<PAGE>
[GRAPHIC]
GALAXY BOND FUNDS
THE GALAXY FUND
PROSPECTUS
November 29, 1999
Galaxy Short-Term Bond Fund
Galaxy Intermediate Government Income Fund
Galaxy High Quality Bond Fund
Galaxy Tax-Exempt Bond Fund
PRIME A SHARES AND PRIME B SHARES
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved any shares of these Funds or determined if this
prospectus is accurate or complete. Anyone who tells you otherwise is committing
a crime.
[LOGO]
<PAGE>
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
1 RISK/RETURN SUMMARY
1 Introduction
2 Galaxy Short-Term Bond Fund
7 Galaxy Intermediate Government Income Fund
12 Galaxy High Quality Bond Fund
17 Galaxy Tax-Exempt Bond Fund
22 Additional information about risk
23 Investor guidelines
24 FUND MANAGEMENT
25 HOW TO INVEST IN THE FUNDS
25 How sales charges work
27 Buying, selling and exchanging shares
27 HOW TO BUY SHARES
28 HOW TO SELL SHARES
28 HOW TO EXCHANGE SHARES
28 OTHER SHAREHOLDER SERVICES
28 OTHER TRANSACTION POLICIES
29 DIVIDENDS, DISTRIBUTIONS AND TAXES
31 FINANCIAL HIGHLIGHTS
</TABLE>
<PAGE>
RISK/RETURN SUMMARY
INTRODUCTION
THIS PROSPECTUS describes the Galaxy Bond Funds. Each Fund invests primarily in
debt obligations - taxable bonds, notes and commercial paper, in the case of the
Galaxy Short-Term Bond Fund, Galaxy Intermediate Government Income Fund and
Galaxy High Quality Bond Fund, and municipal securities issued by state and
local governments and other political or public bodies or agencies, the interest
on which is generally free from federal income tax, in the case of the Galaxy
Tax-Exempt Bond Fund.
On the following pages, you'll find important information about each Fund,
including:
- - the Fund's investment objective (sometimes called the Fund's goal) and the
main investment strategies used by the Fund's investment adviser in trying
to achieve that objective
- - the main risks associated with an investment in the Fund
- - the Fund's past performance measured on both a year-by-year and long-term
basis
- - the fees and expenses that you will pay as an investor in the Fund
WHICH FUND IS RIGHT FOR YOU?
Not all mutual funds are for everyone. Your investment goals and tolerance for
risk will determine which fund is right for you. On page 23, you'll find a table
which sets forth general guidelines to help you decide which of the Galaxy Bond
Funds is best suited to you.
THE FUNDS' INVESTMENT ADVISER
Fleet Investment Advisors Inc. (the "Adviser") is the investment adviser for all
of these Funds. The Adviser, which is an indirect wholly-owned subsidiary of
FleetBoston Corporation, was established in 1984 and has its main office at 75
State Street, Boston, Massachusetts 02109. The Adviser also provides investment
management and advisory services to individual and institutional clients and
manages the other Galaxy investment portfolios. As of June 30, 1999, the Adviser
managed over $66 billion in assets.
- --------------------------------------------------------------------------------
AN INVESTMENT IN THE FUNDS ISN'T A FLEET BANK DEPOSIT AND IT ISN'T INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. YOU COULD LOSE MONEY BY INVESTING IN THE FUNDS.
GALAXY BOND FUNDS 1
<PAGE>
GALAXY SHORT-TERM BOND FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks a high level of current income consistent with preservation of
capital.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests primarily in debt obligations of U.S. and foreign corporations,
including bonds and notes, and in debt obligations issued or guaranteed by the
U.S. Government and its agencies or instrumentalities or by foreign governments
or their political subdivisions and instrumentalities. It also invests in
asset-backed and mortgage-backed securities and in money market instruments,
such as commercial paper and the obligations of U.S. and foreign banks. The Fund
normally invests at least 65% of its total assets in bonds and debentures.
In selecting portfolio securities for the Fund, the Adviser monitors and
evaluates economic trends. It establishes duration targets, ranges of interest
payments on bonds of various maturities and determines the appropriate
allocation of the Fund's assets among various market sectors.
Nearly all Fund investments will be of investment grade quality. These are
securities which have one of the top four ratings assigned by Standard & Poor's
Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or are unrated
securities determined by the Adviser to be of comparable quality. Under normal
market conditions, the Fund will invest at least 65% of its total assets in
securities which have one of the top three ratings assigned by S&P and Moody's,
or unrated securities determined by the Adviser to be of comparable quality.
Occasionally, the rating of a security held by the Fund may be downgraded to
below investment grade. If that happens, the Fund doesn't have to sell the
security unless the Adviser determines that under the circumstances the security
is no longer an appropriate investment for the Fund. However, the Fund will sell
promptly any securities that are not rated investment grade by either S&P or
Moody's if the securities exceed 5% of the Fund's net assets.
The Fund's average weighted maturity will be less than three years under normal
circumstances.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
The Fund may trade its investments frequently in trying to achieve its
investment goal.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets. These can occur within or outside the U.S. or worldwide, and may affect
only particular companies or industries.
[Sidenote:]
PRESERVATION OF CAPITAL
Preservation of capital means protecting the amount of money you invest in a
fund. If a fund seeks to preserve capital, it will try to maintain a relatively
stable share price so your investment is protected.
AVERAGE WEIGHTED MATURITY
Average weighted maturity gives you the average time until all debt obligations
in a fund come due or MATURE. It is calculated by averaging the time to maturity
of all debt obligations held by a fund with each maturity "weighted" according
to the percentage of assets it represents.
DURATION
Duration is an approximate measure of the price sensitivity of a fund to changes
in interest rates.
Unlike maturity which measures only the time until final payment, duration gives
you the average time it takes to receive all expected cash flows (including
interest payments, prepayments and final payments) on the debt obligations held
by a fund.
2 GALAXY BOND FUNDS
<PAGE>
GALAXY SHORT-TERM BOND FUND
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities generally tend to move
in the opposite direction to interest rates. When rates are rising, the
prices of debt securities tend to fall. When rates are falling, the prices
of debt securities tend to rise. Generally, the longer the time until
maturity, the more sensitive the price of a debt security is to interest
rate changes.
- - CREDIT RISK - The value of debt securities also depends on the ability of
issuers to make principal and interest payments. If an issuer can't meet
its payment obligations or if its credit rating is lowered, the value of
its debt securities may fall. Debt securities which have the lowest of the
top four ratings assigned by S&P or Moody's are considered to have
speculative characteristics. Changes in the economy are more likely to
affect the ability of the issuers of these securities to make payments of
principal and interest than is the case with higher-rated securities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
debt securities held by the Fund, particularly asset-backed and
mortgage-backed securities, to be paid off much sooner or later than
expected, which could adversely affect the Fund's value. In the event that
a security is paid off sooner than expected because of a decline in
interest rates, the Fund may be unable to recoup all of its initial
investment and may also suffer from having to reinvest in lower-yielding
securities. In the event of a later than expected payment because of a rise
in interest rates, the value of the obligation will decrease and the Fund
may suffer from the inability to invest in higher-yielding securities.
- - FOREIGN INVESTMENTS - Foreign investments may be riskier than U.S.
investments because of factors such as foreign government restrictions,
changes in currency exchange rates, incomplete financial information about
the issuers of securities, and political or economic instability. Foreign
securities may be more volatile and less liquid than U.S. securities.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
- - FREQUENT TRADING - Frequent trading of investments usually increases the
chance that the Fund will pay investors short-term capital gains. These
gains are taxable at higher rates than long-term capital gains. Frequent
trading could also mean higher brokerage commissions and other transaction
costs, which could reduce the Fund's returns.
[Sidenote:]
DEBT OBLIGATION
When a Fund buys a debt obligation such as a bond, it is in effect lending money
to the company, government or other entity that issued the bond. In return, the
issuer has an obligation to make regular interest payments and to repay the
original amount of the loan on a given date, known as the maturity date. A bond
MATURES when it reaches its maturity date. Bonds usually have fixed interest
rates, although some have rates that fluctuate based on market conditions and
other factors.
GALAXY BOND FUNDS 3
<PAGE>
GALAXY SHORT-TERM BOND FUND
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
As of the date of this Prospectus, the Fund has not offered Prime A Shares and
Prime B Shares to investors. The returns below represent the returns for Retail
A Shares of the Fund, which are offered in a separate prospectus. Retail A
Shares, Prime A Shares and Prime B Shares of the Fund should have returns that
are substantially the same because they represent interests in the same
portfolio securities and differ only to the extent that they bear different
expenses.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares of the Fund has
varied from year to year. The figures don't include any sales charges that
investors pay when buying or selling Retail A Shares of the Fund. If sales
charges were included, the returns would be lower.
[CHART]
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
5.81% 6.41% -0.37% 10.96% 3.38% 5.68% 6.07%
</TABLE>
The year-to-date return for Retail A Shares of the Fund as of the period ended
June 30, 1999 was 0.96%.
[Sidenote:]
BEST QUARTER
4.14% for the quarter ending September 30, 1992
WORST QUARTER
- -0.66% for the quarter ending June 30, 1994
4 GALAXY BOND FUNDS
<PAGE>
GALAXY SHORT-TERM BOND FUND
AVERAGE ANNUAL TOTAL RETURNS
The table shows the average annual total returns for Retail A Shares of the Fund
(after taking into account any sales charges) for the periods ended December 31,
1998, as compared to a broad-based market index.
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS INCEPTION
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares(1) 1.00% 4.06% 4.64% (12/30/91)
- ---------------------------------------------------------------------------------------
Retail A Shares(2) 1.07% 4.75% 5.37% (12/30/91)
- ---------------------------------------------------------------------------------------
Lehman Brothers One to Three Year
Government Bond Index 6.98% 5.96% 5.92% (since 12/31/91)
- ---------------------------------------------------------------------------------------
</TABLE>
(1) The performance of Retail A Shares has been restated to include the effect
of the maximum 4.75% sales charge payable on purchases of Prime A Shares.
Prime A Shares are also subject to distribution (12b-1) fees at an annual
rate of 0.25% of the Fund's Prime A Share assets. Had the performance of
Retail A Shares been restated to reflect these distribution (12b-1) fees,
average annual total returns for Retail A Shares would be lower.
(2) The performance of Retail A Shares has been restated to include the effect
of the applicable contingent deferred sales charge payable on redemptions
of Prime B Shares within six years of the date of purchase. Prime B Shares
are also subject to distribution and service (12b-1) fees at an annual rate
of 1.00% of the Fund's Prime B Share assets. Had the performance of Retail
A Shares been restated to reflect these distribution and service (12b-1)
fees, average annual total returns for Retail A Shares would be lower.
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
MAXIMUM SALES CHARGE (LOAD) MAXIMUM DEFERRED SALES CHARGE
ON PURCHASES SHOWN AS A (LOAD) SHOWN AS A % OF THE OFFERING
% OF THE OFFERING PRICE PRICE OR SALE PRICE, WHICHEVER IS LESS
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Prime A Shares 4.75%(1) None(2)
- ----------------------------------------------------------------------------------------
Prime B Shares None 5.00%(3)
- ----------------------------------------------------------------------------------------
</TABLE>
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
DISTRIBUTION TOTAL FUND
MANAGEMENT AND SERVICE OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime A Shares 0.75%(4) 0.25% 0.43%(5) 1.43%(4)
- -----------------------------------------------------------------------------------
Prime B Shares 0.75%(4) 1.00% 0.40%(5) 2.15%(4)
- -----------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds -
How sales charges work."
(2) Except for investments of $1,000,000 or more. See "How to invest in the
Funds - How sales charges work."
(3) This amount applies if you sell your shares in the first year after
purchase and gradually declines to 0% in the seventh year after purchase.
After eight years, your Prime B Shares will automatically convert to Prime
A Shares. See "How to invest in the Funds - How sales charges work."
(4) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be 0.55%. Total Fund operating expenses after this waiver
are expected to be 1.23% for Prime A Shares and 1.95% for Prime B Shares.
This fee waiver may be revised or discontinued at any time.
(5) Based on estimated amounts for the current fiscal year.
[Sidenote:]
The Lehman Brothers One to Three Year Government Bond Index is an unmanaged
index which tracks the performance of short-term U.S. Government bonds.
PORTFOLIO MANAGER
The Adviser's Taxable Fixed Income Strategy Committee is responsible for the
day-to-day management of the Fund's investment portfolio.
GALAXY BOND FUNDS 5
<PAGE>
GALAXY SHORT-TERM BOND FUND
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your Prime B Shares convert to Prime A Shares after eight years
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime A Shares $614 $906 $1,219 $2,107
- ----------------------------------------------------------------------------------------
Prime B Shares $718 $973 $1,354 $2,300
- ----------------------------------------------------------------------------------------
</TABLE>
If you hold Prime B Shares, you would pay the following expenses if you didn't
sell your shares:
<TABLE>
<S> <C> <C> <C> <C>
Prime B Shares $218 $673 $1,154 $2,300
- ----------------------------------------------------------------------------------------
</TABLE>
6 GALAXY BOND FUNDS
<PAGE>
GALAXY INTERMEDIATE GOVERNMENT INCOME FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks the highest level of current income consistent with prudent risk
of capital.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its total assets in debt obligations
issued or guaranteed by the U.S. Government or its agencies and
instrumentalities. It also invests in debt obligations of U.S. corporations,
asset-backed and mortgage-backed securities and money market instruments, such
as commercial paper and obligations of U.S. banks and U.S. branches of foreign
banks.
In selecting portfolio securities for the Fund, the Adviser monitors and
evaluates economic trends. It establishes duration targets, ranges of interest
rates on bonds of various maturities and determines the appropriate allocation
of the Fund's investments among various market sectors.
Nearly all Fund investments will be of investment grade quality and will have
one of the top three ratings assigned by Standard & Poor's Ratings Group ("S&P")
or Moody's Investors Service, Inc. ("Moody's"), or will be unrated securities
determined by the Adviser to be of comparable quality. Occasionally, the rating
of a security held by the Fund may be downgraded to below the minimum required
rating. If that happens, the Fund doesn't have to sell the security unless the
Adviser determines that under the circumstances the security is no longer an
appropriate investment for the Fund. However, the Fund will sell promptly any
securities that are not rated investment grade by either S&P or Moody's if the
securities exceed 5% of the Fund's net assets.
The Fund's average weighted maturity will be between three to ten years under
normal circumstances.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
The Fund may trade its investments frequently in trying to achieve its
investment goal.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets. These can occur within or outside the U.S. or worldwide, and may affect
only particular companies or industries.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities generally tend to move
in the opposite direction to interest rates. When rates are rising, the
prices of debt securities tend to fall. When rates are falling, the prices
of debt securities tend to rise. Generally, the longer the time until
maturity, the more sensitive the price of a debt security is to interest
rate changes.
- - CREDIT RISK - The value of debt securities also depends on the ability of
issuers to make principal and interest payments. If an issuer can't meet
its payment obligations or if its credit rating is lowered, the value of
its debt securities may fall.
[Sidenote:]
U.S. GOVERNMENT OBLIGATIONS
U.S. Government obligations are debt obligations issued or guaranteed by the
U.S. Government or one of its agencies or instrumentalities. U.S. Government
obligations generally have less credit risk than other debt obligations.
GALAXY BOND FUNDS 7
<PAGE>
GALAXY INTERMEDIATE GOVERNMENT INCOME FUND
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
debt securities held by the Fund, particularly asset-backed and
mortgage-backed securities, to be paid off much sooner or later than
expected, which could adversely affect the Fund's value. In the event that
a security is paid off sooner than expected because of a decline in
interest rates, the Fund may be unable to recoup all of its initial
investment and may also suffer from having to reinvest in lower-yielding
securities. In the event of a later than expected payment because of a rise
in interest rates, the value of the obligation will decrease and the Fund
may suffer from the inability to invest in higher-yielding securities.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
- - FREQUENT TRADING - Frequent trading of investments usually increases the
chance that the Fund will pay investors short-term capital gains. These
gains are taxable at higher rates than long-term capital gains. Frequent
trading could also mean higher brokerage commissions and other transaction
costs, which could reduce the Fund's returns.
- --------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund had performed in the past
and give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
As of the date of this Prospectus, the Fund has not offered Prime A Shares and
Prime B Shares to investors. The returns below represent the returns for Retail
A Shares of the Fund, which are offered in a separate prospectus. Retail A
Shares, Prime A Shares and Prime B Shares of the Fund should have returns that
are substantially the same because they represent interests in the same
portfolio securities and differ only to the extent that they bear different
expenses.
Retail A Shares of the Fund were first issued during the fiscal year ended
October 31, 1992. The returns for Retail A Shares of the Fund for prior periods
represent the returns for Trust Shares of the Fund which are offered in a
separate prospectus. Prior to November 1, 1993, the returns for Retail A Shares
and Trust Shares of the Fund were the same because each class of shares had the
same expenses.
8 GALAXY BOND FUNDS
<PAGE>
GALAXY INTERMEDIATE GOVERNMENT INCOME FUND
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares of the Fund has
varied from year to year. The figures don't include any sales charges that
investors pay when buying or selling Retail A Shares of the Fund. If sales
charges were included, the returns would be lower.
[CHART]
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
11.54% 5.87% 15.77% 7.11% 5.57% -3.77% 15.67% 1.75% 7.83% 8.32%
</TABLE>
The year-to-date return for Retail A Shares of the Fund as of the period ended
June 30, 1999 was -2.01%.
[Sidenote:]
BEST QUARTER
8.56% for the quarter ending June 30, 1989
WORST QUARTER
- -2.90% for the quarter ending March 31, 1994
GALAXY BOND FUNDS 9
<PAGE>
GALAXY INTERMEDIATE GOVERNMENT INCOME FUND
AVERAGE ANNUAL TOTAL RETURNS
The table shows the average annual total returns for Retail A Shares of the Fund
(after taking into account any sales charges) for the periods ended December 31,
1998, as compared to broad-based market indices.
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS 10 YEARS INCEPTION
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares(1) 3.15% 4.72% 7.05% 7.00% (9/1/88)
- --------------------------------------------------------------------------------------------------
Retail B Shares(2) 3.32% 5.44% 7.46% 7.51% (9/1/88)
- --------------------------------------------------------------------------------------------------
Lehman Brothers Intermediate
Government/Corporate Bond Index 8.44% 6.60% 8.52% 8.47% (8/31/88)
- --------------------------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index 8.69% 7.27% 9.26% 9.27% (8/31/88)
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) The performance of Retail A Shares has been restated to include the effect
of the maximum 4.75% sales charge payable on purchases of Prime A Shares.
Prime A Shares are also subject to distribution (12b-1) fees at an annual
rate of 0.25% of the Fund's Prime A Share assets. Had the performance of
Retail A Shares been restated to reflect these distribution (12b-1) fees,
average annual total returns for Retail A Shares would be lower.
(2) The performance of Retail A Shares has been restated to include the effect
of the applicable contingent deferred sales charge payable on redemptions
of Prime B Shares within six years of the date of purchase. Prime B Shares
are also subject to distribution and service (12b-1) fees at an annual rate
of 1.00% of the Fund's Prime B Share assets. Had the performance of Retail
A Shares been restated to reflect these distribution and service (12b-1)
fees, average annual total returns for Retail A Shares would be lower.
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
MAXIMUM SALES CHARGE (LOAD) MAXIMUM DEFERRED SALES CHARGE
ON PURCHASES SHOWN (LOAD) SHOWN AS A % OF THE OFFERING
AS A % OF THE OFFERING PRICE PRICE OR SALE PRICE, WHICHEVER IS LESS
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Prime A Shares 4.75%(1) None(2)
- --------------------------------------------------------------------------------------------------
Prime B Shares None 5.00%(3)
- --------------------------------------------------------------------------------------------------
</TABLE>
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
DISTRIBUTION TOTAL FUND
MANAGEMENT AND SERVICE OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime A Shares 0.75%(4) 0.25% 0.31%(5) 1.31%(4)
- ----------------------------------------------------------------------------------------
Prime B Shares 0.75%(4) 1.00% 0.28%(5) 2.03%(4)
- ----------------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds -
How sales charges work."
(2) Except for investments of $1,000,000 or more. See "How to invest in the
Funds - How sales charges work."
(3) This amount applies if you sell your shares in the first year after
purchase and gradually declines to 0% in the seventh year after purchase.
After eight years, your Prime B Shares will automatically convert to Prime
A Shares. See "How to invest in the Funds - How sales charges work."
(4) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be 0.55%. Total Fund operating expenses after this waiver
are expected to be 1.11% for Prime A Shares and 1.83% for Prime B Shares.
This fee waiver may be revised or discontinued at any time.
(5) Based on estimated amounts for the current fiscal year.
[Sidenote:]
The Lehman Brothers Intermediate Government/Corporate Bond Index is an unmanaged
index which tracks the performance of intermediate U.S. Government and corporate
bonds. The Lehman Brothers Aggregate Bond Index is an unmanaged index made up of
the Lehman Brothers/Government Bond Index, its Mortgage Backed Securities and
its Asset Backed Securities Index.
PORTFOLIO MANAGER
The Fund's portfolio manager is Marie M. Schofield, CFA, a Senior Vice President
of the Adviser. She's primarily responsible for the day-to-day management of the
Fund's investment portfolio. Ms. Schofield, who has over 20 years of investment
experience, has been with the Adviser since 1990 and served as a Vice President
and Manager of Fixed Income Investments until February 1999. She has managed the
Fund since December 1996.
10 GALAXY BOND FUNDS
<PAGE>
GALAXY INTERMEDIATE GOVERNMENT INCOME FUND
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your Prime B Shares convert to Prime A Shares after eight years
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
Prime A Shares $602 $870 $1,159 $1,979
- ----------------------------------------------------------------------------------------
Prime B Shares $706 $937 $1,293 $2,173
- ----------------------------------------------------------------------------------------
</TABLE>
If you hold Prime B Shares, you would pay the following expenses if you didn't
sell your shares:
<TABLE>
<S> <C> <C> <C> <C>
Prime B Shares $206 $637 $1,093 $2,173
- ----------------------------------------------------------------------------------------
</TABLE>
GALAXY BOND FUNDS 11
<PAGE>
GALAXY HIGH QUALITY BOND FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks a high level of current income consistent with prudent risk of
capital.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests primarily in obligations issued or guaranteed by the U.S.
Government, its agencies and instrumentalities, as well as in corporate debt
obligations such as notes and bonds. The Fund also invests in asset-backed and
mortgage-backed securities and in money market instruments, such as commercial
paper and bank obligations.
In selecting portfolio securities for the Fund, the Adviser monitors and
evaluates economic trends. It establishes duration targets, ranges of interest
rates on bonds of various maturities and determines the appropriate allocation
of the Fund's investments among various market sectors.
Nearly all Fund investments will be of investment grade quality. These are
securities which have one of the top four ratings assigned by Standard & Poor's
Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or are unrated
securities determined by the Adviser to be of comparable quality. Under normal
market conditions, the Fund will invest at least 65% of its total assets in high
quality securities that have one of the top two ratings assigned by S&P and
Moody's or unrated securities determined by the Adviser to be of comparable
quality. High quality securities tend to pay less income than lower-rated
securities. Occasionally, the rating of a security held by the Fund may be
downgraded to below investment grade. If that happens, the Fund doesn't have to
sell the security unless the Adviser determines that under the circumstances the
security is no longer an appropriate investment for the Fund. However, the Fund
will sell promptly any securities that are not rated investment grade by either
S&P or Moody's if the securities exceed 5% of the Fund's net assets.
The Fund's average weighted maturity will vary from time to time depending on
current market and economic conditions and the Adviser's assessment of probable
changes in interest rates.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
The Fund may trade its investments frequently in trying to achieve its
investment goal.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets. These can occur within or outside the U.S. or worldwide, and may affect
only particular companies or industries.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities generally tend to move
in the
12 GALAXY BOND FUNDS
<PAGE>
GALAXY HIGH QUALITY BOND FUND
opposite direction to interest rates. When rates are rising, the prices of
debt securities tend to fall. When rates are falling, the prices of debt
securities tend to rise. Generally, the longer the time until maturity, the
more sensitive the price of a debt security is to interest rate changes.
- - CREDIT RISK - The value of debt securities also depends on the ability of
issuers to make principal and interest payments. If an issuer can't meet
its payment obligations or if its credit rating is lowered, the value of
its debt securities may fall. Debt securities which have the lowest of the
top four ratings assigned by S&P and Moody's are considered to have
speculative characteristics. Changes in the economy are more likely to
affect the ability of the issuers of these securities to make payments of
principal and interest than is the case with higher-rated securities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
debt securities held by the Fund, particularly asset-backed and
mortgage-backed securities, to be paid off much sooner or later than
expected, which could adversely affect the Fund's value. In the event that
a security is paid off sooner than expected because of a decline in
interest rates, the Fund may be unable to recoup all of its initial
investment and may also suffer from having to reinvest in lower-yielding
securities. In the event of a later than expected payment because of a rise
in interest rates, the value of the obligation will decrease and the Fund
may suffer from the inability to invest in higher-yielding securities.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
- - FREQUENT TRADING - Frequent trading of investments usually increases the
chance that the Fund will pay investors short-term capital gains. These
gains are taxable at higher rates than long-term capital gains. Frequent
trading could also mean higher brokerage commissions and other transaction
costs, which could reduce the Fund's returns.
- --------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
The Fund did not offer Prime A Shares and Prime B Shares to investors until
November 1998. The returns below represent the returns for Retail A Shares of
the Fund, which are offered in a separate prospectus. Retail A Shares, Prime A
Shares and Prime B Shares of the Fund should have returns that are substantially
the same because they represent interests in the same portfolio securities and
differ only to the extent that they bear different expenses.
GALAXY BOND FUNDS 13
<PAGE>
GALAXY HIGH QUALITY BOND FUND
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares of the Fund has
varied from year to year. The figures don't include any sales charges that
investors pay when buying or selling Retail A Shares of the Fund. If sales
charges were included, the returns would be lower.
[CHART]
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C>
15.12% 6.77% 12.81% -6.48% 21.20% 1.37% 9.11% 9.27%
</TABLE>
The year-to-date return for Retail A Shares of the Fund as of the period ended
June 30, 1999 was -3.50%.
[Sidenote:]
BEST QUARTER
7.54% for the quarter ending June 30, 1995
WORST QUARTER
- -3.85% for the quarter ending March 31, 1994
14 GALAXY BOND FUNDS
<PAGE>
GALAXY HIGH QUALITY BOND FUND
AVERAGE ANNUAL TOTAL RETURNS
The table shows the average annual total returns for Retail A Shares of the Fund
(after taking into account any sales charges) for the periods ended December 31,
1998, as compared to a broad-based market index.
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS INCEPTION
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares(1) 4.09% 5.46% 7.68% (12/14/90)
- -----------------------------------------------------------------------------------------
Retail A Shares(2) 4.27% 6.13% 8.33% (12/14/90)
- -----------------------------------------------------------------------------------------
Lehman Brothers Intermediate
Government/Corporate Bond Index 8.44% 6.60% 8.02% (since 11/30/90)
- -----------------------------------------------------------------------------------------
</TABLE>
(1) The performance of Retail A Shares has been restated to include the effect
of the maximum 4.75% sales charge payable on purchases of Prime A Shares.
Prime A Shares are also subject to distribution (12b-1) fees at an annual
rate of 0.25% of the Fund's Prime A Share assets. Had the performance of
Retail A Shares been restated to reflect these distribution (12b-1) fees,
average annual total returns for Retail A Shares would be lower.
(2) The performance of Retail A Shares has been restated to include the effect
of the applicable contingent deferred sales charge payable on redemptions
of Prime B Shares within six years of the date of purchase. Prime B Shares
are also subject to distribution and service (12b-1) fees at an annual rate
of 1.00% of the Fund's Prime B Share assets. Had the performance of Retail
A Shares been restated to reflect these distribution and service (12b-1)
fees, average annual total returns for Retail A Shares would be lower.
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
MAXIMUM SALES CHARGE (LOAD) MAXIMUM DEFERRED SALES CHARGE
ON PURCHASES SHOWN (LOAD) SHOWN AS A % OF THE OFFERING
AS A % OF THE OFFERING PRICE PRICE OR SALE PRICE, WHICHEVER IS LESS
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Prime A Shares 4.75%(1) None(2)
- --------------------------------------------------------------------------------------------------
Prime B Shares None 5.00%(3)
- --------------------------------------------------------------------------------------------------
</TABLE>
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
DISTRIBUTION TOTAL FUND
MANAGEMENT AND SERVICE OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime A Shares 0.75%(4) 0.25% 0.20%(4) 1.20%(4)
- ----------------------------------------------------------------------------------------
Prime B Shares 0.75%(4) 1.00% 0.34%(4) 2.09%(4)
- ----------------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds -
How sales charges work."
(2) Except for investments of $1,000,000 or more. See "How to invest in the
Funds - How sales charges work."
(3) This amount applies if you sell your shares in the first year after
purchase and gradually declines to 0% in the seventh year after purchase.
After eight years, your Prime B Shares will automatically convert to Prime
A Shares. See "How to invest in the Funds - How sales charges work."
(4) The Adviser and certain of the Fund's other service providers are waiving a
portion of their fees so that Management fees and Other expenses are
expected to be 0.55% and 0.20%, respectively, for Prime A Shares and 0.55%
and 0.21%, respectively, for Prime B Shares. Total Fund operating expenses
after these waivers are expected to be 1.00% for Prime A Shares and 1.76%
for Prime B Shares. These fee waivers may be revised or discontinued at any
time.
[Sidenote:]
The Lehman Brothers Intermediate Government/Corporate Bond Index is an unmanaged
index which tracks the performance of Intermediate-term U.S. Government and
corporate bonds.
PORTFOLIO MANAGER
The Fund's portfolio manager is Marie M. Schofield, CFA, a Senior Vice President
of the Adviser. She's primarily responsible for the day-to-day management of the
Fund's investment portfolio. Ms. Schofield, who has over 20 years of investment
experience, has been with the Adviser since 1990 and served as a Vice President
and Manager of Fixed Income Investments until February 1999. She has managed the
Fund since December 1996.
GALAXY BOND FUNDS 15
<PAGE>
GALAXY HIGH QUALITY BOND FUND
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your Prime B Shares convert to Prime A Shares after eight years
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime A Shares $591 $838 $1,103 $1,860
- ----------------------------------------------------------------------------------------
Prime B Shares $712 $955 $1,324 $2,193
- ----------------------------------------------------------------------------------------
</TABLE>
If you hold Prime B Shares, you would pay the following expenses if you didn't
sell your shares:
<TABLE>
<S> <C> <C> <C> <C>
Prime B Shares $212 $655 $1,124 $2,193
- ----------------------------------------------------------------------------------------
</TABLE>
16 GALAXY BOND FUNDS
<PAGE>
GALAXY TAX-EXEMPT BOND FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks to provide shareholders with as high a level of current interest
income free of federal income tax as is consistent with preservation of capital.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities that pay interest which is exempt from regular federal income tax,
primarily bonds (normally 65% of total assets). Under normal conditions, the
Fund will invest no more than 20% of its total assets in taxable obligations,
such as U.S. Government obligations, money market instruments and repurchase
agreements.
Municipal securities purchased by the Fund may include general obligation
securities, revenue securities and private activity bonds. The interest on
private activity bonds may be subject to the federal alternative minimum tax.
Investments in private activity bonds will not be treated as investments in
municipal securities for purposes of the 80% requirement stated above.
In selecting portfolio securities for the Fund, the Adviser evaluates the
suitability of available bonds according to such factors as creditworthiness,
maturity, liquidity and interest rates. It also determines the appropriate
allocation of the Fund's assets among various geographic regions, issuers and
industry sectors.
Nearly all Fund investments will be of investment grade quality. These are
securities which have one of the top four ratings assigned by Standard & Poor's
Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or are unrated
securities determined by the Adviser to be of comparable quality. Under normal
market conditions, the Fund will invest at least 65% of its total assets in
securities that have one of the top three ratings assigned by S&P or Moody's or
unrated securities determined by the Adviser to be of comparable quality.
Occasionally, the rating of a security held by the Fund may be downgraded to
below investment grade. If that happens, the Fund doesn't have to sell the
security unless the Adviser determines that under the circumstances the security
is no longer an appropriate investment for the Fund. However, the Fund will sell
promptly any securities that are not rated investment grade by either S&P or
Moody's if the securities exceed 5% of the Fund's net assets.
The Fund's average weighted maturity will vary from time to time depending on
current economic and market conditions and the Adviser's assessment of probable
changes in interest rates.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets.
[Sidenote:]
MUNICIPAL SECURITIES
State and local governments issue municipal securities to raise money to finance
public works, to repay outstanding obligations, to raise funds for general
operating expenses and to make loans to other public institutions. Some
municipal securities, known as private activity bonds, are backed by private
entities and are used to finance various non-public projects. Municipal
securities, which can be issued as bonds, notes or commercial paper, usually
have fixed interest rates, although some have interest rates that change from
time to time.
TYPES OF MUNICIPAL SECURITIES
GENERAL OBLIGATION securities are secured by the issuer's full faith, credit and
taxing power. REVENUE OBLIGATION securities are usually payable only from
revenues derived from specific facilities or revenue sources. PRIVATE ACTIVITY
bonds are usually revenue obligations since they are typically payable by the
private user of the facilities financed by the bonds.
GALAXY BOND FUNDS 17
<PAGE>
GALAXY TAX-EXEMPT BOND FUND
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities, including municipal
securities, tend to move in the opposite direction to interest rates. When
rates are rising, the prices of debt securities tend to fall. When rates
are falling, the prices of debt securities tend to rise. Generally, the
longer the time until maturity, the more sensitive the price of a debt
security is to interest rate changes.
- - CREDIT RISK - The value of debt securities, including municipal securities,
also depends on the ability of issuers to make principal and interest
payments. If an issuer can't meet its payment obligations or if its credit
rating is lowered, the value of its debt securities will fall. Debt
securities which have the lowest of the top four ratings assigned by S&P or
Moody's have speculative characteristics. Changes in the economy are more
likely to affect the ability of issuers of these securities to make
payments of principal and interest than is the case with higher-rated
securities. The ability of a state or local government issuer to make
payments can be affected by many factors, including economic conditions,
the flow of tax revenues and changes in the level of federal, state or
local aid. Some municipal obligations are payable only from limited revenue
sources or private entities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
municipal securities held by the Fund to be paid off much sooner or later
than expected, which could adversely affect the Fund's value. In the event
that a security is paid off sooner than expected because of a decline in
interest rates, the Fund may be unable to recoup all of its initial
investment and may also suffer from having to reinvest in lower-yielding
securities. In the event of a later than expected payment because of a rise
in interest rates, the value of the obligation will decrease and the Fund
may suffer from the inability to invest in higher-yielding securities.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by each Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
- --------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
18 GALAXY BOND FUNDS
<PAGE>
GALAXY TAX-EXEMPT BOND FUND
As of the date of this Prospectus, the Fund has not offered Prime A Shares and
Prime B Shares to investors. The returns below represent the returns for Retail
A Shares of the Fund, which are offered in a separate prospectus. Retail A
Shares, Prime A Shares and Prime B Shares of the Fund should have returns that
are substantially the same because they represent interests in the same
portfolio securities and differ only to the extent that they bear different
expenses.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares has varied from year
to year. The figures don't include any sales charges that investors pay when
buying or selling Retail A Shares of the Fund. If sales charges were included,
the returns would be lower.
[CHART]
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997 1998
<C> <C> <C> <C> <C> <C> <C>
9.25% 11.95% -5.37% 15.79% 3.31% 8.72% 5.73%
</TABLE>
The year-to-date return for Retail A Shares of the Fund as of the period
ended June 30, 1999 was -1.84%.
[Sidenote:]
BEST QUARTER
6.56% for the quarter ending March 31, 1995
WORST QUARTER
- -5.39% for the quater ending March 31, 1994
GALAXY BOND FUNDS 19
<PAGE>
GALAXY TAX-EXEMPT BOND FUND
AVERAGE ANNUAL TOTAL RETURNS
The table shows the average annual total returns for Retail A Shares of the Fund
(after taking into account any sales charges) for the periods ended December 31,
1998, as compared to a broad-based market index.
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS INCEPTION
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares(1) 0.66% 4.47% 6.24% (12/30/91)
- -----------------------------------------------------------------------------------------
Retail A Shares(2) 0.73% 5.17% 6.98% (12/30/91)
- -----------------------------------------------------------------------------------------
Lehman Brothers Municipal Bond Index 6.48% 6.22% 7.44% (since 12/31/91)
- -----------------------------------------------------------------------------------------
</TABLE>
(1) The performance of Retail A Shares has been restated to include the effect
of the maximum 4.75% sales charge payable on purchases of Prime A Shares.
Prime A Shares are also subject to distribution (12b-1) fees at an annual
rate of 0.25% of the Fund's Prime A Share assets. Had the performance of
Retail A Shares been restated to reflect these distribution (12b-1) fees,
average annual total returns for Retail A Shares would be lower.
(2) The performance of Retail A Shares has been restated to include the effect
of the applicable contingent deferred sales charge payable on redemptions
of Prime B Shares within six years of the date of purchase. Prime B Shares
are also subject to distribution and service (12b-1) fees at an annual rate
of 1.00% of the Fund's Prime B Share assets. Had the performance of Retail
A Shares been restated to reflect these distribution and service (12b-1)
fees, average annual total returns for Retail A Shares would be lower.
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
MAXIMUM SALES CHARGE (LOAD) MAXIMUM DEFERRED SALES CHARGE
ON PURCHASES SHOWN (LOAD) SHOWN AS A % OF THE OFFERING
AS A % OF THE OFFERING PRICE PRICE OR SALE PRICE, WHICHEVER IS LESS
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Prime A Shares 4.75%(1) None(2)
- --------------------------------------------------------------------------------------------------
Prime B Shares None 5.00%(3)
- --------------------------------------------------------------------------------------------------
</TABLE>
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
DISTRIBUTION TOTAL FUND
MANAGEMENT AND SERVICE OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime A Shares 0.75%(4) 0.25% 0.34%(5) 1.34%(4)
- ----------------------------------------------------------------------------------------
Prime B Shares 0.75%(4) 1.00% 0.29%(5) 2.04%(4)
- ----------------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds -
How sales charges work."
(2) Except for investments of $1,000,000 or more. See "How to invest in the
Funds - How sales charges work."
(3) This amount applies if you sell your shares in the first year after
purchase and gradually declines to 0% in the seventh year after purchase.
After eight years, your Prime B Shares will automatically convert to Prime
A Shares. See "How to invest in the Funds - How sales charges work."
(4) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be 0.55%. Total Fund operating expenses after this waiver
are expected to be 1.14% for Prime A Shares and 1.84% for Prime B Shares.
This fee waiver may be revised or discontinued at any time.
(5) Based on estimated amounts for the current fiscal year.
[Sidenote:]
The Lehman Brothers Municipal Bond Index is an unmanaged index which tracks the
performance of municipal bonds.
PORTFOLIO MANAGER
The Adviser's Tax-Exempt Investment Policy Committee is responsible for the
day-to-day management of the Fund's investment portfolio.
20 GALAXY BOND FUNDS
<PAGE>
GALAXY TAX-EXEMPT BOND FUND
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your Prime B Shares convert to Prime A Shares after eight years
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime A Shares $605 $879 $1,174 $2,011
- ----------------------------------------------------------------------------------------
Prime B Shares $707 $940 $1,298 $2,189
- ----------------------------------------------------------------------------------------
</TABLE>
If you hold Prime B Shares, you would pay the following expenses if you didn't
sell your shares:
<TABLE>
<S> <C> <C> <C> <C>
Prime B Shares $207 $640 $1,098 $2,189
- ----------------------------------------------------------------------------------------
</TABLE>
GALAXY BOND FUNDS 21
<PAGE>
ADDITIONAL INFORMATION ABOUT RISK
The principal risks associated with an investment in each of the Galaxy Bond
Funds have been described above. The following supplements that discussion.
TEMPORARY DEFENSIVE POSITIONS
Under unusual market conditions, each Fund may hold uninvested cash (which will
not earn any income) and invest without limit in money market instruments and
short-term U.S. Government securities. Any such taxable investments by the
Galaxy Tax-Exempt Bond Fund may be in excess of 20% of its total assets. This
strategy could prevent a Fund from achieving its investment objective.
OTHER TYPES OF INVESTMENTS
This prospectus describes each Fund's main investment strategies and the
particular types of securities in which each Fund mainly invests. Each Fund may,
from time to time, pursue other investment strategies and make other types of
investments in support of its overall investment goal. These supplemental
investment strategies, which are not considered to be main investment strategies
of the Fund - and the risks involved - are described in detail in the Statement
of Additional Information (SAI) which is referred to on the back cover of this
prospectus.
YEAR 2000 RISKS
As with other mutual funds, financial and business organizations and
individuals around the world, the Funds could be adversely affected if the
computer systems used by the Adviser and the Funds' other service providers
don't properly process and calculate date-related information and data from
and after January 1, 2000. This is commonly known as the "Year 2000" or "Y2K"
problem. The Adviser is taking steps to address the Y2K problem with respect
to the computer systems that it uses and to obtain assurances that comparable
steps are being taken by the Funds' other major service providers. At this
time, however, there can be no assurance that these steps will be sufficient
to avoid any adverse impact on the Funds. The Y2K problem could have a
negative impact on the issuers of the securities in which the Funds invest,
which could hurt the Funds' investment returns.
22 GALAXY BOND FUNDS
<PAGE>
INVESTOR GUIDELINES
The table below provides information as to which type of investor might want to
invest in the Galaxy Bond Funds. It's meant as a general guide only. TAX-EXEMPT
FUNDS ARE NOT APPROPRIATE INVESTMENTS FOR TAX-DEFERRED RETIREMENT ACCOUNTS, SUCH
AS IRAS, BECAUSE THEIR RETURNS BEFORE TAXES ARE GENERALLY LOWER THAN THOSE OF
TAXABLE FUNDS. Consult your broker-dealer to help you decide which Fund is right
for you.
<TABLE>
<CAPTION>
GALAXY FUND MAY BE BEST SUITED FOR INVESTORS WHO...
- -------------------------------------------------------------------------------------
<S> <C>
GALAXY SHORT-TERM BOND FUND want current income greater than that
normally provided by a money market
fund
want less change in the value of their
investment than normally associated with
long-term funds
- -------------------------------------------------------------------------------------
GALAXY INTERMEDIATE GOVERNMENT want current income
INCOME FUND want the extra margin of safety associated
with U.S. Government securities
can accept fluctuations in price and yield
- -------------------------------------------------------------------------------------
GALAXY HIGH QUALITY BOND FUND want current income
want the added safety associated with bonds
with lower credit risk than other debt
securities
can accept fluctuations in price and yield
- -------------------------------------------------------------------------------------
GALAXY TAX-EXEMPT BOND FUND want current income free of federal
income tax
can accept fluctuations in price and yield
- -------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
TAX-EQUIVALENT YIELD
One way to understand the tax advantages of a tax-exempt fund is to compare its
after-tax return to that of a taxable investment. For example, suppose a taxable
fund pays a return of 10%. If you're in the 36% federal income tax bracket, the
fund's return after taxes is 6.4%. When a tax-exempt fund pays a return of 10%,
you don't pay tax. So if you're in the 36% tax bracket, that's the equivalent of
earning about 15.6% on a taxable fund. If you're in a low tax bracket, however,
it may not be helpful to invest in a tax-exempt fund if you can achieve a higher
after-tax return from a taxable investment.
GALAXY BOND FUNDS 23
<PAGE>
FUND MANAGEMENT
ADVISER
The Adviser, subject to the general supervision of Galaxy's Board of Trustees,
manages each Fund in accordance with its investment objective and policies,
makes decisions with respect to and places orders for all purchases and sales of
portfolio securities, and maintains related records.
ALLOCATION OF ORDERS FOR PORTFOLIO SECURITIES
The Adviser may allocate orders for the purchase and sale of portfolio
securities to certain financial institutions, including those that are
affiliated with the Adviser or that have sold shares of the Funds, to the extent
permitted by law or by order of the Securities and Exchange Commission. The
Adviser will allocate orders to such institutions only if it believes that the
quality of the transaction and the commission are comparable to what they would
be with other qualified brokerage firms.
MANAGEMENT FEES
The management fees paid to the Adviser by the Funds during the fiscal year
ended October 31, 1998 are set forth below.
<TABLE>
<CAPTION>
MANAGEMENT FEE
FUND AS A % OF AVERAGE NET ASSETS
- ------------------------------------------------------------------
<S> <C>
Galaxy Short-Term Bond Fund 0.55%
- ------------------------------------------------------------------
Galaxy Intermediate Government
Income Fund 0.55%
- ------------------------------------------------------------------
Galaxy High Quality Bond Fund 0.55%
- ------------------------------------------------------------------
Galaxy Tax-Exempt Bond Fund 0.55%
- ------------------------------------------------------------------
</TABLE>
24 GALAXY BOND FUNDS
<PAGE>
HOW TO INVEST IN THE FUNDS
HOW SALES CHARGES WORK
You will normally pay a sales charge to invest in the Funds. If you buy Prime A
Shares, you'll usually pay a sales charge (sometimes called a front-end load) at
the time you buy your shares. If you buy Prime B Shares, you may have to pay a
contingent deferred sales charge (sometimes called a back-end load or CDSC) when
you sell your shares. This section explains these two options.
PRIME A SHARES
The table below shows the sales charge you'll pay if you buy Prime A Shares of
the Funds. The offering price is the NAV of the shares purchased, plus any
applicable sales charge.
<TABLE>
<CAPTION>
TOTAL SALES CHARGE
- -----------------------------------------------------------------------
AMOUNT OF YOUR AS A % OF THE AS A % OF YOUR
INVESTMENT OFFERING PRICE PER SHARE INVESTMENT
- -----------------------------------------------------------------------
<S> <C> <C>
Less than $50,000 4.75% 4.99%
- -----------------------------------------------------------------------
$50,000 but less
than $100,000 4.50% 4.71%
- -----------------------------------------------------------------------
$100,000 but less
than $250,000 3.50% 3.63%
- -----------------------------------------------------------------------
$250,000 but less
than $500,000 2.50% 2.56%
- -----------------------------------------------------------------------
$500,000 but less
than $1,000,000 2.00% 2.04%
- -----------------------------------------------------------------------
$1,000,000 and over 0.00%(1) 0.00%(1)
- -----------------------------------------------------------------------
</TABLE>
(1) There is no front-end sales charge on investments in Prime A Shares of
$1,000,000 or more. However, if you sell the shares within one year after
buying them, you'll pay a CDSC of 1% of the offering price or 1% of the net
asset value of your shares, whichever is less, unless the shares were sold
because of the death or disability of the shareholder.
Galaxy's distributor may from time to time implement programs under which a
broker-dealer's sales force may be eligible to win nominal awards for certain
sales efforts. If any such program is made available to any broker-dealer, it
will be made available to all broker-dealers on the same terms. Payments made
under such programs are made by Galaxy's distributor out of its own assets and
not out of the assets of the Funds. These programs will not change the price of
Prime A Shares or the amount that the Funds will receive from such sales.
There's no sales charge when you buy Prime A Shares if:
- - you buy shares by reinvesting your dividends and distributions
- - you buy shares with money from Prime A Shares of another Galaxy Fund on
which you've already paid a sales charge (as long as you buy the new shares
within 90 days after selling your other shares)
- - you're an investment professional who places trades for your clients and
charges them a fee
- - you were a Galaxy shareholder before December 1, 1995
[Sidenote:]
NET ASSET VALUE
The price you pay for your shares is based on the net asset value per share
(NAV). It's the value of a Fund's assets attributable to Prime A Shares or Prime
B Shares, minus the value of the Fund's liabilities attributable to Prime A
Shares or Prime B Shares, divided by the number of Prime A Shares or Prime B
Shares held by investors.
Ask your broker-dealer, or consult the SAI, for other instances in which the
sales load on Prime A Shares is waived. When you buy your shares, you must tell
your broker-dealer that you qualify for a sales load waiver.
GALAXY BOND FUNDS 25
<PAGE>
PRIME B SHARES
If you buy Prime B Shares of the Funds, you won't pay a CDSC unless you sell
your shares within six years of buying them. The following table shows the
schedule of CDSC charges:
<TABLE>
<CAPTION>
IF YOU SELL YOU'LL PAY A
YOUR SHARES CDSC OF
- -----------------------------------------
<S> <C>
during the first year 5.00%
- -----------------------------------------
during the second year 4.00%
- -----------------------------------------
during the third year 3.00%
- -----------------------------------------
during the fourth year 3.00%
- -----------------------------------------
during the fifth year 2.00%
- -----------------------------------------
during the sixth year 1.00%
- -----------------------------------------
after the sixth year None
- -----------------------------------------
</TABLE>
For purposes of calculating the CDSC, all purchases made during a calendar month
are considered to be made on the first day of that month. The CDSC is based on
the value of the Prime B Shares on the date that they are sold or the original
cost of the shares, whichever is lower. To keep your CDSC as low as possible
each time you sell shares, Galaxy will first sell any shares in your account
that are not subject to a CDSC. If there are not enough of these, Galaxy will
sell those shares that have the lowest CDSC. There is no CDSC on Prime B Shares
that you acquire by reinvesting your dividends and distributions.
In addition, there's no CDSC when Prime B Shares are sold because of the death
or disability of a shareholder and in certain other circumstances such as
exchanges. Ask your broker-dealer, or consult the SAI, for other instances in
which the CDSC is waived.
DISTRIBUTION AND SHAREHOLDER SERVICE FEES
Prime A Shares of the Funds can pay distribution fees at an annual rate of up to
0.30% of each Fund's Prime A Share assets. The Funds do not intend to pay more
than 0.25% in distribution fees with respect to Prime A Shares during the
current fiscal year.
Prime B Shares of the Funds can pay distribution and shareholder service (12b-1)
fees at an annual rate of up to 1.25% of each Fund's Prime B Share assets. The
Funds do not intend to pay more than 1.00% in distribution and service (12b-1)
fees during the current fiscal year.
Galaxy has adopted plans under Rule 12b-1 that allow each Fund to pay fees from
its Prime A Share assets for selling and distributing Prime A Shares and from
its Prime B Share Assets for selling and distributing Prime B Shares and for
services provided to shareholders. Because 12b-1 fees are paid on an ongoing
basis, over time they increase the cost of your investment and may cost more
than paying other sales charges.
CONVERTING PRIME B SHARES TO PRIME A SHARES
Eight years after you buy Prime B Shares of a Fund, they will automatically
convert to Prime A Shares of the Fund. This allows you to benefit from the lower
annual expenses of Prime A Shares.
CHOOSING BETWEEN PRIME A SHARES AND PRIME B SHARES
Prime B Shares are subject to higher fees than Prime A Shares. For this reason,
Prime A Shares can be expected to pay higher dividends than Prime B Shares.
However, because Prime A Shares are subject to an
26 GALAXY BOND FUNDS
<PAGE>
initial sales charge which is deducted at the time you purchase Prime A Shares
(unless you qualify for a sales load waiver), you will have less of your
purchase price invested in a particular Fund if you purchase Prime A Shares than
if you purchase Prime B Shares of the Fund.
In deciding whether to buy Prime A Shares or Prime B Shares, you should consider
how long you plan to hold the shares. Over time, the higher fees on Prime B
Shares may equal or exceed the initial sales charge and fees for Prime A Shares.
Prime A Shares may be a better choice if you qualify to have the sales charge
reduced or eliminated or if you plan to sell your shares within one or two
years. Consult your financial professional for help in choosing the appropriate
share class.
BUYING, SELLING AND EXCHANGING SHARES
You can buy and sell Prime A Shares and Prime B Shares of the Funds on any day
that the Funds are open for business, which is any day that the New York Stock
Exchange is open. The New York Stock Exchange is generally open for trading
every Monday through Friday, except for national holidays.
Prime A Shares and Prime B Shares have different prices. The price at which you
buy shares is the NAV next determined after your order is accepted, plus any
applicable sales charge. The price at which you sell shares is the NAV next
determined after receipt of your order in proper form, as described below, less
any applicable CDSC. NAV is determined on each day the New York Stock Exchange
is open for trading at the close of regular trading that day (usually 4:00 p.m.
Eastern time). If market prices are readily available for securities owned by
the Fund, they're valued at those prices. If market prices are not readily
available for some securities, they are valued at fair value under the
supervision of Galaxy's Board of Trustees.
Sometimes, the price of a security trading on a foreign stock exchange may be
affected by events that happen after that exchange closes. If this happens, the
fair value of the security may be determined using other factors and may not
reflect the security's last quoted price. In addition, foreign securities may
trade on days when shares of the Funds are not priced. As a result, the net
asset value per share of a Fund holding these securities may change on days when
you won't be able to buy or sell Fund shares.
HOW TO BUY SHARES
You can buy shares through your broker-dealer. Your broker-dealer is responsible
for sending your order to Galaxy's distributor and wiring the money to Galaxy's
custodian. For details, please contact your broker-dealer. A broker-dealer who
places orders on your behalf may charge you a separate fee for its services.
DISCOUNT PLANS
You may have the sales charges on purchases of Prime A Shares reduced or waived
completely through the discount plans
[Sidenote:]
MINIMUM INVESTMENT AMOUNTS
The minimum initial investment to open a Fund account is $2,500. You generally
can make additional investments for as little as $100.
Usually, you must keep at least $250 in your account. If your account falls
below $250 because you sell or exchange shares, Galaxy may redeem your shares
and close your account. Galaxy will give you 60 days' notice in writing before
closing your account.
GALAXY BOND FUNDS 27
<PAGE>
described below:
- - RIGHTS OF ACCUMULATION - You can add the value of the Prime A Shares that
you already own in any Galaxy Fund that charges a sales load to your next
investment in Prime A Shares for purposes of calculating the sales charge.
- - LETTER OF INTENT - You can purchase Prime A Shares of any Galaxy Fund that
charges a sales load over a 13-month period and receive the same sales
charge as if all of the shares had been purchased at the same time. To
participate, complete the Letter of Intent section on the account
application.
- - REINVESTMENT PRIVILEGE - You can reinvest some or all of the money that you
receive when you sell Prime A Shares of the Funds in Prime A Shares of any
Galaxy Fund that offers Prime A Shares within 90 days without paying a
sales charge.
HOW TO SELL SHARES
You can sell your shares through your broker-dealer. The broker-dealer is
responsible for sending your order to Galaxy's distributor and for crediting
your account with the proceeds. Galaxy doesn't charge a fee for wiring sale
proceeds to your broker-dealer, but your broker-dealer may charge you a fee.
Please contact your broker-dealer for information on how to sell your shares.
HOW TO EXCHANGE SHARES
You may exchange Prime A Shares of a Fund having a value of at least $100 for
Prime A Shares of any other Galaxy Fund that offers Prime A Shares. You won't
pay a sales charge for exchanging your Prime A Shares.
You may exchange Prime B Shares of a Fund for Prime B Shares of any other Galaxy
Fund that offers Prime B Shares. You won't pay a CDSC when you exchange your
Prime B Shares. However, when you sell the Prime B Shares you acquired in the
exchange, you'll pay a contingent deferred sales charge based on the date you
bought the Prime B Shares which you exchanged. Galaxy doesn't charge any fee for
making exchanges but your broker-dealer might do so. You are generally limited
to three exchanges per year. Galaxy may change or cancel the exchange privilege
by giving 60 days' advance written notice to shareholders.
To exchange shares contact your broker-dealer.
OTHER SHAREHOLDER SERVICES
Your broker-dealer may offer other shareholder services to its customers. for
example, broker-dealers may offer participation in an automatic investment
program that allows investors to systematically purchase shares of the Funds on
a periodic basis from a designated account. Broker-dealers may also offer a
systematic withdrawal plan which permits investors automatically to sell shares
on a regular basis. Please contact your broker-dealer for details on these and
any other shareholder services that may be available.
OTHER TRANSACTION POLICIES
If Galaxy doesn't receive full payment for your order to buy shares within three
business days of the order date, Galaxy won't accept your order. Galaxy will
advise your broker-dealer if this happens and return any payment it may
eventually receive. You can only invest in shares of the Funds that are legally
available in your state.
[Sidenote:]
You must tell your broker-dealer when you buy your shares that you want to take
advantage of any of these discount plans. See the SAI for additional
requirements that may apply.
28 GALAXY BOND FUNDS
<PAGE>
Galaxy may refuse any order to buy shares. Galaxy doesn't issue a certificate
when you buy shares but it does keep a record of shares issued to investors.
Galaxy normally pays you cash when you sell your shares, but it has the right to
deliver securities owned by a Fund instead of cash. When you sell these
securities, you'll pay brokerage charges.
Sales proceeds are normally sent to your broker-dealer within three business
days but Galaxy reserves the right to send sales proceeds within seven days if
sending proceeds earlier could adversely affect a Fund.
Galaxy reserves the right to vary or waive any minimum investment requirement.
GALAXY BOND FUNDS 29
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Fund declares any dividends from net investment income daily and pays them
monthly. Each Fund pays any net capital gains at least once a year. Dividends
and distributions are paid in cash unless you indicate in the account
application or in a letter to Galaxy that you want to have dividends and
distributions reinvested in additional shares.
GALAXY SHORT-TERM BOND, GALAXY INTERMEDIATE GOVERNMENT INCOME AND GALAXY HIGH
QUALITY BOND FUNDS
Each Fund contemplates declaring as dividends each year all or substantially all
taxable income, including net capital gain (the excess of long-term capital gain
over short-term capital loss). You will be subject to income tax on these
distributions regardless of whether they are paid in cash or reinvested in
additional shares. Distributions attributable to the net capital gain of a Fund
will be taxable to you as long-term capital gain, regardless of how long you
have held your shares. Other Fund distributions will generally be taxable as
ordinary income. You will be notified annually of the tax status of
distributions to you.
You should note that if you purchase shares just prior to a capital gain
distribution, the purchase price will reflect the amount of the upcoming
distribution, but you will be taxed on the entire amount of the distribution
received, even though, as an economic matter, the distribution simply
constitutes a return of capital. This is known as "buying into a dividend."
You will recognize taxable gain or loss on a sale, exchange or redemption of
your shares, including an exchange for shares of another Fund, based on the
difference between your tax basis in the shares and the amount you receive for
them. (To aid in computing your tax basis, you generally should retain your
account statements for the periods during which you held shares.) Any loss
realized on shares held for six months or less will be treated as a long-term
capital loss to the extent of any capital gain dividends that were received on
the shares.
The one major exception to these tax principles is that distributions on, and
sales, exchanges and redemptions of, shares held in an IRA (or other
tax-qualified plan) will not be currently taxable.
GALAXY TAX-EXEMPT BOND FUND
It is expected that the Fund will distribute dividends derived from interest
earned on exempt securities, and these "exempt-interest dividends" will be
exempt income for shareholders for federal income tax purposes. However,
distributions, if any, derived from net capital gains of each Fund will
generally be taxable to you as capital gains. Dividends, if any, derived from
short-term capital gain or taxable interest income will be taxable to you as
ordinary income.
If you receive an exempt-interest dividend with respect to any share and the
share is held by you for six months or less, any loss on the sale or exchange of
the share will be disallowed to the extent of such dividend amount.
30 GALAXY BOND FUNDS
<PAGE>
Interest on indebtedness incurred by a shareholder of the Fund generally will
not be deductible for federal income tax purposes.
You should note that a portion of the exempt-interest dividends paid by the Fund
may constitute an item of tax preference for purposes of determining federal
alternative minimum tax liability. Exempt-interest dividends will also be
considered along with other adjusted gross income in determining whether any
Social Security or railroad retirement payments received by you are subject to
federal income taxes.
STATE AND LOCAL TAXES
Generally, shareholders may also be subject to state and local taxes on
distributions and redemptions. State income taxes may not apply however to the
portions of each Fund's distributions, if any, that are attributable to interest
on U.S. Government securities.
MISCELLANEOUS
The foregoing is only a summary of certain tax considerations under current law,
which may be subject to change in the future. You should consult your tax
advisor for further information regarding federal, state and/or local tax
consequences relevant to your specific situation. You will be notified annually
of the tax status of distributions to you.
GALAXY BOND FUNDS 31
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlight table shown below will help you understand the financial
performance for the Prime A Shares and Prime B Shares of the Galaxy High Quality
Bond Fund for the period from November 1, 1998, the date the Fund began offering
Prime A Shares and Prime B Shares, through April 30, 1999. Certain information
reflects the financial performance of a single Prime A Share or Prime B Share.
The total returns in the table represent the rate that an investor would have
earned (or lost) on an investment in Prime A Shares or Prime B Shares of the
Fund, assuming all dividends and distributions were reinvested. This information
is unaudited. The financial highlights, along with the Fund's financial
statements, are included in the Funds' Semi-Annual Report dated April 30, 1999
and are incorporated by reference into the SAI. The Semi-Annual Report and SAI
are available free of charge upon request. No information is presented for the
Galaxy Short-Term Bond, Galaxy Intermediate Government Income and Galaxy
Tax-Exempt Bond Funds because they did not offer Prime A Shares and Prime B
Shares during the period covered by the table.
GALAXY HIGH QUALITY BOND FUND
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
SIX MONTHS ENDED APRIL 30, 1999 (UNAUDITED)
-------------------------------------------
PRIME A SHARES(1) PRIME B SHARES(1)
- ------------------------------------------------- --------------------- --------------------
<S> <C> <C>
Net asset value, beginning of period $11.20 $11.20
- ------------------------------------------------- --------------------- --------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(2) 0.29 0.24
- ------------------------------------------------- --------------------- --------------------
Net realized and unrealized gain (loss)
on investments (0.42) (0.42)
- ------------------------------------------------- --------------------- --------------------
Total from investment operations (0.13) (0.18)
LESS DIVIDENDS:
Dividends from net investment income (0.27) (0.23)
- ------------------------------------------------- --------------------- --------------------
Dividends from net realized capital gains (0.09) (0.09)
- ------------------------------------------------- --------------------- --------------------
Total dividends (0.36) (0.32)
Net increase (decrease) in net asset value 0.49 0.50
- ------------------------------------------------- --------------------- --------------------
Net asset value, end of period $10.71 $10.70
- ------------------------------------------------- --------------------- --------------------
- ------------------------------------------------- --------------------- --------------------
Total return(3) (1.14)%(4) (1.57)%(4)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $14 $286
- ------------------------------------------------- --------------------- --------------------
RATIOS TO AVERAGE NET ASSETS:
Net investment income including
reimbursement/waiver 5.09%(5) 4.35%(5)
- ------------------------------------------------- --------------------- --------------------
Operating expenses including
reimbursement/waiver 0.95%(5) 1.69%(5)
- ------------------------------------------------- --------------------- --------------------
Operating expenses excluding
reimbursement/waiver 1.68% 2.14%(5)
- ------------------------------------------------- --------------------- --------------------
Portfolio turnover rate 128%(4) 128%(4)
</TABLE>
(1) The Fund began offering Prime A Shares and Prime B Shares on November 1,
1998.
(2) Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for Prime A Shares for the period
ended April 30, 1999 (unaudited) was $0.25. Net investment income per share
before reimbursement/waiver of fees by the Adviser and/or the Fund's
administrator for Prime B Shares for the period ended April 30, 1999
(unaudited) was $0.21.
(3) Calculation does not include the effect of any sales charge for Prime A
Shares and Prime B Shares.
(4) Not annualized.
(5) Annualized.
32 GALAXY BOND FUNDS
<PAGE>
WHERE TO FIND MORE INFORMATION
You'll find more information about the Funds in the following documents:
ANNUAL AND SEMI-ANNUAL REPORTS
Galaxy's annual and semi-annual reports contain more information about each Fund
and a discussion about the market conditions and investment strategies that had
a significant effect on each Fund's performance during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains detailed information about the Funds and their policies. By
law, it's incorporated by reference into (considered to be part of) this
prospectus.
You can get a free copy of these documents, request other information about the
Funds and make shareholder inquiries by contacting your broker-dealer or by
calling Galaxy at 1-877-BUY-GALAXY (1-877-289-4252) or writing to:
The Galaxy Fund
P.O.Box 6520
Providence, RI 02940-6520
You can write to the Securities and Exchange Commission (SEC) Public Reference
Section and ask them to mail you information about the Funds, including the SAI.
They'll charge you a fee for this service. You can also visit the SEC Public
Reference Room and copy the documents while you're there. For information about
the operation of the Public Reference Room, call the SEC.
Public Reference Section of the SEC
Washington, DC 20549-0102
1-202-942-8090.
Reports and other information about the Funds are also available on the EDGAR
Database on the SEC's website at http://www.sec.gov. Copies of this
information may also be obtained, after paying a duplicating fee, by
electronic request to the SEC's e-mail address at [email protected].
Galaxy's Investment Company Act File No. is 811-4636.
QRGALB
<PAGE>
[GRAPHIC]
THE GALAXY FUND
[LOGO]
GALAXY EQUITY FUNDS
PROSPECTUS
November 29, 1999
Galaxy Asset Allocation Fund
Galaxy Equity Income Fund
Galaxy Growth and Income Fund
Galaxy Strategic Equity Fund
Galaxy Equity Value Fund
Galaxy Equity Growth Fund
Galaxy International Equity Fund
Galaxy Small Cap Value Fund
Galaxy Small Company Equity Fund
PRIME A SHARES AND PRIME B SHARES
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved any shares of these Funds as an investment or determined
if this prospectus is accurate or complete. Anyone who tells you otherwise is
committing a crime.
[LOGO]
<PAGE>
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
1 RISK/RETURN SUMMARY
1 Introduction
2 Galaxy Asset Allocation Fund
7 Galaxy Equity Income Fund
11 Galaxy Growth and Income Fund
15 Galaxy Strategic Equity Fund
18 Galaxy Equity Value Fund
22 Galaxy Equity Growth Fund
26 Galaxy International Equity Fund
31 Galaxy Small Cap Value Fund
35 Galaxy Small Company Equity Fund
39 Additional information about risk
40 Investor guidelines
41 FUND MANAGEMENT
42 HOW TO INVEST IN THE FUNDS
42 How sales charges work
44 Buying, selling and exchanging shares
45 HOW TO BUY SHARES
45 HOW TO SELL SHARES
45 HOW TO EXCHANGE SHARES
45 OTHER SHAREHOLDER SERVICES
46 OTHER TRANSACTION POLICIES
47 DIVIDENDS, DISTRIBUTIONS AND TAXES
49 FINANCIAL HIGHLIGHTS
</TABLE>
<PAGE>
RISK/RETURN SUMMARY
INTRODUCTION
THIS PROSPECTUS describes the Galaxy Equity Funds. Each Fund invests primarily
or to a significant degree in equity securities, such as common stock, preferred
stock and securities that are convertible into common stock.
On the following pages, you'll find important information about each Fund,
including:
- - the Fund's investment objective (sometimes called the Fund's goal) and the
main investment strategies used by the Fund's investment adviser in trying
to achieve that objective
- - the main risks associated with an investment in the Fund
- - the Fund's past performance measured on both a year-by-year and long-term
basis
- - the fees and expenses that you will pay as an investor in the Fund
WHICH FUND IS RIGHT FOR YOU?
Not all mutual funds are for everyone. Your investment goals and tolerance for
risk will determine which fund is right for you.
Equity funds are generally best suited to investors seeking growth of their
investment over time and who are prepared to accept the risks associated with
equity securities. Equity funds have the potential for higher returns than other
funds, such as bond funds or money market funds, but also carry more risk.
Different equity funds have different levels of risk. They have varying
objectives and investment styles, and some are considered more aggressive than
others. Generally, a fund's objective and the types of investments it makes can
help you gauge its level of risk. On page 40, you'll find a table that gives a
general overview of the risk spectrum of the Galaxy Equity Funds.
THE FUNDS' INVESTMENT ADVISER
Fleet Investment Advisors Inc. (the "Adviser") is the investment adviser for
all of these Funds. The Adviser, an indirect wholly-owned subsidiary of
FleetBoston Corporation, was established in 1984 and has its main office at
75 State Street, Boston, Massachusetts 02109. The Adviser also provides
investment management and advisory services to individual and institutional
clients and manages the other Galaxy investment portfolios. As of June 30, 1999,
the Adviser managed over $66 billion in assets.
- --------------------------------------------------------------------------------
AN INVESTMENT IN THE FUNDS ISN'T A FLEET BANK DEPOSIT AND IT ISN'T INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. YOU COULD LOSE MONEY BY INVESTING IN THE FUNDS.
GALAXY EQUITY FUNDS 1
<PAGE>
GALAXY ASSET ALLOCATION FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks a high total return by providing both a current level of income
that is greater than that provided by the popular stock market averages, as well
as long-term growth in the value of the Fund's assets.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund aims to provide income that is higher than that provided by the popular
stock market averages. The Adviser interprets this to mean the Dow Jones
Industrial Average of 30 major companies and the Standard & Poor's 500 Composite
Stock Price Index (commonly referred to as the S&P 500). Due to the Fund's
expenses, however, net income paid to you may be less than that. The Fund also
seeks long-term growth in the value of its assets. The Adviser attempts to
achieve these goals and reduce risk by allocating the Fund's assets among
short-term debt securities, common stocks, preferred stocks and bonds.
The Fund seeks a mix of stocks and bonds that will produce both income and
long-term capital growth. This mix will change from time to time as a result of
economic and market conditions. However, the Fund keeps at least 25% of its
total assets in fixed income investments, including debt securities and
preferred stocks, at all times.
Debt securities purchased by the Fund will be of investment grade quality, which
means that they will have one of the top four ratings assigned by Standard &
Poor's Ratings Group (S&P) or Moody's Investor Services, Inc. (Moody's) or will
be unrated securities determined by the Adviser to be of comparable quality.
Occasionally, the rating of a security held by the Fund may be downgraded below
investment grade. If that happens, the Fund doesn't have to sell the security
unless the Adviser determines that under the circumstances the security is no
longer an appropriate investment for the Fund. However, the Fund will sell
promptly any securities that are not rated investment grade by either S&P or
Moody's if the securities exceed 5% of the Fund's net assets.
In selecting portfolio securities for the Fund, the Adviser's investment
policy committee develops an economic outlook and sets guidelines for the
industries and sectors in which the Fund should invest. In selecting equity
securities, the Adviser favors stocks with long-term growth potential that
are expected to outperform their peers over time. The Adviser also forecasts
the direction and degree of change in long-term interest rates to help in the
selection of fixed income securities.
The Fund will sell a security when, as a result of changes in the economy, the
Adviser determines it appropriate to revise the allocation of the Fund's assets
between stocks and bonds. A security may also be sold as a result of a
deterioration in the performance of the security or in the financial condition
of the issuer of the security.
The Fund may trade its investments frequently in trying to achieve its
investment goal.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles,
[Sidenote:]
CURRENT INCOME
Current income includes both dividends from stocks and interest income from
fixed income securities, after deducting Fund expenses.
2 GALAXY EQUITY FUNDS
<PAGE>
GALAXY ASSET ALLOCATION FUND
with periods of rising prices and periods of falling prices.
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The value of fixed income investments such as bonds
are affected by movements in interest rates. Bond prices tend to fall when
interest rates rise and to rise when interest rates fall.
- - CREDIT RISK - The value of fixed income investments also depends on the
ability of an issuer to make principal and interest payments. If an issuer
can't meet its payment obligations or if its credit rating is lowered, the
value of its securities will decline. Debt securities which have the lowest
of the top four ratings assigned by S&P or Moody's have speculative
characteristics. Changes in the economy are more likely to affect the
ability of the issuers of these securities to make payments of principal
and interest than is the case with higher-rated securities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
fixed income investments held by the Fund to be paid off much sooner or
later than expected, which could adversely affect the Fund's value. In the
event that a security is paid off sooner than expected because of a decline
in interest rates, the Fund may be unable to recoup all of its initial
investment and may also suffer from having to reinvest in lower-yielding
securities. In the event of a later than expected payment because of a rise
in interest rates, the value of the obligation will decrease and the Fund
may suffer from the inability to invest in higher-yielding securities.
- - PORTFOLIO COMPOSITION - The level of risk could increase if a larger
percentage of the Fund is invested in one particular asset class, such as
stocks or bonds. However, Galaxy Asset Allocation Funds are generally less
volatile than portfolios that contain only stocks.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
- - FREQUENT TRADING - Frequent trading of investments usually increases the
chance that the Fund will pay investors short-term capital gains. These
gains are taxable at higher rates than long-term capital gains. Frequent
trading could also mean higher brokerage commissions and other transaction
costs, which could reduce the Fund's returns.
GALAXY EQUITY FUNDS 3
<PAGE>
GALAXY ASSET ALLOCATION FUND
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
The Fund did not offer Prime A Shares and Prime B Shares to investors until
November 1998. The returns below represent the returns for Retail A Shares of
the Fund, which are offered in a separate prospectus. Retail A Shares, Prime A
Shares and Prime B Shares of the Fund should have returns that are substantially
the same because they represent interests in the same portfolio securities and
differ only to the extent that they bear different expenses.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares has varied from year
to year. The figures don't include any sales charges that investors pay when
buying or selling Retail A Shares of the Fund. If sales charges were included,
the returns would be lower.
[GRAPH]
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
6.58% 8.08% -2.47% 30.29% 15.11% 19.76% 17.73%
</TABLE>
The year-to-date return for Retail A Shares of the Fund as of the period ended
June 30, 1999 was 3.30%.
[Sidenote:]
BEST QUARTER
11.74% for the quarter ending December 31, 1998
WORST QUARTER
- -3.80% for the quarter ending September 30, 1998
4 GALAXY EQUITY FUNDS
<PAGE>
GALAXY ASSET ALLOCATION FUND
AVERAGE ANNUAL TOTAL RETURNS
The table shows the average annual total returns for Retail A Shares of the Fund
(after taking into account any sales charges) for the periods ended December 31,
1998, as compared to broad-based market indices.
<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares(1) 11.26% 14.27% 12.23% (12/30/91)
- --------------------------------------------------------------------------------
Retail A Shares(2) 12.73% 15.35% 13.14% (12/30/91)
- --------------------------------------------------------------------------------
S&P 500 28.60% 24.05% 19.50% (since 12/31/91)
- --------------------------------------------------------------------------------
DJIA 18.15% 22.30% 19.29% (since 12/31/91)
- --------------------------------------------------------------------------------
</TABLE>
(1) The performance of Retail A Shares has been restated to include the effect
of the maximum 5.50% sales charge payable on purchases of Prime A Shares.
(2) The performance of Retail A Shares has been restated to include the effect
of the applicable contingent deferred sales charge payable on redemptions
of Prime B Shares within six years of the date of purchase. Prime B
Shares are also subject to distribution and service (12b-1) fees at an
annual rate of 1.00% of the Fund's Prime B Share assets. Had the
performance of Retail A Shares been restated to reflect these
distribution and service (12b-1) fees, average annual total returns for
Retail A Shares would be lower.
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
MAXIMUM DEFERRED SALES CHARGE
MAXIMUM SALES CHARGE (LOAD) ON (LOAD) SHOWN AS A % OF THE
PURCHASES SHOWN AS A % OF THE OFFERING PRICE OR SALE PRICE,
OFFERING PRICE WHICHEVER IS LESS
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Prime A Shares 5.50%(1) None(2)
- -----------------------------------------------------------------------------------------------
Prime B Shares None 5.00%(3)
- -----------------------------------------------------------------------------------------------
</TABLE>
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
TOTAL FUND
DISTRIBUTION AND OPERATING
MANAGEMENT FEES SERVICE (12b-1) FEES OTHER EXPENSES EXPENSES
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime A Shares 0.75% 0.25% 0.30%(4) 1.30%(4)
- ------------------------------------------------------------------------------------------------------
Prime B Shares 0.75% 1.00% 0.30%(4) 2.05%(4)
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the
Funds - How sales charges work."
(2) Except for investments of $1,000,000 or more. See "How to
invest in the Funds - How sales charges work."
(3) This amount applies if you sell your shares in the first year after purchase
and gradually declines to 0% in the seventh year after purchase. After eight
years, your Prime B Shares will automatically convert to Prime A Shares. See
"How to invest in the Funds - How sales charges work."
(4) Certain of the Fund's service providers are voluntarily waiving a portion
of their fees so that Other expenses are expected to be 0.17% for Prime A
Shares and 0.17% for Prime B Shares. Total Fund operating expenses after
these waivers are expected to be 1.17% for Prime A Shares and 1.92% for
Prime B Shares. These fee waivers may be revised or discontinued at any
time.
[Sidenote:]
The S&P 500 is an unmanaged index that tracks the performance of 500 widely held
common stocks listed on the New York Stock Exchange, the American Stock Exchange
and NASDAQ. The S&P 500 is heavily weighted with the stocks of large companies.
[Sidenote:]
The Dow Jones Industrial Average (DJIA) is an unmanaged price-weighted average
based on the "price only" performance of 30 blue chip stocks.
GALAXY EQUITY FUNDS 5
<PAGE>
GALAXY ASSET ALLOCATION FUND
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your Prime B Shares convert to Prime A Shares after eight years
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime A Shares $675 $939 $1,224 $2,032
- --------------------------------------------------------------------------------------------------------------------
Prime B Shares $708 $943 $1,303 $2,187
- --------------------------------------------------------------------------------------------------------------------
If you hold Prime B Shares, you would pay the following expenses if you didn't sell your shares:
Prime B Shares $208 $643 $1,103 $2,187
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGERS
The Fund's portfolio managers are Donald Jones, a Vice President of the Adviser,
since 1991, and David Lindsay, CFA, a Senior Vice President of the Adviser since
1992. They are primarily responsible for the day-to-day management of the Fund's
investment portfolio. Mr. Jones has managed the equity portion of the Fund's
portfolio, including determining the allocation of the Fund's assets between
equities and fixed income investments, since May of 1995. He has been with the
Adviser and its predecessors since 1977. Mr. Lindsay has managed the fixed
income portion of the Fund since January of 1997. He has been with the Adviser
and its predecessors since 1986.
6 GALAXY EQUITY FUNDS
<PAGE>
GALAXY EQUITY INCOME FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks current income and capital appreciation.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 75% of its total assets in a diversified
portfolio of income-producing (dividend-paying) equity securities, primarily
common stocks. The Adviser looks for investments that offer dividends,
prospects for dividend growth and capital appreciation. However, the Fund's
portfolio may include securities that offer only growth potential or only
income potential.
The Fund will sell a portfolio security when, as a result of changes in the
economy, the Adviser believes that holding the security is no longer consistent
with the Fund's investment objective. A security may also be sold as a result of
a deterioration in the performance of the security or in the financial condition
of the issuer of the security.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risk:
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past. Both
assume that all dividends and distributions are reinvested in the Fund. How the
Fund has performed in the past doesn't necessarily show how it will perform in
the future.
As of the date of this Prospectus, the Fund has not offered Prime A Shares
and Prime B Shares to investors. The returns below represent the returns for
Retail A Shares of the Fund, which are offered in a separate prospectus.
Retail A Shares, Prime A Shares and Prime B Shares of the Fund have returns
that are substantially the same because they represent interests in the same
portfolio securities and differ only to the extent that they bear separate
expenses.
Retail A Shares of the Fund were first offered during the fiscal year ended
October 31, 1992. The returns for Retail A Shares of the Fund for prior periods
represent the returns for Trust Shares of the Fund which are offered in a
separate prospectus. Prior to November 1, 1993, Retail A Shares and Trust Shares
of the Fund had the same returns because each class of shares had the same
expenses.
[Sidenote:]
CURRENT INCOME
Current income includes both dividends from stocks and interest income from
fixed income securities, after deducting Fund expenses.
[Sidenote:]
MARKET CAPITALIZATION
A company's market capitalization is the price of a share of its stock,
multiplied by the number of shares held by investors.
GALAXY EQUITY FUNDS 7
<PAGE>
GALAXY EQUITY INCOME FUND
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
As of the date of this Prospectus, the Fund has not offered Prime A Shares and
Prime B Shares to investors. The returns below represent the returns for
Retail A Shares of the Fund, which are offered in a separate prospectus.
Retail A Shares, Prime A Shares and Prime B Shares of the Fund should have
returns that are substantially the same because they represent interests in
the same portfolio securities and differ only to the extent that they bear
different expenses.
Retail A Shares of the Fund were first offered during the fiscal year ended
October 31, 1992. The returns for Retail A Shares of the Fund for prior
periods represent the returns for Trust Shares of the Fund which are offered
in a separate prospectus. Prior to November 1, 1993, Retail A Shares and
Trust Shares of the Fund had the same returns because each class of shares had
the same expenses.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares has varied from year
to year. The figures don't include any sales charges that investors pay when
buying or selling Retail A Shares of the Fund. If sales charges were included,
the returns would be lower.
[GRAPH]
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C>
22.37% 7.43% 8.05% 0.75% 32.96% 16.53% 25.51% 15.63%
</TABLE>
The year-to-date return for Retail A Shares of the Fund as of the period ended
June 30, 1999 was 6.32%.
[Sidenote:]
BEST QUARTER
13.31% for the quarter ending June 30, 1997
WORST QUARTER
- -8.41% for the quarter ending September 30, 1998
8 GALAXY EQUITY FUNDS
<PAGE>
GALAXY EQUITY INCOME FUND
AVERAGE ANNUAL TOTAL RETURNS
The table shows the average annual total returns for Retail A Shares of the Fund
(after taking into account any sales charges) for the periods ended December 31,
1998, as compared to a broad-based market index.
<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares(1) 9.25% 16.45% 14.81% (12/14/90)
- ------------------------------------------------------------------------------------------------
Retail A Shares(2) 10.63% 17.56% 15.62% (12/14/90)
- ------------------------------------------------------------------------------------------------
S&P 500 28.60% 24.05% 20.99% (since 11/30/90)
- ------------------------------------------------------------------------------------------------
</TABLE>
(1) The performance of Retail A Shares has been restated to include the effect
of the maximum 5.50% sales charge payable on purchases of Prime A Shares.
(2) The performance of Retail A Shares has been restated to include the
effect of the applicable contingent deferred sales charge payable on
redemptions of Prime B Shares within six years of the date of purchase.
Prime B Shares are also subject to distribution and service (12b-1) fees at
an annual rate of 1.00% of the Fund's Prime B Share assets. Had the
performance of Retail A Shares been restated to reflect these
distribution and service (12b-1) fees, average annual total returns for
Retail A Shares would be lower.
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
MAXIMUM DEFERRED SALES CHARGE
MAXIMUM SALES CHARGE (LOAD) ON (LOAD) SHOWN AS A % OF THE
PURCHASES SHOWN AS A % OF THE OFFERING PRICE OR SALE PRICE,
OFFERING PRICE WHICHEVER IS LESS
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Prime A Shares 5.50%(1) None(2)
- ------------------------------------------------------------------------------------------------
Prime B Shares None 5.00%(3)
- ------------------------------------------------------------------------------------------------
</TABLE>
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
TOTAL FUND
DISTRIBUTION AND OPERATING
MANAGEMENT FEES SERVICE (12b-1) FEES OTHER EXPENSES EXPENSES
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime A Shares 0.75% 0.25% 0.43%(4) 1.43%
- ---------------------------------------------------------------------------------------------------------
Prime B Shares 0.75% 1.00% 0.38%(4) 2.13%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds -
How sales charges work."
(2) Except for investments of $1,000,000 or more. See "How to invest in the
Funds - How sales charges work."
(3) This amount applies if you sell your shares in the first year after
purchase and gradually declines to 0% in the seventh year after purchase.
After eight years, your Prime B Shares will automatically convert to
Prime A Shares. See "How to invest in the Funds - How sales charges work."
(4) Based on estimated amounts for the current fiscal year.
[Sidenote:]
The S&P 500 is an unmanaged index that tracks the performance of 500 widely held
common stocks listed on the New York Stock Exchange, the American Stock Exchange
and NASDAQ. The S&P is heavily weighted with the stocks of large companies.
PORTFOLIO MANAGER
The Fund's portfolio manager is J. Edward Klisiewicz, a Senior Vice President of
the Adviser. He's primarily responsible for the day-to-day management of the
Fund's investment portfolio. Mr. Klisiewicz has been the Fund's portfolio
manager since it began operations. He has been with the Adviser and its
predecessors since 1970.
GALAXY EQUITY FUNDS 9
<PAGE>
GALAXY EQUITY INCOME FUND
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your Prime B Shares convert to Prime A Shares after eight years
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime A Shares $688 $978 $1,289 $2,169
- -----------------------------------------------------------------------------------------------------------------------
Prime B Shares $716 $967 $1,344 $2,284
- -----------------------------------------------------------------------------------------------------------------------
If you hold Prime B Shares, you would pay the following expenses if you didn't sell your shares:
Prime B Shares $216 $667 $1,144 $2,284
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
10 GALAXY EQUITY FUNDS
<PAGE>
GALAXY GROWTH AND INCOME FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks to provide a relatively high total return through long-term
capital appreciation and current income.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its total assets in the common stocks
of U.S. companies with large market capitalizations (generally over $2 billion)
that the Adviser believes offer above-average growth and dividends. The Adviser
focuses on growth stocks which are believed to be attractively priced relative
to expectations for the future performance of the issuing company. The Adviser
also seeks a current yield greater than that of the S&P 500, although not all
Fund investments will pay dividends.
The Fund will sell a portfolio security when, as a result of changes in the
economy, the Adviser believes that holding the security is no longer consistent
with the Fund's investment objective. A security may also be sold as a result of
a deterioration in the performance of the security or in the financial condition
of the issuer of the security.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risk:
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
[Sidenote:]
CURRENT INCOME
Current income includes both dividends from stocks and interest income from
fixed income securities, after deducting Fund expenses.
MARKET CAPITALIZATION
A company's market capitalization is the price of a share of its stock,
multiplied by the number of shares held by investors.
GALAXY EQUITY FUNDS 11
<PAGE>
GALAXY GROWTH AND INCOME FUND
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that all
dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
The Fund did not offer Prime A Shares and Prime B Shares to investors until
November 1998. The returns below represent the returns for Retail A Shares of
the Fund, which are offered in a separate prospectus. Retail A Shares, Prime A
Shares and Prime B Shares of the Fund should have returns that are substantially
the same because they represent interests in the same portfolio securities and
differ only to the extent that they bear different expenses.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares has varied from year
to year. The figures don't include any sales charges that investors pay when
buying or selling Retail A Shares of the Fund. If sales charges were included,
the returns would be lower.
The Fund began operations on December 14, 1992 as a separate portfolio (the
Predecessor Fund) of The Shawmut Funds. On December 4, 1995, the Predecessor
Fund was reorganized as a new portfolio of Galaxy. Prior to the reorganization,
the Predecessor Fund offered and sold two classes of shares, Investment Shares
(which were first offered on February 12, 1993) and Trust Shares (which were
first offered on December 14, 1992), that were similar to the Fund's Retail A
Shares and Trust Shares. In connection with the reorganization, shareholders of
the Predecessor Fund exchanged their Investment Shares and Trust Shares for
Retail A Shares and Trust Shares of the Fund. The returns for periods prior to
December 4, 1995 are for Investment Shares of the Predecessor Fund.
[GRAPH]
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C>
4.83% 29.34% 19.85% 29.19% 15.71%
</TABLE>
The year-to-date return for Retail A Shares of the Fund as of the period ended
June 30, 1999 was 13.13%.
[Sidenote:]
BEST QUARTER
20.66% for the quarter ending December 31, 1998
WORST QUARTER
- -13.50% for the quarter ending September 30, 1998
12 GALAXY EQUITY FUNDS
<PAGE>
GALAXY GROWTH AND INCOME FUND
AVERAGE ANNUAL TOTAL RETURNS
The table shows the average annual total returns for Retail A Shares of the Fund
(after taking into account any sales charges) for the periods ended December 31,
1998, as compared to a broad-based market index.
<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares(1) 9.34% 18.07% 17.14% (2/12/93)
- -----------------------------------------------------------------------------------------------------------------------
Retail A Shares(2) 10.71% 19.23% 18.27% (2/12/93)
- -----------------------------------------------------------------------------------------------------------------------
S&P 500 28.60% 24.05% 21.75% (since 1/31/93)
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The performance of Retail A Shares has been restated to include the effect
of the maximum 5.50% sales charge payable on purchases of Prime A Shares.
(2) The performance of Retail A Shares has been restated to include the
effect of the applicable contingent deferred sales charge payable on
redemptions of Prime B Shares within six years of the date of purchase.
Prime B Shares are also subject to distribution and service (12b-1) fees at
an annual rate of 1.00% of the Fund's Prime B Share assets. Had the
performance of Retail A Shares been restated to reflect these
distribution and service (12b-1) fees, average annual total returns for
Retail A Shares would be lower.
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
MAXIMUM DEFERRED SALES CHARGE
MAXIMUM SALES CHARGE (LOAD) ON (LOAD) SHOWN AS A % OF THE
PURCHASES SHOWN AS A % OF THE OFFERING PRICE OR SALE PRICE,
OFFERING PRICE WHICHEVER IS LESS
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Prime A Shares 5.50%(1) None(2)
- --------------------------------------------------------------------------------------------------
Prime B Shares None 5.00%(3)
- --------------------------------------------------------------------------------------------------
</TABLE>
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
TOTAL FUND
DISTRIBUTION AND OPERATING
MANAGEMENT FEES SERVICE (12b-1) FEES OTHER EXPENSES EXPENSES
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime A Shares 0.75% 0.25% 0.25%(4) 1.25%(4)
- ------------------------------------------------------------------------------------------------------
Prime B Shares 0.75% 1.00% 0.25%(4) 2.00%(4)
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Fund - How
sales charges work."
(2) Except for investments of $1,000,000 or more. See "How to invest in the
Funds - How sales charges work."
(3) This amount applies if you sell your shares in the first year after
purchase and gradually declines to 0% in the seventh year after purchase.
After eight years, your Prime B Shares will automatically convert to
Prime A Shares. See "How to invest in the Funds - How sales charges work."
(4) Certain of the Fund's service providers are voluntarily waiving a portion
of their fees so that Other expenses are expected to be 0.19% for Prime A
Shares and 0.20% for Prime B Shares. Total Fund operating expenses after
these waivers are expected to be 1.19% for Prime A Shares and 1.95% for
Prime B Shares. These fee waivers may be revised or discontinued at any
time.
[Sidenote:]
The S&P 500 is an unmanaged index that tracks the performance of 500 widely held
common stocks listed on the New York Stock Exchange, the American Stock Exchange
and NASDAQ. The S&P 500 is heavily weighted with the stocks of large companies.
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Gregory M. Miller, a Vice President of the
Adviser since 1996. He's been primarily responsible for the day-to-day
management of the Fund's investment portfolio since July 1998. Before that, Mr.
Miller assisted his predecessor in managing the Fund for seven years.
He joined the Adviser in 1985.
GALAXY EQUITY FUNDS 13
<PAGE>
GALAXY GROWTH AND INCOME FUND
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your Prime B Shares convert to Prime A Shares after eight years
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime A Shares $670 $925 $1,199 $1,978
- --------------------------------------------------------------------------------------------------------------------
Prime B Shares $703 $927 $1,278 $2,134
- --------------------------------------------------------------------------------------------------------------------
If you hold Prime B Shares, you would pay the following expenses if you didn't sell your shares:
Prime B Shares $203 $627 $1,078 $2,134
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
14 GALAXY EQUITY FUNDS
<PAGE>
GALAXY STRATEGIC EQUITY FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests at least 65% of its total assets in U.S. equity securities,
primarily common stock and securities that can be converted into common stock.
The Fund's "Value Driven Growth" investment process emphasizes securities
believed to have the potential for the best one- to two-year returns. These
securities are generally selected from a universe of large and medium size
companies representative of the S&P 500, although the universe of stocks
monitored by the Adviser is not limited to stocks of companies included in the
S&P 500. The Fund may invest up to 20% of its total assets in foreign equity
securities. In selecting individual stocks, the Adviser looks at the current
price, projected earnings growth, and historical valuations to derive an
estimate of return potential. The Fund may give emphasis to growth stocks,
value stocks or particular industries, depending upon the Adviser's assessment
of a stock's return potential relative to its price in the broader market.
The Fund will sell a portfolio security when, as a result of a decline in the
security's return potential relative to that of other securities, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective. A security may also be sold as a result of a
deterioration in the performance of the security or in the financial condition
of the issuer of the security.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risks:
- - CONVERTIBLE SECURITIES - Securities that can be converted into common
stock, such as certain debt securities and preferred stock, are subject to
the usual risks associated with fixed income investments, such as interest
rate risk and credit risk. In addition, because they react to changes in
the value of the equity securities into which they will convert,
convertible securities are also subject to stock market risk.
- - FOREIGN INVESTMENTS - Foreign investments may be riskier than U.S.
investments because of factors such as foreign government restrictions,
changes in currency exchange rates, incomplete financial information about
the issuers of securities, and political or economic instability. Foreign
stocks may be more volatile and less liquid than U.S. stocks.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
[Sidenote:]
VALUE STOCKS AND GROWTH STOCKS
Value stocks are ones that appear to be underpriced based on measures such as
lower price-to-earnings and price-to-book value ratios. Growth stocks offer
strong revenue and earnings potential, and accompanying capital growth, with
generally less dividend income than value stocks.
GALAXY EQUITY FUNDS 15
<PAGE>
GALAXY STRATEGIC EQUITY FUND
HOW THE FUND HAS PERFORMED
The Fund began operations in March 1998. As of the date of this Prospectus, the
Fund has not offered Prime A Shares and Prime B Shares to investors. No
performance information is presented because the Fund had a performance record
of less than a full calendar year as of December 31, 1998.
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
MAXIMUM DEFERRED SALES CHARGE
MAXIMUM SALES CHARGE (LOAD) ON (LOAD) SHOWN AS A % OF THE
PURCHASES SHOWN AS A % OF THE OFFERING PRICE OR SALE PRICE,
OFFERING PRICE WHICHEVER IS LESS
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Prime A Shares 5.50%(1) None(2)
- --------------------------------------------------------------------------------------------------
Prime B Shares None 5.00%(3)
- --------------------------------------------------------------------------------------------------
</TABLE>
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
TOTAL FUND
DISTRIBUTION AND OPERATING
MANAGEMENT FEES SERVICE (12b-1) FEES OTHER EXPENSES EXPENSES
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime A Shares 0.75%(4) 0.25% 0.70%(5) 1.70%(4)
- -----------------------------------------------------------------------------------------------------
Prime B Shares 0.75%(4) 1.00% 0.60%(5) 2.35%(4)
- -----------------------------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds -
How sales charges work."
(2) Except for investments of $1,000,000 or more. See "How to invest in the
Funds - How sales charges work."
(3) This amount applies if you sell your shares in the first year after
purchase and gradually declines to 0% in the seventh year after purchase.
After eight years, your Prime B Shares will automatically convert to
Prime A Shares. See "How to invest in the Funds - How sales charges work."
(4) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be 0.55%. Total Fund operating expenses after this waiver
are expected to be 1.50% for Prime A Shares and 2.15% for Prime B Shares.
This fee waiver may be revised or discontinued at any time.
(5) Based on estimated amounts for the current fiscal year.
16 GALAXY EQUITY FUNDS
<PAGE>
GALAXY STRATEGIC EQUITY FUND
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your Prime B Shares convert to Prime A Shares after eight years
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime A Shares $713 $1,056 $1,422 $2,448
- ----------------------------------------------------------------------------------------------------------------------
Prime B Shares $238 $ 733 $1,255 $2,524
- ----------------------------------------------------------------------------------------------------------------------
If you hold Prime B Shares, you would pay the following expenses if you didn't sell your shares:
Prime B Shares $738 $1,033 $1,455 $2,524
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Peter B. Hathaway, CFA, a Senior Vice President
of the Adviser. He's primarily responsible for the day-to-day management of the
Fund's investment portfolio. Mr. Hathaway has been the Fund's portfolio manager
since it began operations in March 1998. He has been in the investment
management business with the Adviser and its predecessors since 1964 and has
been responsible for the Adviser's Value Driven Growth investment process since
1991.
GALAXY EQUITY FUNDS 17
<PAGE>
GALAXY EQUITY VALUE FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation. Income is secondary to the
objective of capital appreciation.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 75% of its total assets in equity securities,
mainly common stocks, that the Adviser believes are undervalued. The Fund
invests most of its assets in companies that have a market capitalization of
more than $1.5 billion.
The Adviser uses proprietary computer models to compare share price and company
value, both compared to the market and over time. This helps the Adviser to
identify out-of-favor, undervalued securities (often called value stocks) which
may subsequently increase in value. These models focus on fundamental aspects
such as earnings and dividend growth, reinvestment of returns and the ability of
companies to finance their own growth. The models also take into account factors
such as how easily the stocks may be traded. The Adviser then reviews the
results and looks for risks that may account for a stock's low price. It
evaluates factors the computer models can't measure, such as the quality of a
company's management and the impact of technological change. Stocks which pass
all tests are eligible to be included in the Fund's portfolio. Fund holdings are
frequently reviewed and are sold automatically when the computer models show
they are overvalued.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risk:
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
[Sidenote:]
MARKET CAPITALIZATION
A company's market capitalization is the price of a share of its stock,
multiplied by the number of shares held by investors.
VALUE STOCKS
Value stocks are ones that appear to be underpriced based on measures such as
lower price-to-earnings and price-to-book value ratios.
18 GALAXY EQUITY FUNDS
<PAGE>
GALAXY EQUITY VALUE FUND
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that all
dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
As of the date of this Prospectus, the Fund has not offered Prime A Shares
and Prime B Shares to investors. The returns below represent the returns for
Retail A Shares of the Fund, which are offered in a separate prospectus.
Retail A Shares, Prime A Shares and Prime B Shares of the Fund should have
returns that are substantially the same because they represent interests in the
same portfolio securities and differ only to the extent that they bear
different expenses.
Retail A Shares of the Fund were first issued during the fiscal year ended
October 31, 1991. The returns for Retail A Shares for prior periods represent
the returns for Trust Shares of the Fund which are offered in a separate
prospectus. Prior to November 1, 1993, Retail A Shares and Trust Shares of the
Fund had the same returns because each class of shares had the same expenses.
YEAR-BY-YEAR RETURNS
The bar chart shows how the performance of Retail A Shares has varied from
year to year. The figures don't include any sales charges that investors pay
when buying or selling Retail A Shares of the Fund. If sales charges were
included, the returns would be lower.
[GRAPH]
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
16.93% -3.20% 23.36% 8.21% 14.75% 3.51% 27.78% 21.09% 27.66% 23.75%
</TABLE>
The year-to-date return for Retail A Shares of the Fund as of the period ended
June 30, 1999 was 9.96%.
[Sidenote:]
BEST QUARTER
27.15% for the quarter ending December 31, 1998
WORST QUARTER
- -15.28% for the quarter ending September 30, 1998
GALAXY EQUITY FUNDS 19
<PAGE>
GALAXY EQUITY VALUE FUND
AVERAGE ANNUAL TOTAL RETURNS
The table shows the average annual total returns for Retail A Shares of the Fund
(after taking into account any sales charges) for the periods ended December 31,
1998, as compared to broad-based market indices.
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares(1) 16.94% 19.04% 15.50% 15.20% (9/1/88)
- ------------------------------------------------------------------------------------------------------------------------------
Retail A Shares(2) 18.75% 20.21% 15.93% 15.83% (9/1/88)
- ------------------------------------------------------------------------------------------------------------------------------
S&P 500 28.60% 24.05% 19.19% 19.35% (since 8/31/88)
- ------------------------------------------------------------------------------------------------------------------------------
Lipper Growth and Income
Funds Average 15.59% 18.35% 15.52% 15.66% (since 8/31/88)
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The performance of Retail A Shares has been restated to include the
effect of the maximum 5.50% sales charge payable on purchases of Prime A
Shares.
(2) The performance of Retail A Shares has been restated to include the
effect of the applicable contingent deferred sales charge payable on
redemptions of Prime B Shares within six years of the date of purchase.
Prime B Shares are also subject to distribution and service (12b-1) fees at
an annual rate of 1.00% of the Fund's Prime B Share assets. Had the
performance of Retail A Shares been restated to reflect these
distribution and service (12b-1) fees, average annual total returns for
Retail A Shares would be lower.
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
MAXIMUM DEFERRED SALES CHARGE
MAXIMUM SALES CHARGE (LOAD) ON (LOAD) SHOWN AS A % OF THE
PURCHASES SHOWN AS A % OF THE OFFERING PRICE OR SALE PRICE,
OFFERING PRICE WHICHEVER IS LESS
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Prime A Shares 5.50%(1) None(2)
- --------------------------------------------------------------------------------------------------
Prime B Shares None 5.00%(3)
- --------------------------------------------------------------------------------------------------
</TABLE>
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
TOTAL FUND
DISTRIBUTION AND OPERATING
MANAGEMENT FEES SERVICE (12b-1) FEES OTHER EXPENSES EXPENSES
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime A Shares 0.75% 0.25% 0.40%(4) 1.40%
- ---------------------------------------------------------------------------------------------------------
Prime B Shares 0.75% 1.00% 0.42%(4) 2.17%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds
- How sales charges work."
(2) Except for investments of $1,000,000 or more. See "How to invest in the
Funds - How sales charges work."
(3) This amount applies if you sell your shares in the first year after
purchase and gradually declines to 0% in the seventh year after purchase.
After eight years, your Prime B Shares will automatically convert to
Prime A Shares. See "How to invest in the Funds - How sales charges work."
(4) Based on estimated amounts for the current fiscal year.
[Sidenote:]
The S&P 500 is an unmanaged index that tracks the performance of 500 widely held
common stocks listed on the New York Stock Exchange, the American Stock Exchange
and NASDAQ. The S&P 500 is heavily weighted with the stocks of large companies.
The Lipper Growth and Income Funds Average is an unmanaged index that measures
the performance of a select group of mutual funds with investment objectives
similar to that of the Fund.
PORTFOLIO MANAGER
The Fund's portfolio manager is G. Jay Evans, a Senior Vice President of the
Adviser since 1994. He's been primarily responsible for the day-to-day
management of the Fund's investment portfolio. Mr. Evans has been the Fund's
portfolio manager since 1993. He has been with the Adviser and its predecessors
since 1978.
20 GALAXY EQUITY FUNDS
<PAGE>
GALAXY EQUITY VALUE FUND
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your Prime B Shares convert to Prime A Shares after eight years
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime A Shares $685 $969 $1,274 $2,137
- ---------------------------------------------------------------------------------------------------------------------------
Prime B Shares $720 $979 $1,364 $2,308
- ---------------------------------------------------------------------------------------------------------------------------
If you hold Prime B Shares, you would pay the following expenses if you didn't sell your shares:
Prime B Shares $220 $679 $1,164 $2,308
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
GALAXY EQUITY FUNDS 21
<PAGE>
GALAXY EQUITY GROWTH FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 75% of its total assets in a broadly
diversified portfolio of equity securities, primarily common stocks and
securities that can be converted into common stocks. The Fund invests mainly in
the securities of U.S. issuers, but may invest up to 20% of its total assets in
foreign securities.
The Fund invests mainly in companies which the Adviser believes will have faster
earnings growth than the economy in general. The Adviser looks for
large-capitalization companies (generally over $2 billion) in growing
industries, focusing on technological advances, good product development, strong
management and other factors which support future growth. The Adviser seeks out
companies that have a history of strong earnings growth and are projected to
continue a similar pattern of growth over the next three to five years.
The Fund will sell a security if there is an adverse change in the projected
earnings growth of the company issuing the security. A security will also be
sold when, as a result of changes in the economy or the performance of the
security or other circumstances, the Adviser believes that holding the security
is no longer consistent with the Fund's investment objective.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risks:
- - CONVERTIBLE SECURITIES - Securities that can be converted into common
stock, such as certain debt securities and preferred stock, are subject to
the usual risks associated with fixed income investments, such as interest
rate risk and credit risk. In addition, because they react to changes in
the value of the equity securities into which they will convert,
convertible securities are also subject to stock market risk.
- - FOREIGN INVESTMENTS - Foreign investments may be riskier than U.S.
investments because of factors such as foreign government restrictions,
changes in currency exchange rates, incomplete financial information about
the issuers of securities, and political or economic instability. Foreign
stocks may be more volatile and less liquid than U.S. stocks.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
[Sidenote:]
GROWTH STOCKS
Growth stocks offer strong revenue and earnings potential, and accompanying
capital growth, with generally less dividend income than value stocks.
22 GALAXY EQUITY FUNDS
<PAGE>
GALAXY EQUITY GROWTH FUND
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that all
dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
The Fund did not offer Prime A Shares and Prime B Shares to investors until
November 1998. The returns below represent the returns for Retail A Shares of
the Fund, which are offered in a separate prospectus. Retail A Shares, Prime A
Shares and Prime B Shares of the Fund should have returns that are substantially
the same because they represent interests in the same portfolio securities and
differ only to the extent that they bear different expenses.
Retail A Shares of the Fund were first issued during the fiscal year ended
October 31, 1991. The returns for Retail A Shares of the Fund for prior periods
represent the returns for Trust Shares of the Fund which are offered under a
separate prospectus. Prior to November 1, 1993, Retail A Shares and Trust Shares
of the Fund had the same returns because each class of shares had the same
expenses.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares has varied from year
to year. The figures don't include any sales charges that investors pay when
buying or selling Retail A Shares of the Fund. If sales charges were included,
the returns would be lower.
[GRAPH]
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C>
30.40% 6.11% 5.37% 0.60% 33.66% 20.46% 30.43% 25.66%
</TABLE>
The year-to-date return for Retail A Shares of the Fund as of the period ended
June 30, 1999 was 13.20%.
[Sidenote:]
BEST QUARTER
24.04% for the quarter ending December 31, 1998
WORST QUARTER
- -11.70% for the quarter ending September 30, 1998
GALAXY EQUITY FUNDS 23
<PAGE>
GALAXY EQUITY GROWTH FUND
AVERAGE ANNUAL TOTAL RETURNS
The table shows the average annual total returns for Retail A Shares of the Fund
(after taking into account any sales charges) for the periods ended December 31,
1998, as compared to broad-based market index.
<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares(1) 18.75% 20.19% 17.49% (12/14/90)
- ---------------------------------------------------------------------------------------------------------------------------
Retail A Shares(2) 20.66% 21.38% 18.33% (12/14/90)
- ---------------------------------------------------------------------------------------------------------------------------
S&P 500 28.60% 24.05% 20.99% (since 11/30/90)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The performance of Retail A Shares has been restated to include the
effect of the maximum 5.50% sales charge payable on purchases of Prime A
Shares.
(2) The performance of Retail A Shares has been restated to include the
effect of the applicable contingent deferred sales charge payable on
redemptions of Prime B Shares within six years of the date of purchase.
Prime B Shares are also subject to distribution and service (12b-1) fees at
an annual rate of 1.00% of the Fund's Prime B Share assets. Had the
performance of Retail A Shares been restated to reflect these
distribution and service (12b-1) fees, average annual total returns for
Retail A Shares would be lower.
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
MAXIMUM DEFERRED SALES CHARGE
MAXIMUM SALES CHARGE (LOAD) ON (LOAD) SHOWN AS A % OF THE
PURCHASES SHOWN AS A % OF THE OFFERING PRICE OR SALE PRICE,
OFFERING PRICE WHICHEVER IS LESS
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Prime A Shares 5.50%(1) None(2)
- --------------------------------------------------------------------------------------------------
Prime B Shares None 5.00%(3)
- --------------------------- ----------------------------------- ----------------------------------
</TABLE>
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
TOTAL FUND
DISTRIBUTION AND OPERATING
MANAGEMENT FEES SERVICE (12b-1) FEES OTHER EXPENSES EXPENSES
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime A Shares 0.75% 0.25% 0.22%(4) 1.22%(4)
- ---------------------------------------------------------------------------------------------------------
Prime B Shares 0.75% 1.00% 0.38%(4) 2.13%(4)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds -
How sales charges work."
(2) Except for investments of $1,000,000 or more. See "How to invest in the
Funds - How sales charges work."
(3) This amount applies if you sell your shares in the first year after
purchase and gradually declines to 0% in the seventh year after purchase.
After eight years, your Prime B Shares will automatically convert to
Prime A Shares. See "How to invest in the Funds - How sales charges work."
(4) Certain of the Fund's service providers are voluntarily waiving a portion
of their fees so that Other expenses are expected to be 0.17% for Prime A
Shares and 0.13% for Prime B Shares. Total Fund operating expenses after
these waivers are expected to be 1.17% for Prime A Shares and 1.88% for
Prime B Shares. These fee waivers may be revised or discontinued at any
time.
[Sidenote:]
The S&P 500 is an unmanaged index that tracks the performance of 500 widely held
common stocks listed on the New York Stock Exchange, the American Stock Exchange
and NASDAQ. The S&P 500 is heavily weighted with the stocks of large companies.
PORTFOLIO MANAGER
The Fund's portfolio manager is Robert G. Armknecht, CFA, an Executive Vice
President of the Adviser. He's primarily responsible for the day-to-day
management of the Fund's investment portfolio. Mr. Armknecht has been with the
Adviser and its predecessors since 1988 and has been the Fund's portfolio
manager since it began operations in 1990.
24 GALAXY EQUITY FUNDS
<PAGE>
GALAXY EQUITY GROWTH FUND
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- you invest $10,000 for the periods shown
- you reinvest all dividends and distributions in the Fund
- you sell all your shares at the end of the periods shown
- your investment has a 5% return each year
- your Prime B Shares convert to Prime A Shares after eight years
- the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime A Shares $667 $916 $1,183 $1,946
- --------------------------------------------------------------------------------------------------------------------------------
Prime B Shares $716 $967 $1,344 $2,230
- --------------------------------------------------------------------------------------------------------------------------------
If you hold Prime B Shares, you would pay the following expenses if you didn't sell your shares:
Prime B Shares $216 $667 $1,144 $2,230
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
GALAXY EQUITY FUNDS 25
<PAGE>
GALAXY INTERNATIONAL EQUITY FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 75% of its total assets in the equity
securities of foreign issuers. At all times, the Fund's assets will be
invested in companies located in at least three different foreign countries.
Normally, no more than 20% of the Fund's total assets will be invested in
companies located in countries with emerging economies or emerging securities
markets. The Fund emphasizes larger established companies, although it may
invest in companies of any size. The Fund may engage in transactions for the
purpose of hedging its portfolio, such as options, futures and foreign
currencies.
The Sub-Adviser determines how much to invest in each country and region by
looking at factors such as prospects for economic growth, expected inflation
levels, government policies and the range of investment opportunities available.
Decisions as to particular investments are made with the guidance of the
Sub-Adviser's Investment Strategy Committee under the supervision of the
Adviser. The Sub-Adviser looks at the potential return of each investment over a
one- to two-year period.
The Fund will sell a security if, as a result of changes in the economy of a
particular country or region, the Sub-Adviser believes that holding the security
is no longer consistent with the Fund's investment objective. A security may
also be sold as a result of a deterioration in the performance of the security
or in the financial condition of the company that issued the security.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. U.S. and foreign stock markets tend to move in cycles, with
periods of rising prices and periods of falling prices.
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risks:
- - FOREIGN INVESTMENTS - Foreign investments may be riskier than U.S.
investments because of factors such as foreign government restrictions,
changes in currency exchange rates, incomplete financial information about
the issuers of securities, and political or economic instability. Foreign
stocks may be more volatile and less liquid than U.S. stocks.
- - EMERGING MARKETS - The risks associated with foreign investments are
heightened when investing in emerging markets. The governments and
economies of emerging market countries feature greater instability than
those of more developed countries. Such investments tend to fluctuate in
price more widely and to be less liquid than other foreign investments.
[Sidenote:]
SUB-ADVISER
The Adviser has appointed Oechsle International Advisors, LLC as Sub-Adviser to
assist it in the day-to-day management of the Fund's investment portfolio.
DERIVATIVES
A derivative is an investment whose value is based on or DERIVED from the
performance of other securities or interest or currency exchange rates or
indices. Derivatives are considered to carry a higher degree of risk than other
types of securities.
26 GALAXY EQUITY FUNDS
<PAGE>
GALAXY INTERNATIONAL EQUITY FUND
- - COUNTRY RISK - The Fund may invest 25% or more of its assets in the
securities of companies located in one country. When the Fund invests a
high percentage of its assets in a particular country, the Fund will be
especially susceptible to factors affecting that country.
- - CURRENCY EXCHANGE - Although the Fund usually makes investments that are
sold in foreign currencies, it values its holdings in U.S. dollars. If the
U.S. dollar rises compared to a foreign currency, the Fund loses on the
currency exchange.
- - HEDGING - The Fund may invest in derivatives, such as options, futures and
foreign currencies, to hedge against market risk or the currency risk of
its foreign investments. There's no guarantee hedging will always work. It
can also prevent the Fund from making a gain if markets move in the
opposite direction to the hedge.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
- -------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
The Fund did not offer Prime A Shares and Prime B Shares to investors until
November 1998. The returns below represent the returns for Retail A Shares of
the Fund, which are offered in a separate prospectus. Retail A Shares, Prime A
Shares, and Prime B Shares of the Fund should have returns that are
substantially the same because they represent interests in the same portfolio
securities and differ only to the extent that they bear different expenses.
GALAXY EQUITY FUNDS 27
<PAGE>
GALAXY INTERNATIONAL EQUITY FUND
YEAR-BY-YEAR TOTAL RETURNS-CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares has varied from
year to year. The figures don't include any sales charges that investors pay
when buying or selling Retail A Shares of the Fund. If sales charges were
included, the returns would be lower.
[GRAPH]
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
- -2.29% 31.62% -2.54% 11.04% 10.03% 13.59% 21.24%
</TABLE>
The year-to-date return for Retail A Shares of the Fund as of the period ended
June 30, 1999 was 6.73%.
[Sidenote:]
BEST QUARTER
16.98% for the quarter ending December 31, 1998
WORST QUARTER
- -14.61% for the quarter ending September 30, 1998
28 GALAXY EQUITY FUNDS
<PAGE>
GALAXY INTERNATIONAL EQUITY FUND
AVERAGE ANNUAL TOTAL RETURNS
The table shows the average annual total returns for Retail A Shares of the Fund
(after taking into account any sales charges) for the periods ended December 31,
1998, as compared to a broad-based market index.
<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares(1) 14.57% 9.15% 10.34% (12/30/91)
- --------------------------------------------------------------------------------------------------------------------------------
Retail A Shares(2) 16.24% 10.13% 11.24% (12/30/91)
- --------------------------------------------------------------------------------------------------------------------------------
MSCI EAFE Index 20.00% 9.19% 8.82% (since 12/31/91)
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The performance of Retail A Shares has been restated to include the
effect of the maximum 5.50% sales charge payable on purchases of Prime A
Shares.
(2) The performance of Retail A Shares has been restated to include the
effect of the applicable contingent deferred sales charge payable on
redemptions of Prime B Shares within six years of the date of purchase.
Prime B Shares are also subject to distribution and service (12b-1) fees at
an annual rate of 1.00% of the Fund's Prime B Share assets. Had the
performance of Retail A Shares been restated to reflect these
distribution and service (12b-1) fees, average annual total returns for
Retail A Shares would be lower.
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
MAXIMUM DEFERRED SALES CHARGE
MAXIMUM SALES CHARGE (LOAD) ON (LOAD) SHOWN AS A % OF THE
PURCHASES SHOWN AS A % OF THE OFFERING PRICE OR SALE PRICE,
OFFERING PRICE WHICHEVER IS LESS
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Prime A Shares 5.50%(1) None(2)
- --------------------------------------------------------------------------------------------------
Prime B Shares None 5.00%(3)
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM THE FUND'S ASSETS)
TOTAL FUND
DISTRIBUTION AND OPERATING
MANAGEMENT FEES SERVICE (12b-1) FEES OTHER EXPENSES EXPENSES
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime A Shares 0.90%(4) 0.25% 1.20%(4) 2.35%(4)
- ---------------------------------------------------------------------------------------------------------
Prime B Shares 0.90%(4) 1.00% 0.36%(4) 2.26%(4)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds
- How sales charges work."
(2) Except for investments of $1,000,000 or more. See "How to invest in the
Funds - How sales charges work."
(3) This amount applies if you sell your shares in the first year after
purchase and gradually declines to 0% in the seventh year after purchase.
After eight years, your Prime B Shares will automatically convert to
Prime A Shares. See "How to invest in the Funds - How sales charges work."
(4) The Adviser and certain of the Fund's service providers are waiving a
portion of their fees so that Management fees and Other expenses are
expected to be 0.65% and 0.27%, respectively, for Prime A Shares and
0.65% and 0.24%, respectively, for Prime B Shares. Total Fund operating
expenses after these waivers are expected to be 1.17% for Prime A Shares
and 1.89% for Prime B Shares. These fee waivers may be revised or
discontinued at any time.
[Sidenote:]
The Morgan Stanley Capital International Europe, Australasia and Far East (MSCI
EAFE) Index is an unmanaged index which tracks the performance of selected
equity securities in Europe, Australia and the Far East.
PORTFOLIO MANAGERS
The Fund's portfolio managers are Singleton Dewey Keesler, Jr. and Kathleen
Harris, CFA. They are primarily responsible for the day-to-day management of the
Fund's investment portfolio. Mr. Keesler is Chief Investment Officer and
portfolio manager/research analyst with the Sub-Adviser. He has been associated
with the Sub-Adviser and its predecessor since 1986. Ms. Harris has been a
portfolio manager at the Sub-Adviser and its predecessor since January of 1995.
She was previously portfolio manager and investment director for the State of
Wisconsin Investment Board. Mr. Keesler and Ms. Harris have co-managed the Fund
since August of 1996.
GALAXY EQUITY FUNDS 29
<PAGE>
GALAXY INTERNATIONAL EQUITY FUND
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your Prime B Shares convert to Prime A Shares after eight years
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime A Shares $775 $1,243 $1,736 $3,088
- --------------------------------------------------------------------------------------------------------------------------------
Prime B Shares $729 $1,006 $1,410 $2,618
- --------------------------------------------------------------------------------------------------------------------------------
If you hold Prime B Shares, you would pay the following expenses if you didn't sell your shares:
Prime B Shares $229 $ 706 $1,210 $2,618
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
30 GALAXY EQUITY FUNDS
<PAGE>
GALAXY SMALL CAP VALUE FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks to provide long-term capital appreciation.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests mainly in the common stocks of small companies that the Adviser
believes are undervalued. Under normal market conditions, the Fund invests at
least 65% of its assets in the common stocks of companies that have market
capitalizations of $1.5 billion or less. The Fund invests primarily in the
common stock of U.S. issuers, but may invest up to 20% of its assets in foreign
equity securities.
In selecting portfolio securities for the Fund, the Adviser looks at the
underlying strength of companies, their products, their competitive positions
and the quality of their management. It also does research to attempt to
identify companies likely to benefit from emerging industry trends and potential
market recoveries.
A portfolio security may be sold if the Adviser determines that it is no longer
undervalued or if there has been a deterioration in the performance of the
security or in the financial condition of the company that issued the security.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risks:
- - SMALL COMPANIES RISK - Smaller companies tend to have limited resources,
product lines and market share. As a result, their share prices tend to
fluctuate more than those of larger companies. Their shares may also trade
less frequently and in limited volume, making them potentially less liquid.
The price of small company stocks might fall regardless of trends in the
broader market.
- - FOREIGN INVESTMENTS - Foreign investments may be riskier than U.S.
investments because of factors such as foreign government restrictions,
changes in currency exchange rates, incomplete financial information about
the issuers of securities, and political or economic instability. Foreign
stocks may be more volatile and less liquid than U.S. stocks.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
[Sidenote:]
MARKET CAPITALIZATION
A company's market capitalization is the price of a share of its stock,
multiplied by the number of shares held by investors.
VALUE STOCKS
Value stocks are ones that appear to be underpriced based on measures such as
lower price-to-earnings and price-to-book value ratios.
GALAXY EQUITY FUNDS 31
<PAGE>
GALAXY SMALL CAP VALUE FUND
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that all
dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
The Fund did not offer Prime A Shares and Prime B Shares to investors until
November 1998. The returns below represent the returns for Retail A Shares of
the Fund, which are offered in a separate prospectus. Retail A Shares, Prime A
Shares and Prime B Shares of the Fund should have returns that are
substantially the same because they represent interests in the same portfolio
securities and differ only to the extent that they bear different expenses.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares has varied from
year to year. The figures don't include any sales charges that investors pay
when buying or selling Retail A Shares of the Fund. If sales charges were
included, the returns would be lower.
The Fund began operations on December 14, 1992 as a separate portfolio (the
Predecessor Fund) of The Shawmut Funds. On December 4, 1995, the Predecessor
Fund was reorganized as a new portfolio of Galaxy. Prior to the reorganization,
the Predecessor Fund offered and sold two classes of shares, Investment Shares
(which were first offered on February 12, 1993) and Trust Shares (which were
first offered on December 14, 1993), that were similar to the Fund's Retail A
Shares and Trust Shares. In connection with the reorganization, shareholders of
the Predecessor Fund exchanged their Investment Shares and Trust Shares for
Retail A Shares and Trust Shares of the Fund. The returns for the periods prior
to December 4, 1995 are for Investment Shares of the Predecessor Fund.
[GRAPH]
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C>
0.32% 31.49% 26.74% 31.23% -5.66%
</TABLE>
The year-to-date return for Retail A Shares of the Fund as of the period ended
June 30, 1999 was 7.38%.
[Sidenote:]
BEST QUARTER
18.67% for the quarter ending September 30, 1997
WORST QUARTER
- -15.93% for the quarter ending September 30, 1998
32 GALAXY EQUITY FUNDS
<PAGE>
GALAXY SMALL CAP VALUE FUND
AVERAGE ANNUAL TOTAL RETURNS
The table shows the average annual total returns for Retail A Shares of the Fund
(after taking into account any sales charges) for the periods ended December 31,
1998, as compared to broad-based market indices.
<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares(1) -10.85% 14.35% 14.23% (2/12/93)
- --------------------------------------------------------------------------------------------------------------------------------
Retail A Shares(2) -10.38% 15.43% 15.33% (2/12/93)
- --------------------------------------------------------------------------------------------------------------------------------
Russell 2000 Index - 2.55% 11.87% 12.56% (since 1/31/93)
- --------------------------------------------------------------------------------------------------------------------------------
S&P 600 - 1.31% 13.22% 13.83% (since 1/31/93)
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The performance of Retail A Shares has been restated to include the
effect of the maximum 5.50% sales charge payable on purchases of Prime A
Shares.
(2) The performance of Retail A Shares has been restated to include the
effect of the applicable contingent deferred sales charge payable on
redemptions of Prime B Shares within six years of the date of purchase.
Prime B Shares are also subject to distribution and service (12b-1) fees at
an annual rate of 1.00% of the Fund's Prime B Share assets. Had the
performance of Retail A Shares been restated to reflect these
distribution and service (12b-1) fees, average annual total returns for
Retail A Shares would be lower.
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
MAXIMUM DEFERRED SALES CHARGE
MAXIMUM SALES CHARGE (LOAD) ON (LOAD) SHOWN AS A % OF THE
PURCHASES SHOWN AS A % OF THE OFFERING PRICE OR SALE PRICE,
OFFERING PRICE WHICHEVER IS LESS
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Prime A Shares 5.50%(1) None(2)
- --------------------------------------------------------------------------------------------------
Prime B Shares None 5.00%(3)
- --------------------------------------------------------------------------------------------------
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM THE FUND'S ASSETS)
TOTAL FUND
DISTRIBUTION AND OPERATING
MANAGEMENT FEES SERVICE (12b-1) FEES OTHER EXPENSES EXPENSES
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime A Shares 0.75% 0.25% 0.68%(4) 1.68%(4)
- --------------------------------------------------------------------------------------------------
Prime B Shares 0.75% 1.00% 1.28%(4) 3.03%(4)
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds
- How sales charges work."
(2) Except for investments of $1,000,000 or more. See "How to invest in the
Funds - How sales charges work."
(3) This amount applies if you sell your shares in the first year after
purchase and gradually declines to 0% in the seventh year after purchase.
After eight years, your Prime B Shares will automatically convert to
Prime A Shares. See "How to invest in the Funds - How sales charges work."
(4) Certain of the Fund's service providers are waiving a portion of their
fees so that Other expenses are expected to be 0.23% for Prime A Shares
and 0.24% for Prime B Shares. Total Fund operating expenses after these
waivers are expected to be 1.23% for Prime A Shares and 1.99% for Prime B
Shares. These fee waivers may be revised or discontinued at any time.
[Sidenote:]
The Russell 2000 Index is an unmanaged index that tracks the performance of the
2,000 smallest of the 3,000 largest U.S. companies, based on market
capitalization. Companies included in the Russell 2000 Index have market
capitalizations that currently range between $30 million and $1.4 billion.
The Standard & Poor's SmallCap 600 Composite Index (S&P 600) is an unmanaged
index that tracks the performance of 600 domestic companies traded on the New
York Stock Exchange, the American Stock Exchange and NASDAQ. The S&P 600 is
heavily weighted with the stocks of small companies with market capitalizations
that currently range between $32.9 million and $2.9 billion.
GALAXY EQUITY FUNDS 33
<PAGE>
GALAXY SMALL CAP VALUE FUND
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your Prime B Shares convert to Prime A Shares after eight years
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime A Shares $711 $1,050 $1,412 $2,428
- --------------------------------------------------------------------------------------------------------------------------------
Prime B Shares $806 $1,236 $1,791 $3,029
- --------------------------------------------------------------------------------------------------------------------------------
If you hold Prime B Shares, you would pay the following expenses if you didn't sell your shares:
Prime B Shares $306 $ 936 $1,591 $3,029
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Peter Larson, a Senior Vice President of the
Adviser. He's primarily responsible for the day-to-day management of the Fund's
investment portfolio. Mr. Larson has been with the Adviser and its predecessors
since 1963 and has managed the Fund, including the Predecessor Fund, since it
began operations in 1992.
34 GALAXY EQUITY FUNDS
<PAGE>
GALAXY SMALL COMPANY EQUITY FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks capital appreciation.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its total assets in the equity
securities, primarily common stocks, of small companies that have market
capitalizations of $1.5 billion or less. The Fund invests primarily in the
common stock of U.S. companies, but may invest up to 20% of its total assets in
foreign equity securities.
In selecting investments for the Fund, the Adviser looks for promising
industries. It then looks within those industries for what are judged to be
reasonably priced companies that have above-average growth potential. The
Adviser consults a wide range of sources, including management, competitors,
other industry sources and regional brokerage analysts.
The Fund will sell a portfolio security when, as a result of changes in the
economy, the Adviser believes that holding the security is no longer consistent
with the Fund's investment objective. A security may also be sold as a result of
a deterioration in the performance of the security or in the financial condition
of the issuer of the security.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risks:
- - SMALL COMPANIES RISK - Smaller companies tend to have limited resources,
product lines and market share. As a result, their share prices tend to
fluctuate more than those of larger companies. Their shares may also trade
less frequently and in limited volume, making them potentially less liquid.
The price of small company stocks might fall regardless of trends in the
broader market.
- - FOREIGN INVESTMENTS - Foreign investments may be riskier than U.S.
investments because of factors such as foreign government restrictions,
changes in currency exchange rates, incomplete financial information about
the issuers of securities, and political or economic instability. Foreign
stocks may be more volatile and less liquid than U.S. stocks.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
[Sidenote:]
MARKET CAPITALIZATION
A company's market capitalization is the price of a share of its stock,
multiplied by the number of shares held by investors.
GROWTH STOCKS
Growth stocks offer strong revenue and earnings potential, and accompanying
capital growth, with generally less dividend income than value stocks.
GALAXY EQUITY FUNDS 35
<PAGE>
GALAXY SMALL COMPANY EQUITY FUND
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that all
dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
As of the date of this Prospectus, the Fund has not offered Prime A Shares
and Prime B Shares to investors. The returns below represent the returns for
Retail A Shares of the Fund, which are offered in a separate prospectus.
Retail A Shares, Prime A Shares and Prime B Shares of the Fund should have
returns that are substantially the same because they represent interests in the
same portfolio securities and differ only to the extent that they bear different
expenses.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares has varied from
year to year. The figures don't include any sales charges that investors pay
when buying or selling Retail A Shares of the Fund. If sales charges were
included, the returns would be lower.
[GRAPH]
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
1.20% 22.75% -0.06% 38.80% 20.84% 14.17% -10.94%
</TABLE>
The year-to-date return for Retail A Shares of the Fund as of the period ended
June 30, 1999 was -2.88%.
[Sidenote:]
BEST QUARTER
22.52% for the quarter ending December 31, 1992
WORST QUARTER
- -24.02% for the quarter ending September 30, 1998
36 GALAXY EQUITY FUNDS
<PAGE>
GALAXY SMALL COMPANY EQUITY FUND
AVERAGE ANNUAL TOTAL RETURNS
The table shows the average annual total returns for Retail A Shares of the Fund
(after taking into account any sales charges) for the periods ended December 31,
1998, as compared to a broad-based market index.
<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares(1) -15.83% 10.00% 10.42% (12/30/91)
- --------------------------------------------------------------------------------------------------------------------------------
Retail A Share(2) -15.40% 10.99% 11.31% (12/30/91)
- --------------------------------------------------------------------------------------------------------------------------------
Russell 2000 Index -2.55% 11.87% 13.76% (since 12/31/91)
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The performance of Retail A Shares has been restated to include the
effect of the maximum 5.50% sales charge payable on purchases of Prime A
Shares.
(2) The performance of Retail A Shares has been restated to include the
effect of the applicable contingent deferred sales charge payable on
redemptions of Prime B Shares within six years of the date of purchase.
Prime B Shares are also subject to distribution and service (12b-1) fees at
an annual rate of 1.00% of the Fund's Prime B Share assets. Had the
performance of Retail A Shares been restated to reflect these
distribution and service (12b-1) fees, average annual total returns for
Retail A Shares would be lower.
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
MAXIMUM DEFERRED SALES CHARGE
MAXIMUM SALES CHARGE (LOAD) ON (LOAD) SHOWN AS A % OF THE
PURCHASES SHOWN AS A % OF THE OFFERING PRICE OR SALE PRICE,
OFFERING PRICE WHICHEVER IS LESS
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Prime A Shares 5.50%(1) None(2)
- ---------------------------------------------------------------------------------------------------------
Prime B Shares None 5.00%(3)
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM THE FUND'S ASSETS)
TOTAL FUND
DISTRIBUTION AND OPERATING
MANAGEMENT FEES SERVICE (12b-1) FEES OTHER EXPENSES EXPENSES
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime A Shares 0.75% 0.25% 0.44%(4) 1.44%
- ---------------------------------------------------------------------------------------------------------
Prime B Shares 0.75% 1.00% 0.47%(4) 2.22%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds
- How sales charges work."
(2) Except for investments of $1,000,000 or more. See "How to invest in the
Funds - How sales charges work."
(3) This amount applies if you sell your shares in the first year after
purchase and gradually declines to 0% in the seventh year after purchase.
After eight years, your Prime B Shares will automatically convert to
Prime A Shares. See "How to invest in the Funds - How sales charges work."
(4) Based on estimated amounts for the current fiscal year.
[Sidenote:]
The Russell 2000 Index is an unmanaged index that tracks the performance of the
2,000 smallest of the 3,000 largest U.S. companies, based on market
capitalization. Companies included in the Russell 2000 Index have market
capitalizations that currently range between $30 million and $1.4 billion.
PORTFOLIO MANAGER
The Fund's portfolio manager is Stephen D. Barbaro, CFA, a Senior Vice President
of the Adviser since 1996. He's primarily responsible for the day-to-day
management of the Fund's investment portfolio. Mr. Barbaro has been the Fund's
portfolio manager since it began operations in 1991. He has been with the
Adviser and its predecessors since 1976.
GALAXY EQUITY FUNDS 37
<PAGE>
GALAXY SMALL COMPANY EQUITY FUND
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your Prime B Shares convert to Prime A Shares after eight years
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime A Shares $689 $980 $1,294 $2,179
- --------------------------------------------------------------------------------------------------------------------------------
Prime B Shares $725 $994 $1,390 $2,358
- --------------------------------------------------------------------------------------------------------------------------------
If you hold Prime B Shares, you would pay the following expenses if you didn't sell your shares:
Prime B Shares $225 $694 $1,190 $2,358
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
38 GALAXY EQUITY FUNDS
<PAGE>
ADDITIONAL INFORMATION ABOUT RISK
The main risks associated with an investment in each of the Galaxy Equity Funds
have been described above. The following supplements that discussion.
TEMPORARY DEFENSIVE POSITIONS
Each Fund may temporarily hold up to 100% of its total assets in investments
that are not part of its principal investment strategy to try to avoid losses
during unfavorable market conditions. These investments may include cash
(which will not earn any income), money market instruments, debt securities
issued or guaranteed by the U.S. Government or its agencies and, in the case
of the Galaxy International Equity Fund, foreign money market instruments,
debt securities of foreign national governments and their agencies, and the
securities of U.S. issuers. This strategy could prevent a Fund from achieving
its investment objective and could reduce the Fund's return and affect its
performance during a market upswing.
OTHER TYPES OF INVESTMENTS
This prospectus describes each Fund's main investment strategies and the
particular types of securities in which each Fund mainly invests. Each Fund
may, from time to time, pursue other investment strategies and make other
types of investments in support of its overall investment goal. These
supplemental investment strategies, which are not considered to be main
investment strategies of the Fund - and the risks involved - are described
in detail in the Statement of Additional Information (SAI) which is referred
to on the back cover of this prospectus.
YEAR 2000 RISKS
As with other mutual funds, financial and business organizations and
individuals around the world, the Funds could be adversely affected if the
computer systems used by the Adviser and the Funds' other service providers
don't properly process and calculate date-related information and data from
and after January 1, 2000. This is commonly known as the "Year 2000" or "Y2K"
problem. The Adviser is taking steps to address the Y2K problem with respect
to the computer systems that it uses and to obtain assurances that comparable
steps are being taken by the Funds' other major service providers. At this
time, however, there can be no assurance that these steps will be sufficient
to avoid any adverse impact on the Funds. The Y2K problem could have a
negative impact on the issuers of the securities in which the Funds invest,
which could hurt the Funds' investment returns.
GALAXY EQUITY FUNDS 39
<PAGE>
INVESTOR GUIDELINES
The following table gives you a general overview of the risk spectrum for the
Galaxy Equity Funds. This is a guide only. It shows the Adviser's current
assessment of the potential risk of the Funds relative to one another, but this
can change over time. It should not be used to compare the Funds with other
mutual funds or other types of investments. Consult your broker-dealer
to help you decide which Fund is right for you.
<TABLE>
<CAPTION>
RISK SPECTRUM FUND PRIMARY INVESTMENTS
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Galaxy Asset Allocation Common stocks and fixed income securities of
domestic companies
-----------------------------------------------------------------------------------------
CONSERVATIVE Galaxy Equity Income Common stocks of domestic companies selected
primarily for their income potential
-----------------------------------------------------------------------------------------
Galaxy Growth and Income Common stocks of companies selected for their
growth and income potential
-----------------------------------------------------------------------------------------
Galaxy Strategic Equity Equity securities of large and medium sized
growth companies that exhibit above-average
return potential relative to their market price
-----------------------------------------------------------------------------------------
MODERATE Galaxy Equity Value Common stocks of large and medium sized companies
believed to be undervalued
-----------------------------------------------------------------------------------------
Galaxy Equity Growth Equity securities of growth-oriented companies
-----------------------------------------------------------------------------------------
Galaxy International Equity Equity securities of foreign companies
-----------------------------------------------------------------------------------------
AGGRESSIVE Galaxy Small Cap Value Common stocks of smaller companies believed
to be undervalued
-----------------------------------------------------------------------------------------
Galaxy Small Company Equity Common stocks of smaller growth-oriented
companies
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
40 GALAXY EQUITY FUNDS
<PAGE>
FUND MANAGEMENT
ADVISER
The Adviser, subject to the general supervision of Galaxy's Board of Trustees,
manages each Fund in accordance with its investment objective and policies,
makes decisions with respect to and places orders for all purchases and sales of
its portfolio securities, and maintains related records.
The management fees paid to the Adviser by the Funds during the fiscal year
ended October 31, 1998 are set forth below. The Galaxy Strategic Equity Fund
began operations during that fiscal year, and the fee shown is that which is
currently in effect.
<TABLE>
<CAPTION>
FUND MANAGEMENT FEE
AS A % OF NET ASSETS
- ------------------------------------------------------------------------
<S> <C>
Galaxy Asset Allocation 0.75%
- ------------------------------------------------------------------------
Galaxy Equity Income 0.75%
- ------------------------------------------------------------------------
Galaxy Growth and Income 0.75%
- ------------------------------------------------------------------------
Galaxy Strategic Equity 0.55%
- ------------------------------------------------------------------------
Galaxy Equity Value 0.75%
- ------------------------------------------------------------------------
Galaxy Equity Growth 0.75%
- ------------------------------------------------------------------------
Galaxy International Equity 0.65%
- ------------------------------------------------------------------------
Galaxy Small Cap Value 0.75%
- ------------------------------------------------------------------------
Galaxy Small Company Equity 0.75%
- ------------------------------------------------------------------------
</TABLE>
SUB-ADVISER
The Adviser has delegated some of its advisory responsibilities with respect
to the Galaxy International Equity Fund to Oechsle International Advisors,
LLC as Sub-Adviser. The Sub-Adviser determines which securities will be
purchased, retained or sold for the Fund, places orders for the Fund and
provides the Adviser with information on international investment and
economic developments. The Adviser assists and consults with the Sub-Adviser
as to the Fund's investment program, approves the list of foreign countries
recommended by the Sub-Adviser for investment and manages the Fund's daily
cash position. The Sub-Adviser's fees are paid by the Adviser.
The Sub-Adviser has its main office at One International Place, Boston,
Massachusetts 02210. The Sub-Adviser is the successor to Oechsle International
Advisors, L.P., an international investment firm founded in 1986. At June 30,
1999, the Sub-Adviser had discretionary management authority over approximately
$14 billion in assets. The Adviser's parent company, Fleet Financial Group,
Inc., owns an interest in the Sub-Adviser.
ALLOCATION OF ORDERS FOR PORTFOLIO SECURITIES
The Adviser and Sub-Adviser may allocate orders for the purchase and sale of
portfolio securities to certain financial institutions, including those that are
affiliated with the Adviser or Sub-Adviser or that have sold shares of the
Funds, to the extent permitted by law or by order of the Securities and Exchange
Commission. The Adviser and Sub-Adviser will allocate orders to such
institutions only if they believe that the quality of the transaction and the
commission are comparable to what they would be with other qualified brokerage
firms.
GALAXY EQUITY FUNDS 41
<PAGE>
HOW TO INVEST IN THE FUNDS
HOW SALES CHARGES WORK
You will normally pay a sales charge to invest in the Funds. If you buy Prime A
Shares, you'll usually pay a sales charge (sometimes called a front-end load) at
the time you buy your shares. If you buy Prime B Shares, you may have to pay a
contingent deferred sales charge (sometimes called a back-end load or CDSC) when
you sell your shares. This section explains these two options.
PRIME A SHARES
The table below shows the sales charge you'll pay if you buy Prime A Shares of
the Funds. The offering price is the NAV of the shares purchased, plus any
applicable sales charge.
<TABLE>
<CAPTION>
TOTAL SALES CHARGE
- --------------------------------------------------------------------------------------
AMOUNT OF YOUR AS A % OF THE AS A % OF YOUR
INVESTMENT OFFERING PRICE PER SHARE INVESTMENT
- --------------------------------------------------------------------------------------
<S> <C> <C>
Less than $50,000 5.50% 5.82%
- --------------------------------------------------------------------------------------
$50,000 but less than $100,000 4.50% 4.71%
- --------------------------------------------------------------------------------------
$100,000 but less than $250,000 3.50% 3.63%
- --------------------------------------------------------------------------------------
$250,000 but less than $500,000 2.50% 2.56%
- --------------------------------------------------------------------------------------
$500,000 but less than $1,000,000 2.00% 2.04%
- --------------------------------------------------------------------------------------
$1,000,000 and over 0.00%(1) 0.00%(1)
- --------------------------------------------------------------------------------------
</TABLE>
(1) There is no front-end sales charge on investments in Prime A Shares of
$1,000,000 or more. However, if you sell the shares within one year after
buying them, you'll pay a CDSC of 1% of the offering price or 1% of the
net asset value of your shares, whichever is less, unless the shares were
sold because of the death or disability of the shareholder.
Galaxy's distributor may from time to time implement programs under which a
broker-dealer's sales force may be eligible to win nominal awards for certain
sales efforts. If any such program is made available to any broker-dealer, it
will be made available to all broker-dealers on the same terms. Payments made
under such programs are made by Galaxy's distributor out of its own assets and
not out of the assets of the Funds. These programs will not change the price of
Prime A Shares or the amount that the Funds will receive from such sales.
There's no sales charge when you buy Prime A Shares if:
- - you buy shares by reinvesting your dividends and distributions
- - you buy shares with money from Prime A Shares of another Galaxy Fund on
which you've already paid a sales charge (as long as you buy the new shares
within 90 days after selling your other shares)
- - you're an investment professional who places trades for your clients and
charges them a fee
- - you were a Galaxy shareholder before December 1, 1995
[Sidenote:]
NET ASSET VALUE
The price you pay for your shares is based on the net asset value per share
(NAV). It's the value of a Fund's assets attributable to Prime A Shares or
Prime B Shares, minus the value of the Fund's liabilities attributable to
Prime A Shares or Prime B Shares, divided by the number of Prime A Shares or
Prime B Shares held by investors.
Ask your broker-dealer, or consult the SAI, for other instances in which the
sales load on Prime A Shares is waived. When you buy your shares, you must tell
your broker-dealer that you qualify for a sales load waiver.
42 GALAXY EQUITY FUNDS
<PAGE>
PRIME B SHARES
If you buy Prime B Shares of the Funds, you won't pay a CDSC unless you sell
your shares within six years of buying them. The following table shows the
schedule of CDSC charges:
<TABLE>
<CAPTION>
IF YOU SELL YOUR SHARES YOU'LL PAY A CDSC OF
- ------------------------------------------------------------------
<S> <C>
During the first year 5.00%
- ------------------------------------------------------------------
During the second year 4.00%
- ------------------------------------------------------------------
During the third year 3.00%
- ------------------------------------------------------------------
During the fourth year 3.00%
- ------------------------------------------------------------------
During the fifth year 2.00%
- ------------------------------------------------------------------
During the sixth year 1.00%
- ------------------------------------------------------------------
After the sixth year None
- ------------------------------------------------------------------
</TABLE>
For purposes of calculating the CDSC, all purchases made during a calendar
month are considered to be made on the first day of that month. The CDSC is
based on the value of the Prime B Shares on the date that they are sold or
the original cost of the shares, whichever is lower. To keep your CDSC as low
as possible each time you sell shares, Galaxy will first sell any shares in
your account that are not subject to a CDSC. If there are not enough of
these, Galaxy will sell those shares that have the lowest CDSC. There is no
CDSC on Prime B Shares that you acquire by reinvesting your dividends and
distributions.
In addition, there's no CDSC when Prime B Shares are sold because of the death
or disability of a shareholder and in certain other circumstances such as
exchanges. Ask your broker-dealer, or consult the SAI, for other instances in
which the CDSC is waived.
DISTRIBUTION AND SHAREHOLDER SERVICE FEES
Prime A Shares of the Funds can pay distribution fees at an annual rate of up to
0.30% of each Fund's Prime A Share assets. The Funds do not intend to pay more
than 0.25% in distribution fees with respect to Prime A Shares during the
current fiscal year.
Prime B Shares of the Funds can pay distribution and shareholder service (12b-1)
fees at an annual rate of up to 1.25% of each Fund's Prime B Share assets. The
Funds do not intend to pay more than 1.00% in distribution and shareholder
service (12b-1) fees during the current fiscal year.
Galaxy has adopted separate plans under Rule 12b-1 that allow each Fund to pay
fees from its Prime A Share assets for selling and distributing Prime A Shares
and from its Prime B Share assets for selling and distributing Prime B Shares
and for services provided to shareholders. Because 12b-1 fees are paid on an
ongoing basis, over time they increase the cost of your investment and may cost
more than paying other sales charges.
CONVERTING PRIME B SHARES TO PRIME A SHARES
Eight years after you buy Prime B Shares of a Fund, they will automatically
convert to Prime A Shares of the Fund. This allows you to benefit from the lower
annual expenses of Prime A Shares.
GALAXY EQUITY FUNDS 43
<PAGE>
CHOOSING BETWEEN PRIME A SHARES AND PRIME B SHARES
Prime B Shares are subject to higher fees than Prime A Shares. For this reason,
Prime A Shares can be expected to pay higher dividends than Prime B Shares.
However, because Prime A Shares are subject to an initial sales charge which
is deducted at the time you purchase Prime A Shares (unless you qualify for a
sales load waiver), you will have less of your purchase price invested in a
particular Fund if you purchase Prime A Shares than if you purchase Prime B
Shares of the Fund.
In deciding whether to buy Prime A Shares or Prime B Shares, you should consider
how long you plan to hold the shares. Over time, the higher fees on Prime B
Shares may equal or exceed the initial sales charge and fees for Prime A Shares.
Prime A Shares may be a better choice if you qualify to have the sales charge
reduced or eliminated or if you plan to sell your shares within one or two
years. Consult your broker-dealer for help in choosing the appropriate share
class.
BUYING, SELLING AND EXCHANGING SHARES
You can buy and sell Prime A Shares and Prime B Shares of the Funds on any day
that the Funds are open for business, which is any day that the New York Stock
Exchange is open. The New York Stock Exchange is generally open for trading
every Monday through Friday, except for national holidays.
Prime A Shares and Prime B Shares have different prices. The price at which you
buy shares is the NAV next determined after your order is accepted, plus any
applicable sales charge. The price at which you sell shares is the NAV next
determined after receipt of your order in proper form as described below, less
any applicable CDSC. NAV is determined on each day the New York Stock Exchange
is open for trading at the close of regular trading that day (usually 4:00 p.m.
Eastern time). If market prices are readily available for securities owned by
the Fund, they're valued at those prices. If market prices are not readily
available for some securities, they are valued at fair value under the
supervision of Galaxy's Board of Trustees.
Sometimes, the price of a security trading on a foreign stock exchange may be
affected by events that happen after that exchange closes. If this happens, the
fair value of the security may be determined using other factors and may not
reflect the security's last quoted price. In addition, foreign securities may
trade on days when shares of the Funds are not priced. As a result, the net
asset value per share of a Fund holding these securities may change on days when
you won't be able to buy or sell Fund shares.
[Sidenote:]
MINIMUM INVESTMENT AMOUNTS
The minimum initial investment to open a Fund account is $2,500. You generally
can make additional investments for as little as $100.
Usually, you must keep at least $250 in your account. If your account falls
below $250 because you sell or exchange shares, Galaxy may redeem your shares
and close your account. Galaxy will give you 60 days' notice in writing before
closing your account.
44 GALAXY EQUITY FUNDS
<PAGE>
HOW TO BUY SHARES
You can buy shares through your broker-dealer. Your broker-dealer is responsible
for sending your order to Galaxy's distributor and wiring the money to Galaxy's
custodian. Your broker-dealer will usually hold your shares of record in its
name and receive all confirmations of purchases and sales. Your ownership of the
shares will be recorded by your broker-dealer and reflected in the account
statements provided to you. For details, please contact your broker-dealer. A
broker-dealer who places orders on your behalf may charge you a separate fee for
its services.
DISCOUNT PLANS
You may have the sales charges on purchases of Prime A Shares reduced or waived
completely through the discount plans described below:
- - RIGHTS OF ACCUMULATION - You can add the value of the Prime A Shares that
you already own in any Galaxy Fund that charges a sales load to your next
investment in Prime A Shares for purposes of calculating the sales charge.
- - LETTER OF INTENT - You can purchase Prime A Shares of any Galaxy Fund that
charges a sales load over a 13-month period and receive the same sales
charge as if all of the shares had been purchased at the same time. To
participate, complete the Letter of Intent section on the account
application.
- - REINVESTMENT PRIVILEGE - You can reinvest some or all of the money that you
receive when you sell Prime A Shares of the Funds in Prime A Shares of any
Galaxy Fund that offers Prime A Shares within 90 days without paying a
sales charge.
HOW TO SELL SHARES
You can sell your shares through your broker-dealer. The broker-dealer is
responsible for sending your order to Galaxy's distributor and for crediting
your account with the proceeds. Galaxy doesn't charge a fee for wiring sale
proceeds to your broker-dealer, but your broker-dealer may charge you a fee.
Please contact your broker-dealer for information on how to sell your shares.
HOW TO EXCHANGE SHARES
You may exchange Prime A Shares of a Fund having a value of at least $100 for
Prime A Shares of any other Galaxy Fund that offers Prime A Shares. You won't
pay a sales charge for exchanging your Prime A Shares.
You may exchange Prime B Shares of a Fund for Prime B Shares of any other Galaxy
Fund that offers Prime B Shares. You won't pay a CDSC when you exchange your
Prime B Shares. However, when you sell the Prime B Shares you acquired in the
exchange, you'll pay a contingent deferred sales charge based on the date you
bought the Prime B Shares which you exchanged. Galaxy doesn't charge any fee for
making exchanges but your broker-dealer might do so. You are generally limited
to three exchanges per year. Galaxy may change or cancel the exchange privilege
with 60 days' advance notice to shareholders.
To exchange shares contact your broker-dealer.
OTHER SHAREHOLDER SERVICES
Your broker-dealer may offer other shareholder services to its customers. For
example, broker-dealers may offer participation in an automatic investment
program that
[Sidenote:]
You must tell your broker-dealer when you buy your shares that you want to take
advantage of any of these discount plans. See the SAI for additional
requirements that may apply.
GALAXY EQUITY FUNDS 45
<PAGE>
allows investors to systematically purchase shares of the Funds on a periodic
basis from a designated account. Broker-dealers may also offer a systematic
withdrawal plan which permits investors automatically to sell shares on a
regular basis. Please contact your broker-dealer for details on these and any
other shareholder services that may be available.
OTHER TRANSACTION POLICIES
If Galaxy doesn't receive full payment for your order to buy shares within
three business days of the order date, Galaxy won't accept your order. Galaxy
will advise your broker-dealer if this happens and return any payment it may
eventually receive. You can only invest in shares of the Funds that are
legally available in your state.
Galaxy may refuse any order to buy shares. Galaxy doesn't issue a certificate
when you buy shares but it does keep a record of shares issued to investors.
Galaxy normally pays you cash when you sell your shares, but it has the right to
deliver securities owned by a Fund instead of cash. When you sell these
securities, you'll pay brokerage charges.
Sales proceeds are normally sent to your broker-dealer within three business
days but Galaxy reserves the right to send sales proceeds within seven business
days if sending proceeds earlier could adversely affect a Fund.
Galaxy reserves the right to vary or waive any minimum investment requirement.
46 GALAXY EQUITY FUNDS
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Each Fund, except the Galaxy International Equity Fund, pays any dividends
from net investment income each quarter. The Galaxy International Equity Fund
pays any dividends from net investment income annually. Each Fund pays any
net capital gains at least once a year. It's expected that the Funds' annual
distributions will normally -- but not always -- consist primarily of capital
gains rather than ordinary income. Dividends and distributions are paid in
cash unless you indicate in the account application or in a letter to Galaxy
that you want to have dividends and distributions reinvested in additional
shares.
FEDERAL TAXES
Each Fund contemplates declaring as dividends each year all or substantially all
of its taxable income, including its net capital gain (the excess of long-term
capital gain over short-term capital loss). You will be subject to income tax on
these distributions regardless of whether they are paid in cash or reinvested in
additional shares. Distributions attributable to the net capital gain of a Fund
will be taxable to you as long-term capital gain, regardless of how long you
have held your shares. Other Fund distributions will generally be taxable as
ordinary income. You will be notified annually of the tax status of
distributions to you.
You should note that if you purchase shares just prior to a capital gain
distribution, the purchase price will reflect the amount of the upcoming
distribution, but you will be taxed on the entire amount of the distribution
received, even though, as an economic matter, the distribution simply
constitutes a return of capital. This is known as "buying into a dividend."
You will recognize taxable gain or loss on a sale, exchange or redemption of
your shares, including an exchange for shares of another Fund, based on the
difference between your tax basis in the shares and the amount you receive for
them. (To aid in computing your tax basis, you generally should retain your
account statements for the periods during which you held shares.) Any loss
realized on shares held for six months or less will be treated as a long-term
capital loss to the extent of any capital gain dividends that were received on
the shares.
The one major exception to these tax principles is that distributions on, and
sales, exchanges and redemptions of, shares held in an IRA (or other
tax-qualified plan) will not be currently taxable.
It is expected that the Galaxy International Equity Fund will be subject to
foreign withholding taxes with respect to dividends or interest received from
sources in foreign countries. The Fund may make an election to treat a
proportionate amount of such taxes as constituting a distribution to each
shareholder, which would allow each shareholder either (1) to credit such
proportionate amount of taxes against U.S. federal income tax liability or
(2) to take such amount as an itemized deduction.
GALAXY EQUITY FUNDS 47
<PAGE>
STATE AND LOCAL TAXES
Shareholders may also be subject to state and local taxes on distributions
and redemptions. State income taxes may not apply however to the portions of
each Fund's distributions, if any, that are attributable to interest on U.S.
Government securities. Shareholders should consult their tax advisers
regarding the tax status of distributions in their state and locality.
MISCELLANEOUS
The foregoing is only a summary of certain tax considerations under current law,
which may be subject to change in the future. You should consult your tax
adviser for further information regarding federal, state, local and/or foreign
tax consequences relevant to your specific situation.
48 GALAXY EQUITY FUNDS
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables shown below will help you understand the
financial performance for the Funds' Prime A Shares and Prime B Shares for
the period from November 1, 1998, the date the Funds began offering Prime A
Shares and Prime B Shares, through April 30, 1999. Certain information
reflects the financial performance of a single Prime A Share or Prime B
Share. The total returns in the tables represent the rate that an investor
would have earned on an investment in Prime A Shares and Prime B Shares of
each Fund, assuming all dividends and distributions were reinvested. This
information is unaudited. The financial highlights, along with the Fund's
financial statements, are included in the Semi-Annual Report dated April 30,
1999 and are incorporated by reference into the SAI. The Semi-Annual Report
and SAI are available free of charge upon request. No information is
presented for the Galaxy Equity Income, Galaxy Strategic Equity, Galaxy
Equity Value and Galaxy Small Company Equity Funds because they did not sell
Prime A Shares and Prime B Shares during the period covered by the tables.
GALAXY ASSET ALLOCATION FUND
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30, 1999
(UNAUDITED)
------------------------------------------
PRIME A SHARES(1) PRIME B SHARES(1)
- ----------------------------------------------------------- ----------------- -----------------
<S> <C> <C>
Net asset value, beginning of period $16.95 $16.95
- ----------------------------------------------------------- ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(2) 0.22 0.15
------------------------------------------------------- ------ ------
Net realized and unrealized gain on investments 1.06 1.07
------------------------------------------------------- ------ ------
Total from investment operations 1.28 1.22
LESS DIVIDENDS:
Dividends from net investment income (0.20) (0.16)
------------------------------------------------------- ------ ------
Dividends from net realized capital gains (0.04) (0.04)
------------------------------------------------------- ------ ------
Total dividends (0.24) (0.20)
Net increase in net asset value 1.04 1.02
- ----------------------------------------------------------- ------ ------
Net asset value, end of period $17.99 $17.97
- ----------------------------------------------------------- ------ ------
- ----------------------------------------------------------- ------ ------
Total return(3) 8.03%(4) 8.52%(4)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $210 $290
------------------------------------------------------ ---- ----
RATIOS TO AVERAGE NET ASSETS:
Net investment income including
reimbursement/waiver 2.26%(5) 1.52%(5)
------------------------------------------------------ ---- ----
Operating expenses including
reimbursement/waiver 1.14%(5) 1.88%(5)
------------------------------------------------------ ---- ----
Operating expenses excluding
reimbursement/waiver 1.32%(5) 2.11%(5)
------------------------------------------------------ ---- ----
Portfolio turnover rate 57%(4) 57%(4)
</TABLE>
(1) The Fund began issuing Prime A Shares and Prime B Shares on November
1, 1998.
(2) Net investment income per share before reimbursement/waiver of fees by
the Adviser and/or the Fund's administrator for Prime A Shares for the
period ended April 30, 1999 (unaudited) was $0.20. Net investment
income per share before reimbursement/waiver of fees by the Adviser
and/or the Fund's administrator for Prime B Shares for the period
ended April 30, 1999 (unaudited) was $0.13.
(3) Calculation does not include the effect of any sales charge for
Prime A Shares and Prime B Shares.
(4) Not annualized.
(5) Annualized.
GALAXY EQUITY FUNDS 49
<PAGE>
GALAXY GROWTH AND INCOME FUND
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30, 1999
(UNAUDITED)
------------------------------------------------
PRIME A SHARES(1) PRIME B SHARES(1)
- ------------------------------------------------------------------ ----------------- -----------------
<S> <C> <C>
Net asset value, beginning of period $14.88 $14.88
- ------------------------------------------------------------------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(2) 0.07 0.01
-------------------------------------------------------------- ---- ----
Net realized and unrealized gain on investments 2.68 2.68
-------------------------------------------------------------- ---- ----
Total from investment operations 2.75 2.69
LESS DIVIDENDS:
Dividends from net investment income (0.06) (0.02)
-------------------------------------------------------------- ---- ----
Dividends from net realized capital gains (0.91) (0.91)
-------------------------------------------------------------- ---- ----
Total dividends (0.97) (0.93)
Net increase in net asset value 1.78 1.76
- ------------------------------------------------------------------ ------ ------
Net asset value, end of period $16.66 $16.64
- ------------------------------------------------------------------ ------ ------
- ------------------------------------------------------------------ ------ ------
Total return(3) 14.72%(4) 14.68%(4)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $98 $58
-------------------------------------------------------------- ---- ----
RATIOS TO AVERAGE NET ASSETS:
Net investment income including
reimbursement/waiver 0.68%(5) (0.07)%(5)
-------------------------------------------------------------- ---- ----
Operating expenses including
reimbursement/waiver 1.13%(5) 1.88%(5)
-------------------------------------------------------------- ---- ----
Operating expenses excluding
reimbursement/waiver 1.40%(5) 2.38%(5)
-------------------------------------------------------------- ---- ----
Portfolio turnover rate 9%(4) 9%(4)
</TABLE>
(1) The Fund began issuing Prime A Shares and Prime B Shares on November
1, 1998.
(2) Net investment income per share before reimbursement/waiver of fees by
the Adviser and/or the Fund's administrator for Prime A Shares for the
period ended April 30, 1999 (unaudited) was $0.04. Net investment
income per share before reimbursement/waiver of fees by the Adviser
and/or the Fund's administrator for Prime B Shares for the period
ended April 30, 1999 (unaudited) was $0.17.
(3) Calculation does not include the effect of any sales charge for
Prime A Shares and Prime B Shares.
(4) Not annualized.
(5) Annualized.
50 GALAXY EQUITY FUNDS
<PAGE>
GALAXY EQUITY GROWTH FUND
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30, 1999
(UNAUDITED)
-------------------------------------------------
PRIME A SHARES(1) PRIME B SHARES(1)
- --------------------------------------------------------------------------- ----------------- -----------------
<S> <C> <C>
Net asset value, beginning of period $24.49 $24.49
- --------------------------------------------------------------------------- ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment (loss)(2) (0.01) (0.10)(3)
---------------------------------------------------------------------- ---- ----
Net realized and unrealized gain on investments 5.26 5.34
---------------------------------------------------------------------- ---- ----
Total from investment operations 5.25 5.24
LESS DIVIDENDS:
Dividends from net investment income (0.01) --
---------------------------------------------------------------------- ---- ----
Dividends from net realized capital gains (1.90) (1.90)
---------------------------------------------------------------------- ---- ----
Total dividends (1.91) (1.90)
Net increase in net asset value 3.34 3.34
- --------------------------------------------------------------------------- ------ ------
Net asset value, end of period $27.83 $27.83
- --------------------------------------------------------------------------- ------ ------
- --------------------------------------------------------------------------- ------ ------
Total return(4) 12.29%(5) 3.15%(5)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $80 $91
---------------------------------------------------------------------- ---- ----
RATIOS TO AVERAGE NET ASSETS:
Net investment income including
reimbursement/waiver (0.02)%(6) (0.75)%(6)
---------------------------------------------------------------------- ---- ----
Operating expenses including
reimbursement/waiver 1.11%(6) 1.84%(6)
---------------------------------------------------------------------- ---- ----
Operating expenses excluding
reimbursement/waiver 1.41%(6) 2.15%(6)
---------------------------------------------------------------------- ---- ----
Portfolio turnover rate 37%(5) 37%(5)
</TABLE>
(1) The Fund began issuing Prime A Shares and Prime B Shares on November
1, 1998.
(2) Net investment (loss) per share before reimbursement/waiver of fees by
the Adviser and/or the Fund's administrator for Prime A Shares for the
period ended April 30, 1999 (unaudited) was $(0.04). Net investment
(loss) per share before reimbursement/waiver of fees by the Adviser
and/or the Fund's administrator for Prime B Shares for the period
ended April 30, 1999 (unaudited) was $(0.14).
(3) The selected per share data was calculated using the weighted average
shares outstanding method for the period.
(4) Calculation does not include the effect of any sales charge for
Prime A Shares and Prime B Shares.
(5) Not annualized.
(6) Annualized.
GALAXY EQUITY FUNDS 51
<PAGE>
GALAXY INTERNATIONAL EQUITY FUND
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30, 1999
(UNAUDITED)
--------------------------------------------------
PRIME A SHARES(1) PRIME B SHARES(1)
- --------------------------------------------------------------------------- ----------------- -----------------
<S> <C> <C>
Net asset value, beginning of period $16.85 $16.85
- --------------------------------------------------------------------------- ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)(2) -- (3) (0.08)(3)
---------------------------------------------------------------------- ---- ----
Net realized and unrealized gain on investments 2.76 2.76
---------------------------------------------------------------------- ---- ----
Total from investment operations 2.76 2.68
LESS DIVIDENDS:
Dividends from net investment income (0.15) (0.13)
---------------------------------------------------------------------- ---- ----
Dividends from net realized capital gains (0.57) (0.57)
---------------------------------------------------------------------- ---- ----
Total dividends (0.72) (0.70)
Net increase in net asset value 2.04 1.98
Net asset value, end of period $18.89 $18.83
- --------------------------------------------------------------------------- ------ ------
- --------------------------------------------------------------------------- ------ ------
Total return(4) 10.26%(5) 12.66%(5)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $11 $43
---------------------------------------------------------------------- ---- ----
RATIOS TO AVERAGE NET ASSETS:
Net investment income including
reimbursement/waiver 0.03%(6) (0.88)%(6)
---------------------------------------------------------------------- ---- ----
Operating expenses including
reimbursement/waiver 0.93%(6) 1.83%(6)
---------------------------------------------------------------------- ---- ----
Operating expenses excluding
reimbursement/waiver 1.69%(6) 2.69%(6)
---------------------------------------------------------------------- ---- ----
Portfolio turnover rate 21%(5) 21%(5)
</TABLE>
(1) The Fund began issuing Prime A Shares and Prime B Shares on November
1, 1998.
(2) Net investment income per share before reimbursement/waiver of fees by
Adviser and/or the Fund's administrator for Prime A Shares for the
period ended April 30, 1999 (unaudited) was $0.00. Net investment
(loss) per share before reimbursement/waiver of fees by the Adviser
and/or the Fund's administrator for Prime B Shares for the period
ended April 30, 1999 (unaudited) was $(0.15).
(3) The selected per share data was calculated using the weighted average
shares outstanding method for the period.
(4) Calculation does not include the effect of any sales charge for
Prime A Shares and Prime B Shares.
(5) Not annualized.
(6) Annualized.
52 GALAXY EQUITY FUNDS
<PAGE>
GALAXY SMALL CAP VALUE FUND
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30, 1999
(UNAUDITED)
--------------------------------------------------
PRIME A SHARES(1) PRIME B SHARES(1)
- -------------------------------------------------------------------------- ----------------- -----------------
<S> <C> <C>
Net asset value, beginning of period $13.59 $13.59
- --------------------------------------------------------------------------- ------ ------
INCOME FROM INVESTMENT OPERATION:
Net investment income (loss)(2) 0.02 (0.02)
---------------------------------------------------------------------- ---- ----
Net realized and unrealized gain on investments 0.71 0.71
---------------------------------------------------------------------- ---- ----
Total from investment operations 0.73 (0.69)
LESS DIVIDENDS:
Dividends from net investment income (0.02) --
---------------------------------------------------------------------- ---- ----
Dividends from net realized capital gains (1.27) (1.27)
---------------------------------------------------------------------- ---- ----
Total dividends (1.29) (1.27)
Net (decrease) in net asset value (0.56) (0.58)
- --------------------------------------------------------------------------- ------ ------
Net asset value, end of period $13.03 $13.01
- --------------------------------------------------------------------------- ------ ------
- --------------------------------------------------------------------------- ------ ------
Total return(3) 2.20%(4) 1.76%(4)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $157 $151
- --------------------------------------------------------------------------- ------ ------
RATIOS TO AVERAGE NET ASSETS:
Net investment income including reimbursement/waiver 0.31%(5) (0.36)%(5)
---------------------------------------------------------------------- ---- ----
Operating expenses including reimbursement/waiver 1.16%(5) 1.83%(5)
---------------------------------------------------------------------- ---- ----
Operating expenses excluding reimbursement/waiver 1.21%(5) 1.95%(5)
---------------------------------------------------------------------- ---- ----
Portfolio turnover rate 20%(4) 20%(4)
</TABLE>
(1) The Fund began issuing Prime A Shares and Prime B Shares on November
1, 1998.
(2) Net investment income per share before reimbursement/waiver of fees by
the Adviser and/or the Fund's administrator for Prime A Shares for the
period ended April 30, 1999 (unaudited) was $0.01. Net investment
(loss) per share before reimbursement/waiver of fees by the Adviser
and/or the Fund's administrator for Prime B Shares for the period
ended April 30, 1999 (unaudited) was $(0.03).
(3) Calculation does not include the effect of any sales charge for
Prime A Shares and Prime B Shares.
(4) Not annualized.
(5) Annualized.
GALAXY EQUITY FUNDS 53
<PAGE>
WHERE TO FIND MORE INFORMATION
You'll find more information about the Funds in the following documents:
ANNUAL AND SEMI-ANNUAL REPORTS
Galaxy's annual and semi-annual reports contain more information about each Fund
and a discussion about the market conditions and investment strategies that had
a significant effect on each Fund's performance during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains detailed information about the Funds and their policies. By
law, it's incorporated by reference into (considered to be part of) this
prospectus.
You can get a free copy of these documents, request other information about the
Funds and make shareholder inquiries by contacting your broker-dealer or by
calling Galaxy at 1-877-BUY-GALAXY (1-877-289-4252) or by writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
You can write to the Securities and Exchange Commission (SEC) Public Reference
Section and ask them to mail you information about the Funds, including the SAI.
They'll charge you a fee for this service. You can also visit the SEC Public
Reference Room and copy the documents while you're there. For information about
the operation of the Public Reference Room, call the SEC.
Public Reference Section of the SEC
Washington, DC 20549-0102
1-202-912-8090.
Reports and other information about the Funds are also available on the EDGAR
Database on the SEC's website at http://www.sec.gov. Copies of this
information may also be obtained, after paying a duplicating fee, by
electronic request to the SEC's e-mail address at public [email protected].
Galaxy's Investment Company Act File No. is 811-4636.
QRGALE
<PAGE>
THE GALAXY FUND
STATEMENT OF ADDITIONAL INFORMATION
November 29, 1999 (as revised December 1, 1999)
GALAXY ASSET ALLOCATION FUND GALAXY SHORT-TERM BOND FUND
GALAXY EQUITY INCOME FUND GALAXY INTERMEDIATE GOVERNMENT INCOME FUND
GALAXY GROWTH AND INCOME FUND GALAXY HIGH QUALITY BOND FUND
GALAXY STRATEGIC EQUITY FUND GALAXY TAX-EXEMPT BOND FUND
GALAXY EQUITY VALUE FUND
GALAXY EQUITY GROWTH FUND
GALAXY INTERNATIONAL EQUITY FUND
GALAXY SMALL CAP VALUE FUND
GALAXY SMALL COMPANY EQUITY FUND
PRIME A SHARES AND PRIME B SHARES
This Statement of Additional Information is not a prospectus. It
relates to the prospectuses dated November 29, 1999 for Prime A and Prime B
Shares of the Funds (the "Prospectuses"). The Prospectuses, as they may be
supplemented or revised from time to time, as well as the Funds' Semi-Annual
Reports to Shareholders dated April 30, 1999 (the "Semi-Annual Reports"), may
be obtained, without charge, by writing:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
or by calling 1-877-BUY-GALAXY (1-877-289-4252)
The Funds' financial statements included in the Semi-Annual Reports are
incorporated by reference into this Statement of Additional Information.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
GENERAL INFORMATION..............................................................................................1
DESCRIPTION OF GALAXY AND ITS SHARES.............................................................................1
INVESTMENT STRATEGIES, POLICIES AND RISKS........................................................................5
Asset Allocation Fund...................................................................................5
Equity Income Fund......................................................................................5
Growth and Income Fund..................................................................................6
Strategic Equity Fund...................................................................................6
Equity Value Fund.......................................................................................7
Equity Growth Fund......................................................................................7
International Equity Fund...............................................................................8
Small Cap Value Fund....................................................................................9
Small Company Equity Fund...............................................................................9
Short-Term Bond Fund...................................................................................10
Intermediate Government Income Fund....................................................................10
High Quality Bond Fund.................................................................................11
Tax-Exempt Bond Fund...................................................................................11
Special Risk Considerations............................................................................12
Foreign Securities.....................................................................................12
European Currency Unification..........................................................................12
General Risk Considerations............................................................................13
Other Investment Policies and Risk Considerations......................................................13
Ratings ...............................................................................................13
U.S. Government Obligations and Money Market Instruments...............................................14
Variable and Floating Rate Obligations.................................................................16
Municipal Securities...................................................................................16
Stand-by Commitments...................................................................................18
Private Activity Bonds.................................................................................19
Repurchase and Reverse Repurchase Agreements...........................................................19
Securities Lending.....................................................................................20
Investment Company Securities..........................................................................20
Custodial Receipts and Certificates of Participation...................................................21
REITs..................................................................................................22
Derivative Securities..................................................................................22
American, European and Global Depository Receipts......................................................32
Asset-Backed Securities................................................................................33
Mortgage-Backed Securities.............................................................................34
Mortgage Dollar Rolls..................................................................................35
Convertible Securities.................................................................................35
When-Issued, Forward Commitment and Delayed Settlement Transactions....................................37
Stripped Obligations...................................................................................38
Guaranteed Investment Contracts........................................................................38
Bank Investment Contracts..............................................................................39
Restricted and Illiquid Securities.....................................................................39
-i-
<PAGE>
<CAPTION>
Page
----
<S> <C>
Portfolio Securities Generally.........................................................................40
Portfolio Turnover.....................................................................................40
INVESTMENT LIMITATIONS..........................................................................................40
VALUATION OF PORTFOLIO SECURITIES...............................................................................51
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION..................................................................52
Purchases of Prime A Shares and Prime B Shares.........................................................52
General ...............................................................................................52
Applicable Sales Charge -- Prime A Shares..............................................................53
Computation of Offering Price -- Prime A Shares........................................................54
Quantity Discounts.....................................................................................57
Applicable Sales Charge - Prime B Shares...............................................................59
Characteristics of Prime A Shares and Prime B Shares...................................................60
Factors to Consider When Selecting Prime A Shares or Prime B Shares....................................61
Redemption of Prime A Shares and Prime B Shares........................................................62
EXCHANGE PRIVILEGE..............................................................................................62
TAXES ..........................................................................................................63
In General.............................................................................................63
State and Local........................................................................................64
Taxation of Certain Financial Instruments..............................................................65
TRUSTEES AND OFFICERS...........................................................................................66
Shareholder and Trustee Liability......................................................................69
INVESTMENT ADVISER AND SUB-ADVISER..............................................................................70
Authority to Act as Investment Adviser.................................................................73
Administrator..........................................................................................74
CUSTODIAN AND TRANSFER AGENT....................................................................................76
EXPENSES .......................................................................................................77
PORTFOLIO TRANSACTIONS..........................................................................................78
DISTRIBUTION PLANS..............................................................................................80
Prime A Shares Plan....................................................................................80
Prime B Shares Plan....................................................................................81
Both Distribution Plans................................................................................82
DISTRIBUTOR.....................................................................................................82
AUDITORS .......................................................................................................83
COUNSEL ........................................................................................................83
PERFORMANCE AND YIELD INFORMATION...............................................................................83
Performance Reporting..................................................................................86
MISCELLANEOUS...................................................................................................88
FINANCIAL STATEMENTS............................................................................................93
APPENDIX A.....................................................................................................A-1
APPENDIX B.....................................................................................................B-1
</TABLE>
-ii-
<PAGE>
GENERAL INFORMATION
This Statement of Additional Information should be read in conjunction
with a current Prospectus. This Statement of Additional Information relates to
the Prospectuses for Prime A Shares and Prime B Shares of the thirteen Funds
listed on the cover page. Each Fund also offers Retail A, Retail B and Trust
Shares, which are described in separate statements of additional information and
related prospectuses. This Statement of Additional Information is incorporated
by reference in its entirety into the Prospectuses. No investment in shares of
the Funds should be made without reading a Prospectus.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, FLEETBOSTON CORPORATION OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUNDS ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL VARY AS A RESULT OF MARKET CONDITIONS OR OTHER FACTORS SO THAT SHARES
OF THE FUNDS, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
THE PRINCIPAL AMOUNT INVESTED.
DESCRIPTION OF GALAXY AND ITS SHARES
The Galaxy Fund ("Galaxy") is an open-end management investment company
currently offering shares of beneficial interest in twenty-nine investment
portfolios: Money Market Fund, Government Fund, U.S. Treasury Fund, Tax-Exempt
Fund, Connecticut Municipal Money Market Fund, Massachusetts Municipal Money
Market Fund, Institutional Government Money Market Fund, Prime Reserves,
Government Reserves, Tax-Exempt Reserves, Equity Value Fund, Equity Growth Fund,
Equity Income Fund, International Equity Fund, Small Company Equity Fund, Asset
Allocation Fund, Small Cap Value Fund, Growth and Income Fund, Strategic Equity
Fund, Short-Term Bond Fund, Intermediate Government Income Fund, High Quality
Bond Fund, Corporate Bond Fund, Tax-Exempt Bond Fund, New Jersey Municipal Bond
Fund, New York Municipal Bond Fund, Connecticut Municipal Bond Fund,
Massachusetts Municipal Bond Fund and Rhode Island Municipal Bond Fund. Galaxy
is also authorized to issue shares of beneficial interest in an additional
investment portfolio, the MidCap Equity Fund. As of the date of this Statement
of Additional Information, however, the MidCap Equity Fund had not commenced
investment operations.
The Growth and Income and Small Cap Value Funds commenced operations on
December 14, 1992 as separate investment portfolios (the "Predecessor Growth and
Income Fund" and "Predecessor Small Cap Value Fund," respectively, and
collectively, the "Predecessor Funds") of The Shawmut Funds, which was organized
as a Massachusetts business trust. On December 4, 1995, the Predecessor Funds
were reorganized as new portfolios of Galaxy. Prior to the reorganization, the
Predecessor Funds offered and sold shares of beneficial interest that were
similar to Galaxy's Trust Shares and Retail A Shares.
<PAGE>
As of the date of the Semi-Annual Reports, the Equity Income, Strategic
Equity, Equity Value, Small Company Equity, Short-Term Bond, Intermediate
Government Income and Tax-Exempt Bond Funds had not offered Prime A Shares and
Prime B Shares to investors.
Galaxy was organized as a Massachusetts business trust on March 31,
1986. Galaxy's Declaration of Trust authorizes the Board of Trustees to
classify or reclassify any unissued shares into one or more classes or series
of shares by setting or changing in any one or more respects their respective
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption. Pursuant to such authority, the Board of Trustees has authorized
the issuance of an unlimited number of shares in each of the series in the
Funds as follows: Class C shares (Trust Shares), Class C - Special Series 1
shares (Retail A Shares), Class C - Special Series 2 shares (Retail B
Shares), Class C - Special Series 3 shares (Prime A Shares) and Class C -
Special Series 4 shares (Prime B Shares), each series representing interests
in the Equity Value Fund; Class D shares (Trust Shares), Class D - Special
Series 1 shares (Retail A Shares), Class D shares - Special Series 2 shares
(Retail B Shares), Class D shares - Special Series 3 shares (Prime A Shares)
and Class D shares - Special Series 4 shares (Prime B Shares), each series
representing interests in the Intermediate Government Income Fund; Class G -
Series 1 shares (Trust Shares), Class G - Series 2 shares (Retail A Shares),
Class G - Series 3 shares (Retail B Shares), Class G - Series 4 shares (Prime
A Shares) and Class G - Series 5 shares (Prime B Shares), each series
representing interests in the International Equity Fund; Class H - Series 1
shares (Trust Shares), Class H - Series 2 shares (Retail A Shares), Class H
- -Series 3 shares (Retail B Shares), Class H - Series 4 shares (Prime A
Shares) and Class H - Series 5 shares (Prime B Shares), each series
representing interests in the Equity Growth Fund; Class I - Series 1 shares
(Trust Shares), Class I - Series 2 shares (Retail A Shares), Class I - Series
3 shares (Retail B Shares), Class I - Series 4 shares (Prime A Shares) and
Class I - Series 5 shares (Prime B Shares), each series representing
interests in the Equity Income Fund; Class J - Series 1 shares (Trust
Shares), Class J - Series 2 shares (Retail A Shares), Class J - Series 3
shares (Retail B Shares), Class J - Series 4 shares (Prime A Shares) and
Class J - Series 5 shares (Prime B Shares), each series representing
interests in the High Quality Bond Fund; Class K - Series 1 shares (Trust
Shares), Class K - Series 2 shares (Retail A Shares), Class K -Series 3
shares (Retail B Shares), Class K - Series 4 shares (Prime A Shares) and
Class K - Series 5 shares (Prime B Shares), each series representing
interests in the Small Company Equity Fund; Class L - Series 1 shares (Trust
Shares), Class L - Series 2 shares (Retail A Shares), Class L - Series 3
shares (Retail B Shares), Class L - Series 4 shares (Prime A Shares) and
Class L -Series 5 shares (Prime B Shares), each series representing interests
in the Short-Term Bond Fund; Class M - Series 1 shares (Trust Shares), Class
M - Series 2 shares (Retail A Shares), Class M - Series 3 shares (Retail B
shares), Class M - Series 4 shares (Prime A Shares) and Class M - Series 5
shares (Prime B Shares), each series representing interests in the Tax-Exempt
Bond Fund; Class N - Series 1 shares (Trust Shares), Class N Series 2 shares
(Retail A Shares), Class N - Series 3 shares (Retail B Shares), Class N -
Series 4 shares (Prime A Shares) and Class N - Series 5 shares (Prime B
Shares), each series representing interests in the Asset Allocation Fund;
Class U - Series 1 shares (Trust Shares), Class U - Series 2 shares (Retail A
Shares), Class U - Series 3 shares (Retail B Shares), Class U - Series 4
shares (Prime A Shares) and Class U -Series 5 shares (Prime B Shares), each
series representing interests in the Growth
-2-
<PAGE>
and Income Fund; Class X - Series 1 shares (Trust Shares), Class X - Series 2
shares (Retail A Shares), Class X - Series 3 shares (Retail B Shares), Class X -
Series 4 shares (Prime A Shares) and Class X - Series 5 shares (Prime B Shares),
each series representing interests in the Small Cap Value Fund; and Class AA -
Series 1 shares (Trust Shares), Class AA - Series 2 shares (Retail A Shares),
Class AA - Series 3 shares (Retail B Shares), Class AA - Series 4 shares (Prime
A Shares) and Class AA - Series 5 shares (Prime B Shares), each series
representing interests in the Strategic Equity Fund. Each Fund is classified as
a diversified company under the Investment Company Act of 1940, as amended (the
"1940 Act").
Each share of Galaxy (irrespective of series designation) has a par
value of $.001 per share, represents an equal proportionate interest in the
related investment portfolio with other shares of the same class (irrespective
of series designation), and is entitled to such dividends and distributions out
of the income earned on the assets belonging to such investment portfolio as are
declared in the discretion of Galaxy's Board of Trustees.
Shares have no preemptive rights and only such conversion or exchange
rights as the Board of Trustees may grant in its discretion. When issued for
payment as described in the Prospectuses, shares will be fully paid and
non-assessable. Each series of shares (i.e., Retail A Shares, Retail B Shares,
Trust Shares, Prime A Shares and Prime B Shares) bear pro rata the same expenses
and are entitled equally to a Fund's dividends and distributions except as
follows. Each series will bear the expenses of any distribution and/or
shareholder servicing plans applicable to such series. For example, as described
below, holders of Prime A Shares will bear the expenses of the Distribution Plan
for Prime A Shares and holders of Prime B Shares will bear the expenses of the
Distribution and Services Plan for Prime B Shares. In addition, each series may
incur differing transfer agency fees and may have differing sales charges.
Standardized yield and total return quotations are computed separately for each
series of shares. The differences in expenses paid by the respective series will
affect their performance. See "Distribution Plan" and "Distribution and Services
Plan" below.
In the event of a liquidation or dissolution of Galaxy or an individual
Fund, shareholders of a particular Fund would be entitled to receive the assets
available for distribution belonging to such Fund, and a proportionate
distribution, based upon the relative asset values of Galaxy's respective Funds,
of any general assets of Galaxy not belonging to any particular Fund, which are
available for distribution. Shareholders of a Fund are entitled to participate
in the net distributable assets of the particular Fund involved in liquidation
based on the number of shares of the Fund that are held by each shareholder,
except that each series of a Fund would be solely responsible for the Fund's
payments under any distribution and/or shareholder servicing plan applicable to
such series.
Holders of all outstanding shares of a particular Fund will vote
together in the aggregate and not by series on all matters, except that only
shares of a particular series of a Fund will be entitled to vote on matters
submitted to a vote of shareholders pertaining to any distribution and/or
shareholder servicing plan for such series (e.g., only Prime A Shares of a
Fund will be entitled to vote on matters submitted to a vote of shareholders
pertaining to Galaxy's Distribution Plan for Prime A and only Prime B Shares
of a Fund will be entitled to vote on matters submitted
-3-
<PAGE>
to a vote of shareholders pertaining to Galaxy's Distribution and Services
Plan for Prime B Shares). Further, shareholders of all of the Funds, as well
as those of any other investment portfolio now or hereafter offered by
Galaxy, will vote together in the aggregate and not separately on a
Fund-by-Fund basis, except as otherwise required by law or when permitted by
the Board of Trustees. Rule 18f-2 under the 1940 Act provides that any matter
required to be submitted to the holders of the outstanding voting securities
of an investment company such as Galaxy shall not be deemed to have been
effectively acted upon unless approved by the holders of a majority of the
outstanding shares of each Fund affected by the matter. A particular Fund is
deemed to be affected by a matter unless it is clear that the interests of
each Fund in the matter are substantially identical or that the matter does
not affect any interest of the Fund. Under the Rule, the approval of an
investment advisory agreement or any change in an investment objective or a
fundamental investment policy would be effectively acted upon with respect to
a Fund only if approved by a majority of the outstanding shares of such Fund
(irrespective of series designation). However, the Rule also provides that
the ratification of the appointment of independent public accountants, the
approval of principal underwriting contracts, and the election of trustees
may be effectively acted upon by shareholders of Galaxy voting without regard
to class or series.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and will vote in
the aggregate and not by class or series, except as otherwise expressly required
by law or when the Board of Trustees determines that the matter to be voted on
affects only the interests of shareholders of a particular class or series.
Voting rights are not cumulative and, accordingly, the holders of more than 50%
in the aggregate of Galaxy's outstanding shares may elect all of the trustees,
irrespective of the votes of other shareholders.
Galaxy is not required under Massachusetts law to hold annual
shareholder meetings and intends to do so only if required by the 1940 Act.
Shareholders have the right to remove Trustees. Galaxy's Declaration of Trust
provides that a meeting of shareholders shall be called by the Board of Trustees
upon a written request of shareholders owning at least 10% of the outstanding
shares of Galaxy entitled to vote.
Galaxy's Declaration of Trust authorizes the Board of Trustees, without
shareholder approval (unless otherwise required by applicable law), to (a) sell
and convey the assets of a Fund to another management investment company for
consideration which may include securities issued by the purchaser and, in
connection therewith, to cause all outstanding shares of the Fund involved to be
redeemed at a price which is equal to their net asset value and which may be
paid in cash or by distribution of the securities or other consideration
received from the sale and conveyance; (b) sell and convert a Fund's assets into
money and, in connection therewith, to cause all outstanding shares of the Fund
involved to be redeemed at their net asset value; or (c) combine the assets
belonging to a Fund with the assets belonging to another Fund of Galaxy and, in
connection therewith, to cause all outstanding shares of any Fund to be redeemed
at their net asset value or converted into shares of another class of Galaxy's
shares at the net asset value. In the event that shares are redeemed in cash at
their net asset value, a shareholder may receive in payment for such shares, due
to changes in the market prices of the Fund's
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portfolio securities, an amount that is more or less than the original
investment. The exercise of such authority by the Board of Trustees will be
subject to the provisions of the 1940 Act, and the Board of Trustees will not
take any action described in this paragraph unless the proposed action has been
disclosed in writing to the Fund's shareholders at least 30 days prior thereto.
INVESTMENT STRATEGIES, POLICIES AND RISKS
Fleet Investment Advisors Inc. ("Fleet"), the Funds' investment
adviser, and, with respect to the International Equity Fund, Oechsle
International Advisors, LLC ("Oechsle"), the Fund's sub-adviser, will use their
best efforts to achieve each Fund's investment objective, although such
achievement cannot be assured. The investment objective of a Fund as described
in its Prospectus may not be changed without the approval of the holders of a
majority of its outstanding shares (as defined under "Miscellaneous"). Except as
noted below under "Investment Limitations," a Fund's investment policies may be
changed without shareholder approval. An investor should not consider an
investment in the Funds to be a complete investment program. The following
investment strategies, policies and risks supplement those set forth in the
Funds' Prospectuses.
ASSET ALLOCATION FUND
The Asset Allocation Fund may invest up to 20% of its total assets in
foreign securities. Such foreign investments may be made directly, by purchasing
securities issued or guaranteed by foreign corporations, banks or governments
(or their political subdivisions or instrumentalities) or by supranational banks
or other organizations, or indirectly, by purchasing American Depository
Receipts ("ADRs") and European Depository Receipts ("EDRs"). Examples of
supranational banks include the International Bank for Reconstruction and
Development ("World Bank"), the Asian Development Bank and the InterAmerican
Development Bank. Obligations of supranational banks may be supported by
appropriated but unpaid commitments of their member countries and there is no
assurance that those commitments will be undertaken or met in the future. See
"Special Risk Considerations -- Foreign Securities" and "Other Investment
Policies and Risk Considerations -- American, European and Global Depository
Receipts" below. The Fund may also invest in dollar-denominated high quality
debt obligations of U.S. corporations issued outside the United States. The Fund
may purchase put options and call options and write covered call options,
purchase asset-backed securities and mortgage-backed securities and enter into
foreign currency exchange transactions.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Asset Allocation
Fund.
EQUITY INCOME FUND
In addition to common stocks, the Equity Income Fund may also invest
in securities convertible into common stock that offer income potential. See
"Other Investment Policies and Risk Considerations -- Convertible Securities"
below. The Fund may invest up to 20% of its
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total assets in foreign securities, either directly or indirectly through the
purchase of ADRs and EDRs. In addition, the Fund may invest in securities issued
by foreign branches of U.S. banks and foreign banks. See "Special Risk
Considerations -- Foreign Securities" and "Other Investment Policies and Risk
Considerations -- American, European and Global Depository Receipts" below. The
Fund may also purchase put options and call options and write covered call
options. See "Other Investment Policies and Risk Considerations -- Derivative
Securities" below.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Equity Income Fund.
GROWTH AND INCOME FUND
Under normal market conditions, the Growth and Income Fund will invest
at least 65% of its total assets in common stocks, preferred stocks, common
stock warrants and securities convertible into common stock. The Fund may
purchase convertible securities, including convertible preferred stock,
convertible bonds or debentures, units consisting of "usable" bonds and warrants
or a combination of the features of several of these securities. See "Other
Investment Policies and Risk Considerations -- Convertible Securities" below.
The Fund may also buy and sell options and futures contracts and utilize stock
index futures contracts, options, swap agreements, indexed securities, and
options on futures contracts. See "Other Investment Policies and Risk
Considerations -- Derivative Securities" below.
The Fund may invest up to 20% of its total assets in securities of
foreign issuers which are freely traded on United States securities exchanges or
in the over-the-counter market in the form of ADRs, EDRs and Global Depository
Receipts ("GDRs"). Securities of a foreign issuer may present greater risks in
the form of nationalization, confiscation, domestic marketability, or other
national or international restrictions. As a matter of practice, the Fund will
not invest in the securities of foreign issuers if any such risk appears to
Fleet to be substantial. See "Special Risk Considerations -- Foreign Securities"
and "Other Investment Policies and Risk Considerations -- American, European and
Global Depository Receipts" below.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Growth and Income
Fund.
STRATEGIC EQUITY FUND
Under normal market and economic conditions, the Strategic Equity Fund
will invest at least 65% of its total assets in equity securities, including
common stocks, preferred stocks, securities convertible into common stock,
rights and warrants. The Fund may invest up to 20% of its total assets in
foreign securities, either directly or indirectly through ADRs, EDRs and GDRs.
See "Special Risk Considerations -- Foreign Securities" and "Other Investment
Policies and Risk Considerations -- American, European and Global Depository
Receipts" below. The Fund may also buy and sell options and futures contracts
and utilize stock index futures
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contracts, options, swap agreements, indexed securities and options on futures
contracts. See "Other Investment Policies and Risk Considerations -- Derivative
Securities" below.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Strategic Equity
Fund.
EQUITY VALUE FUND
Under normal market and economic conditions, the Equity Value Fund
invests at least 75% of its total assets in common stock, preferred stock
(including convertible preferred stock) and debt securities convertible into
common stock that Fleet believes to be undervalued. Debt securities
convertible into common stock are purchased primarily during periods of
relative market instability and are acquired principally for income with the
potential for appreciation being a secondary consideration. See "Other
Investment Policies and Risk Considerations -- Convertible Securities" below.
The Fund may also invest up to 20% of its total assets in foreign
securities, either directly or indirectly through ADRs and EDRs. In addition,
the Fund may invest in securities issued by foreign branches of U.S. banks and
foreign banks. See "Special Risk Considerations -- Foreign Securities" and
"Other Investment Policies and Risk Considerations -- American, European and
Global Depository Receipts" below. The Fund may also write covered call options.
See "Other Investment Policies and Risk Considerations -- Derivative Securities"
below.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Equity Value Fund.
EQUITY GROWTH FUND
Convertible securities purchased by the Equity Growth Fund may
include both debt securities and preferred stock. By investing in convertible
securities, the Fund will seek the opportunity, through the conversion
feature, to participate in the capital appreciation of the common stock into
which the securities are convertible. See "Other Investment Policies and Risk
Considerations -- Convertible Securities" below. The Fund may also invest in
common stock warrants.
The Fund may invest up to 20% of its total assets in foreign
securities, either directly or indirectly through the purchase of ADRs and EDRs.
In addition, the Fund may invest in securities issued by foreign branches of
U.S. banks and foreign banks. See "Special Risk Considerations -- Foreign
Securities" and "Other Investment Policies and Risk Considerations -- American,
European and Global Depository Receipts" below. The Fund may also purchase put
options and call options and write covered call options. See "Other Investment
Policies and Risk Considerations -- Derivative Securities" below.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Equity Growth Fund.
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INTERNATIONAL EQUITY FUND
The International Equity Fund invests at least 75% of its total assets
in equity securities of foreign issuers. The Fund may invest in securities of
issuers located in a variety of different foreign regions and countries,
including, but not limited to, Australia, Austria, Belgium, Brazil, Canada,
Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan,
Luxembourg, Malaysia, Mexico, the Netherlands, New Zealand, Norway, Portugal,
Singapore, Spain, Sweden, Switzerland, Thailand and the United Kingdom.
The Fund invests in common stock and may invest in other securities
with equity characteristics, consisting of trust or limited partnership
interests, preferred stock, rights and warrants. The Fund may also invest in
convertible securities, consisting of debt securities or preferred stock that
may be converted into common stock or that carry the right to purchase common
stock. See "Other Investment Policies and Risk Considerations -- Convertible
Securities" below. The Fund invests in securities listed on foreign or domestic
securities exchanges and securities traded in foreign or domestic
over-the-counter markets, and may invest in unlisted securities.
Securities issued in certain countries are currently accessible to the
Fund only through investment in other investment companies that are specifically
authorized to invest in such securities. The limitations on the Fund's
investment in other investment companies are described below under "Other
Investment Policies and Risk Considerations -- Investment Company Securities."
Subject to applicable securities regulations, the Fund may, for the
purpose of hedging its portfolio, purchase and write covered call options on
specific portfolio securities and may purchase and write put and call options on
foreign stock indexes listed on foreign and domestic stock exchanges. In
addition, the Fund may invest up to 100% of its total assets in securities of
foreign issuers in the form of ADRs, EDRs or GDRs as described under "Other
Investment Policies and Risk Considerations -- American, European and Global
Depository Receipts." Furthermore, the Fund may purchase and sell securities on
a when-issued basis.
See "Other Investment Policies and Risk Considerations" below regarding
additional investment policies of the International Equity Fund.
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SMALL CAP VALUE FUND
In addition to common stocks, the Small Cap Value Fund may purchase
convertible securities, including convertible preferred stock, convertible bonds
or debentures, units consisting of "usable" bonds and warrants or a combination
of the features of several of these securities. See "Other Investment Policies
and Risk Considerations -- Convertible Securities" below. The Fund may also buy
and sell options and futures contracts and utilize stock index futures
contracts, options, swap agreements, indexed securities, and options on futures
contracts. See "Other Investment Policies and Risk Considerations -- Derivative
Securities" below.
The Fund may invest up to 20% of its total assets in securities of
foreign issuers which are freely traded on United States securities exchanges or
in the over-the-counter market in the form of ADRs, EDRs and GDRs. Securities of
a foreign issuer may present greater risks in the form of nationalization,
confiscation, domestic marketability, or other national or international
restrictions. As a matter of practice, the Fund will not invest in the
securities of a foreign issuer if any such risk appears to Fleet to be
substantial. See "Special Risk Considerations -- Foreign Securities" and "Other
Investment Policies and Risk Considerations -- American, European and Global
Depository Receipts" below.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Small Cap Value
Fund.
SMALL COMPANY EQUITY FUND
In addition to common stocks, the Small Company Equity Fund may invest
in preferred stock, securities convertible into common stock, rights and
warrants. Under normal market and economic conditions, at least 65% of the
Fund's total assets will be invested in the equity securities of companies that
have market capitalizations of $1.5 billion or less. The Fund may invest up to
20% of its total assets in foreign securities, either directly or indirectly
through ADRs and EDRs. See "Special Risk Considerations -- Foreign Securities"
and "Other Investment Policies and Risk Considerations -- American, European and
Global Depository Receipts" below.
The Fund may purchase put options and call options and write covered
call options as a hedge against changes resulting from market conditions and in
the value of the securities held in the Fund or which it intends to purchase and
where the transactions are economically appropriate for the reduction of risks
inherent in the ongoing management of the Fund. See "Other Investment Policies
and Risk Considerations -- Derivative Securities" below.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Small Company Equity
Fund.
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SHORT-TERM BOND FUND
In addition to its primary investment strategies and policies as
described in its Prospectus, the Short-Term Bond Fund may also invest, from time
to time, in municipal securities. The purchase of municipal securities may be
advantageous when, as a result of prevailing economic, regulatory or other
circumstances, the performance of such securities, on a pre-tax basis, is
comparable to that of corporate or U.S. Government debt obligations. See "Other
Investment Policies and Risk Consideration-Municipal Securities" below. The Fund
may also enter into interest rate futures contracts to hedge against changes in
market values. See "Other Investment Policies and Risk Considerations -
Derivative Securities" below. Any common stock received through the conversion
of convertible debt obligations will be sold in an orderly manner as soon as
possible.
The obligations of foreign banks and obligations issued or guaranteed
by foreign governments or any of their political subdivisions or
instrumentalities in which the Fund may invest include debt obligations issued
by Canadian Provincial Governments, which are similar to U.S. municipal
securities except that the income derived therefrom is fully subject to U.S.
federal taxation. These instruments are denominated in either Canadian or U.S.
dollars and have an established over-the-counter market in the United States.
Also included are debt obligations of supranational entities, which include
international organizations designated or supported by governmental entities to
promote economic reconstruction or development and international banking
institutions and related government agencies. Examples of these include the
International Bank for Reconstruction and Development ("World Bank"), the Asian
Development Bank and the InterAmerican Development Bank. Obligations of
supranational entities may be supported by appropriated but unpaid commitments
of their member countries, and there is no assurance that these commitments will
be undertaken or met in the future. The Fund may not invest more than 35% of its
total assets in the securities of foreign issuers. The Fund may also invest in
dollar-denominated debt obligations of U.S. corporations issued outside the
United States.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Short-Term Bond
Fund.
INTERMEDIATE GOVERNMENT INCOME FUND
In addition to its primary investment strategies and policies as
described in its Prospectus, the Intermediate Government Income Fund may also
invest, from time to time, in municipal securities. See "Other Investment
Policies and Risk Considerations - Municipal Securities" below. The Fund may
also enter into interest rate futures contracts to hedge against changes in
market values. See "Other Investment Policies and Risk Considerations -
Derivative Securities" below. In addition, the Fund may invest in obligations
issued by Canadian Provincial Governments and in debt obligations of
supranational entities. The Fund may also invest in dollar-denominated high
quality debt obligations of U.S. corporations issued outside the United States.
Any common stock received through the conversion of convertible debt obligations
will be sold in an orderly manner as soon as possible.
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See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Intermediate
Government Income Fund and Appendix A to this Statement of Additional
Information for a description of S&P's and Moody's rating categories.
HIGH QUALITY BOND FUND
In addition to its primary investment strategies and policies as
described in its Prospectus, the High Quality Bond Fund may also invest, from
time to time, in municipal securities. See "Other Investment Policies and Risk
Considerations - Municipal Securities" below. The Fund may enter into interest
rate futures contracts to hedge against changes in the market values of fixed
income instruments that the Fund holds or intends to purchase. See "Other
Investment Policies and Risk Considerations - Derivative Securities" below. The
Fund may also invest in obligations issued by Canadian Provincial Governments
and in debt obligations of supranational entities. The Fund may also invest in
dollar-denominated high quality debt obligations of U.S. corporations issued
outside the United States. Any common stock received through the conversion of
convertible debt obligations will be sold in an orderly manner as soon as
possible.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the High Quality Bond
Fund. See "Short-Term Bond Fund" above for a description of the risks associated
with the Fund's investments in debt obligations that are rated in the lowest of
the four highest rating categories. See Appendix A to this Statement of
Additional Information for a description of S&P's and Moody's rating categories.
TAX-EXEMPT BOND FUND
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Tax-Exempt Bond Fund's shareholders, the Fund will
invest, except during temporary defensive periods, at least 80% of its total
assets in municipal securities, primarily bonds (at least 65% under normal
market conditions).
Although there is no present intention to do so on a regular basis, the
Fund may invest 25% or more of its assets in municipal securities the interest
on which is paid solely from revenues on similar projects if such investment is
deemed necessary or appropriate by Fleet. To the extent that 25% or more of the
Fund's assets are invested in municipal securities payable from revenues on
similar projects, the Fund will be subject to the particular risks presented by
such projects to a greater extent than it would be if its assets were not so
concentrated.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Tax-Exempt Bond
Fund.
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SPECIAL RISK CONSIDERATIONS
FOREIGN SECURITIES
Investments by the Asset Allocation, Equity Income, Growth and Income,
Strategic Equity, Equity Value, Equity Growth, International Equity, Small Cap
Value and Small Company Equity Funds (the "Equity Funds") and Short-Term Bond
Fund in foreign securities may involve higher costs than investments in U.S.
securities, including higher transaction costs, as well as the imposition of
additional taxes by foreign governments. In addition, foreign investments may
include additional risks associated with currency exchange rates, less complete
financial information about the issuers, less market liquidity, and political
instability. Future political and economic developments, the possible imposition
of withholding taxes on interest income, the possible seizure or nationalization
of foreign holdings, the possible establishment of exchange controls, or the
adoption of other governmental restrictions, might adversely affect the payment
of dividends or principal and interest on foreign obligations.
Although the Equity Funds and Short-Term Bond Fund may invest in
securities denominated in foreign currencies, the Funds value their securities
and other assets in U.S. dollars. As a result, the net asset value of a Fund's
shares may fluctuate with U.S. dollar exchange rates as well as with price
changes of the Fund's securities in the various local markets and currencies.
Thus, an increase in the value of the U.S. dollar compared to the currencies in
which the Fund makes its foreign investments could reduce the effect of
increases and magnify the effect of decreases in the price of the Fund's
securities in their local markets. Conversely, a decrease in the value of the
U.S. dollar will have the opposite effect of magnifying the effect of increases
and reducing the effect of decreases in the prices of the Funds' securities in
their local markets. In addition to favorable and unfavorable currency exchange
rate developments, the Equity Funds and Short-Term Bond Fund are subject to the
possible imposition of exchange control regulations or freezes on convertibility
of currency.
Certain of the risks associated with investments in foreign securities
are heightened with respect to investments in countries with emerging economies
or emerging securities markets. The risks of expropriation, nationalization and
social, political and economic instability are greater in those countries than
in more developed capital markets.
EUROPEAN CURRENCY UNIFICATION
Many European countries have adopted a single European currency, the
euro. On January 1, 1999, the euro became legal tender for all countries
participating in the Economic and Monetary Union ("EMU"). A new European Central
Bank has been created to manage the monetary policy of the new unified region.
On the same date, the exchange rates were irrevocably fixed between the EMU
member countries. National currencies will continue to circulate until they are
replaced by euro coins and bank notes by the middle of 2002.
This change is likely to significantly impact the European capital
markets in which the International Equity Fund invests and may result in the
Fund facing additional risks in pursuing
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its investment objective. These risks, which include, but are not limited to,
uncertainty as to the proper tax treatment of the currency conversion,
volatility of currency exchange rates as a result of the conversion, uncertainty
as to capital market reaction, conversion costs that may affect issuer
profitability and creditworthiness, and lack of participation by some European
countries, may increase the volatility of the Fund's net asset value per share.
GENERAL RISK CONSIDERATIONS
Generally, the market value of fixed income securities, including
municipal securities, can be expected to vary inversely to changes in prevailing
interest rates. During periods of declining interest rates, the market value of
investment portfolios comprised primarily of fixed income securities, such as
the Short-Term Bond, Intermediate Government Income, High Quality Bond and
Tax-Exempt Bond Funds (the "Bond Funds"), will tend to increase, and during
periods of rising interest rates, the market value will tend to decrease. In
addition, during periods of declining interest rates, the yields of investment
portfolios comprised primarily of fixed income securities will tend to be higher
than prevailing market rates and, in periods of rising interest rates, yields
will tend to be somewhat lower. Fixed income securities with longer maturities,
which tend to produce higher yields, are subject to potentially greater capital
appreciation and depreciation than obligations with shorter maturities. Changes
in the financial strength of an issuer or changes in the ratings of any
particular security may also offset the value of these investments. Fluctuations
in the market value of fixed income securities subsequent to their acquisition
will not offset cash income from such securities but will be reflected in a
Fund's net asset value.
Although the Tax-Exempt Bond Fund does not presently intend to do so on
a regular basis, it may invest more than 25% of its assets in municipal
securities the interest on which is paid solely from revenues on similar
projects if such investment is deemed necessary or appropriate by Fleet. To the
extent that the Tax-Exempt Bond Fund's assets are concentrated in municipal
securities payable from revenues on similar projects, the Fund will be subject
to the particular risks presented by such projects to a greater extent than it
would be if its assets were not so concentrated.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in the Prospectuses and this Statement of
Additional Information are among those which one or more of the Funds have the
power to utilize. Some may be employed on a regular basis; others may not be
used at all. Accordingly, reference to any particular method or technique
carries no implication that it will be utilized or, if it is, that it will be
successful.
RATINGS
All debt obligations, including convertible bonds, purchased by the
Asset Allocation, Equity Income, Strategic Equity, Equity Value, Equity Growth
and Small Company Equity Funds are rated investment grade by Moody's Investors
Service, Inc. ("Moody's") ("Aaa," "Aa,"
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"A" and "Baa") or Standard & Poor's Ratings Group ("S&P") ("AAA," "AA," "A" and
"BBB"), or, if not rated, are determined to be of comparable quality by Fleet.
Debt securities rated "Baa" by Moody's or "BBB" by S&P are generally considered
to be investment grade securities although they have speculative characteristics
and changes in economic conditions or circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is the case for
higher rated debt obligations. See Appendix A to this Statement of Additional
Information for a description of S&P's and Moody's rating categories.
The International Equity Fund may only purchase debt securities rated
"A" or higher by Moody's or S&P, or if unrated, determined by Fleet or Oechsle
to be of comparable quality. Issuers of commercial paper, bank obligations or
repurchase agreements in which the International Equity Fund invests must have,
at the time of investment, outstanding debt rated A or higher by Moody's or S&P,
or, if they are not rated, the instrument purchased must be determined to be of
comparable quality.
The Growth and Income and Small Cap Value Funds may purchase
convertible bonds rated "Ba" or higher by Moody's or "BB" or higher by S&P or
Fitch IBCA, Inc. ("Fitch IBCA"), at the time of investment. See "Other
Investment Policies and Risk Considerations -- Convertible Securities" below for
a discussion of the risks of investing in convertible bonds rated either "Ba" or
"BB." Short-term money market instruments purchased by the Growth and Income and
Small Cap Value Funds must be rated in one of the top two rating categories by a
nationally recognized statistical rating agency, such as Moody's, S&P or Fitch
IBCA.
Information on the requisite investment quality of debt obligations,
including municipal securities, eligible for purchase by the Bond Funds is
included in the Prospectuses for those Funds.
U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS
Each Fund may, in accordance with its investment policies, invest from
time to time in obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and in other "money market" instruments, including
bank obligations and commercial paper.
Examples of the types of obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities (hereinafter, "U.S. Government
obligations") that may be held by the Funds include, without limitation, direct
obligations of the U.S. Treasury, and securities issued or guaranteed by the
Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, Federal
Housing Administration, Farmers Home Administration, Export-Import Bank of the
United States, Small Business Administration, Government National Mortgage
Association, Federal National Mortgage Association, General Services
Administration, Central Bank for Cooperatives, Federal Home Loan Mortgage
Corporation, Federal Intermediate Credit Banks, Resolution Trust Corporation and
Maritime Administration.
U.S. Treasury securities differ only in their interest rates,
maturities and time of issuance: Treasury Bills have initial maturities of
one year or less; Treasury Notes have initial maturities of
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one to ten years; and Treasury Bonds generally have initial maturities of
more than ten years. Obligations of certain agencies and instrumentalities of
the U.S. Government, such as those of the Government National Mortgage
Association, are supported by the full faith and credit of the U.S. Treasury;
others, such as those of the Federal Home Loan Banks, are supported by the
right of the issuer to borrow from the Treasury; others, such as those of the
Federal National Mortgage Association, are supported by the discretionary
authority of the U.S. Government to purchase the agency's obligations; still
others, such as those of the Federal Home Loan Mortgage Corporation, are
supported only by the credit of the instrumentality. No assurance can be
given that the U.S. Government would provide financial support to U.S.
Government-sponsored instrumentalities if it is not obligated to do so by
law. Some of these instruments may be variable or floating rate instruments.
Bank obligations include bankers' acceptances, negotiable certificates
of deposit and non-negotiable time deposits issued for a definite period of time
and earning a specified return by a U.S. bank which is a member of the Federal
Reserve System or is insured by the Federal Deposit Insurance Corporation
("FDIC"), or by a savings and loan association or savings bank which is insured
by the FDIC. With respect to each Fund other than the Growth and Income and
Small Cap Value Funds, bank obligations also include U.S. dollar-denominated
obligations of foreign branches of U.S. banks or of U.S. branches of foreign
banks, all of the same type as domestic bank obligations. Investments in bank
obligations are limited to the obligations of financial institutions having more
than $1 billion in total assets at the time of purchase. Time deposits with a
maturity longer than seven days or that do not provide for payment within seven
days after notice will be limited to 10% (15% with respect to the Strategic
Equity Fund, Growth and Income Fund and Small Cap Value Fund) of a Fund's net
assets. Investments by the Funds in non-negotiable time deposits are limited to
no more than 5% of each Fund's total assets at the time of purchase.
Domestic and foreign banks are subject to extensive but different
government regulation which may limit the amount and types of their loans and
the interest rates that may be charged. In addition, the profitability of the
banking industry is largely dependent upon the availability and cost of funds to
finance lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and U.S.
branches of foreign banks may subject a Fund to additional risks, including
future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of foreign governmental restrictions which might adversely affect the
payment of principal and interest on such obligations. In addition, foreign
branches of U.S. bank and U.S. branches of foreign banks may be subject to less
stringent reserve requirements and to different accounting, auditing, reporting
and recordkeeping standards than those applicable to domestic branches of U.S.
banks. Such investments may also subject the Equity Funds and Tax-Exempt Bond
Fund to investment risks similar to those accompanying direct investments in
foreign securities. See "Special Risk Considerations -- Foreign Securities." The
Funds will invest in the obligations of U.S. branches of foreign banks or
foreign branches of U.S. banks only when Fleet and/or Oechsle believe that the
credit risk with respect to the instrument is minimal.
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Commercial paper may include variable and floating rate instruments
which are unsecured instruments that permit the indebtedness thereunder to vary.
Variable rate instruments provide for periodic adjustments in the interest rate.
Floating rate instruments provide for automatic adjustment of the interest rate
whenever some other specified interest rate changes. Some variable and floating
rate obligations are direct lending arrangements between the purchaser and the
issuer and there may be no active secondary market. However, in the case of
variable and floating rate obligations with a demand feature, a Fund may demand
payment of principal and accrued interest at a time specified in the instrument
or may resell the instrument to a third party. In the event that an issuer of a
variable or floating rate obligation defaulted on its payment obligation, a Fund
might be unable to dispose of the note because of the absence of a secondary
market and could, for this or other reasons, suffer a loss to the extent of the
default. The Equity Funds and Short-Term Bond, Intermediate Government Income
and High Quality Bond Funds may also purchase Rule 144A securities. See
"Investment Limitations" below.
VARIABLE AND FLOATING RATE OBLIGATIONS
The Funds may purchase variable and floating rate instruments in
accordance with their investment objectives and policies as described in the
Prospectuses and this Statement of Additional Information. If such an instrument
is not rated, Fleet or Oechsle, must determine that such instrument is
comparable to rated instruments eligible for purchase by the Funds and will
consider the earning power, cash flows and other liquidity ratios of the issuers
and guarantors of such instruments and will continuously monitor their financial
status in order to meet payment on demand.
In determining average weighted portfolio maturity an instrument
will usually be deemed to have a maturity equal to the longer of the period
remaining until the next regularly scheduled interest rate adjustment or the
time the Fund involved can recover payment of principal as specified in the
instrument. Instruments which are U.S. Government obligations and certain
variable rate instruments having a nominal maturity of 397 days or less when
purchased by the Fund involved, however, will be deemed to have a maturity
equal to the period remaining until the next interest rate adjustment.
MUNICIPAL SECURITIES
Municipal securities acquired by the Bond Funds include debt
obligations issued by governmental entities to obtain funds for various public
purposes, including the construction of a wide range of public facilities, the
refunding of outstanding obligations, the payment of general operating expenses,
and the extension of loans to public institutions and facilities. Private
activity bonds that are issued by or on behalf of public authorities to finance
various privately operated facilities are "municipal securities" if the interest
paid thereon is exempt from regular federal income tax and not treated as a
specific tax preference item under the federal alternative minimum tax.
The two principal categories of municipal securities include "general
obligation" and "revenue" issues. The Bond Funds' portfolios may also include
"moral obligation" issues, which are normally issued by special purpose
authorities. There are, of course, variations in the quality of municipal
securities, both within a particular category and between categories, and the
yields on municipal securities depend upon a variety of factors, including
general market conditions, the financial condition of the issuer, general
conditions of the municipal bond market, the size of a
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particular offering, the maturity of the obligation, and the rating of the
issue. The ratings of a nationally recognized statistical rating organization,
such as Moody's and S&P, described in the Prospectus for the Bond Funds and in
Appendix A hereto, represent such rating services' opinion as to the quality of
municipal securities. It should be emphasized that these ratings are general and
are not absolute standards of quality. Municipal securities with the same
maturity, interest rate and rating may have different yields. Municipal
securities of the same maturity and interest rate with different ratings may
have the same yield. Subsequent to its purchase by a Bond Fund, an issue of
municipal securities may cease to be rated or its rating may be reduced below
the minimum rating required for purchase by the Fund.
The payment of principal and interest on most municipal securities
purchased by the Bond Funds will depend upon the ability of the issuers to meet
their obligations. Each state, the District of Columbia, each of their political
subdivisions, agencies, instrumentalities and authorities and each multistate
agency of which a state is a member is a separate "issuer" as that term is used
in this Statement of Additional Information and the Bond Funds' Prospectus. The
non-governmental user of facilities financed by private activity bonds is also
considered to be an "issuer." An issuer's obligations under its municipal
securities are subject to the provisions of bankruptcy, insolvency and other
laws affecting the rights and remedies of creditors, such as the Federal
Bankruptcy Code and laws, if any, which may be enacted by federal or state
legislatures extending the time for payment of principal or interest, or both,
or imposing other constraints upon enforcement of such obligations or upon the
ability of municipalities to levy taxes. The power or ability of an issuer to
meet its obligations for the payment of interest on and principal of its
municipal securities may be materially adversely affected by litigation or other
conditions.
Among other instruments, the Bond Funds may purchase short-term general
obligation notes, tax anticipation notes, bond anticipation notes, revenue
anticipation notes, commercial paper, construction loan notes and other forms of
short-term loans. Such instruments are issued with a short-term maturity in
anticipation of the receipt of tax funds, the proceeds of bond placements or
other revenues. In addition, the Bond Funds may invest in long-term tax-exempt
instruments, such as municipal bonds and private activity bonds to the extent
consistent with the limitations set forth in the Prospectus for each Bond Fund.
From time to time, proposals have been introduced before Congress for
the purpose of restricting or eliminating the federal income tax exemption for
interest on municipal securities. For example, under the Tax Reform Act of 1986,
interest on certain private activity bonds must be included in an investor's
federal alternative minimum taxable income, and corporate investors must include
all tax-exempt interest in their federal alternative minimum taxable income.
Galaxy cannot, of course, predict what legislation may be proposed in the future
regarding the income tax status of interest on municipal securities, or which
proposals, if any, might be enacted. Such proposals, while pending or if
enacted, might materially and adversely affect the availability of municipal
securities for investment by the Tax-Exempt Bond Fund and the liquidity and
value of its portfolio. In such an event, the Tax-Exempt Bond Fund would
re-evaluate its investment objective and policies and consider possible changes
in its structure or possible dissolution.
Opinions relating to the validity of municipal securities and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of
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issuance. Neither the Bond Funds nor Fleet will review the proceedings relating
to the issuance of municipal securities or the bases for such opinions.
While the Tax-Exempt Bond Fund will invest primarily in municipal
securities, each of the Short-Term Bond, Intermediate Government Income and High
Quality Bond Funds may also invest in municipal securities when such investments
are deemed appropriate by Fleet in light of the Funds' investment objectives. As
a result of the favorable tax treatment afforded such obligations under the
Internal Revenue Code of 1986, as amended, yields on municipal securities can
generally be expected under normal market conditions to be lower than yields on
corporate and U.S. Government obligations, although from time to time municipal
securities have outperformed, on a total return basis, comparable corporate and
federal debt obligations as a result of prevailing economic, regulatory or other
circumstances.
VARIABLE AND FLOATING RATE MUNICIPAL SECURITIES. Municipal securities
purchased by the Bond Funds may include rated and unrated variable and floating
rate tax-exempt instruments. There may be no active secondary market with
respect to a particular variable on floating rate instrument. Nevertheless, the
periodic readjustments of their interest rates tend to assure that their value
to a Fund will approximate their par value. Illiquid variable and floating rate
instruments (instruments which are payable upon seven days' notice and do not
have an active trading market) that are acquired by the Funds are subject to
each Fund's 10% limit on illiquid instruments described under "Investment
Limitations" below.
STAND-BY COMMITMENTS
The Bond Funds may acquire "stand-by commitments" with respect to
municipal securities held by them. Under a stand-by commitment, a dealer agrees
to purchase, at a Fund's option, specified municipal securities at a specified
price. The Bond Funds will acquire stand-by commitments solely to facilitate
portfolio liquidity and do not intend to exercise their rights thereunder for
trading purposes. The Bond Funds expect that stand-by commitments will generally
be available without the payment of any direct or indirect consideration.
However, if necessary or advisable, a Fund may pay for a stand-by commitment
either separately in cash or by paying a higher price for portfolio securities
which are acquired subject to the commitment (thus reducing the yield otherwise
available for the same securities). Where a Fund pays any consideration directly
or indirectly for a stand-by commitment, its cost will be reflected as
unrealized depreciation for the period during which the commitment is held by
the Fund. Stand-by commitments acquired by a Fund would be valued at zero in
determining the Fund's net asset value.
Stand-by commitments are exercisable by a Bond Fund at any time before
the maturity of the underlying municipal security, and may be sold, transferred
or assigned by the Fund only with respect to the underlying instruments. A Fund
will enter into stand-by commitments only with banks and broker/dealers that
present minimal credit risks. In evaluating the creditworthiness of the issuer
of a stand-by commitment, Fleet will review periodically the issuer's assets,
liabilities, contingent claims and other relevant financial information.
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PRIVATE ACTIVITY BONDS
Each Bond Fund may invest in "private activity bonds," the interest on
which, although exempt from regular federal income tax, may constitute an item
of tax preference for purposes of the federal alternative minimum tax.
Investments in such securities, however, will not be treated as investments in
municipal securities for purposes of the Tax-Exempt Bond Fund's 80% requirement
mentioned above and, under normal conditions, will not exceed 20% of the Fund's
total assets when added together with any taxable investments held by the Fund.
Private activity bonds are or have been issued to obtain funds to
provide, among other things, privately operated housing facilities, pollution
control facilities, convention or trade show facilities, mass transit, airport,
port or parking facilities and certain local facilities for water supply, gas,
electricity or sewage or solid waste disposal. Private activity bonds are also
issued to privately held or publicly owned corporations in the financing of
commercial or industrial facilities. State and local governments are authorized
in most states to issue private activity bonds for such purposes in order to
encourage corporations to locate within their communities. The principal and
interest on these obligations may be payable from the general revenues of the
users of such facilities.
Private activity bonds held by the Bond Funds are in most cases revenue
securities and are not payable from the unrestricted revenues of the issuer.
Consequently, the credit quality of such private activity bonds is usually
directly related to the credit standing of the corporate user of the facility
involved.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
Each Fund may purchase portfolio securities subject to the seller's
agreement to repurchase them at a mutually specified date and price
("repurchase agreements"). Repurchase agreements will be entered into only
with financial institutions such as banks and broker/dealers which are deemed
to be creditworthy by Fleet and/or Oechsle. No Fund will enter into
repurchase agreements with Fleet or Oechsle or any of their affiliates.
Unless a repurchase agreement has a remaining maturity of seven days or less
or may be terminated on demand upon notice of seven days or less, the
repurchase agreement will be considered an illiquid security and will be
subject to each Fund's 10% limit (15% with respect to the Growth and Income,
Strategic Equity and Small Cap Value Funds) on illiquid securities described
below under "Investment Limitations."
The seller under a repurchase agreement will be required to maintain
the value of the securities which are subject to the agreement and held by a
Fund at not less than the agreed upon repurchase price. If the seller defaulted
on its repurchase obligation, the Fund holding such obligation would suffer a
loss to the extent that the proceeds from a sale of the underlying securities
(including accrued interest) were less than the repurchase price (including
accrued interest) under the agreement. In the event that such a defaulting
seller filed for bankruptcy or became insolvent, disposition of such securities
by the Fund might be delayed pending court action.
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The repurchase price under a repurchase agreement generally equals the
price paid by a Fund plus interest negotiated on the basis of current short-term
rates (which may be more or less than the rate on the securities underlying the
repurchase agreement). Securities subject to a repurchase agreement will be held
by a Fund's custodian or sub-custodian in a segregated account or in the Federal
Reserve/Treasury book-entry system. Repurchase agreements are considered to be
loans by a Fund under the 1940 Act.
Each Fund may also borrow funds for temporary purposes by selling
portfolio securities to financial institutions such as banks and broker/dealers
and agreeing to repurchase them at a mutually specified date and price ("reverse
repurchase agreements"). Reverse repurchase agreements involve the risk that the
market value of the securities sold by a Fund may decline below the repurchase
price. The Funds would pay interest on amounts obtained pursuant to a reverse
repurchase agreement. Whenever a Fund enters into a reverse repurchase
agreement, it will place in a segregated custodial account liquid assets such as
cash or liquid portfolio securities equal to the repurchase price (including
accrued interest). The Fund will monitor the account to ensure such equivalent
value is maintained. Reverse repurchase agreements are considered to be
borrowings by a Fund under the 1940 Act.
SECURITIES LENDING
Each Fund may lend its portfolio securities to financial institutions
such as banks and broker/dealers in accordance with the investment limitations
described below. Such loans would involve risks of delay in receiving additional
collateral or in recovering the securities loaned or even loss of rights in the
collateral, should the borrower of the securities fail financially. Any
portfolio securities purchased with cash collateral would also be subject to
possible depreciation. A Fund that loans portfolio securities would continue to
accrue interest on the securities loaned and would also earn income on the
loans. Any cash collateral received by the Funds would be invested in high
quality, short-term "money market" instruments. Loans will generally be
short-term (except in the case of the Growth and Income and Small Cap Value
Funds which may loan their securities on a long-term or short-term basis or
both), will be made only to borrowers deemed by Fleet and/or Oechsle to be of
good standing and only when, in Fleet's and/or Oechsle's judgment, the income to
be earned from the loan justifies the attendant risks. The Funds currently
intend to limit the lending of their portfolio securities so that, at any given
time, securities loaned by a Fund represent not more than one-third of the value
of its total assets.
INVESTMENT COMPANY SECURITIES
The Asset Allocation, Equity Income, Equity Value, Equity Growth,
International Equity and Small Company Equity Funds and Bond Funds may invest in
securities issued by other investment companies which invest in high quality,
short-term debt securities and which determine their net asset value per share
based on the amortized cost or penny-rounding method, provided, however, that
the Tax-Exempt Bond Fund may only invest in securities of other investment
companies which invest in high quality short-term municipal securities and which
determine their net asset value per share based on the amortized cost or
penny-rounding method.
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The International Equity Fund may also purchase shares of investment companies
investing primarily in foreign securities, including so-called "country funds."
Country funds have portfolios consisting primarily of securities of issuers
located in one foreign country. The Growth and Income, Strategic Equity and
Small Cap Value Funds may invest in other investment companies primarily for the
purpose of investing their short-term cash which has not yet been invested in
other portfolio instruments. However, from time to time, on a temporary basis,
the Growth and Income, Strategic Equity and Small Cap Value Funds may invest
exclusively in one other investment company similar to the respective Funds.
Investments in other investment companies will cause a Fund (and, indirectly,
the Fund's shareholders) to bear proportionately the costs incurred in
connection with the investment companies' operations. Except as provided above
with respect to the Growth and Income, Strategic Equity and Small Cap Value
Funds, securities of other investment companies will be acquired by a Fund
within the limits prescribed by the 1940 Act. Each Fund currently intends to
limit its investments so that, as determined immediately after a securities
purchase is made: (a) not more than 5% of the value of its total assets will be
invested in the securities of any one investment company; (b) not more than 10%
of the value of its total assets will be invested in the aggregate in securities
of other investment companies as a group; (c) not more than 3% of the
outstanding voting stock of any one investment company will be owned by the
Fund; and (d) not more than 10% of the outstanding voting stock of any one
closed-end investment company will be owned in the aggregate by the Fund, other
investment portfolios of Galaxy, or any other investment companies advised by
Fleet or Oechsle.
CUSTODIAL RECEIPTS AND CERTIFICATES OF PARTICIPATION
Securities acquired by Tax-Exempt Bond Fund may be in the form of
custodial receipts evidencing rights to receive a specific future interest
payment, principal payment or both on certain municipal securities. Such
obligations are held in custody by a bank on behalf of holders of the receipts.
These custodial receipts are known by various names, including "Municipal
Receipts," "Municipal Certificates of Accrual on Tax-Exempt Securities"
("M-CATS") and "Municipal Zero-Coupon Receipts." The Tax-Exempt Bond Fund may
also purchase from time to time certificates of participation that, in the
opinion of counsel to the issuer, are exempt from federal income tax. A
certificate of participation gives the Fund an undivided interest in a pool of
municipal securities held by a bank. Certificates of participation may have
fixed, floating or variable rates of interest. If a certificate of participation
is unrated, Fleet will have determined that the instrument is of comparable
quality to those instruments in which the Fund may invest pursuant to guidelines
approved by Galaxy's Board of Trustees. For certain certificates of
participation, the Fund will have the right to demand payment, on not more than
30 days' notice, for all or any part of the Fund's participation interest, plus
accrued interest. As to these instruments, the Fund intends to exercise its
right to demand payment as needed to provide liquidity, to maintain or improve
the quality of its investment portfolio or upon a default (if permitted under
the terms of the instrument).
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REITS
The Equity Funds may invest up to 10% of their net assets in real
estate investment trusts ("REITs"). Equity REITs invest directly in real
property while mortgage REITs invest in mortgages on real property. REITs may be
subject to certain risks associated with the direct ownership of real estate,
including declines in the value of real estate, risks related to general and
local economic conditions, overbuilding and increased competition, increases in
property taxes and operating expenses, and variations in rental income.
Generally, increases in interest rates will decrease the value of high yielding
securities and increase the costs of obtaining financing, which could decrease
the value of a REIT's investments. In addition, equity REITs may be affected by
changes in the value of the underlying property owned by the REITs, while
mortgage REITs may be affected by the quality of credit extended. Equity and
mortgage REITs are dependent upon management skill, are not diversified and are
subject to the risks of financing projects. REITs are also subject to heavy cash
flow dependency, defaults by borrowers, self liquidation and the possibility of
failing to qualify for tax-free pass-through of income under the Internal
Revenue Code of 1986, as amended (the "Code"), and to maintain exemption from
the 1940 Act. REITs pay dividends to their shareholders based upon available
funds from operations. It is quite common for these dividends to exceed a REIT's
taxable earnings and profits resulting in the excess portion of such dividends
being designated as a return of capital. Each Equity Fund intends to include the
gross dividends from any investments in REITs in its periodic distributions to
its shareholders and, accordingly, a portion of the Fund's distributions may
also be designated as a return of capital.
DERIVATIVE SECURITIES
The Funds may from time to time, in accordance with their respective
investment policies, purchase certain "derivative" securities. Derivative
securities are instruments that derive their value from the performance of
underlying assets, interest or currency exchange rates, or indices, and include,
but are not limited to, municipal bond index and interest rate futures, put and
call options, stock index futures and options, indexed securities and swap
agreements, foreign currency exchange contracts and certain asset-backed and
mortgage-backed securities.
Derivative securities present, to varying degrees, market risk that the
performance of the underlying assets, interest or exchange rates or indices will
decline; credit risk that the dealer or other counterparty to the transaction
will fail to pay its obligations; volatility and leveraging risk that, if
interest or exchange rates change adversely, the value of the derivative
security will decline more than the assets, rates or indices on which it is
based; liquidity risk that a Fund will be unable to sell a derivative security
when it wants because of lack of market depth or market disruption; pricing risk
that the value of a derivative security will not correlate exactly to the value
of the underlying assets, rates or indices on which it is based; and operations
risk that loss will occur as a result of inadequate systems and controls, human
error or otherwise. Some derivative securities are more complex than others, and
for those instruments that have been developed recently, data are lacking
regarding their actual performance over complete market cycles.
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Fleet and/or Oechsle will evaluate the risks presented by the
derivative securities purchased by the Funds, and will determine, in connection
with their day-to-day management of the Funds, how such securities will be used
in furtherance of the Funds' investment objectives. It is possible, however,
that Fleet's and/or Oechsle's evaluations will prove to be inaccurate or
incomplete and, even when accurate and complete, it is possible that the Funds
will, because of the risks discussed above, incur loss as a result of their
investments in derivative securities. Further discussion of particular types of
derivative securities follows.
PUT AND CALL OPTIONS -- ASSET ALLOCATION, EQUITY INCOME, EQUITY GROWTH
AND SMALL COMPANY EQUITY FUNDS. The Asset Allocation, Equity Income, Equity
Growth and Small Company Equity Funds may purchase put options and call options
on securities and securities indices. A put option gives the buyer the right to
sell, and the writer the obligation to buy, the underlying security at the
stated exercise price at any time prior to the expiration of the option. A call
option gives the buyer the right to buy the underlying security at the stated
exercise price at any time prior to the expiration of the option. Options
involving securities indices provide the holder with the right to make or
receive a cash settlement upon exercise of the option based on movements in the
relevant index. Such options must be listed on a national securities exchange
and issued by the Options Clearing Corporation. Such options may relate to
particular securities or to various stock indexes, except that a Fund may not
write covered call options on an index. A Fund may not purchase options unless
immediately after any such transaction the aggregate amount of premiums paid for
put or call options does not exceed 5% of its total assets. Purchasing options
is a specialized investment technique that may entail the risk of a complete
loss of the amounts paid as premiums to the writer of the option.
In order to close out put or call option positions, a Fund will be
required to enter into a "closing purchase transaction" -- the purchase of a put
or call option (depending upon the position being closed out) on the same
security with the same exercise price and expiration date as the option that it
previously wrote. When a portfolio security subject to a call option is sold, a
Fund will effect a closing purchase transaction to close out any existing call
option on that security. If a Fund is unable to effect a closing purchase
transaction, it will not be able to sell the underlying security until the
option expires or a Fund delivers the underlying security upon exercise.
In contrast to an option on a particular security, an option on an
index provides the holder with the right to make or receive a cash settlement
upon exercise of the option. The amount of this settlement will be equal to the
difference between the closing price of the index at the time of exercise and
the exercise price of the option expressed in dollars, times a specified
multiple.
When a Fund purchases a put or call option, the premium paid by it is
recorded as an asset of the Fund. The amount of this asset will be subsequently
marked-to-market to reflect the current value of the option purchased. The
current value of the traded option is the last sale price or, in the absence of
a sale, the average of the closing bid and asked prices. If an option purchased
by a Fund expires unexercised, the Fund realizes a loss equal to the premium
paid. If a Fund enters into a closing sale transaction on an option purchased by
it, the Fund will realize a
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gain if the premium received by the Fund on the closing transaction is more than
the premium paid to purchase the option, or a loss if it is less.
There are several risks associated with transactions in options on
securities. For example, there are significant differences between the
securities and options markets which could result in an imperfect correlation
between the markets, causing a given transaction not to achieve its objectives.
In addition, a liquid secondary market for particular options, whether traded
over-the-counter or on a national securities exchange may be absent for reasons
which include the following: there may be insufficient trading interest in
certain options; restrictions may be imposed by an exchange on opening
transactions, closing transactions or both; trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options or underlying securities; unusual or unforeseen circumstances may
interrupt normal operations on an exchange; the facilities of an exchange or the
Options Clearing Corporation may not at all times be adequate to handle current
trading volume; or one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that exchange (or in that class or series of options) would cease to
exist, although outstanding options that had been issued by the Options Clearing
Corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms. A Fund will likely be unable to
control losses by closing its position where a liquid secondary market does not
exist. Moreover, regardless of how much the market price of the underlying
security increases or decreases, the option buyer's risk is limited to the
amount of the original investment for the purchase of the option. However,
options may be more volatile than their underlying securities, and therefore, on
a percentage basis, an investment in options may be subject to greater
fluctuation than an investment in the underlying securities.
A decision as to whether, when and how to use options involves the
exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected events.
COVERED CALL OPTIONS -- ASSET ALLOCATION, EQUITY INCOME, EQUITY VALUE,
EQUITY GROWTH, INTERNATIONAL EQUITY AND SMALL COMPANY EQUITY FUNDS. To further
increase return on their portfolio securities, in accordance with their
respective investment objectives and policies, the Asset Allocation, Equity
Income, Equity Value, Equity Growth, International Equity and Small Company
Equity Funds may engage in writing covered call options (options on securities
owned by a Fund) and may enter into closing purchase transactions with respect
to such options. Such options must be listed on a national securities exchange
and issued by the Options Clearing Corporation. The aggregate value of the
securities subject to options written by the Asset Allocation, Equity Income,
Equity Value, Equity Growth, International Equity and Small Company Equity Funds
may not exceed 25% of the value of their respective net assets. By writing a
covered call option, a Fund forgoes the opportunity to profit from an increase
in the market price of the underlying security above the exercise price, except
insofar as the premium represents such a profit. A Fund will not be able to sell
the underlying security until the option expires or is exercised or the Fund
effects a closing purchase transaction by purchasing an option
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of the same series. Such options will normally be written on underlying
securities as to which Fleet and/or Oechsle does not anticipate significant
short-term capital appreciation.
The Asset Allocation, Equity Income, Equity Value, Equity Growth and
Small Company Equity Funds may write listed covered call options. A listed call
option gives the purchaser of the option the right to buy from a clearing
corporation, and obligates the writer to sell to the clearing corporation, the
underlying security at the stated exercise price at any time prior to the
expiration of the option, regardless of the market price of the security. The
premium paid to the writer is consideration for undertaking the obligations
under the option contract. If an option expires unexercised, the writer realizes
a gain in the amount of the premium. Such a gain may be offset by a decline in
the market price of the underlying security during the option period.
A Fund may terminate its obligation to sell prior to the expiration
date of the option by executing a closing purchase transaction, which is
effected by purchasing on an exchange an option of the same series (I.E., same
underlying security, exercise price and expiration date) as the option
previously written. Such a purchase does not result in the ownership of an
option. A closing purchase transaction will ordinarily be effected to realize a
profit on an outstanding call option, to prevent an underlying security from
being called, to permit the sale of the underlying security or to permit the
writing of a new call option containing different terms on such underlying
security. The cost of such a liquidating purchase plus transaction costs may be
greater than the premium received upon the original option, in which event the
writer will have incurred a loss in the transaction. An option position may be
closed out only on an exchange that provides a secondary market for an option of
the same series. There is no assurance that a liquid secondary market on an
exchange will exist for any particular option. A covered option writer, unable
to effect a closing purchase transaction, will not be able to sell the
underlying security until the option expires or the underlying security is
delivered upon exercise. The writer in such circumstances will be subject to the
risk of market decline of the underlying security during such period. A Fund
will write an option on a particular security only if Fleet and/or Oechsle
believes that a liquid secondary market will exist on an exchange for options of
the same series, which will permit the Fund to make a closing purchase
transaction in order to close out its position.
When a Fund writes an option, an amount equal to the net premium (the
premium less the commission) received by the Fund is included as a deferred
credit in the liability section of the Fund's statement of assets and
liabilities. The amount of the deferred credit will be subsequently
marked-to-market to reflect the current value of the option written. The current
value of the traded option is the last sale price or, in the absence of a sale
price, the average of the closing bid and asked prices. If an option expires on
the stipulated expiration date or if a Fund enters into a closing purchase
transaction, it will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the net premium received when the option is sold), and the
deferred credit related to such option will be eliminated. If an option is
exercised, the Fund may deliver the underlying security from its portfolio and
purchase the underlying security in the open market. In either event, the
proceeds of the sale will be increased by the net premium originally received,
and the Fund will realize a gain or loss. Premiums from expired call options
written by a Fund and net gains from closing purchase transactions are treated
as short-term capital gains for
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federal income tax purposes, and losses on closing purchase transactions are
treated as short-term capital losses.
OPTIONS ON FOREIGN STOCK INDEXES -- INTERNATIONAL EQUITY FUND. The
International Equity Fund may, for the purpose of hedging its portfolio, subject
to applicable securities regulations purchase and write put and call options on
foreign stock indexes listed on foreign and domestic stock exchanges. A stock
index fluctuates with changes in the market values of the stocks included in the
index. Examples of foreign stock indexes are the Canadian Market Portfolio Index
(Montreal Stock Exchange), The Financial Times -- Stock Exchange 100 (London
Stock Exchange) and the Toronto Stock Exchange Composite 300 (Toronto Stock
Exchange).
Options on stock indexes are generally similar to options on stock
except that the delivery requirements are different. Instead of giving the right
to take or make delivery of stock at a specified price, an option on a stock
index gives the holder the right to receive a cash "exercise settlement amount"
equal to (a) the amount, if any, by which the fixed exercise price of the option
exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying index on the date of exercise, multiplied by (b)
a fixed "index multiplier." Receipt of this cash amount will depend upon the
closing level of the stock index upon which the option is based being greater
than, in the case of a call, or less than, in the case of a put, the exercise
price of the option. The writer of the option is obligated, in return for the
premium received, to make delivery of this amount. The writer may offset its
position in stock index options prior to expiration by entering into a closing
transaction on an exchange or the option may expire unexercised.
The effectiveness of purchasing or writing stock index options as a
hedging technique will depend upon the extent to which price movements in the
portion of the securities portfolio of the International Equity Fund correlate
with price movements of the stock index selected. Because the value of an index
option depends upon movements in the level of the index rather than the price of
a particular stock, whether the Fund realizes a gain or loss from the purchase
or writing of options on an index is dependent upon movements in the level of
stock prices in the stock market generally or, in the case of certain indexes,
in an industry or market segment, rather than movements in the price of a
particular stock. Accordingly, successful use by the Fund of options on stock
indexes will be subject to Fleet's and/or Oechsle's ability to predict correctly
movements in the direction of the stock market generally or of a particular
industry. This requires different skills and techniques than predicting changes
in the price of individual stocks. There can be no assurance that such judgment
will be accurate or that the use of these portfolio strategies will be
successful. The Fund will engage in stock index options transactions that are
determined to be consistent with its efforts to control risk.
When the Fund writes an option on a stock index, the Fund will
establish a segregated account with its custodian or with a foreign
sub-custodian in which the Fund will deposit cash or other liquid assets in an
amount equal to the market value of the option, and will maintain the account
while the option is open.
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OPTIONS AND FUTURES CONTRACTS - GROWTH AND INCOME, STRATEGIC EQUITY AND
SMALL CAP VALUE FUNDS. The Growth and Income, Strategic Equity and Small Cap
Value Funds may buy and sell options and futures contracts to manage their
exposure to changing interest rates, security prices and currency exchange
rates. The Funds may invest in options and futures based on any type of
security, index, or currency, including options and futures based on foreign
exchanges (see "Options on Foreign Stock Indexes -- International Equity Fund"
above) and options not traded on exchanges. Some options and futures strategies,
including selling futures, buying puts, and writing calls, tend to hedge a
Fund's investments against price fluctuations. Other strategies, including
buying futures, writing puts, and buying calls, tend to increase market
exposure. Options and futures may be combined with each other or with forward
contracts in order to adjust the risk and return characteristics of the overall
strategy.
Options and futures can be volatile investments, and involve certain
risks. If Fleet applies a hedge at an inappropriate time or judges market
conditions incorrectly, options and futures may lower a Fund's individual
return. A Fund could also experience losses if the prices of its options and
futures positions were poorly correlated with its other investments, or if it
could not close out its positions because of an illiquid secondary market.
The Funds will not hedge more than 20% of their respective total assets
by selling futures, buying puts, and writing calls under normal conditions. The
Funds will not buy futures or write puts whose underlying value exceeds 20% of
their respective total assets, and will not buy calls with a value exceeding 5%
of their respective total assets.
FUTURES CONTRACTS - BOND FUNDS. The Tax-Exempt Bond Fund may purchase
and sell municipal bond index futures contracts as a hedge against changes in
market conditions. A municipal bond index assigns values daily to the municipal
bonds included in the index based on the independent assessment of
dealer-to-dealer municipal bond brokers. A municipal bond index futures contract
represents a firm commitment by which two parties agree to take or make delivery
of an amount equal to a specified dollar amount multiplied by the difference
between the municipal bond index value on the last trading date of the contract
and the price at which the futures contract is originally struck. No physical
delivery of the underlying securities in the index is made.
Each Bond Fund may enter into contracts (both purchase and sale) for
the future delivery of fixed income securities commonly known as interest rate
futures contracts. Interest rate futures contracts are similar to municipal bond
index futures contracts except that, instead of a municipal bond index, the
"underlying commodity" is represented by various types of fixed-income
securities.
The Bond Funds will not engage in futures transactions for speculation,
but only to hedge against changes in the market values of securities which the
Fund hold or intends to purchase. The Funds will engage in futures transactions
only to the extent permitted by the Commodity Futures Trading Commission
("CFTC") and the Securities and Exchange Commission ("SEC"). The purchase of
futures instruments in connection with securities which the Funds intend to
purchase will require an amount of cash or other liquid assets, equal to the
market value of the
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outstanding futures contracts, to be deposited in a segregated account to
collateralize the position and thereby insure that the use of such futures is
unleveraged. The Bond Funds will limit their hedging transactions in futures
contracts so that, immediately after any such transaction, the aggregate initial
margin that is required to be posted by a Fund under the rules of the exchange
on which the futures contract is traded does not exceed 5% of the Fund's total
assets after taking into account any unrealized profits and unrealized losses on
the Fund's open contracts. In addition, no more than one-third of a Fund's total
assets may be covered by such contracts.
Transactions in futures as a hedging device may subject the Funds to a
number of risks. Successful use of futures by the Bond Funds are subject to the
ability of Fleet to predict correctly movements in the direction of the market.
In addition, there may be an imperfect correlation, or no correlation at all,
between movements in the price of futures contracts and movements in the price
of the instruments being hedged. There is no assurance that a liquid market will
exist for any particular futures contract at any particular time. Consequently,
the Bond Funds may realize a loss on a futures transaction that is not offset by
a favorable movement in the price of securities which it holds or intends to
purchase or may be unable to close a futures position in the event of adverse
price movements. Any income from investments in futures contracts will be
taxable. Additional information concerning futures transactions, including
special rules regarding the taxation of such transactions, is contained in
Appendix B.
STOCK INDEX FUTURES, SWAP AGREEMENTS, INDEXED SECURITIES AND OPTIONS -
GROWTH AND INCOME, STRATEGIC EQUITY AND SMALL CAP VALUE FUNDS. The Growth and
Income, Strategic Equity and Small Cap Value Funds may utilize stock index
futures contracts, options, swap agreements, indexed securities, and options on
futures contracts for the purposes of managing cash flows into and out of their
respective portfolios and potentially reducing transaction costs, subject to the
limitation that the value of these futures contracts, swap agreements, indexed
securities, and options will not exceed 20% of the Funds' respective total
assets. The Funds will not purchase options to the extent that more than 5% of
the value of their respective total assets would be invested in premiums on open
put option positions. In addition, the Funds do not intend to invest more than
5% of the market value of their respective total assets in each of the
following: futures contracts, swap agreements, and indexed securities. When a
Fund enters into a swap agreement, liquid assets of the Fund equal to the value
of the swap agreement will be segregated by that Fund. The Funds may not use
stock index futures contracts and options for speculative purposes.
There are several risks accompanying the utilization of futures
contracts. Positions in futures contracts may be closed only on an exchange or
board of trade that furnishes a secondary market for such contracts. While the
Funds plan to utilize futures contracts only if there exists an active market
for such contracts, there is no guarantee that a liquid market will exist for
the contracts at a specified time. Furthermore, because by definition, futures
contracts look to projected price levels in the future and not to current levels
of valuation, market circumstances may result in there being a discrepancy
between the price of the stock index future and the movement in the
corresponding stock index. The absence of a perfect price correlation between
the futures contract and its underlying stock index could stem from investors
choosing to close futures contracts by offsetting transactions, rather than
satisfying additional margin requirements.
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This could result in a distortion of the relationship between the index and the
futures market. In addition, because the futures market imposes less burdensome
margin requirements than the securities market, an increased amount of
participation by speculators in the futures market could result in price
fluctuations.
As a means of reducing fluctuations in the net asset value of shares of
the Funds, the Funds may attempt to hedge all or a portion of their respective
portfolios through the purchase of listed put options on stocks, stock indices
and stock index futures contracts. These options will be used as a form of
forward pricing to protect portfolio securities against decreases in value
resulting from market factors, such as an anticipated increase in interest
rates. A purchased put option gives a Fund, in return for a premium, the right
to sell the underlying security to the writer (seller) at a specified price
during the term of the option. Put options on stock indices are similar to put
options on stocks except for the delivery requirements. Instead of giving a Fund
the right to make delivery of stock at a specified price, a put option on a
stock index gives the Fund, as holder, the right to receive an amount of cash
upon exercise of the option.
The Funds may also write covered call options. As the writer of a call
option, a Fund has the obligation upon exercise of the option during the option
period to deliver the underlying security upon payment of the exercise price.
The Funds may only: (1) buy listed put options on stock indices and
stock index futures contracts; (2) buy listed put options on securities held in
their respective portfolios; and (3) sell listed call options either on
securities held in their respective portfolios or on securities which they have
the right to obtain without payment of further consideration (or have segregated
cash in the amount of any such additional consideration). A Fund will maintain
its positions in securities, option rights, and segregated cash subject to puts
and calls until the options are exercised, closed or expired. A Fund may also
enter into stock index futures contracts. A stock index futures contract is a
bilateral agreement which obligates the seller to deliver (and the purchaser to
take delivery of) an amount of cash equal to a specific dollar amount times the
difference between the value of a specific stock index at the close of trading
of the contract and the price at which the agreement is originally made. There
is no physical delivery of the stocks constituting the index, and no price is
paid upon entering into a futures contract.
In general, option contracts are closed out prior to their expiration.
A Fund, when purchasing or selling a futures contract, will initially be
required to deposit in a segregated account in the broker's name with the Fund's
custodian an amount of cash or liquid portfolio securities approximately equal
to 5% - 10% of the contract value. This amount is known as "initial margin," and
it is subject to change by the exchange or board of trade on which the contract
is traded. Subsequent payments to and from the broker are made on a daily basis
as the price of the index or the securities underlying the futures contract
fluctuates. These payments are known as "variation margins," and the fluctuation
in value of the long and short positions in the futures contract is a process
referred to as "marking to market." A Fund may decide to close its position on a
contract at any time prior to the contract's expiration. This is accomplished by
the Fund taking an opposite position at the then prevailing price, thereby
terminating its existing position in the contract. Because the initial margin
resembles a performance bond or good-faith
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deposit on the contract, it is returned to the Fund upon the termination of the
contract, assuming that all contractual obligations have been satisfied.
Therefore, the margin utilized in futures contracts is readily distinguishable
from the margin employed in security transactions, since the margin employed in
futures contracts does not involve the borrowing of funds to finance the
transaction.
None of the Growth and Income, Strategic Equity or Small Cap Value
Funds will enter into futures contracts if, immediately thereafter, the sum of
its initial margin deposits on open contracts exceed 5% of the market value of
its total assets. Further, a Fund will enter into stock index futures contracts
only for bona fide hedging purposes or such other purposes permitted under Part
4 of the regulations promulgated by the Commodity Futures Trading Commission.
Also, a Fund may not enter into stock index futures contracts and options to the
extent that the value of such contracts would exceed 20% of the Fund's total net
assets and may not purchase put options to the extent that more than 5% of the
value of the Fund's total assets would be invested in premiums on open put
option positions.
The Growth and Income, Strategic Equity and Small Cap Value Funds may
invest in indexed securities whose value is linked to foreign currencies,
interest rates, commodities, indices or other financial indicators. Most indexed
securities are short- to intermediate-term fixed income securities whose values
at maturity or interest rates rise or fall according to the change in one or
more specified underlying instruments. Indexed securities may be positively or
negatively indexed (i.e., their value may increase or decrease if the underlying
instrument appreciates), and may have return characteristics similar to direct
investments in the underlying instrument or to one or more options on the
underlying instrument. Indexed securities may be more volatile than the
underlying instrument itself.
As one way of managing their exposure to different types of
investments, the Growth and Income, Strategic Equity and Small Cap Value Funds
may enter into interest rate swaps, currency swaps, and other types of swap
agreements such as caps, collars, and floors. In a typical interest rate swap,
one party agrees to make regular payments equal to a floating interest rate
times a "notional principal amount," in return for payments equal to a fixed
rate times the same amount, for a specified period of time. If a swap agreement
provides for payments in different currencies, the parties might agree to
exchange notional principal amount as well. Swaps may also depend on other
prices or rates, such as the value of an index or mortgage prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments
only under specified circumstances, usually in return for payment of a fee by
the other party. For example, the buyer of an interest rate cap obtains the
right to receive payments to the extent that a specified interest rate exceeds
an agreed upon level, while the seller of an interest rate floor is obligated to
make payments to the extent that a specified interest rate falls below an agreed
upon level. An interest rate collar combines elements of buying a cap and
selling a floor.
Swap agreements will tend to shift a Fund's investment exposure from
one type of investment to another. For example, if a Fund agreed to exchange
payments in dollars for
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payments in foreign currency, the swap agreement would tend to decrease the
Fund's exposure to U.S. interest rates and increase its exposure to foreign
currency and interest rates. Caps and floors have an effect similar to buying or
writing options. Depending on how they are used, swap agreements may increase or
decrease the overall volatility of a Fund's investments and its share price and
yield.
Swap agreements are sophisticated hedging instruments that typically
involve a small investment of cash relative to the magnitude of risks assumed.
As a result, swaps can be highly volatile and may have a considerable impact on
the Funds' performance. Swap agreements are subject to risks related to the
counterparty's ability to perform, and may decline in value if the
counterparty's creditworthiness deteriorates. The Funds may also suffer losses
if they are unable to terminate outstanding swap agreements or reduce their
exposure through offsetting transactions.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the Equity Funds and
Short-Term Bond Fund may buy and sell securities denominated in currencies other
than the U.S. dollar, and may receive interest, dividends and sale proceeds in
currencies other than the U.S. dollar, the Funds from time to time may enter
into foreign currency exchange transactions to convert the U.S. dollar to
foreign currencies, to convert foreign currencies to the U.S. dollar and to
convert foreign currencies to other foreign currencies. A Fund either enters
into these transactions on a spot (I.E., cash) basis at the spot rate prevailing
in the foreign currency exchange market, or uses forward contracts to purchase
or sell foreign currencies. Forward foreign currency exchange contracts are
agreements to exchange one currency for another -- for example, to exchange a
certain amount of U.S. dollars for a certain amount of Japanese yen -- at a
future date, which may be any fixed number of days from the date of the
contract, and at a specified price. Typically, the other party to a currency
exchange contract will be a commercial bank or other financial institution. A
forward foreign currency exchange contract generally has no deposit requirement
and is traded at a net price without commission. Neither spot transactions nor
forward foreign currency exchange contracts eliminate fluctuations in the prices
of a Fund's portfolio securities or in foreign exchange rates, or prevent loss
if the prices of these securities should decline.
Forward foreign currency exchange contracts also allow the Equity Funds
and Short-Term Bond Fund to hedge the currency risk of portfolio securities
denominated in a foreign currency. This technique permits the assessment of the
merits of a security to be considered separately from the currency risk. By
separating the asset and the currency decision, it is possible to focus on the
opportunities presented by the security apart from the currency risk. Although
forward foreign currency exchange contracts are of short duration, generally
between one and twelve months, such contracts are rolled over in a manner
consistent with a more long-term currency decision. Because there is a risk of
loss to a Fund if the other party does not complete the transaction, forward
foreign currency exchange contracts will be entered into only with parties
approved by Galaxy's Board of Trustees.
A Fund may maintain "short" positions in forward foreign currency
exchange transactions, which would involve the Fund's agreeing to exchange
currency that it currently
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does not own for another currency -- for example, to exchange an amount of
Japanese yen that it does not own for a certain amount of U.S. dollars -- at a
future date and at a specified price in anticipation of a decline in the value
of the currency sold short relative to the currency that the Fund has contracted
to receive in the exchange. In order to ensure that the short position is not
used to achieve leverage with respect to the Fund's investments, the Fund will
establish with its custodian a segregated account consisting of cash or other
liquid assets equal in value to the fluctuating market value of the currency as
to which the short position is being maintained. The value of the securities in
the segregated account will be adjusted at least daily to reflect changes in the
market value of the short position.
Forward foreign currency exchange contracts establish an exchange rate
at a future date. These contracts are transferable in the interbank market
conducted directly between currency traders (usually large commercial banks) and
their customers. A forward foreign currency exchange contract generally has no
deposit requirement and is traded at a net price without commission. Neither
spot transactions nor forward foreign currency exchange contracts eliminate
fluctuations in the prices of a Fund's portfolio securities or in foreign
exchange rates, or prevent loss if the prices of these securities should
decline.
The Equity Funds and Short-Term Bond Fund may enter into foreign
currency hedging transactions in an attempt to protect against changes in
foreign currency exchange rates between the trade and settlement dates of
specific securities transactions or changes in foreign currency exchange rates
that would adversely affect a portfolio position or an anticipated portfolio
position. Since consideration of the prospect for currency parities will be
incorporated into a Fund's long-term investment decisions, the Funds will not
routinely enter into foreign currency hedging transactions with respect to
portfolio security transactions; however, it is important to have the
flexibility to enter into foreign currency hedging transactions when it is
determined that the transactions would be in the Fund's best interest. Although
these transactions tend to minimize the risk of loss due to a decline in the
value of the hedged currency, at the same time they tend to limit any potential
gain that might be realized should the value of the hedged currency increase.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible because the future value of
these securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. The projection of currency market
movements is extremely difficult, and the successful execution of a hedging
strategy is highly uncertain.
AMERICAN, EUROPEAN AND GLOBAL DEPOSITORY RECEIPTS
Each Equity Fund and the Short-Term Bond Fund may invest in ADRs and
EDRs. The Growth and Income, Strategic Equity, International Equity and Small
Cap Value Funds may also invest in GDRs. ADRs are receipts issued in registered
form by a U.S. bank or trust company evidencing ownership of underlying
securities issued by a foreign issuer. EDRs are receipts issued in Europe
typically by non-U.S. banks or trust companies and foreign branches of U.S.
banks that evidence ownership of foreign or U.S. securities. GDRs are receipts
structured similarly to EDRs and are marketed globally. ADRs may be listed on a
national securities
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exchange or may be traded in the over-the-counter market. EDRs are designed for
use in European exchange and over-the-counter markets. GDRs are designed for
trading in non-U.S. securities markets. ADRs, EDRs and GDRs traded in the
over-the-counter market which do not have an active or substantial secondary
market will be considered illiquid and therefore will be subject to the Funds'
respective limitations with respect to such securities. If a Fund invests in an
unsponsored ADR, EDR or GDR, there may be less information available to the Fund
concerning the issuer of the securities underlying the unsponsored ADR, EDR or
GDR than is available for an issuer of securities underlying a sponsored ADR,
EDR or GDR. ADR prices are denominated in U.S. dollars although the underlying
securities are denominated in a foreign currency. Investments in ADRs, EDRs and
GDRs involve risks similar to those accompanying direct investments in foreign
securities. Certain of these risks are described above under "Special Risk
Considerations -- Foreign Securities."
ASSET-BACKED SECURITIES
The Bond Funds and Asset Allocation Fund may purchase asset-backed
securities, which represent a participation in, or are secured by and payable
from, a stream of payments generated by particular assets, most often a pool of
assets similar to one another. Assets generating such payments will consist of
such instruments as motor vehicle installment purchase obligations, credit card
receivables and home equity loans. Payment of principal and interest may be
guaranteed up to certain amounts and for a certain time period by a letter of
credit issued by a financial institution unaffiliated with entities issuing the
securities. The estimated life of an asset-backed security varies with the
prepayment experience with respect to the underlying debt instruments. The rate
of such prepayments, and hence the life of the asset-backed security, will be
primarily a function of current market rates, although other economic and
demographic factors will be involved. The Tax-Exempt Bond Fund will not invest
more than 10% of its total assets in asset-backed securities.
Asset-backed securities are generally issued as pass-through
certificates, which represent undivided fractional ownership interests in an
underlying pool of assets, or as debt instruments, which are also known as
collateralized obligations, and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt. Asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties.
The yield characteristics of asset-backed securities differ from
traditional debt securities. A major difference is that the principal amount of
the obligations may be prepaid at any time because the underlying assets (i.e.,
loans) generally may be prepaid at any time. As a result, if an asset-backed
security is purchased at a premium, a prepayment rate that is faster than
expected will reduce yield to maturity, while a prepayment rate that is slower
than expected will have the opposite effect of increasing yield to maturity.
Conversely, if an asset-backed security is purchased at a discount, faster than
expected prepayments will increase, while slower than expected prepayments, will
decrease, yield to maturity.
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Prepayments on asset-backed securities generally increase with falling
interest rates and decrease with rising interest rates; furthermore prepayment
rates are influenced by a variety of economic and social factors. In general,
the collateral supporting non-mortgage asset-backed securities is of shorter
maturity than mortgage loans and is less likely to experience substantial
prepayments. Like other fixed income securities, when interest rates rise, the
value of an asset-backed security generally will decline; however, when interest
rates decline, the value of an asset-backed security with prepayment features
may not increase as much as that of other fixed income securities.
Asset-backed securities are subject to greater risk of default during
periods of economic downturn. Also, the secondary market for certain
asset-backed securities may not be as liquid as the market for other types of
securities, which could result in a Fund's experiencing difficulty in valuing or
liquidating such securities. For these reasons, under certain circumstances,
asset-backed securities may be considered illiquid securities.
MORTGAGE-BACKED SECURITIES
The Bond Funds and Asset Allocation Fund may invest in mortgage-backed
securities (including collateralized mortgage obligations) that represent pools
of mortgage loans assembled for sale to investors by various governmental
agencies and government-related organizations, such as the Government National
Mortgage Association, the Federal National Mortgage Association, and the Federal
Home Loan Mortgage Corporation. Mortgage-backed securities provide a monthly
payment consisting of interest and principal payments. Additional payment may be
made out of unscheduled repayments of principal resulting from the sale of the
underlying residential property, refinancing or foreclosure, net of fees or
costs that may be incurred. Prepayments of principal on mortgage-backed
securities may tend to increase due to refinancing of mortgages as interest
rates decline. To the extent that a Fund purchases mortgage-backed securities at
a premium, mortgage foreclosures and prepayments of principal by mortgagors
(which may be made at any time without penalty) may result in some loss of the
Fund's principal investment to the extent of the premium paid. The yield of a
Fund, should it invest in mortgage-backed securities, may be affected by
reinvestment of prepayments at higher or lower rates than the original
investment.
Other mortgage-backed securities are issued by private issuers,
generally originators of and investors in mortgage loans, including savings
associations, mortgage bankers, commercial banks, investment bankers, and
special purpose entities. These private mortgage-backed securities may be
supported by U.S. Government mortgage-backed securities or some form of
non-government credit enhancement. Mortgage-backed securities have either fixed
or adjustable interest rates. The rate of return on mortgage-backed securities
may be affected by prepayments of principal on the underlying loans, which
generally increase as interest rates decline; as a result, when interest rates
decline, holders of these securities normally do not benefit from appreciation
in market value to the same extent as holders of other non-callable debt
securities. In addition, like other debt securities, the value of
mortgage-related securities, including government and government-related
mortgage pools, generally will fluctuate in response to market interest rates.
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MORTGAGE DOLLAR ROLLS
The Short-Term Bond, Intermediate Government Income, High Quality Bond
and Asset Allocation Funds may enter into mortgage "dollar rolls" in which a
Fund sells securities for delivery in the current month and simultaneously
contracts with the same counterparty to repurchase similar (same type, coupon
and maturity) but not identical securities on a specified future date not
exceeding 120 days. During the roll period, a Fund loses the right to receive
principal and interest paid on the securities sold. However, a Fund would
benefit to the extent of any difference between the price received for the
securities sold and the lower forward price for the future purchase (often
referred to as the "drop") or fee income plus the interest earned on the cash
proceeds of the securities sold until the settlement date of the forward
purchase. Unless such benefits exceed the income, capital appreciation and gain
or loss due to mortgage prepayments that would have been realized on the
securities sold as part of the mortgage dollar roll, the use of this technique
will diminish the investment performance of a Fund compared with what such
performance would have been without the use of mortgage dollar rolls. All cash
proceeds will be invested in instruments that are permissible investments for
the Funds. The Funds will hold and maintain in a segregated account until the
settlement date cash or other liquid assets in an amount equal to the forward
purchase price.
For financial reporting and tax purposes, the Funds propose to treat
mortgage dollar rolls as two separate transactions; one involving the purchase
of a security and a separate transaction involving a sale. The Funds do not
currently intend to enter into mortgage dollar rolls that are accounted for as a
financing.
Mortgage dollar rolls involve certain risks. If the broker-dealer to
whom a Fund sells the security becomes insolvent, the Fund's right to purchase
or repurchase the mortgage-related securities may be restricted and the
instrument which the Fund is required to repurchase may be worth less than the
instrument which the Fund originally held. Successful use of mortgage dollar
rolls may depend upon Fleet's ability to predict correctly interest rates and
mortgage prepayments. For these reasons, there is no assurance that mortgage
dollar rolls can be successfully employed.
CONVERTIBLE SECURITIES
The Equity Funds may from time to time, in accordance with their
respective investment policies, invest in convertible securities. Convertible
securities are fixed income securities which may be exchanged or converted into
a predetermined number of shares of the issuer's underlying common stock at the
option of the holder during a specified time period. Convertible securities may
take the form of convertible preferred stock, convertible bonds or debentures,
units consisting of "usable" bonds and warrants or a combination of the features
of several of these securities.
Convertible bonds and convertible preferred stocks generally retain the
investment characteristics of fixed income securities until they have been
converted but also react to
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movements in the underlying equity securities. The holder is entitled to
receive the fixed income of a bond or the dividend preference of a preferred
stock until the holder elects to exercise the conversion privilege. Usable bonds
are corporate bonds that can be used in whole or in part, customarily at full
face value, in lieu of cash to purchase the issuer's common stock. When owned as
part of a unit along with warrants, which are options to buy the common stock,
they function as convertible bonds, except that the warrants generally will
expire before the bond's maturity. Convertible securities are senior to equity
securities and therefore have a claim to the assets of the issuer prior to the
holders of common stock in the case of liquidation. However, convertible
securities are generally subordinated to similar non-convertible securities of
the same issuer. The interest income and dividends from convertible bonds and
preferred stocks provide a stable stream of income with generally higher yields
than common stocks, but lower than non-convertible securities of similar
quality. A Fund will exchange or convert the convertible securities held in its
portfolio into shares of the underlying common stock in instances in which, in
Fleet's and/or Oechsle's opinion, the investment characteristics of the
underlying common shares will assist the Fund in achieving its investment
objective. Otherwise, a Fund will hold or trade the convertible securities. In
selecting convertible securities for a Fund, Fleet evaluates the investment
characteristics of the convertible security as a fixed income instrument, and
the investment potential of the underlying equity security for capital
appreciation. In evaluating these matters with respect to a particular
convertible security, Fleet considers numerous factors, including the economic
and political outlook, the value of the security relative to other investment
alternatives, trends in the determinants of the issuer's profits, and the
issuer's management capability and practices.
The Growth and Income and Small Cap Value Funds may invest in
convertible bonds rated "BB" or higher by S&P or Fitch IBCA, or "Ba" or higher
by Moody's at the time of investment. Securities rated "BB" by S&P or Fitch IBCA
or "Ba" by Moody's provide questionable protection of principal and interest in
that such securities either have speculative characteristics or are
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. Debt obligations that
are not rated, or not determined to be, investment grade are high-yield,
high-risk bonds, typically subject to greater market fluctuations, and
securities in the lowest rating category may be in danger of loss of income and
principal due to an issuer's default. To a greater extent than investment grade
bonds, the value of lower-rated bonds tends to reflect short-term corporate,
economic, and market developments, as well as investor perceptions of the
issuer's credit quality. In addition, lower-rated bonds may be more difficult to
dispose of or to value than higher-rated, lower-yielding bonds. Fleet will
attempt to reduce the risks described above through diversification of each
Equity Fund's portfolio and by credit analysis of each issuer, as well as by
monitoring broad economic trends and corporate and legislative developments. If
a convertible bond is rated below "BB" or "Ba" after a Fund has purchased it,
the Fund is not required to eliminate the convertible bond from its portfolio,
but will consider appropriate action. The investment characteristics of each
convertible security vary widely, which allows convertible securities to be
employed for different investment objectives. The Funds do not intend to invest
in such lower-rated bonds during the current fiscal year. A description of the
rating categories of S&P, Moody's and Fitch IBCA is contained in Appendix A to
this Statement of Additional Information.
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WHEN-ISSUED, FORWARD COMMITMENT AND DELAYED SETTLEMENT TRANSACTIONS
The Growth and Income, Strategic Equity, International Equity and Small
Cap Value Funds and Bond Funds may purchase eligible securities on a
"when-issued" basis. The Bond Funds may purchase or sell securities on a
"forward commitment" basis. The Growth and Income, Strategic Equity and Small
Cap Value Funds and Bond Funds may also purchase eligible securities on a
"delayed settlement" basis. When-issued and forward commitment transactions,
which involve a commitment by a Fund to purchase or sell particular securities
with payment and delivery taking place at a future date (perhaps one or two
months later), permit the Fund to lock in a price or yield on a security it owns
or intends to purchase, regardless of future changes in interest rates. Delayed
settlement describes settlement of a securities transaction in the secondary
market which will occur sometime in the future. When-issued, forward commitment
and delayed settlement transactions involve the risk, however, that the yield or
price obtained in a transaction may be less favorable than the yield or price
available in the market when the securities delivery takes place. It is expected
that forward commitments, when-issued purchases and delayed settlements will not
exceed 25% of the value of a Fund's total assets absent unusual market
conditions. In the event a Fund's forward commitments, when-issued purchases and
delayed settlements ever exceeded 25% of the value of its total assets, the
Fund's liquidity and the ability of Fleet to manage the Fund might be adversely
affected. The Funds do not intend to engage in when-issued purchases, forward
commitments and delayed settlements for speculative purposes, but only in
furtherance of their investment objectives.
A Fund may dispose of a commitment prior to settlement if Fleet or
Oechsle, as the case may be, deems it appropriate to do so. In addition, a Fund
may enter into transactions to sell its purchase commitments to third parties at
current market values and simultaneously acquire other commitments to purchase
similar securities at later dates. The Funds may realize short-term profits or
losses upon the sale of such commitments.
When a Fund agrees to purchase securities on a "when-issued", "forward
commitment" or "delayed settlement" basis, the Fund's custodian will set aside
cash or liquid portfolio securities equal to the amount of the commitment in a
separate account. In the event of a decline in the value of the securities that
the custodian has set aside, the Fund may be required to place additional assets
in the separate account in order to ensure that the value of the account remains
equal to the amount of the Fund's commitment. A Fund's net assets may fluctuate
to a greater degree if it sets aside portfolio securities to cover such purchase
commitments than if it sets aside cash. Because a Fund sets aside liquid assets
to satisfy its purchase commitments in the manner described, its liquidity and
ability to manage its portfolio might be adversely affected in the event its
commitment to purchase "forward commitments," commitments to purchase
"when-issued" securities or commitments to purchase securities on a "delayed
settlement" basis exceeded 25% of the value of its assets.
When a Fund engages in "when-issued," "forward commitment," or "delayed
settlement" transactions, it relies on the seller to consummate the trade.
Failure of the seller to do so may result in the Fund's incurring a loss or
missing an opportunity to obtain a price considered to be
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advantageous for a security. For purposes of determining the average weighted
maturity of a Fund's portfolio, the maturity of "when-issued" securities is
calculated from the date of settlement of the purchase to the maturity date.
STRIPPED OBLIGATIONS
To the extent consistent with its investment objective, each of the
Short-Term Bond, Intermediate Government Income and High Quality Bond Funds may
purchase U.S. Treasury receipts and other "stripped" securities that evidence
ownership in either the future interest payments or the future principal
payments on U.S. Government and other obligations. These participations, which
may be issued by the U.S. Government or by private issuers, such as banks and
other institutions, are issued at their "face value," and may include stripped
mortgage-backed securities ("SMBS"), which are derivative multi-class mortgage
securities. Stripped securities, particularly SMBS, may exhibit greater price
volatility than ordinary debt securities because of the manner in which their
principal and interest are returned to investors.
SMBS are usually structured with two or more classes that receive
different proportions of the interest and principal distributions from a pool of
mortgage-backed obligations. A common type of SMBS will have one class receiving
all of the interest, while the other class will receive all of the principal.
However, in some instances, one class will receive some of the interest and most
of the principal while the other class will receive most of the interest and the
remainder of the principal. If the underlying obligations experience greater
than anticipated prepayments of principal, a Fund may fail to fully recoup its
initial investment in these securities. The market value of the class consisting
entirely of principal payments generally is extremely volatile in response to
changes in interest rates. The yields on a class of SMBS that receives all or
most of the interest are generally higher than prevailing market yields on other
mortgage-backed obligations because their cash flow patterns are more volatile
and there is a greater risk that the initial investment will not be fully
recouped. SMBS which are not issued by the U.S. Government (or a U.S. Government
agency or instrumentality) are considered illiquid by the Funds. Obligations
issued by the U.S. Government may be considered liquid under guidelines
established by Galaxy's Board of Trustees if they can be disposed of promptly in
the ordinary course of business at a value reasonably close to that used in the
calculation of net asset value per share.
GUARANTEED INVESTMENT CONTRACTS
Each Bond Fund may invest in guaranteed investment contracts ("GICs")
issued by United States and Canadian insurance companies. Pursuant to GICs, a
Fund makes cash contributions to a deposit fund of the insurance company's
general account. The insurance company then credits to the Fund payments at
negotiated, floating or fixed interest rates. A GIC is a general obligation of
the issuing insurance company and not a separate account. The purchase price
paid for a GIC becomes part of the general assets of the insurance company, and
the contract is paid from the company's general assets. The Funds will only
purchase GICs that are issued or guaranteed by insurance companies that at the
time of purchase are rated at least AA by S&P or receive a similar high quality
rating from a nationally recognized service which
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provides ratings of insurance companies. GICs are considered illiquid securities
and will be subject to the Funds' 10% limitation on such investments, unless
there is an active and substantial secondary market for the particular
instrument and market quotations are readily available.
BANK INVESTMENT CONTRACTS
Each Bond Fund may invest in bank investment contracts ("BICs") issued
by banks that meet the quality and asset size requirements for banks described
above under "U.S. Government Obligations and Money Market Instruments." Pursuant
to BICs, cash contributions are made to a deposit account at the bank in
exchange for payments at negotiated, floating or fixed interest rates. A BIC is
a general obligation of the issuing bank. BICs are considered illiquid
securities and will be subject to the Funds' 10% limitation on such investments,
unless there is an active and substantial secondary market for the particular
instrument and market quotations are readily available.
RESTRICTED AND ILLIQUID SECURITIES
Each Fund may invest in commercial paper issued in reliance on the
exemption from registration afforded by Section 4(2) of the Securities Act of
1933, as amended (the "1933 Act"). Section 4(2) commercial paper is restricted
as to disposition under federal securities law and is generally sold to
institutional investors, such as the Funds, who agree that they are purchasing
the paper for investment purposes and not with a view to public distribution.
Any resale by the purchaser must be in an exempt transaction. Section 4(2)
commercial paper is normally resold to other institutional investors like the
Funds through or with the assistance of the issuer or investment dealers who
make a market in Section 4(2) commercial paper, thus providing liquidity. The
Funds believe that Section 4(2) commercial paper and possibly certain other
restricted securities that meet the criteria for liquidity established by
Galaxy's Board of Trustees are quite liquid. The Funds intend, therefore, to
treat the restricted securities that meet the criteria for liquidity established
by the Board of Trustees, including Section 4(2) commercial paper (as determined
by Fleet), as liquid and not subject to the investment limitation applicable to
illiquid securities. In addition, because Section 4(2) commercial paper is
liquid, the Funds do not intend to subject such paper to the limitation
applicable to restricted securities.
Rule 144A under the 1933 Act allows for a broader institutional trading
market for securities otherwise subject to restrictions on resale to the general
public. Rule 144A establishes a "safe harbor" from the registration requirements
of the 1933 Act for resales of certain securities to qualified institutional
buyers. A Fund's investment in Rule 144A securities could have the effect of
increasing the level of illiquidity of the Fund during any period that qualified
institutional buyers were no longer interested in purchasing these securities.
For purposes of each Fund's 10% limitation (15% with respect to the Growth and
Income, Small Cap Value and Strategic Equity Funds) on purchases of illiquid
instruments described under "Investment Limitations" below, Rule 144A securities
will not be considered to be illiquid if Fleet and/or Oechsle has determined, in
accordance with guidelines established by the Board of Trustees, that an
adequate trading market exists for such securities.
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PORTFOLIO SECURITIES GENERALLY
Subsequent to its purchase by a Fund, an issue of securities may cease
to be rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Board of Trustees or Fleet may determine that it is
appropriate for the Fund to continue to hold the obligation if retention is in
accordance with the interests of the particular Fund and applicable regulations
of the Securities and Exchange Commission ("SEC").
PORTFOLIO TURNOVER
Each Fund may sell a portfolio investment soon after its acquisition if
Fleet and/or Oechsle believes that such a disposition is consistent with the
Fund's investment objective. Portfolio investments may be sold for a variety of
reasons, such as a more favorable investment opportunity or other circumstances
bearing on the desirability of continuing to hold such investments. A portfolio
turnover rate of 100% or more is considered high, although the rate of portfolio
turnover will not be a limiting factor in making portfolio decisions. A high
rate of portfolio turnover involves correspondingly greater brokerage commission
expenses and other transaction costs, which must be ultimately borne by a Fund's
shareholders. High portfolio turnover may result in the realization of
substantial net capital gains; distributions derived from such gains will be
treated as ordinary income for federal income tax purposes.
INVESTMENT LIMITATIONS
In addition to each Fund's investment objective as stated in its
Prospectuses, the following investment limitations are matters of fundamental
policy and may not be changed with respect to a particular Fund without the
affirmative vote of the holders of a majority of its outstanding shares (as
defined under "Miscellaneous").
The Asset Allocation, Equity Income, Strategic Equity, Equity Value,
Equity Growth, International Equity and Small Company Equity Funds may not:
1. Make loans, except that (i) each Fund may purchase or hold
debt instruments in accordance with its investment objective
and policies, and may enter into repurchase agreements with
respect to portfolio securities, and (ii) each Fund may lend
portfolio securities against collateral consisting of cash
or securities which are consistent with its permitted
investments, where the value of the collateral is equal at
all times to at least 100% of the value of the securities
loaned.
2. Borrow money or issue senior securities, except that each
Fund may borrow from domestic banks for temporary purposes
and then in amounts not in excess of 10%, with respect to
the Equity Value Fund, or 33%, with respect to the Asset
Allocation, Equity Income, Strategic Equity, Equity Growth,
International Equity and Small Company Equity Funds, of the
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value of its total assets at the time of such borrowing
(provided that the Funds may borrow pursuant to reverse
repurchase agreements in accordance with their investment
policies and in amounts not in excess of 10%, with respect
to the Equity Value Fund, or 33%, with respect to the Asset
Allocation, Equity Income, Strategic Equity, Equity Growth,
International Equity and Small Company Equity Funds, of the
value of their respective total assets at the time of such
borrowing); or mortgage, pledge, or hypothecate any assets
except in connection with any such borrowing and in amounts
not in excess of the lesser of the dollar amounts borrowed
or 10%, with respect to the Equity Value Fund, or 33%, with
respect to the Equity Growth, Equity Income, International
Equity, Small Company Equity, Asset Allocation and Strategic
Equity Funds, of the value of a Fund's total assets at the
time of such borrowing. No Fund will purchase securities
while borrowings (including reverse repurchase agreements)
in excess of 5% of its total assets are outstanding.
3. Invest more than 10% (15% with respect to the Strategic
Equity Fund) of the value of its net assets in illiquid
securities, including repurchase agreements with remaining
maturities in excess of seven days, time deposits with
maturities in excess of seven days, restricted securities
(with respect to the Equity Value Fund), securities which
are restricted as to transfer in their principal market
(with respect to the International Equity Fund),
non-negotiable time deposits and other securities which are
not readily marketable.
4. Purchase securities of any one issuer, other than
obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, if immediately after such
purchase more than 5% of the value of a Fund's total assets
would be invested in such issuer, except that up to 25% of
the value of its total assets may be invested without regard
to this limitation.
5. Purchase securities on margin (except such short-term
credits as may be necessary for the clearance of purchases),
make short sales of securities, or maintain a short
position.
6. Act as an underwriter within the meaning of the Securities
Act of 1933; except insofar as a Fund might be deemed to be
an underwriter upon disposition of restricted portfolio
securities; and except to the extent that the purchase of
securities directly from the issuer thereof in accordance
with the Fund's investment objective, policies and
limitations may be deemed to be underwriting.
7. Purchase or sell real estate; except that each Fund may
purchase securities that are secured by real estate, and the
Funds may purchase securities of issuers which deal in real
estate or interests therein; however, the Funds will not
purchase or sell interests in real estate limited
partnerships.
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8. Purchase or sell commodities or commodity contracts or
invest in oil, gas, or other mineral exploration or
development programs or mineral leases; provided however,
that (i) the Asset Allocation, Equity Income, Equity Value,
Equity Growth, International Equity and Small Company Equity
Funds may enter into forward currency contracts and foreign
currency futures contracts and related options to the extent
permitted by their respective investment objectives and
policies, and (ii) the Strategic Equity Fund may engage in
transactions involving financial futures contracts or
options on financial futures contracts.
9. Invest in or sell put options, call options, straddles,
spreads, or any combination thereof; provided, however, that
each of the Asset Allocation, Equity Income, Equity Value,
Equity Growth, International Equity and Small Company Equity
Funds may write covered call options with respect to its
portfolio securities that are traded on a national
securities exchange, and may enter into closing purchase
transactions with respect to such options if, at the time of
the writing of such options, the aggregate value of the
securities subject to the options written by the Fund does
not exceed 25% of the value of its total assets; and further
provided that (i) the Asset Allocation, Equity Income,
Equity Growth, International Equity and Small Company Equity
Funds may purchase put and call options to the extent
permitted by their investment objectives and policies, and
(ii) the Strategic Equity Fund may buy and sell options,
including without limit buying or writing puts and calls,
based on any type of security, index or currency, including
options on foreign exchanges and options not traded on
exchanges.
10. Invest in companies for the purpose of exercising management
or control.
11. Purchase securities of other investment companies except in
connection with a merger, consolidation, reorganization, or
acquisition of assets; provided, however, that the Funds may
acquire such securities in accordance with the 1940 Act; and
further provided, that the Strategic Equity Fund may from
time to time, on a temporary basis, invest exclusively in
one other investment company similar to the Fund.
The Growth and Income and Small Cap Value Funds may not:
12. Borrow money directly or through reverse repurchase
agreements (arrangements in which the Fund sells a portfolio
instrument for a percentage of its cash value with an
arrangement to buy it back on a set date) or pledge
securities except, under certain circumstances, such Funds
may borrow up to one-third of the value of their respective
total assets and pledge up to 10% of the value of their
respective total assets to secure such borrowings.
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13. With respect to 75% of the value of their respective total
assets, invest more than 5% in securities of any one issuer,
other than cash, cash items, or securities issued or
guaranteed by the government of the United States or its
agencies or instrumentalities and repurchase agreements
collateralized by such securities, or acquire more than 10%
of the outstanding voting securities of any one issuer.
14. Sell any securities short or purchase any securities on
margin, but each Fund may obtain such short-term credits as
may be necessary for the clearance of purchases and sales of
portfolio securities. A deposit or payment by a Fund of
initial or variation margin in connection with futures
contracts or related options transactions is not considered
the purchase of a security on margin.
15. Issue senior securities except that each Fund may borrow
money or engage in reverse repurchase agreements in amounts
up to one-third of the value of its total assets, including
the amounts borrowed; and except to the extent that the
Funds may enter into futures contracts. No Fund will borrow
money or engage in reverse repurchase agreements for
investment leverage, but rather as a temporary,
extraordinary, or emergency measure to facilitate management
of the portfolio by enabling a Fund to meet redemption
requests when the liquidation of portfolio securities is
deemed to be inconvenient or disadvantageous. No Fund will
purchase any securities while borrowings in excess of 5% of
its total assets are outstanding.
16. Mortgage, pledge, or hypothecate any assets except to secure
permitted borrowings. In those cases, a Fund may only
mortgage, pledge, or hypothecate assets having a market
value not exceeding 10% of the value of its total assets at
the time of purchase. For purposes of this limitation, the
following will not be deemed to be pledges of a Fund's
assets: (a) the deposit of assets in escrow in connection
with the writing of covered put or call options and the
purchase of securities on a when-issued basis; and (b)
collateral arrangements with respect to: (i) the purchase
and sale of stock options (and options on stock indices) and
(ii) initial or variation margin for futures contracts.
Margin deposits from the purchase and sale of futures
contracts and related options are not deemed to be a pledge.
17. Purchase or sell real estate or real estate limited
partnerships, although each Fund may invest in securities of
issuers whose business involves the purchase or sale of real
estate or in securities which are secured by real estate or
interests in real estate.
18. Purchase or sell commodities, commodity contracts, or
commodity futures contracts except to the extent that a Fund
may engage in transactions
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involving financial futures contracts or options on
financial futures contracts.
19. Underwrite any issue of securities, except as a Fund may be
deemed to be an underwriter under the Securities Act of 1933
in connection with the sale of securities in accordance with
its investment objective, policies and limitations.
20. Lend any of its assets except that a Fund may lend portfolio
securities up to one-third the value of its total assets.
This limitation shall not prevent a Fund from purchasing or
holding money market instruments, repurchase agreements,
obligations of the U.S. Government, its agencies or
instrumentalities, variable rate demand notes, bonds,
debentures, notes, certificates of indebtedness, or certain
debt instruments as permitted by its investment objective,
policies and limitations or Galaxy's Declaration of Trust.
21. With respect to securities comprising 75% of the value of
its total assets, purchase securities issued by any one
issuer (other than cash, cash items, or securities issued or
guaranteed by the government of the United States or its
agencies or instrumentalities and repurchase agreements
collateralized by such securities) if, as a result, more
than 5% of the value of its total assets would be invested
in the securities of that issuer. A Fund will not acquire
more than 10% of the outstanding voting securities of any
one issuer.
22. Invest 25% of more of the value of its total assets in any
one industry (other than securities issued by the U.S.
Government, its agencies or instrumentalities). However, a
Fund may invest as temporary investments more than 25% of
the value of its assets in cash or cash items, securities
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, or instruments secured by these money
market instruments, such as repurchase agreements.
The following investment policies with respect to the Growth and Income
and Small Cap Value Funds may be changed by Galaxy's Board of Trustees without
shareholder approval. Shareholders will be notified before any material change
in these limitations become effective:
23. The Funds may not invest more than 15% of their respective
net assets in securities subject to restrictions on resale
under the Securities Act of 1933 (except for commercial
paper issued under Section 4(2) of the Securities Act of
1933 and certain securities which meet the criteria for
liquidity as established by the Board of Trustees).
24. Each Fund will limit its investments in other investment
companies to not more than 3% of the total outstanding
voting stock of any investment
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company; will invest no more than 5% of its total assets in
any one investment company; and will invest no more than 10%
of its total assets in investment companies in general.
However, these limitations are not applicable if the
securities are acquired in a merger, consolidation,
reorganization or acquisition of assets.
The Funds will purchase the securities of other investment
companies only in open market transactions involving only
customary broker's commissions. It should be noted that
investment companies incur certain expenses such as
management fees, and therefore any investment by a Fund in
shares of another investment company would be subject to
such duplicate expenses.
25. Neither Fund may purchase or retain the securities of any
issuer if the officers and Trustees of Galaxy or Fleet,
owning individually more than 1/2 of 1% of the issuer's
securities, together own more than 5% of the issuer's
securities.
26. Neither Fund may purchase or sell interests in oil, gas, or
mineral exploration or development programs or leases;
except that the Funds may purchase the securities of issuers
which invest in or sponsor such programs.
27. Neither Fund may purchase put options on securities, unless
the securities are held in the Fund's portfolio and not more
than 5% of the value of the Fund's total assets would be
invested in premiums on open put option positions.
28. Neither Fund may write call options on securities, unless
the securities are held in the Fund's portfolio or unless
the Fund is entitled to them in deliverable form without
further payment or after segregating cash in the amount of
any further payment. Neither Fund may write call options in
excess of 5% of the value of its total assets.
29. Neither Fund may invest more than 5% of the value of its
total assets in securities of issuers which have records of
less than three years of continuous operations, including
the operation of any predecessor.
30. Neither Fund will invest more than 15% of the value of its
respective net assets in illiquid securities, including
repurchase agreements providing for settlement in more than
seven days after notice, non-negotiable fixed time deposits
with maturities over seven days, and certain securities not
determined by the Board of Trustees to be liquid.
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31. Neither Fund may invest in companies for the purpose of
exercising management or control.
32. Neither Fund may invest more than 5% of its net assets in
warrants. No more than 2% of this 5% may be warrants which
are not listed on the New York Stock Exchange.
The Short-Term Bond, Intermediate Government Income and High Quality
Bond Funds may not:
33. Make loans, except that (i) each Fund may purchase or hold
debt instruments in accordance with its investment objective
and policies, and may enter into repurchase agreements with
respect to portfolio securities, and (ii) each Fund may lend
portfolio securities against collateral consisting of cash
or securities which are consistent with the Fund's permitted
investments, where the value of the collateral is equal at
all times to at least 100% of the value of the securities
loaned.
34. Borrow money or issue senior securities, except that each
Fund may borrow from domestic banks for temporary purposes
and then in amounts not in excess of 10% of the value of its
total assets at the time of such borrowing (provided that
each Fund may borrow pursuant to reverse repurchase
agreements in accordance with its investment policies and in
amounts not in excess of 10% of the value of its total
assets at the time of such borrowing); or mortgage, pledge,
or hypothecate any assets except in connection with any such
borrowing and in amounts not in excess of the lesser of the
dollar amounts borrowed or 10% of the value of its total
assets at the time of such borrowing. No Fund will purchase
securities while borrowings (including reverse repurchase
agreements) in excess of 5% of its total assets are
outstanding.
35. Invest more than 10% of the value of its net assets in
illiquid securities, including repurchase agreements with
remaining maturities in excess of seven days, time deposits
with maturities in excess of seven days, restricted
securities, non-negotiable time deposits and other
securities which are not readily marketable.
36. Purchase securities of any one issuer, other than
obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, if immediately after such
purchase more than 5% of the value of its total assets would
be invested in such issuer, except that up to 25% of the
value of its total assets may be invested without regard to
this limitation.
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37. Purchase securities on margin (except such short-term
credits as may be necessary for the clearance of purchases),
make short sales of securities, or maintain a short
position.
38. Act as an underwriter within the meaning of the Securities
Act of 1933; except insofar as a Fund might be deemed to be
an underwriter upon disposition of restricted portfolio
securities; and except to the extent that the purchase of
securities directly from the issuer thereof in accordance
with the Fund's investment objective, policies and
limitations may be deemed to be underwriting.
39. Purchase or sell real estate; except that each Fund may
purchase securities that are secured by real estate and may
purchase securities of issuers which deal in real estate or
interests therein; however, the Funds will not purchase or
sell interests in real estate limited partnerships.
40. Purchase or sell commodities or commodity contracts or
invest in oil, gas, or other mineral exploration or
development programs or mineral leases; provided however,
that each Fund may enter into interest rate futures
contracts to the extent permitted under the Commodity
Exchange Act and the 1940 Act; and further provided that the
Short-Term Bond Fund may enter into forward currency
contracts and foreign currency futures contracts and related
options to the extent permitted by their respective
investment objectives and policies.
41. Invest in or sell put options, call options, straddles,
spreads, or any combination thereof.
42. Invest in companies for the purpose of exercising management
or control.
43. Purchase securities of other investment companies except in
connection with a merger, consolidation, reorganization, or
acquisition of assets; provided, however, that each Fund may
acquire such securities in accordance with the 1940 Act.
In addition to the above limitations with respect to the Short-Term
Bond, Intermediate Government Income and High Quality Bond Funds:
44. The Funds, with the exception of the Short-Term Bond Fund,
may not purchase foreign securities, except that the
Intermediate Government Income and High Quality Bond Funds
may purchase certificates of deposit, bankers' acceptances,
or other similar obligations issued by U.S. branches of
foreign banks or foreign branches of U.S. banks; and
provided, however, that the Intermediate Government Income
and High Quality Bond Funds may also purchase obligations of
Canadian Provincial
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Governments in accordance with each Fund's investment
objective and policies.
The Tax-Exempt Bond Fund may not:
45. Make loans, except that (i) the Fund may purchase or hold
debt instruments in accordance with its investment objective
and policies, and may enter into repurchase agreements with
respect to portfolio securities, and (ii) the Fund may lend
portfolio securities against collateral consisting of cash
or securities which are consistent with its permitted
investments, where the value of the collateral is equal at
all times to at least 100% of the value of the securities
loaned.
46. Borrow money or issue senior securities, except that the
Fund may borrow from domestic banks for temporary purposes
and then in amounts not in excess of 10% of the value of its
total assets at the time of such borrowing (provided that
the Fund may borrow pursuant to reverse repurchase
agreements in accordance with its investment policies and in
amounts not in excess of 10% of the value of its total
assets at the time of such borrowing); or mortgage, pledge,
or hypothecate any assets except in connection with any such
borrowing and in amounts not in excess of the lesser of the
dollar amounts borrowed or 10% of the value of its total
assets at the time of such borrowing. The Fund will not
purchase securities while borrowings (including reverse
repurchase agreements) in excess of 5% of its total assets
are outstanding.
47. Invest more than 10% of the value of its net assets in
illiquid securities, including repurchase agreements with
remaining maturities in excess of seven days, time deposits
with maturities in excess of seven days, restricted
securities, non-negotiable time deposits and other
securities which are not readily marketable.
48. Purchase any securities which would cause 25% or more of the
value of the Fund's total assets at the time of purchase to
be invested in the securities of one or more issuers
conducting their principal business activities in the same
industry; provided, however, that there is no limitation
with respect to securities issued or guaranteed by the U.S.
Government, any state, territory or possession of the U. S.
Government, the District of Columbia, or any of their
authorities, agencies, instrumentalities or political
subdivisions.
49. Purchase securities on margin (except such short-term
credits as may be necessary for the clearance of purchases),
make short sales of securities, or maintain a short
position.
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<PAGE>
50. Act as an underwriter within the meaning of the Securities
Act of 1933; except insofar as the Fund might be deemed to
be an underwriter upon disposition of restricted portfolio
securities; and except to the extent that the purchase of
securities directly from the issuer thereof in accordance
with the Fund's investment objective, policies and
limitations may be deemed to be underwriting.
51. Purchase or sell real estate; except that the Fund may
invest in municipal securities secured by real estate or
interests therein; however, the Fund will not purchase or
sell interests in real estate limited partnerships.
52. Purchase or sell commodities or commodity contracts or
invest in oil, gas, or other mineral exploration or
development programs or mineral leases; provided however,
that the Fund may enter into municipal bond index futures
contracts and interest rate futures contracts to the extent
permitted under the Commodity Exchange Act and the 1940 Act.
53. Invest in or sell put options, call options, straddles,
spreads, or any combination thereof.
54. Invest in companies for the purpose of exercising management
or control.
55. Purchase securities of other investment companies except in
connection with a merger, consolidation, reorganization, or
acquisition of assets; provided, however, that the Fund may
acquire such securities in accordance with the 1940 Act.
56. Invest in industrial revenue bonds where the payment of
principal and interest are the responsibility of a company
(including its predecessors) with less than three years of
continuous operation.
57. Purchase foreign securities, except that the Fund may
purchase certificates of deposit, bankers' acceptances, or
other similar obligations issued by U.S. branches of foreign
banks or foreign branches of U.S. banks.
58. Purchase securities of any one issuer, other than
obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, if immediately after such
purchase more than 5% of the value of its total assets would
be invested in the securities of such issuer, except that up
to 25% of the value of its total assets may be invested
without regard to this limitation.
In addition, to the foregoing investment limitations, the Equity Funds
and Short-Term Bond, Intermediate Government Income and High Quality Bond Funds
may not purchase any securities which would cause 25% or more of the value of a
Fund's total assets at the time of purchase to be invested in the securities of
one or more issuers conducting their principal business activities in the same
industry; provided, however that (a) there is no limitation with
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<PAGE>
respect to obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, (b) wholly-owned finance companies will be
considered to be in the industries of their parents if their activities are
primarily related to financing the activities of the parents, and (c) utilities
will be classified according to their services. (For example, gas, gas
transmission, electric and gas, electric and telephone each will be considered
a separate industry.)
With respect to Investment Limitation No. 2 above, (a) the Equity Value
Fund intends to limit any borrowings (including reverse repurchase agreements)
to not more than 10% of the value of its total assets at the time of such
borrowing and each of the Asset Allocation, Equity Income, Strategic Equity,
Equity Growth, International Equity and Small Company Equity Funds intends to
limit any borrowings (including reverse repurchase agreements) to not more than
33% of the value of its total assets at the time of such borrowing, and (b)
mortgage dollar rolls entered into by the Asset Allocation Fund that are not
accounted for as financings shall not constitute borrowings.
With respect to Investment Limitation No. 4 above, each of the Asset
Allocation, Equity Income, Strategic Equity, Equity Value, Equity Growth,
International Equity and Small Company Equity Funds does not intend to
acquire more than 10% of the outstanding voting securities of any one issuer.
The Growth and Income and Small Cap Value Funds intend to invest in
restricted securities. Restricted securities are any securities in which a
Fund may otherwise invest pursuant to its investment objective and policies,
but which are subject to restriction on resale under federal securities law.
Each such Fund will limit its investments in illiquid securities, including
certain restricted securities not determined by the Board of Trustees to be
liquid, non-negotiable fixed time deposits with maturities over seven days,
over-the-counter options, and repurchase agreements providing for settlement
in more than seven days after notice, to 15% of its net assets.
With respect to Investment Limitation No. 34 above, (a) each of the
Short-Term Bond, Intermediate Government Income and High Quality Bond Funds
intends to limit any borrowings (including reverse repurchase agreements) to
not more than 10% of the value of its total assets at the time of such
borrowing, and (b) mortgage dollar rolls entered into by one of these Funds
that are not accounted for as financings shall not constitute borrowings.
With respect to Investment Limitation No. 46 above, the Tax-Exempt
Bond Fund intends to limit any borrowings (including reverse repurchase
agreements) to not more than 10% of the value of its total assets at the time
of such borrowing.
Except as stated otherwise, a percentage limitation is satisfied at the
time of investment, a later increase in such percentage resulting from a change
in the value of a Fund's portfolio securities generally will not constitute a
violation of the limitation. If the value of a Fund's holdings of illiquid
securities at any time exceeds the percentage limitation applicable at the time
of acquisition due to subsequent fluctuations in value or other reasons, the
Board of Trustees will consider what actions, if any, are appropriate to
maintain adequate liquidity. With respect to borrowings, if a Fund's asset
coverage at any time falls below that required by the 1940 Act, the Fund will
reduce the amount of its borrowings in the manner required by the 1940 Act to
the extent necessary to satisfy the asset coverage requirement.
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VALUATION OF PORTFOLIO SECURITIES
VALUATION OF THE ASSET ALLOCATION, EQUITY INCOME, GROWTH AND INCOME, STRATEGIC
EQUITY, EQUITY VALUE, EQUITY GROWTH, SMALL CAP VALUE AND SMALL COMPANY EQUITY
FUNDS
In determining market value, the assets in the Asset Allocation, Equity
Income, Growth and Income, Strategic Equity, Equity Value, Equity Growth, Small
Cap Value and Small Company Equity Funds which are traded on a recognized stock
exchange are valued at the last sale price on the securities exchange on which
such securities are primarily traded or at the last sale price on the national
securities market. Securities quoted on the NASD National Market System are also
valued at the last sale price. Other securities traded on over-the-counter
markets are valued on the basis of their closing over-the-counter bid prices.
Securities for which there were no transactions are valued at the average of the
most recent bid and asked prices. Investments in debt securities with remaining
maturities of 60 days or less are valued based upon the amortized cost method.
Restricted securities, securities for which market quotations are not readily
available, and other assets are valued at fair value by Fleet under the
supervision of Galaxy's Board of Trustees. An option is generally valued at the
last sale price or, in the absence of a last sale price, the last offer price.
See "Valuation of International Equity Fund" below for a description of the
valuation of certain foreign securities held by these Funds.
VALUATION OF THE INTERNATIONAL EQUITY FUND
In determining market value, the International Equity Fund's portfolio
securities which are primarily traded on a domestic exchange are valued at the
last sale price on that exchange or, if there is no recent sale, at the last
current bid quotation. Portfolio securities which are primarily traded on
foreign securities exchanges are generally valued at the preceding closing
values of such securities on their respective exchanges, except when an
occurrence subsequent to the time a value was so established is likely to have
changed such value, then the fair value of those securities may be determined
through consideration of other factors by or under the direction of Galaxy's
Board of Trustees. A security which is listed or traded on more than one
exchange is valued at the quotation on the exchange determined to be the primary
market for such security. Investments in debt securities having a remaining
maturity of 60 days or less are valued based upon the amortized cost method. All
other securities are valued at the last current bid quotation if market
quotations are available, or at fair value as determined in accordance with
policies established in good faith by the Board of Trustees. For valuation
purposes, quotations of foreign securities in foreign currency are converted to
U.S. dollars equivalent at the prevailing market rate on the day of valuation.
An option is generally valued at the last sale price or, in the absence of a
last sale price, the last offer price.
Certain of the securities acquired by the International Equity Fund may
be traded on foreign exchanges or over-the-counter markets on days on which the
Fund's net asset value is not calculated. In such cases, the net asset value of
the Fund's shares may be significantly affected on days when investors can
neither purchase nor redeem shares of the Fund.
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VALUATION OF THE BOND FUNDS
The assets of the Bond Funds are valued for purposes of pricing sales
and redemptions by an independent pricing service ("Service") approved by
Galaxy's Board of Trustees. When, in the judgment of the Service, quoted bid
prices for portfolio securities are readily available and are representative of
the bid side of the market, these investments are valued at the mean between
quoted bid prices (as obtained by the Service from dealers in such securities)
and asked prices (as calculated by the Service based upon its evaluation of the
market for such securities). Other investments are carried at fair value as
determined by the Service, based on methods which include consideration of
yields or prices of bonds of comparable quality, coupon, maturity and type;
indications as to values from dealers; and general market conditions. The
Service may also employ electronic data processing techniques and matrix systems
to determine value. Short-term securities are valued at amortized cost, which
approximates market value. The amortized cost method involves valuing a security
at its cost on the date of purchase and thereafter assuming a constant
amortization to maturity of the difference between the principal amount due at
maturity and cost.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares in each Fund are sold on a continuous basis by Galaxy's
distributor, Provident Distributors, Inc. ("PDI"). PDI is a registered
broker/dealer with principal offices located at Four Falls Corporate Center,
West Conshohocken, Pennsylvania 19428. PDI has agreed to use appropriate
efforts to solicit all purchase orders.
This Statement of Additional Information provides additional purchase
and redemption information for Prime A Shares and Prime B Shares of the Funds.
Purchase and redemption information for Retail A Shares, Retail B Shares and
Trust Shares of the Funds are provided in separate statements of additional
information and related prospectuses.
PURCHASES OF PRIME A SHARES AND PRIME B SHARES
GENERAL
Investments in Prime A Shares of the Funds are subject to a
front-end sales charge. Investments in Prime B Shares of the Funds are
subject to a back-end sales charge. This back-end sales charge declines over
time and is known as a "contingent deferred sales charge."
Investors should read "Characteristics of Prime A Shares and Prime B
Shares" and "Factors to Consider When Selecting Prime A Shares or Prime B
Shares" below before deciding between the two.
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<PAGE>
Purchase orders for Prime Shares are placed by investors through
selected broker/dealers. The broker/dealer is responsible for transmitting its
customers' purchase orders to PDI and wiring required funds in
payment to Galaxy's Custodian on a timely basis. PDI is responsible
for transmitting such orders to Galaxy's transfer agent for execution. Shares
purchased by a broker/dealer on behalf of its customers will normally be held of
record by the broker/dealer and reflected in the account statements provided to
its customers. Depending on the terms of the arrangement between a particular
broker/dealer and Galaxy's transfer agent, confirmations of Prime Share
purchases and redemptions and pertinent account statements will be sent by
Galaxy's transfer agent directly to a shareholder with a copy to the
broker/dealer, or will be furnished directly to the shareholder by the
broker/dealer. Other procedures for the purchase of Prime Shares established by
broker/dealers may apply. Purchases of Prime Shares will be effected only on
days on which PDI and Galaxy's custodian are open for business
("business day"). On a business day when the New York Stock Exchange closes
early due to a partial holiday, or otherwise, Galaxy will advance the time at
which purchase orders must be received in order to be processed on that business
day.
APPLICABLE SALES CHARGE -- PRIME A SHARES
The public offering price for Prime A Shares of the Funds is the sum of
the net asset value of the Prime A Shares purchased plus any applicable
front-end sales charge as described in the applicable Prospectus. A deferred
sales charge of up to 1.00% is assessed on certain redemptions of Prime A Shares
that are purchased with no initial sales charge as part of an investment of
$1,000,000 or more. A portion of the front-end sales charge may be reallowed to
broker-dealers as follows:
<TABLE>
<CAPTION>
REALLOWANCE TO DEALERS
----------------------
AS A % OF AS A % OF
OFFERING PRICE OFFERING PRICE
AMOUNT OF TRANSACTION PER SHARE - PER SHARE
- --------------------- EQUITY FUNDS BOND FUNDS
------------ ----------
<S> <C> <C>
Less than $50,000 5.00 4.25
$50,000 but less than $100,000 4.00 4.00
$100,000 but less than $250,000 3.00 3.00
$250,000 but less than $500,000 2.00 2.00
$500,000 but less than $1,000,000 1.75 1.75
$1,000,000 and over 0.00 0.00
</TABLE>
The appropriate reallowance to dealers will be paid by PDI to
broker-dealer organizations which have entered into agreements with PDI. The
reallowance to dealers may be changed from time to time.
In certain situations or for certain individuals, the front-end sales
charge for Prime A Shares of the Funds may be waived either because of the
nature of the investor or the reduced
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sales effort required to attract such investments. In order to receive the sales
charge waiver, an investor's broker/dealer must explain the status of the
investor's investment at the time of purchase. In addition to the sales charge
waivers described in the applicable Prospectus, no sales charge is assessed on
purchases of Prime A Shares of the Funds by the following categories of
investors or in the following types of transactions:
- purchases by directors, officers and employees of
broker-dealers having agreements with PDI
pertaining to the sale of Prime A Shares to the extent
permitted by such organizations;
- purchases by current and retired members of Galaxy's Board
of Trustees and members of their immediate families;
- purchases by officers, directors, employees and retirees
of FleetBoston Corporation and any of its affiliates and
members of their immediate families; and
- purchases by officers, directors, employees and retirees of
First Data Corporation and any of its affiliates and members
of their immediate families.
COMPUTATION OF OFFERING PRICE-PRIME A SHARES
An illustration of the computation of the offering price per share of
Prime A Shares of the Funds, using the value of each Fund's net assets
attributable to such Shares and the number of outstanding Prime A Shares of each
Fund at the close of business on April 30, 1999 and the maximum front-end sales
charge of 5.50% for the Equity Funds and 4.75% for the Bond Funds, are set forth
below. Prime A Shares of the Equity Income, Strategic Equity, Equity Value,
Small Company Equity, Short-Term Bond, Intermediate Government Income and High
Quality Bonds were not offered during the period ended April 30, 1999 and the
information presented below is based on the projected value of each Fund's net
assets and the projected number of Prime A Shares of each Fund on the date such
Shares are first offered for sale to public investors.
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<TABLE>
<CAPTION>
Asset Allocation Equity Income
Fund Fund
---- ----
<S> <C> <C>
Net Assets........................................... $ 210,462 $ 10.00
Outstanding Shares................................... $ 11,699 $ 1
Net Asset Value Per Share............................ $ 17.99 $ 10.00
Sales Charge (5.50% of
the offering price).................................. $ 1.05 $ 0.58
Offering Price to Public............................. $ 19.04 $ 10.58
<CAPTION>
Growth and Strategic
Income Fund Equity Fund
----------- -----------
<S> <C> <C>
Net Assets........................................... $ 97,982 $ 10.00
Outstanding Shares................................... $ 5,881 $ 1
Net Asset Value Per Share............................ $ 16.66 $ 10.00
Sales Charge (5.50% of
the offering price).................................. $ 0.97 $ 0.58
Offering Price to Public............................. $ 17.63 $ 10.58
<CAPTION>
Equity Equity
Value Fund Growth Fund
---------- -----------
<S> <C> <C>
Net Assets........................................... $ 10.00 $ 79,609
Outstanding Shares................................... $ 1 $ 2,861
Net Asset Value Per Share............................ $ 10.00 $ 27.83
Sales Charge (5.50% of
the offering price).................................. $ 0.58 $ 1.62
Offering Price to Public............................. $ 10.58 $ 29.45
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<CAPTION>
International Small Cap
Equity Fund Value Fund
----------- ----------
<S> <C> <C>
Net Assets........................................... $ 11,038 $ 156,901
Outstanding Shares................................... $ 584 $ 12,040
Net Asset Value Per Share............................ $ 18.89 $ 13.03
Sales Charge (5.50% of
the offering price).................................. $ 1.10 $ 0.76
Offering Price to Public............................. $ 19.99 $ 13.79
<CAPTION>
Small Company
Equity Fund
-----------
<S> <C>
Net Assets........................................... $ 10.00
Outstanding Shares................................... $ 1
Net Asset Value Per Share............................ $ 10.00
Sales Charge (5.50% of
the offering price).................................. $ 0.58
Offering Price to Public............................. $ 10.58
<CAPTION>
Short Term Intermediate Government
Bond Fund Income Fund
--------- -----------
<S> <C> <C>
Net Assets........................................... $ 10.00 $ 10.00
Outstanding Shares................................... $ 1 $ 1
Net Asset Value Per Share............................ $ 10.00 $ 10.00
Sales Charge (4.75% of
the offering price).................................. $ 0.50 $ 0.50
Offering Price to Public............................. $ 10.50 $ 10.50
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<CAPTION>
High Quality Tax-Exempt
Bond Fund Bond Fund
--------- ---------
<S> <C> <C>
Net Assets........................................... $ 13,849 $ 10.00
Outstanding Shares................................... $ 1,293 $ 1
Net Asset Value Per Share............................ $ 10.71 $ 10.00
Sales Charge (4.75% of
the offering price).................................. $ 0.53 $ 0.50
Offering Price to Public............................. $ 11.24 $ 10.50
</TABLE>
QUANTITY DISCOUNTS
Investors may be entitled to reduced sales charges through Rights of
Accumulation, a Letter of Intent or a combination of investments, as described
below, even if the investor does not wish to make an investment of a size that
would normally qualify for a quantity discount.
In order to obtain quantity discount benefits, an investor's
broker/dealer must notify PDI, at the time of purchase that he or she would
like to take advantage of any of the discount plans described below. Upon
such notification, the investor will receive the lowest applicable sales
charge. Quantity discounts may be modified or terminated at any time and are
subject to confirmation of an investor's holdings through a check of
appropriate records. For more information about quantity discounts, please
contact your broker/dealer.
RIGHTS OF ACCUMULATION. A reduced sales charge applies to any
purchase of Prime A Shares of any portfolio of Galaxy that is sold with a
sales charge ("Eligible Fund") where an investor's then current aggregate
investment in Prime A Shares is $50,000 or more. "Aggregate investment" means
the total of: (a) the dollar amount of the then current purchase of shares of
an Eligible Fund; and (b) the value (based on current net asset value) of
previously purchased and beneficially owned shares of any Eligible Fund on
which a sales charge has been paid. If, for example, an investor beneficially
owns shares of one or more Eligible Funds with an aggregate current value of
$49,000 on which a sales charge has been paid and subsequently purchases
shares of an Eligible Fund having a current value of $1,000, the sales charge
applicable to the subsequent purchase would be reduced to 4.50% of the
offering price. Similarly, with respect to each subsequent investment, all
shares of Eligible Funds that are beneficially owned by the investor at the
time of investment may be combined to determine the applicable sales charge.
LETTER OF INTENT. By completing the Letter of Intent included as part
of the Account Application, an investor becomes eligible for the reduced sales
charge applicable to the total
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number of Eligible Fund Prime A Shares purchased in a 13-month period pursuant
to the terms and under the conditions set forth below and in the Letter of
Intent. To compute the applicable sales charge, the offering price of Prime A
Shares of an Eligible Fund on which a sales charge has been paid and that are
beneficially owned by an investor on the date of submission of the Letter of
Intent may be used as a credit toward completion of the Letter of Intent.
However, the reduced sales charge will be applied only to new purchases.
PFPC Inc. ("PFPC") will hold in escrow Prime A Shares equal to 5% of
the amount indicated in the Letter of Intent for payment of a higher sales
charge if an investor does not purchase the full amount indicated in the
Letter of Intent. The escrow will be released when the investor fulfills the
terms of the Letter of Intent by purchasing the specified amount. If
purchases qualify for a further sales charge reduction, the sales charge will
be adjusted to reflect the investor's total purchases. If total purchases are
less than the amount specified, the investor will be requested to remit an
amount equal to the difference between the sales charge actually paid and the
sales charge applicable to the total purchases. If such remittance is not
received within 20 days, PFPC, as attorney-in-fact pursuant to the terms of
the Letter of Intent and at PDI's direction, will redeem an appropriate number
of Prime A Shares held in escrow to realize the difference. Signing a Letter
of Intent does not bind an investor to purchase the full amount indicated at
the sales charge in effect at the time of signing, but an investor must
complete the intended purchase in accordance with the terms of the Letter of
Intent to obtain the reduced sales charge. To apply, an investor must
indicate his or her intention, through his or her broker/dealer, to do so
under a Letter of Intent at the time of purchase.
QUALIFICATION FOR DISCOUNTS. For purposes of applying the Rights of
Accumulation and Letter of Intent privileges described above, the scale of sales
charges applies to the combined purchases made by any individual and/or spouse
purchasing securities for his, her or their own account or for the account of
any minor children, or the aggregate investments of a trustee or custodian of
any qualified pension or profit-sharing plan established (or the aggregate
investment of a trustee or other fiduciary) for the benefit of the persons
listed above.
REINSTATEMENT PRIVILEGE. Investors may reinvest all or any portion
of their redemption proceeds in Prime A Shares of the Funds or in Prime A
Shares of another portfolio of Galaxy that offers Prime A Shares within 90
days of the redemption trade date without paying a sales load. Prime A Shares
so reinvested will be purchased at a price equal to the net asset value next
determined after Galaxy's transfer agent receives a reinstatement request and
payment in proper form from the investor's broker/dealer on behalf of its
client.
Broker/dealers wishing to exercise this Privilege on behalf of their
customers must submit a written reinstatement request to PFPC as transfer
agent stating that the customer is eligible to use the Privilege. The
reinstatement request and payment must be received within 90 days of the
trade date of the redemption. Currently, there are no restrictions on the
number of times an investor may use this Privilege.
Generally, exercising the Reinstatement Privilege will not affect the
character of any gain or loss realized on redemptions for federal income tax
purposes. However, if a redemption
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results in a loss, the reinstatement may result in the loss being disallowed
under the Code's "wash sale" rules.
APPLICABLE SALES CHARGE - PRIME B SHARES
The public offering price for Prime B Shares of the Funds is the net
asset value of the Prime B Shares purchased. Although investors pay no
front-end sales charge on purchases of Prime B Shares, such Shares are
subject to a contingent deferred sales charge at the rates set forth below if
they are redeemed within six years of purchase. Broker/dealers who have
entered into agreements with PDI will receive commissions from PDI in
connection with sales of Prime B Shares. These commissions may be different
than the reallowances or placement fees paid to broker/dealers in connection
with sales of Prime A Shares. Certain affiliates of Fleet may, at their own
expense, provide additional compensation to Fleet Enterprises, Inc., a
broker-dealer affiliate of Fleet, whose customers purchase significant
amounts of Prime B Shares of a Fund. See "Applicable Sales Charge -- Prime A
Shares." The contingent deferred sales charge on Prime B Shares is based on
the lesser of the net asset value of the Shares on the redemption date or the
original cost of the Shares being redeemed. As a result, no sales charge is
imposed on any increase in the principal value of an investor's Prime B
Shares. In addition, a contingent deferred sales charge will not be assessed
on Prime B Shares purchased through reinvestment of dividends or capital
gains distributions.
When an investor redeems his or her Prime B Shares, the redemption
request is processed to minimize the amount of the contingent deferred sales
charge that will be charged. Prime B Shares are redeemed first from those shares
that are not subject to a contingent deferred sales charge (i.e., Prime B Shares
that were acquired through reinvestment of dividends or distributions or that
qualify for other deferred sales charge exemptions) and after that from the
Prime B Shares that have been held the longest.
The proceeds from the contingent deferred sales charge that an
investor may pay upon redemption go to PDI, which may use such amounts to
defray the expenses associated with the distribution-related services
involved in selling Prime B Shares.
EXEMPTIONS FROM THE CONTINGENT DEFERRED SALES CHARGE. Certain types
of redemptions may also qualify for an exemption from the contingent deferred
sales charge. To receive exemptions (i), (iv) or (viii) listed below, an
investor's broker/dealer must explain the status of the investor's redemption
at the time Prime B Shares are redeemed. In addition to the sales charge
exemptions described in the applicable Prospectus, the contingent deferred
sales charge with respect to Prime B Shares is not assessed on: (i) exchanges
described under "Investor Programs - Exchange Privilege" below; (ii)
redemptions in connection with required (or, in some cases, discretionary)
distributions to participants or beneficiaries of an employee pension,
profit-sharing or other trust or qualified retirement or Keogh plan,
individual retirement account or custodial account maintained pursuant to
Section 403(b)(7) of the Code; (iii) redemptions in connection with required
(or, in some cases, discretionary) distributions to participants in qualified
retirement or Keogh plans, individual retirement accounts or custodial
accounts maintained pursuant to Section 403(b)(7) of the Code due to death,
disability or the attainment of
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a specified age; (iv) redemptions effected pursuant to a Fund's right to
liquidate a shareholder's account if the aggregate net asset value of Prime B
Shares held in the account is less than the minimum account size; (v)
redemptions in connection with the combination of a Fund with any other
investment company registered under the 1940 Act by merger, acquisition of
assets, or by any other transaction; (vi) redemptions in connection with the
death or disability of a shareholder; (vii) redemptions resulting from a
tax-free return of an excess contribution pursuant to Section 408(d)(4) or (5)
of the Code; or (viii) any redemption of Prime B Shares held by an investor,
provided the investor was the beneficial owner of shares of a Fund (or any of
the other portfolios offered by Galaxy or otherwise advised by Fleet or its
affiliates) before December 1, 1995.
CHARACTERISTICS OF PRIME A SHARES AND PRIME B SHARES
The primary difference between Prime A Shares and Prime B Shares lies
in their sales charge structures and shareholder servicing/distribution
expenses. An investor should understand that the purpose and function of the
sales charge structures and shareholder servicing/distribution arrangements for
both Prime A Shares and Prime B Shares are the same.
Prime A Shares of the Funds are sold at their net asset value plus a
front-end sales charge of up to 5.50% with respect to the Equity Funds and up to
4.75% with respect to the Bond Funds. This front-end sales charge may be reduced
or waived in some cases. See the applicable Prospectus and "Applicable Sales
Charges -- Prime A Shares" and "Quantity Discounts" above. Prime A Shares of a
Fund are currently subject to ongoing distribution fees at an annual rate of up
to .25% of the Fund's average daily net assets attributable to its Prime A
Shares.
Prime B Shares of the Funds are sold at net asset value without an
initial sales charge. Normally, however, a deferred sales charge is paid if the
Shares are redeemed within six years of investment. See the applicable
Prospectus and "Applicable Sales Charges - Prime B Shares" above. Prime B Shares
of a Fund are currently subject to ongoing shareholder servicing and
distribution fees at an annual rate of up to 1.00% of the Fund's average daily
net assets attributable to its Prime B Shares. These ongoing fees, which are
higher than those charged on Prime A Shares, will cause Prime B Shares to have a
higher expense ratio and pay lower dividends than Prime A Shares.
Eight years after purchase, Prime B Shares of the Funds will convert
automatically to Prime A Shares of the Funds. The purpose of the conversion
is to relieve a holder of Prime B Shares of the higher ongoing expenses
charged to those shares, after enough time has passed to allow PDI to recover
approximately the amount it would have received if a front-end sales charge
had been charged. The conversion from Prime B Shares to Prime A Shares takes
place at net asset value, as a result of which an investor receives
dollar-for-dollar the same value of Prime A Shares as he or she had of Prime
B Shares. The conversion occurs eight years after the beginning of the
calendar month in which the Prime B Shares are purchased. Upon conversion,
the converted shares will be relieved of the distribution and shareholder
servicing fees borne by Prime B Shares, although they will be subject to the
distribution fees borne by Prime A Shares.
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Prime B Shares acquired through a reinvestment of dividends or
distributions (as discussed under "Applicable Sales Charge - Prime B Shares")
are also converted at the earlier of two dates - eight years after the
beginning of the calendar month in which the reinvestment occurred or the
date of conversion of the most recently purchased Prime B Shares that were
not acquired through reinvestment of dividends or distributions. For example,
if an investor makes a one-time purchase of Prime B Shares of a Fund, and
subsequently acquires additional Prime B Shares of such Fund only through
reinvestment of dividends and/or distributions, all of such investor's Prime
B Shares in the Fund, including those acquired through reinvestment, will
convert to Prime A Shares of such Fund on the same date.
FACTORS TO CONSIDER WHEN SELECTING PRIME A SHARES OR PRIME B SHARES
Before purchasing Prime A Shares or Prime B Shares of the Funds,
investors should consider whether, during the anticipated periods of their
investments in the particular Funds, the accumulated distribution and
shareholder servicing fees and potential contingent deferred sales charge on
Prime B Shares prior to conversion would be less than the initial sales
charge and accumulated distribution fees on Prime A Shares purchased at the
same time, and to what extent such differential would be offset by the higher
yield of Prime A Shares. In this regard, to the extent that the sales charge
for Prime A Shares is waived or reduced by one of the methods described
above, investments in Prime A Shares become more desirable. An investment of
$250,000 or more in Prime B Shares would not be in most shareholders' best
interest. Shareholders should consult their broker-dealers or other financial
advisers with respect to the advisability of purchasing Prime B Shares in
amounts exceeding $250,000.
Although Prime A Shares are subject to distribution fees, they are
not subject to the higher distribution and shareholder servicing fee
applicable to Prime B Shares. For this reason, Prime A Shares can be expected
to pay correspondingly higher dividends per Share. However, because initial
sales charges are deducted at the time of purchase, purchasers of Prime A
Shares (that do not qualify for exemptions from or reductions in the initial
sales charge) would have less of their purchase price initially invested in
these Funds than purchasers of Prime B Shares in the Funds.
As described above, purchasers of Prime B Shares will have more of
their initial purchase price invested. Any positive investment return on this
additional invested amount would partially or wholly offset the expected
higher annual expenses borne by Prime B Shares. Because a Fund's future
returns cannot be predicted, there can be no assurance that this will be the
case. Holders of Prime B Shares would, however, own shares that are subject
to a contingent deferred sales charge of up to 5.00% upon redemption,
depending upon the year of redemption. Investors expecting to redeem during
this eight-year period should compare the cost of the contingent deferred
sales charge plus the aggregate annual distribution and shareholder servicing
fees on Prime B Shares to the cost of the initial sales charge and
distribution fees on Prime A Shares. Over time, the expense of the annual
distribution and shareholder servicing fees on the Prime B Shares may equal
or exceed the initial sales charge and annual distribution fees applicable to
Prime A Shares. For example, if net asset value remains constant, the
aggregate distribution
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and shareholder servicing fees with respect to Prime B Shares of a Fund would
equal or exceed the initial sales charge and aggregate distribution fees of
Prime A Shares approximately eight years after the purchase. In order to
reduce such fees for investors that hold Prime B Shares for more than eight
years, Prime B Shares will be automatically converted to Prime A Shares as
described above at the end of such eight-year period.
REDEMPTION OF PRIME A SHARES AND PRIME B SHARES
Redemption orders are effected at the net asset value per share next
determined after receipt of the order by FD Distributors. On a business day when
the New York Stock Exchange closes early due to a partial holiday or otherwise,
Galaxy will advance the time at which redemption orders must be received in
order to be processed on that business day. Galaxy reserves the right to
transmit redemption proceeds within seven days after receiving the redemption
order if, in its judgment, an earlier payment could adversely affect a Fund.
If the Board of Trustees determines that conditions exist which make
payment of redemption proceeds wholly in cash unwise or undesirable, Galaxy may
make payment wholly or partly in securities or other property. Such redemptions
will only be made in "readily marketable" securities. In such an event, a
shareholder would incur transaction costs in selling the securities or other
property. However, Galaxy has filed an election with the SEC to pay in cash all
redemptions requested by any shareholder of record limited in amount during any
90-day period to the lesser of $250,000 or 1% of the net assets of a Fund at the
beginning of such period. Such commitment cannot be revoked without the prior
approval of the SEC.
Galaxy may suspend the right of redemption or postpone the date of
payment for shares for more than seven days during any period when (a) trading
in the markets the Funds normally utilize is restricted, or an emergency, as
defined by the rules and regulations of the SEC exists making disposal of a
Fund's investments or determination of its net asset value not reasonably
practicable; (b) the Exchange is closed (other than customary weekend and
holiday closings); or (c) the SEC by order has permitted such suspension.
EXCHANGE PRIVILEGE
A shareholder may, after appropriate prior authorization, exchange
through his or her broker/dealer Prime A Shares of a Fund having a value of at
least $100 for Prime A Shares of any of the other Funds, provided that such
other Prime A Shares may be sold legally in the state of the shareholder's
residence. A shareholder may exchange through his or her broker/dealer Prime B
Shares of a Fund for Prime B Shares of any of the other Funds, provided that
such other Prime B Shares may be sold legally in the state of the shareholder's
residence.
No additional sales charge will be incurred when exchanging Prime A
Shares of a Fund for Prime A Shares of another Fund. Prime B Shares may be
exchanged without the payment of any contingent deferred sales charge at the
time the exchange is made. In determining the holding period for calculating
the contingent deferred sales charge payable on redemptions of
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Prime B Shares, the holding period of the Prime B Shares originally held will
be added to the holding period of the Prime B Shares acquired through
exchange. Galaxy does not charge an exchange fee. The minimum initial
investment to establish an account in another Fund or portfolio by exchange
is $2,500.
An exchange involves a redemption of all or a portion of the Prime A
or Prime B Shares of a Fund and the investment of the redemption proceeds in
Prime A or Prime B Shares of another Fund. The redemption will be made at the
per share net asset value next determined after the exchange request is
received. The Prime A or Prime B Shares of a Fund to be acquired will be
purchased at the per share net asset value next determined after acceptance
of the exchange request, plus any applicable sales charge.
Investors may find the exchange privilege useful if their investment
objectives or market outlook should change after they invest in any of the
Funds. For further information regarding Galaxy's exchange privilege,
investors should contact their broker/dealers.
In order to prevent abuse of this privilege to the disadvantage of
other shareholders, Galaxy reserves the right to terminate the exchange
privilege of any shareholder who requests more than three exchanges a year.
Galaxy will determine whether to do so based on a consideration of both the
number of exchanges that any particular shareholder or group of shareholders has
requested and the time period over which their exchange requests have been made,
together with the level of expense to Galaxy which will result from effecting
additional exchange requests. The exchange privilege may be modified or
terminated at any time. At least 60 days' notice of any material modification or
termination will be given to shareholders except where notice is not required
under the regulations of the SEC.
For federal income tax purposes, an exchange of shares is a taxable
event and, accordingly, a capital gain or loss may be realized by an investor.
Before making an exchange request, an investor should consult a tax or other
financial adviser to determine the tax consequences.
TAXES
IN GENERAL
Each Fund qualified during its last taxable year and intends to
continue to qualify as a regulated investment company under Subchapter M of the
Code and to distribute out its income to shareholders each year, so that each
Fund itself generally will be relieved of federal income and excise taxes. If a
Fund were to fail to so qualify: (1) the Fund would be taxed on its taxable
income at regular corporate rates without any deduction for distributions to
shareholders; and (2) shareholders would be taxed as if they received ordinary
dividends, although corporate shareholders could be eligible for the dividends
received deduction. For the Tax-Exempt Bond Fund to pay tax-exempt dividends for
any taxable year, at least 50% of the aggregate value of the Fund's assets at
the close of each quarter of the Fund's taxable year must consist of
exempt-interest obligations.
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A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to distribute with respect to each calendar year at least
98% of their ordinary taxable income and capital gain net income (excess of
capital gains over capital losses) for the one year period ending October 31
of such calendar year. Each Fund intends to make sufficient distributions or
deemed distributions of its ordinary taxable income and any capital gain net
income prior to the end of each calendar year to avoid liability for this
excise tax.
The Funds will be required in certain cases to withhold and remit to
the United States Treasury 31% of taxable dividends or gross sale proceeds paid
to any shareholder who (i) has failed to provide a correct tax identification
number, (ii) is subject to withholding by the Internal Revenue Service for
failure to properly include on his or her return payments of taxable interest or
dividends, or (iii) has failed to certify to the Funds that he or she is not
subject to back up withholding when required to do so or that he or she is an
"exempt recipient."
Dividends declared in October, November or December of any year which
are payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by a Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
An investment in any one Fund is not intended to constitute a balanced
investment program. Shares of the Tax-Exempt Bond Fund would not be suitable for
tax-exempt institutions and may not be suitable for retirement plans qualified
under Section 401 of the Code, H.R. 10 plans and individual retirement accounts
because such plans and accounts are generally tax-exempt and, therefore, not
only would the shareholder not gain any additional benefit from the Fund's
dividends being tax-exempt, but such dividends would be ultimately taxable to
the beneficiaries when distributed. In addition, the Tax-Exempt Bond Fund may
not be an appropriate investment for entities which are "substantial users" of
facilities financed by "private activity bonds" or "related persons" thereof.
"Substantial user" is defined under U.S. Treasury Regulations to include a
non-exempt person who (i) regularly uses a part of such facilities in his or her
trade or business and whose gross revenues derived with respect to the
facilities financed by the issuance of bonds are more than 5% of the total
revenues derived by all users of such facilities, (ii) occupies more than 5% of
the usable area of such facilities or (iii) are persons for whom such facilities
or a part thereof were specifically constructed, reconstructed or acquired.
"Related persons" include certain related natural persons, affiliated
corporations, a partnership and its partners and an S corporation and its
shareholders.
STATE AND LOCAL
Exempt-interest dividends and other distributions paid by the
Tax-Exempt Bond Fund may be taxable to shareholders under state or local law as
dividend income, even though all or a
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portion of such distributions may be derived from interest on tax-exempt
obligations which, if realized directly, would be exempt from such income taxes.
Depending upon the extent of Galaxy's activities in states and
localities in which its offices are maintained, in which its agents or
independent contractors are located, or in which it is otherwise deemed to be
conducting business, the Tax-Exempt Bond Fund may be subject to the tax laws of
such states or localities. In addition, in those states and localities that have
income tax laws, the treatment of the Tax-Exempt Bond Fund and its shareholders
under such laws may differ from their treatment under federal income tax laws.
Under state or local law, distributions of net investment income may be taxable
to shareholders as dividend income even though a substantial portion of such
distributions may be derived from interest on U.S. Government obligations which,
if realized directly, would be exempt from such income taxes. Shareholders are
advised to consult their tax advisers concerning the application of state and
local taxes.
TAXATION OF CERTAIN FINANCIAL INSTRUMENTS
The tax principles applicable to certain financial instruments and
futures contracts and options that may be acquired by the Funds are complex and,
in some cases, uncertain. Such investments may cause a Fund to recognize taxable
income prior to the receipt of cash, thereby requiring the Fund to liquidate
other positions, or to borrow money, so as to make sufficient distributions to
shareholders to avoid corporate-level tax. Moreover, some or all of the taxable
income recognized may be ordinary income or short-term capital gain, so that the
distributions may be taxable to shareholders as ordinary income.
Generally, futures contracts and options on futures contracts held by
the Funds (as described above) (collectively, the "Instruments") at the close of
their taxable year are treated for federal income tax purposes as sold for their
fair market value on the last business day of such year, a process known as
"mark-to-market." Forty percent of any gain or loss resulting from such
constructive sales will be treated as short-term capital gain or loss and 60% of
such gain or loss will be treated as long-term capital gain or loss without
regard to the period a Fund has held the Instruments ("the 40-60 rule"). The
amount of any capital gain or loss actually realized by a Fund in a subsequent
sale or other disposition of those Instruments is adjusted to reflect any
capital gain or loss taken into account by the Fund in a prior year as a result
of the constructive sale of the Instruments. With respect to certain
Instruments, deductions for interest and carrying charges may not be allowed.
In accordance with Treasury regulations, certain transactions that are
part of a "Section 988 hedging transaction" (as defined in the Code and Treasury
regulations) may be integrated and treated as a single transaction or otherwise
treated consistently for purposes of the Code. "Section 988 hedging
transactions" are not subject to the mark-to-market or loss deferral rules under
the Code.
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<PAGE>
TRUSTEES AND OFFICERS
The business and affairs of the Funds are managed under the direction
of Galaxy's Board of Trustees in accordance with the laws of the Commonwealth of
Massachusetts and the Trust's Declaration of Trust. The trustees and executive
officers of Galaxy, their addresses, principal occupations during the past five
years, and other affiliations are as follows:
<TABLE>
<CAPTION>
Positions Principal Occupation
with The During Past 5 Years
Name and Address Galaxy Fund and Other Affiliations
- ---------------- ----------- ----------------------
<S> <C> <C>
Dwight E. Vicks, Jr. Chairman & Trustee President & Director, Vicks Lithograph &
Vicks Lithograph & Printing Corporation (book manufacturing
Printing Corporation and commercial printing); Director, Utica
Commercial Drive Fire Insurance Company; Trustee, Savings
P.O. Box 270 Bank of Utica; Director, Monitor Life
Yorkville, NY 13495 Insurance Company; Director, Commercial
Age 65 Travelers Mutual Insurance Company;
Trustee, The Galaxy VIP Fund; Trustee,
Galaxy Fund II.
John T. O'Neill(1) President, Executive Vice President and CFO, Hasbro,
Hasbro, Inc. Treasurer & Inc. (toy and game manufacturer); Trustee,
1011 Newport Avenue Trustee The Galaxy VIP Fund; Trustee, Galaxy Fund
Pawtucket, RI 02862 II.
Age 54
Louis DeThomasis Trustee President, Saint Mary's College of
Saint Mary's College Minnesota; Director, Bright Day Travel,
of Minnesota Inc.; Trustee, Religious Communities Trust;
Winona, MN 55987 Trustee, The Galaxy VIP Fund; Trustee,
Age 58 Galaxy Fund II.
Donald B. Miller Trustee Chairman, Horizon Media, Inc. (broadcast
10725 Quail Covey Road services); Director/Trustee, Lexington
Boynton Beach, FL 33436 Funds; Chairman, Executive Committee,
Age 73 Compton International, Inc. (advertising
agency); Trustee, Keuka College; Trustee,
The Galaxy VIP Fund; Trustee, Galaxy Fund
II.
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<PAGE>
<CAPTION>
Positions Principal Occupation
with The During Past 5 Years
Name and Address Galaxy Fund and Other Affiliations
- ---------------- ----------- ----------------------
<S> <C> <C>
James M. Seed Trustee Chairman and President, The Astra Projects,
The Astra Ventures, Inc. Incorporated (land development); President,
One Citizens Plaza The Astra Ventures, Incorporated
Providence, RI 02903 (previously, Buffinton Box Company -
Age 58 manufacturer of cardboard boxes);
Commissioner, Rhode Island Investment
Commission; Trustee, The Galaxy VIP Fund;
Trustee, Galaxy Fund II.
Bradford S. Wellman(1) Trustee Private Investor; Vice President and
2468 Ohio Street Director, Acadia Management Company
Bangor, ME 04401 (investment services); Director, Essex
Age 68 County Gas Company, until January 1994;
Director, Maine Mutual Fire Insurance Co.;
Member, Maine Finance Authority; Trustee,
The Galaxy VIP Fund; Trustee, Galaxy Fund
II.
W. Bruce McConnel, III Secretary Partner of the law firm Drinker Biddle &
Philadelphia National Reath LLP, Philadelphia, Pennsylvania.
Bank Building
1345 Chestnut Street.
Philadelphia, PA 19107
Age 56
Jylanne Dunne Vice President and Vice President, PFPC Inc.,
PFPC Inc. Assistant Treasurer 1990 to present.
4400 Computer Drive
Westborough, MA 01581-5108
Age 39
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Positions Principal Occupation
with The During Past 5 Years
Name and Address Galaxy Fund and Other Affiliations
- ---------------- ----------- ----------------------
<S> <C> <C>
William Greilich Vice President Vice President, PFPC Inc.,
PFPC Inc. 1991-96; Vice President and
4400 Computer Drive Division Manager, First Data
Westborough, MA 01581-5108 PFPC, Inc., 1996-present.
Age 45
</TABLE>
- --------------------------------
1. May be deemed to be an "interested person" within the definition set
forth in Section 2(a)(19) of the 1940 Act.
Effective May 28, 1999, each trustee receives an annual aggregate fee
of $45,000 for his services as a trustee of Galaxy, The Galaxy VIP Fund ("Galaxy
VIP") and Galaxy Fund II ("Galaxy II") (collectively, the "Trusts"), plus an
additional $3,250 for each in-person Galaxy Board meeting attended and $1,500
for each in-person Galaxy VIP or Galaxy II Board meeting attended not held
concurrently with an in-person Galaxy meeting, and is reimbursed for expenses
incurred in attending all meetings. Each trustee also receives $750 for each
telephone Board meeting in which the trustee participates, $1,000 for each
in-person Board committee meeting attended and $500 for each telephone Board
committee meeting in which the trustee participates. The Chairman of the Boards
of the Trusts is entitled to an additional annual aggregate fee in the amount of
$4,000, and the President and Treasurer of the Trusts is entitled to an
additional annual aggregate fee of $2,500 for their services in these respective
capacities. The foregoing trustees' and officers' fees are allocated among the
portfolios of the Trusts based on their relative net assets. Prior to May 28,
1999, (i) each trustee received an annual aggregate fee of $40,000 for his
services as a trustee of the Trusts, plus an additional $2,250 for each
in-person Galaxy Board meeting attended and $1,500 for each in-person Galaxy VIP
or Galaxy II Board meeting attended not held concurrently with an in-person
Galaxy Board meeting, and (ii) the President and Treasurer of the Trusts
received the same fees as they are currently paid for their services in these
capacities.
Effective March 1, 1996, each trustee became entitled to participate in
The Galaxy Fund, The Galaxy VIP Fund and Galaxy Fund II Deferred Compensation
Plans (the "Original Plans"). Effective January 1, 1997, the Original Plans were
merged into The Galaxy Fund/The Galaxy VIP Fund/Galaxy Fund II Deferred
Compensation Plan (together with the Original Plans, the "Plan"). Under the
Plan, a trustee may elect to have his deferred fees treated as if they had been
invested by the Trusts in the shares of one or more portfolios in the Trusts, or
other types of investment options, and the amount paid to the trustees under the
Plan will be determined based upon the performance of such investments. Deferral
of trustees' fees will have no effect on a portfolio's assets, liabilities, and
net income per share, and will not obligate the Trusts to retain
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<PAGE>
the services of any trustee or obligate a portfolio to any level of compensation
to the trustee. The Trusts may invest in underlying securities without
shareholder approval.
No employee of PFPC, receives any compensation from Galaxy for
acting as an officer. No person who is an officer, director or employee of
Fleet or Oechsle, or any of its affiliates, serves as a trustee, officer or
employee of Galaxy. The trustees and officers of Galaxy own less than 1% of
its outstanding shares.
The following chart provides certain information about the fees
received by Galaxy's trustees during the fiscal year ended October 31, 1998.
<TABLE>
<CAPTION>
Pension or
Retirement Total Compensation
Benefits Accrued from Galaxy and Fund
Aggregate Compensation as Part of Fund Complex *Paid to
Name of Person/Position from Galaxy Expenses Trustees
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bradford S. Wellman $39,932 None $44,750
Trustee
- ------------------------------------------------------------------------------------------------------------
Dwight E. Vicks, Jr. $43,949 None $49,250
Chairman and Trustee
- ------------------------------------------------------------------------------------------------------------
Donald B. Miller** $40,380 None $45,250
Trustee
- ------------------------------------------------------------------------------------------------------------
Rev. Louis DeThomasis $40,380 None $45,250
Trustee
- ------------------------------------------------------------------------------------------------------------
John T. O'Neill $42,611 None $47,750
President, Treasurer
and Trustee
- ------------------------------------------------------------------------------------------------------------
James M. Seed** $40,380 None $45,250
Trustee
</TABLE>
- ---------------------------------
* The "Fund Complex" consists of Galaxy, The Galaxy VIP Fund and Galaxy
Fund II, which comprise a total of 43 separate portfolios.
** Deferred compensation (including interest) in the amounts of $43,744
and $44,527 accrued during Galaxy's fiscal year ended October 31, 1998
for Messrs. Miller and Seed, respectively.
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. However, Galaxy's Declaration of Trust provides that shareholders
shall not be subject to any personal liability for the acts or obligations of
Galaxy, and that every note, bond, contract, order or other
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<PAGE>
undertaking made by Galaxy shall contain a provision to the effect that the
shareholders are not personally liable thereunder. The Declaration of Trust
provides for indemnification out of the trust property of any shareholder held
personally liable solely by reason of his or her being or having been a
shareholder and not because of his or her acts or omissions outside such
capacity or some other reason. The Declaration of Trust also provides that
Galaxy shall, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of Galaxy, and shall satisfy any judgment
thereon. Thus, the risk of shareholder liability is limited to circumstances in
which Galaxy itself would be unable to meet its obligations.
The Declaration of Trust states further that no trustee, officer or
agent of Galaxy shall be personally liable for or on account of any contract,
debt, claim, damage, judgment or decree arising out of or connected with the
administration or preservation of the trust estate or the conduct of any
business of Galaxy; nor shall any trustee be personally liable to any person for
any action or failure to act except by reason of his own bad faith, willful
misfeasance, gross negligence or reckless disregard of his duties as trustee.
The Declaration of Trust also provides that all persons having any claim against
the trustees or Galaxy shall look solely to the trust property for payment.
With the exceptions stated, the Declaration of Trust provides that a
trustee is entitled to be indemnified against all liabilities and expenses
reasonably incurred by him in connection with the defense or disposition of any
proceeding in which he may be involved or with which he may be threatened by
reason of his being or having been a trustee, and that the Board of Trustees
shall indemnify representatives and employees of Galaxy to the same extent to
which they themselves are entitled to indemnification.
INVESTMENT ADVISER AND SUB-ADVISER
Fleet serves as investment adviser to the Funds. In its advisory
agreement, Fleet has agreed to provide investment advisory services to the Funds
as described in the Prospectuses. Fleet has also agreed to pay all expenses
incurred by it in connection with its activities under the advisory agreement
other than the cost of securities (including brokerage commissions) purchased
for the Funds. See "Expenses" below.
For the services provided and expenses assumed with respect to the
Funds, Fleet is entitled to receive advisory fees, computed daily and paid
monthly, at the annual rate of 0.75% of the average daily net assets of each
Fund other than the International Equity Fund. For the services provided and the
expenses assumed with respect to the International Equity Fund, Fleet is
entitled to receive advisory fees, computed daily and paid monthly, at the
annual rate of 1.15% of the first $50 million of the Fund's average daily net
assets, plus 0.95% of the next $50 million of such assets, plus 0.85% of net
assets in excess of $100 million. Fleet is currently waiving a portion of the
advisory fees payable to it by the Bond Funds so that it is entitled to receive
advisory fees at the annual rate of 0.55% of each Bond Fund's average daily net
assets.
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During the fiscal years ended October 31, 1998, October 31, 1997 and
October 31, 1996, Galaxy paid advisory fees (net of fee waivers and/or expense
reimbursements) to Fleet as set forth below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1998 1997 1996
- ---- ---- ---- ----
<S> <C> <C> <C>
Asset Allocation....................................... $3,743,922 $2,313,863 $1,447,310
Equity Income.......................................... $2,457,188 $1,947,792 $1,533,644
Growth and Income...................................... $3,701,722 $2,361,898 $1,690,599(1)
Strategic Equity....................................... $ 70,206(2) * *
Equity Value........................................... $3,782,620 $2,860,410 $2,220,230
Equity Growth.......................................... $8,345,236 $6,555,045 $4,746,270
International Equity(3)................................ $2,480,868 $1,844,037 $1,154,303
Small Cap Value........................................ $2,042,588 $1,370,449 $1,079,665(1)
Small Company Equity................................... $3,166,852 $2,610,431 $1,562,481
Short-Term Bond(4) .................................... $ 390,913 $ 468,017 $ 490,687
Intermediate Government Income(5) ..................... $1,582,909 $1,535,166 $1,653,803
High Quality Bond(6) .................................. $1,294,758 $1,061,017 $ 929,425
Tax-Exempt Bond(7) .................................... $ 864,035 $ 789,598 $ 696,116
</TABLE>
- ---------------
* Not in operation during the period.
(1) For the period from December 4, 1995 through October 31, 1996. For the
period from November 1, 1995 to December 3, 1995, the Predecessor
Growth and Income Fund and the Predecessor Small Cap Value Fund paid
$207,833 and $128,152, respectively, to Shawmut Bank, N. A., the
investment adviser to such Predecessor Funds.
(2) For the period from March 4, 1998 (commencement of operations) through
October 31, 1998. Fleet waived advisory fees of $26,590 with respect to
the Strategic Equity Fund during this period.
(3) For the fiscal years ended October 31, 1998, October 31, 1997, and
October 31, 1996, Fleet waived advisory fees of $950,363, $682,009 and
$464,938, respectively, with respect to the International Equity Fund.
(4) For the fiscal years ended October 31, 1998, October 31, 1997, and
October 31, 1996, Fleet waived advisory fees of $142,191, $171,035 and
$193,702, respectively, with respect to the Short-Term Bond Fund.
(5) For the fiscal years ended October 31, 1998, October 31, 1997 and
October 31, 1996, Fleet waived advisory fees of $575,603, $558,241 and
$608,385 with respect to the Intermediate Government Income Fund.
(6) For the fiscal years ended October 31, 1998, October 31, 1997 and
October 31, 1996, Fleet waived advisory fees of $470,821, $396,183 and
$339,047 with respect to the High Quality Bond Fund.
(7) For the fiscal years ended October 31, 1998, October 31, 1997 and
October 31, 1996, Fleet waived advisory fees of $318,713, $287,127 and
$253,133 with respect to the Tax-Exempt Bond Fund.
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During the fiscal years ended October 31, 1998, October 31, 1997 and
October 31,1996, Fleet reimbursed expenses as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1998 1997 1996
- ---- ---- ---- ----
<S> <C> <C> <C>
Asset Allocation......................................$ 0 $ 19,254 $12,512
Equity Income.........................................$ 0 $ 38,298 $ 0
Growth and Income.....................................$150,727 $306,295 $99,656
Strategic Equity......................................$ 2,915(1) * *
Equity Value..........................................$ 0 $ 26,294 $ 0
Equity Growth.........................................$ 0 $ 27,033 $ 0
International Equity..................................$ 0 $ 18,362 $ 0
Small Cap Value.......................................$115,022 $103,101 $63,394
Small Company Equity..................................$ 27,376 $118,118 $ 331
Short-Term Bond Fund..................................$ 111 $ 2,300 $40,375
Intermediate Government Income Fund...................$ 0 $ 0 $ 0
High Quality Bond Fund................................$ 0 $ 28,489 $ 2,956
Tax-Exempt Bond Fund..................................$ 12,427 $ 73,334 $62,854
</TABLE>
- ---------------
* Not in operation during the period.
(1) For the period from March 4, 1998 (commencement of operations) through
October 31, 1998.
The advisory agreement provides that Fleet shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Funds in
connection with the performance of its duties under the advisory agreement,
except a loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of Fleet in the
performance of its duties or from reckless disregard by it of its duties and
obligations thereunder. Unless sooner terminated, the advisory agreement will
continue in effect with respect to a particular Fund from year to year as long
as such continuance is approved at least annually (i) by the vote of a majority
of trustees who are not parties to such advisory agreement or interested persons
(as defined in the 1940 Act) of any such party, cast in person at a meeting
called for the purpose of voting on such approval; and (ii) by Galaxy's Board of
Trustees, or by a vote of a majority of the outstanding shares of such Fund. The
term "majority of the outstanding shares of such Fund" means, with respect to
approval of an advisory agreement, the vote of the lesser of (i) 67% or more of
the shares of the Fund present at a meeting, if the holders of more than 50% of
the outstanding shares of the Fund are present or represented by proxy, or (ii)
more than 50% of the outstanding shares of the Fund. The advisory agreement may
be terminated by Galaxy or by Fleet on sixty days' written notice, and will
terminate immediately in the event of its assignment.
The advisory agreement between Galaxy and Fleet with respect to the
International Equity Fund provides that Fleet will provide a continuous
investment program for the Fund, including research and management with respect
to all securities and investments and cash equivalents in the Fund. In addition,
the advisory agreement authorizes Fleet to engage a sub-adviser to assist it in
the performance of its services. Pursuant to such authorization, Fleet has
appointed Oechsle, a Delaware limited liability company with principal offices
at One International Place, Boston, Massachusetts 02210, as the sub-adviser to
the International Equity
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<PAGE>
Fund. The member manager of Oechsle is Oechsle Group, LLC. FleetBoston
Corporation owns approximately a 36% non-voting interest in Oechsle. As of June
30, 1999, Oechsle had discretionary management authority over approximately $14
billion in assets.
Under its sub-advisory agreement with Fleet, Oechsle determines which
securities and other investments will be purchased, retained or sold for the
Fund; places orders for the Fund; manages the Fund's overall cash position; and
provides Fleet with foreign broker research and a quarterly review of
international economic and investment developments. Fleet, among other things,
assists and consults with Oechsle in connection with the Fund's continuous
investment program; approves lists of foreign countries recommended by Oechsle
for investment; reviews the investment policies and restrictions of the Fund and
recommends appropriate changes to the Board of Trustees; and provides the Board
of Trustees and Oechsle with information concerning relevant economic and
political developments. Oechsle will provide services under this agreement in
accordance with the Fund's investment objectives, policies and restrictions.
Unless sooner terminated by Fleet or the Board of Trustees upon sixty days'
written notice or by Oechsle upon ninety days' written notice, the sub-advisory
agreement will continue in effect from year to year as long as such continuance
is approved at least annually as described above.
For the services provided and the expenses assumed pursuant to the
sub-advisory agreement, Fleet pays a fee to Oechsle, computed daily and paid
quarterly, at the annual rate of .40% of the first $50 million of the
International Equity Fund's average daily net assets, plus .35% of average daily
net assets in excess of $50 million.
For the fiscal years ended October 31, 1998 and October 31, 1997 and
for the period from August 12, 1996 through October 31, 1996, Oechsle and /or
its predecessor, Oechsle International Advisors, L.P., received sub-advisory
fees of $1,355,508, $979,810 and $119,374, respectively, with respect to the
International Equity Fund. Prior to August 12, 1996, Wellington Management
Company served as sub-adviser to the International Equity Fund. For the period
from November 1, 1995 through August 11, 1996, Wellington Management Company
received sub-advisory fees of $431,198 with respect to the International Equity
Fund.
Fleet and Oechsle are authorized to allocate purchase and sale orders
for portfolio securities to certain financial institutions, including, to the
extent permitted by law or order of the SEC, financial institutions that are
affiliated with Fleet or Oechsle or that have sold shares of the Funds, if Fleet
or Oechsle, as the case may be, believes that the quality of the transaction and
the commission are comparable to what they would be with other qualified
brokerage firms.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities such as shares
of the Funds, but do not prohibit such a bank holding company or its affiliates
or banks generally from
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<PAGE>
acting as investment adviser, transfer agent, or custodian to such an investment
company or from purchasing shares of such a company as agent for and upon the
order of customers. Fleet, the custodian and institutions which agree to provide
shareholder support services that are banks or bank affiliates are subject to
such banking laws and regulations. Should legislative, judicial or
administrative action prohibit or restrict the activities of such companies in
connection with their services to the Funds, Galaxy might be required to alter
materially or discontinue its arrangements with such companies and change its
method of operation. It is anticipated, however, that any resulting change in
the Funds' method of operation would not affect a Fund's net asset value per
share or result in financial loss to any shareholder.
ADMINISTRATOR
PFPC (formerly known as First Data Investor Services Group, Inc.),
located at 4400 Computer Drive, Westboro, Massachusetts 01581-5108, serves as
the Funds' administrator. PFPC is a majority-owned subsidiary of PNC Bank Corp.
PFPC generally assists the Funds in their administration and
operation. PFPC also serves as administrator to the other portfolios of
Galaxy. For the services provided to the Funds, PFPC is entitled to receive
administration fees based on the combined average daily net assets of the
Funds and the other portfolios offered by Galaxy, computed daily and paid
monthly, at the following annual rates, effective September 10, 1998:
<TABLE>
<CAPTION>
COMBINED AVERAGE DAILY NET ASSETS ANNUAL RATE
--------------------------------- -----------
<S> <C>
Up to $2.5 billion.......................... 0.090%
From $2.5 to $5 billion..................... 0.085%
From $5 to $12 billion...................... 0.075%
From $12 to $15 billion..................... 0.065%
From $15 to $18 billion..................... 0.060%
Over $18 billion............................ 0.0575%
</TABLE>
Prior to September 10, 1998, Galaxy paid PFPC administration fees
based on the combined average daily net assets of the Funds and all other
portfolios offered by Galaxy at the following annual rates:
<TABLE>
<CAPTION>
COMBINED AVERAGE DAILY NET ASSETS ANNUAL RATE
--------------------------------- -----------
<S> <C>
Up to $2.5 billion.......................... 0.090%
From $2.5 to $5 billion..................... 0.085%
Over $5 billion............................. 0.075%
</TABLE>
PFPC also receives a separate annual fee from each Galaxy portfolio for
certain fund accounting services.
From time to time, PFPC may waive voluntarily all or a portion of
the administration fees payable to it by the Funds. For the fiscal year ended
October 31, 1998, each
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Fund paid PFPC administration fees at the effective annual rate of 0.08% of
such Fund's average daily net assets. During the fiscal years ended October
31, 1998, October 31, 1997 and October 31, 1996, PFPC received administration
fees (net of fee waivers) as set forth below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1998 1997 1996
- ---- ---- ---- ----
<S> <C> <C> <C>
Asset Allocation............................ $401,495 $253,881 $163,060
Equity Income............................... $263,640 $216,835 $174,406
Growth and Income........................... $413,204 $290,324 $203,187(1)
Strategic Equity............................ $ 10,624(2) * *
Equity Value................................ $405,740 $314,236 $249,569
Equity Growth............................... $895,213 $716,320 $532,514
International Equity........................ $305,871 $222,620 $141,571
Small Cap Value............................. $231,440 $160,350 $129,101(1)
Small Company Equity........................ $342,901 $296,886 $137,000
Short-Term Bond............................. $ 57,228 $ 69,851 $ 82,440
Intermediate Government Income.............. $231,595 $227,963 $256,059
High Quality Bond........................... $189,406 $161,732 $143,905
Tax-Exempt Bond............................. $127,627 $117,223 $108,062
</TABLE>
- ---------------------
* Not in operation during the period.
(1) For the period from December 4, 1995 through October 31, 1996. For the
period from November 1, 1995 to December 3, 1995, Federated
Administrative Services, a subsidiary of Federated Investors, served as
administrator of the Predecessor Funds and earned the following
administrative fees: Predecessor Growth and Income Fund, $31,175, none
of which was voluntarily waived; and Predecessor Small Cap Value Fund,
$19,223, none of which was voluntarily waived.
(2) For the period from March 4, 1998 (commencement of operations) through
October 31, 1998.
During the fiscal years ended October 31, 1998, October 31, 1997 and
October 31, 1996, PFPC waived administration fees as set forth below:
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<PAGE>
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1998 1997 1996
- ---- ---- ---- ----
<S> <C> <C> <C>
Asset Allocation................................... $0 $0 $2,010
Equity Income...................................... $0 $0 $0
Growth and Income.................................. $0 $0 $0
Strategic Equity................................... $0(1) * *
Equity Value....................................... $0 $0 $1,640
Equity Growth...................................... $0 $0 $4,360
International Equity............................... $0 $0 $0
Small Cap Value.................................... $0 $0 $0
Small Company Equity............................... $0 $0 $4,570
Short-Term Bond.................................... $0 $0 $0
Intermediate Government Income..................... $0 $0 $0
High Quality Bond.................................. $0 $0 $0
Tax-Exempt Bond.................................... $0 $0 $0
</TABLE>
- ---------------------
* Not in operation during the period.
(1) For the period from March 4, 1998 (commencement of operations) through
October 31, 1998.
Under the administration agreement between Galaxy and PFPC (the
"Administration Agreement"), PFPC has agreed to maintain office facilities
for Galaxy, furnish Galaxy with statistical and research data, clerical,
accounting, and bookkeeping services, certain other services such as internal
auditing services required by Galaxy, and compute the net asset value and net
income of the Funds. PFPC prepares the Funds' annual and semi-annual reports
to the SEC, federal and state tax returns, and filings with state securities
commissions, arranges for and bears the cost of processing share purchase and
redemption orders, maintains the Funds' financial accounts and records, and
generally assists in all aspects of Galaxy's operations. Unless otherwise
terminated, the Administration Agreement will remain in effect until May 31,
2001 and thereafter will continue from year to year upon annual approval of
Galaxy's Board of Trustees.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase Manhattan"), located at One Chase
Manhattan Plaza, New York, New York 10081, a wholly-owned subsidiary of The
Chase Manhattan Corporation, serves as the custodian of the Funds' assets
pursuant to a Global Custody Agreement. Chase Manhattan may employ
sub-custodians for the Funds for the purpose of providing custodial services for
the Funds' foreign assets held outside the United States.
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<PAGE>
Under the Global Custody Agreement, Chase Manhattan has agreed to: (i)
maintain a separate account or accounts in the name of each Fund; (ii) hold and
disburse portfolio securities on account of each Fund; (iii) collect and make
disbursements of money on behalf of each Fund; (iv) collect and receive all
income and other payments and distributions on account of each Fund's portfolio
securities; (v) respond to correspondence from security brokers and others
relating to its duties; and (vi) make periodic reports to the Board of Trustees
concerning the Funds' operations. Chase Manhattan is authorized to select one or
more banks or trust companies to serve as sub-custodian for the Funds, provided
that Chase Manhattan shall remain responsible for the performance of all of its
duties under the custodian agreement and shall be liable to the Funds for any
loss which shall occur as a result of the failure of a sub-custodian to exercise
reasonable care with respect to the safekeeping of the Funds' assets. In
addition, Chase Manhattan also serves as Galaxy's "foreign custody manager" (as
that term is defined in Rule 17f-5 under the 1940 Act) and in such capacity
employs sub-custodians for the Funds for the purpose of providing custodial
services for the foreign assets of those Funds held outside the U.S. The assets
of the Funds are held under bank custodianship in compliance with the 1940 Act.
PFPC, a majority-owned subsidiary of PNC Bank Corp., serves as the
Funds' transfer and dividend disbursing agent pursuant to a Transfer Agency
and Services Agreement (the "Transfer Agency Agreement"). Communications to
PFPC should be directed to PFPC at P.O. Box 5108, 4400 Computer Drive,
Westborough, Massachusetts 01581. Under the Transfer Agency Agreement, PFPC
has agreed to: (i) issue and redeem shares of each Fund; (ii) transmit all
communications by each Fund to its shareholders of record, including reports
to shareholders, dividend and distribution notices and proxy materials for
meetings of shareholders; (iii) respond to correspondence by security brokers
and others relating to its duties; (iv) maintain shareholder accounts; and
(v) make periodic reports to the Board of Trustees concerning Galaxy's
operations.
EXPENSES
Fleet and PFPC bear all expenses in connection with the performance
of their services for the Funds, except that Galaxy bears the expenses
incurred in the Funds' operations including: taxes; interest; fees (including
fees paid to its trustees and officers who are not affiliated with PFPC); SEC
fees; state securities fees; costs of preparing and printing prospectuses for
regulatory purposes and for distribution to existing shareholders; advisory,
administration, shareholder servicing, Rule 12b-1 distribution (if
applicable), fund accounting and custody fees; charges of the transfer agent
and dividend disbursing agent; certain insurance premiums; outside auditing
and legal expenses; costs of independent pricing services; costs of
shareholder reports and meetings; and any extraordinary expenses. The Funds
also pay for brokerage fees and commissions in connection with the purchase
of portfolio securities.
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<PAGE>
PORTFOLIO TRANSACTIONS
Fleet or Oechsle will select specific portfolio investments and effect
transactions for the Equity Funds. Fleet seeks to obtain the best net price and
the most favorable execution of orders. Fleet or Oechsle may, in its discretion,
effect transactions in portfolio securities with dealers who provide research
advice or other services to the Funds, Fleet or Oechsle. Fleet or Oechsle is
authorized to pay a broker or dealer who provides such brokerage and research
services a commission for executing a portfolio transaction for any Fund which
is in excess of the amount of commission another broker or dealer would have
charged for effecting that transaction if Fleet or Oechsle determines in good
faith that such commission was reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer, viewed in
terms of either that particular transaction or Fleet or Oechsle's overall
responsibilities to the particular Fund and to Galaxy. Such brokerage and
research services might consist of reports and statistics relating to specific
companies or industries, general summaries of groups of stocks or bonds and
their comparative earnings and yields, or broad overviews of the stock, bond and
government securities markets and the economy. The fees under the investment
advisory agreements between Galaxy and Fleet and Fleet and Oechsle are not
reduced by reason of receiving such brokerage and research services. The Board
of Trustees will periodically review the commissions paid by the Funds to
determine if the commissions paid over representative periods of time were
reasonable in relation to the benefits inuring to the Funds.
During the fiscal year ended October 31, 1998, the following Equity
Funds paid soft dollar commissions as shown below:
<TABLE>
<CAPTION>
FUND COMMISSIONS
---- -----------
<S> <C>
Asset Allocation............... $215,430
Equity Income.................. $242,621
Growth and Income.............. $511,946
Strategic Equity(1)............ $102,898
Equity Value................... $885,941
Equity Growth.................. $943,024
International Equity........... $334,026
Small Cap Value................ $193,290
Small Company Equity........... $532,508
</TABLE>
- ------------------
(1) For the period from March 4, 1998 (commencement of operations) through
October 31, 1998.
Transactions on U.S. stock exchanges involve the payment of negotiated
brokerage commissions. On exchanges on which commissions are negotiated, the
cost of transactions may vary among different brokers. There is generally no
stated commission in the case of securities traded in U.S. over-the-counter
markets, but the prices of those securities include undisclosed commissions or
mark-ups. The cost of securities purchased from underwriters includes an
underwriting commission or concession, and the prices at which securities are
purchased from and sold to dealers include a dealer's mark-up or mark-down. U.S.
Government Securities are generally purchased from underwriters or dealers,
although certain newly issued U.S.
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<PAGE>
Government Securities may be purchased directly from the U.S. Treasury or
from the issuing agency or instrumentality. No brokerage commissions are
typically paid on purchases and sales of U.S. Government Securities.
For the fiscal years ended October 31, 1998, October 31, 1997 and
October 31, 1996, the following Funds paid brokerage commissions as shown in the
table below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1998 1997 1996
- ---- ---- ---- ----
<S> <C> <C> <C>
Asset Allocation....................... $225,758 $155,296 $112,582
Equity Income.......................... $304,645 $201,407 $217,231
Growth and Income...................... $511,307 $851,919 $398,181(1)
Strategic Equity....................... $118,965(2) * *
Equity Value........................... $965,718 $934,709 $790,862
Equity Growth.......................... $1,128,464 $7,006,331 $539,416
International Equity................... $841,389 $851,919 $1,155,060
Small Cap Value........................ $223,853 $173,335 $118,396(1)
Small Company Equity................... $579,137 $354,910 $258,606
</TABLE>
- -----------------
* Not in operation during the period.
(1) For the period from December 4, 1995 through October 31, 1996.
(2) For the period from March 4, 1998 (commencement of operations) through
October 31, 1998.
During the period February 1, 1998 through October 31, 1998, certain
Equity Funds effected a portion of their portfolio transactions through Quick &
Reilly Institutional Trading ("Quick & Reilly"), a division of Fleet Securities,
Inc., which is an affiliate of Fleet. The table below discloses (1) the
aggregate amount of commissions paid to Quick & Reilly by the Funds during the
period, (2) the percentage of each Fund's aggregate brokerage commissions for
the fiscal year ended October 31, 1998 that was paid to Quick & Reilly, and (3)
the percentage of each Fund's aggregate dollar amount of transactions that
involved payment of commissions that was effected through Quick & Reilly during
the fiscal year ended October 31, 1998.
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
% OF
% OF AGGREGATE
AGGREGATE AGGREGATE COMMISSION
FUND AMOUNT COMMISSIONS TRANSACTIONS
- ---- ------ ----------- ------------
<S> <C> <C> <C>
Asset Allocation........................ $130,968 72.93% 78.11%
Equity Income........................... $108,651 40.75% 45.43%
Growth and Income....................... $118,050 32.53% 32.56%
Strategic Equity(1)..................... $26,480 22.26% 27.40%
Equity Value............................ $298,078 38.48% 43.86%
Equity Growth........................... $56,784 5.76% 8.21%
</TABLE>
- -----------------
(1) For the period from March 4, 1998 (commencement of operations) through
October 31, 1998.
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<PAGE>
Debt securities purchased or sold by the Bond Funds are generally
traded in over-the-counter market on a net basis (i.e., without commission)
through dealers, or otherwise involve transactions directly with the issuer of
an instrument. The cost of securities purchased from underwriters includes and
underwriting commission or concession, and the prices at which securities are
purchased from and sold to dealers include a dealers' mark-up or mark-down.
The Funds may engage in short-term trading to achieve their
investment objectives. Portfolio turnover may vary greatly from year to year
as well as within a particular year. Except as permitted by the SEC or
applicable law, the Funds will not acquire portfolio securities from, make
savings deposits in, enter into repurchase or reverse repurchase agreements
with, or sell securities to, Fleet, Oechsle, PFPC, or their affiliates, and
will not give preference to affiliates and correspondent banks of Fleet with
respect to such transactions.
Galaxy is required to identify any securities of its "regular brokers
or dealers" that the Funds have acquired during the fiscal year ended October
31, 1998. At October 31, 1998, (1) the Asset Allocation Fund held common stock
of Chase Manhattan Corp. with a value of $1,988,437; (2) the Growth & Income
Fund held common stock of Chase Manhattan Corp. with a value of $5,454,000
common stock of J.P. Morgan & Co. with a value of $5,089,500; (3) the Equity
Value Fund held common stock of Chase Manhattan Corp. with a value of $7,158,375
and common stock of Merrill Lynch & Co. with a value of $7,732,125; (4) the
Strategic Equity Fund held common stock of Chase Manhattan Corp. with a value of
$1,306,687; and (5) the Equity Growth Fund held common stock of Chase Manhattan
Corp. with a value of $14,203,125. Chase Manhattan Corp., J.P. Morgan & Co. and
Merrill Lynch Corp. (or their affiliates) are considered "regular brokers or
dealers" of Galaxy.
Investment decisions for each Fund are made independently from those
for the other Funds and portfolios of Galaxy and for any other investment
companies and accounts advised or managed by Fleet or Oechsle. When a purchase
or sale of the same security is made at substantially the same time on behalf of
a Fund, another portfolio of Galaxy, and/or another investment company or
account, the transaction will be averaged as to price, and available investments
allocated as to amount, in a manner which Fleet or Oechsle believes to be
equitable to the Fund and such other portfolio, investment company or account.
In some instances, this investment procedure may adversely affect the price paid
or received by a Fund or the size of the position obtained or sold by such Fund.
To the extent permitted by law, Fleet or Oechsle may aggregate the securities to
be sold or purchased for a Fund with those to be sold or purchased for Galaxy's
other Funds and portfolios, or other investment companies or accounts in order
to obtain best execution.
DISTRIBUTION PLANS
PRIME A SHARES PLAN
Galaxy has adopted a Distribution Plan pursuant to Rule 12b-1 under the
1940 Act (the "Rule") with respect to Prime A Shares of the Funds (the "Prime A
Shares Plan"). Under the
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<PAGE>
Prime A Shares Plan, Galaxy may pay PDI or another person for expenses and
activities intended to result in the sale of Prime A Shares, including the
payment of commissions to broker-dealers and other industry professionals who
sell Prime A Shares and the direct or indirect cost of financing such
payments.
Under the Prime A Shares Plan, payments by Galaxy for distribution
expenses may not exceed the annualized rate of .30% of the average daily net
assets attributable to each Fund's outstanding Prime A Shares. As of the date
of this Prospectus, Galaxy intends to limit the Funds' payments for
distribution expenses to not more than .25% (on an annualized basis) of the
average daily net asset value of each Fund's outstanding Prime A Shares.
PRIME B SHARES PLAN
Galaxy has adopted a Distribution and Services Plan pursuant to Rule
12b-1 under the 1940 Act with respect to Prime B Shares of the Funds (the
"Prime B Shares Plan"). Under the Prime B Shares Plan, Galaxy may pay (a) PDI
or another person for expenses and activities intended to result in the sale
of Prime B Shares, including the payment of commissions to broker-dealers and
other industry professionals who sell Prime B Shares and the direct or
indirect cost of financing such payments, (b) institutions for shareholder
liaison services, which means personal services for holders of Prime B Shares
and/or the maintenance of shareholder accounts, such as responding to
customer inquiries and providing information on accounts, and (c)
institutions for administrative support services, which include but are not
limited to (i) transfer agent and sub-transfer agent services for beneficial
owners of Prime B Shares; (ii) aggregating and processing purchase and
redemption orders; (iii) providing beneficial owners with statements showing
their positions in Prime B Shares; (iv) processing dividend payments; (v)
providing sub-accounting services for Prime B Shares held beneficially; (vi)
forwarding shareholder communications, such as proxies, shareholder reports,
dividend and tax notices, and updating prospectuses to beneficial owners; and
(vii) receiving, translating and transmitting proxies executed by beneficial
owners.
Under the Prime B Shares Plan, payments by Galaxy (i) for
distribution expenses may not exceed the annualized rate of .75% of the
average daily net assets attributable to each such Fund's outstanding Prime B
Shares, and (ii) to a broker/dealer for shareholder liaison services and/or
administrative support services may not exceed the annual rates of .25% and
.25%, respectively, of the average daily net assets attributable to each such
Fund's outstanding Prime B Shares which are owned of record or beneficially
by that broker/dealer's customers for whom the broker/dealer is the dealer of
record or shareholder of record or with whom it has a servicing relationship.
As of the date of this Statement of Additional Information, Galaxy intends to
limit each Fund's payments for shareholder liaison and administrative support
services under the Prime B Shares Plan to an aggregate fee of not more than
.25% (on an annualized basis) of the average daily net asset value of Prime B
Shares owned of record or beneficially by customers of broker/dealers.
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<PAGE>
BOTH DISTRIBUTION PLANS
Payments for distribution expenses under the Prime A Shares Plan and
Prime B Shares Plan (the "12b-1 Plans") are subject to the Rule. The Rule
defines distribution expenses to include the cost of "any activity which is
primarily intended to result in the sale of shares issued by" Galaxy. The
Rule provides, among other things, that an investment company may bear such
expenses only pursuant to a plan adopted in accordance with the Rule. In
accordance with the Rule, the 12b-1 Plans provide that a report of the
amounts expended under the 12b-1 Plans, and the purposes for which such
expenditures were incurred, will be made to the Board of Trustees for its
review at least quarterly. The 12b-1 Plans provide that it may not be amended
to increase materially the costs which Prime A Shares or Prime B Shares of a
Fund may bear for distribution pursuant to the 12b-1 Plan without shareholder
approval, and that any other type of material amendment must be approved by a
majority of the Board of Trustees, and by a majority of the trustees who are
neither "interested persons" (as defined in the 1940 Act) of Galaxy nor have
any direct or indirect financial interest in the operation of the 12b-1 Plans
or in any related agreements (the "12b-1 Trustees"), by vote cast in person
at a meeting called for the purpose of considering such amendments.
Galaxy's Board of Trustees has concluded that there is a reasonable
likelihood that the 12b-1 Plans will benefit the Funds and holders of the
Prime A Shares and Prime B Shares. The 12b-1 Plans are subject to annual
reapproval by a majority of the 12b-1 Trustees and are terminable at any time
with respect to any Fund by a vote of a majority of the 12b-1 Trustees or by
vote of the holders of a majority of the Prime A Shares and Prime B Shares of
the Fund involved. Any agreement entered into pursuant to the 12b-1 Plans with a
broker-dealer is terminable with respect to any Fund without penalty, at any
time, by vote of a majority of the 12b-1 Trustees, by vote of the holders of a
majority of the Prime B Shares of such Fund, by PDI or by the
broker-dealer. An agreement will also terminate automatically in the event of
its assignment.
As long as the 12b-1 Plans are in effect, the nomination of the
trustees who are not interested persons of Galaxy (as defined in the 1940 Act)
must be committed to the discretion of the 12b-1 Trustees.
DISTRIBUTOR
PDI serves as Galaxy's distributor. PDI is a registered
broker/dealer with principal offices located at Four Falls Corporate Center,
West Conshohocken, Pennsylvania 19428-2961. Jane Haegele is the sole
shareholder of PDI.
Unless otherwise terminated, the Distribution Agreement between Galaxy
and PDI remains in effect until November 30, 2000, and thereafter will
continue from year to year upon annual approval by Galaxy's Board of Trustees,
or by the vote of a majority of the outstanding shares of Galaxy and by the vote
of a majority of the Board of Trustees of Galaxy who are not parties to the
Agreement or interested persons of any such party, cast in person at a
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<PAGE>
meeting called for the purpose of voting on such approval. The Agreement will
terminate in the event of its assignment, as defined in the 1940 Act.
PDI is entitled to the payment of a front-end sales charge on the
sale of Prime A Shares of the Funds as described in the Prospectuses and this
Statement of Additional Information. PDI is also entitled to the payment of
contingent deferred sales charges upon the redemption of Prime B Shares of
the Fund as described in the Prospectuses and this Statement of Additional
Information.
AUDITORS
Ernst & Young LLP, independent certified public accountants, with
offices at 200 Clarendon Street, Hancock Tower, Boston, Massachusetts
02116-5072, have been selected as auditors for Galaxy for the fiscal year ending
October 31, 1999.
COUNSEL
Drinker Biddle & Reath LLP (of which W. Bruce McConnel, III, Secretary
of Galaxy, is a partner), One Logan Square, 18th and Cherry Streets,
Philadelphia, Pennsylvania 19103, are counsel to Galaxy and will pass upon
certain legal matters on its behalf.
PERFORMANCE AND YIELD INFORMATION
Investment returns and principal values will vary with market
conditions so that an investor's shares, when redeemed, may be worth more or
less than their original cost. Past performance is no guarantee of future
results. Unless otherwise indicated, total return figures include changes in
share price, deduction of any applicable sales charge, and reinvestment of
dividends and capital gains distributions, if any.
The Funds' 30-day (or one month) standard yields are calculated
separately for each series of shares in each Fund in accordance with the method
prescribed by the SEC for mutual funds:
6
YIELD = 2[(a-b)/cd +1) - 1]
Where: a = dividends and interest earned by a Fund during the period;
b = expenses accrued for the period (net of reimbursements);
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c = average daily number of shares outstanding during the period
entitled to receive dividends; and
d = maximum offering price per share on the last day of the period.
For the purpose of determining net investment income earned during the period
(variable "a" in the formula), dividend income on equity securities held by a
Fund is recognized by accruing 1/360 of the stated dividend rate of the security
each day that the security is in the Fund. Except as noted below, interest
earned on debt obligations held by a Fund is calculated by computing the yield
to maturity of each obligation based on the market value of the obligation
(including actual accrued interest) at the close of business on the last
business day of each month, or, with respect to obligations purchased during the
month, the purchase price (plus actual accrued interest) and dividing the result
by 360 and multiplying the quotient by the market value of the obligation
(including actual accrued interest) in order to determine the interest income on
the obligation for each day of the subsequent month that the obligation is held
by the Fund. For purposes of this calculation, it is assumed that each month
contains 30 days. The maturity of an obligation with a call provision is the
next call date on which the obligation reasonably may be expected to be called
or, if none, the maturity date. With respect to debt obligations purchased at a
discount or premium, the formula generally calls for amortization of the
discount or premium. The amortization schedule will be adjusted monthly to
reflect changes in the market value of such debt obligations. Expenses accrued
for the period (variable "b" in the formula) include all recurring fees charged
by a Fund to all shareholder accounts in proportion to the length of the base
period and the Fund's mean (or median) account size. Undeclared earned income
will be subtracted from the offering price per share (variable "d" in the
formula).
With respect to mortgage or other receivables-backed obligations that
are expected to be subject to monthly payments of principal and interest
("pay-downs"), (i) gain or loss attributable to actual monthly pay-downs are
accounted for as an increase or decrease to interest income during the period,
and (ii) each Fund may elect either (a) to amortize the discount and premium on
the remaining security, based on the cost of the security, to the weighted
average maturity date, if such information is available, or to the remaining
term of the security, if any, if the weighted average date is not available or
(b) not to amortize discount or premium on the remaining security.
Interest earned on tax-exempt obligations that are issued without
original issue discount and have a current market discount is calculated by
using the coupon rate of interest instead of the yield to maturity. In the case
of tax-exempt obligations that are issued with original issue discount but which
have discounts based on current market value that exceed the then-remaining
portion of the original issue discount (market discount), the yield to maturity
is the imputed rate based on the original issue discount calculation. On the
other hand, in the case of tax-exempt obligations that are issued with original
issue discount but which have discounts based on current market value that are
less the then-remaining portion of the original issue discount (market premium),
the yield to maturity is based on the market value.
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Based on the foregoing calculations, the standardized yield for Prime A
Shares and Prime B Shares of the Funds for the 30-day period ended April 30,
1999 were as set forth below.
<TABLE>
<CAPTION>
FUND PRIME A PRIME B
- ---- ------- -------
<S> <C> <C>
Asset Allocation........................... 1.77% 1.24%
Equity Income.............................. -- % -- %
Growth and Income.......................... 0.11% -0.38%
Strategic Equity.......................... -- % -- %
Equity Value .............................. -- % -- %
Equity Growth.............................. -0.35% -0.85%
International Equity....................... 0.13% -0.45%
Small Cap Value............................ 0.15% 1.04%
Small Company Equity....................... -- % -- %
Short-Term Bond............................ -- % -- %
Intermediate Government Income............. -- % -- %
High Quality Bond.......................... 4.53% 3.76%
Tax-Exempt Bond............................ -- % -- %
</TABLE>
The "tax-equivalent" yield of the Tax-Exempt Bond Fund is computed by
(a) dividing the portion of the Fund's yield (calculated as above) that is
exempt from federal income tax by one minus a stated federal income tax rate and
(b) adding that figure to that portion, if any, of the yield that is not exempt
from federal income tax. The Tax-Exempt Bond Fund did not offer Prime A Shares
and Prime B Shares during the 30-day period ended April 30, 1999.
Each Fund that advertises its "average annual total return" computes
such return separately for each series of shares by determining the average
annual compounded rate of return during specified periods that equates the
initial amount invested to the ending redeemable value of such investment
according to the following formula:
1/n
T = [(ERV/P) - 1]
Where: T = average annual total return;
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the l, 5 or 10 year
(or other) periods at the end of the applicable period
(or a fractional portion thereof);
P = hypothetical initial payment of $1,000; and
n = period covered by the computation, expressed in years.
Each Fund that advertises its "aggregate total return" computes such
returns separately for each series of shares by determining the aggregate
compounded rates of return during specified periods that likewise equate the
initial amount invested to the ending redeemable value of such investment. The
formula for calculating aggregate total return is as follows:
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Aggregate Total Return = [(ERV/P) - l]
The calculations are made assuming that (1) all dividends and capital
gain distributions are reinvested on the reinvestment dates at the price per
share existing on the reinvestment date, (2) all recurring fees charged to all
shareholder accounts are included, and (3) for any account fees that vary with
the size of the account, a mean (or median) account size in the Fund during the
periods is reflected. The ending redeemable value (variable "ERV" in the
formula) is determined by assuming complete redemption of the hypothetical
investment after deduction of all nonrecurring charges at the end of the
measuring period. In addition, the Funds' average annual total return and
aggregate total return quotations will reflect the deduction of the maximum
sales load charged in connection with purchases of Prime A Shares or redemptions
of Prime B Shares, as the case may be.
The aggregate total returns for Prime A Shares and Prime B Shares of
the Funds from November 1, 1998 (date of initial public offering) to April 30,
1999 are set forth below.
<TABLE>
<CAPTION>
FUND PRIME A PRIME B
- ---- ------- -------
<S> <C> <C>
Asset Allocation.......................... 10.07% 9.67%
Equity Income............................. -- % -- %
Growth and Income......................... 19.19% 18.76%
Strategic Equity......................... -- % -- %
Equity Value ............................. -- % -- %
Equity Growth............................. 22.38% 22.35%
International Equity...................... 16.80% 16.27%
Small Cap Value........................... 5.50% 5.20%
Small Company Equity...................... -- % -- %
Short-Term Bond........................... -- % -- %
Intermediate Government Income............ -- % -- %
High Quality Bond......................... -1.14% -1.57%
Tax-Exempt Bond........................... -- % -- %
</TABLE>
As stated in the Prospectus, the Funds may also calculate total
return quotations without deducting the maximum sales charge imposed on
purchases of Prime A Shares or redemptions of Prime B Shares. The effect of
not deducting the sales charge will be to increase the total return reflected.
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders,
the performance of the Funds may be quoted and compared to that of other mutual
funds with similar investment objectives and to stock or other relevant indices
or to rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
performance of the Funds may be compared to data prepared by Lipper Analytical
Services, Inc., a widely recognized independent service which monitors the
performance of mutual funds. The performance of the Equity Funds may also be
compared to data prepared by the S&P 500 Index, an unmanaged index of groups of
common stocks, the Consumer Price Index, or the Dow Jones Industrial Average, a
recognized unmanaged index of common stocks of 30 industrial companies listed
on the New York Stock Exchange. In addition, the
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<PAGE>
performance of the International Equity Fund may be compared to the Morgan
Stanley Capital International Index or the FT World Actuaries Index and the
performance of the Small Company Equity Fund and Small Cap Value Fund may be
compared to the NASDAQ Composite Index, an unmanaged index of over-the-counter
stock prices.
Performance data as reported in national financial publications
including, but not limited to, MONEY MAGAZINE, FORBES, BARRON'S, THE WALL
STREET JOURNAL and THE NEW YORK TIMES, or publications of a local or regional
nature may also be used in comparing the performance of the Funds. Performance
data will be calculated separately for Prime A Shares and Prime B Shares of the
Funds.
The standard yield is computed as described above. Each Fund may also
advertise its "effective yield" which is calculated similarly but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested. The Tax-Exempt Bond Fund may also quote its "tax equivalent yield"
which demonstrates the level of taxable yield necessary to produce an after-tax
equivalent yield to the Fund's tax-free yield. It is calculated as described
above. The Fund's tax-equivalent yield will always be higher than its yield.
The Funds may also advertise their performance using "average annual
total return" figures over various periods of time. Such total return figures
reflect the average percentage change in the value of an investment in a Fund
from the beginning date of the measuring period to the end of the measuring
period and are calculated as described above. Average total return figures will
be given for the most recent one-, five- and ten-year periods (if applicable),
and may be given for other periods as well, such as from the commencement of a
Fund's operations, or on a year-by-year basis. Each Fund may also use "aggregate
total return" figures for various periods, representing the cumulative change in
the value of an investment in a Fund for the specified period. Both methods of
calculating total return reflect the maximum front-end sales load for Prime A
Shares of the Funds and the applicable contingent deferred sales charge for
Prime B Shares of the Funds and assume that dividends and capital gain
distributions made by a Fund during the period are reinvested in Fund shares.
The Funds may also advertise total return data without reflecting
the sales charges imposed on the purchase of Prime A Shares or the redemption
of Prime B Shares in accordance with the rules of the SEC. Quotations that do
not reflect the sales charges will be higher than quotations that do reflect
the sales charges.
The performance of the Funds will fluctuate and any quotation of
performance should not be considered as representative of the future performance
of the Funds. Since yields fluctuate, yield data cannot necessarily be used to
compare an investment in a Fund's shares with bank deposits, savings accounts
and similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that
performance data are generally functions of the kind and quality of the
instruments held in a portfolio, portfolio maturity, operating expenses, and
market conditions. Any additional fees charged by institutions with respect to
accounts of customers that have invested in shares of a Fund will not be
included in performance calculations.
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<PAGE>
The portfolio managers of the Funds and other investment professionals
may from time to time discuss in advertising, sales literature or other
material, including periodic publications, various topics of interest to
shareholders and prospective investors. The topics may include but are not
limited to the advantages and disadvantages of investing in tax-deferred and
taxable investments; Fund performance and how such performance may compare to
various market indices; shareholder profiles and hypothetical investor
scenarios; the economy; the financial and capital markets; investment strategies
and techniques; investment products; and tax, retirement and investment
planning.
MISCELLANEOUS
As used in this Statement of Additional Information, "assets belonging
to" a particular Fund or series of a Fund means the consideration received by
Galaxy upon the issuance of shares in that particular Fund or series of the
Fund, together with all income, earnings, profits, and proceeds derived from the
investment thereof, including any proceeds from the sale of such investments,
any funds or payments derived from any reinvestment of such proceeds and a
portion of any general assets of Galaxy not belonging to a particular series or
Fund. In determining the net asset value of a particular series of a Fund,
assets belonging to the particular series of the Fund are charged with the
direct liabilities in respect of that series and with a share of the general
liabilities of Galaxy, which are allocated in proportion to the relative asset
values of the respective series and Funds at the time of allocation. Subject to
the provisions of Galaxy's Declaration of Trust, determinations by the Board of
Trustees as to the direct and allocable liabilities, and the allocable portion
of any general assets with respect to a particular series or Fund, are
conclusive.
Shareholders will receive unaudited semi-annual reports describing the
Funds' investment operations and annual financial statements audited by
independent certified public accountants.
A "vote of the holders of a majority of the outstanding shares" of a
particular Fund or a particular series of shares in a Fund means, with respect
to the approval of an investment advisory agreement, a distribution plan or a
change in an investment objective or fundamental investment policy, the
affirmative vote of the holders of the lesser of (a) more than 50% of the
outstanding shares of such Fund or such series of shares, or (b) 67% or more of
the shares of such Fund or such series of shares present at a meeting if more
than 50% of the outstanding shares of such Fund or such series of shares are
represented at the meeting in person or by proxy.
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<PAGE>
As of September 27, 1999, the name, address and share ownership of the
entities or persons that held of record or beneficially more than 5% of the
outstanding Trust Shares of Galaxy's Asset Allocation, Equity Income, Growth and
Income, Strategic Equity, Equity Value, Equity Growth, International Equity,
Small Cap Value, Small Company Equity, Short-Term Bond, Intermediate Government
Income, High Quality Bond and Tax- Exempt Bond Funds were as follows: Asset
Allocation Fund--Gales & Co., Fleet Investment Services, Mutual Funds
Unit--NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638 (92.42%); Gales &
Co., Fleet Investment Services, Mutual Funds Unit--NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638 (6.91%); Fleet Savings Plus, c/o Norstar Trust
Company, Gales & Co., 159 East Main Street, Rochester, NY 14638 (28.70%); Growth
and Income Fund--Gales & Co., Fleet Investment Services, Mutual Funds
Unit--NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638 (75.81%); Gales &
Co., Fleet Investment Services, Mutual Funds Unit--NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638 (20.84%); Fleet Savings Plus, c/o Norstar Trust
Company, Gales & Co., 159 East Main Street, Rochester, NY 14638 (43.71%); C&K
ARP, c/o Norstar Trust Company, Gales & Co., 159 East Main Street, Rochester, NY
14638 (10.20%); Equity Growth Fund--Gales & Co., Fleet Investment Services,
Mutual Funds Unit--NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638
(70.73%); Gales & Co., Fleet Investment Services, Mutual Funds Unit--NY/RO/TO4A,
159 East Main Street, Rochester, NY 14638 (14.95%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit--NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638 (14.08%); Fleet Savings Plus, c/o Norstar Trust Company,
Gales & Co., 159 East Main Street, Rochester, NY 14638 (23.57%); NUSCO Retiree
Health VEBA Trust, c/o Norstar Trust Company, Gales & Co., 159 East Main
Street, Rochester, NY 14638 (7.17%); International Equity Fund--Gales & Co.,
Fleet Investment Services, Mutual Funds Unit--NY/RO/TO4A, East Main Street,
Rochester, NY 14638 (43.41%); Gales & Co., Fleet Investment Services, Mutual
Funds Unit--NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638 (38.31%);
Gales & Co., Fleet Investment Services, Mutual Funds Unit --NY/RO/TO4A, 159 East
Main Street, Rochester, NY 14638 (15.19%); FFG Retirement & Pension, c/o Norstar
Trust Company, Gales & Co., 159 East Main Street, Rochester, NY 14638 (13.42%);
Fleet Savings Plus, c/o Norstar Trust Company, Gales & Co., 159 East Main
Street, Rochester, NY 14638 (9.82%); Small Cap Value Fund--Gales & Co., Fleet
Investment Services, Mutual Funds Unit--NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638 (30.51%); Gales & Co., Fleet Investment Services, Mutual
Funds Unit--NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638 (19.68%);
Gales & Co., Fleet Investment Services, Mutual Funds Unit--NY/RO/TO4A, 159 East
Main Street, Rochester, NY 14638 (49.51%); FFG Retirement & Pension, c/o Norstar
Trust Company, Gales & Co., 159 East Main Street, Rochester, NY 14638 (25.04%);
High Quality Bond Fund--Gales & Co., Fleet Investment Services, Mutual Funds
Unit--NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638 (63.10%); Gales &
Co., Fleet Investment Services, Mutual Funds Unit--NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638 (24.29%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit--NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638
(12.36%); Fleet Savings Plus, c/o Norstar Trust Company, Gales & Co., 159 East
Main Street, Rochester, NY 14638 (20.30%)
As of September 27, 1999, the name, address and share ownership of the
entities or persons that held of record or beneficially more than 5% of the
outstanding Prime A Shares of
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Galaxy's Asset Allocation, Equity Income, Growth and Income, Strategic
Equity, Equity Value, Equity Growth, International Equity, Small Cap Value,
Small Company Equity, Short-Term Bond, Intermediate Government Income, High
Quality Bond and Tax-Exempt Bond Funds were as follows: Asset Allocation
Fund--U.S. Clearing, A Division of Fleet Securities, Inc., FBO #147-97697-11,
Ray Wayne Prince, 11010 Stephens Road, Berlin Heights, OH 44814-9673
(20.84%); U.S. Clearing, A Division of Fleet Securities, Inc., FBO
#135-29801-11, Joseph P. Quinn & Genevieve H. Quinn Trust, 725 N. Riverside
Drive, Apt. 405, Pompano Beach, FL 33062-4536 (14.03%); U.S. Clearing, A
Division of Fleet Securities, Inc., FBO #175-97327-10, Margaret Ann
Gillenwater, 2525 E. Prince Road #23, Tucson, AZ 85716-1146 (13.42%); U.S.
Clearing, A Division of Fleet Securities, Inc., FBO #114-97238-17, Sara
Mallow, 936 Broadway, New York, NY 10010-6013 (12.49%); U.S. Clearing, A
Division of Fleet Securities, Inc., FBO #166-88586-13, Pamela Ann Radamaker,
1001 Tramway Blvd. NE, Albuquerque, NM 87112-6280 (12.07%); U.S. Clearing, A
Division of Fleet Securities, Inc., FBO #114-23817-12, John R. Johnson, P.O.
Box 4338, Deerfield Beach, FL 33442-4338 (9.35%); Growth and Income
Fund--U.S. Clearing, A Division of Fleet Securities Inc., FBO #160-27022-17,
Linda Shaw, Trustee for the Linda J. Shaw Trust, 920 Meadows Road, Geneva, IL
60134-3052 (34.28%); U.S. Clearing, A Division of Fleet Securities Inc., FBO
#113-27816-16, Pamela M. Fein, 68 Oak Ridge Drive, Bethany, CT 06524-3118
(29.53%); U.S. Clearing, A Division of Fleet Securities Inc., FBO
#175-97327-10, Margaret Ann Gillenwater, 2525 E. Prince Road #23, Tucson, AZ
85716-1146 (23.18%); U.S. Clearing, A Division of Fleet Securities Inc., FBO
#103-80080-19, Saint Clare School Endowment Fund, Attn: Fr. O'Shea/Andrew J.
Houvouras and/or Bruce Blatman, 821 Prosperity Farms Road, No. Palm Beach, FL
33408-4299 (6.03%); Equity Growth Fund--U.S. Clearing, A Division of Fleet
Securities Inc., FBO #104-32732-16, Hilda Brandt, 3900 North Charles Street,
Baltimore, MD 21218-1724 (49.94%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO #114-97236-17, Sara Mallow, 936 Broadway, New York, NY
10010-6013 (26.06%); U.S. Clearing, A Division of Fleet Securities Inc., FBO
#120-97689-18, Yook Y. Doo, 4634 Robinson St., Flushing, NY 11355-3445
(8.67%); U.S. Clearing, A Division of Fleet Securities Inc., FBO
#021-90471-15, Mabel L. Bowman, 35634 Meyers Ct., Fremont, CA 84536-2540
(6.87%); U.S. Clearing, A Division of Fleet Securities Inc., FBO
#143-27206-11, Mary V. Mastroianni & Pasqual Mastroianni JT Ten, 1811
Randolph Road, Schenectady, NY 12308-2021 (5.34%); International Equity
Fund--U.S. Clearing, A Division of Fleet Securities Inc., FBO #125-98055-11,
Albert F. Twanmo, 6508 81st St., Cabin John, MD 20818-1203 (94.66%); Small
Cap Value Fund - U.S. Clearing, A Division of Fleet Securities Inc., FBO #
104-32732-16, Hilda Brandt, 3900 North Charles Street, Baltimore, MD
21218-1724 (26.42%); U.S. Clearing, A Division of Fleet Securities Inc., FBO
# 150-98301-11, N. Clifford Nelson Jr., 58 Middlebury Road, Orchard Park, NY
14127-3581 (16.64%); U.S. Clearing, A Division of Fleet Securities Inc., FBO
# 102-60254-19, Frederick W. Geissinger, 601 NW 2nd Street, Evansville, IN
47708-1013 (16.53%); U.S. Clearing, A Division of Fleet Securities Inc., FBO
# 103-97564-14, Thomas X. McKenna, 170 Turtle Creek Drive, Tequesta, FL
33469-1547 (12.34%); U.S. Clearing, A Division of Fleet Securities Inc., FBO
# 103-31296-18, Edward U. Roddy III, 109 Angler Avenue, Palm Beach, FL
33480-3101 (8.13%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #
180-24606-24, Gary R. Plemons, P.O. Box 190, Madisonville, TN 37354-0190
(5.46%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #
165-26664-29, Special Risk Underwriters, P.O. Box 54699, Phoenix, AZ
85078-4699 (5.22%); High Quality Bond Fund - U.S. Clearing, A Division of
Fleet Securities Inc., FBO # 103-30971-12, Doris G. Schack, FBO #
103-30971-12, Doris G. Schack Living Trust, 9161 East Evans, Scottsdale, AZ
85260-7575 (82.26%); U.S. Clearing, A Division of Fleet Securities Inc., FBO
# 013-02964-11, Jane L. Grayhurst, 770 Boylston St., Apt. 10G, Boston, MA
02199-7709 (17.45%).
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As of September 27,1999, the name, address and share ownership of the
entities or persons that held of record or beneficially more than 5% of the
outstanding Prime B Shares of Galaxy's Asset Allocation, Equity Income,
Growth and Income, Strategic Equity, Equity Value, Equity Growth,
International Equity, Small Cap Value, Small Company Equity, Short-Term Bond,
Intermediate Government Income, High Quality Bond and Tax-Exempt Bond Funds
were as follows: Asset Allocation Fund - U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 138-97818-14, Carol Y. Foster, 524 Marie Ave.,
Blountstown, FL 32424-1218 (11.36%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 102-92974-11, Ann E. Herzog, 74 Tacoma St., Staten
Island, NY 10304-4222 (10.84%); U.S. Clearing, A Division of Fleet Securities
Inc., FBO # 166-98559-16, Ann P. Sargent, 422 Los Encinos Ave., San Jose, CA
95134-1336 (7.22%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #
166-97970-19, Alicia E. Schober, 10139 Ridgeway Drive, Cupertino, CA
95014-2658 (7.01%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #
19414889-16, Paul R. Thornton & Karin Z. Thornton, JT TEN, 1207 Oak Glen
Lane, Sugar Land, TX 77479-6175 (6.44%); Growth and Income Fund - U.S.
Clearing, A Division of Fleet Securities Inc., FBO # 147-97497-13, Martin
Allen Sante, 15222 Birch Lakeshore Drive, Vandalia, MI 49095-9741 (28.76%);
U.S. Clearing, A Division of Fleet Securities Inc., FBO #103-31744-16, Irwin
Luftig & Elaine Luftig, 6119 Bear Creek Ct., Lake Worth FL 33467-6812
(20.13%); Linda M. Berke & Michael E. Berke, JT WROS, 30941 Westwood Rd.,
Farmington Hills, MI 48331-1466 (16.13%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 147-29019-15, Walter W. Quan, 2617 Skyline Drive,
Lorain, OH 44053-2243 (15.73%); U.S. Clearing, A Division of Fleet Securities
Inc., FBO # 014-90365-19, Peter Burr Bickford, 65 A Lazell St., Hingham, MA
02043-4403 (7.87%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #
115-12038-15, Frank M. Mlele, P.O. Box 8295, New Fairfield, CT 06812-8295
(5.28%); Equity Growth Fund - U.S. Clearing, A Division of Fleet Securities
Inc., FBO # 111-98315-17, Thomas J. Bernfeld, 185 West End Ave., Apt. 21D,
New York, NY 10023-5548 (29.52%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 166-31108-13, Frank Catanho, Trustee of the Frank
Catanho 1996 Trust dated 10/22/96, 24297 Mission Blvd., Hayward, CA
94544-1020 (19.07%); U.S. Clearing, A Division of Fleet Securities Inc., FBO
# 183-97247-11, W.P. Fleming, 66500 E. 253rd, Grove, OK 74344-6163 (8.77%);
U.S. Clearing, A Division of Fleet Securities Inc., FBO # 131-96122-18,
Elaine B. Odessa, 9 Newman Rd., Pawtucket, RI 02860-8183 (6.66%);
International Equity Fund - U.S. Clearing, A Division of Fleet Securities
Inc., FBO # 102-5924-17, Church & Friary of St. Francis of Assisi, c/o Fr.
Ronald P. Stark OFM, 135 West 31st St., New York, NY 10001-3405 (82.54%);
Small Cap Value Fund - U.S. Clearing, A Division of Fleet Securities Inc.,
FBO # 147-97574-19, Ray William Mominey, 1340 San Cristobal Villa, Punta
Gorda, FL 33983-6616 (16.15%); U.S. Clearing, A Division of Fleet Securities
Inc., FBO # 111-98315-17, Thomas J. Bernfeld, 185 West End Ave., Apt. 21D,
New York, NY 10023-5548 (10.29%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 107-30623-15, Andrejs Zvejnieks, 2337 Christopher
Walk, Atlanta, GA 30327-1110 (6.97%); E-Trade: Cust. for the rollover IRA,
FBO Rufus O. Eddins, Jr., A/C # 11042697, 360 Dominion Circle, Knoxville, TN
37922-2750 (5.43%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #
221-97250-13, Micheal A. Veschi, 106 Exmoor Court, Leesburg, VA 20176-2049
(5.21%); High Quality Bond Fund - U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 200-70099-19, Neil C. Feldman, 41 Windham Way,
Englishtown, NJ 07726-8216 (24.24%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 119-97697-10, Ira Sornborg, 4219 Nautilus Ave.,
Brooklyn, NY 11224-1019 (9.78%); U.S. Clearing, A
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Division of Fleet Securities Inc., FBO # 216-12779-14, Les H. Galex & Nan Galex,
JT TEN, 7540 Farragut St., Hollywood, FL 33024-2626 (7.74%); U.S. Clearing, A
Division of Fleet Securities Inc., FBO # 216-119-71-12, Joel Galex, 7540
Farragut St., Hollywood, FL 33024-2626 (7.74%); U.S. Clearing, A Division of
Fleet Securities Inc., FBO # 102-93287-11, Marjorie Dion, 301 Raimond St.,
Yaphank, NY 11980-9725 (6.99%); U.S. Clearing, A Division of Fleet Securities
Inc., FBO # 102-68909-11, Marjorie Dion, 301 Raimond St., Yaphank, NY 11980-9725
(6.63%); U.S. Clearing, A Division of Fleet Securities Inc., FBO # 119-11589-12,
Hilje Schein, 264 East 211 St., Apt. 2D, Bronx, NY 10467-1528 (6.27%); U.S.
Clearing, A Division of Fleet Securities Inc., FBO # 157-98031-13, Patricia
Fusco, 112 E. Chapel Ave., Cherry Hill, NJ 08034-1204 (6.24%); U.S. Clearing, A
Division of Fleet Securities, Inc., FBO # 216-13463-13, Jerry H. Dunmire, 5151
SW 89 Terrace, Cooper City, FL 33328-3631 (6.19%).
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As of September 27, 1999 no entity or person held of record or beneficially
more than 5% of the outstanding Retail A and Retail B Shares of Galaxy's Asset
Allocation, Equity Income, Growth and Income, Strategic Equity, Equity Value,
Equity Growth, International Equity, Small Cap Value, Small Company Equity,
Short-Term Bond, Intermediate Government Income, High Quality Bond and
Tax-Exempt Bond Funds.
FINANCIAL STATEMENTS
Galaxy's Semi-Annual Reports to Shareholders with respect to the Funds
for the period ended April 30, 1999 have been filed with the SEC. The financial
statements in such Semi-Annual Reports are incorporated by reference into this
Statement of Additional Information. The financial statements and financial
highlights included in such Semi-Annual Reports are unaudited.
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APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current opinion of the
creditworthiness of an obligor with respect to financial obligations having an
original maturity of no more than 365 days. The following summarizes the rating
categories used by Standard and Poor's for commercial paper:
"A-1" - Obligations are rated in the highest category indicating that
the obligor's capacity to meet its financial commitment on the obligation is
strong. Within this category, certain obligations are designated with a plus
sign (+). This indicates that the obligor's capacity to meet its financial
commitment on these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rating categories. However, the obligor's capacity to meet its financial
commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
"B" - Obligations are regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and are
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.
"D" - Obligations are in payment default. The "D" rating category is
used when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's believes that
such payments will be made during such grace period. The "D" rating will be used
upon the filing of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
Moody's commercial paper ratings are opinions of the ability of issuers
to repay punctually senior debt obligations not having an original maturity in
excess of one year, unless explicitly noted. The following summarizes the rating
categories used by Moody's for commercial paper:
A-1
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"Prime-1" - Issuers (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well-established industries; high rates of return on
funds employed; conservative capitalization structure with moderate reliance on
debt and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternate liquidity.
"Prime-2" - Issuers (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an acceptable
ability for repayment of senior short-term debt obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
"Not Prime" - Issuers do not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps
employs three designations, "D-1+," "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"D-1+" - Debt possesses the highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment. Liquidity
factors are excellent and supported by good fundamental protection factors. Risk
factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
"D-2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.
"D-3" - Debt possesses satisfactory liquidity and other protection
factors qualify issues as to investment grade. Risk factors are larger and
subject to more variation. Nevertheless, timely payment is expected.
A-2
<PAGE>
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to insure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer failed to meet scheduled principal and/or interest
payments.
Fitch IBCA short-term ratings apply to debt obligations that have time
horizons of less than 12 months for most obligations, or up to three years for
U.S. public finance securities. The following summarizes the rating categories
used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This designation
indicates the best capacity for timely payment of financial commitments and may
have an added "+" to denote any exceptionally strong credit feature.
"F2" - Securities possess good credit quality. This designation
indicates a satisfactory capacity for timely payment of financial commitments,
but the margin of safety is not as great as in the case of the higher ratings.
"F3" - Securities possess fair credit quality. This designation
indicates that the capacity for timely payment of financial commitments is
adequate; however, near-term adverse changes could result in a reduction to
non-investment grade.
"B" - Securities possess speculative credit quality. This designation
indicates minimal capacity for timely payment of financial commitments, plus
vulnerability to near-term adverse changes in financial and economic conditions.
"C" - Securities possess high default risk. This designation indicates
that default is a real possibility and that the capacity for meeting financial
commitments is solely reliant upon a sustained, favorable business and economic
environment.
"D" - Securities are in actual or imminent payment default.
Thomson Financial BankWatch short-term ratings assess the likelihood of
an untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson Financial BankWatch:
"TBW-1" - This designation represents Thomson Financial BankWatch's
highest category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson Financial BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of
A-3
<PAGE>
principal and interest is strong, the rela tive degree of safety is not as high
as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson Financial
BankWatch's lowest investment-grade category and indicates that while the
obligation is more susceptible to adverse developments (both internal and
external) than those with higher ratings, the capacity to service principal and
interest in a timely fashion is considered adequate.
"TBW-4" - This designation represents Thomson Financial BankWatch's
lowest rating category and indicates that the obligation is regarded as
non-investment grade and therefore speculative.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
Obligations rated "BB," "B," "CCC," "CC" and "C" are regarded as having
significant speculative characteristics. "BB" indicates the least degree of
speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
"BB" - An obligation rated "BB" is less vulnerable to nonpayment than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to the obligor's inadequate capacity to meet its financial commitment on the
obligation.
A-4
<PAGE>
"B" - An obligation rated "B" is more vulnerable to nonpayment than
obligations rated "BB", but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
"CCC" - An obligation rated "CCC" is currently vulnerable to
nonpayment, and is dependent upon favorable business, financial and economic
conditions for the obligor to meet its financial commitment on the obligation.
In the event of adverse business, financial, or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the
obligation.
"CC" - An obligation rated "CC" is currently highly vulnerable to
nonpayment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action taken, but payments on this
obligation are being continued.
"D" - An obligation rated "D" is in payment default. The "D" rating
category is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period. The "D"
rating also will be used upon the filing of a bankruptcy petition or the taking
of a similar action if payments on an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
"r" - This symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or volatility of
expected returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk - such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or
A-5
<PAGE>
fluctuation of protective elements may be of greater amplitude or there may be
other elements present which make the long-term risk appear somewhat larger than
the "Aaa" securities.
"A" - Bonds possess many favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds are considered as medium-grade obligations, (i.e., they
are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" indicates poor standing; "Ca" represents
obligations which are speculative in a high degree; and "C" represents the
lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operating experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic
rating classification from "Aa" through "Caa". The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the
lower end of its generic rating category.
The following summarizes the long-term debt ratings used by Duff &
Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered to be of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but adequate.
However, risk factors are more variable in periods of greater economic stress.
A-6
<PAGE>
"BBB" - Debt possesses below-average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt rated
"B" possesses the risk that obligations will not be met when due. Debt rated
"CCC" is well below investment grade and has considerable uncertainty as to
timely payment of principal, interest or preferred dividends. Debt rated "DD" is
a defaulted debt obligation, and the rating "DP" represents preferred stock with
dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch IBCA for corporate
and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. These ratings denote the lowest expectation of credit risk and
are assigned only in case of exceptionally strong capacity for timely payment of
financial commitments. This capacity is highly unlikely to be adversely affected
by foreseeable events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. These ratings denote a very low expectation of credit risk and indicate
very strong capacity for timely payment of financial commitments. This capacity
is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high credit
quality. These ratings denote a low expectation of credit risk and indicate
strong capacity for timely payment of financial commitments. This capacity may,
nevertheless, be more vulnerable to changes in circumstances or in economic
conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good credit
quality. These ratings denote that there is currently a low expectation of
credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity.
"BB" - Bonds considered to be speculative. These ratings indicate that
there is a possibility of credit risk developing, particularly as the result of
adverse economic change over time; however, business or financial alternatives
may be available to allow financial commitments to be met. Securities rated in
this category are not investment grade.
A-7
<PAGE>
"B" - Bonds are considered highly speculative. These ratings indicate
that significant credit risk is present, but a limited margin of safety remains.
Financial commitments are currently being met; however, capacity for continued
payment is contingent upon a sustained, favorable business and economic
environment.
"CCC", "CC", "C" - Bonds have high default risk. Default is a real
possibility, and capacity for meeting financial commitments is solely reliant
upon sustained, favorable business or economic developments. "CC" ratings
indicate that default of some kind appears probable, and "C" ratings signal
imminent default.
"DDD," "DD" and "D" - Bonds are in default. The ratings of obligations
in this category are based on their prospects for achieving partial or full
recovery in a reorganization or liquidation of the obligor. While expected
recovery values are highly speculative and cannot be estimated with any
precision, the following serve as general guidelines. "DDD" obligations have the
highest potential for recovery, around 90%-100% of outstanding amounts and
accrued interest. "DD" indicates potential recoveries in the range of 50%-90%,
and "D" the lowest recovery potential, i.e., below 50%.
Entities rated in this category have defaulted on some or all of their
obligations. Entities rated "DDD" have the highest prospect for resumption of
performance or continued operation with or without a formal reorganization
process. Entities rated "DD" and "D" are generally undergoing a formal
reorganization or liquidation process; those rated "DD" are likely to satisfy a
higher portion of their outstanding obligations, while entities rated "D" have a
poor prospect for repaying all obligations.
To provide more detailed indications of credit quality, the Fitch IBCA
ratings from and including "AA" to "CCC" may be modified by the addition of a
plus (+) or minus (-) sign to denote relative standing within these major rating
categories.
Thomson Financial BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
"AAA" - This designation indicates that the ability to repay principal
and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis, with limited incremental risk compared
to issues rated in the highest category.
"A" - This designation indicates that the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
A-8
<PAGE>
"BBB" - This designation represents the lowest investment-grade
category and indicates an acceptable capacity to repay principal and interest.
Issues rated "BBB" are more vulnerable to adverse developments (both internal
and external) than obligations with higher ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned by
Thomson Financial BankWatch to non-investment grade long-term debt. Such issues
are regarded as having speculative characteristics regarding the likelihood of
timely repayment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may include
a plus or minus sign designation which indicates where within the respective
category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's note rating reflects the liquidity factors and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's for municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong capacity
to pay principal and interest. Those issues determined to possess a very strong
capacity to pay debt service are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
A-9
<PAGE>
"MIG-1"/"VMIG-1" - This designation denotes best quality. There is
present strong protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality, with all
security elements accounted for but lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt instruments
in this category lack margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings described under
Commercial Paper Ratings for municipal notes.
A-10
<PAGE>
APPENDIX B
As stated above, certain of the Funds may enter into futures
transactions for hedging purposes. The following is a description of such
transactions.
INTEREST RATE FUTURES CONTRACTS
USE OF INTEREST RATE FUTURES CONTRACTS. Bond prices are established in
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the future
for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, the Funds may use interest rate futures
contracts as a defense, or hedge, against anticipated interest rate changes and
not for speculation. As described below, this would include the use of futures
contract sales to protect against expected increases in interest rates and
futures contract purchases to offset the impact of interest rate declines.
The Funds presently could accomplish a similar result to that which
they hope to achieve through the use of futures contracts by selling bonds with
long maturities and investing in bonds with short maturities when interest rates
are expected to increase, or conversely, selling short-term bonds and investing
in long-term bonds when interest rates are expected to decline. However, because
of the liquidity that is often available in the futures market, the protection
is more likely to be achieved, perhaps at a lower cost and without changing the
rate of interest being earned by the Funds, through using futures contracts.
DESCRIPTION OF INTEREST RATE FUTURES CONTRACTS. An interest rate
futures contract sale would create an obligation by a Fund, as seller, to
deliver the specific type of financial instrument called for in the contract at
a specific future time for a specified price. A futures contract purchase would
create an obligation by the Fund, as purchaser, to take delivery of the specific
type of financial instrument at a specific future time at a specific price. The
specific securities delivered or taken, respectively, at settlement date, would
not be determined until at or near that date. The determination would be in
accordance with the rules of the exchange on which the futures contract sale or
purchase was made.
Although interest rate futures contracts by their terms call for actual
delivery or acceptance of securities, in most cases the contracts are closed out
before the settlement date without the making or taking of delivery of
securities. Closing out a futures contract sale is effected by a Fund's entering
into a futures contract purchase for the same aggregate amount of the specific
type of financial instrument and the same delivery date. If the price of the
sale exceeds the price of the offsetting purchase, the Fund immediately is paid
the difference and thus realizes a gain. If the offsetting purchase price
exceeds the sale price, the Fund pays the difference and realizes a loss.
Similarly, the closing out of a futures contract purchase is effected by a Fund
entering into a futures contract sale. If the offsetting sale price exceeds the
purchase
B-1
<PAGE>
price, the Fund realizes a gain, and if the purchase price exceeds the
offsetting sale price, the Fund realizes a loss.
Interest rate futures contracts are traded in an auction environment on
the floors of several exchanges -- principally, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Futures Exchange. The Funds would
deal only in standardized contracts on recognized exchanges. Each exchange
guarantees performance under contract provisions through a clearing corporation,
a nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various
financial instruments including long-term United States Treasury Bonds and
Notes; Government National Mortgage Association (GNMA) modified pass-through
mortgage backed securities; three-month United States Treasury Bills; and
ninety-day commercial paper. The Funds may trade in any interest rate futures
contracts for which there exists a public market, including, without limitation,
the foregoing instruments.
EXAMPLE OF FUTURES CONTRACT SALE. The Funds would engage in an interest
rate futures contract sale to maintain the income advantage from continued
holding of a long-term bond while endeavoring to avoid part or all of the loss
in market value that would otherwise accompany a decline in long-term securities
prices. Assume that the market value of a certain security held by a particular
Fund tends to move in concert with the futures market prices of long-term United
States Treasury bonds ("Treasury bonds"). Fleet wishes to fix the current market
value of this portfolio security until some point in the future. Assume the
portfolio security has a market value of 100, and Fleet believes that, because
of an anticipated rise in interest rates, the value will decline to 95. The Fund
might enter into futures contract sales of Treasury bonds for an equivalent of
98. If the market value of the portfolio security does indeed decline from 100
to 95, the equivalent futures market price for the Treasury bonds might also
decline from 98 to 93.
In that case, the five point loss in the market value of the portfolio
security would be offset by the five point gain realized by closing out the
futures contract sale. Of course, the futures market price of Treasury bonds
might well decline to more than 93 or to less than 93 because of the imperfect
correlation between cash and futures prices mentioned below.
Fleet could be wrong in its forecast of interest rates, and the
equivalent futures market price could rise above 98. In this case, the market
value of the portfolio securities, including the portfolio security being
protected, would increase. The benefit of this increase would be reduced by the
loss realized on closing out the futures contract sale.
If interest rate levels did not change, the Fund in the above example
might incur a loss of 2 points (which might be reduced by an offsetting
transaction prior to the settlement date). In each transaction, transaction
expenses would also be incurred.
EXAMPLE OF FUTURES CONTRACT PURCHASE. A Fund would engage in an
interest rate futures contract purchase when it is not fully invested in
long-term bonds but wishes to defer for a time
B-2
<PAGE>
the purchase of long-term bonds in light of the availability of advantageous
interim investments, e.g., shorter term securities whose yields are greater than
those available on long-term bonds. A Fund's basic motivation would be to
maintain for a time the income advantage from investing in the short-term
securities; the Fund would be endeavoring at the same time to eliminate the
effect of all or part of an expected increase in market price of the long-term
bonds that the Fund may purchase.
For example, assume that the market price of a long-term bond that the
Fund may purchase, currently yielding 10%, tends to move in concert with futures
market prices of Treasury bonds. Fleet wishes to fix the current market price
(and thus 10% yield) of the long-term bond until the time (four months away in
this example) when it may purchase the bond. Assume the long-term bond has a
market price of 100, and Fleet believes that, because of an anticipated fall in
interest rates, the price will have risen to 105 (and the yield will have
dropped to about 9 1/2%) in four months. The Fund might enter into futures
contracts purchases of Treasury bonds for an equivalent price of 98. At the same
time, the Fund would assign a pool of investments in short-term securities that
are either maturing in four months or earmarked for sale in four months, for
purchase of the long-term bond at an assumed market price of 100. Assume these
short-term securities are yielding 15%. If the market price of the long-term
bond does indeed rise from 100 to 105, the equivalent futures market price for
Treasury bonds might also rise from 98 to 103. In that case, the 5 point
increase in the price that the Fund pays for the long-term bond would be offset
by the 5 point gain realized by closing out the futures contract purchase.
Fleet could be wrong in its forecast of interest rates; long-term
interest rates might rise to above 10%; and the equivalent futures market price
could fall below 98. If short-term rates at the same time fall to 10% or below,
it is possible that the Fund would continue with its purchase program for
long-term bonds. The market price of available long-term bonds would have
decreased. The benefit of this price decrease, and thus yield increase, will be
reduced by the loss realized on closing out the futures contract purchase.
If, however, short-term rates remained above available long-term rates,
it is possible that the Fund would discontinue its purchase program for
long-term bonds. The yield on short-term securities in the portfolio, including
those originally in the pool assigned to the particular long-term bond, would
remain higher than yields on long-term bonds. The benefit of this continued
incremental income will be reduced by the loss realized on closing out the
futures contract purchase. In each transaction, expenses would also be incurred.
MUNICIPAL BOND INDEX FUTURES CONTRACTS
A municipal bond index assigns relative values to the bonds included in
the index and the index fluctuates with changes in the market values of the
bonds so included. The Chicago Board of Trade has designed a futures contract
based on the Bond Buyer Municipal Bond Index. This Index is composed of 40 term
revenue and general obligation bonds, and its composition is updated regularly
as new bonds meeting the criteria of the Index are issued and existing bonds
mature. The Index is intended to provide an accurate indicator of trends and
changes in the municipal bond market. Each bond in the Index is independently
priced by six dealer-to-dealer
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<PAGE>
municipal bond brokers daily. The 40 prices then are averaged and multiplied
by a coefficient. The coefficient is used to maintain the continuity of the
Index when its composition changes. The Chicago Board of Trade, on which
futures contracts based on this Index are traded, as well as other U.S.
commodities exchanges, are regulated by the Commodity Futures Trading
Commission. Transactions on such exchange are cleared through a clearing
corporation, which guarantees the performance of the parties to each contract.
The Tax-Exempt Bond Fund will sell index futures contracts in order to
offset a decrease in market value of its portfolio securities that might
otherwise result from a market decline. The Fund may do so either to hedge the
value of its portfolio as a whole, or to protect against declines occurring
prior to sales of securities, in the value of the securities to be sold.
Conversely, the Fund will purchase index futures contracts in anticipation of
purchases of securities. In a substantial majority of these transactions, the
Fund will purchase such securities upon termination of the long futures
position, but a long futures position may be terminated without a corresponding
purchase of securities.
Closing out a futures contract sale prior to the settlement date may be
effected by the Fund's entering into a futures contract purchase for the same
aggregate amount of the index involved and the same delivery date. If the price
in the sale exceeds the price in the offsetting purchase, the Fund is paid the
difference and thus realizes a gain. If the offsetting purchase price exceeds
the sale price, the Fund pays the difference and realizes a loss. Similarly, the
closing out of a futures contract purchase is effected by the Fund's entering
into a futures contract sale. If the offsetting sale price exceeds the purchase
price, the Fund realizes a gain, and if the purchase price exceeds the
offsetting sale price, the Fund realizes a loss.
EXAMPLE OF A MUNICIPAL BOND INDEX FUTURES CONTRACT
Consider a portfolio manager holding $1 million par value of each of
the following municipal bonds on February 2 in a particular year.
<TABLE>
<CAPTION>
Current Price
(points and
Maturity thirty-seconds
Issue Coupon Issue Date Date of a point)
- ------------------------------------------------------------------- --------------------------------
<S> <C> <C> <C> <C>
Ohio HFA 9 3/8 5/05/83 5/1/13 94-2
NYS Power 9 3/4 5/24/83 1/1/17 102-0
San Diego, CA IDR 10 6/07/83 6/1/18 100-14
Muscatine, IA Elec 10 5/8 8/24/83 1/1/08 103-16
Mass Health & Ed 10 9/23/83 7/1/16 100-12
</TABLE>
The current value of the portfolio is $5,003,750.
To hedge against a decline in the value of the portfolio, resulting
from a rise in interest rates, the portfolio manager can use the municipal bond
index futures contract. The current value of the Municipal Bond Index is 86-09.
Suppose the portfolio manager takes a position in
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<PAGE>
the futures market opposite to his or her cash market position by selling 50
municipal bond index futures contracts (each contract represents $100,000 in
principal value) at this price.
On March 23, the bonds in the portfolio have the following values:
<TABLE>
<CAPTION>
<S> <C>
Ohio HFA 81-28
NYS Power 98-26
San Diego, CA IDB 98-11
Muscatine, IA Elec 99-24
Mass Health & Ed 97-18
</TABLE>
The bond prices have fallen, and the portfolio has sustained a loss of
$130,312. This would have been the loss incurred without hedging. However, the
Municipal Bond Index also has fallen, and its value stands at 83-27. Suppose now
the portfolio manager closes out his or her futures position by buying back 50
municipal bond index futures contracts at this price.
The following table provides a summary of transactions and the results
of the hedge.
<TABLE>
<CAPTION>
Cash Market Futures Market
----------- --------------
<S> <C> <C>
February 2 $5,003,750 long posi- Sell 50 Municipal Bond
tion in municipal futures contracts at
bonds 86-09
March 23 $4,873,438 long posi- Buy 50 Municipal Bond
tion in municipal futures contracts at
bonds 83-27
--------------------- ----------------------
$130,312 Loss $121,875 Gain
</TABLE>
While the gain in the futures market did not entirely offset the loss
in the cash market, the $8,437 loss is significantly lower than the loss which
would have been incurred without hedging.
The numbers reflected in this appendix do not take into account the
effect of brokerage fees or taxes.
MARGIN PAYMENTS
Unlike purchases or sales of portfolio securities, no price is paid or
received by a Fund upon the purchase or sale of a futures contract. Initially,
the Fund will be required to deposit with the broker or in a segregated account
with Galaxy's custodian an amount of cash or cash equivalents, known as initial
margin, based on the value of the contract. The nature of initial margin in
futures transactions is different from that of margin in security transactions
in that futures contract margin does not involve the borrowing of funds by the
customer to finance the transactions. Rather, the initial margin is in the
nature of a performance bond or good faith deposit on the contract which is
returned to the Fund upon termination of the futures contract
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<PAGE>
assuming all contractual obligations have been satisfied. Subsequent payments,
called variation margin, to and from the broker, will be made on a daily basis
as the price of the underlying instruments fluctuates making the long and short
positions in the futures contract more or less valuable, a process known as
marking-to-the-market. For example, when a particular Fund has purchased a
futures contract and the price of the contract has risen in response to a rise
in the underlying instruments, that position will have increased in value and
the Fund will be entitled to receive from the broker a variation margin payment
equal to that increase in value. Conversely, where the Fund has purchased a
futures contract and the price of the futures contract has declined in response
to a decrease in the underlying instruments, the position would be less valuable
and the Fund would be required to make a variation margin payment to the broker.
At any time prior to expiration of the futures contract, Fleet may elect to
close the position by taking an opposite position, subject to the availability
of a secondary market, which will operate to terminate the Fund's position in
the futures contract. A final determination of variation margin is then made,
additional cash is required to be paid by or released to the Fund, and the Fund
realizes a loss or gain.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS
There are several risks in connection with the use of futures by the
Funds as hedging devices. One risk arises because of the imperfect correlation
between movements in the price of the futures and movements in the price of the
instruments that are the subject of the hedge. The price of the futures may move
more than or less than the price of the instruments being hedged. If the price
of the futures moves less than the price of the instruments which are the
subject of the hedge, the hedge will not be fully effective but, if the price of
the instruments being hedged has moved in an unfavorable direction, a Fund would
be in a better position than if it had not hedged at all. If the price of the
instruments being hedged has moved in a favorable direction, this advantage will
be partially offset by the loss on the futures. If the price of the futures
moves more than the price of the hedged instruments, the Funds involved will
experience either a loss or gain on the futures, which will not be completely
offset by movements in the price of the instruments which are the subject of the
hedge. To compensate for the imperfect correlation of movements in the price of
instruments being hedged and movements in the price of futures contracts, a Fund
may buy or sell futures contracts in a greater dollar amount than the dollar
amount of instruments being hedged if the volatility over a particular time
period of the prices of such instruments has been greater than the volatility
over such time period of the futures, or if otherwise deemed to be appropriate
by the investment adviser. Conversely, a Fund may buy or sell fewer futures
contracts if the volatility over a particular time period of the prices of the
instruments being hedged is less than the volatility over such time period of
the futures contract being used, or if otherwise deemed to be appropriate by
Fleet. It is also possible that, where a Fund had sold futures to hedge its
portfolio against a decline in the market, the market may advance and the value
of instruments held in the Fund may decline. If this occurred, the Fund would
lose money on the futures and also experience a decline in value in its
portfolio securities.
Where futures are purchased to hedge against a possible increase in the
price of securities before a Fund is able to invest its cash (or cash
equivalents) in an orderly fashion, it is possible that the market may decline
instead; if the Fund then concludes not to invest its cash at that time because
of concern as to possible further market decline or for other reasons, the Fund
will
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<PAGE>
realize a loss on the futures contract that is not offset by a reduction in the
price of the instruments that were to be purchased.
In instances involving the purchase of futures contracts by a Fund, an
amount of cash and cash equivalents, equal to the market value of the futures
contracts, will be deposited in a segregated account with Galaxy's custodian
and/or in a margin account with a broker to collateralize the position and
thereby insure that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and the
instruments being hedged, the price of futures may not correlate perfectly with
movement in the cash market due to certain market distortions. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts through off-setting transactions that could distort the normal
relationship between the cash and futures markets. Second, with respect to
financial futures contracts, the liquidity of the futures market depends on
participants entering into off-setting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced thus producing distortions. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price distortion in the
futures market, and because of the imperfect correlation between the movements
in the cash market and movements in the price of futures, a correct forecast of
general market trends or interest rate movements by the adviser may still not
result in a successful hedging transaction over a short time frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Funds
intend to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance that a liquid
secondary market on any exchange or board of trade will exist for any particular
contract or at any particular time. In such event, it may not be possible to
close a futures investment position, and in the event of adverse price
movements, a Fund would continue to be required to make daily cash payments of
variation margin. However, in the event futures contracts have been used to
hedge portfolio securities, such securities will not be sold until the futures
contract can be terminated. In such circumstances, an increase in the price of
the securities, if any, may partially or completely offset losses on the futures
contract. However, as described above, there is no guarantee that the price of
the securities will in fact correlate with the price movements in the futures
contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary market in
a futures contract may be adversely affected by "daily price fluctuation limits"
established by commodity exchanges which limit the amount of fluctuation in a
futures contract price during a single trading day. Once the daily limit has
been reached in the contract, no trades may be entered into at a price beyond
the limit, thus preventing the liquidation of open futures positions. The
trading of futures contracts is also subject to the risk of trading halts,
suspensions, exchange or clearing house equipment failures, government
intervention, insolvency of a brokerage firm or clearing
B-7
<PAGE>
house or other disruptions of normal activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.
Successful use of futures by the Funds is also subject to Fleet's
ability to predict correctly movements in the direction of the market. For
example, if a particular Fund has hedged against the possibility of a decline in
the market adversely affecting securities held by it and securities prices
increase instead, the Fund will lose part or all of the benefit to the increased
value of its securities which it has hedged because it will have offsetting
losses in its futures positions. In addition, in such situations, if the Fund
has insufficient cash, it may have to sell securities to meet daily variation
margin requirements. Such sales of securities may be, but will not necessarily
be, at increased prices which reflect the rising market. The Funds may have to
sell securities at a time when it may be disadvantageous to do so.
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