[Graphic of Acorn, Greek Column, Graduation Cap and Clasped Hands]
Galaxy Taxable Bond Funds
Galaxy Funds
Annual Report
October 31, 1998
Galaxy Short-Term Bond Fund
Galaxy Intermediate Government Income Fund
Galaxy High Quality Bond Fund
Galaxy Corporate Bond Fund
[Galaxy Funds Logo]
<PAGE>
CHAIRMAN'S
MESSAGE
Dear Shareholder:
Enclosed is the performance report for the Galaxy Taxable Bond Funds, which
covers the fiscal year ended October 31, 1998. This report includes a Market
Overview that discusses the key economic and market trends affecting your
investments over this time, as well as individual Portfolio Reviews that
describe the strategies Fleet Investment Advisors Inc. used in this environment.
In the pages that follow, you will find separate financial statements for each
Fund and a list of Fund investments as of October 31, 1998.
In the past year the bond market has experienced many significant changes.
While economic growth remained relatively strong, inflation was modest. This,
plus the possibility of slower growth to come, allowed the Federal Reserve to
cut interest rates twice as the period ended. Bond prices rallied in this
environment and yields fell.
The expectations for slower growth rested mainly on a deepening in economic
problems overseas. As the prospects for corporate earnings worsened here and
abroad, investors from around the world sought U.S. Treasury bonds as a safe
haven. This "flight to quality" caused a sharp correction in U.S. stock prices
during the last months of the period and significantly reduced demand for U.S.
corporate bonds.
During this time, Fleet Investment Advisors Inc. emphasized securities of
top-quality companies with strong credit characteristics. This helped the Galaxy
Taxable Bond Funds perform well against their peers. The Galaxy High Quality
Bond Fund, for example, had one of the best performance rankings among similar
funds tracked by Lipper Analytical Services. Given the many uncertainties that
remain in the bond market, Fleet Investment Advisors Inc. believes this
attention to quality will continue to serve the Galaxy Taxable Bond Funds well
in the coming year.
Because stock and bond prices have changed so dramatically in recent
months, this may be a good time to rebalance your investments. Restoring your
portfolio to its original allocations is important for proper diversification --
a key strategy for minimizing investment risk. You can also reduce risk by
sticking with your long-term investment plan and by using strategies like
dollar-cost averaging -- in which you invest the same amount of money at regular
intervals, in good times and bad.
Your investment professional can help you implement these and other
risk-reduction techniques. If you have any questions about the information in
this report, please contact the Galaxy Information Center at 1-877-BUY-GALAXY
(289-4252), or visit our Investment Specialists located at Fleet branches.
Sincerely,
/s/ Dwight E. Vicks, Jr.
Dwight E. Vicks, Jr.
Chairman of the Board of Trustees
[Begin Sidebar]
Mutual Funds:
* are not bank
deposits
* are not FDIC
insured
* are not obliga-
tions of Fleet
Bank
* are not guaran-
teed by Fleet
Bank
* are subject to
investment risk
including possible
loss of principal
amount invested
[End Sidebar]
<PAGE>
MARKET OVERVIEW
[Begin Sidebar]
"During the fourth
quarter of 1997 the
gross domestic prod-
uct ("GDP"), which
measures the pro-
duction of U.S.
goods and services,
increased to an
annual rate of 3.7%.
Even though
employment
remained tight, keep-
ing upward pressure
on wages, the annu-
al rate of inflation
fell to 1.9% by year's
end."
[End Sidebar]
BOND MARKET OVERVIEW
By Fleet Investment Advisors Inc.
After trading in a narrow range for most of the fiscal year ended October
31, 1998, bond prices rose sharply in the last four months of the period. This
was due largely to a deteriorating outlook for U.S. economic growth which, along
with low inflation, caused the Federal Reserve (the "Fed") to reduce interest
rates twice; each time by 25 basis points. Bonds also benefited as investors
fled stocks for safer investments.
Economies Weaken Worldwide
At the start of the reporting period, the annual rate of inflation was
about 2.2% and 30-year Treasury bonds were yielding 6.15%. During the fourth
quarter of 1997, the gross domestic product ("GDP"), which measures the
production of U.S. goods and services, increased to an annual rate of 3.7%. Even
though employment remained tight, keeping upward pressure on wages, the annual
rate of inflation fell to 1.9% by year's end.
During this time, the emerging economies of Asia weakened substantially. As
this threatened to slow U.S. exports and growth, investors looked for a cut in
short-term interest rates. At the same time, Asia's troubles created a flight to
quality that drove investors to U.S. Treasury securities. By the middle of
January 1998, these factors had reduced the yield for 30-year Treasuries to
5.69% -- the lowest level since the bonds were introduced in 1977.
In the first quarter of 1998, vigorous consumer spending, combined with
lower import prices and a strong U.S. stock market, boosted GDP annual growth to
5.5%. With a steep drop in energy prices, inflation fell to an annual rate of
1.4%. However, because of the strong growth and rising wages, it became clear
that the Fed would not reduce interest rates any time soon. Bond prices fell,
and yields rebounded -- leaving the yield for 30-year Treasuries at 5.92% as the
first quarter ended.
Performance At-A-Glance
Average Annual Returns as of October 31, 1998
Trust Shares
[Begin Bar Chart]
Short-Term Bond Fund
Inception Date 12/30/91
1 Year 3 Years 5 Years Life of Fund
6.68% 5.79% 5.20% 5.59%
Intermediate Government Income Fund
Inception Date 9/1/88
1 Year 3 Years 5 Years 10 Years
9.52% 6.99% 5.79% 7.40%
Corporate Bond Fund
Inception Date 12/12/94
1 Year 3 Years Life of Fund
8.96% 7.16% 9.06%
High Quality Bond Fund
Inception Date 12/14/90
1 Year 3 Years 5 Years Life of Fund
10.50% 7.74% 6.34% 8.55%
[End Bar Chart]
1
<PAGE>
MARKET OVERVIEW
[Begin Sidebar]
"As the Japanese yen
improved against the
U.S. dollar, and the
threat of worldwide
recession ebbed,
long-term bond
yields edged higher.
This left 30-year
Treasury yields at
5.16% when the
period ended."
[End Sidebar]
GDP growth slowed to an annual rate of 1.6% in the second quarter of 1998,
as Asia's economic problems increased and dampened U.S. earnings prospects. With
consumer spending still strong, however, and inflation modest, stock prices
continued to rally. The Fed soon hinted it might have to raise interest rates to
keep stocks from overheating the economy. This tug-of-war kept bonds in a narrow
range for most of the quarter.
Bonds began to rally again in June, on further evidence that U.S. growth
was slowing and even greater demand for Treasuries. Bonds also benefited from
news that a federal budget surplus could reduce Treasury supplies. The rally
strengthened through the third quarter of 1998, as threats to U.S. economic
activity increased. By that time, emerging economies in Russia and Latin America
were also in trouble -- prompting fears of a worldwide recession.
On September 29, 1998, with U.S. financial markets in serious trouble, the
Fed trimmed short-term rates by 25 basis points. By October 5, 1998, 30-year
yields had fallen to 4.71%. With investors increasingly concerned about credit
quality, demand for corporate bonds and even issues of U.S. government agencies
was weak. To stem a potential borrowing crunch, the Fed trimmed short-term rates
another 25 basis points on October 15. As the Japanese yen improved against the
U.S. dollar, and the threat of worldwide recession ebbed, long-term bond yields
edged higher. This left 30-year Treasury yields at 5.16% when the period ended.
Performance At-A-Glance
Average Annual Returns as of October 31, 1998
Retail A Shares*
[Begin Bar Chart]
Short-Term Bond Fund
Inception Date 12/30/91
1 Year 3 Years 5 Years Life of Fund
2.42% 4.23% 4.21% 4.86%
Intermediate Government Income Fund
Inception Date 9/1/88
1 Year 3 Years 5 Years 10 Years
5.09% 5.33% 4.73% 6.87%
High Quality Bond Fund
Inception Date 12/14/90
1 Year 3 Years 5 Years Life of Fund
6.19% 6.22% 5.39% 7.93%
[End Bar Chart]
* Return figures have been restated to include the
effect of the maximum 3.75% front-end sales charge
which became effective on December 1, 1995.
2
<PAGE>
MARKET OVERVIEW
[Begin Sidebar]
"Although a recession
is possible, we think it
is more likely that
GDP growth will
slow to an annual
rate of 1% in the first
half of 1999."
[End Sidebar]
A Greater Focus on Quality
With the strong flight to quality, Treasuries far outpaced corporate issues
as interest rates fell. The lower interest rates, which encouraged home-loan
prepayments, caused mortgage-backed securities to underperform Treasuries as
well.
By moving large portions of the Galaxy Taxable Bond Fund portfolios from
corporates and mortgage-backed securities into Treasuries during the period, we
were able to capitalize on these trends. The Funds also benefited from a shift
into higher-quality debt of companies in economically "defensive" industries,
which outperformed other corporates. Because we kept maturities of the Funds
somewhat longer than the maturities of their benchmarks over the year, the Funds
enjoyed extra yield and price gains as interest rates declined.
Slower Growth Likely
We believe the Fed will probably reduce interest rates further in the
beginning months of 1999. U.S. trade, manufacturing, and consumer confidence are
now easing, and further disappointments in earnings seem likely. Additional rate
cuts may also be necessary to help economies stabilize overseas. Although a
recession is possible, we think it is more likely that GDP growth will slow to
an annual rate of 1% in the first half of 1999.
Bonds would probably rally further in this climate, and corporate bonds and
mortgage-backed securities would probably continue to lag Treasuries. As a
result, we expect to stay focused on high-quality, liquid investments and keep
sizable weightings in Treasuries and issues of U.S. government agencies. We may
however, make selective purchases of corporate and mortgage-backed securities as
attractive investment opportunities occur.
Performance At-A-Glance
Average Annual Returns as of October 31, 1998
Retail B Shares*
[Begin Bar Chart]
Short-Term Bond Fund
Inception Date 3/4/96
One year returns before contingent
deferred sales charge deducted.
5.73%
One year returns after contingent deferred
sales charge deducted as if shares were
redeemed at end of period.
0.73%
Life of fund returns before contingent
deferred sales charge deducted.
4.83%
Life of fund returns after contingent deferred
sales charge deducted as if shares were
redeemed at end of period.
3.78%
High Quality Bond Fund
Inception Date 3/4/96
One year returns before contingent
deferred sales charge deducted.
9.73%
One year returns after contingent deferred
sales charge deducted as if shares were
redeemed at end of period.
4.73%
Life of fund returns before contingent
deferred sales charge deducted.
6.90%
Life of fund returns after contingent deferred
sales charge deducted as if shares were
redeemed at end of period.
5.88%
[End Bar Chart]
* Retail B Shares are subject to a 5.00% contingent
deferred sales charge if shares are redeemed within
the first year. The charge decreases to 4.00%, 3.00%,
3.00%, 2.00% and 1.00% for redemptions made
during the second through sixth years, respectively.
Retail B Shares automatically convert to Retail A
Shares after six years. Total returns are from the
date of inception.
3
<PAGE>
PORTFOLIO REVIEWS
GALAXY SHORT-TERM BOND FUND
By Perry Vieth
Portfolio Manager
[photo of Perry Vieth]
As expectations for economic growth, inflation, and interest rates
changed in the past year, the spreads between yields for different fixed-income
instruments also changed. By adjusting the security mix and maturity structure
for the Galaxy Short-Term Bond Fund to make the most of these changes, and
emphasizing high-quality domestic issues, we helped the Fund earn returns that
compared favorably with those for other funds in its class.
For the fiscal year ended October 31, 1998, the Fund's Trust
Shares earned a total return of 6.68%, and its Retail A Shares had a total
return of 6.42% before deducting the 3.75% maximum front-end sales charge.
During this time, the Fund's Retail B Shares had a total return of 5.73% before
deducting the maximum 5.00% contingent deferred sales charge. (Please see the
chart on page 2 for total returns after deducting the front-end sales charge and
the chart on page 3 for returns after deducting the contingent deferred sales
charge.)
Galaxy Short-Term Bond Fund
Distribution of Total Net Assets
as of October 31, 1998
[pie chart]
Asset-Backed and Mortgage-Backed Securities 26%
Foreign Bonds & Net Other Assets & Liabilities 5%
U.S. Government & Agency Obligations 40%
Corporate Notes & Bonds 29%
Over the same twelve-month period, the average short-term bond
fund tracked by Lipper Analytical Services ("Lipper") earned a total return of
6.02%, and the Lehman One-to-Three-Year Government Index had a return of 7.65%.
On October 31, 1998, when the reporting period ended, investments
in the Fund's portfolio had an average life near that of the Fund's benchmark,
and the Fund's Trust Shares had a 30-day Securities and Exchange Commission
("SEC") annualized yield of 4.27%. On the same date, Retail A Shares had a
30-day SEC annualized yield of 3.96%, and Retail B Shares had a 30-day
annualized 30-day SEC yield of 3.44%.
Keeping an Eye on Interest Rates
When the reporting period began, we were using a "barbelled"
maturity structure for the portfolio that balanced longer-term issues with those
with shorter maturities. As interest rates fell in the fourth quarter of 1997,
this strategy provided extra income and price appreciation. Additions of
high-quality asset-backed and mortgage-backed securities further enhanced the
Fund's yield.
We bought more mortgage-backed securities early in 1998, after
falling interest rates had increased the risk of home loan prepayments and made
these issues even more attractive. We also bought high-quality corporate issues
with longer maturities that had attractive prices and yields, and traded issues
within the asset-backed sector as new yield opportunities arose.
As economic uncertainty caused the yield curve to flatten in the
second quarter, the Fund's short-term corporate and asset-backed securities
helped enhance its yield. We took profits in certain longer maturities when
short-term issues rallied early in April 1998. This helped protect the value of
Fund shares later in the month when the Fed signaled a rise in rates and bond
prices weakened. When yields rebounded in June, we added longer maturities to
the portfolio again.
As safety became even more important to investors in the third
quarter of 1998, the Fund benefited from its ongoing emphasis on quality.
Expecting the Fed to cut interest rates, we trimmed longer maturities again
Galaxy Short-Term Bond Fund
Growth of $10,000 Investment*
[mountain chart]
<TABLE>
<CAPTION>
12/30/91 1992 1993 1994 1995 1996 1997 10/31/98
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Lehman Brothers One to Three Year
Government Bond Index 10,000 10,542 11,150 11,280 12,276 13,010 14,055 15,113
Galaxy Short-Term Bond Fund -
Retail A Shares 9,625 10,521 11,256 11,179 12,216 12,302 12,995 13,829
Galaxy Short-Term Bond Fund -
Trust Shares 10,000 10,521 11,256 11,181 12,249 12,850 13,592 15,501
Galaxy Short-Term Bond Fund -
Retail B Shares 10,000 9,717 10,325 11,337
</TABLE>
* Since inception on 12/30/91 for Trust and Retail A Shares. Since inception on
3/4/96 for Retail B Shares. Performance figures for Retail A Shares include
the effect of the maximum 3.75% front-end sales charge. Performance figures
for Retail B Shares reflect the deduction of the maximum 5.00% contingent
deferred sales charge as if shares were redeemed on October 31, 1998. The
Lehman Brothers One to Three Year Government Bond Index is an unmanaged index
in which investors cannot invest. Results for the index do not reflect
investment management fees and other expenses incurred by the Fund.
4
<PAGE>
PORTFOLIO REVIEWS
and traded floating-rate issues for fixed-rate securities. In the corporate
sector, we reduced the Fund's exposure to consumer-finance firms, due to general
credit concerns, and continued to emphasize the debt of companies focused on
domestic sales. In October, when economic uncertainty was at its peak, we bought
Treasuries and issues of U.S. government agencies for additional quality and
liquidity.
Quality and Liquidity to Remain Important
We plan to emphasize quality and liquidity in the months to come.
If economic growth weakens further, as we expect, Treasuries and agencies should
again outperform. We plan, therefore, to make further purchases in these
sectors, until yields for issues in other sectors are more in line with the
extra market risk those issues carry. We may also add high-quality domestic
corporate securities as we find attractive investment opportunities.
Perry Vieth became manager of the Galaxy Short-Term Bond Fund in March of
1996. He has managed fixed-income investments since 1986.
Galaxy Intermediate Government Income Fund
Distribution of Total Net Assets as of October 31, 1998
[pie chart]
Asset-Backed and Mortgage-Backed Securities 5%
Net Other Assets & Liabilities 1%
Corporate Notes & Bonds 10%
U.S. Government & Agency Obligations 84%
GALAXY INTERMEDIATE GOVERNMENT INCOME FUND
By Marie Schofield
Portfolio Manager
[photo]
Marie Schofield
As economic concern drove investors to fixed-income issues with
high credit quality and strong liquidity in the past year, the Galaxy
Intermediate Government Income Fund benefited from its focus on those issues. At
the same time, our "active duration discipline," which adjusts the Fund's
maturity structure to take advantage of changes in "real" (inflation-adjusted)
yields, maintained and even increased its long duration position to lock in
Treasury yields of better than 6%. We also reduced holdings of corporate and
mortgage-backed paper in the first half of 1998 due to our concern over narrow
risk premiums and higher prepayment rates. Taken together, these strategies
helped the Fund earn returns that outpaced the returns of its market benchmarks.
For the fiscal year ended October 31, 1998, the Fund's Trust
Shares had a total return of 9.52%. Over the same time, the Fund's Retail A
Shares had a total return of 9.22% before deducting the maximum 3.75% front-end
sales charge. (Please see the chart on page 2 for total returns after deducting
the front-end sales charge.)
Those returns compare with a total return of 8.53% for the average
intermediate government bond fund tracked by Lipper, a return of 9.12% for the
Lehman Brothers Intermediate Government/Corporate Bond Index, and 9.34% for the
Lehman Aggregate Index. As of October 31, 1998, the Fund's Trust Shares had a
30-day SEC annualized yield of 4.65%, and its Retail A Shares had a 30-day SEC
annualized yield of 4.33%.
A Shift from Corporates to Treasuries
At the start of the period, we emphasized longer maturities and
extended our average duration when 30-year Treasury yields moved above 6%. With
an extra weighting in the longer-term issues, the Fund enjoyed added income and
price appreciation when yields fell between November 1997 and the first weeks of
1998. As 30-year yields
Galaxy Intermediate Government Income Fund
Growth of $10,000 investment*
[mountain chart]
<TABLE>
<CAPTION>
9/1/88 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 10/31/98
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Lehman Brothers Intermediate
Government/Corporate Bond Index 10000 10312 11399 12240 13933 15326 16850 16524 18596 19866 21582 23548
Galaxy Intermediate Government
Income Fund - Retail A Shares 10000 10390 11451 11687 13482 14958 16014 15307 17274 17221 18483 19721
Galaxy Intermediate Government
Income Fund - Trust Shares 10000 10390 11451 11687 13482 14958 16014 15310 17329 18022 19376 20732
</TABLE>
* Since inception on 9/1/88. Performance figures for Retail A Shares include the
effect of the maximum 3.75% front-end sales charge. The Lehman Brothers
Intermediate Government/Corporate Bond Index is an unmanaged index in which
investors cannot invest. Results for the index do not reflect investment
management fees and other expenses incurred by the Fund.
5
<PAGE>
PORTFOLIO REVIEWS
topped 6% in April of 1998, we again added longer maturities.
With the Asian crisis worsening in the first half of 1998, we also
began reducing our holdings of corporates in favor of Treasuries. Within the
corporate sector, we maintained issues with maturities of less than three years
feeling this would further buffer the Fund as corporate prices weakened. With
- -- mortgage interest rates at their lowest point in two decades, and home-loan
prepayment risk relatively high, we significantly reduced holdings in
mortgage-backed securities -- especially those with higher coupons.
By the end of the third quarter, we had reduced the Fund's
corporate allocation from 25% of the portfolio to 20% and eliminated all
corporate issues with maturities over three years. In a further move to quality,
we sold asset-backed securities that seemed vulnerable to slower growth. We used
the proceeds from these sales to buy Treasuries, selected agencies, and
lower-coupon mortgage-backed securities. By that time yield spreads had widened
enough to make agencies and mortgage-backed securities quite attractive. With
Treasury yields falling below 5.0%, we gave less attention to longer-term issues
but still kept the Fund's duration (a measure of maturity) one-quarter year
longer than the duration of its benchmark.
Galaxy Corporate Bond Fund
Distribution of Total Net Assets as of October 31, 1998
[pie chart]
Asset-Backed and Mortgage-Backed Securities 8%
Consumer Products 5%
Banking 6%
Industrial 8%
Manufacturing 7%
Finance 14%
Automobile Finance 6%
U.S. Government & Agency Obligations 25%
Foreign Bonds, Other Corporate Notes & Bonds & Net Other Assets &
Liabilities 21%
In October, 1998, we began buying higher-coupon mortgage-backed
securities that had become especially attractive. With the prospect of a much
weaker economy and cuts in interest rates, we also bought intermediate-term
Treasury STRIPs-- which we felt could benefit more than longer-term Treasuries
from lower rates. This helped put the Fund's duration about one-half year longer
than the duration of its benchmark as the reporting period ended.
New Opportunities
In the months ahead we may begin looking for selected
opportunities in short-term corporate securities. Although further economic
weakness may prompt additional rate cuts, recent Fed action has brought greater
stability to the bond market. And while corporate bond prices could lag
Treasuries further, they are now more attractive than they have been since 1991.
Any corporates we do add would be high-quality issues in sectors with minimal
exposure to additional economic weakness.
Marie Schofield became manager of the Galaxy Intermediate Government Income
Fund in December of 1996. She has managed fixed-income investments since
1975.
GALAXY CORPORATE BOND FUND
By David Lindsay
Portfolio Manager
[Photo of David Lindsay]
As economic uncertainty and large supplies caused corporate bonds
to underperform Treasury bonds in the past year, high-quality corporates with
reduced exposure to Asia and the U.S. economic cycle fared better than the rest
of their sector. By emphasizing these securities in the Galaxy Corporate Bond
Fund, we helped the Fund perform well against both its market benchmark and its
peers.
For the fiscal year ended October 31, 1998, the Fund's Trust
Shares earned a total return of 8.96%. That compares to returns of 7.92% for the
average intermediate investment grade bond fund tracked by Lipper and 9.12% for
the Lehman Brothers Intermediate Government/Corporate Bond Index. At the end of
the peri-
6
<PAGE>
PORTFOLIO REVIEWS
od the Fund's Trust Shares had a 30-day SEC annualized yield of 4.58%.
Added Focus on Quality
During the period the Fund benefited from an increased allocation
to Treasury issues. We began to add Treasuries to the portfolio at the end of
1997, when a worsening in the Asian crisis raised new concerns about corporate
earnings. We financed the purchase of Treasuries with proceeds from maturing
mortgage-backed securities, and the sale of corporate debt and Yankee bonds.
(Yankee bonds are dollar-denominated securities issued in the U.S. by foreign
companies and supranational organizations like the World Bank.)
Galaxy Corporate Bond Fund
Growth of $10,000 investment*
[mountain chart]
<TABLE>
<CAPTION>
12/12/94 1995 1996 1997 10/31/98
<S> <C> <C> <C> <C> <C>
Lehman Brothers Intermediate
Government/Corporate Bond Index 10,000 10,967 11,658 12,665 13,818
Galaxy Corporate Bond Fund -
Trust Shares 10,000 11,385 11,954 12,858 14,011
</TABLE>
* Since inception on 12/12/94. The Lehman Brothers Intermediate Government/
Corporate Bond Index is an unmanaged index in which investors cannot invest.
Results for the index do not reflect investment management fees and other
expenses incurred by the Fund.
We further improved the quality of the portfolio in the first
quarter of 1998 by trading corporate bonds from sectors that seemed vulnerable
to slower growth for issues from more "defensive" sectors. We also increased the
Fund's position in mortgage-backed securities. The prices and yields of these
securities had become attractive as investors appeared to overreact to the more
rapid repayment of mortgages in a lower interest rate environment.
We continued these strategies in the second and third quarters,
and further increased the Fund's position in Treasuries. By the end of October,
when the reporting period closed, corporates represented only 66% of the Fund's
portfolio -- versus 73% when the period began.
Corporates Could Still Lag
After the October 15, 1998 reduction in rates, demand for
Treasuries ebbed. As a result, corporate bonds began to outperform Treasuries.
Returns for corporates might have been even stronger, if pent-up supply had not
caused heavy issuance of new corporate debt.
We believe investors may have become overly optimistic about the
U.S. economy, however, which could slow in coming months. We have thus increased
the portion of corporates in the Fund's portfolio only gradually. We think the
maximum yield advantage for corporates may occur in the first half of next year,
when the economy hits bottom. In the meantime, we may add to investments in
mortgage-backed securities, which we believe to be quite attractive.
David Lindsay has managed the Galaxy Corporate Bond Fund since its inception
in December of 1994. He has managed other fixed-income portfolios for Fleet
Investment Advisors Inc. since 1986.
GALAXY HIGH QUALITY BOND FUND
By Marie Schofield
Portfolio Manager
For several years, we have used an "active duration" strategy that
emphasizes longer-term issues when "real" (inflation-adjusted) yields for
30-year Treasury bonds top 3.5%. When inflation was near 2%, long-term issues
became attractive when 30-year yields rose above 6%. As inflation fell to 1.5%,
long-term issues were attractive at yields above 5.5%.
By adding longer maturities at those times, and trimming
longer-term issues when
Galaxy High Quality Bond Fund
Growth of $10,000 investment*
[mountain chart]
<TABLE>
<CAPTION>
12/14/90 1991 1992 1993 1994 1995 1996 1997 10/31/98
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Lehman Brothers Long-Term
Government/Corporate Bond Index 10,000 11,155 12,329 14,009 13,359 16,856 17,355 18,786 20,930
Galaxy High Quality Bond Fund -
Retail A Shares 9,625 11,003 12,139 14,037 12,856 15,230 15,280 16,535 18,247
Galaxy High Quality Bond Fund -
Trust Shares 10,000 11,003 12,139 14,037 12,859 15,259 15,939 17,271 19,084
Galaxy High Quality Bond Fund -
Retail B Shares 10,000 9,626 10,483 11,641
</TABLE>
* Since inception on 12/14/90 for Trust and Retail A Shares. Since inception on
3/4/96 for Retail B Shares. Performance figures for Retail A Shares include
the effect of the maximum 3.75% front-end sales charge. Performance figures
for Retail B Shares reflect the deduction of the maximum 5.00% contingent
deferred sales charge as if shares were redeemed on October 31, 1998. The
Lehman Brothers Long-Term Government/Corporate Bond Index is an unmanaged
index in which investors cannot invest. Results for the index do not reflect
investment management fees and other expenses incurred by the Fund.
7
<PAGE>
PORTFOLIO REVIEWS
[photo]
MARIE SCHOFIELD
real yields moved lower, we made the most of yield changes in the fiscal year
ended October 31, 1998. We further enhanced returns by increasing investments in
Treasuries and focusing on short-term corporate debt with strong credit quality.
As a result of these strategies, returns for the Galaxy High Quality Bond Fund
outpaced those for its market benchmark and its peers.
During the reporting period the Fund's Trust Shares had a total
return of 10.50%. During the same time, its Retail A Shares had a total return
of 10.35% before deducting the maximum 3.75% front-end sales charge, and its
Retail B Shares had a total return of 9.73% before deducting the maximum 5.00%
contingent deferred sales charge. (Please see the chart on page 2 for total
returns after deducting the front-end sales charge and the chart on page 3 for
total returns after deducting the contingent deferred sales charge.)
By comparison, the average A-rated corporate bond fund tracked by
Lipper had a total return of 7.72% for the fiscal year, and the Lehman Brothers
Long-Term Government/Corporate Bond Index had a return of 10.28%.
Galaxy High Quality Bond Fund
Distribution of Total Net Assets as of October 31, 1998
[pie chart]
Foreign Bond & Net Other Assets & Liabilities 2%
Corporate Notes & Bonds 27%
Asset-Backed and Mortgage-Backed Securities 5%
U.S. Government & Agency Obligations 66%
On October 31, 1998, the Fund's Trust Shares had a 30-day SEC
annualized yield of 4.48%, and the Fund's Retail A Shares had a 30-day SEC
annualized yield of 4.16%. On the same date, the Fund's Retail B Shares had a
30-day SEC annualized yield of 3.64%.
Longer Maturities, Higher Quality
When the period began, the Fund's duration (a measure of maturity)
was about one-quarter year longer than that of its benchmark. This gave the Fund
added income and price appreciation when bond yields fell from November 1997
into January 1998. When 30-year yields rose above 6% in the months that
followed, we made additional purchases of long-term issues. This left the Fund's
duration more than one-half year longer than the duration of its benchmark in
the second quarter.
During this time, we reduced holdings of long-term corporates for
long-term Treasuries and focused the shorter-term corporates we kept on issues
of strong credit quality. To reduce exposure to heavy home loan prepayments at
this time, we cut the Fund's position in mortgage-backed securities from 15% to
less than 5%.
Within the corporate sector, we also lightened up on debt of
companies vulnerable to economic uncertainty -- such as financial and industrial
firms. Toward the end of the period, when mortgage-backed securities had become
especially attractive, we made selective purchases in this sector. As rates fell
below 5%, we shortened the Fund's duration by one-quarter year.
Looking for Yield Spreads to Peak
Now that the bond market has become more stable, we may begin
looking for new opportunities in corporates. While we believe additional
economic weakness could cause corporates to lag Treasuries again, many corporate
securities are already quite attractive. As we wait for the spreads between
yields for corporates and Treasuries to peak, we may make selective purchases of
high-quality corporates. As in recent months, we plan to emphasize issues that
are less vulnerable to a slower-growing economy. If rates back up towards 5.50%,
we plan to purchase longer Treasuries to increase our duration and lock in
attractive yields.
Marie Schofield has managed the Galaxy High Quality Bond Fund since March of
1996. She has managed fixed-income investments since 1975.
- --------------------------------------------------------------------------------
Past performance is no guarantee of future results. 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. The
Investment Advisor is presently waiving fees and/or reimbursing expenses and may
revise or discontinue such practice at any time. Without such waivers and/or
reimbursements, performance would be lower. Total return figures in this report
include changes in share price, reinvestment of dividends and capital gains
distributions and exclude the deduction of any sales charges, where applicable.
8
<PAGE>
THE GALAXY FUND
Short-Term Bond Fund
PORTFOLIO OF INVESTMENTS
October 31, 1998
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 40.10%
U.S. Treasury Notes - 20.32%
$ 2,000,000 5.38%, 01/31/00................................ $ 2,024,660
2,500,000 6.25%, 08/31/00................................ 2,585,875
1,500,000 6.38%, 03/31/01................................ 1,570,785
750,000 7.88%, 08/15/01................................ 818,573
1,000,000 6.50%, 08/31/01................................ 1,052,930
2,500,000 6.38%, 09/30/01................................ 2,638,225
1,000,000 6.25%, 10/31/01................................ 1,053,090
2,000,000 5.75%, 08/15/03................................ 2,120,520
------------
13,864,658
------------
Federal Home Loan
Mortgage Corporation - 9.20%
3,479,000 5.60%, 11/02/98 (B) ........................... 3,478,476
1,610,877 5.50%, 08/01/00, Pool # M80285 ................ 1,607,414
173,752 7.00%, 05/01/19, Pool # D29158 ................ 176,898
1,000,017 6.50%, 11/15/23, Pool # 002008 ................ 1,015,328
------------
6,278,116
------------
Federal Home Loan Bank - 7.54%
3,000,000 5.63%, 03/19/01 ............................... 3,066,360
2,000,000 6.23%, 09/19/01 ............................... 2,077,820
------------
5,144,180
------------
Federal Farm Credit Bank - 3.04%
2,000,000 6.10%, 09/24/01, MTN .......................... 2,071,240
------------
Total U.S. Government
and Agency Obligations......................... 27,358,194
(Cost $26,985,277) ------------
CORPORATE NOTES AND BONDS - 28.47%
Finance - 14.94%
1,000,000 Caterpillar Financial Services Corp.
Series F, MTN
6.74%, 04/05/00................................ 1,026,250
2,000,000 Caterpillar Financial Services Corp.
Series F, MTN
6.40%, 04/16/01................................ 2,067,500
2,000,000 General Electric Capital Corp., MTN
5.92%, 04/03/01................................ 2,045,000
1,000,000 General Electric Capital Corp., MTN
6.02%, 05/04/01................................ 1,027,500
4,000,000 Keycorp Institutional Capital Corp.
Series A
6.63%, 06/15/29
Putable 06/01/99 (A)........................... 4,026,000
------------
10,192,250
------------
<CAPTION>
<S> <C> <C>
Value
Par Value (Note 2)
--------- --------
Automobile Finance - 4.77%
$ 2,000,000 Ford Motor Credit Co.
6.38%, 10/06/00................................ $ 2,042,500
1,200,000 Ford Motor Credit Co.
5.75%, 01/25/01................................ 1,210,500
------------
3,253,000
------------
Technology - 2.98%
2,000,000 International Business
Machines Corp., MTN
5.80%, 05/15/01................................ 2,030,800
------------
Utilities - 3.05%
2,000,000 Florida Power Corp , MTN
6.47%, 07/01/01................................ 2,082,500
------------
Transportation - 2.73%
1,820,000 Norfolk Southern Corp.
6.70%, 05/01/00................................ 1,863,225
------------
Total Corporate Notes and Bonds ............... 19,421,775
(Cost $19,066,845) ------------
ASSET-BACKED AND MORTGAGED-BACKED SECURITIES - 26.17%
1,000,000 Chase Manhattan Auto Owner Trust
Series 1998-A, Class A2
5.68%, 05/15/00................................ 992,624
4,000,000 Chemical Master Credit Card Trust I
Series 1995-2, Class A
6.23%, 06/15/03................................ 4,073,720
1,500,000 Discover Card Master Trust I
Series 1998-4, Class A
5.75%, 10/16/03................................ 1,515,000
1,250,000 Ford Credit Auto Owner Trust
Series 1998-A, Class A3
5.65%, 10/15/01................................ 1,255,463
2,000,000 Norwest Asset Securities Corp.
Series 1997-17, Class A1, CMO
6.75%, 11/25/27................................ 2,015,000
2,150,434 Prudential Home Mortgage Securities
Series 1996-7, Class A-1, CMO
6.75%, 06/25/11................................ 2,159,165
1,501,001 Prudential Home Mortgage Securities
Series 1993-38, Class A3, CMO
6.15%, 09/25/23................................ 1,502,877
1,315,384 Ryland Mortgage Securities Corp.
Series 1993-3, Class A, CMO
6.71%, 08/25/08................................ 1,329,853
3,000,000 Sears Credit Account Master Trust
Series 1996-2, Class A
6.50%, 10/15/03................................ 3,014,040
------------
Total Asset-Backed and
Mortgage-Backed Securities..................... 17,857,742
(Cost $17,648,311) ------------
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
THE GALAXY FUND
Short-Term Bond Fund
PORTFOLIO OF INVESTMENTS (continued)
October 31, 1998
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
FOREIGN BONDS - 5.87%
$ 2,000,000 Province of Ontario,
Series E, Euro MTN
6.00%, 11/18/99................................ $ 1,993,000
2,000,000 Xerox Credit Corp,
Series E, Euro MTN
5.40%, 09/11/00................................ 2,009,800
------------
Total Foreign Bonds............................ 4,002,800
(Cost $3,949,540) ------------
Total Investments - 100.61%................................... 68,640,511
(Cost $67,649,973) ------------
Net Other Assets and Liabilities - (0.61)%.................... (415,661)
------------
Net Assets - 100.00%.......................................... $ 68,224,850
============
</TABLE>
- ----------------------------------------------------
(A) Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may only be resold, in transactions exempt from
registration, to qualified institutional buyers. At October 31, 1998, these
securities amounted to $4,026,000 or 5.90% of net assets.
(B) Discount yield at time of purchase
CMO Collateralized Mortgage Obligation
MTN Medium Term Note
See Notes to Financial Statements.
10
<PAGE>
THE GALAXY FUND
Intermediate Government Income Fund
PORTFOLIO OF INVESTMENTS
October 31, 1998
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 84.19%
U.S. Treasury Notes - 21.57%
$ 5,700,000 5.63%, 04/30/00 ............................... $ 5,808,984
6,570,000 6.38%, 09/30/01 ............................... 6,933,255
2,000,000 7.50%, 05/15/02 ............................... 2,202,260
1,600,000 6.25%, 08/31/02 ............................... 1,703,056
1,000,000 5.50%, 02/28/03 ............................... 1,044,840
3,000,000 5.75%, 08/15/03 ............................... 3,180,780
3,500,000 7.25%, 05/15/04 ............................... 3,976,035
1,750,000 7.25%, 08/15/04 ............................... 1,994,475
5,000,000 7.50%, 02/15/05 ............................... 5,809,800
11,240,000 7.00%, 07/15/06 ............................... 12,948,030
9,900,000 6.50%, 10/15/06 ............................... 11,112,354
6,350,000 6.63%, 05/15/07 ............................... 7,210,743
2,000,000 6.13%, 08/15/07 ............................... 2,209,080
------------
66,133,692
------------
U.S. Treasury Bonds - 21.07%
6,000,000 11.13%, 08/15/03 .............................. 7,714,260
3,000,000 11.88%, 11/15/03 .............................. 3,986,850
15,500,000 10.75%, 08/15/05 .............................. 20,956,620
8,000,000 7.50%, 11/15/16 ............................... 9,974,080
5,000,000 7.88%, 02/15/21 ............................... 6,592,050
4,000,000 6.88%, 08/15/25 ............................... 4,849,440
5,810,000 6.50%, 11/15/26 ............................... 6,774,460
3,250,000 6.38%, 08/15/27 ............................... 3,751,963
------------
64,599,723
------------
U.S. Government-Backed Bonds - 12.55%
4,830,000 A.I.D. State of Israel
Series 2-D
5.63%, 09/15/03................................ 5,026,194
750,000 A.I.D. State of Israel
Series 7-A
5.45%, 02/15/01................................ 763,590
6,450,000 A.I.D. State of Israel
Series 8-B
6.05%, 08/15/00................................ 6,609,767
5,000,000 A.I.D. State of Israel
Series 8-B
6.38%, 08/15/01................................ 5,228,700
5,000,000 A.I.D. State of Israel
Series 8-C
6.63%, 08/15/03................................ 5,411,800
6,200,000 Private Export Funding Corp.
Series B
6.49%, 07/15/07................................ 6,796,750
8,378,657 Small Business Administration
Participation Certificates
Series SBIC-PS 1955-10B
7.25%, 05/10/05................................ 8,636,562
------------
38,473,363
------------
<CAPTION>
<S> <C> <C>
Value
Par Value (Note 2)
--------- --------
Federal National
Mortgage Association - 11.80%
$ 3,000,000 5.10%, 09/25/00, MTN .......................... $ 3,023,550
12,000,000 5.72%, 01/09/01, MTN .......................... 12,260,520
2,536,763 5.00%, 05/01/09, Pool # 326584 ................ 2,478,951
5,239,800 6.00%, 10/01/09, Pool # 303344 ................ 5,283,972
2,724 8.00%, 12/01/09, Pool # 313180 ................ 2,797
139,491 6.00%, 01/01/11, Pool # 303728 ................ 140,144
251,768 6.00%, 04/01/11, Pool # 338365 ................ 252,946
3,739,650 6.00%, 04/01/11, Pool # 344764 ................ 3,757,151
1,975,409 6.00%, 04/01/11, Pool # 398072 ................ 1,988,367
2,211,384 6.00%, 05/01/11, Pool # 348318 ................ 2,221,733
4,704,222 6.50%, 03/01/13, Pool # 251618 ................ 4,773,280
------------
36,183,411
------------
Federal Home Loan
Mortgage Corporation - 9.37%
4,775,000 5.42%, 11/02/98 (A) ........................... 4,774,281
5,000,000 6.70%, 07/15/06, CMO .......................... 5,123,400
5,648,875 7.00%, 10/01/12, Pool # E00510 ................ 5,767,106
5,879,206 6.50%, 10/15/23, CMO .......................... 5,971,039
6,949,509 7.50%, 09/01/28, Pool # C00664 ................ 7,118,868
------------
28,754,694
------------
Government National
Mortgage Association - 6.41%
6,869,216 6.50%, 07/15/09, Pool # 780357 ................ 7,008,730
947,164 7.00%, 07/20/21, Pool # 008809 ................ 963,152
3,474,243 7.38%, 04/20/22, Pool # 008956 ................ 3,532,889
5,000,000 7.00%, 08/01/27 ............................... 5,125,780
2,949,578 7.00%, 06/15/28, Pool # 466842 ................ 3,019,631
------------
19,650,182
------------
U.S. Treasury Strips (A) - 1.42%
5,000,000 4.86%, 05/15/08 Interest only, (B) ............ 3,148,400
3,000,000 5.80%, 05/15/15 Interest only, (B) ............ 1,203,630
------------
4,352,030
------------
Total U.S. Government
and Agency Obligations......................... 258,147,095
(Cost $249,813,939) ------------
CORPORATE NOTES AND BONDS - 10.31 %
Banking - 4.53 %
7,500,000 Bank One Milwaukee
National Association, MTN
6.35%, 03/19/01................................ 7,696,875
6,000,000 NationsBank Texas
National Association, Senior Note,
6.35%, 03/15/01................................ 6,195,000
------------
13,891,875
------------
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
THE GALAXY FUND
Intermediate Government Income Fund
PORTFOLIO OF INVESTMENTS (continued)
October 31, 1998
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
Finance - 2.88 %
$ 3,500,000 General Electric Capital Corp.
MTN, Class A
6.02%, 05/04/01................................ $ 3,596,250
5,000,000 Pitney Bowes Credit Corp.
Series C, MTN
6.78%, 07/16/01................................ 5,243,750
------------
8,840,000
------------
Automobile Finance - 1.70 %
3,000,000 Ford Motor Credit Co.
6.38%, 10/06/00................................ 3,063,750
2,100,000 Ford Motor Credit Co.
6.25%, 11/08/00................................ 2,142,000
------------
5,205,750
------------
Utilities - 1.20 %
1,000,000 National Rural Utilities
5.75%, 11/01/08................................ 999,630
2,500,000 Potomac Electric Power Co.
First Mortgage
6.25%, 10/15/07................................ 2,690,625
------------
3,690,255
------------
Total Corporate Notes and Bonds ............... 31,627,880
(Cost $30,454,821) ------------
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
ASSET-BACKED AND MORTGAGE-BACKED SECURITIES - 4.46%
$ 6,000,000 Chemical Master Credit Card Trust I
Series 1996-1, Class A
5.55%, 09/15/03................................ $ 6,033,720
3,584,057 Prudential Home Mortgage Securities
Class 1996-7, Series A-1, CMO
6.75%, 06/25/11................................ 3,598,609
3,992,447 Rural Housing Trust
Series 1987-1, Class 1-D, CMO
6.33%, 04/01/26................................ 4,040,755
------------
Total Asset-Backed and
Mortgage-Backed Securities..................... 13,673,084
(Cost $13,497,049) ------------
Total Investments - 98.96%.................................... 303,448,059
(Cost $293,765,809) ------------
Net Other Assets and Liabilities - 1.04%...................... 3,179,850
------------
Net Assets - 100.00%.......................................... $306,627,909
============
</TABLE>
- -----------------------------------------------
(A) Discount yield at time of purchase.
(B) Stripped securities represent the splitting of cash flows into interest and
principal. Holders, as indicated, are entitled to that portion of the
payment representing interest only or principal only.
CMO Collateralized Mortgage Obligation
MTN Medium Term Note
See Notes to Financial Statements.
12
<PAGE>
THE GALAXY FUND
Corporate Bond Fund
PORTFOLIO OF INVESTMENTS
October 31, 1998
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
CORPORATE NOTES AND BONDS - 62.14%
Finance - 13.81%
$ 600,000 Ameritech Capital Funding Corp.
Debenture
7.50%, 04/01/05................................ $ 669,750
300,000 CitiGroup, Inc.
6.13%, 06/15/00................................ 305,250
250,000 CitiGroup, Inc.
6.63%, 09/15/05................................ 262,812
1,000,000 CitiGroup, Inc.
6.88%, 06/01/25................................ 1,076,250
750,000 Commercial Credit Co.
8.25%, 11/01/01................................ 810,938
500,000 Dean Witter Discover & Co.
6.75%, 08/15/00................................ 516,250
600,000 Dow Capital BV
Yankee Debenture
9.00%, 05/15/10................................ 736,500
1,000,000 Keycorp Institutional Capital Corp.
Series A
6.63%, 06/15/29
Putable 06/01/99 (A)........................... 1,006,500
1,000,000 Norwest Corp., MTN, Series F
6.75%, 05/12/00................................ 1,026,250
390,000 Norwest Financial, Inc., Senior Note
5.13%, 04/15/00................................ 391,462
1,000,000 Norwest Financial, Inc., Senior Note
6.88%, 06/15/00................................ 1,031,250
2,400,000 Paccar Financial Corp., Senior Note
Series H, MTN
5.86%, 03/15/01................................ 2,448,000
1,020,000 Pitney Bowes Credit Corp.
6.63%, 06/01/02................................ 1,076,100
180,000 USL Capital Corp., Senior Note
8.13%, 02/15/00................................ 187,425
------------
11,544,737
------------
Industrial - 8.40%
1,000,000 Coca-Cola Enterprises, Inc.
7.88%, 02/01/02................................ 1,090,000
1,000,000 Coca-Cola Enterprises, Inc.
7.13%, 08/01/17................................ 1,053,750
500,000 Crown Cork & Seal Co., Inc.
8.38%, 01/15/05................................ 545,000
1,000,000 International Business Machines Corp.
Debenture
6.22%, 08/01/27................................ 1,071,250
1,000,000 Mead Corp., Debenture
6.84%, 03/01/37................................ 1,100,000
1,000,000 Minnesota Mining & Manufacturing Co.
Debenture
6.38%, 02/15/28................................ 1,008,750
300,000 Seagram Co., Ltd., Yankee Note
6.50%, 04/01/03................................ 315,375
675,000 Sysco Corp., Debenture
6.50%, 08/01/28................................ 678,375
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
Industrial (continued)
$ 150,000 Whitman Corp.
6.50%, 02/01/06................................ $ 156,188
------------
7,018,688
------------
Manufacturing - 6.55%
1,000,000 International Paper Co.
7.63%, 08/01/04................................ 1,112,500
500,000 Loral Corp., Senior Note
7.63%, 06/15/04................................ 558,750
1,500,000 Raytheon Co.
6.50%, 07/15/05................................ 1,571,250
1,000,000 Snap-On, Inc.
6.63%, 10/01/05................................ 1,085,000
1,000,000 Weyerhaeuser Co., Debenture
8.38%, 02/15/07................................ 1,150,000
------------
5,477,500
------------
Banking - 6.14%
1,000,000 Bank One Milwaukee
National Association, MTN
6.35%, 03/19/01................................ 1,026,250
2,000,000 Branch Banking & Trust Co., Senior Note
5.70%, 02/01/01................................ 2,025,000
500,000 National City Bank of Kentucky
Subordinated Note
6.30%, 02/15/11................................ 524,375
1,000,000 NationsBank of North America
5.86%, 05/26/00................................ 1,015,000
500,000 SunTrust Bank, Atlanta
Subordinated Note
7.25%, 09/15/06................................ 539,375
------------
5,130,000
------------
Automobile Finance - 5.53%
950,000 Associates Corp. of North America
6.38%, 06/15/00................................ 965,438
1,000,000 Associates Corp. of North America
Senior Note
5.25%, 03/30/00................................ 998,750
500,000 Ford Motor Credit Co.
6.38%, 04/15/00................................ 508,125
500,000 Ford Motor Credit Co.
Debenture
6.25%, 11/08/00................................ 510,000
1,000,000 Ford Motor Credit Co.,
Senior Note
6.50%, 02/28/02................................ 1,028,750
160,000 General Motors Acceptance Corp.
Debenture
9.38%, 04/01/00................................ 169,000
200,000 General Motors Acceptance Corp.
Debenture
9.63%, 05/15/00................................ 213,000
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
THE GALAXY FUND
Corporate Bond Fund
PORTFOLIO OF INVESTMENTS (continued)
October 31, 1998
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
Automobile Finance (continued)
$ 200,000 General Motors Acceptance Corp.
9.63%, 12/15/01................................ $ 224,750
------------
4,617,813
------------
Consumer Products - 5.20%
1,100,000 Hershey Foods Corp., Debenture
7.20%, 08/15/27................................ 1,238,875
1,000,000 McDonald's Corp., Senior MTN
5.95%, 01/15/08................................ 1,043,750
2,000,000 PepsiCo, Inc., MTN
5.75%, 01/01/03................................ 2,060,000
------------
4,342,625
------------
Utilities - 3.77%
1,000,000 Baltimore Gas & Electric Co., Mortgage
8.38%, 08/15/01................................ 1,090,000
500,000 National Rural Utilities
6.13%, 05/15/05................................ 521,875
1,000,000 Potomac Electric Power Co.
First Mortgage
6.25%, 10/15/07................................ 1,076,250
200,000 Public Service Electric & Gas Co.
First Refunding Mortgage
7.63%, 02/01/00................................ 206,750
250,000 Virginia Electric & Power Co., MTN
9.40%, 05/27/99................................ 255,625
------------
3,150,500
------------
Telephone and Telecommunications - 3.43%
455,000 GTE California, Inc., Debenture
6.75%, 03/15/04................................ 487,419
350,000 GTE Corp., Debenture
9.38%, 12/01/00................................ 379,312
925,000 GTE Corp., Debenture
6.46%, 04/15/08................................ 978,188
1,000,000 GTE Southwest, Inc., Debenture
6.00%, 01/15/06................................ 1,026,250
------------
2,871,169
------------
Merchandising and Retail - 2.85%
1,000,000 Penney (J.C.) Co., Inc., MTN
6.38%, 09/15/00................................ 1,025,000
250,000 Penney (J.C.) Co., Inc., Debenture
9.05%, 03/01/01................................ 271,250
1,000,000 Wal-Mart Stores, Inc.
8.63%, 04/01/01................................ 1,085,000
------------
2,381,250
------------
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
Oil, Gas and Petroleum - 2.19%
$ 500,000 Atlantic Richfield Co., Debenture
10.88%, 07/15/05............................... $ 646,875
1,000,000 Burlington Resources, Inc., Debenture
6.88%, 02/15/26................................ 1,025,000
150,000 Unocal Corp., MTN, Debenture
9.25%, 08/02/99................................ 154,500
------------
1,826,375
------------
Book Publishing - 1.35%
1,000,000 New York Times Co., Note
7.63%, 03/15/05................................ 1,128,750
------------
Health Care - 1.26%
150,000 Becton Dickinson & Co., Debenture
8.80%, 03/01/01................................ 162,750
275,000 Becton Dickinson & Co., Debenture
6.70%, 08/01/28................................ 288,062
575,000 Merck & Co., Debenture
6.40%, 03/01/28................................ 601,594
------------
1,052,406
------------
Insurance - 1.25%
1,000,000 ITT Hartford Group, Inc.
6.38%, 11/01/02.......................... 1,042,500
------------
Transportation - 0.41%
300,000 Southwest Airlines Co.
8.00%, 03/01/05.......................... 341,625
------------
Total Corporate Notes and Bonds 51,925,938
(Cost $50,103,321) ------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 24.92%
U.S. Treasury Notes - 11.10%
1,000,000 5.38%, 01/31/00 ............................... 1,012,330
1,000,000 5.63%, 04/30/00 ............................... 1,019,120
1,000,000 5.75%, 04/30/03 ............................... 1,056,590
1,000,000 7.00%, 07/15/06 ............................... 1,151,960
2,500,000 6.50%, 10/15/06 ............................... 2,806,150
2,100,000 5.75%, 08/15/03 ............................... 2,226,546
------------
9,272,696
------------
U.S. Treasury Bonds - 5.03%
1,000,000 11.63%, 11/15/02 .............................. 1,262,750
1,425,000 7.50%, 11/15/16 ............................... 1,776,633
1,000,000 6.50%, 11/15/26 ............................... 1,166,000
------------
4,205,383
------------
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
THE GALAXY FUND
Corporate Bond Fund
PORTFOLIO OF INVESTMENTS (continued)
October 31, 1998
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
Federal National
Mortgage Association - 4.87%
$ 96,428 7.50%, 11/01/07, Pool # 188629 ................ $ 98,989
106,847 5.00%, 08/01/10, Pool # 006893
Series A-1, CMO................................ 105,578
979,819 6.00%, 08/01/13, Pool # 433216 ................ 983,796
2,138,371 6.00%, 11/01/23, Pool # 50940 ................. 2,116,325
761,031 6.50%, 03/01/28, Pool # 412263 ................ 766,975
------------
4,071,663
------------
Federal Home Loan
Mortgage Corporation - 3.57%
789,000 5.42%, 11/02/98 (B) ........................... 788,881
1,000,000 5.75%, 07/15/03 ............................... 1,039,480
18,540 8.75%, 08/01/01, Pool # 220011 ................ 19,073
85,295 7.00%, 06/01/04, Pool # 189683 ................ 87,175
62,475 7.50%, 08/01/08, Pool # 181313 ................ 63,519
23,788 7.00%, 05/01/16, Pool # 272046 ................ 24,676
152,875 7.00%, 02/01/17, Pool # 289284 ................ 158,464
93,646 8.00%, 07/01/21, Pool # C00068 ................ 96,893
53,393 8.00%, 10/01/21, Pool # D11045 ................ 55,245
198,096 7.00%, 10/01/22, Pool # C00184 ................ 202,058
201,035 7.00%, 02/01/23, Pool # C00213 ................ 205,056
245,676 6.00%, 09/01/23, Pool # D41208 ................ 243,447
------------
2,983,967
------------
Government National
Mortgage Association - 0.35%
78,795 9.00%, 09/15/04, Pool # 003669 ................ 82,508
49,028 9.00%, 12/15/08, Pool # 027562 ................ 51,989
146,750 8.00%, 05/15/22, Pool # 319062 ................ 152,527
------------
287,024
------------
Total U.S. Government
and Agency Obligations......................... 20,820,733
(Cost $20,305,567) ------------
ASSET-BACKED AND MORTGAGE-BACKED SECURITIES - 8.41%
1,000,000 Chase Manhattan Auto Owner Trust
Series 1998-C, Class A-4
5.85%, 05/15/03................................ 1,020,000
2,000,000 Chemical Master Credit Card Trust I
Series 1996-1, Class A
5.55%, 09/15/03................................ 2,011,240
161,656 Ford Credit Auto Owner Trust
Series 1996-A, Class A-3
6.50%, 11/15/99................................ 161,756
1,148,936 Guaranteed Export Trust Certificates
Series 1993-D, Class A-3
5.23%, 05/15/05................................ 1,163,505
454,899 NationsBank Auto Owner Trust
Series 1996-A, Class A-3
6.38%, 07/15/00................................ 455,750
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
ASSET-BACKED AND MORTGAGE-BACKED
SECURITIES (continued)
$ 415,298 Premier Auto Trust
Series 1996-3, Class A-3
6.50%, 03/06/00................................ $ 416,075
1,800,000 Standard Credit Card Master Trust I
Series 1995-10, Class A
5.90%, 02/07/01................................ 1,801,116
------------
Total Asset-Backed and
Mortgage-Backed Securities..................... 7,029,442
(Cost $6,909,385) ------------
FOREIGN BONDS (C) - 3.63%
1,000,000 Heinz (H.J.) Co.
5.75%, 02/03/03................................ 1,024,900
2,000,000 Xerox Credit Corp., Euro MTN
Series E
5.40%, 09/11/00................................ 2,009,800
------------
Total Foreign Bonds............................ 3,034,700
(Cost $2,958,240) ------------
Total Investments - 99.10%.................................... 82,810,813
(Cost $80,276,513) ------------
Net Assets and Other Liabilities - 0.90%...................... 753,841
------------
Net Assets - 100.00%.......................................... $ 83,564,654
============
</TABLE>
- ---------------------------
(A) Security exempt from registration under Rule 144A of the Securities Act of
1933. This security may only be resold, in transactions exempt from
registration, to qualified institutional buyers. At October 31, 1998, this
security amounted to $1,006,500 or 1.20% of net assets.
(B) Discount yield at time of purchase.
(C) Euro-Dollar Bond
CMO Collateralized Mortgage Obligation
MTN Medium Term Note
See Notes to Financial Statements.
15
<PAGE>
THE GALAXY FUND
High Quality Bond Fund
PORTFOLIO OF INVESTMENTS
October 31, 1998
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 65.94%
U.S. Treasury Bonds - 24.70%
$ 1,800,000 7.50%, 05/15/02 ............................... $ 1,982,034
3,000,000 10.75%, 08/15/05 .............................. 4,056,120
5,500,000 13.25%, 05/15/14 .............................. 9,218,770
4,200,000 7.50%, 11/15/16 ............................... 5,236,392
1,000,000 9.00%, 11/15/18 ............................... 1,442,140
5,000,000 7.88%, 02/15/21 ............................... 6,592,050
1,700,000 8.13%, 05/15/21 ............................... 2,299,607
6,800,000 8.13%, 08/15/21 ............................... 9,211,484
3,500,000 8.00%, 11/15/21 ............................... 4,691,190
3,000,000 7.25%, 08/15/22 ............................... 3,738,030
7,750,000 6.50%, 11/15/26 ............................... 9,036,500
7,625,000 6.38%, 08/15/27 ............................... 8,802,681
------------
66,306,998
------------
U.S. Treasury Notes - 23.71%
3,600,000 5.63%, 10/31/99 ............................... 3,642,768
1,750,000 5.38%, 01/31/00 ............................... 1,771,578
2,500,000 5.50%, 03/31/00 ............................... 2,539,450
4,300,000 5.63%, 04/30/00 ............................... 4,382,216
2,400,000 6.25%, 05/31/00 ............................... 2,471,232
7,100,000 6.38%, 09/30/01 ............................... 7,492,559
2,000,000 5.50%, 02/28/03 ............................... 2,089,680
1,900,000 5.75%, 04/30/03 ............................... 2,007,521
6,000,000 5.75%, 08/15/03 ............................... 6,361,560
5,000,000 7.25%, 05/15/04 ............................... 5,680,050
3,000,000 7.25%, 08/15/04 ............................... 3,419,100
1,000,000 7.88%, 11/15/04 ............................... 1,174,890
4,140,000 7.00%, 07/15/06 ............................... 4,769,114
6,700,000 6.50%, 10/15/06 ............................... 7,520,482
4,000,000 6.25%, 02/15/07 ............................... 4,435,560
1,000,000 6.63%, 05/15/07 ............................... 1,135,550
2,500,000 6.13%, 08/15/07 ............................... 2,761,350
------------
63,654,660
------------
Federal National
Mortgage Association - 9.47%
6,000,000 5.10%, 09/25/00, MTN .......................... 6,047,100
2,000,000 7.85%, 09/10/04 ............................... 2,053,740
3,000,000 8.50%, 02/01/05 ............................... 3,143,610
1,245,431 6.50%, 05/01/06, Pool # 348137 ................ 1,254,947
2,000,000 6.64%, 07/02/07, MTN .......................... 2,191,060
4,488,962 6.50%, 03/01/13, Pool # 420018 ................ 4,554,860
1,567,729 6.00%, 08/01/13, Pool # 433216 ................ 1,574,094
4,426,858 8.50%, 12/01/25, Pool # 313420 ................ 4,610,838
------------
25,430,249
------------
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
U.S. Government-Backed Bonds - 4.52%
$ 500,000 Farm Credit System
Financial Assistance Corp.
9.45%, 11/21/03................................ $ 501,250
4,000,000 Private Export Funding Corp.
6.49%, 07/15/07................................ 4,385,000
1,800,000 A.I.D. State of Israel
Series 7-A
5.45%, 02/15/01................................ 1,832,616
5,000,000 A.I.D. Israel
Series 8-C
6.63%, 08/15/03................................ 5,411,800
------------
12,130,666
------------
U.S. Treasury Strip (A) - 2.11%
9,000,000 4.86%, 05/15/08 Interest only, (B) ............ 5,667,120
------------
Federal Home Loan
Mortgage Association (A) - 0.98%
2,627,000 5.60%, 11/02/98 ............................... 2,626,604
------------
Government National
Mortgage Association - 0.45%
1,191,268 7.00%, 07/20/22, Pool # 008022 (C) ............ 1,210,436
------------
Total U.S. Government
and Agency Obligations......................... 177,026,733
(Cost $168,981,652) ------------
CORPORATE NOTES AND BONDS - 26.82%
Finance - 12.27%
2,000,000 Associates Corp. of North America
6.63%, 05/15/01................................ 2,057,500
2,000,000 Associates Corp. of North America
MTN
7.40%, 05/03/02................................ 2,110,000
4,000,000 Bank One Milwaukee
National Association, MTN
6.35%, 03/19/01................................ 4,105,000
1,500,000 Caterpillar Financial Services Corp.
Series F, MTN
6.40%, 04/16/01................................ 1,550,625
7,500,000 Ford Motor Credit Co., Senior Note
6.50%, 02/28/02................................ 7,715,625
3,000,000 General Electric Capital Corp.
Series A, MTN
5.89%, 05/15/00................................ 3,043,800
1,600,000 General Electric Capital Corp.
Series A, MTN
5.92%, 04/03/01................................ 1,636,000
250,000 General Electric Capital Corp.
8.30%, 09/20/09................................ 302,187
</TABLE>
See Notes to Financial Statements.
16
<PAGE>
THE GALAXY FUND
High Quality Bond Fund
PORTFOLIO OF INVESTMENTS (continued)
October 31, 1998
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
Finance (continued)
$ 2,000,000 Key Bank of North America
7.13%, 08/15/06................................ $ 2,137,500
3,600,000 Keycorp Institutional Capital Corp.
Series A
6.63%, 06/15/29
Putable 06/01/99 (D)........................... 3,623,400
1,300,000 Suntrust Bank of Central Florida, MTN
6.90%, 07/01/07................................ 1,410,500
3,000,000 Suntrust Bank, Atlanta
Subordinated Note
7.25%, 09/15/06................................ 3,236,250
------------
32,928,387
------------
Consumer Staples - 7.58%
1,650,000 Coca-Cola Enterprises, Inc.
7.13%, 08/01/17................................ 1,738,688
5,050,000 Hershey Foods Corp.
7.20%, 08/15/27................................ 5,687,563
1,650,000 McDonald's Corp., Senior MTN
5.95%, 01/15/08................................ 1,722,187
2,000,000 Minnesota Mining & Manufacturing Co.
Debenture
6.38%, 02/15/28................................ 2,017,500
250,000 Procter & Gamble Co.
8.50%, 08/10/09................................ 313,125
3,000,000 Sara Lee Corp., MTN
7.40%, 03/22/02................................ 3,221,250
3,000,000 Sysco Corp.
7.00%, 05/01/06................................ 3,288,750
2,350,000 Sysco Corp., Debenture
6.50%, 08/01/28................................ 2,361,750
------------
20,350,813
------------
Utilities - 4.96%
1,950,000 GTE Corp., Debenture
6.46%, 04/15/08................................ 2,062,125
6,500,000 GTE Florida, Inc., Series A, Debenture
6.31%, 12/15/02................................ 6,784,375
1,500,000 National Rural Utilities
5.75%, 11/01/08................................ 1,499,445
2,750,000 Potomac Electric Power Co.
First Mortgage
6.25%, 10/15/07................................ 2,959,687
------------
13,305,632
------------
Technology - 1.24%
2,500,000 International Business Machines Corp.
7.25%, 11/01/02................................ 2,718,750
600,000 Pitney Bowes, Inc.
5.95%, 02/01/05................................ 618,750
------------
3,337,500
------------
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
Health Care - 0.77%
$ 800,000 Abbott Laboratories
6.40%, 12/01/06................................ $ 859,000
1,150,000 Merck & Co., Inc.
6.40%, 03/01/28................................ 1,203,188
------------
2,062,188
------------
Total Corporate Notes and Bonds ............... 71,984,520
(Cost $68,427,586) ------------
ASSET-BACKED AND MORTGAGE-BACKED SECURITIES - 5.40%
2,500,000 American Express Master Trust
Series 1998-1, Class A
5.90%, 04/15/04................................ 2,575,000
6,000,000 Citibank Credit Card Master Trust I
Series 1998-6
5.85%, 04/10/03................................ 6,076,860
2,260,898 Prudential Home Mortgage Securities
Series 1993-38, Class A-3, CMO
6.15%, 09/25/23................................ 2,263,724
3,535,573 Rural Housing Trust
Series 1987-1, Class 1-D, CMO
6.33%, 04/01/26................................ 3,578,354
------------
Total Asset-Backed and
Mortgage-Backed Securities..................... 14,493,938
(Cost $14,198,515) ------------
FOREIGN BOND - 0.57%
1,500,000 Heinz (H.J.) Co. (E)
5.75%, 02/03/03................................ 1,537,350
------------
Total Foreign Bond............................. 1,537,350
(Cost $1,481,340) ------------
Total Investments - 98.73%.................................... 265,042,541
(Cost $253,089,093) ------------
Net Other Assets and Liabilities - 1.27%...................... 3,398,821
------------
Net Assets - 100.00%.......................................... $268,441,362
============
</TABLE>
- ---------------------------------
(A) Discount yield at time of purchase.
(B) Stripped securities represent the splitting of cash flows into interest and
principal. Holders, as indicated, are entitled to that portion of the
payment representing interest only or principal only.
(C) Variable rate demand notes are payable upon not more than one, seven or
thirty business days notice. Put bonds and notes have demand features which
mature within one year. The interest rate shown reflects the rate in effect
at October 31, 1998.
(D) Security exempt from registration under Rule 144A of the Securities Act of
1933. This security may only be resold, in transactions exempt from
registration, to qualified institutional buyers. At October 31, 1998, this
security amounted to $3,623,400 or 1.35% of net assets.
(E) Euro-Dollar Bond
CMO Collateralized Mortgage Obligation
MTN Medium Term Note
See Notes to Financial Statements.
17
<PAGE>
THE GALAXY FUND
STATEMENTS OF ASSETS AND LIABILITIES
October 31, 1998
<TABLE>
<CAPTION>
Intermediate
Short-Term Government Corporate High Quality
Bond Fund Income Fund Bond Fund Bond Fund
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
ASSETS:
Investments (Note 2):
Investments at cost............................... $ 67,649,973 $ 293,765,809 $ 80,276,513 $ 253,089,093
Net unrealized appreciation....................... 990,538 9,682,250 2,534,300 11,953,448
------------ ------------- ------------ -------------
Total investments at value.................. 68,640,511 303,448,059 82,810,813 265,042,541
Cash........................................ -- 107,382 7,854 16,228
Receivable for investments sold................... -- 9,249,529 918,649 9,368,140
Receivable for shares sold........................ 145,931 657,440 156,917 776,803
Interest receivable............................... 749,512 3,920,230 1,264,833 4,251,353
Deferred organizational expense (Note 2).......... -- -- 4,386 --
------------ ------------- ------------ -------------
Total Assets................................ 69,535,954 317,382,640 85,163,452 279,455,065
------------ ------------- ------------ -------------
LIABILITIES:
Dividends payable ................................ 95,008 862,081 173,129 324,014
Payable for investments purchased ................ 1,068,031 9,368,111 1,030,642 9,616,850
Payable for shares redeemed ...................... 28,593 263,220 313,548 885,668
Advisory fee payable (Note 3) .................... 31,410 142,721 39,916 124,381
Payable to Fleet affiliates (Note 3) ............. 13,531 21,799 451 41,981
Payable to Administrator (Note 3) ................ 22,290 44,950 13,990 12,935
Trustees' fees and expenses payable (Note 3) ..... 913 2,947 8,269 2,035
Payable to Custodian ............................. 30,545 -- -- --
Accrued expenses and other payables .............. 20,783 48,902 18,853 5,839
------------ ------------- ------------ -------------
Total Liabilities........................... 1,311,104 10,754,731 1,598,798 11,013,703
------------ ------------- ------------ -------------
NET ASSETS............................................ $ 68,224,850 $ 306,627,909 $ 83,564,654 $ 268,441,362
============ ============= ============ =============
NET ASSETS consist of:
Par value (Note 5)................................ $ 6,753 $ 29,200 $ 7,667 $ 23,965
Paid-in capital in excess of par value............ 72,979,644 320,199,974 82,940,564 253,994,575
Undistributed net investment income............... 123,662 169,845 131,668 203,154
Accumulated net realized gain/(loss) on
investments sold ............................... (5,875,747) (23,453,360) (2,049,545) 2,266,220
Net unrealized appreciation of investments........ 990,538 9,682,250 2,534,300 11,953,448
------------ ------------- ------------ -------------
TOTAL NET ASSETS...................................... $ 68,224,850 $ 306,627,909 $ 83,564,654 $ 268,441,362
============ ============= ============ =============
Retail A Shares:
Net Assets........................................ $ 29,066,729 $ 66,864,736 $ -- $ 45,879,000
Shares of beneficial interest outstanding......... 2,877,232 6,367,360 -- 4,095,956
NET ASSET VALUE and redemption price per share.... $ 10.10 $ 10.50 $ -- $ 11.20
Sales charge - 3.75% of offering price............ 0.39 0.41 -- 0.44
------------ ------------- ------------ -------------
Maximum offering price per share.................. $ 10.49 $ 10.91 $ -- $ 11.64
============ ============= ============ =============
Retail B Shares:
Net Assets........................................ $ 1,086,646 $ -- N/A $ 5,419,579
Shares of beneficial interest outstanding......... 107,567 -- N/A 483,866
------------ ------------- ------------ -------------
NET ASSET VALUE and offering price per share*..... $ 10.10 $ -- N/A $ 11.20
============ ============= ============ =============
Trust Shares:
Net Assets........................................ $ 38,071,475 $ 239,763,173 $ 83,564,654 $ 217,142,783
Shares of beneficial interest outstanding......... 3,768,577 22,832,135 7,666,685 19,385,125
------------ ------------- ------------ -------------
NET ASSET VALUE, offering and redemption price
per share ...................................... $ 10.10 $ 10.50 $ 10.90 $ 11.20
============ ============= ============ =============
</TABLE>
- --------------------------------------------
*Redemption price per share is equal to the Net Asset Value per share less
any applicable contingent deferred sales charge.
See Notes to Financial Statements.
18
<PAGE>
THE GALAXY FUND
STATEMENTS OF OPERATIONS
For the year ended October 31, 1998
<TABLE>
<CAPTION>
Intermediate
Short-Term Government Corporate High Quality
Bond Fund Income Fund Bond Fund Bond Fund
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest (Note 2)............................ $ 4,393,632 $ 18,715,219 $ 5,895,040 $ 14,829,475
------------ ------------- ------------ -------------
Total investment income...................... 4,393,632 18,715,219 5,895,040 14,829,475
------------ ------------- ------------ -------------
EXPENSES:
Investment advisory fee (Note 3)............. 533,215 2,158,512 667,516 1,765,579
Administration fee (Note 3).................. 57,228 231,595 71,640 189,406
Custodian fee................................ 14,029 18,105 20,681 19,245
Fund accounting fee (Note 3)................. 49,099 65,655 50,860 67,635
Legal fee (Note 3)........................... 3,284 12,501 4,030 9,948
Audit fee.................................... 17,098 17,098 15,104 18,164
Transfer agent fee (Note 3).................. 53,573 169,014 57,666 362,326
12b-1 fee (Note 3)........................... 7,612 -- -- 27,287
Shareholder services fee (Note 3)............ 41,334 97,753 -- 52,525
Trustees' fees and expenses (Note 3)......... 1,760 6,748 2,167 5,384
Amortization of organization costs (Note 2).. -- -- 3,939 --
Reports to shareholders...................... 21,630 58,323 9,100 30,388
Insurance.................................... 756 2,682 850 2,066
Miscellaneous................................ 24,841 26,021 8,512 32,926
------------ ------------- ------------ -------------
Total expenses before reimbursement/waiver... 825,459 2,864,007 912,065 2,582,879
------------ ------------- ------------ -------------
Less: reimbursement/waiver (Note 4).......... (142,302) (575,603) (178,004) (470,821)
------------ ------------- ------------ -------------
Total expenses net of reimbursement/waiver... 683,157 2,288,404 734,061 2,112,058
------------ ------------- ------------ -------------
NET INVESTMENT INCOME............................ 3,710,475 16,426,815 5,160,979 12,717,417
------------ ------------- ------------ -------------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS (Note 2):
Net realized gain on investments sold........ 276,632 3,980,175 1,076,268 5,166,591
Net change in unrealized appreciation
of investments............................. 473,071 5,732,449 1,374,412 5,644,735
------------ ------------- ------------ -------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS............................... 749,703 9,712,624 2,450,680 10,811,326
------------ ------------- ------------ -------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS.................... $ 4,460,178 $ 26,139,439 $ 7,611,659 $ 23,528,743
============ ============= ============ =============
</TABLE>
See Notes to Financial Statements.
19
<PAGE>
THE GALAXY FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Intermediate Government
Short-Term Bond Fund Income Fund
----------------------------- -----------------------------
Years ended October 31, Years ended October 31,
----------------------------- -----------------------------
1998 1997 1998 1997
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
NET ASSETS at beginning of period......................... $ 78,702,807 $ 91,875,454 $274,840,329 $ 293,490,809
------------ ------------- ------------ -------------
Increase in Net Assets resulting from operations:
Net investment income................................. 3,710,475 4,595,283 16,426,815 17,061,023
Net realized gain on investments sold................. 276,632 52,173 3,980,175 1,223,187
Net change in unrealized appreciation of investments.. 473,071 11,015 5,732,449 1,852,671
------------ ------------- ------------ -------------
Net increase in net assets resulting from operations 4,460,178 4,658,471 26,139,439 20,136,881
------------ ------------- ------------ -------------
Dividends to shareholders from:
Retail A Shares:
Net investment income............................... (1,464,083) (1,600,017) (3,735,466) (4,207,799)
------------ ------------- ------------ -------------
Retail B Shares:
Net investment income............................... (44,206) (24,164) -- N/A
------------ ------------- ------------ -------------
Trust Shares:
Net investment income............................... (2,384,791) (2,971,102) (13,367,624) (12,853,224)
------------ ------------- ------------ -------------
Total Dividends to shareholders....................... (3,893,080) (4,595,283) (17,103,090) (17,061,023)
------------ ------------- ------------ -------------
Net increase (decrease) from share transactions (1)....... (11,045,055) (13,235,835) 22,751,231 (21,726,338)
------------ ------------- ------------ -------------
Net increase (decrease) in net assets................. (10,477,957) (13,172,647) 31,787,580 (18,650,480)
------------ ------------- ------------ -------------
NET ASSETS at end of period (including line A)............ $ 68,224,850 $ 78,702,807 $306,627,909 $ 274,840,329
============ ============= ============ =============
(A) Undistributed net investment income................... $ 123,662 $ 190,129 $ 169,845 $ 678,013
============ ============= ============ =============
</TABLE>
(1) For detail on share transactions by series, see Statements of Changes in
Net Assets - Capital Stock Activity on pages 22 and 23.
See Notes to Financial Statements.
20
<PAGE>
THE GALAXY FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Corporate Bond Fund High Quality Bond Fund
----------------------------- -----------------------------
Years ended October 31, Years ended October 31,
----------------------------- -----------------------------
1998 1997 1998 1997
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
NET ASSETS at beginning of period......................... $ 91,728,383 $ 107,727,788 $212,346,575 $ 180,704,892
------------ ------------- ------------ -------------
Increase in Net Assets resulting from operations:
Net investment income................................. 5,160,979 5,784,700 12,717,417 11,590,057
Net realized gain (loss) on investments sold.......... 1,076,268 (409,194) 5,166,591 1,790,921
Net change in unrealized appreciation of investments.. 1,374,412 1,291,642 5,644,735 2,914,586
------------ ------------- ------------ -------------
Net increase in net assets resulting from operations 7,611,659 6,667,148 23,528,743 16,295,564
------------ ------------- ------------ -------------
Dividends to shareholders from:
Retail A Shares:
Net investment income............................... -- -- (1,841,859) (1,654,569)
------------ ------------- ------------ -------------
Total Dividends................................. -- -- (1,841,859) (1,654,569)
------------ ------------- ------------ -------------
Retail B Shares:
Net investment income............................... N/A N/A (157,568) (59,668)
------------ ------------- ------------ -------------
Total Dividends................................. N/A N/A (157,568) (59,668)
------------ ------------- ------------ -------------
Trust Shares:
Net investment income............................... (5,434,239) (5,784,700) (10,708,262) (9,875,820)
Net realized gain on investments.................... -- (94,588) -- --
------------ ------------- ------------ -------------
Total Dividends................................. (5,434,239) (5,879,288) (10,708,262) (9,875,820)
------------ ------------- ------------ -------------
Total Dividends to shareholders....................... (5,434,239) (5,879,288) (12,707,689) (11,590,057)
------------ ------------- ------------ -------------
Net increase (decrease) from share transactions (1)....... (10,341,149) (16,787,265) 45,273,733 26,936,176
------------ ------------- ------------ -------------
Net increase (decrease) in net assets................. (8,163,729) (15,999,405) 56,094,787 31,641,683
------------ ------------- ------------ -------------
NET ASSETS at end of period (including line A)............ $ 83,564,654 $ 91,728,383 $268,441,362 $ 212,346,575
============ ============= ============ =============
(A) Undistributed net investment income................... $ 131,668 $ 265,994 $ 203,154 $ 204,729
============ ============= ============ =============
</TABLE>
- ----------------------------------------
(1) For detail on share transactions by series, see Statements of Changes in
Net Assets -- Capital Stock Activity on pages 22 and 23.
See Notes to Financial Statements.
21
<PAGE>
THE GALAXY FUND
STATEMENTS OF CHANGES IN NET ASSETS -
Capital Stock Activity
<TABLE>
<CAPTION>
Intermediate Government
Short-Term Bond Fund Income Fund
----------------------------- -----------------------------
Years ended October 31, Years ended October 31,
----------------------------- -----------------------------
1998 1997 1998 1997
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
DOLLAR AMOUNTS
Retail A Shares:
Sold ..................................................... $ 15,574,273 $ 3,995,870 $ 14,217,594 $ 3,669,282
Issued to shareholders in reinvestment of dividends....... 1,235,792 1,346,681 2,790,118 3,067,104
Repurchased............................................... (15,956,842) (10,793,787) (17,809,958) (21,570,468)
------------ ------------- ------------ -------------
Net increase (decrease) in shares outstanding......... $ 853,223 $ (5,451,236) $ (802,246) $ (14,834,082)
============ ============= ============ =============
Retail B Shares:
Sold ..................................................... $ 1,004,036 $ 999,153 $ -- N/A
Issued to shareholders in reinvestment of dividends....... 41,720 21,269 -- N/A
Repurchased............................................... (873,621) (379,826) -- N/A
------------ ------------- ------------ -------------
Net increase in shares outstanding.................... $ 172,135 $ 640,596 $ -- N/A
============ ============= ============ =============
Trust Shares:
Sold ..................................................... $ 19,853,367 $ 24,394,847 $ 56,054,947 $ 36,370,300
Issued to shareholders in reinvestment of dividends....... 1,021,177 1,265,211 3,567,705 3,566,591
Repurchased............................................... (32,944,957) (34,085,253) (36,069,175) (46,829,147)
------------ ------------- ------------ -------------
Net increase (decrease) in shares outstanding......... $(12,070,413) $ (8,425,195) $ 23,553,477 $ (6,892,256)
============ ============= ============ =============
SHARE ACTIVITY
Retail A Shares:
Sold ..................................................... 1,555,052 400,607 1,383,512 365,080
Issued to shareholders in reinvestment of dividends....... 124,057 135,211 272,011 305,443
Repurchased............................................... (1,595,494) (1,083,470) (1,731,933) (2,150,492)
------------ ------------- ------------ -------------
Net increase (decrease) in shares outstanding......... 83,615 (547,652) (76,410) (1,479,969)
============ ============= ============ =============
Retail B Shares:
Sold ..................................................... 101,000 100,387 N/A N/A
Issued to shareholders in reinvestment of dividends....... 4,171 2,134 N/A N/A
Repurchased............................................... (88,011) (38,137) N/A N/A
------------ ------------- ------------ -------------
Net increase in shares outstanding.................... 17,160 64,384 N/A N/A
============ ============= ============ =============
Trust Shares:
Sold ..................................................... 1,986,106 2,446,322 5,459,216 3,618,274
Issued to shareholders in reinvestment of dividends....... 102,083 127,027 347,783 355,211
Repurchased............................................... (3,298,697) (3,421,147) (3,517,644) (4,670,476)
------------ ------------- ------------ -------------
Net increase (decrease) in shares outstanding......... (1,210,508) (847,798) 2,289,355 (696,991)
============ ============= ============ =============
</TABLE>
See Notes to Financial Statements.
22
<PAGE>
THE GALAXY FUND
STATEMENTS OF CHANGES IN NET ASSETS -
Capital Stock Activity
<TABLE>
<CAPTION>
Corporate Bond Fund High Quality Bond Fund
----------------------------- -----------------------------
Years ended October 31, Years ended October 31,
----------------------------- -----------------------------
1998 1997 1998 1997
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
DOLLAR AMOUNTS
Retail A Shares:
Sold ..................................................... $ -- $ -- $ 26,890,214 $ 4,361,984
Issued to shareholders in reinvestment of dividends....... -- -- 1,560,277 1,329,363
Repurchased............................................... -- -- (12,206,245) (9,321,623)
------------ ------------- ------------ -------------
Net increase (decrease) in shares outstanding......... $ -- $ -- $ 16,244,246 (3,630,276)
============ ============= ============ =============
Retail B Shares:
Sold ..................................................... N/A N/A $ 3,721,786 $ 1,462,738
Issued to shareholders in reinvestment of dividends....... N/A N/A 133,597 51,636
Repurchased............................................... N/A N/A (596,983) (210,602)
------------ ------------- ------------ -------------
Net increase in shares outstanding.................... N/A N/A $ 3,258,400 $ 1,303,772
============ ============= ============ =============
Trust Shares:
Sold ..................................................... $ 23,376,133 $ 18,295,070 $ 63,505,520 $ 79,880,780
Issued to shareholders in reinvestment of dividends....... 2,954,566 3,007,004 6,911,279 6,532,304
Repurchased............................................... (36,671,848) (38,089,339) (44,645,712) (57,150,404)
------------ ------------- ------------ -------------
Net increase (decrease) in shares outstanding......... $(10,341,149) $ (16,787,265) $ 25,771,087 $ 29,262,680
============ ============= ============ =============
SHARE ACTIVITY
Retail A Shares:
Sold ..................................................... -- -- 2,460,852 416,980
Issued to shareholders in reinvestment of dividends....... -- -- 142,902 127,282
Repurchased............................................... -- -- (1,118,893) (893,411)
------------ ------------- ------------ -------------
Net increase (decrease) in shares outstanding......... -- -- 1,484,861 (349,149)
============ ============= ============ =============
Retail B Shares:
Sold ..................................................... N/A N/A 339,876 140,116
Issued to shareholders in reinvestment of dividends....... N/A N/A 12,227 4,930
Repurchased............................................... N/A N/A (54,909) (20,125)
------------ ------------- ------------ -------------
Net increase in shares outstanding.................... N/A N/A 297,194 124,921
============ ============= ============ =============
Trust Shares:
Sold ..................................................... 2,187,748 1,749,086 5,817,335 7,652,225
Issued to shareholders in reinvestment of dividends....... 276,364 287,115 633,673 624,915
Repurchased............................................... (3,424,617) (3,637,846) (4,104,688) (5,480,793)
------------ ------------- ------------ -------------
Net increase (decrease) in shares outstanding......... (960,505) (1,601,645) 2,346,320 2,796,347
============ ============= ============ =============
</TABLE>
See Notes to Financial Statements.
23
<PAGE>
THE GALAXY FUND
Short-Term Bond Fund
FINANCIAL HIGHLIGHTS
For a Share outstanding throughout each period.
Retail A Shares
<TABLE>
<CAPTION>
Years ended October 31,
---------------------------------------------------
1998 1997 1996 1995 1994
-------- ---------- --------- ------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................ $ 10.01 $ 9.99 $ 10.06 $ 9.73 $ 10.30
-------- --------- --------- -------- ---------
Income from Investment Operations:
Net investment income (A)..................... 0.51 0.53 0.52 0.55 0.44
Net realized and unrealized gain (loss) on
investments ................................ 0.11 0.02 (0.07) 0.33 (0.51)
-------- --------- --------- -------- ---------
Total from Investment Operations: ..... 0.62 0.55 0.45 0.88 (0.07)
-------- --------- --------- -------- ---------
Less Dividends:
Dividends from net investment income.......... (0.53) (0.53) (0.52) (0.55) (0.44)
Dividends from net realized capital gains..... -- -- -- -- --
Dividends in excess of net realized capital
gains ...................................... -- -- -- -- (0.06)
-------- --------- --------- -------- ---------
Total Dividends: ...................... (0.53) (0.53) (0.52) (0.55) (0.50)
-------- --------- --------- -------- ---------
Net increase (decrease) in net asset value.......... 0.09 0.02 (0.07) 0.33 (0.57)
-------- --------- --------- -------- ---------
Net Asset Value, End of Period...................... $ 10.10 $ 10.01 $ 9.99 $ 10.06 $ 9.73
======== ========= ========= ======== =========
Total Return(2)..................................... 6.42% 5.64% 4.63% 9.28% (0.68)%
Ratios/Supplemental Data:
Net Assets, End of Period (000's)................... $ 29,067 $ 27,961 $ 33,388 $ 31,542 $ 34,061
Ratios to average net assets:
Net investment income including
reimbursement/waiver .................. 5.07% 5.29% 5.22% 5.54% 4.43%
Operating expenses including
reimbursement/waiver .................. 1.11% 1.00% 1.11% 0.99% 0.93%
Operating expenses excluding
reimbursement/waiver .................. 1.31% 1.21% 1.35% 1.32% 1.14%
Portfolio Turnover Rate............................. 133% 173% 214% 289% 233%
</TABLE>
- --------------------------------
* Annualized
** Not Annualized
(1) The Fund began offering Retail B Shares on March 4, 1996.
(2) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares.
(A) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or Administrator for Retail A Shares for the years
ended October 31, 1998, 1997, 1996, 1995 and 1994 were $0.49, $0.51, $0.50,
$0.52 and $0.42, respectively. Net investment income per share before
reimbursement/waiver of fees by the Investment Advisor and/or Administrator
for the Trust Shares for the years ended October 31, 1998, 1997, 1996,
1995, and 1994 were $0.52, $0.52, $0.53, $0.54, and $0.42, respectively.
Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or Administrator for Retail B Shares for the years
ended October 31, 1998, 1997 and 1996 were $0.42, $0.44 and $0.29,
respectively.
See Notes to Financial Statements.
24
<PAGE>
<TABLE>
<CAPTION>
Trust Shares Retail B Shares
Years ended October 31, Years ended October 31,
- ----------------------------------------------------------------------- --------------------------------------
1998 1997 1996 1995 1994 1998 1997 1996(1)
- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 10.01 $ 9.99 $ 10.06 $ 9.73 $ 10.30 $ 10.01 $ 9.99 $ 10.09
- ------- ------- ------- ------- ------- ------- ------- -------
0.54 0.54 0.55 0.57 0.44 0.45 0.46 0.31
0.11 0.02 (0.07) 0.33 (0.51) 0.11 0.03 (0.10)
- ------- ------- ------- ------- ------- ------- ------- -------
0.65 0.56 0.48 0.90 (0.07) 0.56 0.49 0.21
- ------- ------- ------- ------- ------- ------- ------- -------
(0.56) (0.54) (0.55) (0.57) (0.44) (0.47) (0.47) (0.31)
-- -- -- -- -- -- -- --
-- -- -- -- (0.06) -- -- --
- ------- ------- ------- ------- ------- ------- ------- -------
(0.56) (0.54) (0.55) (0.57) (0.50) (0.47) (0.47) (0.31)
- ------- ------- ------- ------- ------- ------- ------- -------
0.09 0.02 (0.07) 0.33 (0.57) 0.09 0.02 (0.10)
- ------- ------- ------- ------- ------- ------- ------- -------
$ 10.10 $ 10.01 $ 9.99 $ 10.06 $ 9.73 $ 10.10 $ 10.01 $ 9.99
======= ======= ======= ======= ======= ======= ======= =======
6.68% 5.77% 4.91% 9.55% (0.66)% 5.73% 4.99% 2.12%**
$38,071 $49,837 $58,227 $35,088 $39,843 $ 1,087 $ 905 $ 260
5.33% 5.43% 5.49% 5.79% 4.45% 4.40% 4.56% 4.73%*
0.85% 0.86% 0.84% 0.74% 0.91% 1.78% 1.75% 1.77%*
1.05% 1.07% 1.08% 1.02% 1.11% 1.99% 2.01% 1.98%*
133% 173% 214% 289% 233% 133% 173% 214%
</TABLE>
25
<PAGE>
THE GALAXY FUND
Intermediate Government Income Fund
FINANCIAL HIGHLIGHTS
For a Share outstanding throughout each period.
Retail A Shares
<TABLE>
<CAPTION>
Years ended October 31,
-----------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.................. $ 10.18 $ 10.06 $ 10.28 $ 9.68 $ 10.72
------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income (A)......................... 0.57 0.59 0.57 0.61 0.57
Net realized and unrealized gain (loss) on
investments ................................ 0.34 0.12 (0.22) 0.60 (1.03)
------- ------- ------- ------- -------
Total from Investment Operations:................. 0.91 0.71 0.35 1.21 (0.46)
------- ------- ------- ------- -------
Less Dividends:
Dividends from net investment income.............. (0.59) (0.59) (0.57) (0.61) (0.56)
Dividends in excess of net investment income...... -- -- -- -- (0.01)
Dividends from net realized capital gains......... -- -- -- -- --
Dividends in excess of net realized capital gains. -- -- -- -- (0.01)
------- ------- ------- ------- -------
Total Dividends:.................................. (0.59) (0.59) (0.57) (0.61) (0.58)
------- ------- ------- ------- -------
Net increase (decrease) in net asset value............ 0.32 0.12 (0.22) 0.60 (1.04)
------- ------- ------- ------- -------
Net Asset Value, End of Period........................ $ 10.50 $ 10.18 $ 10.06 $ 10.28 $ 9.68
======= ======= ======= ======= =======
Total Return(1)....................................... 9.22% 7.33% 3.58% 12.85% (4.42)%
Ratios/Supplemental Data:
Net Assets, End of Period (000's)..................... $66,865 $65,626 $79,741 $79,558 $94,669
Ratios to average net assets:
Net investment income including
reimbursement/waiver ....................... 5.49% 5.90% 5.69% 6.10% 5.58%
Operating expenses including
reimbursement/waiver ....................... 1.01% 1.02% 1.04% 1.02% 0.78%
Operating expenses excluding reimbursement/waiver. 1.21% 1.22% 1.24% 1.26% 0.99%
Portfolio Turnover Rate............................... 210% 128% 235% 145% 124%
</TABLE>
- -------------------------------------
(1) Calculation does not include the effect of any sales charge for Retail A
Shares.
(A) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or Administrator for Retail A Shares for the years
ended October 31, 1998, 1997, 1996, 1995 and 1994 were $0.55, $0.57, $0.55,
$0.58 and $0.54, respectively. Net investment income per share before
reimbursement/waiver of fees by the Investment Advisor and/or Administrator
for the Trust Shares for the years ended October 31, 1998, 1997, 1996, 1995
and 1994 were $0.57, $0.60, $0.58, $0.62 and $0.54, respectively.
See Notes to Financial Statements.
26
<PAGE>
<TABLE>
<CAPTION>
Trust Shares
Years ended October 31,
- ------------------------------------------------------------------------
1998 1997 1996 1995 1994
- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
$ 10.18 $ 10.06 $ 10.28 $ 9.68 $ 10.72
- -------- -------- -------- -------- --------
0.59 0.62 0.60 0.64 0.57
0.35 0.12 (0.22) 0.60 (1.03)
- -------- -------- -------- -------- --------
0.94 0.74 0.38 1.24 (0.46)
- -------- -------- -------- -------- --------
(0.62) (0.62) (0.60) (0.64) (0.56)
-- -- -- -- (0.01)
-- -- -- -- --
-- -- -- -- (0.01)
- -------- -------- -------- -------- --------
(0.62) (0.62) (0.60) (0.64) (0.58)
- -------- -------- -------- -------- --------
0.32 0.12 (0.22) 0.60 (1.04)
- -------- -------- -------- -------- --------
$ 10.50 $ 10.18 $ 10.06 $ 10.28 $ 9.68
======== ======== ======== ======== ========
9.52% 7.63% 3.88% 13.18% (4.39)%
$239,763 $ 209,215 $213,750 $186,037 $212,144
5.77% 6.19% 5.98% 6.39% 5.61%
0.73% 0.74% 0.75% 0.73% 0.75%
0.93% 0.94% 0.95% 0.94% 0.95%
210% 128% 235% 145% 124%
</TABLE>
27
<PAGE>
THE GALAXY FUND
Corporate Bond Fund
FINANCIAL HIGHLIGHTS
For a Share outstanding throughout each period.
Trust Shares
<TABLE>
<CAPTION>
Years ended October 31, Period ended
------------------------------------ October 31,
1998 1997 1996 1995(1)
-------- -------- -------- --------
<S> <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 (A)............................... 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%**
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%*
Operating expenses including reimbursement/waiver..... 0.82% 0.80% 0.85% 1.06%*
Operating expenses excluding reimbursement/waiver..... 1.02% 1.00% 1.05% 1.26%*
Portfolio Turnover Rate................................... 155% 37% 84% 41%**
</TABLE>
- ---------------------------------------------
* Annualized
** Not Annualized
(1) The Fund commenced operations on December 12, 1994.
(A) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or Administrator for the years ended October 31,
1998, 1997 and 1996 and for the period ended October 31, 1995 were $0.60,
$0.64, $0.62 and $0.57, respectively.
See Notes to Financial Statements.
28
<PAGE>
THE GALAXY FUND
High Quality Bond Fund
FINANCIAL HIGHLIGHTS
For a Share outstanding throughout each period.
Retail A Shares
<TABLE>
<CAPTION>
Years ended October 31,
-----------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.................. $ 10.70 $ 10.47 $ 10.63 $ 9.54 $ 11.37
------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income (A)......................... 0.58 0.60 0.59 0.62 0.64
Net realized and unrealized gain (loss) on
investments ................................ 0.50 0.23 (0.16) 1.09 (1.56)
------- ------- ------- ------- -------
Total from Investment Operations:................. 1.08 0.83 0.43 1.71 (0.92)
------- ------- ------- ------- -------
Less Dividends:
Dividends from net investment income.............. (0.58) (0.60) (0.59) (0.62) (0.64)
Dividends from net realized capital gains......... -- -- -- -- --
Dividends in excess of net realized capital gains. -- -- -- -- (0.27)
------- ------- ------- ------- -------
Total Dividends:.................................. (0.58) (0.60) (0.59) (0.62) (0.91)
------- ------- ------- ------- -------
Net increase (decrease) in net asset value............ 0.50 0.23 (0.16) 1.09 (1.83)
------- ------- ------- ------- -------
Net Asset Value, End of Period........................ $ 11.20 $ 10.70 $ 10.47 $ 10.63 $ 9.54
======= ======= ======= ======= =======
Total Return(1)....................................... 10.35% 8.22% 4.24% 18.46% (8.41)%
Ratios/Supplemental Data:
Net Assets, End of Period (000's)..................... $45,879 $27,950 $30,984 $30,093 $26,654
Ratios to average net assets:
Net investment income including
reimbursement/waiver ....................... 5.30% 5.73% 5.66% 6.16% 6.25%
Operating expenses including
reimbursement/waiver ....................... 1.00% 1.01% 1.07% 1.02% 0.81%
Operating expenses excluding
reimbursement/waiver ....................... 1.20% 1.21% 1.28% 1.26% 1.02%
Portfolio Turnover Rate............................... 253% 182% 163% 110% 108%
</TABLE>
- --------------------------------
(1) Calculation does not include the effect of any sales charge for Retail A
Shares.
(A) Net investment income per share for Retail A Shares before reimbursement/
waiver of fees by the Investment Advisor and/or Administrator for the years
ended October 31, 1998, 1997, 1996, 1995 and 1994 were $0.56, $0.58, $0.57,
$0.59 and $0.62, respectively.
See Notes to Financial Statements.
29
<PAGE>
THE GALAXY FUND
High Quality Bond Fund
FINANCIAL HIGHLIGHTS
For a Share outstanding throughout each period.
Trust Shares
<TABLE>
<CAPTION>
Years ended October 31,
----------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.................. $ 10.70 $ 10.47 $ 10.63 $ 9.54 $ 11.37
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income (A)......................... 0.59 0.61 0.62 0.64 0.65
Net realized and unrealized gain (loss) on
investments ................................ 0.50 0.23 (0.16) 1.09 (1.56)
-------- -------- -------- -------- --------
Total from Investment Operations:............... 1.09 0.84 0.46 1.73 (0.91)
-------- -------- -------- -------- --------
Less Dividends:
Dividends from net investment income.............. (0.59) (0.61) (0.62) (0.64) (0.65)
Dividends from net realized capital gains......... -- -- -- -- --
Dividends in excess of net realized capital gains. -- -- -- -- (0.27)
-------- -------- -------- -------- --------
Total Dividends:................................ (0.59) (0.61) (0.62) (0.64) (0.92)
-------- -------- -------- -------- --------
Net increase (decrease) in net asset value............ 0.50 0.23 (0.16) 1.09 (1.83)
-------- -------- -------- -------- --------
Net Asset Value, End of Period........................ $ 11.20 $ 10.70 $ 10.47 $ 10.63 $ 9.54
======== ======== ======== ======== ========
Total Return(2)....................................... 10.50% 8.36% 4.46% 18.66% (8.39)%
Ratios/Supplemental Data:
Net Assets, End of Period (000's)..................... $217,143 $182,398 $149,075 $134,631 $118,776
Ratios to average net assets:
Net investment income including
reimbursement/waiver ....................... 5.43% 5.88% 5.88% 6.33% 6.28%
Operating expenses including
reimbursement/waiver ....................... 0.87% 0.87% 0.85% 0.85% 0.78%
Operating expenses excluding
reimbursement/waiver ....................... 1.07% 1.09% 1.06% 1.07% 0.98%
Portfolio Turnover Rate............................... 253% 182% 163% 110% 108%
</TABLE>
- --------------------------------------------
* Annualized
** Not Annualized
(1) The Fund began offering Retail B Shares on March 4, 1996.
(2) Calculation does not include sales charge for Retail B Shares.
(A) Net investment income per share for Trust Shares before reimbursement/
waiver of fees by the Investment Advisor and/or Administrator for the years
ended October 31, 1998, 1997, 1996, 1995 and 1994 were $0.56, $0.59, $0.60,
$0.62 and $0.63, respectively. Net investment income per share for Retail B
Shares before reimbursement/waiver of fees by the Investment Advisor and/or
Administrator for the years ended October 31, 1998, 1997 and 1996 were
$0.49, $0.51 and $0.34, respectively.
See Notes to Financial Statements.
30
<PAGE>
Retail B Shares
<TABLE>
<CAPTION>
Years ended October 31,
- -------------------------------
1998 1997 1996(1)
- ------- ------- -------
<S> <C> <C>
$ 10.70 $ 10.47 $ 10.72
- ------- ------- -------
0.51 0.53 0.36
0.51 0.24 (0.25)
- ------- ------- -------
1.02 0.77 0.11
- ------- ------- -------
(0.52) (0.54) (0.36)
-- -- --
-- -- --
- ------- ------- -------
(0.52) (0.54) (0.36)
- ------- ------- -------
0.50 0.23 (0.25)
- ------- ------- -------
$ 11.20 $ 10.70 $ 10.47
======= ======= =======
9.73% 7.59% 1.14%**
$ 5,420 $ 1,998 $ 646
4.69% 5.07% 5.34%*
1.61% 1.69% 1.60%*
1.81% 1.95% 1.81%*
253% 182% 163%
</TABLE>
31
<PAGE>
THE GALAXY FUND
NOTES TO FINANCIAL STATEMENTS
1. Organization
The Galaxy Fund, a Massachusetts business trust (the "Trust"), is registered
under the Investment Company Act of 1940, as amended, as an open-end
management investment company. As of the date of this report, the Trust
offered twenty-nine managed investment portfolios. The accompanying financial
statements and financial highlights are those of the Short-Term Bond,
Intermediate Government Income, Corporate Bond and High Quality Bond Funds
(individually, a "Fund", collectively, the "Funds") only.
The Short-Term Bond, Intermediate Government Income and High Quality Bond
Funds are authorized to issue three series of shares (Trust Shares, Retail A
Shares and Retail B Shares). The Corporate Bond Fund is authorized to issue
two series of shares (Trust Shares and Retail A Shares). Currently, the
Short-Term Bond and High Quality Bond Funds offer all three series of shares,
the Intermediate Government Income Fund offers Trust Shares and Retail A
Shares and the Corporate Bond Fund offers Trust Shares only. Trust Shares,
Retail A Shares and Retail B Shares are substantially the same except that
(i) Retail A Shares are subject to a maximum 3.75% front-end sales charge,
(ii) Retail B Shares are subject to a maximum 5.00% contingent deferred sales
charge, and (iii) each series of shares bears the following series specific
expenses: distribution fees and/or shareholder servicing fees and transfer
agency charges. Six years after purchase, Retail B Shares will convert
automatically to Retail A Shares.
2. Significant Accounting Policies
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period.
Actual results could differ from those estimates. The following is a summary
of significant accounting policies in conformity with generally accepted
accounting principles consistently followed by the Funds in the preparation
of their financial statements.
Portfolio Valuation: Investment securities are valued by an independent
pricing service approved by the Trust's Board of Trustees. When, in the
judgment of the service, quoted bid prices are readily available and are
representative of the bid side of the market, investments are valued at the
mean between quoted bid prices and asked prices. 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. Short-term obligations that mature in 60 days or less are
valued at amortized cost, which constitutes fair value as determined by the
Board of Trustees of the Trust. All other securities and other assets are
appraised at their fair value as determined in good faith under consistently
applied procedures established by and under the general supervision of the
Board of Trustees.
Securities Transactions and Investment Income: Securities transactions are
accounted for on a trade date basis. Net realized gains or losses on sales of
securities are determined by the identified cost method. Interest income is
recorded on the accrual basis. Investment income and realized and unrealized
gains and losses are allocated to the separate series of a Fund based upon
the relative net assets of each series.
Dividends to Shareholders: Dividends from net investment income are
determined separately for each series and are declared daily and paid
monthly. Net realized capital gains, if any, are distributed at least
annually.
Income dividends and capital gain dividends are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles.
Federal Income Taxes: The Trust treats each Fund as a separate entity for
Federal income tax purposes. Each Fund intends to continue to qualify each
year as a "regulated investment company" under Subchapter M of the Internal
Revenue Code of 1986, as amended. By so qualifying, each Fund will not be
subject to Federal income taxes to the extent that it distributes
substantially all of its taxable or tax-exempt income, if any, for its tax
year ending October 31. In addition, by distributing in each calendar year
substantially all of its net investment income, capital gains and certain
other amounts, if any, each Fund will not be subject to a Federal excise tax.
Therefore, no Federal income or excise tax provision is recorded.
Expenses: The Trust accounts separately for the assets, liabilities and
operations of each Fund. Expenses directly attributable to a Fund are charged
to the Fund, while expenses which are attributable to more than one fund of
the Trust are allocated among the respective funds.
In addition, expenses of a Fund not directly attributable to the operations
of a particular series of shares of the Fund are allocated to the separate
series based upon the
32
<PAGE>
THE GALAXY FUND
NOTES TO FINANCIAL STATEMENTS (continued)
relative net assets of each series. Operating expenses directly attributable
to a series of shares of a Fund are charged to the operations of that series.
Organization Costs: Each Fund bears all costs in connection with its
organization, including the fees and expenses of registering and qualifying
its initial shares for distribution under Federal and state securities laws.
All such costs are deferred and amortized using the straight-line method over
a period of five years beginning with the commencement of each Fund's
operations. In the event that any of the initial shares purchased by a Fund's
sponsor are redeemed during such period by any holder thereof, the Fund
involved will be reimbursed by such holder for any unamortized organization
costs in the same proportion as the number of initial shares being redeemed
bears to the number of initial shares outstanding at the time of redemption.
3. Investment Advisory, Administration, Distribution, Shareholder Services
and Other Fees
The Trust and Fleet Investment Advisors Inc. (the "Investment Advisor"), an
indirect wholly-owned subsidiary of Fleet Financial Group, Inc., and affiliate
of the Fund, are parties to an investment advisory agreement under which the
Investment Advisor provides services for a fee, computed daily and paid monthly,
at the annual rate of 0.75% of the average daily net assets of each Fund (See
Note 4).
The Trust and First Data Investor Services Group, Inc. ("Investor Services
Group"), a wholly-owned subsidiary of First Data Corporation, are parties to
an administration agreement under which Investor Services Group (the
"Administrator") provides services for a fee, computed daily and paid monthly,
at the annual rate, effective September 10, 1998, of 0.09% of the first $2.5
billion of the combined average daily net assets of the Funds and the other
funds offered by the Trust (whose financial statements are provided in
separate reports), 0.085% of the next $2.5 billion of combined average daily
net assets, 0.075% of the next $7 billion of combined average daily net
assets, 0.065% of the next $3 billion of combined average daily net assets,
0.06% of the next $3 billion of combined average daily net assets and 0.0575%
of combined average daily net assets in excess of $18 billion. Prior to
September 10, 1998, Investor Services Group received administration fees at
the annual rate of 0.09% of the first $2.5 billion of combined average daily
net assets of the Funds and the other funds offered by the Trust, 0.085% of
the next $2.5 billion of combined average daily net assets and 0.075% of
combined average daily net assets over $5 billion.
In addition, Investor Services Group also provides certain fund accounting,
custody administration and transfer agency services in accordance with
certain fee arrangements. Pursuant to these fee arrangements, Investor
Services Group compensates the Trust's custodian bank, The Chase Manhattan
Bank, for its services.
First Data Distributors, Inc. (the "Distributor"), a wholly-owned subsidiary
of Investor Services Group and an indirect wholly-owned subsidiary of First
Data Corporation, serves as the distributor of the Trust's shares.
The Trust has adopted a shareholder services plan ("Services Plan") with
respect to Retail A Shares and Trust Shares of the Funds. Currently, the
Services Plan has not been implemented with respect to the Funds' Trust
Shares. The Services Plan provides compensation to institutions (including
and currently limited to Fleet Bank and its affiliates) which provide
administrative and support services to their customers who beneficially own
Retail A Shares at an aggregate annual rate not to exceed 0.30% of the
average daily net asset value of the outstanding Retail A Shares of each Fund
beneficially owned by such customers. The Trust, under the direction of the
Board of Trustees, is currently limiting fees payable under the Services Plan
with respect to each Fund to an aggregate annual rate not to exceed 0.15% of
the average daily net asset value of the outstanding Retail A Shares
beneficially owned by such customers.
The Trust has adopted a distribution and services plan (the "12b-1 Plan")
with respect to Retail B Shares of the Short-Term Bond, Intermediate
Government Income and High Quality Bond Funds. Under the 12b-1 Plan, the
Trust may pay (i) the Distributor or another person for expenses and
activities primarily intended to result in the sale of Retail B Shares, (ii)
institutions for shareholder liaison services and (iii) institutions for
administrative support services. Currently, payments under the 12b-1 Plan for
distribution services are being made solely to broker-dealer affiliates of
Fleet Bank and payments under the 12b-1 Plan for shareholder liaison and
administrative support services are being made solely to Fleet Bank and its
affiliates. Payments for distribution expenses may not exceed an annual rate
of 0.65% of the average daily net assets attributable to each of the Funds'
outstanding Retail B Shares. The fees paid for shareholder liaison services
and administrative support services may not exceed the annual rates of 0.15%
and 0.15%, respectively, of the average daily net assets attributable to each
of the Funds' outstanding Retail B Shares owned of record or beneficially by
the customers of institutions. The Trust, under the direction of the Board of
Trustees, is currently limiting each Fund's payments for share-
33
<PAGE>
THE GALAXY FUND
NOTES TO FINANCIAL STATEMENTS (continued)
holder liaison and administrative support services under the 12b-1 Plan to an
aggregate fee of not more than 0.15% of the average daily net asset value of
Retail B Shares owned of record or beneficially by the customers of
institutions. For the year ended October 31, 1998, the Funds accrued fees under
the Services Plan and 12b-1 Plan as follows:
<TABLE>
<CAPTION>
12b-1 Plan
Services ----------
Fund Plan Services Distribution
---- ---- -------- ------------
<S> <C> <C> <C>
Short-Term Bond ......................... $41,334 $ 1,427 $ 6,185
Intermediate
Government Income ................... 97,753 -- --
High Quality Bond ....................... 52,525 5,116 22,171
</TABLE>
Retail A Shares, Retail B Shares and Trust Shares of the Funds each bear
series specific transfer agent charges based upon the number of shareholder
accounts for each series. In addition, Trust Shares also bear additional
transfer agency fees in order to compensate Investor Services Group for
payments made to Fleet Bank, an affiliate of the Investment Advisor, for
performing certain sub-accounting and administrative functions on a per
account basis with respect to Trust Shares held by defined contribution
plans. These additional fees are based on the number of underlying
participant accounts. For the year ended October 31, 1998, transfer agent
charges for each series were as follows:
<TABLE>
<CAPTION>
Fund Retail A Retail B Trust
---- -------- -------- -----
<S> <C> <C> <C>
Short-Term Bond $ 38,631 $1,628 $ 13,314
Intermediate
Government Income 104,013 -- 65,001
Corporate Bond N/A N/A 57,666
High Quality Bond 48,541 3,527 310,258
</TABLE>
Certain officers of the Trust may be officers of the Administrator. Such
officers receive no compensation from the Trust for serving in their
respective roles. No officer, director or employee of the Investment Advisor
serves as an officer, trustee or employee of the Trust. Effective March 5,
1998, each Trustee is entitled to receive for services as a trustee of the
Trust, The Galaxy VIP Fund ("VIP") and Galaxy Fund II ("Galaxy II") an
aggregate fee of $40,000 per annum plus certain other fees for attending or
participating in meetings as well as reimbursement for expenses incurred in
attending meetings. Prior to March 5, 1998, each Trustee was entitled to
receive for services as a trustee of the Trust, VIP and Galaxy II an
aggregate fee of $29,000 per annum plus certain other fees for attending or
participating in meetings as well as reimbursement for expenses incurred in
attending meetings. The Chairman of the Boards of Trustees and the President
and Treasurer of the Trust, VIP and Galaxy II are also entitled to additional
fees for their services in these capacities. These fees are allocated among
the funds of the Trust, VIP and Galaxy II, based on their relative net
assets.
Each Trustee is eligible to participate in The Galaxy Fund/VIP/Galaxy II
Deferred Compensation Plan (the "Plan"), an unfunded, non-qualified deferred
compensation plan. The Plan allows each trustee to defer receipt of all or a
percentage of fees which otherwise would be payable for services performed.
Expenses for the year ended October 31, 1998 include legal fees paid to
Drinker Biddle & Reath LLP. A partner of that firm is Secretary to the Trust.
4. Waiver of Fees
Fleet and/or its affiliates and/or Investor Services Group voluntarily agreed
to waive a portion of their fees and/or reimburse the Funds for certain
expenses so that total expenses would not exceed certain expense limitations
established for each Fund. The respective parties, at their discretion, may
revise or discontinue the voluntary fee waivers and expense reimbursements at
any time. For the year ended October 31, 1998, the fees waived and/or
expenses reimbursed with respect to the Funds were as follows:
<TABLE>
<CAPTION>
Expenses
Fund Fees Waived Reimbursed
- ---- ------------ ----------
<S> <C> <C>
Short-Term Bond............ $142,191 $111
Intermediate
Government Income ..... 575,603 --
Corporate Bond............. 178,004 --
High Quality Bond.......... 470,821 --
</TABLE>
5. Shares of Beneficial Interest
The Trust's Declaration of Trust authorizes the Trustees to issue an
unlimited number of shares of beneficial interest, each with a par value of
$0.001. Shares of the Trust are currently classified into thirty classes of
shares each consisting of one or more series including: Class L - Series 1
Shares (Trust Shares), Class L - Series 2 Shares (Retail A Shares) and Class
L - Series 3 Shares (Retail B Shares) - Short-Term Bond Fund; Class D Shares
(Trust Shares), Class D - Special Series 1 Shares (Retail A Shares) and Class
D - Special Series 2 Shares (Retail B Shares) - Intermediate Government
Income Fund; Class T - Series 1 Shares (Trust Shares) and Class T - Series 2
Shares (Retail A Shares) - Corporate Bond Fund; and Class J - Series 1 Shares
(Trust Shares), Class J - Series 2 Shares (Retail A Shares) and Class J -
Series 3 Shares (Retail B Shares) - High Quality Bond Fund.
Each share represents an equal proportionate interest in the respective Fund,
bears the same fees and expenses
34
<PAGE>
THE GALAXY FUND
NOTES TO FINANCIAL STATEMENTS (continued)
(except that Retail A Shares bear the expense of payments under the Services
Plan, Retail B Shares bear the expense of payments under the 12b-1 Plan and
Retail A Shares, Retail B Shares and Trust Shares each bear series specific
transfer agent charges) and are entitled to such dividends and distributions
of income earned as are declared at the discretion of the Trust's Board of
Trustees.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and will vote
in the aggregate and not by class or series, except as otherwise expressly
required by law or when the Board of Trustees determines that the matter to
be voted on affects only the interests of shareholders of a particular class
or series.
6. Purchases and Sales of Securities
The cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the year ended October 31, 1998 were as follows:
<TABLE>
<CAPTION>
Fund
Purchases Government Other
- --------- ---------- -----
<S> <C> <C>
Short-Term Bond....... $ 53,099,848 $ 34,895,279
Intermediate
Government Income. 522,012,315 76,220,558
Corporate Bond........ 79,454,526 54,306,429
High Quality Bond..... 527,895,273 98,910,815
Fund
Sales
- -----
Short-Term Bond....... 48,766,749 52,348,380
Intermediate
Government Income. 488,231,976 89,278,463
Corporate Bond........ 70,706,560 67,357,625
High Quality Bond..... 460,850,099 113,820,967
</TABLE>
The aggregate gross unrealized appreciation and depreciation, net unrealized
appreciation (depreciation), and cost for all securities as computed on a
Federal income tax basis at October 31, 1998 for each Fund is as follows:
<TABLE>
<CAPTION>
Fund Appreciation (Depreciation)
- ---- ------------ --------------
<S> <C> <C>
Short-Term Bond...... $ 995,307 $ (4,769)
Intermediate Government
Income........... 9,777,459 (141,526)
Corporate Bond....... 2,751,048 (218,023)
High Quality Bond.... 12,103,996 (166,970)
Fund Net Cost
- ---- --- ----
Short-Term Bond...... $ 990,538 $ 67,649,973
Intermediate Government
Income........... 9,635,933 293,812,126
Corporate Bond....... 2,533,025 80,277,788
High Quality Bond.... 11,937,026 253,105,515
</TABLE>
At October 31, 1998 the following Funds had capital loss carryforwards:
<TABLE>
<CAPTION>
Fund Amount Expiration
---- ------ ----------
<S> <C> <C>
Short-Term Bond...... $ 7,153 2000
1,797,977 2001
2,843,359 2002
1,206,932 2003
10,917 2004
9,409 2005
Intermediate
Government Income 17,636,357 2002
3,291,626 2003
2,479,060 2004
Corporate Bond....... 288,371 2002
1,309,536 2003
450,363 2005
</TABLE>
35
<PAGE>
THE GALAXY FUND
NOTES TO FINANCIAL STATEMENTS (continued)
Tax Information (unaudited)
During the fiscal year ended October 31, 1998, the following Funds earned
income from direct obligations of the U.S. Government:
<TABLE>
<CAPTION>
U.S. Government
Fund Income
- ---------- ---------------
<S> <C>
Short-Term Bond 16.55%
Intermediate Government Income 41.27%
Corporate Bond 6.88%
High Quality Bond 35.77%
</TABLE>
Appropriate tax information detailing U.S. government income percentages on a
calendar year basis will accompany each shareholder's year-end tax statement.
As each state's rules on the exemption of this income differ, please consult
your tax advisor regarding specific tax treatment.
36
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To Shareholders and the Board of Trustees of
The Galaxy Fund:
In our opinion, the accompanying statements of assets and liabilities,
including the portfolio of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Short-Term Bond Fund,
Intermediate Government Income Fund, Corporate Bond Fund and High Quality Bond
Fund (four series of The Galaxy Fund) at October 31, 1998, the results of their
operations, the changes in their net assets, and their financial highlights for
each of the periods indicated therein, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of The
Galaxy Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at October 31, 1998 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
Boston, Massachusetts PricewaterhouseCoopers LLP
December 23, 1998
<PAGE>
SHAREHOLDER
SERVICES
AUTOMATIC INVESTMENT PROGRAM
The Golden Rule of investing is "pay yourself first." That is easy to do with
Galaxy's Automatic Investment Program. For as little as $50 per month deducted
directly from your checking, savings or bank money market account, you can
consistently and conveniently add to your Galaxy investment. When you establish
an Automatic Investment Program, the $2,500 initial investment requirement for
Galaxy is waived. Of course, such a program does not assure a profit and does
not protect against loss in a declining market.
DIVERSIFICATION
A fundamental investment practice is "diversification." A well-balanced asset
allocation plan may help to control your risk while pursuing your goals. Many
mutual funds offer a low-cost way to diversify your investments while you
benefit from professional management. Galaxy's comprehensive array of
investment choices can be used in combination to match the needs of nearly
everyone.
EXCHANGE PRIVILEGES
As your investment needs change, you can conveniently exchange your shares in
one fund for shares in another fund at no cost (as long as you exchange
within the same share class).
QUARTERLY MAGAZINE
Service also means giving you the practical information you need, in language
you can understand, to make smart investment decisions. The quarterly
magazine, Galaxy Observer, brings news, strategies and simple,
straight-forward explanations of investment basics and terminology.
CONSOLIDATED STATEMENTS
Timely, comprehensive mutual fund account statements offer detailed
information on your individual account. If you have a Fleet One, Fleet Gold
or a Fleet Private Banking Account, your Galaxy Fund information can be added
to these statements.
24-HOUR ACCESS TO REGISTERED REPRESENTATIVES
24 hours a day, seven days a week, 365 days a year, we are ready and
available to help. Our toll-free telephone lines offer round-the-clock access
to Fund information and service. Call 1-877-BUY-GALAXY (289-4252) for
information on initial purchases and current performance.
CUSTOMER SERVICE
Quality customer service is only a phone call away. Call 1-877-BUY-GALAXY
(289-4252) between 9 a.m. and 5 p.m. to arrange bank wires, or to make
telephone exchanges and redemptions.
- --------------------------------------------------------------------------------
Certain shareholder services may not be available to Trust Share investors.
Please consult the Fund Prospectus.
* Shares of the Funds are distributed through First Data Distributors, Inc.,
member NASD and SIPC. Investment Specialists are registered representatives
of FIS Securities, Inc., Fleet Enterprises, Inc., or Quick & Reilly, Inc.,
members NASD and SIPC.
[sidebar]
"A well-balanced asset allocation plan may help to control your risk while
pursuing your goals."
[end sidebar]
<PAGE>
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<PAGE>
TRUSTEES
AND OFFICERS
Dwight E. Vicks, Jr.
Chairman and Trustee
John T. O'Neill
President, Treasurer
and Trustee
Louis DeThomasis,
F.S.C., Ph.D.
Trustee
Donald B. Miller
Trustee
James M. Seed
Trustee
Bradford S. Wellman
Trustee
W. Bruce
McConnel, III, Esq.
Secretary
Jylanne Dunne
Vice President &
Assistant Treasurer
William Greilich
Vice President
INVESTMENT ADVISOR
Fleet Investment
Advisors Inc.
75 State Street
Boston, MA
02109
DISTRIBUTOR
First Data
Distributors, Inc.
4400 Computer Drive
Westborough,
Massachusetts 01581-5108
ADMINISTRATOR
First Data Investor
Services Group, Inc.
4400 Computer Drive
Westborough,
Massachusetts 01581-5108
This report is submitted for the general information of shareholders of The
Galaxy Fund. It is not authorized for distribution to prospective investors
unless accompanied or preceded by an effective prospectus for the Fund, which
contains more information concerning the Fund's investment policies, as well as
fees and expenses and other pertinent information. Read the prospectus carefully
before you invest.
Shares of the Funds are not bank deposits or obligations of, or guaranteed or
endorsed by, Fleet Financial Group, Inc. or any of its affiliates, Fleet
Investment Advisors Inc., or any Fleet Bank. Shares of the Funds are not
federally insured by, guaranteed by, obligations of or otherwise supported by
the U.S. Government, the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other governmental agency. Investment return and principal
value will vary as a result of market conditions or other factors so that
shares of the Funds, when redeemed, may be worth more or less than their
original cost. An investment in the Funds involves investment risks, including
the possible loss of principal amount invested.
[recycled symbol]
This report was printed on recycled paper.
<PAGE>
-----------------
BULK RATE
U.S. POSTAGE PAID
PERMIT NO. 105
[Galaxy Funds Logo] 4400 Computer Drive NORTH READING, MA
P.O. Box 5108 ------------------
Westborough, MA 01581-5108
ANBND (11/98) Date of first use: January 1, 1999
