealer under state law unless
you have obtained the licenses required by law. You and your employees will,
upon request, be available during normal business hours to consult with us or
our designees concerning the performance of your responsibilities under this
Agreement.
Section 5. In consideration of the services and facilities provided by you
hereunder, we will pay to you, and you will accept as full payment therefor, a
fee at the annual rate of .25% of the average daily net asset value of the
Prime Shares of a Fund owned of record or beneficially by Clients from
time to time for whom you are the dealer of record or holder of record or with
whom you have a servicing relationship. Said fee will be computed daily and
payable monthly. For purposes of determining the fees payable under this Section
5, the average daily net asset value of Clients' Prime Shares will be
computed in the manner specified in our then current Registration Statement in
connection with the computation of the net asset value of the particular Fund's
Prime Shares for purposes of purchases and redemptions. The fee rate
stated above may be prospectively increased or decreased by us, in our sole
discretion, at any time upon notice to you. Further, we may, in our discretion
and without notice, suspend or withdraw the sale of Prime Shares of a
Fund, including the sale of such Prime Shares to you for the account of
any Clients.
Section 6. You acknowledge that you will provide to our Board of Trustees, at
least quarterly, a written report of the amounts expended pursuant to this
Agreement and the purposes for which such expenditures were made. In connection
with such reports, you will furnish us or our designees with such information as
we or they may reasonably request (including, without limitation, periodic
certifications confirming the provision to Clients of some or all of the
services described herein), and will otherwise cooperate with us and our
designees (including, without limitation, any auditors designated by us), in
connection with the preparation of reports to our Board of Trustees concerning
this Agreement and the monies paid or payable by us pursuant hereto, as well as
any other reports or filings that may be required by law.
Section 7. We may enter into other similar Servicing Agreements with any other
person or persons without your consent.
Section 8. By your written acceptance of this Agreement, you represent, warrant
and agree that: (i) in no event will any of the services provided by you
hereunder be primarily intended to result in the sale of Prime Shares;
(ii) the compensation payable to you hereunder, together with any other
compensation you receive from Clients in connection with the investment of their
assets in Prime Shares of the Funds, will be disclosed to Clients, will
be authorized by Clients and will not be excessive or unreasonable.
Section 9. This Agreement will become effective on the date a fully executed
copy of this
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<PAGE>
Agreement is received by us or our designee. Unless sooner terminated, this
Agreement will continue until [May 28, 2000], and thereafter will continue
automatically for successive annual periods provided such continuance is
specifically approved at least annually by us in the manner described in Section
12 hereof. This Agreement is terminable with respect to any Fund, without
penalty, at any time by us (which termination may be by vote of a majority of
our Disinterested Trustees as defined in Section 12 hereof or by vote of the
holders of a majority of the outstanding Prime Shares of such Fund) or
by you upon notice to us. This Agreement will terminate in the event of its
assignment, as defined in the Investment Company Act of 1940 (the "Act").
Section 10. All notices and other communications to either you or us will be
duly given if mailed, telegraphed, telexed or transmitted by similar
telecommunications device to the appropriate address shown above.
Section 11. This Agreement will be construed in accordance with the laws of the
Commonwealth of Massachusetts without giving effect to principles of conflict of
laws.
Section 12. This Agreement has been approved by vote of a majority of (i) our
Board of Trustees and (ii) those Trustees who are not "interested persons" (as
defined in the Act) of us and have no direct or indirect financial interest in
the operation of the Distribution and Services Plan adopted by us regarding the
provision of administrative support services to the record or beneficial owners
of Prime Shares of the Funds or in any agreements related thereto
("Disinterested Trustees"), cast in person at a meeting called for the purpose
of voting on such approval.
Section 14. The names "The Galaxy Fund" and "Trustees of The Galaxy Fund" refer
respectively to the Trust created and the Trustees, as trustees but not
individually or personally, acting from time to time under a Declaration of
Trust dated March 31, 1986 which is hereby referred to and a copy of which is on
file at the office of the State Secretary of the Commonwealth of Massachusetts
and at the principal office of the Trust. The obligations of "The Galaxy Fund"
entered into in the name or on behalf thereof by any of the Trustees,
representatives or agents are made not individually, but in such capacities, and
are not binding upon any of the Trustees, shareholders, or representatives of
the Trust personally, but bind only the Trust property, and all persons dealing
with any class of shares of the Trust must look solely to the Trust property
belonging to such class for the enforcement of any claims against the Trust.
If you agree to be legally bound by the provisions of this Agreement,
please sign a copy
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<PAGE>
of this letter where indicated below and promptly return it to us, c/o William
Greilich, PFPC Inc., 4400 Computer Drive, Westborough, Massachusetts 01581-5108.
Very truly yours,
THE GALAXY FUND
By:
-------------------------------------
Authorized Officer
Accepted and Agreed to:
- ----------------------------------------
Name of Organization
By:
-------------------------------------
Authorized Officer
Date:
-----------------------------------
- ----------------------------------------
Taxpayer Identification Number
- ----------------------------------------
Account Number
- ----------------------------------------
Dealer Code
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<PAGE>
APPENDIX A
----------
Please check the appropriate boxes to indicate the Funds for which you
wish to act as a Service Organization with respect to Prime Shares:
/ / New York Municipal Money Market Fund
/ / Connecticut Municipal Money Market Fund
/ / Massachusetts Municipal Money Market Fund
-------------------------------------------
(Service Organization Name)
By:
----------------------------------------
-------------------------------------------
Authorized Officer
Dated:
-------------------------------------
A-1
<PAGE>
THE GALAXY FUND
("GALAXY")
AMENDED AND RESTATED
PLAN PURSUANT TO RULE 18f-3 FOR OPERATION OF
A MULTI-CLASS SYSTEM
-------------------------
I. INTRODUCTION
On February 23, 1995, the Securities and Exchange Commission (the
"Commission") promulgated Rule 18f-3 under the Investment Company Act of 1940,
as amended (the "1940 Act"), which permits the creation and operation of a
multi-class distribution structure without the need to obtain an exemptive order
under Section 18 of the 1940 Act. Rule 18f-3, which became effective on April 3,
1995, requires an investment company to file with the Commission a written plan
specifying all of the differences among the classes, including the various
services offered to shareholders, the different distribution arrangements for
each class, the methods for allocating expenses relating to those differences
and any conversion features or exchange privileges. On May 25, 1995, the Board
of Trustees of Galaxy authorized Galaxy to operate its multi-class distribution
structure in compliance with Rule 18f-3. On October 10, 1995, Galaxy filed a
Plan pursuant to Rule 18f-3 for operation of a multi-class system (the "Prior
Plan"), which had been approved by the Board of Trustees of Galaxy on September
7, 1995, with the Commission. Prior to the filing of the Prior Plan, Galaxy
operated a multi-class distribution structure pursuant to an exemptive order
granted by the Commission on February 19, 1992. The Amended and Restated Plan
pursuant to Rule 18f-3 for operation of a multi-class system presented herewith,
which was approved by the Board of Trustees of Galaxy on May 27, 1999,
supersedes the Prior Plan and any subsequent Plans pursuant to Rule 18f-3
approved by the Board of Trustees of Galaxy prior to May 27, 1999.
II. ATTRIBUTES OF CLASSES
A. GENERALLY
EQUITY FUNDS
Galaxy shall offer (a) five classes of shares -- Retail A Shares,
Retail B Shares, A Prime Shares, B Prime Shares and Trust Shares -- in the
Equity Value Fund, Equity Growth Fund, Equity Income Fund, International Equity
Fund, Small Company Equity Fund, Small Cap Value Fund, Asset Allocation Fund,
Growth and Income Fund and Strategic Equity Fund, and (b) three classes of
shares -- Retail A Shares, Retail B Shares and Trust Shares -- in the MidCap
Equity Fund (each a "Fund" and collectively, the "Equity Funds").
<PAGE>
BOND FUNDS
Galaxy shall offer (a) five classes of shares -- Retail A Shares,
Retail B Shares, A Prime Shares, B Prime Shares and Trust Shares -- in the
Short-Term Bond Fund, Intermediate Government Income Fund, High Quality Bond
Fund and Tax-Exempt Bond Fund, and (b) two classes of shares -- Retail A Shares
and Trust Shares -- in the Corporate 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 (each a "Fund" and
collectively, the "Bond Funds").
MONEY MARKET FUNDS
Galaxy shall offer (a) three classes of shares -- Retail A Shares,
Retail B Shares and Trust Shares -- in the Money Market Fund, (b) two classes of
shares -- Retail A Shares and Trust Shares -- in the Government Fund, Tax-Exempt
Fund and U.S. Treasury Fund, and (c) two classes of shares -- Retail A Shares
and Prime Shares -- in the Connecticut Municipal Money Market Fund,
Massachusetts Municipal Money Market Fund and New York Municipal Money Market
Fund (each a "Fund" and collectively, the "Money Market Funds").
In general, shares of each class shall be identical except for
different expense variables (which will result in different returns for each
class), certain related rights and certain shareholder services. More
particularly, the Retail A Shares, the Retail B Shares, the A Prime Shares, the
B Prime Shares, the Prime Shares and/or the Trust Shares of each Fund shall
represent interests in the same portfolio of investments of the particular Fund,
and shall be identical in all respects, except for: (a) the impact of (i)
expenses assessed to a class pursuant to the Shareholder Services Plan,
Distribution and Services Plan or Distribution Plan adopted for that class, (ii)
transfer agency expenses, and (iii) any other incremental expenses identified
from time to time that should be properly allocated to one class so long as any
changes in expense allocations are reviewed and approved by a vote of the Board
of Trustees, including a majority of the independent Trustees; (b) the fact that
(i) the Retail A Shares shall vote separately on any matter submitted to holders
of Retail A Shares that pertains to the Shareholder Services Plan adopted for
that class; (ii) the Retail B Shares shall vote separately on any matter
submitted to holders of Retail B Shares that pertains to the Distribution and
Services Plan adopted for that class; (iii) the A Prime Shares shall vote
separately on any matter submitted to holders of A Prime Shares that pertains to
the Distribution Plan adopted for that class; (iv) the B Prime Shares shall vote
separately on any matter submitted to holders of B Prime Shares that pertains to
the Distribution and Services Plan adopted for that class; (v) the Prime
Shares shall vote separately on any matter submitted to holders of Prime
Shares that pertains to the Distribution and Services Plan adopted for that
class; (vi) the Trust Shares shall vote separately on any matter submitted to
holders of Trust Shares that pertains to the Shareholder Services Plan adopted
for that class; and (vii) each class shall vote separately on any matter
submitted to shareholders that pertains to the class expenses borne by that
class; (c) the exchange privileges of each class of shares; (d) the designation
of each class of shares; and (e) the different shareholder services relating to
a class of shares.
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<PAGE>
B. DISTRIBUTION ARRANGEMENTS, EXPENSES AND SALES CHARGES
1. EQUITY FUNDS
RETAIL A SHARES
Retail A Shares of the Equity Funds shall be offered to
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") and shall be offered to FIS Securities, Inc., Fleet
Brokerage Securities, Inc., Fleet Securities, Inc., Fleet Enterprises, Inc.,
Fleet Financial Group, Inc., its affiliates, their correspondent banks and other
qualified banks, savings and loan associations and broker/dealers
("Institutions") who purchase the shares on behalf of their customers
("Customers") who are the beneficial owners of the shares.
Retail A Shares of the Equity Funds shall be subject to a
front-end sales charge which shall not initially exceed 3.75% of the offering
price of Retail A Shares of those Funds (subject to the reductions and
exemptions described in the prospectus for such Shares). When the aggregate
offering price of Retail A Shares of the Equity and Bond Funds purchased by an
investor qualifies the investor to purchase such Retail A Shares without payment
of a front-end sales charge, a contingent deferred sales charge of 1% may be
imposed if such Retail A Shares are redeemed within one year of purchase.
Retail A Shares of the Equity Funds shall further be subject to a
fee payable pursuant to the Shareholder Services Plan adopted for that class of
up to .25% (on an annualized basis) of the average daily net asset value of
Retail A Shares beneficially owned by Customers of Institutions. Services
provided by Institutions for such fee may include: (a) aggregating and
processing purchase and redemption requests and placing net purchase and
redemption orders with the distributor; (b) processing dividend payments from an
Equity Fund; (c) providing sub-accounting with respect to Retail A Shares or the
information necessary for sub-accounting; and (d) providing periodic mailings to
Customers.
Retail A Shares of the Equity Funds shall further be subject to a
separate fee payable pursuant to the same Shareholder Services Plan adopted for
that class of up to .25% (on an annualized basis) of the average daily net asset
value of Retail A Shares beneficially owned by Customers of Institutions.
Services provided by Institutions for such separate fee may include: (a)
providing Customers with information as to their positions in Retail A Shares;
(b) responding to Customer inquiries; and (c) providing a service to invest the
assets of Customers in Retail A Shares.
Galaxy shall initially limit the total fees payable by Retail A
Shares of the Equity Funds pursuant to the Shareholder Services Plan adopted for
that class to an amount which shall not initially exceed .30% (on an annualized
basis) of the average daily net asset value of Retail A Shares beneficially
owned by Customers of Institutions.
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<PAGE>
RETAIL B SHARES
Retail B Shares of the Equity Funds shall be offered to Direct
Investors and to Institutions who purchase the shares on behalf of Customers who
are the beneficial owners of the shares.
Retail B Shares of the Equity Funds, if redeemed within six years
of purchase, shall be subject to a contingent deferred sales charge which shall
not initially exceed 5.0% of the original purchase price or redemption proceeds,
whichever is lower (subject to the reductions and exemptions described in the
prospectus for such Shares).
Retail B Shares of the Equity Funds shall be further subject to a
fee payable pursuant to the Distribution and Services Plan adopted for the class
(a) for distribution expenses, which shall not initially exceed .65% (on an
annualized basis) of the average daily net asset value of the Equity Funds'
respective outstanding Retail B Shares, (b) for shareholder liaison services,
which shall not initially exceed .25% (on an annualized basis) of the average
daily net assets attributable to Retail B Shares of the respective Equity Funds
that are owned of record or beneficially by customers of securities dealers,
brokers, financial institutions or other industry professionals ("Service
Organizations") that provide shareholder liaison services with respect to such
customers' Retail B Shares, and (c) for administrative support services, which
shall not initially exceed .25% (on an annualized basis) of the average daily
net assets attributable to Retail B Shares of the respective Equity Funds that
are owned of record or beneficially by customers of Service Organizations that
provide administrative support services with respect to such customers' Retail B
Shares.
Galaxy shall initially limit the total fees payable by Retail B
Shares of the Equity Funds for shareholder liaison services and administrative
support services pursuant to the Distribution and Services Plan adopted for that
class to an amount not to exceed .30% (on an annualized basis) of the average
daily net asset value of Retail B Shares owned of record or beneficially by
customers of Service Organizations.
Shareholder liaison services provided under the Distribution and
Services Plan means "personal service and/or the maintenance of shareholder
accounts" within the meaning of the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. ("NASD"), such as responding to customer
inquiries and providing information on their investments.
Administrative support services provided under the Distribution
and Services Plan may include, but are not limited to, (a) transfer agent and
subtransfer agent services for beneficial owners of Retail B Shares; (b)
aggregating and processing purchase and redemption orders; (c) providing
beneficial owners with statements showing their positions in Retail B Shares;
(d) processing dividend payments; (e) providing sub-accounting services for
Retail B Shares held beneficially; (f) forwarding shareholder communications,
such as proxies, shareholder reports, dividend and tax notices, and updating
prospectuses to beneficial owners; and (g) reviewing, tabulating and
transmitting proxies executed by beneficial owners.
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<PAGE>
A PRIME SHARES
A Prime Shares of the Equity Funds shall be offered through
selected broker-dealers to individual or institutional customers.
A Prime Shares of the Equity Funds shall be subject to a front-end
sales charge which shall not initially exceed 5.50% of the offering price of A
Prime Shares of those Funds (subject to the reductions and exemptions described
in the prospectus for such Shares). When the aggregate offering price of A Prime
Shares of the Equity and Bond Funds purchased by an investor qualifies the
investor to purchase such A Prime Shares without payment of a front-end sales
charge, a contingent deferred sales charge of 1% may be imposed if such A Prime
Shares are redeemed within one year of purchase.
A Prime Shares of the Equity Funds shall further be subject to a
fee payable pursuant to the Distribution Plan adopted for that class for
distribution expenses, which shall not initially exceed .30% (on an annualized
basis) of the average daily net asset value of the Equity Funds' respective
outstanding A Prime Shares.
B PRIME SHARES
B Prime Shares of the Equity Funds shall be offered through
selected broker-dealers to individual or institutional customers.
B Prime Shares of the Equity Funds, if redeemed within six years
of purchase, shall be subject to a contingent deferred sales charge which shall
not initially exceed 5.0% of the original purchase price or redemption proceeds,
whichever is lower (subject to the reductions and exemptions described in the
prospectus for such Shares).
B Prime Shares of the Equity Funds shall be further subject to a
fee payable pursuant to the Distribution and Services Plan adopted for the class
(a) for distribution expenses, which shall not initially exceed .75% (on an
annualized basis) of the average daily net asset value of the Equity Funds'
respective outstanding B Prime Shares, (b) for shareholder liaison services,
which shall not initially exceed .25% (on an annualized basis) of the average
daily net assets attributable to B Prime Shares of the respective Equity Funds
that are owned of record or beneficially by customers of securities dealers,
brokers, financial institutions or other industry professionals ("Service
Organizations") that provide shareholder liaison services with respect to such
customers' B Prime Shares, and (c) for administrative support services, which
shall not initially exceed .25% (on an annualized basis) of the average daily
net assets attributable to B Prime Shares of the respective Equity Funds that
are owned of record or beneficially by customers of Service Organizations that
provide administrative support services with respect to such customers' B Prime
Shares.
Galaxy shall initially limit the total fees payable by B Prime
Shares of the Equity Funds for shareholder liaison services and administrative
support services pursuant to the Distribution and Services Plan adopted for that
class to an amount not to exceed .25% (on an
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<PAGE>
annualized basis) of the average daily net asset value of B Prime Shares owned
of record or beneficially by customers of Service Organizations.
Shareholder liaison services provided under the Distribution and
Services Plan means "personal service and/or the maintenance of shareholder
accounts" within the meaning of the Rules of Fair Practice of the NASD, such as
responding to customer inquiries and providing information on their investments.
Administrative support services provided under the Distribution
and Services Plan may include, but are not limited to, (a) transfer agent and
subtransfer agent services for beneficial owners of B Prime Shares; (b)
aggregating and processing purchase and redemption orders; (c) providing
beneficial owners with statements showing their positions in B Prime Shares; (d)
processing dividend payments; (e) providing subaccounting services for B Prime
Shares held beneficially; (f) forwarding shareholder communications, such as
proxies, shareholder reports, dividend and tax notices, and updating
prospectuses to beneficial owners; and (g) reviewing, tabulating and
transmitting proxies executed by beneficial owners.
TRUST SHARES
Trust Shares of the Equity Funds shall be offered to investors
maintaining qualified accounts at bank and trust institutions, including
subsidiaries of Fleet Financial Group, Inc. and to participants in
employer-sponsored defined contribution plans. Trust Shares of the International
Equity Fund also shall be offered to clients, members and employees of Oechsle
International Advisors, LLC, the sub-adviser to that Fund.
Trust Shares of the Equity Funds shall not be subject to a sales
charge and shall not initially be subject to the shareholder servicing fee
payable pursuant to the Shareholder Services Plan adopted but not yet
implemented with respect to such class.
2. BOND FUNDS
RETAIL A SHARES
Retail A Shares of the Bond Funds shall be offered to Direct
Investors and shall be offered to Institutions who purchase shares on behalf of
Customers. As of the date of filing of this Plan with the Commission, Retail A
Shares of the Corporate Bond Fund shall not initially be offered to investors.
Retail A Shares of the Bond Funds shall be subject to a front-end
sales charge which shall not initially exceed 3.75% of the offering price of
Retail A Shares of those Funds (subject to the reductions and exemptions
described in the prospectus for such Shares). When the aggregate offering price
of Retail A Shares of the Equity and Bond Funds purchased by an investor
qualifies the investor to purchase such Retail A Shares without payment of a
front-end sales charge, a contingent deferred sales charge of 1% may be imposed
if such Retail A Shares are redeemed within one year of purchase.
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<PAGE>
Retail A Shares of the Bond Funds shall further be subject to a
fee payable pursuant to the Shareholder Services Plan adopted for that class of
up to .15% (on an annualized basis) of the average daily net asset value of
Retail A Shares beneficially owned by Customers of Institutions. Services
provided by Institutions for such fee may include: (a) aggregating and
processing purchase and redemption requests and placing net purchase and
redemption orders with the distributor; (b) processing dividend payments from a
Bond Fund; (c) providing sub-accounting with respect to Retail A Shares or the
information necessary for sub-accounting; and (d) providing periodic mailings to
Customers.
Retail A Shares of the Bond Funds shall further be subject to a
separate fee payable pursuant to the same Shareholder Services Plan adopted for
that class of up to .15% (on an annualized basis) of the average daily net asset
value of Retail A Shares beneficially owned by Customers of Institutions.
Services provided by Institutions for such separate fee may include: (a)
providing Customers with information as to their positions in Retail A Shares;
(b) responding to Customer inquiries; and (c) providing a service to invest the
assets of Customers in Retail A Shares.
Galaxy shall initially limit the total fees payable by Retail A
Shares of the Bond Funds pursuant to the Shareholder Services Plan adopted for
that class to an amount which shall not initially exceed .15% (on an annualized
basis) of the average daily net asset value of Retail A Shares beneficially
owned by Customers of Institutions.
RETAIL B SHARES
Retail B Shares of the Bond Funds shall be offered to Direct
Investors and to Institutions who purchase the shares on behalf of Customers who
are the beneficial owners of the shares.
Retail B Shares of the Bond Funds, if redeemed within six years of
purchase, shall be subject to a contingent deferred sales charge which shall not
initially exceed 5.0% of the original purchase price or redemption proceeds,
whichever is lower (subject to the reductions and exemptions described in the
prospectus for such Shares).
Retail B Shares of the Bond Funds shall be further subject to a
fee payable pursuant to the Distribution and Services Plan adopted for the class
(a) for distribution expenses, which shall not initially exceed .65% (on an
annualized basis) of the average daily net asset value of the Bond Funds'
respective outstanding Retail B Shares, (b) for shareholder liaison services,
which shall not initially exceed .25% (on an annualized basis) of the average
daily net assets attributable to Retail B Shares of the respective Bond Funds
that are owned of record or beneficially by customers of securities dealers,
brokers, financial institutions or other industry professionals ("Service
Organizations") that provide shareholder liaison services with respect to such
customers' Retail B Shares, and (c) for administrative support services, which
shall not initially exceed .25% (on an annualized basis) of the average daily
net assets attributable to Retail B Shares of the respective Bond Funds that are
owned of record or beneficially by customers of Service Organizations that
provide administrative support services with respect to such customers' Retail B
Shares.
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<PAGE>
Galaxy shall initially limit the total fees payable by Retail B
Shares of the Bond Funds for shareholder liaison services and administrative
support services pursuant to the Distribution and Services Plan adopted for that
class to an amount not to exceed .15% (on an annualized basis) of the average
daily net asset value of Retail B Shares owned of record or beneficially by
customers of Service Organizations.
Shareholder liaison services provided under the Distribution and
Services Plan means "personal service and/or the maintenance of shareholder
accounts" within the meaning of the Rules of Fair Practice of the NASD, such as
responding to customer inquiries and providing information on their investments.
Administrative support services provided under the Distribution
and Services Plan may include, but are not limited to, (a) transfer agent and
subtransfer agent services for beneficial owners of Retail B Shares; (b)
aggregating and processing purchase and redemption orders; (c) providing
beneficial owners with statements showing their positions in Retail B Shares;
(d) processing dividend payments; (e) providing subaccounting services for
Retail B Shares held beneficially; (f) forwarding shareholder communications,
such as proxies, shareholder reports, dividend and tax notices, and updating
prospectuses to beneficial owners; and (g) reviewing, tabulating and
transmitting proxies executed by beneficial owners.
A PRIME SHARES
A Prime Shares of the Bond Funds shall be offered through selected
broker-dealers to individual or institutional customers.
A Prime Shares of the Bond Funds shall be subject to a front-end
sales charge which shall not initially exceed 4.75% of the offering price of A
Prime Shares of those Funds (subject to the reductions and exemptions described
in the prospectus for such Shares). When the aggregate offering price of Retail
A Shares of the Equity and Bond Funds purchased by an investor qualifies the
investor to purchase such Retail A Shares without payment of a front-end sales
charge, a contingent deferred sales charge of 1% may be imposed if such Retail A
Shares are redeemed within one year of purchase.
A Prime Shares of the Bond Funds shall further be subject to a fee
payable pursuant to the Distribution Plan adopted for that class for
distribution expenses, which shall not initially exceed .30% (on an annualized
basis) of the average daily net asset value of the Bond Funds' respective
outstanding A Prime Shares.
B PRIME SHARES
B Prime Shares of the Bond Funds shall be offered through selected
broker-dealers to individual or institutional customers.
B Prime Shares of the Bond Funds, if redeemed within six years of
purchase, shall be subject to a contingent deferred sales charge which shall not
initially exceed
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<PAGE>
5.0% of the original purchase price or redemption proceeds, whichever is lower
(subject to the reductions and exemptions described in the prospectus for such
Shares).
B Prime Shares of the Bond Funds shall be further subject to a fee
payable pursuant to the Distribution and Services Plan adopted for the class (a)
for distribution expenses, which shall not initially exceed .75% (on an
annualized basis) of the average daily net asset value of the Bond Funds'
respective outstanding B Prime Shares, (b) for shareholder liaison services,
which shall not initially exceed .25% (on an annualized basis) of the average
daily net assets attributable to B Prime Shares of the respective Bond Funds
that are owned of record or beneficially by customers of securities dealers,
brokers, financial institutions or other industry professionals ("Service
Organizations") that provide shareholder liaison services with respect to such
customers' B Prime Shares, and (c) for administrative support services, which
shall not initially exceed .25% (on an annualized basis) of the average daily
net assets attributable to B Prime Shares of the respective Bond Funds that are
owned of record or beneficially by customers of Service Organizations that
provide administrative support services with respect to such customers' B Prime
Shares.
Galaxy shall initially limit the total fees payable by B Prime
Shares of the Bond Funds for shareholder liaison services and administrative
support services pursuant to the Distribution and Services Plan adopted for that
class to an amount not to exceed .25% (on an annualized basis) of the average
daily net asset value of B Prime Shares owned of record or beneficially by
customers of Service Organizations.
Shareholder liaison services provided under the Distribution and
Services Plan means "personal service and/or the maintenance of shareholder
accounts" within the meaning of the Rules of Fair Practice of the NASD, such as
responding to customer inquiries and providing information on their investments.
Administrative support services provided under the Distribution
and Services Plan may include, but are not limited to, (a) transfer agent and
subtransfer agent services for beneficial owners of B Prime Shares; (b)
aggregating and processing purchase and redemption orders; (c) providing
beneficial owners with statements showing their positions in B Prime Shares; (d)
processing dividend payments; (e) providing subaccounting services for B Prime
Shares held beneficially; (f) forwarding shareholder communications, such as
proxies, shareholder reports, dividend and tax notices, and updating
prospectuses to beneficial owners; and (g) reviewing, tabulating and
transmitting proxies executed by beneficial owners.
TRUST SHARES
Trust Shares of the Bond Funds shall be offered to investors
maintaining qualified accounts at bank and trust institutions, including
subsidiaries of Fleet Financial Group, Inc. and, with respect to each Bond Fund
other than the tax-exempt Bond Funds, to participants in employer-sponsored
defined contribution plans. Trust Shares of the Corporate Bond Fund shall also
be offered to Direct Investors and to Institutions who purchase shares on behalf
of Customers. As of the date of filing of this Plan with the Commission, Trust
Shares of the Rhode Island Municipal Bond Fund shall not initially be offered to
investors.
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<PAGE>
Trust Shares of the Bond Funds shall not be subject to a sales
charge and shall not initially be subject to the shareholder servicing fee
payable pursuant to the Shareholder Services Plan adopted but not yet
implemented with respect to such class.
3. MONEY MARKET FUNDS
RETAIL A SHARES
Retail A Shares of the Money Market Funds shall be offered to
Direct Investors and shall be offered to Institutions who purchase shares on
behalf of Customers.
Retail A Shares of the Money Market Funds shall not be subject to
a sales charge.
Retail A Shares of the Money Market Funds shall be subject to a
shareholder servicing fee payable pursuant to the Shareholder Services Plan
adopted for that class of up to .25% (on an annualized basis) of the average
daily net asset value of the Retail A Shares beneficially owned by Customers of
Institutions.
Services provided by Institutions for such fee may include: (a)
aggregating and processing purchase and redemption requests and placing net
purchase and redemption orders with Galaxy's distributor; (b) processing
dividend payments from a Money Market Fund; (c) providing customers with
information as to their position in shares; (d) providing sub-accounting with
respect to Retail A Shares or the information necessary for sub-accounting; and
(e) providing periodic mailings to Customers.
Galaxy shall initially limit the shareholder servicing fee payable
by Retail A Shares of the Money Market Funds pursuant to the Shareholder
Services Plan adopted for that class to an amount which shall not initially
exceed .10% (on an annualized basis) of the average daily net asset value of
Retail A Shares beneficially owned by Customers of Institutions.
RETAIL B SHARES
Retail B Shares of the Money Market Fund shall be offered to
Direct Investors and to Institutions who purchase the shares on behalf of
Customers who are the beneficial owners of the shares.
Retail B Shares of the Money Market Fund, if redeemed within six
years of purchase, shall be subject to a contingent deferred sales charge which
shall not initially exceed 5.0% of the original purchase price or redemption
proceeds, whichever is lower (subject to the reductions and exemptions described
in the prospectus for such Shares).
Retail B Shares of the Money Market Fund shall be further subject
to a fee payable pursuant to the Distribution and Services Plan adopted for the
class (a) for distribution expenses, which shall not initially exceed .65% (on
an annualized basis) of the average daily net
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<PAGE>
asset value of the Money Market Fund's outstanding Retail B Shares, (b) for
shareholder liaison services, which shall not initially exceed .05% (on an
annualized basis) of the average daily net assets attributable to Retail B
Shares of the Money Market Fund that are owned of record or beneficially by
customers of securities dealers, brokers, financial institutions or other
industry professionals ("Service Organizations") that provide shareholder
liaison services with respect to such customers' Retail B Shares, and (c) for
administrative support services, which shall not initially exceed .05% (on an
annualized basis) of the average daily net assets attributable to Retail B
Shares of the Money Market Fund that are owned of record or beneficially by
customers of Service Organizations that provide administrative support services
with respect to such customers' Retail B Shares.
Shareholder liaison services provided under the Distribution and
Services Plan means "personal service and/or the maintenance of shareholder
accounts" within the meaning of the Rules of Fair Practice of the NASD, such as
responding to customer inquiries and providing information on their investments.
Administrative support services provided under the Distribution
and Services Plan may include, but are not limited to, (a) transfer agent and
subtransfer agent services for beneficial owners of Retail B Shares; (b)
aggregating and processing purchase and redemption orders; (c) providing
beneficial owners with statements showing their positions in Retail B Shares;
(d) processing dividend payments; (e) providing sub-accounting services for
Retail B Shares held beneficially; (f) forwarding shareholder communications,
such as proxies, shareholder reports, dividend and tax notices, and updating
prospectuses to beneficial owners; and (g) reviewing, tabulating and
transmitting proxies executed by beneficial owners.
PRIME SHARES
Prime Shares of the Money Market Funds shall be offered
through selected broker-dealers to individual or institutional customers.
Prime Shares of the Money Market Funds shall not be
subject to a sales charge.
Prime shares of the Money Market Funds will be subject to
a fee payable pursuant to the Distribution and Services Plan adopted for the
class (a) for distribution expenses, which shall not initially exceed .75% (on
an annualized basis) of the average daily net asset value of the Money Market
Funds' respective outstanding Prime Shares, and (b) for administrative
support services, which shall not initially exceed .25% (on an annualized basis)
of the average daily net assets attributable to Prime Shares of the
respective Money Market Funds that are owned of record or beneficially by
customers of Service Organizations that provide administrative support services
with respect to such customers' Prime Shares.
Administrative support services provided under the Distribution
and Services Plan may include, but are not limited to, (a) processing dividend
and distribution payments; (b) providing beneficial owners with statements
showing their positions in Prime Shares; (c) arranging for bank wires;
(d) responding to routine inquiries from beneficial
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owners concerning their investments in Prime Shares; (e) providing
subaccounting services for Prime Shares; (f) forwarding shareholder
communications, such as proxies, shareholder reports, dividends and tax notices,
and updating prospectuses to beneficial owners; and (g) aggregating and
processing purchase and redemption orders and placing net purchase and
redemption orders for beneficial owners.
TRUST SHARES
Trust Shares of the Money Market Funds shall be offered to
investors maintaining qualified accounts at bank and trust institutions,
including subsidiaries of Fleet Financial Group, Inc., and with respect to each
Money Market Fund other than the Tax-Exempt Fund, to participants in
employer-sponsored defined contribution plans.
Trust Shares of the Money Market Funds shall not be subject to a
sales charge and shall not initially be subject to the shareholder servicing fee
payable pursuant to the Shareholder Services Plan adopted but not yet
implemented with respect to such class.
C. EXCHANGE PRIVILEGES
RETAIL A SHARES
Holders of Retail A Shares generally shall be permitted to
exchange their Retail A Shares in a Fund for Retail A Shares of other Funds of
Galaxy or shares of other funds advised by Fleet Investment Advisors Inc. or its
affiliates in which the shareholders maintain an existing account. No additional
sales charge will be incurred when exchanging Retail A Shares of a Fund for
Retail A Shares of another Fund that imposes a sales charge. Galaxy shall not
initially charge any exchange fee.
RETAIL B SHARES
Holders of Retail B Shares generally shall be permitted to
exchange their Retail B Shares in a Fund for Retail B Shares of other Funds of
Galaxy without paying any exchange fee or contingent deferred sales charge at
the time the exchange is made.
A PRIME SHARES
Holders of A Prime Shares generally shall be permitted to exchange
their A Prime Shares in a Fund for A Prime Shares of other Funds of Galaxy. No
additional sales charge will be incurred when exchanging A Prime Shares of a
Fund for A Prime Shares of another Fund. Galaxy shall not initially charge any
exchange fee.
B PRIME SHARES
Holders of B Prime Shares generally shall be permitted to exchange
their B Prime Shares in a Fund for B Prime Shares of other Funds of Galaxy
without paying any exchange fee or contingent deferred sales charge at the time
the exchange is made.
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PRIME SHARES
Galaxy shall not initially offer an exchange privilege to holders
of Prime Shares.
TRUST SHARES
Galaxy shall not initially offer an exchange privilege to holders
of Trust Shares.
D. CONVERSION FEATURES
RETAIL A SHARES
Galaxy shall not initially offer a conversion feature to holders
of Retail A Shares.
RETAIL B SHARES
Retail B Shares acquired by purchase generally shall convert
automatically to Retail A Shares, based on relative net asset value, six years
after the beginning of the calendar month in which the Shares were purchased.
Retail B Shares acquired through a reinvestment of dividends or
distributions generally shall convert automatically to Retail A Shares, based on
relative net asset value, at the earlier of (a) six years after the beginning of
the calendar month in which the reinvestment occurred or (b) the date of the
most recently purchased Retail B Shares that were not acquired through
reinvestment of dividends or distributions.
A PRIME SHARES
Galaxy shall not initially offer a conversion feature to holders
of A Prime Shares.
B PRIME SHARES
B Prime Shares acquired by purchase generally shall convert
automatically to A Prime Shares, based on relative net asset value, eight years
after the beginning of the calendar month in which the Shares were purchased.
B Prime Shares acquired through a reinvestment of dividends or
distributions generally shall convert automatically to A Prime Shares, based on
relative net asset value, at the earlier of (a) eight years after the beginning
of the calendar month in which the reinvestment occurred or (b) the date of the
most recently purchased B Prime Shares that were not acquired through
reinvestment of dividends or distributions.
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PRIME SHARES
Galaxy shall not initially offer a conversion feature to holders
of Prime Shares.
TRUST SHARES
Galaxy shall not initially offer a conversion feature to holders
of Trust Shares.
E. SHAREHOLDER SERVICES
1. RETIREMENT PLANS
RETAIL A SHARES AND RETAIL B SHARES
Galaxy shall initially make Retail A Shares and Retail B
Shares of the Funds (other than the tax-exempt Funds) available for purchase in
connection with the following tax-deferred prototype retirement plans:
individual retirement accounts, simplified employee pension plans,
multi-employee retirement plans and Keogh plans.
A PRIME SHARES, B PRIME SHARES, PRIME SHARES AND TRUST SHARES
Galaxy shall not initially make A Prime Shares, B Prime
Shares, Prime Shares or Trust Shares of the Funds available for purchase
in connection with any retirement plans.
2. CHECKWRITING PRIVILEGE
RETAIL A SHARES AND RETAIL B SHARES - MONEY MARKET FUNDS
Galaxy shall initially offer a checkwriting privilege to
holders of Retail A Shares and/or Retail B Shares of the Money Market Funds. A
charge for use of the checkwriting privilege may be imposed by Galaxy.
RETAIL A SHARES AND RETAIL B SHARES - EQUITY FUNDS AND BOND
FUNDS
Galaxy shall not initially offer a checkwriting privilege to
holders of Retail A Shares or Retail B Shares of the Equity or Bond Funds.
A PRIME SHARES, B PRIME SHARES, PRIME SHARES AND TRUST SHARES
Galaxy shall not initially offer a checkwriting privilege to
holders of A Prime Shares, B Prime Shares, Prime Shares or Trust Shares.
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3. AUTOMATIC INVESTMENT PROGRAM
RETAIL A SHARES AND RETAIL B SHARES
Direct Investors shall initially be offered an automatic
investment program whereby a Direct Investor generally may purchase Retail A
Shares and/or Retail B Shares of a Fund on a monthly or quarterly basis by
having a specific amount of money debited from his/her account at a financial
institution.
Galaxy shall not initially offer an automatic investment
program to Customers of Institutions.
A PRIME SHARES, B PRIME SHARES, PRIME SHARES AND TRUST SHARES
Galaxy shall not initially offer an automatic investment
program to holders of A Prime Shares, B Prime Shares, Prime Shares or
Trust Shares.
4. SYSTEMATIC WITHDRAWAL PLAN
RETAIL A SHARES AND RETAIL B SHARES
Direct Investors shall initially be offered a systematic
withdrawal plan which, in general, shall permit a Direct Investor to
automatically redeem Retail A Shares and/or Retail B Shares on a monthly,
quarterly, semi-annual or annual basis.
Galaxy shall not initially offer a systematic withdrawal plan
to Customers of Institutions.
A PRIME SHARES, B PRIME SHARES, PRIME SHARES AND TRUST SHARES
Galaxy shall not initially offer a systematic withdrawal plan
to holders of A Prime Shares, B Prime Shares, Prime Shares or Trust
Shares.
5. COLLEGE INVESTMENT PROGRAM
RETAIL A SHARES AND RETAIL B SHARES
Direct Investors shall initially be offered a college
investment program whereby a Direct Investor may purchase Retail A Shares and/or
Retail B Shares of a Fund as a means to finance a college savings plan.
Galaxy shall not initially offer a college investment program
to Customers of Institutions.
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A PRIME SHARES, B PRIME SHARES, PRIME SHARES AND TRUST SHARES
Galaxy shall not initially offer a college investment program
to holders of A Prime Shares, B Prime Shares, Prime Shares or Trust
Shares.
6. DIRECT DEPOSIT PROGRAM
RETAIL A SHARES AND RETAIL B SHARES
Direct Investors receiving social security benefits shall
initially be eligible for a direct deposit program whereby a Direct Investor
generally may purchase Retail A Shares and/or Retail B Shares of a Fund by
having social security payments automatically deposited into his or her Fund
account.
Galaxy shall not initially offer a direct deposit program to
Customers of Institutions.
A PRIME SHARES, B PRIME SHARES, PRIME SHARES AND TRUST SHARES
Galaxy shall not initially offer a direct deposit program to
holders of A Prime Shares, B Prime Shares, Prime Shares or Trust Shares.
7. INFORMATION SERVICES
RETAIL A SHARES AND RETAIL B SHARES
Holders of Retail A Shares and Retail B Shares shall
initially be able to obtain Fund performance and investment information 24 hours
a day, 7 days a week by telephoning the Galaxy Information Center - 24 Hour
Information Service.
Galaxy shall initially offer Direct Investors a Voice
Response System which, in general, will provide a Direct Investor with automated
telephone access to Fund and account information and the ability to make
telephone exchanges and redemptions. Galaxy shall not initially offer Customers
of Institutions a voice response system.
Galaxy shall initially offer Direct Investors a Galaxy
Shareholder Services telephone number which, in general, will provide a Direct
Investor with account information and recent exchange transaction information.
Galaxy shall not initially offer Customers of Institutions a shareholder
services telephone number.
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A PRIME SHARES, B PRIME SHARES, PRIME SHARES AND TRUST SHARES
Galaxy shall initially offer holders of A Prime Shares, B
Prime Shares, Prime Shares and Trust Shares a telephone number to call
for applications and information concerning initial purchases and current
performance and a telephone number to call for additional purchases,
redemptions, exchanges and other shareholder services.
Galaxy shall initially offer holders of Trust Shares in the
Corporate Bond Fund the information services described for Retail Shares.
8. PAYROLL DEDUCTION PROGRAM
RETAIL A SHARES AND RETAIL B SHARES
Direct Investors shall initially be offered a payroll
deduction program whereby a Direct Investor may purchase Retail A Shares and/or
Retail B Shares of a Fund each pay period by having a specific amount of money
debited from his/her paycheck.
Galaxy shall not initially offer a payroll deduction program
to Customers of Institutions.
A PRIME SHARES, B PRIME SHARES, PRIME SHARES AND TRUST SHARES
Galaxy shall not initially offer a payroll deduction program
to holders of A Prime Shares, B Prime Shares, Prime Shares or Trust
Shares.
F. METHODOLOGY FOR ALLOCATING EXPENSES AMONG CLASSES
Class-specific expenses of a Fund shall be allocated to the
specific class of shares of that Fund. Non-class-specific expenses of a Fund
shall be allocated in accordance with Rule 18f-3(c) under the 1940 Act.
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