<PAGE>
As filed with the Securities and Exchange Commission on December 29, 1999
Securities Act File No. 33-4806
Investment Company Act File No. 811-4636
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
/X/
PRE-EFFECTIVE AMENDMENT NO.
POST-EFFECTIVE AMENDMENT NO. 41
and /X/
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
/X/
Amendment No. 42
/X/
The Galaxy Fund
(Exact Name of Registrant as Specified in Charter)
4400 Computer Drive
Westborough, Massachusetts 01581-5108
(Address of Principal Executive Officers)
Registrant's Telephone Number:
(877) 289-4252
W. Bruce McConnel, III
DRINKER BIDDLE & REATH LLP
One Logan Square
18th and Cherry Streets
Philadelphia, Pennsylvania 19103
(Name and Address of Agent for Service)
Copy to:
Jylanne Dunne, Vice President
PFPC Inc.
4400 Computer Drive
Westborough, Massachusetts 01581-5108
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[X] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered: Shares of Beneficial
Interest.
<PAGE>
[Front cover page]
The Galaxy Fund
Prospectus
_____________, 2000
Galaxy Money Market Fund
Galaxy U.S. Treasury Fund
Galaxy Tax-Exempt Fund
Galaxy Short-Term Bond Fund
Galaxy Intermediate Government Income Fund
Galaxy High Quality Bond Fund
Galaxy Rhode Island Municipal Bond Fund
Galaxy Asset Allocation Fund
Galaxy Growth and Income Fund
Galaxy Equity Growth Fund
Galaxy International Equity Fund
BKB Shares
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved any shares of these Funds or determined if this
prospectus is accurate or complete. Anyone who tells you otherwise is committing
a crime.
<PAGE>
Contents
1 Risk/return summary
1 Introduction
3 Galaxy Money Market Fund
7 Galaxy U.S. Treasury Fund
10 Galaxy Tax-Exempt Fund
14 Galaxy Short-Term Bond Fund
20 Galaxy Intermediate Government Income Fund
26 Galaxy High Quality Bond Fund
31 Galaxy Rhode Island Municipal Bond Fund
36 Galaxy Asset Allocation Fund
42 Galaxy Growth and Income Fund
47 Galaxy Equity Growth Fund
52 Galaxy International Equity Fund
57 Additional information about risk
59 Fund management
61 How to invest in the Funds
61 How sales charges work
64 Buying, selling and exchanging BKB Shares
65 How to buy BKB shares
68 How to sell BKB Shares
69 Exchange privilege
70 Other transaction policies
71 Dividends, distributions and taxes
74 How to reach Galaxy
75 Financial highlights
<PAGE>
RISK/RETURN SUMMARY
INTRODUCTION
This prospectus describes the BKB Shares of the Galaxy Money Market Fund, Galaxy
U.S. Treasury Fund, Galaxy Tax-Exempt Fund, Galaxy Short-Term Bond Fund, Galaxy
Intermediate Government Income Fund, Galaxy High Quality Bond Fund, Galaxy Rhode
Island Municipal Bond Fund, Galaxy Asset Allocation Fund, Galaxy Growth and
Income Fund, Galaxy Equity Growth Fund and Galaxy International Equity Fund. BKB
Shares are offered through this prospectus without a sales charge (sometimes
called a front-end load) only to those shareholders of the Boston 1784 Funds who
are not eligible to receive Trust Shares of their corresponding Galaxy Funds at
the time the Boston 1784 Funds are reorganized into Galaxy. BKB Shares of each
Fund will convert into Retail A Shares of the same Fund on the first anniversary
of the closing of the reorganization of the Boston 1784 Funds into Galaxy,
provided that prior thereto the Board of Trustees of Galaxy has determined that
such conversion is in the best interests of the holders of BKB Shares. Because
of this conversion feature, some information is provided in this prospectus for
Retail A Shares of the Funds. Retail A Shares of the Galaxy Funds are offered
through separate prospectuses available from Galaxy by calling the phone number
on the back cover of this prospectus. Prior to the date of this prospectus, the
Galaxy Funds had not offered BKB Shares.
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 past performance of the Fund 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
THE FUNDS' INVESTMENT ADVISER
Fleet Investment Advisors Inc., which is referred to in this prospectus as the
ADVISER, is the investment adviser for all of these Funds. The Adviser, an
indirect wholly-owned subsidiary of FleetBoston Corporation, was established in
1984 and has its main office at 75 State Street, Boston, Massachusetts 02109.
The Adviser also provides investment management and advisory services to
individual and institutional clients and manages the other Galaxy investment
portfolios. As of December 31, 1999, the Adviser managed over $___ billion in
assets.
AN INVESTMENT IN THE FUNDS ISN'T A FLEET BANK DEPOSIT AND IT ISN'T INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. ALTHOUGH THE GALAXY
<PAGE>
MONEY MARKET FUND, GALAXY U.S. TREASURY FUND AND
GALAXY TAX-EXEMPT FUND SEEK TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00
PER SHARE, IT'S POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUNDS. YOU COULD ALSO
LOSE MONEY BY INVESTING IN ANY OF THE OTHER FUNDS.
-2-
<PAGE>
Galaxy Money Market Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current income as is consistent with liquidity
and stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests in a diversified portfolio of money market instruments,
including commercial paper, notes and bonds issued by U.S. corporations,
obligations issued by the U.S. Government and its agencies and
instrumentalities, and obligations issued by U.S. and foreign banks, such as
certificates of deposit. The Fund also invests in repurchase agreements backed
by U.S. Government obligations.
The Fund will only buy a security if it has the highest short-term rating from
at least two nationally recognized statistical rating organizations, or one such
rating if only one organization has rated the security. If the security is not
rated, it must be determined by the Adviser to be of comparable credit quality.
[Sidenote:]
MATURITY
The maturity of a security is the date when the issuer must repay the security's
entire principal amount to an investor, such as a Fund.
[Sidenote:]
MONEY MARKET INSTRUMENTS
Money market instruments are short-term debt obligations issued by banks,
corporations, the U.S. Government and state and local governments. Money market
instruments purchased by the Galaxy money market funds must meet strict
requirements as to investment quality, maturity and diversification. The Galaxy
money market funds do not invest in securities with remaining maturities of more
than 397 days (subject to certain exceptions) and the average maturity of all
securities held by a particular Galaxy money market fund must be 90 days or
less. Each Galaxy money market fund tries to maintain its share price at $1.00
to protect your investment from loss.
-3-
<PAGE>
[Sidenote:]
REPURCHASE AGREEMENTS
Repurchase agreements are transactions in which a fund buys securities from a
seller (usually a bank or broker-dealer) who agrees to buy them back from the
fund on a certain date and at a certain price.
THE MAIN RISKS OF INVESTING IN THE FUND
While money market funds are considered to be among the safest of all
investments, they are not risk free. Here are the main risks associated with an
investment in the Fund:
- - INTEREST RATE RISK - The yield paid by the Fund will vary with changes in
short-term interest rates.
- - CREDIT RISK - Although credit risk is very low because the Fund only
invests in high quality obligations, if an issuer fails to pay interest or
repay principal, the value of your investment could decline.
- - REPURCHASE AGREEMENTS - Repurchase agreements carry the risk that the other
party may not fulfill its obligations under the agreement. This could cause
the value of your investment to decline.
- - SHARE PRICE - There's no guarantee the Fund will be able to preserve the
value of your investment at $1.00 per share.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that all
dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
As of the date of this prospectus, the Fund had not offered BKB Shares to
investors. The returns below represent the returns for Retail A Shares of the
Fund which are offered in a separate prospectus. Retail A Shares and BKB 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.
-4-
<PAGE>
YEAR-BY-YEAR TOTAL RETURNS -- CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares of the Fund has
varied from year to year.
[Sidenote:]
Best quarter: ____% for the quarter ending ____________, ____
Worst quarter: ____% for the quarter ending ____________, ____
[bar chart goes here]
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8.01% 6.13% 3.54% 2.73% 3.68% 5.29% 4.73% 4.99% 4.96% ____%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the average annual total returns for the Fund's Retail A Shares
for the periods ended December 31, 1999.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
1 year 5 years 10 years Since inception
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
____% ____% ____% ____% (11/17/86)
-----------------------------------------------------------------------------------------------------
</TABLE>
To obtain the Fund's current 7-day yield, please call 1-877-BUY-GALAXY
(1-877-289-4252).
EXPENSES OF THE FUND
There are no sales charges when you buy or sell BKB Shares or Retail A Shares of
the Fund. The following table shows the expenses you may pay when you buy and
hold BKB Shares of the Fund. Because it is expected that your BKB Shares will
convert into Retail A Shares of the Fund on the first anniversary of the closing
of the reorganization of the Boston 1784 Funds into Galaxy, information is also
provided as to the expenses you may pay when you buy and hold Retail A Shares of
the Fund.
-5-
<PAGE>
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Distribution and Total Fund operating
Management fees service (12b-1) fees Other expenses expenses
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BKB Shares 0.40(1)% None ____% ____%(2)
- ----------------------------------------------------------------------------------------------------------------------
Retail A Shares 0.40(1)% None ____% ____%(3)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
1 The Adviser is waiving a portion of the Management fees so that such fees
are expected to be ____%. This fee waiver may be revised or discontinued at
any time.
2 The Adviser and/or its affiliates have agreed to waive fees and reimburse
expenses in such amounts as are necessary to limit the Total Fund operating
expenses for BKB Shares of the Fund for the first year after the
reorganization to __% of the average daily net assets of the Fund. Total
Fund operating expenses for Retail A Shares of the Fund are higher than
those for BKB Shares because they are market driven.
3 Total Fund operating expenses for Retail A Shares after the waiver of
Management fees by the Adviser are expected to be ____%.
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 BKB Shares convert into Retail A Shares after one year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BKB Shares $____ $____ $____ $____
- -------------------------------------------------------------------------------------------------------------
Retail A Shares $____ $____ $____ $____
- -------------------------------------------------------------------------------------------------------------
</TABLE>
-6-
<PAGE>
Galaxy U.S. Treasury Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks current income with liquidity and stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests primarily in securities issued or guaranteed by the U.S.
Treasury and certain U.S. Government agencies and instrumentalities that provide
income that is generally not subject to state income tax.
[Sidenote:]
U.S. TREASURY OBLIGATIONS
U.S. Treasury obligations are among the safest of all investments because they
are backed by the "full faith and credit" of the U.S. Government.
THE MAIN RISKS OF INVESTING IN THE FUND
While money market funds are considered to be among the safest of all
investments, they are not risk free. Here are the main risks associated with an
investment in the Fund:
- - INTEREST RATE RISK - The yield paid by the Fund will vary with changes in
short-term interest rates.
- - CREDIT RISK - Although U.S. Government securities, particularly U.S.
Treasury securities, have historically involved little credit risk, if an
issuer fails to pay interest or repay principal, the value of your
investment could decline.
- - SHARE PRICE - There's no guarantee the Fund will be able to preserve the
value of your investment at $1.00 per share.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that all
dividends and distributions
-7-
<PAGE>
are reinvested in the Fund. How the Fund has performed in the past doesn't
necessarily show how it will perform in the future.
As of the date of this prospectus, the Fund had not offered BKB Shares to
investors. The returns below represent the returns for Retail A Shares of the
Fund which are offered in a separate prospectus. Retail A Shares and BKB 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.
[Sidenote:]
Best quarter: ____% for the quarter ending _______, ____
Worst quarter: ____% for the quarter ending _______, ____
[bar chart goes here]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997 1998 1999
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
3.39% 2.74% 3.58% 5.05% 4.59% 4.70% 4.63% ____%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the average annual total returns for the Fund's Retail A Shares
for the periods ended December 31, 1999.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
1 year 5 years Since inception
-----------------------------------------------------------------------------
<S> <C> <C>
____% ____% ____% (1/22/91)
-----------------------------------------------------------------------------
</TABLE>
To obtain the Fund's current 7-day yield, please call 1-877-BUY-GALAXY
(1-877-289-4252).
EXPENSES OF THE FUND
There are no sales charges when you buy or sell BKB Shares or Retail A Shares of
the Fund. The following table shows the expenses you may pay when you buy and
hold BKB Shares of the Fund. Because it is expected that your BKB Shares will
convert into Retail A Shares of the Fund
-8-
<PAGE>
on the first anniversary of the closing of the reorganization of the Boston 1784
Funds into Galaxy, information is also provided as to the expenses you may pay
when you buy and hold Retail A Shares of the Fund.
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Distribution Total Fund operating
Management fees (12b-1) fees Other expenses expenses
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BKB Shares 0.39% None ____% ____%(1)
- --------------------------------------------------------------------------------------------------------------------
Retail A Shares 0.39% None ____% ____%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
1 The Adviser and/or its affiliates have agreed to waive fees and reimburse
expenses in such amounts as are necessary to limit the expenses of BKB
Shares of the Fund for the first year after the reorganization to __% of
the average daily net assets of the Fund. Total Fund operating expenses for
Retail A Shares of the Fund are higher than those for BKB Shares because
they are market driven.
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 BKB Shares convert into Retail A Shares after one year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BKB Shares $____ $____ $____ $____
- -------------------------------------------------------------------------------------------------------------
Retail A Shares $____ $____ $____ $____
- -------------------------------------------------------------------------------------------------------------
</TABLE>
-9-
<PAGE>
Galaxy Tax-Exempt Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current interest income exempt from federal
income tax as is consistent with stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities, which are securities issued by state and local governments and other
political or public bodies or agencies and that pay interest which is exempt
from regular federal income tax. Under normal conditions, the Fund will invest
no more than 20% of its total assets in taxable obligations, such as U.S.
Government obligations, money market instruments and repurchase agreements.
Municipal securities purchased by the Fund may include general obligation
securities, revenue securities and private activity bonds. The interest on
private activity bonds may be subject to the federal alternative minimum tax.
Investments in private activity bonds will not be treated as investments in
municipal securities for purposes of the 80% requirement stated above.
The Fund will only buy a security if it has one of the two highest short-term
ratings from at least two nationally recognized statistical rating
organizations, or one such rating if only one organization has rated the
security. If the security is not rated, it must be determined by the Adviser to
be of comparable credit quality.
[Sidenote:]
MUNICIPAL SECURITIES
State and local governments issue municipal securities to raise money to finance
public works, to repay outstanding obligations, to raise funds for general
operating expenses and to make loans to other public institutions. Some
municipal securities, known as private activity bonds, are issued to finance
projects for private companies. Municipal securities, which can be issued as
bonds, notes or commercial paper, usually have fixed interest rates, although
some have interest rates that change from time to time.
-10-
<PAGE>
[Sidenote:]
TYPES OF MUNICIPAL SECURITIES
GENERAL OBLIGATION securities are secured by the issuer's full faith, credit and
taxing power. REVENUE OBLIGATION securities are usually payable only from
revenues derived from specific facilities or revenue sources. PRIVATE ACTIVITY
BONDS are usually revenue obligations since they are typically payable by the
private user of the facilities financed by the bonds.
THE MAIN RISKS OF INVESTING IN THE FUND
While money market funds are considered to be among the safest of all
investments, they are not risk free. Here are the main risks associated with an
investment in the Fund:
- - INTEREST RATE RISK - The yield paid by the Fund will vary with changes in
short-term interest rates.
- - CREDIT RISK - Although credit risk is very low because the Fund only
invests in high quality obligations, if an issuer fails to pay interest or
repay principal, the value of your investment could decline. The ability of
a state or local government issuer to make payments can be affected by many
factors, including economic conditions, the flow of tax revenues and
changes in the level of federal, state or local aid.
- - SHARE PRICE - There's no guarantee the Fund will be able to preserve the
value of your investment at $1.00 per share.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that all
dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
As of the date of this prospectus, the Fund had not offered BKB Shares to
investors. The returns below represent the returns for Retail A Shares of the
Fund which are offered in a separate prospectus. Retail A Shares and BKB 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.
-11-
<PAGE>
YEAR-BY-YEAR TOTAL RETURNS -- CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares of the Fund has
varied from year to year.
[Sidenote:]
Best quarter: ____% for the quarter ending ________, ____
Worst quarter: ____% for the quarter ending ________, ____
[bar chart goes here]
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5.52% 4.18% 2.46% 2.01% 2.27% 3.19% 2.78% 2.99% 2.81% ____%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the average annual total returns for the Fund's Retail A Shares
for the periods ended December 31, 1999.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
1 year 5 years 10 years Since inception
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
____% ____% ____% ____% (6/23/88)
------------------------------------------------------------------------------------------
</TABLE>
To obtain the Fund's current 7-day yield, please call 1-877-BUY-GALAXY
(1-877-289-4252).
[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.
EXPENSES OF THE FUND
There are no sales charges when you buy or sell BKB Shares or Retail A Shares of
the Fund. The following table shows the expenses you may pay when you buy and
hold BKB Shares of the Fund. Because it is expected that your BKB Shares will
convert into Retail A Shares of the Fund on the first anniversary of the closing
of the reorganization of the Boston 1784 Funds into
-12-
<PAGE>
Galaxy, information is also provided as to the expenses you may pay when you buy
and hold Retail A Shares of the Fund.
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Distribution Total Fund operating
Management fees (12b-1) fees Other expenses expenses
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BKB Shares 0.40% None ____% ____%(1)
- ----------------------------------------------------------------------------------------------------------------------
Retail A Shares 0.40% None ____% ____%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
1 The Adviser and/or its affiliates have agreed to waive fees and reimburse
expenses in such amounts as are necessary to limit the expenses of BKB
Shares of the Fund for the first year after the reorganization to __% of
the average daily net assets of the Fund. Total Fund operating expenses for
Retail A Shares of the Fund are higher than those for BKB Shares because
they are market driven.
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 BKB Shares convert into Retail A Shares after one year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BKB Shares $____ $____ $____ $____
- -------------------------------------------------------------------------------------------------------------
Retail A Shares $____ $____ $____ $____
- -------------------------------------------------------------------------------------------------------------
</TABLE>
-13-
<PAGE>
Galaxy Short-Term Bond Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks a high level of current income consistent with preservation of
capital.
[Sidenote:]
PRESERVATION OF CAPITAL
Preservation of capital means protecting the amount of money you invest in a
fund. If a fund seeks to preserve capital, it will try to maintain a relatively
stable share price so your investment is protected.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests primarily in debt obligations of U.S. and foreign corporations,
including bonds and notes, and in debt obligations issued or guaranteed by the
U.S. Government and its agencies or instrumentalities or by foreign governments
or their political subdivisions and instrumentalities. It also invests in
asset-backed and mortgage-backed securities and in money market instruments,
such as commercial paper and the obligations of U.S. and foreign banks. The Fund
normally invests at least 65% of its total assets in bonds and debentures.
In selecting portfolio securities for the Fund, the Adviser monitors and
evaluates economic trends. It establishes duration targets, ranges of interest
payments on bonds of various maturities and determines the appropriate
allocation of the Fund's assets among various market sectors.
Nearly all Fund investments will be of investment grade quality. These are
securities which have one of the top four ratings assigned by Standard & Poor's
Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or are unrated
securities determined by the Adviser to be of comparable quality. Under normal
market conditions, the Fund will invest at least 65% of its total assets in
securities that have one of the top three ratings assigned by S&P or Moody's, or
unrated securities determined by the Adviser to be of comparable quality.
Occasionally, the rating of a security held by the Fund may be downgraded to
below investment grade. If that happens, the Fund doesn't have to sell the
security unless the Adviser determines that under the circumstances the security
is no longer an appropriate investment for the Fund. However, the Fund will sell
promptly any securities that are not rated investment grade by either S&P or
Moody's if the securities exceed 5% of the Fund's net assets.
The Fund's average weighted maturity will be less than three years under normal
circumstances.
-14-
<PAGE>
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
[Sidenote:]
AVERAGE WEIGHTED MATURITY
Average weighted maturity gives you the average time until all debt obligations
in a fund come due or MATURE. It is calculated by averaging the time to maturity
of all debt obligations held by a fund with each maturity "weighted" according
to the percentage of assets it represents.
[Sidenote:]
DURATION
Duration is an approximate measure of the price sensitivity of a fund to changes
in interest rates. Unlike maturity which measures only the time until final
payment, duration gives you the average time it takes to receive all expected
cash flows (including interest payments, prepayments and final payments) on the
debt obligations held by a fund.
[Sidenote:]
DEBT OBLIGATION
When a Fund buys a debt obligation such as a bond, it is in effect lending money
to the company, government or other entity that issued the bond. In return, the
issuer has an obligation to make regular interest payments and to repay the
original amount of the loan on a given date, known as the maturity date. A bond
MATURES when it reaches its maturity date. Bonds usually have fixed interest
rates, although some have rates that fluctuate based on market conditions and
other factors.
The Fund may trade its investments frequently in trying to achieve its
investment goal.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets. These can occur within or outside the U.S. or worldwide, and may affect
only particular companies or industries.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities generally tend to move
in the opposite direction to interest rates. When rates are rising, the
prices of debt securities tend to fall.
-15-
<PAGE>
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.
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
As of the date of this prospectus, the Fund had not offered BKB Shares to
investors. The returns below represent the returns for Retail A Shares of the
Fund which are offered in a separate prospectus. Retail A Shares and BKB 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.
-16-
<PAGE>
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.
[Sidenote:]
Best quarter: ____% for the quarter ending _______________, ____
Worst quarter: ____% for the quarter ending _______________, ____
[bar chart goes here]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997 1998 1999
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
5.81% 6.41% -0.37% 10.96% 3.38% 5.68% 6.07% %
- --------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the average annual total returns for the Fund's Retail A Shares
(after taking into account any sales charges) for the periods ended December 31,
1999, as compared to a broad-based market index. The returns for Retail A Shares
of the Fund for periods prior to December 1, 1995 have been restated to include
the effect of the maximum 3.75% front-end sales charge which went into effect on
that date.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
1 year 5 years Since inception
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares % % % (12/30/91)
- -----------------------------------------------------------------------------------------------------------
Lehman Brothers % % % (since 12/31/91)
One to Three Year
Government Bond
Index
- -----------------------------------------------------------------------------------------------------------
</TABLE>
For current yield information, please call 1-877-BUY-GALAXY (1-877-289-4252).
[Sidenote:]
The Lehman Brothers One to Three Year Government Bond Index is an unmanaged
index which tracks the performance of short-term U.S. Government bonds.
-17-
<PAGE>
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold BKB Shares of the Fund. Because it is expected that your BKB Shares will
convert into Retail A Shares of the Fund on the first anniversary of the closing
of the reorganization of the Boston 1784 Funds into Galaxy, information is also
provided as to the fees and expenses you may pay when you buy and hold Retail A
Shares of the Fund.
<TABLE>
<CAPTION>
Shareholder fees (fees paid directly from your investment)
- ----------------------------------------------------------------------------------------------------------------------
Maximum sales charge (load) on Maximum deferred sales charge
purchases shown as a % of the (load) shown as a % of the offering
offering price price or sale price, whichever is less
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BKB Shares None None
- ----------------------------------------------------------------------------------------------------------------------
Retail A Shares 3.75%(1) None(2)
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
Annual Fund operating expenses (expenses deducted from the Fund's assets)
- ----------------------------------------------------------------------------------------------------------------------
Management fees Distribution and Other Total Fund operating
service (12b-1) fees expenses expenses
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BKB Shares 0.75%(3) None % %(4)
- ----------------------------------------------------------------------------------------------------------------------
Retail A Shares 0.75%(3) None % %(5)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) There will be no sales charge imposed on the conversion of BKB Shares into
Retail A Shares. Reduced sales charges may be available for certain other
investors in Retail A Shares. See "How to invest in the Funds - How sales
charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the
Funds-- How sales charges work."
(3) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be ___%. This fee waiver may be revised or discontinued at
any time.
(4) The Adviser and/or its affiliates have agreed to waive fees and reimburse
expenses in such amounts as are necessary to limit the expenses of BKB
Shares of the Fund for the first year after the reorganization to __% of
the average daily net assets of the Fund. Total Fund operating expenses for
Retail A Shares of the Fund are higher than those for BKB Shares because
they are market driven.
(5) Total Fund operating expenses for Retail A Shares after the waiver of
Management fees by the Adviser are expected to be ____%.
-18-
<PAGE>
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your BKB Shares convert into Retail A Shares after one year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BKB Shares $ $ $ $
- ----------------------------------------------------------------------------------------------------------------------
Retail A Shares $ $ $ $
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Adviser's Taxable Fixed Income Strategy Committee is responsible for the
day-to-day management of the Fund's investment portfolio. The Committee has
managed the Fund since October of 1999.
-19-
<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 and ten years under
normal circumstances.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
-20-
<PAGE>
[Sidenote:]
U.S. GOVERNMENT OBLIGATIONS
U.S. Government obligations are debt obligations issued or guaranteed by the
U.S. Government or one of its agencies or instrumentalities. U.S. Government
obligations generally have less credit risk than other debt obligations.
The Fund may trade its investments frequently in trying to achieve its
investment goal.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets. These can occur within or outside the U.S. or worldwide, and may affect
only particular companies or industries.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities generally tend to move
in the opposite direction to interest rates. When rates are rising, the
prices of debt securities tend to fall. When rates are falling, the prices
of debt securities tend to rise. Generally, the longer the time until
maturity, the more sensitive the price of a debt security is to interest
rate changes.
- - CREDIT RISK - The value of debt securities also depends on the ability of
issuers to make principal and interest payments. If an issuer can't meet
its payment obligations or if its credit rating is lowered, the value of
its debt securities may fall.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
debt securities held by the Fund, particularly asset-backed and
mortgage-backed securities, to be paid off much sooner or later than
expected, which could adversely affect the Fund's value. In the event that
a security is paid off sooner than expected because of a decline in
interest rates, the Fund may be unable to recoup all of its initial
investment and may also suffer from having to reinvest in lower-yielding
securities. In the event of a later than expected payment because of a rise
in interest rates, the value of the obligation will decrease and the Fund
may suffer from the inability to invest in higher-yielding securities.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
- - FREQUENT TRADING - Frequent trading of instruments 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.
-21-
<PAGE>
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
As of the date of this prospectus, the Fund had not offered BKB Shares to
investors. The returns below represent the returns for Retail A Shares of the
Fund which are offered in a separate prospectus. Retail A Shares and BKB 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.
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.
[Sidenote:]
Best quarter: ____% for the quarter ending _______________, ____
Worst quarter: ____% for the quarter ending _______________, ____
[bar chart goes here]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5.87% 15.77% 7.11% 5.57% -3.77% 15.67% 1.75% 7.83% 8.32% %
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the average annual total returns for the Fund's Retail A Shares
(after taking into account any sales charges) for the periods ended December 31,
1999, as compared to broad-based market indices. The returns for Retail A Shares
of the Fund for periods prior to December 1, 1995 have been restated to include
the effect of the maximum 3.75% front-end sales charge which went into effect on
that date.
-22-
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
1 year 5 years 10 years Since inception
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares % % % % (9/1/88)
- --------------------------------------------------------------------------------------------------------------------
Lehman Brothers
Intermediate Government/
Corporate Bond Index % % % % (since 9/1/88)
- --------------------------------------------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index % % % % (since 9/1/88)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
For current yield information, please call 1-877-BUY-GALAXY (1-877-289-4252).
[Sidenote:]
The Lehman Brothers Intermediate Government/Corporate Bond Index is an unmanaged
index which tracks the performance of intermediate U.S. Government and corporate
bonds.
[Sidenote:]
The Lehman Brothers Aggregate Bond Index is an unmanaged index made up of the
Lehman Brothers Government/Corporate Bond Index, its Mortgage Backed Securities
Index and its Asset Backed Securities Index.
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold BKB Shares of the Fund. Because it is expected that your BKB Shares will
convert into Retail A Shares of the Fund on the first anniversary of the closing
of the reorganization of the Boston 1784 Funds into Galaxy, information is also
provided as to the fees and expenses you may pay when you buy and hold Retail A
Shares of the Fund.
<TABLE>
<CAPTION>
Shareholder fees (fees paid directly from your investment)
- ----------------------------------------------------------------------------------------------------------------------
Maximum sales charge (load) on purchases Maximum deferred sales
shown as a % of the offering price charge (load) shown as a %
of the offering price or sale
price, whichever is less
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BKB Shares None None
- ----------------------------------------------------------------------------------------------------------------------
Retail A Shares 3.75%(1) None(2)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
-23-
<PAGE>
<TABLE>
<CAPTION>
Annual Fund operating expenses (expenses deducted from the Fund's assets)
- ----------------------------------------------------------------------------------------------------------------------
Management fees Distribution and Other Total Fund operating
service (12b-1) fees expenses expenses
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BKB Shares 0.75%(3) None %(3) %(4)
- ----------------------------------------------------------------------------------------------------------------------
Retail A Shares 0.75%(3) None % %(5)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) There will be no sales charge imposed on the conversion of BKB Shares into
Retail A Shares. Reduced sales charges may be available for certain other
investors in Retail A Shares. See "How to invest in the Funds - How sales
charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the
Funds-- How sales charges work."
(3) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be ____%. This fee waiver may be revised or discontinued at
any time.
(4) The Adviser and/or its affiliates have agreed to waive fees and reimburse
expenses in such amounts as are necessary to limit the expenses of BKB
Shares of the Fund for the first year after the reorganization to __% of
the average daily net assets of the Fund. Total Fund operating expenses for
Retail A Shares of the Fund are higher than those for BKB Shares because
they are market driven.
(5) Total Fund operating expenses for Retail A Shares after the waiver of
Management fees by the Adviser are expected to be ____%.
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 BKB Shares convert into Retail A Shares after one year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BKB Shares $ $ $ $
- ----------------------------------------------------------------------------------------------------------------------
Retail A Shares $ $ $ $
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
-24-
<PAGE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Marie M. Schofield, CFA, a Senior Vice President
of the Adviser. She's primarily responsible for the day-to-day management of the
Fund's investment portfolio. Ms. Schofield, who has over 20 years of investment
experience, has been with the Adviser since 1990 and served as a Vice President
and Manager of Fixed Income Investments until February 1999. She has managed the
Fund since December 1996.
-25-
<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 or
Moody's or unrated securities determined by the Adviser to be of comparable
quality. High quality securities tend to pay less income than lower-rated
securities. Occasionally, the rating of a security held by the Fund may be
downgraded to below investment grade. If that happens, the Fund doesn't have to
sell the security unless the Adviser determines that under the circumstances the
security is no longer an appropriate investment for the Fund. However, the Fund
will sell promptly any securities that are not rated investment grade by either
S&P or Moody's if the securities exceed 5% of the Fund's net assets.
The Fund's average weighted maturity will vary from time to time depending on
current market and economic conditions and the Adviser's assessment of probable
changes in interest rates.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
The Fund may trade its investments frequently in trying to achieve its
investment goal.
-26-
<PAGE>
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets. These can occur within or outside the U.S. or worldwide, and may affect
only particular companies or industries.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities generally tend to move
in the opposite direction to interest rates. When rates are rising, the
prices of debt securities tend to fall. When rates are falling, the prices
of debt securities tend to rise. Generally, the longer the time until
maturity, the more sensitive the price of a debt security is to interest
rate changes.
- - CREDIT RISK - The value of debt securities also depends on the ability of
issuers to make principal and interest payments. If an issuer can't meet
its payment obligations or if its credit rating is lowered, the value of
its debt securities may fall. Debt securities which have the lowest of the
top four ratings assigned by S&P or Moody's are considered to have
speculative characteristics. Changes in the economy are more likely to
affect the ability of the issuers of these securities to make payments of
principal and interest than is the case with higher-rated securities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
debt securities held by the Fund, particularly asset-backed and
mortgage-backed securities, to be paid off much sooner or later than
expected, which could adversely affect the Fund's value. In the event that
a security is paid off sooner than expected because of a decline in
interest rates, the Fund may be unable to recoup all of its initial
investment and may also suffer from having to reinvest in lower-yielding
securities. In the event of a later than expected payment because of a rise
in interest rates, the value of the obligation will decrease and the Fund
may suffer from the inability to invest in higher-yielding securities.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
- - FREQUENT TRADING - Frequent trading of investments usually increases the
chance that the Fund will pay investors short-term capital gains. These
gains are taxable at higher rates than long-term capital gains. Frequent
trading could also mean higher brokerage commissions and other transaction
costs, which could reduce the Fund's returns.
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
-27-
<PAGE>
As of the date of this prospectus, the Fund had not offered BKB Shares to
investors. The returns below represent the returns for Retail A Shares of the
Fund which are offered in a separate prospectus. Retail A Shares and BKB 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, thereby giving some indication of the risk of
investing in the Fund. The figures don't include any sales charges that
investors pay when buying or selling Retail A Shares of the Fund. If sales
charges were included, the returns would be lower.
[Sidenote:]
Best quarter: ____% for the quarter ending _______________, ____
Worst quarter: ____% for the quarter ending _______________, ____
[bar chart goes here]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
1991 1992 1993 1994 1995 1996 1997 1998 1999
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
15.12% 6.77% 12.81% -6.48% 21.20% 1.37% 9.11% 9.27% %
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the average annual total returns for the Fund's Retail A Shares
(after taking into account any sales charges) for the periods ended December 31,
1999, as compared to a broad-based market index. The returns for Retail A Shares
of the Fund for periods prior to December 1, 1995 have been restated to include
the effect of the maximum 3.75% front-end sales charge which went into effect on
that date.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
1 year 5 years Since inception
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares % % % (12/14/90)
- --------------------------------------------------------------------------------------------------------------------
Lehman Brothers
Intermediate Government/
Corporate Bond Index % % % (since 12/31/90)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
For current yield information, please call 1-877-BUY-GALAXY (1-877-289-4252).
-28-
<PAGE>
[Sidenote:]
The Lehman Brothers Intermediate Government/Corporate Bond Index is an unmanaged
index which tracks the performance of intermediate-term U.S. Government and
corporate bonds.
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold BKB Shares of the Fund. Because it is expected that your BKB Shares will
convert into Retail A Shares of the Fund on the first anniversary of the closing
of the reorganization of the Boston 1784 Funds into Galaxy, information is also
provided as to the fees and expenses you pay may when you buy and hold Retail A
Shares of the Fund.
<TABLE>
<CAPTION>
Shareholder fees (fees paid directly from your investment)
- ----------------------------------------------------------------------------------------------------------------------
Maximum sales charge (load) on Maximum deferred sales charge
purchases shown as a % of the (load) shown as a % of the offering
offering price price or sale price, whichever is less
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BKB Shares None None
- ----------------------------------------------------------------------------------------------------------------------
Retail A Shares 3.75%(1) None(2)
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
Annual Fund operating expenses (expenses deducted from the Fund's assets)
- ----------------------------------------------------------------------------------------------------------------------
Management fees Distribution and Other Total Fund operating
service (12b-1) fees expenses expenses
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BKB Shares 0.75%(3) None % %(4)
- ----------------------------------------------------------------------------------------------------------------------
Retail A Shares 0.75%(3) None % %(5)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) There will be no sales charge imposed on the conversion of BKB Shares into
Retail A Shares. Reduced sales charges may be available for certain other
investors in Retail A Shares. See "How to invest in the Funds - How sales
charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the
Funds-- How sales charges work."
(3) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be ____%. This fee waiver may be revised or discontinued at
any time.
(4) The Adviser and/or its affiliates have agreed to waive fees and reimburse
expenses in such amounts as are necessary to limit the expenses of BKB
Shares of the Fund for the first year after the reorganization to __% of
the average daily net assets of the Fund. Total Fund operating expenses for
Retail A Shares of the Fund are higher than those for BKB Shares because
they are market driven.
(5) Total Fund operating expenses for Retail A Shares after the waiver of
Management fees by the Adviser are expected to be ____%.
-29-
<PAGE>
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your BKB Shares convert into Retail A Shares after one year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BKB Shares $ $ $ $
- ----------------------------------------------------------------------------------------------------------------------
Retail A Shares $ $ $ $
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Marie M. Schofield, CFA, a Senior Vice President
of the Adviser. She's primarily responsible for the day-to-day management of the
Fund's investment portfolio. Ms. Schofield, who has over 20 years of investment
experience, has been with the Adviser since 1990 and served as a Vice President
and Manager of Fixed Income Investments until February 1999. She has managed the
Fund since December 1996.
-30-
<PAGE>
Galaxy Rhode Island Municipal Bond Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current interest income exempt from federal
income tax and, to the extent possible, from Rhode Island personal income tax,
as is consistent with relative stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities that pay interest which is exempt from regular federal income tax,
and at least 65% of its total assets in Rhode Island municipal securities, which
are securities issued by the State of Rhode Island and other government issuers
and that pay interest which is exempt from both federal income tax and Rhode
Island personal income tax. Under normal conditions, the Fund will invest no
more than 20% of its total assets in taxable obligations, such as U.S.
Government obligations, money market instruments and repurchase agreements.
Municipal securities purchased by the Fund may include general obligation
securities, revenue securities and private activity bonds. The interest on
private activity bonds may be subject to the federal alternative minimum tax.
Investments in private activity bonds will not be treated as investments in
municipal securities for purposes of the 80% requirement stated above.
In selecting portfolio securities for the Fund, the Adviser evaluates the
suitability of available bonds according to such factors as creditworthiness,
maturity, liquidity and interest rates. It also determines the appropriate
allocation of the Fund's assets among various issuers and industry sectors.
Nearly all of the Fund's investments will be of investment grade quality. These
are securities which have one of the top four ratings assigned by Standard &
Poor's Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or are
unrated securities determined by the Adviser to be of comparable quality. Under
normal market conditions, the Fund will invest at least 65% of its total assets
in securities that have one of the top three ratings assigned by S&P or Moody's
or unrated securities determined by the Adviser to be of comparable quality.
Occasionally, the rating of a security held by the Fund may be downgraded to
below investment grade. If that happens, the Fund doesn't have to sell the
security unless the Adviser determines that under the circumstances the security
is no longer an appropriate investment for the Fund. However, the Fund will sell
promptly any securities that are not rated 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
economic and market conditions and the Adviser's assessment of probable changes
in interest rates.
-31-
<PAGE>
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities, including municipal
securities, tend to move in the opposite direction to interest rates. When
rates are rising, the prices of debt securities tend to fall. When rates
are falling, the prices of debt securities tend to rise. Generally, the
longer the time until maturity, the more sensitive the price of a debt
security is to interest rate changes.
- - CREDIT RISK - The value of debt securities, including municipal securities,
also depends on the ability of issuers to make principal and interest
payments. If an issuer can't meet its payment obligations or if its credit
rating is lowered, the value of its debt securities will fall. Debt
securities which have the lowest of the top four ratings assigned by S&P or
Moody's have speculative characteristics. Changes in the economy are more
likely to affect the ability of issuers of these securities to make
payments of principal and interest than is the case with higher-rated
securities. The ability of a state or local government issuer to make
payments can be affected by many factors, including economic conditions,
the flow of tax revenues and changes in the level of federal, state or
local aid. Some municipal obligations are payable only from limited revenue
sources or by private entities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
municipal securities held by the Fund to be paid off much sooner or later
than expected, which could adversely affect the Fund's value. In the event
that a security is paid off sooner than expected because of a decline in
interest rates, the Fund may be unable to recoup all of its initial
investment and may also suffer from having to reinvest in lower-yielding
securities. In the event of a later than expected payment because of a rise
in interest rates, the value of the obligation will decrease and the Fund
may suffer from the inability to invest in higher-yielding securities.
- - LACK OF DIVERSIFICATION - The Fund is not diversified, which means that it
can invest a large percentage of its assets in a small number of issuers.
As a result, a change in the value of any one investment held by the Fund
may affect the overall value of the Fund more than it would affect a
diversified fund which holds more investments.
- - SINGLE STATE RISK - Because the Fund invests primarily in Rhode Island
municipal securities, it is likely to be especially susceptible to
economic, political and regulatory events that affect Rhode Island. Other
considerations affecting the Fund's investments in Rhode Island municipal
securities are summarized in the Statement of Additional Information.
-32-
<PAGE>
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
As of the date of this prospectus, the Fund had not offered BKB Shares to
investors. The returns below represent the returns for Retail A Shares of the
Fund which are offered in a separate prospectus. Retail A Shares and BKB 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.
[Sidenote:]
Best quarter: _____% for the quarter ending __________, ____
Worst quarter: _____% for the quarter ending __________, ____
[bar chart goes here]
<TABLE>
<CAPTION>
---------------------------------------------------------------------
1995 1996 1997 1998 1999
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
14.32% 3.63% 8.54% 5.87% _____%
---------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows average annual total returns for the Fund's Retail A Shares
(after taking into account any sales charges) for the periods ended December 31,
1999, as compared to a broad-based market index. The returns for Retail A Shares
of the Fund for periods prior to December 1, 1995 have been restated to include
the effect of the maximum 3.75% front-end sales charge which went into effect on
that date.
-33-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
1 year 5 years Since inception
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares _____% _____% _____% (12/20/94)
- ------------------------------------------------------------------------------------------------------------------------
Lehman Brothers
Municipal Bond
Index _____% _____% _____% (since 12/31/94)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The Lehman Brothers Municipal Bond Index is an unmanaged index which tracks the
performance of municipal bonds.
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold BKB Shares of the Fund. Because it is expected that your BKB Shares will
convert into Retail A Shares of the Fund on the first anniversary of the closing
of the reorganization of the Boston 1784 Funds into Galaxy, information is also
provided as to the fees and expenses you may pay when you buy and hold Retail A
Shares of the Fund.
<TABLE>
<CAPTION>
Shareholder fees (fees paid directly from your investment)
- ------------------------------------------------------------------------------------
Maximum sales charge Maximum deferred
(load) purchases sales on charge (load)
shown as a % of the shown as a % of the
offering price offering price or sale
price, whichever is
less
- ------------------------------------------------------------------------------------
<S> <C> <C>
BKB Shares None None
- ------------------------------------------------------------------------------------
Retail A Shares 3.75%(1) None(2)
- ------------------------------------------------------------------------------------
<CAPTION>
Annual Fund operating expenses (expenses deducted from the Fund's assets)
- ------------------------------------------------------------------------------------------
Total
Fund
Management Distribution Other operating
fees (12b-1) fees expenses expenses
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BKB Shares 0.75%(3) None _____% ____%(4)
- ------------------------------------------------------------------------------------------
Retail A Shares 0.75%(3) None _____% ____%(5)
- ------------------------------------------------------------------------------------------
</TABLE>
-34-
<PAGE>
(1) There will be no sales charge imposed on the conversion of BKB Share into
Retail A Shares. Reduced sales charges may be available for certain other
investors in Retail A Shares. See "How to invest in Funds - How sales
charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the
Funds - How sales charges work."
(3) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be ____%. This fee waiver may be revised or discontinued at
any time.
(4) The Adviser and/or its affiliates have agreed to waive fees and reimburse
expenses in such amounts as are necessary to limit the expenses of BKB
Shares of the Fund for the first year after the reorganization to __% of
the average daily net assets of the Fund. Total Fund operating expenses for
Retail A Shares of the Fund are higher than those for BKB Shares because
they are market driven.
(5) Total Fund operating expenses for Retail A Shares after the waiver of
Management fees by the Adviser are expected to be ____%.
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 BKB Shares convert into Retail A Shares after one year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BKB Shares $_____ $_____ $_____ $_____
- -------------------------------------------------------------------------------------------------------------
Retail A Shares $_____ $_____ $_____ $_____
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Adviser's Tax-Exempt Investment Policy Committee is responsible for the
day-to-day management of the Fund's investment portfolio. The Committee has
managed the Fund since 1996.
-35-
<PAGE>
Galaxy Asset Allocation Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks a high total return by providing both a current level of income
that is greater than that provided by the popular stock market averages, as well
as long-term growth in the value of the Fund's assets.
[Sidenote:]
CURRENT INCOME
Current income includes both dividends from stocks and interest income from
fixed income securities, after deducting Fund expenses.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund aims to provide income that is higher than that provided by the popular
stock market averages. The Adviser interprets this to mean the Dow Jones
Industrial Average of 30 major companies and the Standard & Poor's 500 Composite
Stock Price Index (commonly referred to as the S&P 500). Due to the Fund's
expenses, however, net income paid to you may be less than that. The Fund also
seeks long-term growth in the value of its assets. The Adviser attempts to
achieve these goals and reduce risk by allocating the Fund's assets among
short-term debt securities, common stocks, preferred stocks and bonds.
The Fund seeks a mix of stocks and bonds that will produce both income and
long-term capital growth. This mix will change from time to time as a result of
economic and market conditions. However, the Fund keeps at least 25% of its
total assets in fixed income investments, including debt securities and
preferred stocks, at all times.
Debt securities purchased by the Fund will be of investment grade quality, which
means that they will have one of the top four ratings assigned by Standard &
Poor's Ratings Group (S&P) or Moody's Investor Services, Inc. (Moody's) or will
be unrated securities determined by the Adviser to be of comparable quality.
Occasionally, the rating of a security held by the Fund may be downgraded below
investment grade. If that happens, the Fund doesn't have to sell the security
unless the Adviser determines that under the circumstances the security is no
longer an appropriate investment for the Fund. However, the Fund will sell
promptly any securities that are not rated investment grade by either S&P or
Moody's if the securities exceed 5% of the Fund's net assets.
-36-
<PAGE>
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, 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
-37-
<PAGE>
obligation will decrease and the Fund may suffer from the inability to
invest in higher-yielding securities.
- - PORTFOLIO COMPOSITION - The level of risk could increase if a larger
percentage of the Fund is invested in one particular asset class, such as
stocks or bonds. However, asset allocation funds are generally less
volatile than portfolios that contain only stocks.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
- - FREQUENT TRADING - Frequent trading of investments usually increases the
chance that the Fund will pay investors short-term capital gains. These
gains are taxable at higher rates than long-term capital gains. Frequent
trading could also mean higher brokerage commissions and other transaction
costs, which could reduce the Fund's returns.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that all
dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
As of the date of this prospectus, the Fund had not offered BKB Shares to
investors. The returns below represent the returns for Retail A Shares of the
Fund which are offered in a separate prospectus. Retail A Shares and BKB 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.
[Sidenote:]
Best quarter: ____% for the quarter ending __________, ____
Worst quarter: ____% for the quarter ending __________, ____
-38-
<PAGE>
[bar chart goes here]
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997 1998 1999
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
6.58% 8.08% -2.47% 30.29% 15.11% 19.76% 17.73% ___%
- -----------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the average annual total returns for the Fund's Retail A Shares
(after taking into account any sales charges) for the periods ended December 31,
1999, as compared to broad-based market indices. The returns for Retail A Shares
of the Fund for periods prior to December 1, 1995 have been restated to include
the effect of the maximum 3.75% front-end sales charge which went into effect on
that date.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 5 years Since inception
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares _____% _____% _____% (12/30/91)
- -------------------------------------------------------------------------------------------------------------
S&P 500 ____% ____% ____% (since 12/31/91)
- -------------------------------------------------------------------------------------------------------------
DJIA ____% ____% ____% (since 12/31/91)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The S&P 500 is an unmanaged index that tracks the performance of 500 widely held
common stocks listed on the New York Stock Exchange, the American Stock Exchange
and NASDAQ. The S&P 500 is heavily weighted with the stocks of large companies.
[Sidenote:]
The Dow Jones Industrial Average (DJIA) is an unmanaged price-weighted average
based on the "price only" performance of 30 blue chip stocks.
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold BKB Shares of the Fund. Because it is expected that your BKB Shares will
convert into Retail A Shares of the Fund on the first anniversary of the closing
of the reorganization of the Boston 1784 Funds into Galaxy, information is also
provided as to the fees and expenses you may pay when you buy and hold Retail A
Shares of the Fund.
-39-
<PAGE>
<TABLE>
<CAPTION>
Shareholder fees (fees paid directly from your investment)
- ------------------------------------------------------------------------------------------
Maximum sales charge Maximum deferred sales
(load) on purchases charge (load) shown as a %
shown as a % of the of the offering price or sale
offering price price, whichever is less
- ------------------------------------------------------------------------------------------
<S> <C> <C>
BKB Shares None None
- ------------------------------------------------------------------------------------------
Retail A Shares 3.75%(1) None(2)
- ------------------------------------------------------------------------------------------
<CAPTION>
Annual Fund operating expenses (expenses deducted from the Fund's assets)
- ------------------------------------------------------------------------------------------
Distribution and Total Fund
service (12b-1) Other operating
Management fees fees expenses expenses
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BKB Shares 0.75% None ____% ____%(3)
- ------------------------------------------------------------------------------------------
Retail A Shares 0.75% None ____% ____%
- ------------------------------------------------------------------------------------------
</TABLE>
(1) There will be no sales charge imposed on the conversion of BKB Shares into
Retail A Shares. Reduced sales charges may be available to certain other
investors in Retail A Shares. See "How to invest in the Funds - How sales
charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the
Funds - How sales charges work."
(3) The Adviser and/or its affiliates have agreed to waive fees and reimburse
expenses in such amounts as are necessary to limit the expenses of BKB
Shares of the Fund for the first year after the reorganization to __% of
the average daily net assets of the Fund. Total Fund operating expenses for
Retail A Shares of the Fund are higher than those for BKB Shares because
they are market driven.
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 BKB Shares convert into Retail A Shares after one year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
-40-
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BKB Shares $____ $____ $____ $____
- -------------------------------------------------------------------------------------------------------------
Retail A Shares $____ $____ $____ $____
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGERS
The Fund's portfolio managers are Donald Jones, a Vice President of the Adviser
since 1991, and David Lindsay, CFA, a Senior Vice President of the Adviser since
1992. They are primarily responsible for the day-to-day management of the Fund's
investment portfolio. Mr. Jones has managed the equity portion of the Fund's
portfolio, including determining the allocation of the Fund's assets between
equities and fixed income investments, since May of 1995. He has been with the
Adviser and its predecessors since 1977. Mr. Lindsay has managed the fixed
income portion of the Fund since January of 1997. He has been with the Adviser
and its predecessors since 1986.
-41-
<PAGE>
Galaxy Growth and Income Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks to provide a relatively high total return through long-term
capital appreciation and current income.
[Sidenote:]
CURRENT INCOME
Current income includes both dividends from stocks and interest income from
fixed income securities, after deducting Fund expenses.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its total assets in the common stocks
of U.S. companies with large market capitalizations (generally over $2 billion)
that the Adviser believes offer above-average growth and dividends. The Adviser
focuses on stocks which are believed to be attractively priced relative to
expectations for the future performance of the issuing company. The Adviser also
seeks a current yield greater than that of the S&P 500, although not all Fund
investments will pay dividends.
The Fund will sell a portfolio security when, as a result of changes in the
economy, the Adviser believes that holding the security is no longer consistent
with the Fund's investment objective. A security may also be sold as a result of
a deterioration in the performance of the security or in the financial condition
of the issuer of the security.
[Sidenote:]
MARKET CAPITALIZATION
A company's market capitalization is the price of a share of its stock,
multiplied by the number of shares held by investors.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
-42-
<PAGE>
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risk:
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that all
dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
As of the date of this prospectus, the Fund had not offered BKB Shares to
investors. The returns below represent the returns for Retail A Shares of the
Fund which are offered in a separate prospectus. Retail A Shares and BKB 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.
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.
-43-
<PAGE>
[Sidenote:]
Best quarter: ____% for the quarter ending __________, ____
Worst quarter: ____% for the quarter ending __________, ____
[bar chart goes here]
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
4.83% 29.34% 19.85% 29.19% 15.71% ____%
-------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the average annual total returns for the Fund's Retail A Shares
(after taking into account any sales charges) for the periods ended December 31,
1999, as compared to a broad-based market index. The returns for Retail A Shares
of the Fund for periods prior to December 1, 1995 have been restated to include
the effect of the maximum 3.75% front-end sales charge which went into effect on
that date.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 5 years Since inception
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares ____% ____% ____% (2/12/93)
- -------------------------------------------------------------------------------------------------------------
S&P 500 ____% ____% ____% (since 1/31/93)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The S&P 500 is an unmanaged index that tracks the performance of 500 widely held
common stocks listed on the New York Stock Exchange, the American Stock Exchange
and NASDAQ. The S&P 500 is heavily weighted with the stocks of large companies.
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold BKB Shares of the Fund. Because it is expected that your BKB Shares will
convert into Retail A Shares of the Fund on the first anniversary of the closing
of the reorganization of the Boston 1784 Funds into Galaxy, information is also
provided as to the fees and expenses you may pay when you buy and hold Retail A
Shares of the Fund.
-44-
<PAGE>
<TABLE>
<CAPTION>
Shareholder fees (fees paid directly from your investment)
- ------------------------------------------------------------------------------------------
Maximum sales charge Maximum deferred sales
(load) on purchases charge (load) shown as a %
shown as a % of the of the offering price or sale
offering price price, whichever is less
- ------------------------------------------------------------------------------------------
<S> <C> <C>
BKB Shares None None
- ------------------------------------------------------------------------------------------
Retail B Shares 3.75%(1) None(2)
- ------------------------------------------------------------------------------------------
<CAPTION>
Annual Fund operating expenses (expenses deducted from the Fund's assets)
- ------------------------------------------------------------------------------------------
Distribution and Total Fund
service (12b-1) Other operating
Management fees fees expenses expenses
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BKB Shares 0.75% None ____% ___%4
- ------------------------------------------------------------------------------------------
Retail A Shares 0.75% None ____% ___%5
- ------------------------------------------------------------------------------------------
</TABLE>
(1) There will be no sales charge imposed on the conversion of BKB Shares into
Retail A Shares. Reduced sales charges may be available for certain other
investors in Retail A Shares. See "How to invest in the Funds - How sales
charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the
Funds - How sales charges work."
(3) Affiliates of the Adviser are waiving a portion of the shareholder
servicing fees (included in Other expenses) for Retail A Shares so that
Other expenses are expected to be ____% for Retail A Shares.
(4) The Adviser has agreed to waive fees and reimburse expenses in such amounts
as are necessary to limit the expenses of BKB Shares for the first year
after the reorganization to __% of the average daily net assets of the
Fund. Total Fund operating expenses for Retail A Shares of the Fund are
higher than those for BKB Shares because they are market driven.
(5) Total Fund operating expenses for Retail A Shares after the waiver of
Management fees by the Adviser are expected to be ____%.
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
-45-
<PAGE>
- - your BKB Shares convert into Retail A Shares after one year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BKB Shares $____ $____ $____ $____
- -------------------------------------------------------------------------------------------------------------
Retail A Shares $____ $____ $____ $____
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Gregory M. Miller, a Vice President of the
Adviser since 1996. He's been primarily responsible for the day-to-day
management of the Fund's investment portfolio since July 1998. Before that, Mr.
Miller assisted his predecessor in managing the Fund for seven years. He joined
the Adviser in 1985.
-46-
<PAGE>
Galaxy Equity Growth Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 75% of its total assets in a broadly
diversified portfolio of equity securities, primarily common stocks and
securities that can be converted into common stocks. The Fund invests mainly in
the securities of U.S. issuers, but may invest up to 20% of its total assets in
foreign securities.
The Fund invests mainly in companies which the Adviser believes will have faster
earnings growth than the economy in general. The Adviser looks for
large-capitalization companies (generally over $2 billion) in growing
industries, focusing on technological advances, good product development, strong
management and other factors which support future growth. The Adviser seeks out
companies that have a history of strong earnings growth and are projected to
continue a similar pattern of growth over the next three to five years.
The Fund will sell a security if there is an adverse change in the projected
earnings growth of the company issuing the security. A security will also be
sold when, as a result of changes in the economy or the performance of the
security or other circumstances, the Adviser believes that holding the security
is no longer consistent with the Fund's investment objective.
[Sidenote:]
GROWTH STOCKS
Growth stocks offer strong revenue and earnings potential, and accompanying
capital growth, with generally less dividend income than value stocks.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
-47-
<PAGE>
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risks:
- - CONVERTIBLE SECURITIES - Securities that can be converted into common
stock, such as certain debt securities and preferred stock, are subject to
the usual risks associated with fixed income investments, such as interest
rate risk and credit risk. In addition, because they react to changes in
the value of the equity securities into which they will convert,
convertible securities are also subject to stock market risk.
- - FOREIGN INVESTMENTS - Foreign investments may be riskier than U.S.
investments because of factors such as foreign government restrictions,
changes in currency exchange rates, incomplete financial information about
the issuers of securities, and political or economic instability. Foreign
stocks may be more volatile and less liquid than U.S. stocks.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that all
dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
As of the date of this prospectus, the Fund had not offered BKB Shares to
investors. The returns below represent the returns for Retail A Shares of the
Fund which are offered in a separate prospectus. Retail A Shares and BKB 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 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.
-48-
<PAGE>
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.
[Sidenote:]
Best quarter: ____% for the quarter ending ___________, ____
Worst quarter: ____% for the quarter ending ___________, ____
[bar chart goes here]
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
1991 1992 1993 1994 1995 1996 1997 1998 1999
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
30.40% 6.11% 5.37% 0.60% 33.66% 20.46% 30.43% 25.66% ____%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the average annual total returns for the Funds Retail A Shares
(after taking into account any sales charges) for the periods ended December 31,
1999, as compared to a broad-based market index. The returns for Retail A Shares
of the Fund for periods prior to December 1, 1995 have been restated to include
the effect of the maximum 3.75% front-end sales charge which went into effect on
that date.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 5 years Since inception
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares ____% ____% ____% (12/14/90)
- -------------------------------------------------------------------------------------------------------------
S&P 500 ____% ____% ____% (since 11/30/90)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The S&P 500 is an unmanaged index that tracks the performance of 500 widely held
common stocks listed on the New York Stock Exchange, the American Stock Exchange
and NASDAQ. The S&P 500 is heavily weighted with the stocks of large companies.
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold BKB shares of the Fund. Because it is expected that your BKB Shares will
convert into Retail A Shares of the Fund on the first anniversary of the closing
of the reorganization of the Boston
-49-
<PAGE>
1784 Funds into Galaxy, information is also provided as to the fees and expenses
you may pay when you buy and hold Retail A Shares of the Fund.
<TABLE>
<CAPTION>
Shareholder fees (fees paid directly from your investment)
- ------------------------------------------------------------------------------------------
Maximum sales charge Maximum deferred sales
(load) on purchases charge (load) shown as a %
shown as a % of the of the offering price or sale
offering price price, whichever is less
- ------------------------------------------------------------------------------------------
<S> <C> <C>
BKB Shares None None
- ------------------------------------------------------------------------------------------
Retail A Shares 3.75%(1) None(2)
- ------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Annual Fund operating expenses (expenses deducted from the Fund's assets)
- ------------------------------------------------------------------------------------------
Distribution and Total Fund
service (12b-1) Other operating
Management fees fees expenses expenses
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BKB Shares 0.75% None ____% ____%(3)
- ------------------------------------------------------------------------------------------
Retail A Shares 0.75% None ____% ____%
- ------------------------------------------------------------------------------------------
</TABLE>
1 There will be no sales charge imposed on the conversion of BKB Shares into
Retail A Shares. Reduced sales charges may be available for certain other
investors in Retail A Shares. See "How to invest in the Funds - How sales
charges work."
2 Except for investments of $500,000 or more. See "How to invest in the Funds
- How sales charges work."
3 The Adviser and/or its affiliates have agreed to waive fees and reimburse
expenses in such amounts as are necessary to limit the expenses of BKB
Shares of the Fund for the first year after the reorganization to __% of
the average daily net assets of the Fund. Total Fund operating expenses for
Retail A Shares of the Fund are higher than those for BKB Shares because
they are market driven.
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 BKB Shares convert into Retail A shares after one year
- - the Fund's operating expenses remain the same
-50-
<PAGE>
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BKB Shares $____ $____ $____ $____
- -------------------------------------------------------------------------------------------------------------
Retail A Shares $____ $____ $____ $____
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Robert G. Armknecht, CFA, an Executive Vice
President of the Adviser since 1988. He's primarily responsible for the
day-to-day management of the Fund's investment portfolio. Mr. Armknecht has been
with the Adviser and its predecessors since 1988 and has been the Fund's
portfolio manager since it began operations in 1990.
-51-
<PAGE>
Galaxy International Equity Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 75% of its total assets in the equity
securities of foreign issuers. At all times, the Fund's assets will be invested
in companies located in at least three different foreign countries. Normally, no
more than 20% of the Fund's total assets will be invested in companies located
in countries with emerging economies or emerging securities markets. The Fund
emphasizes larger established companies, although it may invest in companies of
any size. The Fund may engage in transactions for the purpose of hedging its
portfolio, such as options, futures and foreign currencies.
The Sub-Adviser determines how much to invest in each country and region by
looking at factors such as prospects for economic growth, expected inflation
levels, government policies and the range of investment opportunities available.
Decisions as to particular investments are made with the guidance of the
Sub-Adviser's Investment Strategy Committee under the supervision of the
Adviser. The Sub-Adviser looks at the potential return of each investment over a
one- to two-year period.
The Fund will sell a security if, as a result of changes in the economy of a
particular country or region, the Sub-Adviser believes that holding the security
is no longer consistent with the Fund's investment objective. A security may
also be sold as a result of a deterioration in the performance of the security
or in the financial condition of the company that issued the security.
[Sidenote:]
SUB-ADVISER
The Adviser has appointed Oechsle International Advisors, LLC as Sub-Adviser to
assist it in the day-to-day management of the Fund's investment portfolio.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. U.S. and foreign stock markets tend to move in cycles, with
periods of rising prices and periods of falling prices.
-52-
<PAGE>
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risks:
- - FOREIGN INVESTMENTS - Foreign investments may be riskier than U.S.
investments because of factors such as foreign government restrictions,
changes in currency exchange rates, incomplete financial information about
the issuers of securities, and political or economic instability. Foreign
stocks may be more volatile and less liquid than U.S. stocks.
- - EMERGING MARKETS - The risks associated with foreign investments are
heightened when investing in emerging markets. The governments and
economies of emerging market countries feature greater instability than
those of more developed countries. Such investments tend to fluctuate in
price more widely and to be less liquid than other foreign investments.
- - COUNTRY RISK - The Fund may invest 25% or more of its assets in the
securities of companies located in one country. When the Fund invests a
high percentage of its assets in a particular country, the Fund will be
especially susceptible to factors affecting that country.
- - CURRENCY EXCHANGE - Although the Fund usually makes investments that are
sold in foreign currencies, it values its holdings in U.S. dollars. If the
U.S. dollar rises compared to a foreign currency, the Fund loses on the
currency exchange.
- - HEDGING - The Fund may invest in derivatives, such as options, futures and
foreign currencies, to hedge against market risk or the currency risk of
its foreign investments. There's no guarantee hedging will always work. It
can also prevent the Fund from making a gain if markets move in the
opposite direction to the hedge.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
[Sidenote:]
DERIVATIVES
A derivative is an investment whose value is based on or DERIVED from the
performance of other securities or interest or currency exchange rates or
indices. Derivatives are considered to carry a higher degree of risk than other
types of securities.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that all
dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
-53-
<PAGE>
As of the date of this prospectus, the Fund had not offered BKB Shares to
investors. The returns below represent the returns for Retail A Shares of the
Fund which are offered in a separate prospectus. Retail A Shares and BKB 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.
[Sidenote:]
Best quarter: ____% for the quarter ending ___________, ____
Worst quarter: ____% for the quarter ending ___________, ____
[bar chart goes here]
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997 1998 1999
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
-2.29% 31.62% -2.54% 11.04% 10.03% 13.59% 21.24% ____%
- ---------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the average annual total returns for the Fund's Retail A Shares
(after taking into account any sales charges) for the periods ended December 31,
1999, as compared to a broad-based market index. The returns for Retail A Shares
of the Fund for periods prior to December 1, 1995 have been restated to include
the effect of the maximum 3.75% front-end sales charge which went into effect on
that date.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 5 years Since inception
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares ____% ____% ____% (12/30/91)
- -------------------------------------------------------------------------------------------------------------
MSCI EAFE Index ____% ____% ____% (since 12/31/91)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
-54-
<PAGE>
[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.
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold BKB Shares of the Fund. Because it is expected that your BKB Shares will
convert into Retail A Shares of the Fund on the first anniversary of the closing
of the reorganization of the Boston 1784 Funds into Galaxy, information is also
provided as to the fees and expenses you may pay when you buy and hold Retail A
Shares of the Fund.
<TABLE>
<CAPTION>
Shareholder fees (fees paid directly from your investment)
- ------------------------------------------------------------------------------------------
Maximum sales charge Maximum deferred sales
(load) on purchases charge (load) shown as a %
shown as a % of the of the offering price or sale
offering price price, whichever is less
- ------------------------------------------------------------------------------------------
<S> <C> <C>
BKB Shares None None
- ------------------------------------------------------------------------------------------
Retail A Shares 3.75%(1) None(2)
- ------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Annual Fund operating expenses (expenses deducted from the Fund's assets)
- ------------------------------------------------------------------------------------------
Distribution and Total Fund
service (12b-1) Other operating
Management fees fees expenses expenses
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BKB Shares 0.90%(3) None ____% ____%(4)
- ------------------------------------------------------------------------------------------
Retail A Shares 0.90%(3) None ____% ____%(5)
- ------------------------------------------------------------------------------------------
</TABLE>
1 There will be no sales charge imposed on the conversion of BKB Shares into
Retail A Shares. Reduced sales charges may be available for certain other
investors in Retail A Shares. See "How to invest in the Funds - How sales
charges work."
2 Except for investments of $500,000 or more. See "How to invest in the Funds
- How sales charges work."
3 The Adviser is waiving a portion of the Management fees so that such fees
are expected to be ____%. This fee waiver may be revised or discontinued at
any time.
4 The Adviser and/or its affiliates have agreed to waive fees and reimburse
expenses in such amounts as are necessary to limit the expenses of BKB
Shares of the Fund for the first year after the reorganization to __% of
the average daily net assets of the Fund. Total Fund operating expenses for
Retail A Shares of the Fund are higher than those for BKB Shares because
they are market driven.
-55-
<PAGE>
5 Total Fund operating expenses for Retail A Shares after the waiver of
Management fees by the Adviser are expected to be ____%.
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 BKB Shares convert into Retail A Shares after one year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BKB Shares $____ $____ $____ $____
- -------------------------------------------------------------------------------------------------------------
Retail A Shares $____ $____ $____ $____
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGERS
The Fund's portfolio managers are Singleton Dewey Keesler, Jr. and Kathleen
Harris, CFA. They're primarily responsible for the day-to-day management of the
Fund's investment portfolio. Mr. Keesler is Chief Investment Officer and
portfolio manager/research analyst with the Sub-Adviser. He has been associated
with the Sub-Adviser and its predecessor since 1986. Ms. Harris has been a
portfolio manager at the Sub-Adviser and its predecessor since January of 1995.
She was previously portfolio manager and investment director for the State of
Wisconsin Investment Board. Mr. Keesler and Ms. Harris have co-managed the Fund
since August of 1996.
-56-
<PAGE>
ADDITIONAL INFORMATION ABOUT RISK
The main risks associated with an investment in each of the Galaxy 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.
For the Money Market Fund, U.S. Treasury Fund, Tax-Exempt Fund and Rhode Island
Municipal Bond Fund, these investments may include cash (which will not earn any
income) and, in the case of the Tax-Exempt Fund and Rhode Island Municipal Bond
Fund, taxable investments, such as money market instruments and debt securities
issued or guaranteed by the U.S. Government or its agencies, in excess of 20% of
each Fund's assets.
The Short-Term Bond Fund, Intermediate Government Income Fund and High Quality
Bond Fund may hold uninvested cash and invest without limit in money market
instruments, including short-term U.S. Government securities.
For the Asset Allocation Fund, Growth and Income Fund, Equity Growth Fund and
International Equity Fund, these investments may include cash, money market
instruments, debt securities issued or guaranteed by the U.S. Government or its
agencies and, in the case of the International Equity Fund, foreign money market
instruments, debt securities of foreign national governments and their agencies,
and the securities of U.S. issuers.
These strategies 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 Funds - 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.
-57-
<PAGE>
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.
-58-
<PAGE>
FUND MANAGEMENT
ADVISER
The Adviser, subject to the general supervision of Galaxy's Board of Trustees,
manages each Fund in accordance with its investment objective and policies,
makes decisions with respect to and places orders for all purchases and sales of
its portfolio securities, and maintains related records.
The management fees paid to the Adviser by the Funds during the last fiscal year
are set forth below.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Fund Management fee as a % of average net assets
- -------------------------------------------------------------------------------------------------------------
<S> <C>
Money Market ____%
- -------------------------------------------------------------------------------------------------------------
U.S. Treasury ____%
- -------------------------------------------------------------------------------------------------------------
Tax-Exempt ____%
- -------------------------------------------------------------------------------------------------------------
Short-Term Bond ____%
- -------------------------------------------------------------------------------------------------------------
Intermediate Government Income ____%
- -------------------------------------------------------------------------------------------------------------
High Quality Bond ____%
- -------------------------------------------------------------------------------------------------------------
Rhode Island Municipal Bond ____%
- -------------------------------------------------------------------------------------------------------------
Asset Allocation ____%
- -------------------------------------------------------------------------------------------------------------
Growth and Income ____%
- -------------------------------------------------------------------------------------------------------------
Equity Growth ____%
- -------------------------------------------------------------------------------------------------------------
International Equity ____%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
SUB-ADVISER
The Adviser has delegated some of its advisory responsibilities with respect to
the International Equity Fund to Oechsle International Advisors, LLC as
Sub-Adviser. The Sub-Adviser determines which securities will be purchased,
retained or sold for the Fund, places orders for the Fund and provides the
Adviser with information on international investment and economic developments.
The Adviser assists and consults with the Sub-Adviser as to the Fund's
investment program, approves the list of foreign countries recommended by the
Sub-Adviser for investment and manages the Fund's daily cash position. The
Sub-Adviser's fees are paid by the Adviser.
The Sub-Adviser has its main office at One International Place, Boston,
Massachusetts 02210. The Sub-Adviser is the successor to Oechsle International
Advisors, L.P., an international investment firm founded in 1986. At December
31, 1999, the Sub-Adviser had discretionary
-59-
<PAGE>
management authority over approximately $__ billion in assets. The Adviser's
parent company, FleetBoston Corporation, owns an interest in the Sub-Adviser.
ALLOCATION OF ORDERS FOR PORTFOLIO SECURITIES
The Adviser (and Sub-Adviser for the International Equity Fund) 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.
-60-
<PAGE>
HOW TO INVEST IN THE FUNDS
Each of the Funds offers BKB Shares only to those shareholders of the Boston
1784 Funds who are not eligible to receive Trust Shares of their corresponding
Galaxy Fund at the time the Boston 1784 Funds are reorganized into Galaxy.
Each of the Funds offers BKB Shares through this prospectus. However, because
it is expected that BKB Shares of each Fund will convert into Retail A Shares
of the same Fund on the first anniversary of the closing of the reorganization
of the Boston 1784 Funds into Galaxy, some information is provided in this
prospectus for Retail A Shares of the Funds. The Funds offer Retail A Shares
through a separate prospectus.
HOW SALES CHARGES WORK
There is no sales charge (sometimes called a front-end load) when you acquire
BKB Shares in connection with the reorganization of the Boston 1784 Funds
into Galaxy, when you buy additional BKB Shares or when your BKB Shares
convert into Retail A Shares. Retail A Shares of each Fund, except the Money
Market Fund, U.S. Treasury Fund and Tax-Exempt Fund (referred to as the Money
Market Funds), are sold with a sales charge. However, holders of BKB Shares
may purchase Retail A Shares of any of the Funds without incurring the sales
charge otherwise applicable on the purchase of Retail A Shares of certain of
the Galaxy Funds. When these Retail A Shares are purchased, you must tell
your investment professional or Galaxy's distributor that you qualify for a
sales load waiver.
[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 BKB Shares or Retail A
Shares, minus the value of the Fund's liabilities attributable to BKB Shares or
Retail A Shares, divided by the number of BKB Shares or Retail A Shares held by
investors.
RETAIL A SHARES
The table below shows the sales charge applicable to Retail A Shares of the
Funds, except the Money Market Funds for which there is no sales charge. The
offering price for Retail A Shares is the NAV of the shares purchased, plus any
applicable sales charge.
-61-
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Total sales charge
- --------------------------------------------------------------------------------------------------
As a % of the offering price As a % of your investment
Amount of your investment per share
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Less than $50,000 3.75% 3.90%
- --------------------------------------------------------------------------------------------------
$50,000 but less than
$100,000 3.50% 3.63%
- --------------------------------------------------------------------------------------------------
$100,000 but less than
$250,000 3.00% 3.09%
- --------------------------------------------------------------------------------------------------
$250,000 but less than
$500,000 2.50% 2.56%
- --------------------------------------------------------------------------------------------------
$500,000 and over 0.00%(1) 0.00%(1)
- --------------------------------------------------------------------------------------------------
</TABLE>
1 There is no front-end sales charge on investments in Retail A Shares of
$500,000 or more. However, if a shareholder sells the shares within one
year after buying them, a contingent deferred sales charge (sometimes
called a back-end load or CDSC) of 1% of the offering price or 1% of the
net asset value of the shares, whichever is less, will be charged unless
the shares were sold because of the death or disability of the shareholder.
In addition, Galaxy will waive the 1% CDSC on a shareholder's initial sale
of shares. This waiver will not apply to amounts reinvested within one year
following a shareholder's initial sale of shares.
Galaxy's distributor may, from time to time, implement programs under which a
broker-dealer's sales force may be eligible to win nominal awards for certain
sales efforts. If any such program is made available to any broker-dealer, it
will be made available to all broker-dealers on the same terms. Payments made
under such programs are made by Galaxy's distributor out of its own assets and
not out of the assets of the Funds. These programs will not change the price of
Retail A Shares or the amount that the Funds will receive from such sales.
Certain affiliates of the Adviser may, at their own expense, provide additional
compensation to affiliated broker-dealers whose customers purchase significant
amounts of Retail A Shares of one or more Funds and to unaffiliated
broker-dealers whose customers purchase Retail A Shares of one or more of the
Funds. Such compensation will not represent an additional expense to the Funds
or their shareholders, since it will be paid from the assets of the Adviser's
affiliates.
There's no sales charge on purchases of Retail A Shares if:
- - an investor buys shares by reinvesting dividends and distributions.
- - an investor was a Galaxy shareholder before December 1, 1995.
- - an investor buys shares for a 401(k) or SIMPLE IRA retirement account (not
applicable for the Rhode Island Municipal Bond Fund).
- - an investor buys shares for any retirement account provided that such
investor held Retail A Shares in a retirement account prior to January 1,
1999 (not applicable for the Rhode Island Municipal Bond Fund).
-62-
<PAGE>
- - an investor buys shares for any retirement account and such investor's
total cumulative Retail A Share retirement account balance was $30,000 or
more between January 1, 1999 and June 30, 1999 (not applicable for the
Rhode Island Municipal Bond Fund).
- - an investor buys shares with money from another Galaxy Fund on which such
investor has already paid a sales charge (as long as the investor buys the
new shares within 90 days after selling their other shares).
- - an investor previously paid a sales charge for the shares of another mutual
fund company (as long as the investor buys the Galaxy shares within 60 days
of selling their other shares).
- - you're an investment professional who places trades for your clients and
charges them a fee
- - an investor buys shares under an all-inclusive fee program (sometimes
called a "wrap fee program") offered by a broker-dealer or other financial
institution.
- - an investor was a shareholder of the Boston 1784 Funds on the date when the
Boston 1784 Funds were reorganized into Galaxy.
DISCOUNT PLANS
Investors may have the sales charges on purchases of Retail A Shares reduced or
waived completely through the discount plans described below:
- - RIGHTS OF ACCUMULATION - Investors can add the value of the Retail A Shares
that they already own in any Galaxy Fund that charges a sales load to their
next investment in Retail A Shares for purposes of calculating the sales
charge.
- - LETTER OF INTENT - Investors can purchase Retail A Shares of any Galaxy
Fund that charges a sales load over a 13-month period and receive the same
sales charge as if all of the shares had been purchased at the same time.
To participate, investors should complete the Letter of Intent section on
the account application.
- - REINVESTMENT PRIVILEGE - Investors can reinvest some or all of the money
that they receive when selling Retail A Shares of the Funds in Retail A
Shares of any Galaxy Fund within 90 days without paying a sales charge.
- - GROUP SALES - If an investor belongs to a qualified group with 50,000 or
more members, such investor can buy Retail A Shares at a reduced sales
charge, based on the number of qualified group members.
[Sidenote:]
Investors should ask their investment professional or Galaxy's distributor, or
consult the SAI for other instances in which the sales load on Retail A Shares
is waived. Investors should tell their investment professional or Galaxy's
distributor that they qualify for a sales load waiver or if they want to take
advantage of any of the discount plans. See the SAI for additional requirements
that apply to the discount plans. To contact Galaxy's distributor, call
1-877-BUY- GALAXY (1-877-289-4252).
-63-
<PAGE>
SHAREHOLDER SERVICE FEES
BKB Shares of the Funds can pay shareholder service fees at an annual rate of up
to 0.50% of each Fund's BKB Share assets. The Money Market Funds do not intend
to pay more than 0.10%, the Short-Term Bond, Intermediate Government Income,
High Quality Bond and Rhode Island Municipal Bond Funds do not intend to pay
more than 0.15% and the Asset Allocation, Growth and Income, Equity Growth and
International Equity Funds do not intend to pay more than 0.30%, respectively,
in shareholder service fees with respect to BKB Shares during the current
fiscal year.
Retail A Shares of the Funds can pay shareholder service fees at an annual rate
of up to 0.50% of each Fund's Retail A Share assets. The Money Market Funds do
not intend to pay more than 0.10%, the Short-Term Bond, Intermediate Government
Income, High Quality Bond and Rhode Island Municipal Bond Funds do not intend to
pay more than 0.15% and the Asset Allocation, Growth and Income, Equity Growth
and International Equity Funds do not intend to pay more than 0.30%,
respectively, in shareholder service fees with respect to Retail A Shares during
the current fiscal year.
CONVERSION OF BKB SHARES INTO RETAIL A SHARES
BKB Shares of a Fund will convert into Retail A Shares of the Fund on the first
anniversary of the reorganization of the Boston 1784 Funds into Galaxy, provided
that the Board of Trustees of Galaxy has determined that such conversion is in
the best interests of the holders of BKB Shares. The conversion of BKB Shares to
Retail A Shares will take place at NAV, so that the value of the Retail A Shares
you receive in the conversion will be the same as the value of your BKB Shares
that were converted.
BUYING, SELLING AND EXCHANGING BKB SHARES
BKB Shares of the Funds are available for purchase only by those shareholders
who received BKB Shares in connection with the reorganization of the Boston
1784 Funds into Galaxy.
[Sidenote]:
MINIMUM INVESTMENT AMOUNT
You can make additional investments in your BKB Share account 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.
-64-
<PAGE>
You may buy and sell BKB 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.
The price at which you buy shares is the NAV next determined after your order
is accepted. The price at which you sell shares is the NAV next determined,
after receipt of your order in proper form as described below. NAV is
determined on each day the New York Stock Exchange is open for trading as of
11:00 a.m. (for the Money Market Funds only) and at the close of regular
trading that day (usually 4:00 p.m. Eastern time) for each Fund, including the
Money Market Funds.
The Money Market Funds' assets are valued at amortized cost, which is
approximately equal to market value. For each of the other Funds, if market
prices are readily available for securities owned by a 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 BKB SHARES
You can buy shares through your financial institution or directly from
Galaxy's distributor by calling 1-877-BUY-GALAXY (1-877-289-4252). A broker
or agent who places orders on your behalf may charge you a separate fee for
their services.
BUYING BY MAIL
To make additional investments, send a check made payable to each Fund in
which you want to invest to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
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<PAGE>
You must include with your check one of the following:
- - The detachable form that's included with your Galaxy statement or your
confirmation of a prior transaction
- - A letter stating the amount of your investment, the name of the Fund you
want to invest in, and your account number
If your check is returned because of insufficient funds, Galaxy will cancel
your order.
BUYING BY WIRE
To make an additional investment by wire, send U.S. funds through the Federal
Reserve System to Fleet National Bank as agent for Galaxy's distributor. You
should wire money and registration instructions to:
Fleet National Bank
75 State Street
Boston, MA 02109
ABA #0110-0013-8
DDA #79673-5702
Ref: The Galaxy Fund
(Account number)
(Account registration)
Your financial institution may charge you a fee for sending funds by wire.
CUSTOMERS OF FINANCIAL INSTITUTIONS
If you are a customer of a financial institution such as a bank, savings and
loan association or broker-dealer, including a financial institution
affiliated with the Adviser, you should place your order through your
financial institution. Your financial institution is responsible for sending
your order to Galaxy's distributor and wiring the money to Galaxy's custodian.
For details, please contact your financial institution.
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<PAGE>
SELLING BKB SHARES
BKB Shares of the Funds may be sold 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.
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 as of
11:00 a.m. (for the Money Market Funds only) and at the close of regular trading
that day (usually 4:00 p.m. Eastern time) for each Fund, including the Money
Market Funds.
The Money Market Funds' assets are valued at amortized cost, which is
approximately equal to market value. For each of the other Funds, if market
prices are readily available for securities owned by a 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.
-67-
<PAGE>
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 SELL BKB SHARES
You can sell your shares in several ways: by mail, by telephone, by wire, or
through your financial institution.
SELLING BY MAIL
Send your request in writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
You must include the following:
- - The name of the Fund
- - The number of shares or the dollar amount you want to sell
- - Your account number
- - Your Social Security number or tax identification number
- - The signatures of each registered owner of the account (the signatures must
match the names on the account registration)
Additional documents may be required for certain types of shareholders, such as
corporations, partnerships, executors, trustees, administrators or guardians.
[Sidenote:]
SIGNATURE GUARANTEES
When selling your shares by mail or by phone, you must have your signature
guaranteed if:
- - you're selling shares worth more than $50,000
- - you want Galaxy to send your money to an address other than the address on
your account, unless your assets are transferred to a successor custodian
- - you want Galaxy to send your money to the address on your account that's
changed within the last 30 days
- - you want Galaxy to make the check payable to someone else
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<PAGE>
Your signature must be guaranteed by a bank that's a member of the FDIC, a trust
company, a member firm of a national securities exchange or any other eligible
institution. A notarized signature is not sufficient.
SELLING BY PHONE
You can sell shares by calling Galaxy's distributor at 1-877-BUY-GALAXY
(1-877-289-4252) unless you tell Galaxy in writing that you don't want this
privilege. If you have difficulty getting through to Galaxy because of unusual
market conditions, consider selling your shares by mail or wire.
SELLING BY WIRE
Notify Galaxy's distributor by phone or wire that you wish to sell shares and
have the sale proceeds wired to your account at any financial institution in the
U.S. To be eligible to use this privilege, you must notify Galaxy in writing
(with a signature guarantee). Your sale proceeds must be more than $1,000.
The sale proceeds must be paid to the same bank and account you named in your
written instructions.
CUSTOMERS OF FINANCIAL INSTITUTIONS
Please contact your financial institution for information on how to sell your
shares. The financial institution is responsible for sending your order to
Galaxy's distributor and for crediting your account with the proceeds. Galaxy
doesn't charge a fee for wiring sale proceeds to your financial institution, but
your financial institution may charge you a fee.
EXCHANGE PRIVILEGE
Shareholders may exchange BKB Shares of a Fund having a value of at least $100
for BKB Shares of any other Galaxy Fund. Shareholders won't pay a sales charge
for exchanging BKB Shares.
Shareholders may exchange Retail A Shares of a Fund having a value of at least
$100 for Retail A Shares of any other Galaxy Fund or for shares of any other
Fund that's managed by the Adviser or any of its affiliates in which they have
an existing account. Shareholders won't pay a sales charge for exchanging Retail
A Shares except that, unless a shareholder qualifies for a waiver, they will
have to pay a sales charge when exchanging Retail A Shares of a Money Market
Fund for Retail A Shares of another Galaxy Fund that imposes a sales charge on
purchases.
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<PAGE>
TO EXCHANGE SHARES:
- - call Galaxy's distributor or use the InvestConnect toll-free voice
response line at 1-877-BUY-GALAXY (1-877-289-4252)
- - send your request in writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
- - ask your financial institution
Galaxy doesn't charge any fee for making exchanges but your financial
institution might do so. You are generally limited to three exchanges per year.
Galaxy may change or cancel the exchange privilege with 60 days' advance written
notice to shareholders.
OTHER TRANSACTION POLICIES
If Galaxy doesn't receive full payment for your order to buy shares within
three business days of the order date, Galaxy won't accept your order. Galaxy
will advise you if this happens and return any payment it may eventually
receive. You can only invest in shares of the Funds that are legally available
in your state.
Galaxy may refuse any order to buy shares. Galaxy doesn't issue a certificate
when you buy shares but it does keep a record of shares issued to investors.
Galaxy may refuse your order to sell or exchange shares by wire or telephone if
it believes it is advisable to do so. Galaxy or its distributor may change or
cancel the procedures for selling or exchanging shares by wire or telephone at
any time without notice.
If you sell or exchange shares by telephone, you may be responsible for any
fraudulent telephone orders as long as Galaxy has taken reasonable precautions
to verify your identity, such as requesting information about the way in which
your account is registered or about recent transactions in your account.
Galaxy normally pays you cash when you sell your shares, but it has the right to
deliver securities owned by a Fund instead of cash. When you sell these
securities, you'll pay brokerage charges.
Sales proceeds are normally sent to you within three business days but Galaxy
reserves the right to send sales proceeds within seven days if sending proceeds
earlier could adversely affect a Fund.
If any shares that you're selling are part of an investment you've paid for
with a personal check, Galaxy will delay sending your sales proceeds until the
check clears, which can take up to 15 days from the purchase date.
Galaxy reserves the right to vary or waive any minimum investment requirements.
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<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Money Market Fund and each of the Short-Term Bond Fund, Intermediate
Government Income Fund, High Quality Bond Fund and Rhode Island Municipal Bond
Fund declares dividends from net investment income daily and pays them monthly.
The Money Market Fund and U.S. Treasury Fund expect that all, or substantially
all, of their distributions will consist of ordinary income. It is expected that
the annual distributions of the Short-Term Bond Fund, Intermediate Government
Income and High Quality Bond Funds will normally - but not always - consist
primarily of ordinary income rather than capital gains. It is expected that the
annual distributions of the Tax-Exempt Fund and Rhode Island Municipal Bond Fund
will be mainly income dividends.
The Asset Allocation Fund, Growth and Income Fund and Equity Growth Fund pay any
dividends from net investment income each quarter. The International Equity Fund
pays any dividends from net investment income annually. It's expected that the
annual distributions of these Funds will normally -- but not always -- consist
primarily of capital gains rather than ordinary income.
Each of the Funds pays any realized capital gains at least once annually,
although the Money Market Funds do not expect to realize net long-term capital
gains. Dividends and distributions are paid in cash unless you indicate in a
letter to Galaxy that you want to have dividends and distributions reinvested in
additional shares.
FEDERAL TAXES
MONEY MARKET, U.S. TREASURY, SHORT-TERM BOND, INTERMEDIATE GOVERNMENT INCOME,
HIGH QUALITY BOND, ASSET ALLOCATION, GROWTH AND INCOME, EQUITY GROWTH AND
INTERNATIONAL EQUITY FUNDS
Each Fund contemplates declaring as dividends each year all or substantially all
of its taxable income, including its net capital gain (the excess of long-term
capital gain over short-term capital loss). Distributions attributable to the
net capital gain of a Fund will be taxable to you as long-term capital gain,
regardless of how long you have held your shares. Other Fund distributions will
generally be taxable as ordinary income. You will be subject to income tax on
these distributions regardless of whether they are paid in cash or reinvested in
additional shares. You will be notified annually of the tax status of
distributions to you.
You should note that if you purchase shares just before a distribution, the
purchase price will reflect the amount of the upcoming distribution, but you
will be taxed on the entire amount of the distribution received, even though, as
an economic matter, the distribution simply constitutes a return of capital.
This is known as "buying into a dividend."
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<PAGE>
You will recognize taxable gain or loss on a sale, exchange or redemption of
your shares, including an exchange for shares of another Fund, based on the
difference between your tax basis in the shares and the amount you receive for
them. (To aid in computing your tax basis, you generally should retain your
account statements for the periods during which you held shares.) Generally,
this gain or loss will be long-term or short-term depending on whether your
holding period for the shares exceeds 12 months, except that any loss realized
on shares held for six months or less will be treated as a long-term capital
loss to the extent of any capital gain dividends that were received on the
shares. If you receive an exempt-interest dividend with respect to any share and
the shares 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.
The one major exception to these tax principles is that distributions on, and
sales, exchanges and redemptions of, shares held in an IRA (or other
tax-qualified plan) will not be currently taxable.
A Fund's dividends that are paid to its corporate shareholders and are
attributable to qualifying dividends the Fund receives from U.S. corporations
may be eligible, in the hands of the corporate shareholders, for the corporate
dividends-received deduction, subject to certain holding period requirements and
debt financing limitations.
It is expected that the International Equity Fund will be subject to foreign
withholding taxes with respect to dividends or interest received from sources in
foreign countries. The Fund may make an election to treat a proportionate amount
of these taxes as constituting a distribution to each shareholder, which would
allow each shareholder either (1) to credit this proportionate amount of taxes
against U.S. federal income tax liability or (2) to take this amount as an
itemized deduction.
TAX-EXEMPT AND RHODE ISLAND MUNICIPAL BOND FUNDS
Distributions by these Funds will generally consist of dividends derived from
interest earned on exempt securities, and these "exempt-interest dividends" will
be exempt income for shareholders for federal income tax purposes. It is
possible depending upon a Fund's investments, that a portion of the Fund's
distributions could be taxable to shareholders as ordinary income or capital
gains. The Tax-Exempt Fund does not expect that this will be the case.
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.
You should note that a portion of the exempt-interest dividends paid by one or
both of these Funds may constitute an item of tax preference for purposes of
determining federal alternative minimum tax liability. Exempt-interest dividends
will also be considered along with other adjusted gross income in determining
whether any Social Security or railroad retirement payments received by you are
subject to federal income taxes.
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STATE AND LOCAL TAXES
Shareholders may also be subject to state and local taxes on distributions,
redemptions and exchanges. State income taxes may not apply however to the
portions of a Fund's distributions, if any, that are attributable to interest on
U.S. Government securities or on securities of the particular state, its
agencies or municipalities. The Rhode Island Municipal Bond Fund intends to
comply with certain state and/or local tax requirements so that its income and
dividends will be exempt from Rhode Island state or local taxes described above
in the description for such Fund. Dividends, if any, derived from interest on
securities other than the Rhode Island municipal securities in which the Rhode
Island Municipal Bond Fund primarily invests will be subject to tax in the State
of Rhode Island.
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.
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<PAGE>
HOW TO REACH GALAXY
THROUGH YOUR FINANCIAL INSTITUTION
Your financial institution can help you buy, sell or exchange shares and can
answer questions about your account.
GALAXY SHAREHOLDER SERVICES
Call Galaxy's distributor at 1-877-BUY-GALAXY (1-877-289-4252), Monday through
Friday, 8 a.m. to 6 p.m. (Eastern time) for help from a Galaxy representative.
INVESTCONNECT
InvestConnect is Galaxy's shareholder voice response system. Call
1-877-BUY-GALAXY (1-877-289-4252) from any touch-tone phone for automated access
to account information and current Fund prices and performance, or to place
orders to sell or exchange shares. It's available 24 hours a day, seven days a
week.
If you live outside the United States, you can contact Galaxy by calling
1-508-871-4121.
THE INTERNET
Please visit Galaxy's website at: www.galaxyfunds.com
[Sidenote:]
Galaxy also offers a TDD service for the hearing impaired. Just call
1-800-696-6515, 24 hours a day, seven days a week.
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FINANCIAL HIGHLIGHTS
The financial highlights tables shown below will help you understand the
financial performance for the Funds' Retail A Shares for the past five years (or
the period since a particular Fund began operations). Certain information
reflects the financial performance of a single Retail A Share. The total returns
in the tables represent the rate that an investor would have earned (or lost) on
an investment in Retail A Shares of each Fund, assuming all dividends and
distributions were reinvested. The information for the fiscal year ended October
31, 1999 has been audited by ____________, independent auditors, whose report,
along with the Funds' financial statements, are included in the Funds' Annual
Reports and are incorporated by reference into the SAI. The Annual Reports and
SAI are available free of charge upon request. The information for the fiscal
years ended October 31, 1995, 1996, 1997 and 1998 was audited by Galaxy's former
auditors, _________________. During the periods shown, the Funds did not offer
BKB Shares. Actual investment results for BKB Shares may be different.
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<PAGE>
Galaxy Money Market Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Year Ending October 31,
----------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Retail A Retail A Retail A Retail A Retail A
Shares Shares Shares Shares Shares
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ...... $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------
Income from investment operations:
0.05
Net investment income(1) .................. 0.05 0.05 0.05
Net realized and unrealized gain (loss) on
investments .......................... -- -- -- --
------ ------ ------ ------
Total from investment operations ..... 0.05 0.05 0.05 0.05
------ ------ ------ ------
Less dividends:
Dividends from net investment
income ......................... (0.05) (0.05) (0.05) (0.05)
Dividends from net realized capital
gains .......................... -- -- -- --
------ ------ ------ ------
Total dividends ......................... (0.05) (0.05) (0.05) (0.05)
Net increase (decrease) in net asset value -- -- -- --
------ ------ ------ ------
Net asset value, end of period ............ $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------
------ ------ ------ ------
Total return .............................. 5.04% 4.93% 4.78% 5.23%
Ratios/supplemental data:
Net assets, end of period (000's) ....... $2,139,213 $1,877,889 $1,159,312 $580,762
Ratios to average net assets:
Net investment income including
reimbursement/ waiver ................ 4.94% 4.85% 4.67% 5.12%
Operating expenses including
reimbursement/waiver ................. 0.67% 0.69% 0.77% 0.74%
Operating expenses excluding
reimbursement/waiver ................. 0.71% 0.73% 0.80% 0.76%
</TABLE>
- -------------------
(1) Net investment income per share for Retail A Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for the years ended October 31, 1999, 1998, 1997, 1996 and 1995 was $____,
$0.05, $0.05, $0.05 and $0.05, respectively.
-76-
<PAGE>
Galaxy U.S. Treasury Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Year Ending October 31,
----------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Retail A Retail A Retail A Retail A Retail A
Shares Shares Shares Shares Shares
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period .................................. $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------
Income from investment
operations:
Net investment income(1) ................ 0.05 0.05 0.05 0.05
Net realized and unrealized
gain (loss) on investments ............ -- -- -- --
------ ------ ------ ------
Total from investment
operations ......................... 0.05 0.05 0.05 0.05
------ ------ ------ ------
Less dividends:
Dividends from net investment
income ............................... (0.05) (0.05) (0.05) (0.05)
Dividends from net realized
capital gains ........................ -- -- -- --
------ ------ ------ ------
Total dividends ...................... (0.05) (0.05) (0.05) (0.05)
------ ------ ------ ------
Net increase (decrease) in net
asset value ............................. -- -- -- --
------ ------ ------ ------
Net asset value, end of
period .................................. $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------
------ ------ ------ ------
Total return .............................. 4.73% 4.67% 4.63% 4.99%
Ratios/supplemental data:
Net assets, end of period
(000's) ............................... $559,053 $585,969 $443,230 $318,621
Ratios to average net assets:
Net investment income including
reimbursement/
waiver ............................... 4.63% 4.58% 4.53% 4.90%
Operating expenses including
reimbursement/waiver ................. 0.68% 0.69% 0.69% 0.73%
Operating expenses excluding
reimbursement/waiver ................ 0.68% 0.70% 0.69% 0.73%
</TABLE>
- -------------------------
(1) Net investment income per share for Retail A Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for the years ended October 31, 1999, 1998, 1997, 1996 and 1995 was $_____,
$0.05, $0.05, $0.05 and $0.05, respectively.
-77-
<PAGE>
Galaxy Tax-Exempt Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Year Ending October 31,
----------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Retail A Retail A Retail A Retail A Retail A
Shares Shares Shares Shares Shares
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period .................................. $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------
Income from investment
operations:
Net investment income(1) ................ 0.03 0.03 0.03 0.03
Net realized and unrealized
gain (loss) on investments ........... -- -- -- --
------ ------ ------ ------
Total from investment
operations ......................... 0.03 0.03 0.03 0.03
------ ------ ------ ------
Less dividends:
Dividends from net investment
income ............................... (0.03) (0.03) (0.03) (0.03)
Dividends from net realized
capital gains ........................ -- -- -- --
------ ------ ------ ------
Total dividends ...................... (0.03) (0.03) (0.03) (0.03)
------ ------ ------ ------
Net increase (decrease) in net
asset value ............................. -- -- -- --
------ ------ ------ ------
Net asset value, end of
period .................................. $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------
------ ------ ------ ------
Total return .............................. 2.89% 2.95% 2.82% 3.16%
Ratios/supplemental data:
Net assets, end of period (000's) ....... $164,340 $151,907 $117,548 $127,056
Ratios to average net assets:
Net investment income including
reimbursement/ waiver ................ 2.85% 2.92% 2.78% 3.12%
Operating expenses including
reimbursement/waiver ................. 0.67% 0.68% 0.68% 0.68%
Operating expenses excluding
reimbursement/waiver ................. 0.67% 0.69% 0.69% 0.71%
</TABLE>
- --------------------
(1) Net investment income per share for Retail A Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for the years ended October 31, 1999, 1998, 1997, 1996 and 1995 was $____,
$0.03, $0.03, $0.03 and $0.03, respectively.
-78-
<PAGE>
Galaxy Short-Term Bond Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Year Ending October 31,
-----------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Retail A Retail A Retail A Retail A Retail A
Shares Shares Shares Shares Shares
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ........................ $10.01 $ 9.99 $10.06 $ 9.73
------ ------ ------ ------
Income from investment operations:
Net investment income(1) .............................. 0.51 0.53 0.52 0.55
Net realized and unrealized gain (loss) on investments 0.11 0.02 (0.07) 0.33
------ ------ ------ ------
Total from investment operations ............................ 0.62 0.55 0.45 0.88
------ ------ ------ ------
Less dividends:
Dividends from net investment income .................. (0.53) (0.53) (0.52) (0.55)
Dividends from net realized capital gains ............. -- -- -- --
Dividends in excess of net realized capital gains ..... -- -- -- --
------ ------ ------ ------
Total dividends ............................................. (0.53) (0.53) (0.52) (0.55)
------ ------ ------ ------
Net increase (decrease) in net asset value .................. 0.09 0.02 (0.07) 0.33
------ ------ ------ ------
Net asset value, end of period .............................. $ 10.10 $ 10.01 $ 9.99 $ 10.06
------ ------ ------ ------
------ ------ ------ ------
Total return(2) ............................................. 6.42% 5.64% 4.63% 9.28%
Ratios/supplemental data:
Net assets, end of period (000's) ..................... $29,067 $27,961 $33,388 $31,542
Ratios to average net assets:
Net investment income including reimbursement/waiver .. 5.07% 5.29% 5.22% 5.54%
Operating expenses including reimbursement/waiver ..... 1.11% 1.00% 1.11% 0.99%
Operating expenses excluding reimbursement/waiver ..... 1.31% 1.21% 1.35% 1.32%
Portfolio turnover rate ..................................... 133% 173% 214% 289%
</TABLE>
- -------------------------------
(1) Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for Retail A Shares for the years
ended October 31, 1999, 1998, 1997, 1996 and 1995 was $____, $0.49, $0.51,
$0.50 and $0.52, respectively.
(2) Calculation does not include the effect of
any sales charge.
-79-
<PAGE>
Galaxy Intermediate Government Income Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Year Ending October 31,
-----------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Retail A Retail A Retail A Retail A Retail A
Shares Shares Shares Shares Shares
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period......................... $10.18 $ 10.06 $ 10.28 $ 9.68
------ ------ ------ ------
Income from investment operations:
Net investment income(1)................................. 0.57 0.59 0.57 0.61
Net realized and unrealized gain (loss) on investments 0.34 0.12 (0.22) 0.60
------ ------ ------ ------
Total from investment operations............................. 0.91 0.71 0.35 1.21
------ ------ ------ ------
Less dividends:
Dividends from net investment income................... (0.59) (0.59) (0.57) (0.61)
Dividends in excess of net investment income .......... -- -- -- --
Dividends from net realized capital gains ............. -- -- -- --
Dividends in excess of net realized capital gains ..... -- -- -- --
------ ------ ------ ------
Total dividends.............................................. (0.59) (0.59) (0.57) (0.61)
------ ------ ------ ------
Net increase (decrease) in net asset value................... 0.32 0.12 (0.22) 0.60
------- -------- -------- --------
Net asset value, end of period............................... $ 10.50 $ 10.18 $ 10.06 $ 10.28
------ ------ ------ ------
------ ------ ------ ------
Total return(2)................................................ 9.22% 7.33% 3.58% 12.85%
Ratios/supplemental data:
Net assets, end of period (000's)...................... $66,865 $65,626 $79,741 $79,558
Ratios to average net assets:
Net investment income including reimbursement/waiver .. 5.49% 5.90% 5.69% 6.10%
Operating expenses including reimbursement/waiver ..... 1.01% 1.02% 1.04% 1.02%
Operating expenses excluding reimbursement/waiver ..... 1.21% 1.22% 1.24% 1.26%
Portfolio turnover rate...................................... 210% 128% 235% 145%
</TABLE>
- ----------------------------------
(1) Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for Retail A Shares for the years
ended October 31, 1999, 1998, 1997, 1996 and 1995 was $___, $0.55, $0.57,
$0.55 and $0.58, respectively. Net investment income per share before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for the year ended October 31, 1999 was $_______________.
(2) Calculation does not include the effect of any sales charge.
-80-
<PAGE>
Galaxy High Quality Bond Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Retail Retail Retail Retail Retail
A SHARES A SHARES A SHARES A SHARES A SHARES
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period......... $ 10.70 $ 10.47 $ 10.63 $ 9.54
------ ------- ------- -------
Income from investment operations:
Net investment income(1)............... 0.58 0.60 0.59 0.62
Net realized and unrealized gain (loss)
on investments.................... 0.50 0.23 (0.16) 1.09
------- -------- -------- --------
Total from investment operations............. 1.08 0.83 0.43 1.71
------- -------- -------- --------
Less dividends:
Dividends from net investment income... (0.58) (0.60) (0.59) (0.62)
Dividends from net realized capital gains -- -- -- --
Dividends in excess of net realized capital gains -- -- -- --
------- -------- -------- --------
Total dividends.............................. (0.58) (0.60) (0.59) (0.62)
------- -------- -------- --------
Net increase (decrease) in net asset value... 0.50 0.23 (0.16) 1.09
------- -------- -------- --------
Net asset value, end of period............... $ 11.20 $ 10.70 $ 10.47 $ 10.63
------- -------- -------- --------
------- -------- -------- --------
Total return(2) 10.35% 8.22% 4.24% 18.46%
Ratios/supplemental data:
Net assets, end of period (000's)...... $45,879 $27,950 $30,984 $ 30,093
Ratios to average net assets:
Net investment income including reimbursement/waiver 5.30% 5.73% 5.66% 6.16%
Operating expenses including
Reimbursement/waiver.............. 1.00% 1.01% 1.07% 1.02%
Operating expenses excluding
Reimbursement/waiver.............. 1.20% 1.21% 1.28% 1.26%
Portfolio turnover rate...................... 253% 182% 163% 110%
</TABLE>
- ----------------------------------
1 Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for Retail A Shares for the years
ended October 31, 1999, 1998, 1997, 1996 and 1995 was $___, $0.56, $0.58,
$0.57 and $0.59, respectively.
3 Calculation does not include the effect of any sales charge.
-81-
<PAGE>
Galaxy Rhode Island Municipal Bond Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
------------------------------------------------------------------------------
1999 1998 1997 1996 For the period ending
-------- -------- -------- ---------
Retail Retail Retail Retail OCTOBER 31, 1995(1)
A SHARES A SHARES A SHARES A SHARES RETAIL A SHARES
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.......... $ 10.91 $ 10.65 $ 10.67 $ 10.00
------ -------- --------- --------
Income from investment operations:
Net investment income(2)................... 0.50 0.48 0.51 0.44
Net realized and unrealized gain
on investments........................... 0.29 0.32 0.03 0.67
-------- ---------- --------- ---------
Total from investment operations.............. 0.79 0.80 0.54 1.11
-------- ---------- --------- ---------
Less dividends:
Dividends from net investment
income................................... (0.50) (0.50) (0.51) (0.44)
Dividends from net realized capital gains.. (0.02) (0.04) (0.05) ---
-------- ---------- --------- ---------
Total dividends............................... (0.52) (0.54) (0.56) (0.44)
-------- ---------- --------- ---------
Net increase (decrease) in net asset
value.................................... 0.27 0.26 (0.02) 0.67
-------- ---------- --------- ---------
Net asset value, end of period................ $ 11.18 $ 10.91 $ 10.65 $ 10.67
-------- ---------- --------- ---------
-------- ---------- --------- ---------
Total return(3) 7.35% 7.78% 5.22% 11.29%(4)
Ratios/supplemental data:
Net assets, end of period (000's).......... $20,210 $ 17,134 $ 14,900 $ 10,850
Ratios to average net assets:
Net investment income including
Reimbursement/waiver..................... 4.52% 4.50% 4.78% 5.13%(5)
Operating expenses including
Reimbursement/waiver..................... 0.81% 0.83% 0.77% 0.40%(5)
Operating expenses excluding
Reimbursement/waiver..................... 1.23% 1.34% 1.34% 2.25%(5)
Portfolio turnover rate....................... 41% 19% 13% 34%(4)
</TABLE>
1 The Fund commenced operations on December 20, 1994.
2 Net investment income per share for Retail A Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's
administrator for the years ended October 31, 1999, 1998, 1997 and 1996
and for the period ended October 31, 1995 was $___, $0.45, $0.43, $0.45
and $0.28, respectively.
3 Calculation does not include the effect of any sales charge.
4 Not annualized.
5 Annualized.
-82-
<PAGE>
Galaxy Asset Allocation Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
FOR THE YEAR ENDING OCTOBER 31,
-------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Retail Retail Retail Retail Retail
A SHARES A SHARES A SHARES A SHARES A SHARES
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.................. $ 16.46 $ 14.52 $ 12.82 $ 10.67
-------- -------- -------- --------
Income from investment operations:
Net investment income(1)............. 0.38 0.40 0.30 0.30
Net realized and unrealized gain
(loss) on investments............ 1.72 2.43 1.83 2.16
-------- -------- -------- --------
Total from investment operations.......... 2.10 2.83 2.13 2.46
-------- -------- -------- --------
Less dividends:
Dividends from net investment
income........................... (0.40) (0.38) (0.30) (0.31)
Dividends from net realized capital
gains............................ (1.21) (0.51) (0.13) --
-------- -------- -------- ---- --
Total dividends........................... (1.61) (0.89) (0.43) (0.31)
-------- -------- -------- --------
Net increase (decrease) in net asset
value............................ 0.49 1.94 1.70 2.15
-------- -------- -------- --------
Net asset value, end of period............ $ 16.95 $ 16.46 $ 14.52 $ 12.82
====== ======== ======== ========
Total return(2)........................... 13.85% 20.23% 16.92% 23.42%
Ratios/supplemental data:
Net assets, end of period (000's).... $323,498 $177,239 $116,852 $76,368
Ratios to average net assets:
Net investment income including
Reimbursement/waiver............. 2.43% 2.66% 2.29% 2.52%
Operating expenses including
Reimbursement/waiver............. 1.33% 1.37% 1.42% 1.48%
Operating expenses excluding
Reimbursement/waiver............. 1.33% 1.37% 1.42% 1.50%
Portfolio turnover rate................... 108% 58% 48% 41%
</TABLE>
- ------------------------------
1 Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for Retail A Shares for the years
ended October 31, 1999, 1998, 1997, 1996 and 1995 was $____, $0.38, $0.40,
$0.30 and $0.30, respectively.
2 Calculation does not include the effect of any sales charge.
-83-
<PAGE>
Galaxy Growth and Income Fund(1)
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
FOR THE YEAR ENDING OCTOBER 31,
-------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Retail Retail Retail Retail Retail
A SHARES A SHARES A SHARES A SHARES A SHARES
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period....................... $ 16.24 $ 13.78 $ 12.35 $ 11.15
-------- -------- -------- --------
Income from investment operations:
Net investment income(2).................. 0.12 0.18 0.21 0.24
Net realized and unrealized gain on 1.32 3.67 2.16 1.70
-------- -------- -------- --------
investments...............................
Total from investment operations............... 1.44 3.85 2.37 1.94
-------- -------- -------- --------
Less dividends:
Dividends from net investment
income................................ (0.13) (0.20) (0.21) (0.25)
Dividends from net realized gains......... (2.68) (1.19) (0.73) (0.49)
-------- -------- -------- --------
Total dividends........................... (2.81) (1.39) (0.94) (0.74)
-------- -------- -------- --------
Net increase (decrease) in net asset value..... (1.37) 2.46 1.43 1.20
-------- -------- -------- --------
Net asset value, end of period................. $ 14.87 $ 16.24 $ 13.78 $ 12.35
-------- -------- -------- --------
-------- -------- -------- --------
Total return(3)................................ 9.93% 30.10% 20.25% 18.52%
Ratios/supplemental data:
Net assets, end of period (000's)......... $214,110 $141,884 $77,776 $51,078
Ratios to average net assets:
Net investment income including
Reimbursement/waiver.................. 0.75% 1.18% 1.65% 2.10%
Operating expenses including
Reimbursement/waiver.................. 1.28% 1.27% 1.34% 1.32%
Operating expenses excluding
Reimbursement/waiver.................. 1.35% 1.45% 1.45% 1.77%
Portfolio turnover rate........................ 38% 93% 59% 51%
</TABLE>
- ------------------------------
1 The Fund commenced operations on December 14, 1992 as a separate investment
portfolio (the "Predecessor Fund") of The Shawmut Funds. The Predecessor
Fund began offering Investment Shares on February 12, 1993. On December 4,
1995, the Predecessor Fund was reorganized as a new portfolio of Galaxy.
Prior to the reorganization, the Predecessor Fund offered and sold two
series of shares, Investment Shares and Trust Shares, that were similar to
the Fund's Retail A Shares and Trust Shares, respectively. In connection
with the reorganization, shareholders of the Predecessor Fund exchanged
Investment Shares and Trust Shares for Retail A Shares and Trust Shares,
respectively, in the Fund.
2 Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for Retail A Shares for the years
ended October 31, 1999, 1998, 1997 and 1996 was $____, $0.10, $0.18 and
$0.19, respectively. Net investment income per share before
reimbursement/waiver of fees by other parties for Retail A Shares for the
year ended October 31, 1995 was $0.22 (unaudited).
3 Calculation does not include the effect of any sales charge.
-84-
<PAGE>
Galaxy Equity Growth Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
FOR THE YEAR ENDING OCTOBER 31,
--------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Retail Retail Retail Retail Retail
A SHARES A SHARES A SHARES A SHARES A SHARES
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.................. $ 25.14 $ 20.37 $ 17.29 $ 14.18
------- -------- -------- --------
Income from investment operations:
Net investment income (loss)(1)...... 0.01 0.07 0.10 0.14
Net realized and unrealized gain
on investments................... 3.19 6.05 3.39 3.28
---------- ---------- ---------- ----------
Total from investment operations.......... 3.20 6.12 3.49 3.42
---------- ---------- ---------- ----------
Less dividends:
Dividends from net investment
income........................... (0.03) (0.07) (0.11) (0.14)
Dividends in excess of net investment
income........................... --(3) -- -- --
------- -------- -------- --------
Dividends from net realized capital
gains............................ (3.84) (1.28) (0.30) (0.17)
---------- ---------- ---------- ----------
Total dividends........................... (3.87) (1.35) (0.41) (0.31)
---------- ---------- ---------- ----------
Net increase (decrease) in net asset value (0.67) 4.77 3.08 3.11
---------- ---------- ---------- ----------
Net asset value, end of period............ $ 24.47 $ 25.14 $ 20.37 $ 17.29
------- -------- -------- --------
------- -------- -------- --------
Total return(2)........................... 14.73% 31.61% 20.51% 24.54%
Ratios/supplemental data:
Net assets, end of period (000's).... $312,951 $226,330 $160,800 $98,911
Ratios to average net assets:
Net investment income including
Reimbursement/waiver............. 0.02% 0.30% 0.50% 0.85%
Operating expenses including
Reimbursement/waiver............. 1.34% 1.37% 1.40% 1.45%
Operating expenses excluding
Reimbursement/waiver............. 1.34% 1.37% 1.40% 1.47%
Portfolio turnover rate................... 60% 66% 36% 14%
</TABLE>
- ------------------------------------
1 Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for Retail A Shares for the years
ended October 31, 1999, 1998, 1997, 1996 and 1995 was $____, $0.01, $0.07,
$0.10 and $0.13, respectively.
2 Calculation does not include the effect of any sales charge.
3 Dividends in excess of net investment income per share were less than
$0.005.
-85-
<PAGE>
Galaxy International Equity Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
Retail Retail Retail Retail Retail
A SHARES A SHARES A SHARES A SHARES A SHARES
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........ $ 15.18 $ 13.94 $ 12.92 $ 13.20
-------- -------- -------- --------
Income from investment operations:
Net investment income(1)............... 0.07 0.01 0.11 0.11
Net realized and unrealized gain
(loss) on investments.............. 1.93 2.09 1.27 (0.21)
-------- -------- -------- ---------
Total from investment operations............ 2.00 2.10 1.38 (0.10)
-------- -------- -------- --------
Less dividends:
Dividends from net investment
income............................. (0.07) (0.18) (0.12) (0.02)
Dividends from net realized capital
gains.............................. (0.36) (0.68) (0.24) (0.16)
--------- -------- -------- --------
Total dividends............................. (0.43) (0.86) (0.36) (0.18)
--------- -------- -------- --------
Net increase (decrease) in net asset value.. 1.57 1.24 1.02 (0.28)
-------- -------- -------- --------
Net asset value, end of period.............. $ 16.75 $ 15.18 $ 13.94 $ 12.92
======== ======= ======= =======
Total return(2)............................. 13.64% 15.88% 10.86% (0.64)%
Ratios/supplemental data:
Net assets, end of period (000's)...... $ 66,541 $56,592 $35,144 $30,104
Ratios to average net assets:
Net investment income including
reimbursement/waiver............... 0.39% 0.03% 0.78% 0.84%
Operating expenses including
reimbursement/waiver............... 1.48% 1.60% 1.70% 1.76%
Operating expenses excluding
reimbursement/waiver............... 1.73% 1.85% 1.98% 2.03%
Portfolio turnover rate..................... 49% 45% 146% 48%
</TABLE>
- -----------------------------
1 The selected per share data was calculated using the weighted average
shares outstanding method for the year. Net investment income (loss) per
share before reimbursement/waiver of fees by the Adviser and/or the Fund's
administrator for Retail A Shares for the years ended October 31, 1999,
1998, 1997, 1996 and 1995 was $____, $0.03, $(0.01), $0.07 and $0.08,
respectively.
2 Calculation does not include the effect of any sales charge.
-86-
<PAGE>
[Back Cover Page]
Where to find more information
You'll find more information about the Funds in the following documents:
ANNUAL AND SEMI-ANNUAL REPORTS
Galaxy's annual and semi-annual reports contain more information about each Fund
and a discussion about the market conditions and investment strategies that had
a significant effect on each Fund's performance during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains detailed information about the Funds and their policies. By
law, it's incorporated by reference into (considered to be part of) this
prospectus.
You can get a free copy of these documents, request other information about the
Funds and make shareholder inquiries by calling Galaxy at 1-877-BUY-GALAXY
(1-877-289-4252) or by writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
If you buy your shares through a financial institution, you may contact your
institution for more information.
You can write to the Securities and Exchange Commission (SEC) Public Reference
Section and ask them to mail you information about the Funds, including the SAI.
They'll charge you a fee for this service. You can also visit the SEC Public
Reference Room and copy the documents while you're there. For information about
the operation of the Public Reference Room, call the SEC.
Public Reference Section of the SEC Washington, DC 20549-0102 1-202-942-8090.
Reports and other information about the Funds are also available on the EDGAR
Database on the SEC's website at http://www.sec.gov. Copies of this information
may also be obtained, after paying a duplicating fee, by electronic request to
SEC's e-mail address at [email protected].
Galaxy's Investment Company Act File No. is 811-4636.
[Fleet assigned code]
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THE GALAXY FUND
STATEMENT OF ADDITIONAL INFORMATION
______________________, 2000
GALAXY MONEY MARKET FUND
GALAXY U.S. TREASURY FUND
GALAXY TAX-EXEMPT FUND
GALAXY SHORT-TERM BOND FUND
GALAXY INTERMEDIATE GOVERNMENT INCOME FUND
GALAXY HIGH QUALITY BOND FUND
GALAXY RHODE ISLAND MUNICIPAL BOND FUND
GALAXY ASSET ALLOCATION FUND
GALAXY GROWTH AND INCOME FUND
GALAXY EQUITY GROWTH FUND
GALAXY INTERNATIONAL EQUITY FUND
BKB SHARES
This Statement of Additional Information is not a prospectus. It
relates to the prospectus dated _________, 2000 for BKB Shares of the Funds (the
"Prospectus"). The Prospectus, as it may be supplemented or revised from time to
time, as well as the Funds' Annual Reports to Shareholders dated October 31,
1999 (the "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 and the report thereon of [______________],
The Galaxy Fund's independent accountants, are [____________________________]
this Statement of Additional Information.
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TABLE OF CONTENTS
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GENERAL INFORMATION..............................................................................................1
DESCRIPTION OF GALAXY AND ITS SHARES.............................................................................1
INVESTMENT STRATEGIES, POLICIES AND RISKS........................................................................5
Money Market Fund.......................................................................................5
U.S. Treasury Fund......................................................................................5
Tax-Exempt Fund.........................................................................................6
Short-Term Bond Fund....................................................................................6
Intermediate Government Income Fund.....................................................................7
High Quality Bond Fund..................................................................................7
Rhode Island Municipal Bond Fund........................................................................8
Asset Allocation Fund...................................................................................9
Growth and Income Fund..................................................................................9
Equity Growth Fund.....................................................................................10
International Equity Fund..............................................................................10
Special Risk Considerations............................................................................11
Foreign Securities.....................................................................................11
European Currency Unification..........................................................................12
General Risk Considerations............................................................................12
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...................................................................................17
Stand-by Commitments...................................................................................20
Private Activity Bonds.................................................................................20
Tender Option Bonds....................................................................................21
Custodial Receipts and Certificates of Participation...................................................21
Repurchase and Reverse Repurchase Agreements...........................................................22
Securities Lending.....................................................................................23
Investment Company Securities..........................................................................23
REITs..................................................................................................24
Derivative Securities..................................................................................24
American, European and Global Depository Receipts......................................................34
Asset-Backed Securities................................................................................35
Mortgage-Backed Securities.............................................................................36
Mortgage Dollar Rolls..................................................................................36
Convertible Securities.................................................................................37
When-Issued, Forward Commitment and Delayed Settlement Transactions....................................38
Stripped Obligations...................................................................................40
Guaranteed Investment Contracts........................................................................40
Bank Investment Contracts..............................................................................41
Portfolio Securities Generally.........................................................................41
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Portfolio Turnover.....................................................................................41
INVESTMENT LIMITATIONS..........................................................................................41
VALUATION OF PORTFOLIO SECURITIES...............................................................................55
Valuation of the Money Market, U.S. Treasury and Tax-Exempt Funds......................................55
Valuation of the Short-Term Bond, Intermediate Government Income, High
Quality Bond and Rhode Island Municipal Bond Funds.............................................56
Valuation of the Asset Allocation, Growth and Income and Equity Growth Funds...........................56
Valuation of the International Equity Fund.............................................................57
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION..................................................................57
Other Purchase Information- Retail A Shares............................................................57
Applicable Sales Charge - Retail A Shares..............................................................58
Computation of Offering Price - Retail A Shares........................................................59
Quantity Discounts.....................................................................................62
Redemption of BKB Shares...............................................................................64
EXCHANGE PRIVILEGE..............................................................................................64
TAXES...........................................................................................................66
In General.............................................................................................66
State and Local........................................................................................67
Taxation of Certain Financial Instruments..............................................................68
Miscellaneous..........................................................................................69
TRUSTEES AND OFFICERS...........................................................................................69
Shareholder and Trustee Liability......................................................................73
INVESTMENT ADVISER AND SUB-ADVISER..............................................................................74
Administrator..........................................................................................77
CUSTODIAN AND TRANSFER AGENT....................................................................................79
EXPENSES........................................................................................................79
PORTFOLIO TRANSACTIONS..........................................................................................80
SHAREHOLDER SERVICES PLANS......................................................................................83
DISTRIBUTOR.....................................................................................................86
AUDITORS........................................................................................................87
COUNSEL.........................................................................................................87
PERFORMANCE AND YIELD INFORMATION...............................................................................87
Money Market, U.S. Treasury and Tax-Exempt Funds.......................................................87
Short-Term Bond, Intermediate Government Income, High Quality Bond, Rhode
Island Municipal Bond, Asset Allocation, Growth and Income, Equity
Growth and International Equity Funds.........................................................88
Tax-Equivalency Table - Rhode Island Municipal Bond Fund...............................................90
Performance Reporting..................................................................................91
MISCELLANEOUS...................................................................................................92
FINANCIAL STATEMENTS...........................................................................................100
APPENDIX A.....................................................................................................A-1
APPENDIX B.....................................................................................................B-1
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GENERAL INFORMATION
This Statement of Additional Information should be read in
conjunction with the current Prospectus. This Statement of Additional
Information relates to the Prospectus for BKB Shares of the eleven Funds
listed on the cover page. Each Fund also offers one or more other share
classes (i.e., Trust, Retail A, Retail B, Prime A and Prime B 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 Prospectus. No investment in BKB Shares of
the Funds should be made without reading the Prospectus.
BKB Shares will initially be issued in connection with the
reorganization of the Boston 1784 Funds into Galaxy (the
"Reorganization"). Following the Reorganization, BKB Shares will be available
for purchase only by those shareholders who received BKB Shares in the
Reorganization. BKB Shares of a Fund will convert into Retail A
Shares of the same Fund on the first anniversary of the Reorganization,
provided that the Board of Trustees of Galaxy has determined such conversion
is in the best interests of the holders of BKB Shares. Because of this
conversion feature, some information is provided in this Statement of
Additional Information for Retail A Shares of the Funds.
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. ALTHOUGH THE MONEY MARKET, U.S. TREASURY AND
TAX-EXEMPT FUNDS SEEK TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER
SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUNDS. YOU ALSO COULD
LOSE MONEY BY INVESTING IN ANY OF THE OTHER FUNDS. 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
<PAGE>
beneficial interest in two additional investment portfolios, the MidCap
Equity Fund and the New York Municipal Money Market Fund. As of the date of
this Statement of Additional Information, however, the MidCap Equity Fund and
the New York Municipal Money Market Fund have not commenced investment
operations.
The Growth and Income Fund commenced operations on December 14, 1992
as separate investment portfolios (the "Predecessor Growth and Income Fund")
of The Shawmut Funds, which was organized as a Massachusetts business trust.
On December 4, 1995, the Predecessor Growth and Income Fund was reorganized
as a new portfolio of Galaxy. Prior to the reorganization, the Predecessor
Growth and Income Fund offered and sold shares of beneficial interest that
were similar to Galaxy's Trust Shares and Retail A Shares.
Galaxy was organized as a Massachusetts business trust on March 31,
1986. Galaxy's Declaration of Trust authorizes the Board of Trustees to
classify or reclassify any unissued shares into one or more classes or series
of shares by setting or changing in any one or more respects their respective
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption. Pursuant to such authority, the Board of Trustees has authorized
the issuance of an unlimited number of shares in each of the series in the
Funds as follows: Class A Shares (Retail A Shares), Class A -- Special Series
1 Shares (Trust Shares), Class A -- Special Series 2 Shares (Retail B Shares)
and Class A -- Special Series 3 shares (BKB Shares), each series representing
interests in the Money Market 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), Class D shares -Special Series 4 shares (Prime B Shares) and Class D
- - Special Series 5 shares (BKB Shares), each series representing interests in
the Intermediate Government Income Fund; Class E Shares (Retail A Shares),
Class E -- Special Series 1 Shares (Trust Shares) and Class E - Special
Series 2 Shares (BKB Shares), each series representing interests in the
Tax-Exempt Fund; Class F Shares (Retail A Shares), Class F -- Special Series
1 Shares (Trust Shares) and Class FF --Special Series 2 Shares (BKB Shares),
each series representing interests in the U.S. Treasury 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), Class G - Series 5 shares (Prime B Shares) and Class G - Series 6
shares (BKB 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), Class H - Series 5 shares (Prime B
Shares) and Class H - Series 6 shares (BKB Shares), each series representing
interests in the Equity Growth 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), Class J
Series 5 shares (Prime B Shares) and Class J - Series 6 shares (BKB Shares),
each series representing interests in the High Quality Bond Fund; Class L
- -Series 1 shares (Trust Shares), Class L - Series 2 shares (Retail A Shares),
Class L Series 3 shares (Retail B Shares), Class L - Series 4 shares (Prime A
Shares), Class L - Series 5 shares (Prime B Shares) and Class L - Series 6
shares (BKB Shares), each series representing interests in the Short-Term
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), Class N - Series 5 shares (Prime B
-2-
<PAGE>
Shares) and Class N - Series 6 shares (BKB Shares), each series representing
interests in the Asset Allocation Fund; Class R - Series 1 shares (Trust
Shares) , Class R - Series 2 shares (Retail A Shares) and Class R - Series 3
shares (BKB Shares), each series representing interests in the Rhode Island
Municipal Bond 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), Class U Series 5 shares
(Prime B Shares) and Class U - Series 6 shares (BKB Shares), each series
representing interests in the Growth and Income Fund. Each Fund, except the
Rhode Island Municipal Bond Fund, is classified as a diversified company
under the Investment Company Act of 1940, as amended (the "1940 Act"). The
Rhode Island Municipal Bond Fund is classified as a non-diversified company
under the 1940 Act.
Each share of Galaxy (irrespective of series designation) has a par
value of $.001 per share, represents an equal proportionate interest in the
related investment portfolio with other shares of the same class
(irrespective of series designation), and is entitled to such dividends and
distributions out of the income earned on the assets belonging to such
investment portfolio as are declared in the discretion of Galaxy's Board of
Trustees.
Shares have no preemptive rights and only such conversion or
exchange rights as the Board of Trustees may grant in its discretion. When
issued for payment as described in the Prospectus, shares will be fully paid
and non-assessable. Each series of shares (i.e., BKB Shares, 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 BKB Shares will bear the expenses
of the Shareholder Services Plan for BKB Shares and holders of Retail A
Shares will bear the expenses of the Shareholder Services Plan for Retail A
Shares and Trust Shares (which is currently applicable only to Retail A
Shares). In addition, each series may incur differing transfer agency fees
and may have differing sales charges. Standardized yield and total return
quotations are computed separately for each series of shares. The differences
in expenses paid by the respective series will affect their performance. See
"Shareholder Services Plans" 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 BKB Shares of a Fund will be
entitled to
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<PAGE>
vote on matters submitted to a vote of shareholders pertaining to Galaxy's
Shareholder Services Plan for BKB Shares and only Retail A Shares of a Fund
will be entitled to vote on matters submitted to a vote of shareholders
pertaining to Galaxy's Shareholder Services Plan for Retail A Shares).
Further, shareholders of all of the Funds, as well as those of any other
investment portfolio now or hereafter offered by Galaxy, will vote together
in the aggregate and not separately on a Fund-by-Fund basis, except as
otherwise required by law or when permitted by the Board of Trustees. Rule
18f-2 under the 1940 Act provides that any matter required to be submitted to
the holders of the outstanding voting securities of an investment company
such as Galaxy shall not be deemed to have been effectively acted upon unless
approved by the holders of a majority of the outstanding shares of each Fund
affected by the matter. A particular Fund is deemed to be affected by a
matter unless it is clear that the interests of each Fund in the matter are
substantially identical or that the matter does not affect any interest of
the Fund. Under the Rule, the approval of an investment advisory agreement or
a distribution plan 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
-4-
<PAGE>
value. In the event that shares are redeemed in cash at their net asset
value, a shareholder may receive in payment for such shares, due to changes
in the market prices of the Fund's portfolio securities, an amount that is
more or less than the original investment. The exercise of such authority by
the Board of Trustees will be subject to the provisions of the 1940 Act, and
the Board of Trustees will not take any action described in this paragraph
unless the proposed action has been disclosed in writing to the Fund's
shareholders at least 30 days prior thereto.
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 Money Market, U.S. Treasury and Tax-Exempt Funds will
maintain a dollar-weighted average portfolio maturity of 90 days or less in
an effort to maintain a stable net asset value per share of $1.00. The
following investment strategies, policies and risks supplement those set
forth in the Funds' Prospectus.
MONEY MARKET FUND
Instruments in which the Money Market Fund invests have remaining
maturities of 397 days or less (except for certain variable and floating rate
notes and securities underlying certain repurchase agreements). For more
information, including applicable quality requirements, see "Other Investment
Policies and Risk Considerations" below.
U.S. TREASURY FUND
Instruments in which the U.S. Treasury Fund invests may include, but
are not limited to, securities issued by the U.S. Treasury and by certain
U.S. Government agencies or instrumentalities such as the Federal Home Loan
Banks and Federal Farm Credit Banks. The Fund invests at least 65% of its
total assets in direct U.S. Government obligations. Shareholders residing in
a particular state that has an income tax law should determine through
consultation with their own tax advisers whether such interest income, when
distributed by the Fund, will be considered by the state to have retained
exempt status and whether the Fund's capital gain and other income, if any,
when so distributed will be subject to the state's income tax. See "Taxes."
Portfolio securities held by the Fund have remaining maturities of
397 days or less (with certain exceptions). The Fund may also invest in
certain variable and floating rate instruments. For more information,
including applicable quality requirements, see "Other Investment Policies and
Risk Considerations" below.
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TAX-EXEMPT FUND
Municipal Securities in which the Tax-Exempt Fund invests present
minimal credit risk and meet the rating criteria described under "Other
Investment Policies and Risk Considerations - Quality Requirements" below.
Municipal Securities, as that term is used in this Statement of Additional
Information, are debt obligations issued by or on behalf of states,
territories and possessions of the United States, the District of Columbia,
and their authorities, agencies, instrumentalities and political
subdivisions, the interest on which, in the opinion of bond counsel or
counsel to the issuer, is exempt from federal income tax.
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Fund's shareholders, the Fund will invest, except
during temporary defensive periods, at least 80% of its assets in Municipal
Securities. The Fund's investments in private activity bonds will not be
treated as investments in Municipal Securities for purposes of the 80%
requirement mentioned above and, under normal market conditions, will not
exceed 20% of the Fund's net assets when added together with any taxable
investments held by the Fund.
Although the Fund does not presently intend to do so on a regular
basis, it may invest more than 25% of its assets in Municipal Securities the
interest on which is paid solely from revenues of similar projects. To the
extent that the Fund's assets are concentrated in Municipal Securities
payable from revenues on similar projects, the Fund will be subject to the
peculiar risks presented by such projects to a greater extent than it would
be if its assets were not so invested.
The Fund's portfolio securities will generally have remaining
maturities of 397 days or less (except for certain variable and floating rate
notes and securities underlying certain repurchase agreements). See "Other
Investment Policies and Risk Considerations" below.
SHORT-TERM BOND FUND
In addition to its primary investment strategies and policies as
described in the 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
-6-
<PAGE>
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 the 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.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Intermediate
Government Income Fund.
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.
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<PAGE>
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the High Quality Bond
Fund.
RHODE ISLAND MUNICIPAL BOND FUND
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Fund's shareholders, the Rhode Island Municipal Bond
Fund will invest, except during temporary defensive periods, at least 80% of
its total assets in Municipal Securities, primarily in Municipal Securities
issued by or on behalf of the State of Rhode Island, its political
sub-divisions, authorities, agencies, instrumentalities and corporations, and
certain other governmental issuers such as Puerto Rico, the interest on
which, in the opinion of bond counsel to the issuer, is exempt from federal
and Rhode Island personal income taxes ("Rhode Island Municipal Securities").
Dividends derived from interest on Municipal Securities other than Rhode
Island Municipal Securities will generally be exempt from regular federal
income tax but may be subject to Rhode Island personal income tax. See
"Taxes" below.
The Fund's ability to achieve its investment objective depends on
the ability of issuers of Rhode Island Municipal Securities to meet their
continuing obligations to pay principal and interest. Since the Fund invests
primarily in Rhode Island Municipal Securities, the value of the Fund's
shares may be especially affected by factors pertaining to the economy of
Rhode Island and other factors specifically affecting the ability of issuers
of Rhode Island Municipal Securities to meet their obligations. As a result,
the value of the Fund's shares may fluctuate more widely than the value of
shares of a portfolio investing in securities of issuers in a number of
different states. The ability of Rhode Island and its political subdivisions
to meet their obligations will depend primarily on the availability of tax
and other revenues to those governments and on their fiscal conditions
generally. The amount of tax and other revenues available to governmental
issuers of Rhode Island Municipal Securities may be affected from time to
time by economic, political and demographic conditions within Rhode Island.
In addition, constitutional or statutory restrictions may limit a
government's power to raise revenues or increase taxes. The availability of
federal, state and local aid to an issuer of Rhode Island Municipal
Securities may also affect that issuer's ability to meet its obligations.
Payments of principal and interest on limited obligation bonds will depend on
the economic condition of the facility or specific revenue source from whose
revenues the payments will be made, which in turn could be affected by
economic, political and demographic conditions in Rhode Island or a
particular locality. Any reduction in the actual or perceived ability of an
issuer of Rhode Island Municipal Securities to meet its obligations
(including a reduction in the rating of its outstanding securities) would
likely affect adversely the market value and marketability of its obligations
and could affect adversely the value of other Rhode Island Municipal
Securities as well.
See "Special Considerations and Risks" and "Other Investment
Policies and Risk Considerations" below for information regarding additional
investment policies of the Rhode Island Municipal Bond Fund.
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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 wiall 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.
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.
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EQUITY GROWTH FUND
Convertible securities purchased by the Equity Growth Fund may
include both debt securities and preferred stock. By investing in convertible
securities, the Fund will seek the opportunity, through the conversion
feature, to participate in the capital appreciation of the common stock into
which the securities are convertible. See "Other Investment Policies and Risk
Considerations -- Convertible Securities" below. The Fund may also invest in
common stock warrants.
The Fund may invest up to 20% of its total assets in foreign
securities, either directly or indirectly through the purchase of ADRs and
EDRs. In addition, the Fund may invest in securities issued by foreign
branches of U.S. banks and foreign banks. See "Special Risk Considerations --
Foreign Securities" and "Other Investment Policies and Risk Considerations --
American, European and Global Depository Receipts" below. The Fund may also
purchase put options and call options and write covered call options. See
"Other Investment Policies and Risk Considerations -- Derivative Securities"
below.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Equity Growth
Fund.
INTERNATIONAL EQUITY FUND
The International Equity Fund invests at least 75% of its total
assets in equity securities of foreign issuers. The Fund may invest in
securities of issuers located in a variety of different foreign regions and
countries, including, but not limited to, Australia, Austria, Belgium,
Brazil, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong,
Ireland, Italy, Japan, Luxembourg, Malaysia, Mexico, the Netherlands, New
Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, Thailand
and the United Kingdom.
The Fund invests in common stock and may invest in other securities
with equity characteristics, consisting of trust or limited partnership
interests, preferred stock, rights and 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."
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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.
SPECIAL RISK CONSIDERATIONS
FOREIGN SECURITIES
Investments by the Short-Term Bond, Asset Allocation, Growth and
Income, Equity Growth and International Equity Funds in foreign securities
may involve higher costs than investments in U.S. securities, including
higher transaction costs, as well as the imposition of additional taxes by
foreign governments. In addition, foreign investments may include additional
risks associated with currency exchange rates, less complete financial
information about the issuers, less market liquidity, and political
instability. Future political and economic developments, the possible
imposition of withholding taxes on interest income, the possible seizure or
nationalization of foreign holdings, the possible establishment of exchange
controls, or the adoption of other governmental restrictions, might adversely
affect the payment of dividends or principal and interest on foreign
obligations.
Although these Funds may invest in securities denominated in foreign
currencies, the Funds value their securities and other assets in U.S.
dollars. As a result, the net asset value of 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 Funds are subject to the possible imposition
of exchange control regulations or freezes on convertibility of currency.
Certain of the risks associated with investments in foreign
securities are heightened with respect to investments in countries with
emerging economies or emerging securities markets. The risks of
expropriation, nationalization and social, political and economic instability
are greater in those countries than in more developed capital markets.
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EUROPEAN CURRENCY UNIFICATION
Many European countries have adopted a single European currency, the
euro. On January 1, 1999, the euro became legal tender for all countries
participating in the Economic and Monetary Union ("EMU"). A new European
Central Bank has been created to manage the monetary policy of the new
unified region. On the same date, the exchange rates were irrevocably fixed
between the EMU member countries. National currencies will continue to
circulate until they are replaced by euro coins and bank notes by the middle
of 2002.
This change is likely to significantly impact the European capital
markets in which the International Equity Fund invests and may result in the
Fund facing additional risks in pursuing its investment objective. These risks,
which include, but are not limited to, uncertainty as to the proper tax
treatment of the currency conversion, volatility of currency exchange rates as a
result of the conversion, uncertainty as to capital market reaction, conversion
costs that may affect issuer profitability and creditworthiness, and lack of
participation by some European countries, may increase the volatility of the
Fund's net asset value per share.
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 Rhode Island Municipal 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 Rhode Island Municipal Bond Fund does not presently
intend to do so on a regular basis, the Fund may invest more than 25% of its
assets in Municipal Securities the interest on which is paid solely from
revenues on similar projects if such investment is deemed necessary or
appropriate by Fleet. To the extent that the 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.
The Rhode Island Municipal Bond Fund is classified as a
non-diversified investment company under the 1940 Act. Investment return on a
non-diversified portfolio typically is
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dependent upon the performance of a smaller number of securities relative to
the number held in a diversified portfolio. Consequently, the change in value
of any one security may affect the overall value of a non-diversified
portfolio more than it would a diversified portfolio, and thereby subject the
market-based net asset value per share of the non-diversified portfolio to
greater fluctuations. In addition, a non-diversified portfolio may be more
susceptible to economic, political and regulatory developments than a
diversified investment portfolio with similar objectives may be.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in the Prospectus 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
The Money Market, U.S. Treasury and Tax-Exempt Funds will purchase
only those instruments which meet the applicable quality requirements
described below. The Money Market Fund will not purchase a security (other
than a U.S. Government security) unless the security or the issuer with
respect to comparable securities (i) is rated by at least two nationally
recognized statistical rating organizations ("Rating Agencies") (such as
Standard & Poor's Ratings Group ("S&P"), Moody's Investors Service, Inc.
("Moody's") or Fitch IBCA, Inc. ("Fitch IBCA") in the highest category for
short-term debt securities, (ii) is rated by the only Rating Agency that has
issued a rating with respect to such security or issuer in such Rating
Agency's highest category for short-term debt, or (iii) if not rated, the
security is determined to be of comparable quality. The Tax-Exempt Fund will
not purchase a security (other than a U.S. Government security) unless the
security (i) is rated by at least two such Rating Agencies in one of the two
highest categories for short-term debt securities, (ii) is rated by the only
Rating Agency that has assigned a rating with respect to such security in one
of such Rating Agency's two highest categories for short-term debt
securities, or (iii) if not rated, the security is determined to be of
comparable quality. These rating categories are determined without regard to
sub-categories and gradations. The Funds will follow applicable regulations
in determining whether a security rated by more than one Rating Agency can be
treated as being in the highest short-term rating categories. See "Investment
Limitations" below.
All debt obligations, including convertible bonds, purchased by the
Asset Allocation and Equity Growth Funds are rated investment grade by
Moody's ("Aaa," "Aa," "A" and "Baa") or 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
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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 Fund may purchase convertible bonds rated "Ba"
or higher by Moody's or "BB" or higher by S&P or 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 Fund 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.
Determinations of comparable quality will be made in accordance with
procedures established by the Board of Trustees. Generally, if a security has
not been rated by a Rating Agency, Fleet will acquire the security if it
determines that the security is of comparable quality to securities that have
received the requisite ratings. Fleet also considers other relevant
information in its evaluation of unrated short-term securities.
Information on the requisite investment quality of debt obligations,
including Municipal Securities, eligible for purchase by the Short-Term Bond,
Intermediate Government Income, High Quality Bond and Rhode Island Municipal
Bond Funds is included in the Prospectus.
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.
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U.S. Treasury securities differ only in their interest rates,
maturities and time of issuance: Treasury Bills have initial maturities of
one year or less; Treasury Notes have initial maturities of one to ten years;
and Treasury Bonds generally have initial maturities of more than ten years.
Obligations of certain agencies and instrumentalities of the U.S. Government,
such as those of the Government National Mortgage Association, are supported
by the full faith and credit of the U.S. Treasury; others, such as those of
the Federal Home Loan Banks, are supported by the right of the issuer to
borrow from the Treasury; others, such as those of the Federal National
Mortgage Association, are supported by the discretionary authority of the
U.S. Government to purchase the agency's obligations; still others, such as
those of the Federal Home Loan Mortgage Corporation, are supported only by
the credit of the instrumentality. No assurance can be given that the U.S.
Government would provide financial support to U.S. Government-sponsored
instrumentalities if it is not obligated to do so by law. Some of these
instruments may be variable or floating rate instruments.
Securities issued or guaranteed by the U.S. Government, its agencies
and instrumentalities have historically involved little risk of loss of
principal. However, due to fluctuations in interest rates, the market value
of such securities may vary during the period a shareholder owns shares of
the Funds.
The U.S. Treasury Fund will invest in those securities issued or
guaranteed as to principal and interest by the U.S. Government or by agencies
and instrumentalities thereof, the interest income from which, under current
law, generally will not be subject to state income tax by reason of federal
law.
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 Fund, 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 subject to each
Fund's limitation on illiquid securities described below under "Investment
Limitations." Investments by each Fund in non-negotiable time deposits are
limited to no more than 5% of each Fund's total assets at the time of
purchase. For the purposes of each Fund's investment policies with respect to
bank obligations, the assets of a bank or savings institution will be deemed
to include the assets of its U.S. and foreign branches.
Domestic and foreign banks are subject to extensive but different
government 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.
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Investments in obligations of foreign branches of U.S. banks and U.S.
branches of foreign banks may subject a Fund to additional risks, including
future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of foreign governmental restrictions which might adversely affect the
payment of principal and interest on such obligations. In addition, foreign
branches of U.S. banks and U.S. branches of foreign banks may be subject to less
stringent reserve requirements and to different accounting, auditing, reporting
and recordkeeping standards than those applicable to domestic branches of U.S.
banks. Such investments may also subject the Funds to investment risks similar
to those accompanying direct investments in foreign securities. See "Special
Risk Considerations -- Foreign Securities." The Funds will invest in the
obligations of U.S. branches of foreign banks or foreign branches of U.S. banks
only when Fleet and/or Oechsle believe that the credit risk with respect to the
instrument is minimal.
Commercial paper may include securities issued by corporations without
registration under the Securities Act of 1933, as amended, (the "1933 Act") in
reliance on the so-called "private placement" exemption in Section 4(2)
("Section 4(2) Paper"). Section 4(2) Paper is restricted as to disposition under
the federal securities laws in that any resale must similarly be made in an
exempt transaction. Section 4(2) Paper is normally resold to other institutional
investors through or with the assistance of investment dealers who make a market
in Section 4(2) Paper, thus providing liquidity. For purposes of each Fund's 10%
limitation on purchases of illiquid instruments described below, Section 4(2)
Paper will not be considered illiquid if Fleet has determined, in accordance
with guidelines approved by the Board of Trustees, that an adequate trading
market exists for such securities. Each Fund except the U.S. Treasury Fund and
Rhode Island Municipal Bond Fund 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
Prospectus and this Statement of Additional Information. 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 these may be no active secondary market. However, in the case of variable
and floating rate obligations with a demand feature, a Fund may demand payment
of principal and accrued interest at a time specified in the instrument or may
resell the instrument to a third party. In the event an issuer of a variable or
floating rate obligation defaulted on its payment obligation, a Fund might be
unable to dispose of the note because of the absence of a secondary market and
could, for this or other reasons, suffer a loss to the extent of the default.
Variable or floating rate instruments issued or guaranteed by the U.S.
Government or its agencies or instrumentalities are similar in form but may have
a more active secondary market. Substantial holdings of variable and floating
rate instruments could reduce portfolio liquidity.
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If a variable or floating rate 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 of
each of these Funds, a variable or floating rate instrument issued or guaranteed
by the U.S. Government or an agency or instrumentality thereof will be deemed to
have a maturity equal to the period remaining until the obligation's next
interest rate adjustment. Variable and floating rate obligations with a demand
feature will be deemed to have a maturity equal to the longer of the period
remaining to the next interest rate adjustment or the demand notice period.
Long-term variable and floating rate obligations held by the Money
Market, U.S. Treasury and Tax-Exempt Funds may have maturities of more than 397
days, provided the Funds are entitled to payment of principal upon not more than
30 days' notice or at specified intervals not exceeding one year (upon not more
than 30 days' notice).
MUNICIPAL SECURITIES
Municipal Securities acquired by the Tax-Exempt, Short-Term Bond,
Intermediate Government Income, High Quality Bond and Rhode Island Municipal
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 which may be held
by the Funds are "general obligation" securities and "revenue" securities.
General obligation securities are secured by the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest.
Revenue securities are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source such as the user of the
facility being financed.
The Funds' portfolios may also include "moral obligation" securities,
which are normally issued by special purpose public authorities. If the issuer
of moral obligation securities is unable to meet its debt service obligations
from current revenues, it may draw on a reserve fund, the restoration of which
is a moral commitment, but not a legal obligation, of the state or municipality
which created the issuer. There is no limitation on the amount of moral
obligation securities that may be held by the Funds.
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,
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general conditions of the municipal bond market, the size of a particular
offering, the maturity of the obligation, and the rating of the issue. The
ratings of a Rating Agency, such as Moody's and S&P, described in the
Prospectus and in Appendix A hereto, represent such Rating Agencies' opinions
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.
Municipal Securities may include rated and unrated variable and
floating rate tax-exempt instruments, such as variable rate demand notes.
Variable rate demand notes are long-term Municipal Securities that have variable
or floating interest rates and provide a Fund with the right to tender the
security for repurchase at its stated principal amount plus accrued interest.
Such securities typically bear interest at a rate that is intended to cause the
securities to trade at par. The interest rate may float or be adjusted at
regular intervals (ranging from daily to annually), and is normally based on an
applicable interest index or another published interest rate or interest rate
index. Most variable rate demand notes allow a Fund to demand the repurchase of
the security on not more than seven days prior notice. Other notes only permit a
Fund to tender the security at the time of each interest rate adjustment or at
other fixed intervals. The Tax-Exempt Fund treats variable rate demand notes as
maturing on the later of the date of the next interest rate adjustment or the
date on which the Fund may next tender the security for repurchase. Variable
interest rates generally reduce changes in the market value of Municipal
Securities from their original purchase prices. Accordingly, as interest rates
decrease or increase, the potential for capital appreciation or depreciation is
less for variable rate Municipal Securities than for fixed income obligations.
The terms of these variable rate demand instruments require payment of principal
and accrued interest from the issuer of the Municipal Securities, the issuer of
the participation interest or a guarantor of either issuer.
Municipal Securities purchased by these Funds in some cases may be
insured as to the timely payment of principal and interest. There is no
guarantee, however, that the insurer will meet its obligations in the event of a
default in payment by the issuer. In other cases, Municipal Securities may be
backed by letters of credit or guarantees issued by domestic or foreign banks or
other financial institutions which are not subject to federal deposit insurance.
Adverse developments affecting the banking industry generally or a particular
bank or financial institution that has provided its credit or guarantee with
respect to a Municipal Security held by a Fund, including a change in the credit
quality of any such bank or financial institution, could result in a loss to the
Fund and adversely affect the value of its shares. As described above letters of
credit and guarantees issued by foreign banks and financial institutions involve
certain risks in addition to those of similar instruments issued by domestic
banks and financial institutions.
The payment of principal and interest on most Municipal Securities
purchased by the Funds will depend upon the ability of the issuers to meet their
obligations. Each state, the District of Columbia, each of their political
subdivisions, agencies, instrumentalities and authorities and each multistate
agency of which a state is a member is a separate "issuer" as that term is used
in this Statement of Additional Information and the Prospectus. The
non-governmental user of facilities financed by private activity bonds is also
considered to be an
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"issuer." An issuer's obligations under its Municipal Securities are subject
to the provisions of bankruptcy, insolvency and other laws affecting the
rights and remedies of creditors, such as the Federal Bankruptcy Code and
laws, if any, which may be enacted by federal or state legislatures extending
the time for payment of principal or interest, or both, or imposing other
constraints upon enforcement of such obligations or upon the ability of
municipalities to levy taxes. The power or ability of an issuer to meet its
obligations for the payment of interest on and principal of its Municipal
Securities may be materially adversely affected by litigation or other
conditions.
Among other instruments, the Funds may purchase short-term general
obligation notes, tax anticipation notes, bond anticipation notes, revenue
anticipation notes, commercial paper, construction loan notes and other forms of
short-term loans. Such instruments are issued with a short-term maturity in
anticipation of the receipt of tax funds, the proceeds of bond placements or
other revenues. In addition, the Funds may invest in long-term tax-exempt
instruments, such as municipal bonds and private activity bonds to the extent
consistent with the limitations set forth in the Prospectus.
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 and Rhode Island Municipal Bond
Funds and the liquidity and value of their respective portfolios. In such an
event, the Funds would re-evaluate their investment objectives and policies and
consider possible changes in their structure or possible dissolution.
Opinions relating to the validity of Municipal Securities and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Funds nor
Fleet will review the proceedings relating to the issuance of Municipal
Securities or the bases for such opinions.
While the Tax-Exempt and Rhode Island Municipal Bond Funds will invest
primarily in Municipal Securities, each of the Short-Term Bond, Intermediate
Government Income and High Quality Bond Funds will 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.
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STAND-BY COMMITMENTS
The Tax-Exempt, Short-Term Bond, Intermediate Government Income, High
Quality Bond and Rhode Island Municipal 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 Funds will acquire stand-by commitments
solely to facilitate portfolio liquidity and do not intend to exercise their
rights thereunder for trading purposes. The Funds expect that stand-by
commitments will generally be available without the payment of any direct or
indirect consideration. However, if necessary or advisable, a Fund may pay for a
stand-by commitment either separately in cash or by paying a higher price for
portfolio securities which are acquired subject to the commitment (thus reducing
the yield otherwise available for the same securities). Where a Fund pays any
consideration directly or indirectly for a stand-by commitment, its cost will be
reflected as unrealized depreciation for the period during which the commitment
is held by the Fund. Stand-by commitments acquired by a Fund would be valued at
zero in determining the Fund's net asset value. The default or bankruptcy of a
securities dealer giving such a commitment would not affect the quality of the
Municipal Securities purchased by a Fund. However, without a stand-by
commitment, these securities could be more difficult to sell. A Fund will enter
into stand-by commitments only with those dealers whose credit Fleet believes to
be of high quality.
Stand-by commitments are exercisable by the Funds at any time before
the maturity of the underlying Municipal Security, and may be sold, transferred
or assigned by the Fund only with respect to the underlying instruments.
Although stand-by commitments are often available without the payment of any
direct or indirect consideration, if necessary or advisable, a Fund may pay for
a stand-by commitment either separately in cash or by paying a higher price for
securities acquired subject to the commitment. Where a Fund pays any
consideration directly or indirectly for a stand-by commitment, its cost will be
reflected as unrealized depreciation for the period during which the commitment
is held by the Fund. A Fund will enter into stand-by commitments only with banks
and broker/dealers that present minimal credit risks. In evaluating the
creditworthiness of the issuer of a stand-by commitment, Fleet will review
periodically the issuer's assets, liabilities, contingent claims and other
relevant financial information.
PRIVATE ACTIVITY BONDS
The Tax-Exempt, Short-Term Bond, Intermediate Government Income, High
Quality Bond and Rhode Island Municipal Bond Funds may invest in "private
activity bonds," the interest on which, although exempt from regular federal
income tax, may constitute an item of tax preference for purposes of the federal
alternative minimum tax. Investments in such securities, however, will not be
treated as investments in Municipal Securities for purposes of the 80%
requirement mentioned above with respect to the Tax-Exempt and Rhode Island
Municipal Bond Funds and, under normal conditions, will not exceed 20% of each
such 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
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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 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.
TENDER OPTION BONDS
The Tax-Exempt Fund may purchase tender option bonds and similar
securities. A tender option bond generally has a long maturity and bears
interest at a fixed rate substantially higher than prevailing short-term
tax-exempt rates, and is coupled with an agreement by a third party, such as a
bank, broker-dealer or other financial institution, pursuant to which such
institution grants the security holders the option, usually upon not more than
seven days notice or at periodic intervals, to tender their securities to the
institution and receive the face value of the securities. In providing the
option, the financial institution receives a fee that reduces the fixed rate of
the underlying bond and results in a Fund effectively receiving a demand
obligation that bears interest at the prevailing short-term tax-exempt rate.
Fleet will monitor, on an ongoing basis, the creditworthiness of the issuer of
the tender option bond, the financial institution providing the option, and any
custodian holding the underlying long-term bond. The bankruptcy, receivership or
default of any of the parties to a tender option bond will adversely affect the
quality and marketability of the security.
CUSTODIAL RECEIPTS AND CERTIFICATES OF PARTICIPATION
Securities acquired by the Rhode Island Municipal 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 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
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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).
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
Each Fund, except the U.S. Treasury Fund, may purchase portfolio
securities subject to the seller's agreement to repurchase them at a mutually
specified date and price ("repurchase agreements"). Repurchase agreements will
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 Fund) 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. Income on repurchase
agreements is taxable. Investments by each of the Tax-Exempt Fund and Rhode
Island Municipal Bond Fund in repurchase agreements will be, under normal market
conditions, subject to a 20% overall limit on taxable obligations.
The repurchase price under a repurchase agreement generally equals the
price paid by a Fund plus interest negotiated on the basis of current short-term
rates (which may be more or less than the rate on the securities underlying the
repurchase 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, except the U.S. Treasury and Tax-Exempt Funds may 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.
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SECURITIES LENDING
Each Fund, except the U.S. Treasury and Tax-Exempt Funds, 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
Fund which may loan its 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
With the exception of the Money Market and U.S. Treasury Funds, each
Fund 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 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. The International Equity Fund may also
purchase shares of investment companies investing primarily in foreign
securities, including so-called "country funds." Country funds have portfolios
consisting exclusively of securities of issuers located in one foreign country.
The Funds will 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 Fund may invest exclusively in one other investment company
similar to the Fund.
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 Fund, 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
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voting stock of any one closed-end investment company will be owned in the
aggregate by the Funds, other investment portfolios of Galaxy, or any other
investment companies advised by Fleet or Oechsle.
REITs
The Asset Allocation, Growth and Income, Equity Growth and
International Equity Funds may invest up to 10% of their respective 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 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
Each Fund except the Money Market, U.S. Treasury and Tax-Exempt 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
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value of the underlying assets, rates or indices on which it is based; and
operations risk that loss will occur as a result of inadequate systems and
controls, human error or otherwise. Some derivative securities are more
complex than others, and for those instruments that have been developed
recently, data are lacking regarding their actual performance over complete
market cycles.
Fleet and/or Oechsle will evaluate the risks presented by the
derivative securities purchased by the Funds, and will determine, in connection
with their day-to-day management of the Funds, how such securities will be used
in furtherance of the Funds' investment objectives. It is possible, however,
that Fleet's and/or Oechsle's evaluations will prove to be inaccurate or
incomplete and, even when accurate and complete, it is possible that the Funds
will, because of the risks discussed above, incur loss as a result of their
investments in derivative securities. Further discussion of particular types of
derivative securities follows.
PUT AND CALL OPTIONS -- ASSET ALLOCATION AND EQUITY GROWTH FUNDS. The
Asset Allocation and Equity Growth 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
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current value of the option purchased. The current value of the traded option
is the last sale price or, in the absence of a sale, the average of the
closing bid and asked prices. If an option purchased by a Fund expires
unexercised, the Fund realizes a loss equal to the premium paid. If a Fund
enters into a closing sale transaction on an option purchased by it, the Fund
will realize a gain if the premium received by the Fund on the closing
transaction is more than the premium paid to purchase the option, or a loss
if it is less.
There are several risks associated with transactions in options on
securities. For example, there are significant differences between the
securities and options markets which could result in an imperfect correlation
between the markets, causing a given transaction not to achieve its objectives.
In addition, a liquid secondary market for particular options, whether traded
over-the-counter or on a national securities exchange may be absent for reasons
which include the following: there may be insufficient trading interest in
certain options; restrictions may be imposed by an exchange on opening
transactions, closing transactions or both; trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options or underlying securities; unusual or unforeseen circumstances may
interrupt normal operations on an exchange; the facilities of an exchange or the
Options Clearing Corporation may not at all times be adequate to handle current
trading volume; or one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that exchange (or in that class or series of options) would cease to
exist, although outstanding options that had been issued by the Options Clearing
Corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms. A Fund will likely be unable to
control losses by closing its position where a liquid secondary market does not
exist. Moreover, regardless of how much the market price of the underlying
security increases or decreases, the option buyer's risk is limited to the
amount of the original investment for the purchase of the option. However,
options may be more volatile than their underlying 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 GROWTH AND
INTERNATIONAL EQUITY FUNDS. To further increase return on their portfolio
securities, in accordance with their respective investment objectives and
policies, the Asset Allocation, Equity Growth and International 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 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
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purchase transaction by purchasing an option of the same series. Such
options will normally be written on underlying securities as to which Fleet
and/or Oechsle does not anticipate significant short-term capital
appreciation.
The Funds may write listed covered call options. A listed call option
gives the purchaser of the option the right to buy from a clearing corporation,
and obligates the writer to sell to the clearing corporation, the underlying
security at the stated exercise price at any time prior to the expiration of the
option, regardless of the market price of the security. The premium paid to the
writer is consideration for undertaking the obligations under the option
contract. If an option expires unexercised, the writer realizes a gain in the
amount of the premium. Such a gain may be offset by a decline in the market
price of the underlying security during the option period.
A Fund may terminate its obligation to sell prior to the expiration
date of the option by executing a closing purchase transaction, which is
effected by purchasing on an exchange an option of the same series (I.E., same
underlying security, exercise price and expiration date) as the option
previously written. Such a purchase does not result in the ownership of an
option. A closing purchase transaction will ordinarily be effected to realize a
profit on an outstanding call option, to prevent an underlying security from
being called, to permit the sale of the underlying security or to permit the
writing of a new call option containing different terms on such underlying
security. The cost of such a liquidating purchase plus transaction costs may be
greater than the premium received upon the original option, in which event the
writer will have 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 FUND. The Growth and
Income Fund may buy and sell options and futures contracts to manage its
exposure to changing interest rates, security prices and currency exchange
rates. The Fund 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 the 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 the Fund's individual
return. The 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 Fund will not hedge more than 20% of its total assets by selling
futures, buying puts, and writing calls under normal conditions. The Fund will
not buy futures or write puts whose underlying value exceeds 20% of its total
assets, and will not buy calls with a value exceeding 5% of its total assets.
FUTURES CONTRACTS - SHORT-TERM BOND, INTERMEDIATE GOVERNMENT INCOME,
HIGH QUALITY BOND AND RHODE ISLAND MUNICIPAL BOND FUNDS. The Rhode Island
Municipal 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.
The Short-Term Bond, Intermediate Government Income, High Quality Bond
and Rhode Island Municipal Bond Funds 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 Funds will not engage in futures transactions for speculation, but
only to hedge against changes in the market values of securities which a Fund
holds 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
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purchase will require an amount of cash or other liquid assets, equal to the
market value of the outstanding futures contracts, to be deposited in a
segregated account to collateralize the position and thereby insure that the
use of such futures is unleveraged. The 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 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 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 FUND. The Growth and Income Fund 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 its
portfolio 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 Fund's total assets. The Fund will not
purchase options to the extent that more than 5% of the value of its total
assets would be invested in premiums on open put option positions. In addition,
the Fund does not intend to invest more than 5% of the market value of its total
assets in each of the following: futures contracts, swap agreements, and indexed
securities. When the Fund enters into a swap agreement, liquid assets of the
Fund equal to the value of the swap agreement will be segregated by the Fund.
The Fund 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
Fund plans to utilize futures contracts only if there exists an active market
for such contracts, there is no guarantee that a liquid market will exist for
the contracts at a specified time. Furthermore, because by definition, futures
contracts look to projected price levels in the future and not to current levels
of valuation, market circumstances may result in there being a discrepancy
between the price of the stock index future and the movement in the
corresponding stock index. The absence of a perfect price correlation between
the futures contract and its underlying stock index could stem from investors
choosing to close futures contracts by offsetting transactions, rather than
satisfying additional margin requirements. This could result in a distortion of
the relationship between the index and the futures market. In
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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 Fund, the Fund may attempt to hedge all or a portion of its portfolio
through the purchase of listed put options on stocks, stock indices and stock
index futures contracts. These options will be used as a form of forward pricing
to protect portfolio securities against decreases in value resulting from market
factors, such as an anticipated increase in interest rates. A purchased put
option gives the 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 the 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 Fund may also write covered call options. As the writer of a call
option, the 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 Fund may only: (1) buy listed put options on stock indices and
stock index futures contracts; (2) buy listed put options on securities held in
its portfolio; and (3) sell listed call options either on securities held in its
portfolio or on securities which it has the right to obtain without payment of
further consideration (or have segregated cash in the amount of any such
additional consideration). The 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. The 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.
The 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." The Fund may decide to close its position on
a contract at any time prior to the contract's expiration. This is accomplished
by the Fund taking an opposite position at the then prevailing price, thereby
terminating its existing position in the contract. Because the initial margin
resembles a performance bond or good-faith deposit on the contract, it is
returned to the Fund upon the termination of the contract, assuming
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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.
The Fund will not 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, the 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, the 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 Fund 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 its exposure to different types of investments,
the Growth and Income Fund may enter into interest rate swaps, currency swaps,
and other types of swap agreements such as caps, collars, and floors. In a
typical interest rate swap, one party agrees to make regular payments equal to a
floating interest rate times a "notional principal amount," in return for
payments equal to a fixed rate times the same amount, for a specified period of
time. If a swap agreement provides for payments in different currencies, the
parties might agree to exchange notional principal amount as well. Swaps may
also depend on other prices or rates, such as the value of an index or mortgage
prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments
only under specified circumstances, usually in return for payment of a fee by
the other party. For example, the buyer of an interest rate cap obtains the
right to receive payments to the extent that a specified interest rate exceeds
an agreed upon level, while the seller of an interest rate floor is obligated to
make payments to the extent that a specified interest rate falls below an agreed
upon level. An interest rate collar combines elements of buying a cap and
selling a floor.
Swap agreements will tend to shift the Fund's investment exposure from
one type of investment to another. For example, if the Fund agreed to exchange
payments in dollars for payments in foreign currency, the swap agreement would
tend to decrease the Fund's exposure to U.S. interest rates and increase its
exposure to foreign currency and interest rates. Caps and floors have an effect
similar to buying or writing options. Depending on how they are used,
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swap agreements may increase or decrease the overall volatility of the
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 Fund's 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 Fund may also suffer losses if
it is unable to terminate outstanding swap agreements or reduce their exposure
through offsetting transactions.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the Short-Term Bond,
Asset Allocation, Growth and Income, Equity Growth and International Equity
Funds 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 Funds to
hedge the currency risk of portfolio securities denominated in a foreign
currency. This technique permits the assessment of the merits of a security to
be considered separately from the currency risk. By separating the asset and the
currency decision, it is possible to focus on the opportunities presented by the
security apart from the currency risk. Although forward foreign currency
exchange contracts are of short duration, generally between one and twelve
months, such contracts are rolled over in a manner consistent with a more
long-term currency decision. Because there is a risk of loss to a Fund if the
other party does not complete the transaction, forward foreign currency exchange
contracts will be entered into only with parties approved by Galaxy's Board of
Trustees.
A Fund may maintain "short" positions in forward foreign currency
exchange transactions, which would involve the Fund's agreeing to exchange
currency that it currently does not own for another currency -- for example, to
exchange an amount of Japanese yen that it does not own for a certain amount of
U.S. dollars -- at a future date and at a specified price in anticipation of a
decline in the value of the currency sold short relative to the currency that
the Fund has contracted to receive in the exchange. In order to ensure that the
short position is not
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used to achieve leverage with respect to the Fund's investments, the Fund
will establish with its custodian a segregated account consisting of cash or
other liquid assets equal in value to the fluctuating market value of the
currency as to which the short position is being maintained. The value of the
securities in the segregated account will be adjusted at least daily to
reflect changes in the market value of the short position.
Forward foreign currency exchange contracts establish an exchange rate
at a future date. These contracts are transferable in the interbank market
conducted directly between currency traders (usually large commercial banks) and
their customers. A forward foreign currency exchange contract generally has no
deposit requirement and is traded at a net price without commission. Neither
spot transactions nor forward foreign currency exchange contracts eliminate
fluctuations in the prices of a Fund's portfolio securities or in foreign
exchange rates, or prevent loss if the prices of these securities should
decline.
The Funds may enter into foreign currency hedging transactions in an
attempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or changes in
foreign currency exchange rates that would adversely affect a portfolio position
or an anticipated portfolio position. Since consideration of the prospect for
currency parities will be incorporated into a Fund's long-term investment
decisions, the Funds will not routinely enter into foreign currency hedging
transactions with 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
The Short-Term Bond, Asset Allocation, Growth and Income, Equity Growth
and International Equity Funds may invest in ADRs and EDRs. The Growth and
Income and International Equity Funds may also invest in GDRs. ADRs are receipts
issued in registered form by a U.S. bank or trust company evidencing ownership
of underlying securities issued by a foreign issuer. EDRs are receipts issued in
Europe typically by non-U.S. banks or trust companies and foreign branches of
U.S. banks that evidence ownership of foreign or U.S. securities. GDRs are
receipts structured similarly to EDRs and are marketed globally. ADRs may be
listed on a national securities exchange or may be traded in the
over-the-counter market. EDRs are designed for use in European exchange and
over-the-counter markets. GDRs are designed for trading in non-U.S. securities
markets. ADRs, EDRs and GDRs traded in the over-the-counter market which do not
have an active or substantial secondary market will be considered illiquid and
therefore will be subject to the Funds' respective limitations with respect
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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 Money Market, Short-Term Bond, Intermediate Government Income, High
Quality Bond, Rhode Island Municipal Bond and Asset Allocation Funds may
purchase asset-backed securities, which represent a participation in, or are
secured by and payable from, a stream of payments generated by particular
assets, most often a pool of assets similar to one another. Assets generating
such payments will consist of such instruments as motor vehicle installment
purchase obligations, credit card receivables and home equity loans. Payment of
principal and interest may be guaranteed up to certain amounts and for a certain
time period by a letter of credit issued by a financial institution unaffiliated
with entities issuing the securities. The estimated life of an asset-backed
security varies with the prepayment experience with respect to the underlying
debt instruments. The rate of such prepayments, and hence the life of the
asset-backed security, will be primarily a function of current market rates,
although other economic and demographic factors will be involved.
Asset-backed securities are generally issued as pass-through
certificates, which represent undivided fractional ownership interests in an
underlying pool of assets, or as debt instruments, which are also known as
collateralized obligations, and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt. Asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties.
The yield characteristics of asset-backed securities differ from
traditional debt securities. A major difference is that the principal amount of
the obligations may be prepaid at any time because the underlying assets (i.e.,
loans) generally may be prepaid at any time. As a result, if an asset-backed
security is purchased at a premium, a prepayment rate that is faster than
expected will reduce yield to maturity, while a prepayment rate that is slower
than expected will have the opposite effect of increasing yield to maturity.
Conversely, if an asset-backed security is purchased at a discount, faster than
expected prepayments will increase, while slower than expected prepayments, will
decrease, yield to maturity.
Prepayments on asset-backed securities generally increase with falling
interest rates and decrease with rising interest rates; furthermore prepayment
rates are influenced by a variety of economic and social factors. In general,
the collateral supporting non-mortgage asset-backed securities is of shorter
maturity than mortgage loans and is less likely to experience substantial
prepayments. Like other fixed income securities, when interest rates rise, the
value of an asset-
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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 Short-Term Bond, Intermediate Government Income, High Quality Bond,
Rhode Island Municipal Bond and Asset Allocation Funds 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.
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
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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 Asset Allocation, Growth and Income, Equity Growth and
International 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 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
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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 Fund 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 the 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 the 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 Fund does not intend to invest in such lower-rated bonds during
the current fiscal year. A description of the rating categories of S&P, Moody's
and Fitch IBCA is contained in Appendix A to this Statement of Additional
Information.
WHEN-ISSUED, FORWARD COMMITMENT AND DELAYED SETTLEMENT TRANSACTIONS
Each Fund except the Asset Allocation and Equity Growth Funds may
purchase eligible securities on a "when-issued" basis. The Short-Term Bond,
Intermediate Government Income,
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High Quality Bond and Rhode Island Municipal Bond Funds may purchase or sell
securities on a "forward commitment" basis. Each Fund except the Asset
Allocation, Equity Growth and International Equity 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 advantageous for a
security. For purposes of determining the average weighted maturity of a Fund's
portfolio, the maturity of "when-issued" securities is calculated from the date
of settlement of the purchase to the maturity date.
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STRIPPED OBLIGATIONS
To the extent consistent with its investment objective, 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
The Money Market, Short-Term Bond, Intermediate Government Income, High
Quality Bond and Rhode Island Municipal Bond Funds may invest in guaranteed
investment contracts ("GICs") issued by United States and Canadian insurance
companies. Pursuant to GICs, a Fund makes cash contributions to a deposit fund
of the insurance company's general account. The insurance company then credits
to the Fund payments at negotiated, floating or fixed interest rates. A GIC is a
general obligation of the issuing insurance company and not a separate account.
The purchase price paid for a GIC becomes part of the general assets of the
insurance company, and the contract is paid from the company's general assets.
The Funds will only purchase GICs that are issued or guaranteed by insurance
companies that at the time of purchase are rated at least AA by S&P or receive a
similar high quality rating from a nationally recognized service which provides
ratings of insurance companies. GICs are considered illiquid securities and will
be subject to the Funds' 10% limitation on such investments, unless there is an
active
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and substantial secondary market for the particular instrument and market
quotations are readily available.
BANK INVESTMENT CONTRACTS
The Short-Term Bond, Intermediate Government Income, High Quality Bond
and Rhode Island Municipal Bond Funds 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.
PORTFOLIO SECURITIES GENERALLY
Subsequent to its purchase by a Fund, an issue of securities may cease
to be rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Board of Trustees or Fleet pursuant to guidelines
established by the Board, will promptly consider such an event in determining
whether the Fund involved should continue to hold the obligation. The Board of
Trustees or Fleet may determine that it is appropriate for the Fund to continue
to hold the obligation if retention is in accordance with the interests of the
particular Fund and applicable regulations of the Securities and Exchange
Commission ("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 the
Prospectus, 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").
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Each of the Money Market, U.S. Treasury and Tax-Exempt Funds may not:
1. Make loans, except that (i) each Fund may purchase or
hold debt instruments in accordance with its investment
objective and policies, (ii) each Fund, except the U.S.
Treasury Fund, may enter into repurchase agreements
with respect to portfolio securities, and (iii) the
Money Market Fund may lend portfolio securities against
collateral consisting of cash or securities that are
consistent with the Fund's permitted investments, where
the value of the collateral is equal at all times to at
least 100% of the value of the securities loaned.
2. Purchase foreign securities, except that the Money
Market Fund may purchase certificates of deposit,
bankers' acceptances, or other similar obligations
issued by U.S. branches of foreign banks or foreign
branches of U.S. banks.
3. Purchase securities on margin (except such short-term
credits as may be necessary for the clearance of
purchases), make short sales of securities, or maintain
a short position.
4. Act as an underwriter within the meaning of the
Securities Act of 1933; except insofar as a Fund might
be deemed to be an underwriter upon disposition of
restricted portfolio securities; and except to the
extent that the purchase of securities directly from
the issuer thereof in accordance with the Fund's
investment objective, policies and limitations may be
deemed to be underwriting.
5. Purchase or sell real estate; except the Money Market
and U.S. Treasury Funds may purchase securities that
are secured by real estate, and the Money Market Fund
may purchase securities of issuers which deal in real
estate or interests therein; and except that the
Tax-Exempt Fund may invest in Municipal Securities
secured by real estate or interests therein; however
the Funds will not purchase or sell interests in real
estate limited partnerships.
6. Purchase or sell commodities or commodity contracts or
invest in oil, gas or other mineral exploration or
development programs or mineral leases.
7. Invest in or sell put options, call options, straddles,
spreads, or any combination thereof.
8. Invest in companies for the purpose of exercising
management or control.
9. Purchase securities of other investment companies
except in connection with a merger, consolidation,
reorganization or acquisition of assets;
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provided, however, that the Tax-Exempt Fund may acquire
such securities in accordance with the 1940 Act.
10. Purchase securities of any one issuer if immediately
after such purchase more than 5% of the value of its
total assets would be invested in the securities of
such issuer (the "5% limitation"), except that up to
25% of the value of its total assets may be invested
without regard to the 5% limitation; notwithstanding
the foregoing restriction, each Fund may invest without
regard to the 5% limitation in U.S. Government
obligations and as otherwise permitted in accordance
with Rule 2a-7 under the 1940 Act or any successor rule.
With respect to Investment Limitation No. 10 above, (a) a security is
considered to be issued by the governmental entity or entities whose assets and
revenues back the security or, with respect to a private activity bond that is
backed only by the assets and revenues of a non-governmental user, such
non-governmental user; (b) in certain circumstances, the guarantor of a
guaranteed security may also be considered to be an issuer in connection with
such guarantee; (c) securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities (including securities backed by the full faith and
credit of the United States) are deemed to be U.S. Government obligations; and
(d) no Fund intends to acquire more than 10% of the outstanding voting
securities of any one issuer.
Each of the Money Market and U.S. Treasury Funds may not:
11. Borrow money or issue senior securities, except that
each Fund may borrow from domestic banks for temporary
purposes and then in amounts not in excess of 10% of
the value of a Fund's total assets at the time of such
borrowing (provided that the Money Market 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 a Fund's total assets at the time of such
borrowing. A Fund will not purchase securities while
borrowings (including reverse repurchase agreements
with respect to the Money Market Fund) in excess of 5%
of its total assets are outstanding.
12. Invest more than 10% of the value of its total assets
in illiquid securities, including, with respect to the
Money Market and U.S. Treasury Funds, 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.
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With respect to Investment Limitation No. 11 above, the Money Market
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.
With respect to Investment Limitation No. 12 above, each Fund intends
to limit investments in illiquid securities to not more than 10% of the value of
its net assets.
The Money Market Fund may not:
13. Purchase any securities other than "money-market"
instruments, some of which may be subject to repurchase
agreements, but the Fund may make interest-bearing
savings deposits not in excess of 5% of the value of
its total assets at the time of deposit and may make
time deposits.
The Tax-Exempt Fund may not:
14. Borrow money or issue senior securities, except that
the Fund may borrow from banks for temporary purposes,
and then in amounts not in excess of 10% of the value
of its total assets at the time of such borrowing; or
mortgage, pledge, or hypothecate any assets except in
connection with any such borrowing and in amounts not
in excess of the lesser of the dollar amounts borrowed
or 10% of the value of its total assets at the time of
such borrowing. The Fund will not purchase any
portfolio securities while borrowings in excess of 5%
of its total assets are outstanding.
15. Knowingly invest more than 10% of the value of its
total assets in illiquid securities, including
repurchase agreements with remaining maturities in
excess of seven days and other securities which are not
readily marketable.
16. Purchase any securities that would cause 25% or more of
the value of its total assets at the time of purchase
to be invested in the securities of one or more issuers
conducting their principal business activities in the
same industry; provided, however, that there is no
limitation with respect to securities issued or
guaranteed by the United States, any state, territory
or possession of the U.S. Government, the District of
Columbia, or any of their authorities, agencies,
instrumentalities, or political subdivisions.
17. 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.
With respect to Investment Limitation No. 15, The Tax Exempt Fund
intends to limit investments in illiquid securities to not more than 10% of
the value of its net assets.
The Short-Term Bond, Intermediate Government Income and High Quality
Bond Funds may not:
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18. 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.
19. 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.
20. 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.
21. 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.
22. 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.
23. 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.
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24. 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.
25. 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.
26. Invest in or sell put options, call options, straddles,
spreads, or any combination thereof.
27. Invest in companies for the purpose of exercising
management or control.
28. 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.
With respect to Investment Limitation No. 19 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. 21 above, neither the
Short-Term Bond Fund, Intermediate Government Income Fund nor High Quality Bond
Fund intends to acquire more than 10% of the outstanding voting securities of
any one issuer.
In addition to the above limitations:
29. The Funds, with the exception of the Short-Term Bond
Fund, may not purchase foreign securities, except that
the Funds may purchase certificates of deposit,
bankers' acceptances, or other similar obligations
issued by U.S. branches of foreign banks or foreign
branches of U.S. banks; and provided, however, that the
Funds may also purchase obligations of Canadian
Provincial Governments in accordance with each Fund's
investment objective and policies.
The Rhode Island Municipal Bond Fund may not:
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30. 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.
31. 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.
32. 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.
33. 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.
34. 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.
35. 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
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with the Fund's investment objective, policies and
limitations may be deemed to be underwriting.
36. 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.
37. 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.
38. Invest in or sell put options, call options, straddles,
spreads, or any combination thereof.
39. Invest in companies for the purpose of exercising
management or control.
40. 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.
41. 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.
42. 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.
43. Purchase securities of any one issuer, other than
obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, if
immediately after such purchase more than 5% of the
value of its total assets would be invested in the
securities of such issuer, except that up to 50% of the
value of its total assets may be invested without
regard to this 5% limitation, provided that no more
than 25% of the value of the Fund's total assets are
invested in the securities of any one issuer.
With respect to Investment Limitation No. 31 above, the Rhode Island
Municipal Bond 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.
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With respect to Investment Limitation No. 43 above, the Rhode Island
Municipal Bond Fund does not intend to acquire 10% or more of the outstanding
voting securities of any one issuer.
The Asset Allocation, Equity Growth and International Equity Funds may
not:
44. 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.
45. 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 33% of
the value of its total assets at the time of such
borrowing (provided that the Funds may borrow pursuant
to reverse repurchase agreements in accordance with
their investment policies and in amounts not in excess
of 33% 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 33% 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.
46. 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,
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.
47. 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.
48. 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.
49. 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
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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.
50. 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.
51. Purchase or sell commodities or commodity contracts or
invest in oil, gas, or other mineral exploration or
development programs or mineral leases; provided
however, that the Funds may enter into forward currency
contracts and foreign currency futures contracts and
related options to the extent permitted by their
respective investment objectives and policies.
52. Invest in or sell put options, call options, straddles,
spreads, or any combination thereof; provided, however,
that each Fund 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 Funds may purchase put and call options to the
extent permitted by their investment objectives and
policies.
53. Invest in companies for the purpose of exercising
management or control.
54. 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.
With respect to Investment Limitation No. 45 above, (a) each of the
Asset Allocation, Equity Growth and International 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. 47 above, each of the Asset
Allocation, Equity Growth and International Equity Funds does not intend to
acquire more than 10% of the outstanding voting securities of any one issuer.
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The Growth and Income Fund may not:
55. 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 Fund may borrow up to one-third of the value of
its total assets and pledge up to 10% of the value of
its total assets to secure such borrowings.
56. With respect to 75% of the value of its 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.
57. Sell any securities short or purchase any securities on
margin, but the 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
the 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.
58. Issue senior securities except that the 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 Fund may enter into futures
contracts. The Fund will not 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 the Fund to meet redemption requests when the
liquidation of portfolio securities is deemed to be
inconvenient or disadvantageous. The Fund will not
purchase any securities while borrowings in excess of
5% of its total assets are outstanding.
59. Mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, the 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 the 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.
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60. Purchase or sell real estate or real estate limited
partnerships, although the 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.
61. Purchase or sell commodities, commodity contracts, or
commodity futures contracts except to the extent that
the Fund may engage in transactions involving financial
futures contracts or options on financial futures
contracts.
62. Underwrite any issue of securities, except as the 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.
63. Lend any of its assets except that the Fund may lend
portfolio securities up to one-third the value of its
total assets. This limitation shall not prevent the
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.
64. 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, the 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
Fund 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:
65. The Fund may not invest more than 15% of its 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).
66. The Fund will limit its investments in other investment
companies to not more than 3% of the total outstanding
voting stock of any investment company; will invest no
more than 5% of its total assets in any one investment
company; and will invest no more than 10% of its total
assets
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<PAGE>
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 Fund 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 the Fund in shares of another investment
company would be subject to such duplicate expenses.
67. The Fund may not 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.
68. The Fund may not purchase or sell interests in oil,
gas, or mineral exploration or development programs or
leases; except that the Fund may purchase the
securities of issuers which invest in or sponsor such
programs.
69. The Fund may not 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.
70. The Fund may not 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. The Fund may not
write call options in excess of 5% of the value of its
total assets.
71. The Fund may not 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.
72. The Fund may not invest in companies for the purpose of
exercising management or control.
73. The Fund may not 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.
In addition to the foregoing limitations, (a) the Money Market, U.S.
Treasury, Short-Term Bond, Intermediate Government Income, High Quality Bond,
Asset Allocation, Growth & Income, Equity Growth and International Equity Funds
may not purchase securities that would
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cause 25% or more of the value of a Fund's total assets at the time of
purchase to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry; provided, however,
that (i) there is no limitation with respect to obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, or,
with respect to the Money Market Fund, by domestic banks or by U.S. branches
of foreign banks that are subject to the same regulation as domestic banks;
(ii) wholly-owned finance companies will be considered to be in the
industries of their parents if their activities are primarily related to
financing the activities of the parents; and (iii) 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.
The Growth and Income Fund intends 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. The Fund will limit its
investments in illiquid securities, including certain restricted securities not
determined by the Board of Trustees to be liquid, non-negotiable fixed time
deposits with maturities over seven days, over-the-counter options, and
repurchase agreements providing for settlement in more than seven days after
notice, to 15% of its net assets.
Except as stated otherwise, a percentage limitation is satisfied at the
time of investment, a later increase in such percentage resulting from a change
in the value of a Fund's portfolio securities generally will not constitute a
violation of the limitation. If the value of a Fund's holdings of illiquid
securities at any time exceeds the percentage limitation applicable at the time
of acquisition due to subsequent fluctuations in value or other reasons, the
Board of Trustees will consider what actions, if any, are appropriate to
maintain adequate liquidity. With respect to borrowings, if a Fund's asset
coverage at any time falls below that required by the 1940 Act, the Fund will
reduce the amount of its borrowings in the manner required by the 1940 Act to
the extent necessary to satisfy the asset coverage requirement.
Each of the Money Market, U.S. Treasury and Tax-Exempt Funds may follow
non-fundamental operating policies that are more restrictive than its
fundamental investment limitations as set forth in the Prospectus and this
Statement of Additional Information, in order to comply with applicable laws and
regulations, including the provisions of and regulations under the 1940 Act. In
particular, each Fund will comply with the various requirements of Rule 2a-7
under the 1940 Act which regulates money market funds. In accordance with Rule
2a-7, the Money Market Fund is subject to the 5% limitation contained in
Investment Limitation No. 10 above as to all of its assets; however in
accordance with such Rule, the Money Market Fund will be able to invest more
than 5% (but no more than 25%) of its total assets in the securities of a single
issuer for a period of up to three business days after the purchase thereof,
provided that the Fund may not hold more than one such investment at any one
time. Adherence by a Fund to the diversification requirements of Rule 2a-7 is
deemed to constitute adherence to the diversification requirements of Investment
Limitation No. 10 above. Each of the Money Market, U.S. Treasury and Tax-Exempt
Funds will determine the effective maturity of its respective investments, as
well as its ability to consider a security as having received the requisite
short-term ratings by
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<PAGE>
Rating Agencies, according to Rule 2a-7. A Fund may change these operating
policies to reflect changes in the laws and regulations without the approval
of its shareholders.
Each Fund except the U.S. Treasury Fund and Rhode Island Municipal Bond
Fund may purchase Rule 144A 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. Investment by a Fund in
Rule 144A securities could have the effect of increasing the level of
illiquidity of the Fund during any period that qualified institutional buyers
were no longer interested in purchasing these securities. For purposes of each
Fund's limitation on purchases of illiquid securities described above, Rule 144A
securities will not be considered to be illiquid if Fleet has determined, in
accordance with guidelines established by the Board of Trustees, that an
adequate trading market exists for such securities.
VALUATION OF PORTFOLIO SECURITIES
VALUATION OF THE MONEY MARKET, U.S. TREASURY AND TAX-EXEMPT FUND
Galaxy uses the amortized cost method of valuation to value shares of
the Money Market, U.S. Treasury and Tax-Exempt Funds. In order to use the
amortized cost method, the Funds comply with the various quality and maturity
restrictions specified in Rule 2a-7 promulgated under the 1940 Act. Pursuant to
this method, a security is valued at its initial acquisition cost, as adjusted
for amortization of premium or accretion of discount, regardless of the impact
of fluctuating interest rates on the market value of the security. Where it is
not appropriate to value a security by the amortized cost method, the security
will be valued either by market quotations or by fair value as determined by or
under the direction of Galaxy's Board of Trustees. This method may result in
periods during which value, as determined by amortized cost, is higher or lower
than the price a Fund would receive if it sold the security. The value of
securities in each of these Funds can be expected to vary inversely with changes
in prevailing interest rates. Thus, if interest rates have increased from the
time a security was purchased, such security, if sold, might be sold at a price
less than its cost. Similarly, if interest rates have declined from the time a
security was purchased, such security, if sold, might be sold at a price greater
than its purchase cost. In either instance, if the security is held to maturity,
no gain or loss will be realized.
The Funds invest only in instruments that meet the applicable quality
requirements of Rule 2a-7 and maintain a dollar-weighted average portfolio
maturity appropriate to their objective of maintaining a stable net asset value
per share, provided that none of the Funds will purchase any security deemed to
have a remaining maturity (as defined in the 1940 Act) of more than 397 days nor
maintain a dollar-weighted average portfolio maturity which exceeds 90 days.
Galaxy's Board of Trustees has established procedures reasonably designed,
taking into account current market conditions and each Fund's investment
objective, to stabilize the net asset value per share of each Fund for purposes
of sales and redemptions at $1.00. These procedures include review by the Board
of Trustees, at such intervals as it deems appropriate, to determine the
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extent, if any, to which the net asset value per share of each Fund,
calculated by using available market quotations, deviates from $1.00 per
share. In the event such deviation exceeds one-half of one percent, the Board
of Trustees will promptly consider what action, if any, should be initiated.
If the Board of Trustees believes that the extent of any deviation from a
Fund's $1.00 amortized cost price per share may result in material dilution
or other unfair results to new or existing investors, it has agreed to take
such steps as it considers appropriate to eliminate or reduce, to the extent
reasonably practicable, any such dilution or unfair results. These steps may
include selling portfolio instruments prior to maturity; shortening the
average portfolio maturity; withholding or reducing dividends; redeeming
shares in kind; reducing the number of a Fund's outstanding shares without
monetary consideration; or utilizing a net asset value per share determined
by using available market quotations.
VALUATION OF THE SHORT-TERM BOND, INTERMEDIATE GOVERNMENT INCOME, HIGH
QUALITY BOND AND RHODE ISLAND MUNICIPAL BOND FUNDS
The assets of the Short-Term Bond, Intermediate Government Income, High
Quality Bond and Rhode Island Municipal 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.
VALUATION OF THE ASSET ALLOCATION, GROWTH AND INCOME AND EQUITY GROWTH FUNDS
In determining market value, the assets in the Asset Allocation, Growth
and Income and Equity Growth 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
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<PAGE>
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.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares in each Fund are sold on a continuous basis by Galaxy's
distributor, Provident Distributors, Inc. ("PDI"). PDI is a registered
broker/dealer with its principal offices at Four Falls Corporate Center, 6th
Floor, West Conshohocken, Pennsylvania 19428. PDI has agreed to use appropriate
efforts to solicit all purchase orders.
BKB Shares will initially be issued in connection with the
Reorganization. Following the Reorganization, BKB Shares will be available for
purchase only by those shareholders who received BKB Shares in the
Reorganization. BKB Shares of a Fund will convert to Retail A Shares of the
same Fund on the first anniversary of the Reorganization, provided that the
Board of Trustees of Galaxy has determined that such conversion is in the best
interests of holders of BKB Shares.
OTHER PURCHASE INFORMATION - BKB SHARES AND RETAIL A SHARES
On a business day (i.e. a day when the New York Stock Exchange (the
"Exchange") is open for trading) when the Stock Exchange closes early due to a
partial holiday or otherwise,
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Galaxy will advance the time at which purchase orders must be received in
order to be processed on that business day.
APPLICABLE SALES CHARGE - RETAIL A SHARES
The public offering price for Retail A Shares of the Funds (other than
Retail A Shares of the Money Market, U.S. Treasury and Tax-Exempt Funds which
are sold without a sales charge) is the sum of the net asset value of the
Retail A Shares purchased plus any applicable front-end sales charge as
described in the Prospectus. A deferred sales charge of up to 1.00% is
assessed on certain redemptions of Retail A Shares that are purchased with no
initial sales charge as part of an investment of $500,000 or more. A portion
of the front-end sales charge may be reallowed to broker-dealers as follows:
<TABLE>
<CAPTION>
REALLOWANCE TO
DEALERS
-------
AS A % OF
OFFERING PRICE
AMOUNT OF TRANSACTION PER SHARE
- --------------------- ---------
<S> <C>
Less than $50,000 3.25
$50,000 but less than $100,000 3.00
$100,000 but less than $250,000 2.50
$250,000 but less than $500,000 2.00
$500,000 and over 0.00
</TABLE>
The appropriate reallowance to dealers will be paid by PDI to
broker-dealer organizations which have entered into agreements with PDI. The
reallowance to dealers may be changed from time to time.
In certain situations or for certain individuals, the front-end sales
charge for Retail A Shares of the Funds may be waived either because of the
nature of the investor or the reduced sales effort required to attract such
investments. In order to receive the sales charge waiver, an investor must
explain the status of his or her investment at the time of purchase. In
addition to the sales charge waivers described in the Prospectus, no sales
charge is assessed on purchases of Retail A Shares of the Funds by the
following categories of investors or in the following types of transactions:
- purchases by directors, officers and employees of broker-dealers
having agreements with PDI pertaining to the sale of Retail A Shares
to the extent permitted by such organizations;
- purchases by current and retired members of Galaxy's Board of Trustees
and members of their immediate families;
- purchases by officers, directors, employees and retirees of
FleetBoston Corporation and any of its affiliates and members of their
immediate families;
- purchases by officers, directors, employees and retirees of PFPC
Inc. and members of their immediate families;
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- purchases by officers, directors, employees and retirees of PFPC Inc.
and members of their immediate families;
- purchases by persons who are also plan participants in any employee
benefit plan which is the record or beneficial holder of Trust Shares
of the Funds or any of the other portfolios offered by Galaxy;
- purchases by institutional investors, including but not limited to
bank trust departments and registered investment advisers;
- purchases by clients of investment advisers or financial planners who
place trades for their own accounts if such accounts are linked to the
master accounts of such investment advisers or financial planners on
the books of the broker-dealer through whom Retail A Shares are
purchased;
- purchases by institutional clients of broker-dealers, including
retirement and deferred compensation plans and the trusts used to fund
these plans, which place trades through an omnibus account maintained
with Galaxy by the broker-dealer; and
- purchases prior to July 1, 1999 by former deposit customers of
financial institutions (other than registered broker-dealers) acquired
by FleetBoston Corporation in February 1998.
COMPUTATION OF OFFERING PRICE - RETAIL A SHARES
An illustration of the computation of the offering price per share of
Retail A Shares of the Funds (other than the Money Market, U.S. Treasury and
Tax-Exempt Funds), using the value of each Fund's net assets attributable to
such Shares and the number of outstanding Retail A Shares of each Fund at the
close of business on October 31, 1999 and the maximum front-end sales charge of
3.75%, is as follows:
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<TABLE>
<CAPTION>
Short Term Intermediate Government
Bond Fund Income Fund
--------- -----------
<S> <C> <C>
Net Assets........................................... $__________ $__________
Outstanding Shares................................... $__________ $__________
Net Asset Value Per Share............................ $__________ $__________
Sales Charge (3.75% of
the offering price).................................. $__________ $__________
Offering Price to Public............................. $__________ $__________
High Quality Rhode Island Municipal
Bond Fund Bond Fund
--------- ---------
Net Assets........................................... $__________ $__________
Outstanding Shares................................... $__________ $__________
Net Asset Value Per Share............................ $__________ $__________
Sales Charge (3.75% of
the offering price).................................. $__________ $__________
Offering Price to Public............................. $__________ $__________
.....................................................
Asset Allocation
Fund
----
Net Assets........................................... $___________
Outstanding Shares................................... $___________
Net Asset Value Per Share............................ $___________
Sales Charge (3.75% of
the offering price).................................. $___________
Offering Price to Public............................. $___________
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<CAPTION>
Growth and
Income Fund
-----------
<S> <C>
Net Assets........................................... $___________
Outstanding Shares................................... $___________
Net Asset Value Per Share............................ $___________
Sales Charge (3.75% of
the offering price).................................. $___________
Offering Price to Public............................. $___________
Equity
Growth Fund
-----------
Net Assets........................................... $___________
Outstanding Shares................................... $___________
Net Asset Value Per Share............................ $___________
Sales Charge (3.75% of
the offering price).................................. $___________
Offering Price to Public............................. $___________
International
Equity Fund
-----------
Net Assets........................................... $__________
Outstanding Shares................................... $__________
Net Asset Value Per Share............................ $__________
Sales Charge (3.75% of
the offering price).................................. $__________
Offering Price to Public............................. $__________
</TABLE>
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QUANTITY DISCOUNTS
Investors may be entitled to reduced sales charges through Rights of
Accumulation, a Letter of Intent or a combination of investments, as described
below, even if the investor does not wish to make an investment of a size that
would normally qualify for a quantity discount.
In order to obtain quantity discount benefits, an investor must notify PDI
at the time of purchase that he or she would like to take advantage of any of
the discount plans described below. Upon such notification, the investor will
receive the lowest applicable sales charge. Quantity discounts may be modified
or terminated at any time and are subject to confirmation of an investor's
holdings through a check of appropriate records. For more information about
quantity discounts, please contact PDI or your financial institution.
RIGHTS OF ACCUMULATION. A reduced sales charge applies to any purchase of
Retail A Shares of any portfolio of Galaxy that is sold with a sales charge
("Eligible Fund") where an investor's then current aggregate investment in
Retail A Shares is $50,000 or more. "Aggregate investment" means the total of:
(a) the dollar amount of the then current purchase of shares of an Eligible
Fund; and (b) the value (based on current net asset value) of previously
purchased and beneficially owned shares of any Eligible Fund on which a sales
charge has been paid. If, for example, an investor beneficially owns shares of
one or more Eligible Funds with an aggregate current value of $49,000 on which a
sales charge has been paid and subsequently purchases shares of an Eligible Fund
having a current value of $1,000, the sales charge applicable to the subsequent
purchase would be reduced to 3.50% of the offering price. Similarly, with
respect to each subsequent investment, all shares of Eligible Funds that are
beneficially owned by the investor at the time of investment may be combined to
determine the applicable sales charge.
LETTER OF INTENT. By completing the Letter of Intent included as part of
the Account Application, an investor becomes eligible for the reduced sales
charge applicable to the total number of Eligible Fund Retail A Shares purchased
in a 13-month period pursuant to the terms and under the conditions set forth
below and in the Letter of Intent. To compute the applicable sales charge, the
offering price of Retail A Shares of an Eligible Fund on which a sales charge
has been paid and that are beneficially owned by an investor on the date of
submission of the Letter of Intent may be used as a credit toward completion of
the Letter of Intent. However, the reduced sales charge will be applied only to
new purchases.
PFPC Inc. ("PFPC"), Galaxy's administrator, will hold in escrow Retail A
Shares equal to 5% of the amount indicated in the Letter of Intent for payment
of a higher sales charge if an investor does not purchase the full amount
indicated in the Letter of Intent. The escrow will be released when the investor
fulfills the terms of the Letter of Intent by purchasing the specified amount.
If purchases qualify for a further sales charge reduction, the sales charge will
be adjusted to reflect the investor's total purchases. If total purchases are
less than the amount specified, the investor will be requested to remit an
amount equal to the difference between the sales charge actually paid and the
sales charge applicable to the total purchases. If such remittance is not
received within 20 days, PFPC, as attorney-in-fact pursuant to the terms of the
Letter of Intent and at PDI's direction, will redeem an appropriate number of
Retail A Shares
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held in escrow to realize the difference. Signing a Letter of Intent does not
bind an investor to purchase the full amount indicated at the sales charge in
effect at the time of signing, but an investor must complete the intended
purchase in accordance with the terms of the Letter of Intent to obtain the
reduced sales charge. To apply, an investor must indicate his or her intention
to do so under a Letter of Intent at the time of purchase.
QUALIFICATION FOR DISCOUNTS. For purposes of applying the Rights of
Accumulation and Letter of Intent privileges described above, the scale of sales
charges applies to the combined purchases made by any individual and/or spouse
purchasing securities for his, her or their own account or for the account of
any minor children, or the aggregate investments of a trustee or custodian of
any qualified pension or profit-sharing plan established (or the aggregate
investment of a trustee or other fiduciary) for the benefit of the persons
listed above.
REINSTATEMENT PRIVILEGE. Investors may reinvest all or any portion of their
redemption proceeds in Retail A Shares of the Funds or in Retail A Shares of
another portfolio of Galaxy within 90 days of the redemption trade date without
paying a sales load. Retail A Shares so reinvested will be purchased at a price
equal to the net asset value next determined after Galaxy's transfer agent
receives a reinstatement request and payment in proper form.
Investors wishing to exercise this Privilege must submit a written
reinstatement request to PFPC as transfer agent stating that the investor is
eligible to use the Privilege. The reinstatement request and payment must be
received within 90 days of the trade date of the redemption. Currently, there
are no restrictions on the number of times an investor may use this Privilege.
Generally, exercising the Reinstatement Privilege will not affect the
character of any gain or loss realized on redemptions for federal income tax
purposes. However, if a redemption results in a loss, the reinstatement may
result in the loss being disallowed under the Code's "wash sale" rules.
GROUP SALES. Members of qualified groups may purchase Retail A Shares of
the Funds at the following group sales rates:
<TABLE>
<CAPTION>
Reallowance
Total Sales Charge to Dealers
------------------ ----------
As a % of As a % of As a % of
Number of Qualified Offering Price Net Asset Value Offering Price
Group Members Per Share Per Share Per Share
- --------------------- --------- --------- ---------
<S> <C> <C> <C>
50,000 but less than 250,000.................... 3.00 3.09 3.00
250,000 but less than 500,000................... 2.75 2.83 2.75
500,000 but less than 750,000................... 2.50 2.56 2.50
750,000 and over................................ 2.00 2.04 2.00
</TABLE>
To be eligible for the discount, a group must meet the requirements set
forth below and be approved in advance as a qualified group by PDI. To receive
the group sales charge rate,
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<PAGE>
group members must purchase Retail A Shares directly from PDI in accordance with
any of the procedures described in the Prospectus. Group members must also
ensure that their qualified group affiliation is identified on the purchase
application.
A qualified group is a group that (i) has at least 50,000 members, (ii) was
not formed for the purpose of buying Fund shares at a reduced sales charge,
(iii) within one year of the initial member purchase, has at least 1% of its
members invested in the Funds or any of the other investment portfolios offered
by Galaxy, (iv) agrees to include Galaxy sales material in publications and
mailings to members at a reduced cost or no cost, and (v) meets certain other
uniform criteria. PDI may request periodic certification of group and member
eligibility. PDI reserves the right to determine whether a group qualifies for a
quantity discount and to suspend this offer at any time.
REDEMPTION OF BKB SHARES
Redemption orders are effected at the net asset value per share next
determined after receipt of the order by PDI. On a business day when the
Exchange closes early due to a partial holiday or otherwise, Galaxy will advance
the time at which redemption orders must be received in order to be processed on
that business day. Galaxy may require any information reasonably necessary to
ensure that a redemption has been duly authorized. 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.
Galaxy may suspend the right of redemption or postpone the date of payment
for shares for more than seven days during any period when (a) trading in the
markets the Funds normally utilize is restricted, or an emergency, as defined by
the rules and regulations of the SEC exists making disposal of a Fund's
investments or determination of its net asset value not reasonably practicable;
(b) the Exchange is closed (other than customary weekend and holiday closings);
or (c) the SEC by order has permitted such suspension.
If the Board of Trustees determines that conditions exist which make
payment of redemption proceeds wholly in cash unwise or undesirable, Galaxy may
make payment wholly or partly in securities or other property. Such redemptions
will only be made in "readily marketable" securities. In such an event, a
shareholder would incur transaction costs in selling the securities or other
property. However, Galaxy has filed an election with the SEC to pay in cash all
redemptions requested by a shareholder of record limited in amount during any
90-day period to the lesser of $250,000 or 1% of the net assets of a Fund at the
beginning of such period. Such commitment cannot be revoked without the prior
approval of the SEC.
EXCHANGE PRIVILEGE
The following information supplements the description in the Prospectus as
to the exchange privilege available to holders of BKB Shares and Retail A
Shares of the Funds.
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An investor may exchange BKB Shares of a Fund having a value of at least
$100 for BKB Shares of any other Galaxy Fund.
An investor may exchange Retail A Shares of a Fund having a value of at
least $100 for Retail A Shares of any other Galaxy Fund without paying a sales
charge. The minimum initial investment to establish an account in another Fund
or portfolio by exchange is $2,500, unless (i) the Retail A Shares being
redeemed were purchased through a registered representative who is a Fleet Bank
employee, in which event there is no minimum investment requirement, or (ii) at
the time of the exchange the investor elects, with respect to the Fund or
portfolio into which the exchange is being made, to participate in Galaxy's
Automatic Investment Program, in which event there is no minimum initial
investment requirement, or in Galaxy's College Investment Program, in which
event the minimum initial investment is generally $100.
An exchange involves a redemption of all or a portion of the BKB or
Retail A Shares of a Fund and the investment of the redemption proceeds in
Retail A Shares of another Fund or portfolio offered by Galaxy otherwise
advised by Fleet or its affiliates. The redemption will be made at the per
share net asset value next determined after the exchange request is received.
The BKB or Retail A Shares of a Fund or portfolio to be acquired will be
purchased at the per share net asset value next determined after acceptance of
the exchange request, plus any applicable sales charge.
Investors may find the exchange privilege useful if their investment
objectives or market outlook should change after they invest in any of the
Funds. For further information regarding Galaxy's exchange privilege, investors
should call PFPC, Galaxy's transfer agent, at 1-877-BUY-GALAXY (1-877-289-4252).
Customers of institutions should call their institution for such information.
Investors exercising the exchange privilege into other portfolios should request
and review these portfolios' prospectuses prior to making an exchange. Telephone
1-877-BUY-GALAXY (1-877-289-4252) for a prospectus or to make an exchange.
In order to prevent abuse of this privilege to the disadvantage of other
shareholders, Galaxy reserves the right to terminate the exchange privilege of
any shareholder who requests more than three exchanges a year. Galaxy will
determine whether to do so based on a consideration of both the number of
exchanges that any particular shareholder or group of shareholders has requested
and the time period over which their exchange requests have been made, together
with the level of expense to Galaxy which will result from effecting additional
exchange requests. The exchange privilege may be modified or terminated at any
time. At least
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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.
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 the Bond and Equity
Funds on December 31 of such year if such dividends are actually paid during
January of the following year.
It is the policy of each of the Tax-Exempt Fund and Rhode Island Municipal
Bond Fund to pay dividends with respect to each taxable year equal to at least
the sum of 90% of its net exempt-interest income and 90% of its investment
company taxable income, if any. Dividends derived from exempt-interest income
("exempt-interest dividends") may be treated by a Fund's shareholders as items
of interest excludable from their gross income under Section 103(a) of the
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Code, unless under the circumstances applicable to a particular shareholder,
exclusion would be disallowed.
An investment in any one Fund is not intended to constitute a balanced
investment program. Shares of the Tax-Exempt Fund and Rhode Island Municipal
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 Funds' dividends being tax-exempt, but such
dividends would be ultimately taxable to the beneficiaries when distributed. In
addition, the Tax-Exempt Fund and Rhode Island Municipal 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.
In order for the Tax-Exempt Fund and Rhode Island Municipal Bond Fund to
pay exempt-interest dividends for any taxable year, at the close of each taxable
quarter, at least 50% of the aggregate value of a Fund's portfolio must consist
of exempt-interest obligations. Within 60 days after the close of its taxable
year, each Fund will notify its shareholders of the portion of the dividends
paid by the Fund which constitutes exempt-interest dividends with respect to
such taxable year. However, the aggregate amount of dividends so designated by a
Fund cannot exceed the excess of the amount of interest exempt from tax under
Section 103 of the Code received by the Fund over any amounts disallowed as
deductions under Section 265 and 171(a)(2) of the Code. The percentage of total
dividends paid by a Fund with respect to any taxable year that qualifies as
federal exempt-interest dividends will be the same for all shareholders
receiving dividends from the Fund for such year.
STATE AND LOCAL
Exempt-interest dividends and other distributions paid by the Tax-Exempt
Fund and Rhode Island Municipal Bond Fund may be taxable to shareholders under
state or local law as dividend income, even though all or a portion of such
distributions may be derived from interest on tax-exempt obligations which, if
realized directly, would be exempt from such income taxes.
The U.S. Treasury Fund is structured to provide shareholders, to the extent
permissible by federal and state law, with income that is exempt or excluded
from taxation at the state and local level. Many states, by statute, judicial
decision or administrative action, have taken the position that dividends of a
regulated investment company, such as the Fund, that are attributable to
interest on direct U.S. Treasury obligations or obligations of certain U.S.
Government
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<PAGE>
agencies, are the functional equivalent of interest from such obligations and
are, therefore, exempt from state and local income taxes. Shareholders should
consult their own tax advisers about the status of distributions from the
Fund in their own state.
Depending upon the extent of Galaxy's activities in states and
localities in which its offices are maintained, in which its agents or
independent contractors are located, or in which it is otherwise deemed to be
conducting business, each Fund may be subject to the tax laws of such states
or localities. In addition, in those states and localities that have income
tax laws, the treatment of a Fund and its shareholders under such laws may
differ from their treatment under federal income tax laws. Under state or
local law, distributions of net investment income may be taxable to
shareholders as dividend income even though a substantial portion of such
distributions may be derived from interest on U.S. Government obligations
which, if realized directly, would be exempt from such income taxes.
Shareholders are advised to consult their tax advisers concerning the
application of state and local taxes.
The Rhode Island Municipal Bond Fund has received a ruling from the
Rhode Island Division of Taxation to the effect that distributions by it to its
shareholders are exempt from Rhode Island personal income taxation and the Rhode
Island business corporation tax to the extent they are derived from (and
designated by the Fund as being derived from) interest earned on Rhode Island
Municipal Securities or obligations of the United States. Distributions from the
Fund's other net investment income and short-term capital gains will be taxable
as ordinary income. Distributions from the Fund's net long-term capital gains
will be taxable as long-term capital gains regardless of how long the
shareholder has owned Fund shares. The tax treatment of distributions is the
same whether distributions are paid in cash or in additional shares of the Fund.
The Rhode Island Municipal Bond Fund will be subject to the Rhode
Island business corporation tax on its "gross income" apportioned to the State
of Rhode Island. For this purpose, gross income does not include interest income
earned by the Fund on Rhode Island Municipal Securities and obligations of the
United States, capital gains realized by the Fund on the sale of certain Rhode
Island Municipal Securities, and 50 percent of the Fund's other net capital
gains.
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
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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.
MISCELLANEOUS
Shareholders will be advised annually as to the federal income tax
consequences and, with respect to shareholders of the Rhode Island Municipal
Bond Fund, Rhode Island personal income tax consequences of distributions made
each year.
TRUSTEES AND OFFICERS
The business and affairs of the Funds are managed under the direction of
Galaxy's Board of Trustees in accordance with the laws of the Commonwealth of
Massachusetts and the Trust's Declaration of Trust. The trustees and executive
officers of Galaxy, their addresses, principal occupations during the past five
years, and other affiliations are as follows:
<TABLE>
<CAPTION>
Positions Principal Occupation
with The During Past 5 Years
Name and Address and Age Galaxy Fund and Other Affiliations
- ------------------------ ----------- ----------------------
<S> <C> <C>
Dwight E. Vicks, Jr. Chairman & Trustee President & Director, Vicks Lithograph &
Vicks Lithograph & Printing Corporation (book manufacturing
Printing Corporation and commercial printing); Director, Utica
Commercial Drive First Insurance Company; Trustee, Savings
P.O. Box 270 Bank of Utica; Director, Monitor Life
Yorkville, NY 13495 Insurance Company; Director, Commercial
Age 66 Travelers Mutual Insurance Company;
Trustee, The Galaxy VIP Fund; Trustee,
Galaxy Fund II.
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<PAGE>
<CAPTION>
Positions Principal Occupation
with The During Past 5 Years
Name and Address and Age Galaxy Fund and Other Affiliations
- ------------------------ ----------- ----------------------
<S> <C> <C>
John T. O'Neill(1) President, Treasurer Private Investor; Executive Vice President
Hasbro, Inc. & Trustee and CFO, Hasbro, Inc. (toy and game
1011 Newport Avenue manufacturer) until December 31, 1999;
Pawtucket, RI 02862 Trustee, The Galaxy VIP Fund; Trustee,
Age 55 Galaxy Fund II.
Louis DeThomasis Trustee President, Saint Mary's College of
Saint Mary's College Minnesota; Director, Bright Day Travel,
of Minnesota Inc.; Trustee, Religious Communities Trust;
Winona, MN 55987 Trustee, The Galaxy VIP Fund; Trustee,
Age 59 Galaxy Fund II.
Donald B. Miller Trustee Chairman, Horizon Media, Inc. (broadcast
10725 Quail Covey Road services); Director/Trustee, Lexington
Boynton Beach, FL 33436 Funds; Chairman, Executive Committee,
Age 74 Compton International, Inc. (advertising
agency); Trustee, Keuka College; Trustee,
The Galaxy VIP Fund; Trustee, Galaxy Fund
II.
James M. Seed Trustee Chairman and President, The Astra Projects,
The Astra Ventures, Inc. Incorporated (land development); President,
One Citizens Plaza The Astra Ventures, Incorporated
Providence, RI 02903 (previously, Buffinton Box Company -
Age 58 manufacturer of cardboard boxes);
Commissioner, Rhode Island Investment
Commission; Trustee, The Galaxy VIP
Fund; Trustee, Galaxy Fund II.
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<CAPTION>
Positions Principal Occupation
with The During Past 5 Years
Name and Address and Age Galaxy Fund and Other Affiliations
- ------------------------ ----------- ----------------------
<S> <C> <C>
Bradford S. Wellman(1) Trustee Private Investor; Vice President and
2468 Ohio Street Director, Acadia Management Company
Bangor, ME 04401 (investment services); Director, Essex
Age 68 County Gas Company, until January 1994;
Director, Maine Mutual Fire Insurance Co.;
Member, Maine Finance Authority; Trustee,
The Galaxy VIP Fund; Trustee, Galaxy Fund
II.
W. Bruce McConnel, III Secretary Partner of the law firm Drinker Biddle &
One Logan Square Reath LLP, Philadelphia, Pennsylvania.
18th and Cherry Streets
Philadelphia, PA 19103
Age 57
Jylanne Dunne Vice President and Vice President, PFPC Inc., 1990 to present.
PFPC Inc. Assistant Treasurer
4400 Computer Drive
Westborough, MA 01581-5108
Age 40
William Greilich Vice President Vice President, PFPC Inc., 1991-96; Vice
PFPC Inc. President and Division Manager, PFPC Inc.,
4400 Computer Drive 1996-present.
Westborough, MA 01581-5108
Age 46
</TABLE>
- --------------------------------
1. May be deemed to be an "interested person" within the definition set forth
in Section 2(a)(19) of the 1940 Act.
Effective May 28, 1999, each trustee receives an annual aggregate fee of
$45,000 for his services as a trustee of Galaxy, The Galaxy VIP Fund ("Galaxy
VIP") and Galaxy Fund II ("Galaxy II") (collectively, the "Trusts"), plus an
additional $3,500 for each in-person Galaxy Board meeting attended and $1,500
for each in-person Galaxy VIP or Galaxy II Board meeting attended not held
concurrently with an in-person Galaxy meeting, and is reimbursed for expenses
incurred in attending all meetings. Each trustee also receives $750 for each
telephone Board meeting in which the trustee participates, $1,000 for each
in-person Board committee meeting
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attended and $500 for each telephone Board committee meeting in which the
trustee participates. The Chairman of the Boards of the Trusts is entitled to an
additional annual aggregate fee in the amount of $4,000, and the President and
Treasurer of the Trusts is entitled to an additional annual aggregate fee of
$2,500 for their services in these respective capacities. The foregoing
trustees' and officers' fees are allocated among the portfolios of the Trusts
based on their relative net assets. Prior to May 28, 1999, each Trustee was
entitled to receive an annual aggregate fee of $40,000 for his services as a
Trustee of the Trusts, plus an additional $2,500 for each in-person Galaxy Board
meeting attended, with all other fees being as those currently in effect.
Effective March 1, 1996, each trustee became entitled to participate in The
Galaxy Fund, The Galaxy VIP Fund and Galaxy Fund II Deferred Compensation Plans
(the "Original Plans"). Effective January 1, 1997, the Original Plans were
merged into The Galaxy Fund/The Galaxy VIP Fund/Galaxy Fund II Deferred
Compensation Plan (together with the Original Plans, the "Plan"). Under the
Plan, a trustee may elect to have his deferred fees treated as if they had been
invested by the Trusts in the shares of one or more portfolios in the Trusts, or
other types of investment options, and the amount paid to the trustees under the
Plan will be determined based upon the performance of such investments. Deferral
of trustees' fees will have no effect on a portfolio's assets, liabilities, and
net income per share, and will not obligate the Trusts to retain the services of
any trustee or obligate a portfolio to any level of compensation to the trustee.
The Trusts may invest in underlying securities without shareholder approval.
No employee of PFPC receives any compensation from Galaxy for acting as an
officer. No person who is an officer, director or employee of Fleet or Oechsle,
or any of its affiliates, serves as a trustee, officer or employee of Galaxy.
The trustees and officers of Galaxy own less than 1% of its outstanding shares.
The following chart provides certain information about the fees received by
Galaxy's trustees in the most recently completed fiscal year.
<TABLE>
<CAPTION>
============================================================================================================
Pension or
Retirement
Benefits Total Compensation
Aggregate Accrued as Part from Galaxy and
Compensation From of Fund Fund Complex *Paid
Name of Person/Position Galaxy Expenses to Trustees
----------------------- ------ -------- -----------
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bradford S. Wellman $_______ None $_______
Trustee
- ------------------------------------------------------------------------------------------------------------
Dwight E. Vicks, Jr. $_______ None $_______
Chairman and Trustee
- ------------------------------------------------------------------------------------------------------------
Donald B. Miller** $_______ None $_______
Trustee
- ------------------------------------------------------------------------------------------------------------
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<PAGE>
============================================================================================================
Pension or
Retirement
Benefits Total Compensation
Aggregate Accrued as Part from Galaxy and
Compensation From of Fund Fund Complex *Paid
Name of Person/Position Galaxy Expenses to Trustees
----------------------- ------ -------- -----------
Rev. Louis DeThomasis $_______ None $_______
Trustee
- ------------------------------------------------------------------------------------------------------------
John T. O'Neill $_______ None $_______
President, Treasurer
and Trustee
- ------------------------------------------------------------------------------------------------------------
James M. Seed** $_______ None $_______
Trustee
============================================================================================================
</TABLE>
- ------------------------------------------------
* The "Fund Complex" consists of Galaxy, The Galaxy VIP Fund and Galaxy Fund
II, which comprise a total of 43 separate portfolios.
** Deferred compensation (including interest) in the amounts of $_____ and
$_____ accrued during Galaxy's fiscal year ended October 31, 1999 for
Messrs. Miller and Seed, respectively.
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. However, Galaxy's Declaration of Trust provides that shareholders
shall not be subject to any personal liability for the acts or obligations of
Galaxy, and that every note, bond, contract, order or other undertaking made by
Galaxy shall contain a provision to the effect that the shareholders are not
personally liable thereunder. The Declaration of Trust provides for
indemnification out of the trust property of any shareholder held personally
liable solely by reason of his or her being or having been a shareholder and not
because of his or her acts or omissions outside such capacity or some other
reason. The Declaration of Trust also provides that Galaxy shall, upon request,
assume the defense of any claim made against any shareholder for any act or
obligation of Galaxy, and shall satisfy any judgment thereon. Thus, the risk of
shareholder liability is limited to circumstances in which Galaxy itself would
be unable to meet its obligations.
The Declaration of Trust states further that no trustee, officer or agent
of Galaxy shall be personally liable for or on account of any contract, debt,
claim, damage, judgment or decree arising out of or connected with the
administration or preservation of the trust estate or the conduct of any
business of Galaxy; nor shall any trustee be personally liable to any person for
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.
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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 Prospectus. Fleet has also agreed to pay all expenses incurred
by it in connection with its activities under the advisory agreement other than
the cost of securities (including brokerage commissions) purchased for the
Funds. See "Expenses" below.
For the services provided and expenses assumed, Fleet is entitled to
receive advisory fees, computed daily and paid monthly, at the following annual
rates (i) with respect to the Money Market Fund and Tax-Exempt Fund, 0.40% of
the average daily net assets of each Fund; (ii) with respect to the U.S.
Treasury Fund, 0.40% of the first $750,000,000 of the Fund's average daily net
assets plus 0.35% of the average daily net assets of the Fund in excess of
$750,000,000; (iii) with respect to the Short-Term Bond, Intermediate Government
Income, High Quality Bond, Rhode Island Municipal Bond, Asset Allocation, Growth
and Income and Equity Growth Funds, 0.75% of each Fund's average daily net
assets; and (iv) with respect to the International Equity Fund, 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 by the
Money Market Fund and Tax-Exempt Fund in an amount equal to 0.05% of the average
daily net assets of each Fund to the extent that a Fund's net assets exceed
$750,000,000.
Fleet is currently waiving a portion of the advisory fees payable to it by
the Short-Term Bond, Intermediate Government Income, High Quality Bond and Rhode
Island Municipal Bond Funds so that it is entitled to receive advisory fees at
the annual rate of 0.55% of such Bond Fund's average daily net assets. Fleet may
revise or discontinue this waiver at any time.
During the last three fiscal years, Galaxy paid advisory fees (net of fee
waivers and/or expense reimbursements) to Fleet as set forth below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Money Market(1)....................................................$_________ $11,668,106 $9,458,596
U.S. Treasury(2)...................................................$_________ $3,727,152 $3,439,391
Tax-Exempt(3)......................................................$_________ $1,514,545 $1,275,727
Short-Term Bond(4).................................................$_________ $ 390,913 $ 470,347
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<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Intermediate Government Income(5)..................................$_________ $1,582,909 $1,535,166
High Quality Bond(6)...............................................$_________ $1,294,758 $1,089,506
Rhode Island Municipal Bond(7).....................................$_________ $ 60,214 $ 37,641
Asset Allocation...................................................$_________ $3,743,922 $2,313,863
Growth and Income..................................................$_________ $3,701,722 $2,361,898
Equity Growth......................................................$_________ $8,345,236 $6,555,045
International Equity(8)............................................$_________ $2,480,868 $1,844,037
</TABLE>
- ---------------
(1) For the fiscal years ended October 31, 1999, October 31, 1998, and October
31, 1997, Fleet waived advisory fees of $__________, $1,238,301 and
$922,657, respectively, with respect to the Money Market Fund.
(2) For the fiscal years ended October 31, 1999, October 31, 1998, and October
31, 1997, Fleet waived advisory fees of $__________, $0 and $0,
respectively, with respect to the U.S. Treasury Fund.
(3) For the fiscal years ended October 31, 1999, October 31, 1998, and October
31, 1997, Fleet waived advisory fees of $__________, $0 and $0,
respectively, with respect to the Tax-Exempt Fund.
(4) For the fiscal years ended October 31, 1999, October 31, 1998, and October
31, 1997, Fleet waived advisory fees of $________, $142,191 and $171,035,
respectively, with respect to the Short-Term Bond Fund.
(5) For the fiscal years ended October 31, 1999, October 31, 1998 and October
31, 1997, Fleet waived advisory fees of $________, $575,603 and $558,241,
respectively, with respect to the Intermediate Government Income Fund.
(6) For the fiscal years ended October 31, 1999, October 31, 1998 and October
31, 1997, Fleet waived advisory fees of $________, $470,821 and $396,183,
respectively, with respect to the High Quality Bond Fund.
(7) For the fiscal years ended October 31, 1999, October 31, 1998 and October
31, 1997, Fleet waived advisory fees of $________, $80,524 and $75,284
respectively, with respect to the Rhode Island Municipal Bond Fund.
(8) For the fiscal years ended October 31, 1999, October 31, 1998, and October
31, 1997, Fleet waived advisory fees of $________, $950,363 and $682,009,
respectively, with respect to the International Equity Fund.
During the last three fiscal years, Fleet reimbursed expenses as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Money Market..................................................... ...$_________ $ 0 $ 17
U.S. Treasury.................................................... ...$_________ $ 0 $ 25,108
Tax-Exempt....................................................... ...$_________ $ 0 $ 15,751
Short-Term Bond Fund.................................................$_________ $ 111 $ 2,300
Intermediate Government Income Fund.............................. ...$_________ $ 0 $ 0
High Quality Bond Fund........................................... ...$_________ $ 0 $ 28,489
Rhode Island Municipal Bond Fund.....................................$_________ $ 0 $ 538
Asset Allocation................................................. ...$_________ $ 0 $ 19,254
Growth and Income....................................................$_________ $150,727 $306,295
Equity Growth.................................................... ...$_________ $ 0 $ 27,033
International Equity............................................. ...$_________ $ 0 $ 18,362
</TABLE>
- ---------------
The advisory agreement provides that Fleet shall not be liable for any
error of judgment
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<PAGE>
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 Fund. The member manager of Oechsle is Oechsle Group,
LLC. FleetBoston Corporation owns approximately a 35% non-voting interest in
Oechsle. As of December 31, 1999, Oechsle had discretionary management authority
over approximately $___ 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
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.40% of the first $50 million of the International Equity Fund's average daily
net assets, plus .35% of average daily net assets in excess of $50 million.
For the fiscal years ended October 31, 1999, October 31, 1998 and October
31, 1997; Oechsle and/or its predecessor, Oechsle International Advisors, L.P.,
received sub-advisory fees of $_________, $1,355,508 and $979,810, respectively,
with respect to the International Equity Fund.
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.
ADMINISTRATOR
PFPC (formerly known as First Data Investor Services Group, Inc.), located
at 4400 Computer Drive, Westborough, Massachusetts 01581-5108, serves as the
Funds' administrator. PFPC is a majority-owned subsidiary of PNC Bank Corp.
PFPC generally assists the Funds in their administration and operation.
PFPC also serves as administrator to the other portfolios of Galaxy. For the
services provided to the Funds, PFPC is entitled to receive administration fees
based on the combined average daily net assets of the Funds and the other
portfolios offered by Galaxy with an October 31 fiscal year end, computed daily
and paid monthly, at the following annual rates, effective September 10, 1998:
<TABLE>
<CAPTION>
COMBINED AVERAGE DAILY NET ASSETS ANNUAL RATE
--------------------------------- -----------
<S> <C>
Up to $2.5 billion................. 0.090%
From $2.5 to $5 billion............ 0.085%
From $5 to $12 billion............. 0.075%
From $12 to $15 billion............ 0.065%
From $15 to $18 billion............ 0.060%
Over $18 billion................... 0.0575%
</TABLE>
Prior to September 10, 1998, Galaxy paid PFPC administration fees based on
the combined average daily net assets of the Funds and all other portfolios
offered by Galaxy at the following annual rates:
<TABLE>
<CAPTION>
COMBINED AVERAGE DAILY NET ASSETS ANNUAL RATE
--------------------------------- -----------
<S> <C>
Up to $2.5 billion................. 0.090%
From $2.5 to $5 billion............ 0.085%
Over $5 billion.................... 0.075%
</TABLE>
In addition, PFPC also receives a separate annual fee from each Galaxy portfolio
for certain fund accounting services.
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<PAGE>
From time to time, PFPC may waive voluntarily all or a portion of the
administration fees payable to it by the Funds. For the fiscal year ended
October 31, 1999, the Funds paid PFPC administration fees at the effective
annual rate of ____% of such Fund's average daily net assets.
During the last three fiscal years, PFPC received administration fees (net
of fee waivers) as set forth below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Money Market..................... $_______ $2,596,354 $2,118,433
U.S. Treasury.................... $_______ $ 770,823 $ 720,691
Tax-Exempt....................... $_______ $ 304,716 $ 263,643
Short-Term Bond.................. $_______ $ 57,228 $ 69,851
Intermediate Government Income... $_______ $ 231,595 $ 227,963
High Quality Bond................ $_______ $ 189,406 $ 161,732
Rhode Island Municipal Bond...... $_______ $ 15,172 $ 12,293
Asset Allocation................. $_______ $ 401,495 $ 253,881
Growth and Income................ $_______ $ 413,204 $ 290,324
Equity Growth.................... $_______ $ 895,213 $ 716,320
International Equity............. $_______ $ 305,871 $ 222,620
</TABLE>
During the last three fiscal years, PFPC waived administration fees as set
forth below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Money Market..................... $_______ $0 $0
U.S. Treasury.................... $_______ $0 $0
Tax-Exempt....................... $_______ $0 $0
Short-Term Bond.................. $_______ $0 $0
Intermediate Government Income... $_______ $0 $0
High Quality Bond................ $_______ $0 $0
Rhode Island Municipal Bond...... $_______ $0 $0
Asset Allocation................. $_______ $0 $0
Growth and Income................ $_______ $0 $0
Equity Growth.................... $_______ $0 $0
International Equity............. $_______ $0 $0
</TABLE>
Under the administration agreement between Galaxy and PFPC (the
"Administration Agreement"), Investor Services Group has agreed to maintain
office facilities for Galaxy, furnish Galaxy with statistical and research data,
clerical, accounting, and bookkeeping services, certain other services such as
internal auditing services required by Galaxy, and compute the net asset value
and net income of the Funds. PFPC prepares the Funds' annual and semi-annual
reports to the SEC, federal and state tax returns, and filings with state
securities commissions, arranges for and bears the cost of processing share
purchase and redemption orders, maintains the Funds' financial accounts and
records, and generally assists in all aspects of Galaxy's operations. Unless
otherwise terminated, the Administration Agreement will remain in effect until
May 31, 2001 and thereafter will continue from year to year upon annual approval
of Galaxy's Board of Trustees.
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<PAGE>
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase Manhattan"), located at One Chase
Manhattan Plaza, New York, New York 10081, a wholly-owned subsidiary of The
Chase Manhattan Corporation, serves as the custodian of the Funds' assets
pursuant to a Global Custody Agreement. Chase Manhattan may employ
sub-custodians for the Funds for the purpose of providing custodial services for
the Funds' foreign assets held outside the United States.
Under the Global Custody Agreement, Chase Manhattan has agreed to: (i)
maintain a separate account or accounts in the name of each Fund; (ii) hold and
disburse portfolio securities on account of each Fund; (iii) collect and make
disbursements of money on behalf of each Fund; (iv) collect and receive all
income and other payments and distributions on account of each Fund's portfolio
securities; (v) respond to correspondence from security brokers and others
relating to its duties; and (vi) make periodic reports to the Board of Trustees
concerning the Funds' operations. Chase Manhattan is authorized to select one or
more banks or trust companies to serve as sub-custodian for the Funds, provided
that Chase Manhattan shall remain responsible for the performance of all of its
duties under the custodian agreement and shall be liable to the Funds for any
loss which shall occur as a result of the failure of a sub-custodian to exercise
reasonable care with respect to the safekeeping of the Funds' assets. In
addition, Chase Manhattan also serves as Galaxy's "foreign custody manager" (as
that term is defined in Rule 17f-5 under the 1940 Act) and in such capacity
employs sub-custodians for the Funds for the purpose of providing custodial
services for the foreign assets of those Funds held outside the U.S. The assets
of the Funds are held under bank custodianship in compliance with the 1940 Act.
PFPC serves as the Funds' transfer and dividend disbursing agent pursuant
to a Transfer Agency and Services Agreement (the "Transfer Agency Agreement").
Communications to PFPC should be directed to PFPC at P.O. Box 5108, 4400
Computer Drive, Westborough, Massachusetts 01581. Under the Transfer Agency
Agreement, PFPC has agreed to: (i) issue and redeem shares of each Fund; (ii)
transmit all communications by each Fund to its shareholders of record,
including reports to shareholders, dividend and distribution notices and proxy
materials for meetings of shareholders; (iii) respond to correspondence by
security brokers and others relating to its duties; (iv) maintain shareholder
accounts; and (v) make periodic reports to the Board of Trustees concerning
Galaxy's operations.
EXPENSES
Fleet, Oechsle 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,
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administration, shareholder servicing, Rule 12b-1 distribution (if applicable),
fund accounting and custody fees; charges of the transfer agent and dividend
disbursing agent; certain insurance premiums; outside auditing and legal
expenses; costs of independent pricing services; costs of shareholder reports
and meetings; and any extraordinary expenses. The Funds also pay for brokerage
fees and commissions in connection with the purchase of portfolio securities.
PORTFOLIO TRANSACTIONS
Fleet or Oechsle will select specific portfolio investments and effect
transactions for the Funds. Fleet seeks to obtain the best net price and the
most favorable execution of orders. Fleet or Oechsle may, in its discretion,
effect transactions in portfolio securities with dealers who provide research
advice or other services to the Funds, Fleet or Oechsle. Fleet or Oechsle is
authorized to pay a broker or dealer who provides such brokerage and research
services a commission for executing a portfolio transaction for any Fund which
is in excess of the amount of commission another broker or dealer would have
charged for effecting that transaction if Fleet or Oechsle determines in good
faith that such commission was reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer, viewed in
terms of either that particular transaction or Fleet or Oechsle's overall
responsibilities to the particular Fund and to Galaxy. Such brokerage and
research services might consist of reports and statistics relating to specific
companies or industries, general summaries of groups of stocks or bonds and
their comparative earnings and yields, or broad overviews of the stock, bond and
government securities markets and the economy. The fees under the investment
advisory agreements between Galaxy and Fleet and Fleet and Oechsle are not
reduced by reason of receiving such brokerage and research services. The Board
of Trustees will periodically review the commissions paid by the Funds to
determine if the commissions paid over representative periods of time were
reasonable in relation to the benefits inuring to the Funds.
During the fiscal year ended October 31, 1999, the following Funds paid
soft dollar commissions as shown below:
<TABLE>
<CAPTION>
FUND COMMISSIONS
---- -----------
<S> <C>
Asset Allocation.................. $_______
Growth and Income................. $_______
Equity Growth..................... $_______
International Equity.............. $_______
</TABLE>
Transactions on U.S. stock exchanges involve the payment of negotiated
brokerage commissions. On exchanges on which commissions are negotiated, the
cost of transactions may vary among different brokers. There is generally no
stated commission in the case of securities traded in U.S. over-the-counter
markets, but the prices of those securities include undisclosed commissions or
mark-ups. The cost of securities purchased from underwriters includes an
underwriting commission or concession, and the prices at which securities are
purchased from and sold to dealers include a dealer's mark-up or mark-down. U.S.
Government Securities are generally purchased from underwriters or dealers,
although certain newly issued U.S. Government Securities may be purchased
directly from the U.S. Treasury or from the issuing
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<PAGE>
agency or instrumentality. No brokerage commissions are typically paid on
purchases and sales of U.S. Government Securities.
The following Funds paid brokerage commissions as shown in the table below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Asset Allocation................. $_______ $225,758 $155,296
Growth and Income................ $_______ $511,307 $851,919
Equity Growth.................... $_______ $1,128,464 $7,006,331
International Equity............. $_______ $841,389 $851,919
</TABLE>
During the period February 1, 1998 through October 31, 1998 and the fiscal
year ended October 31, 1999, certain Funds effected a portion of their portfolio
transactions through Quick & Reilly Institutional Trading ("Quick & Reilly"), a
division of Fleet Securities, Inc., which is an affiliate of Fleet. The table
below discloses (1) the aggregate amount of commissions paid to Quick & Reilly
by the Funds during the period ended October 31, 1998 and the fiscal year ended
October 31, 1999, (2) the percentage of each Fund's aggregate brokerage
commissions for the period ended October 31, 1998 and the fiscal year ended
October 31, 1999 that was paid to Quick & Reilly, and (3) the percentage of each
Fund's aggregate dollar amount of transactions that involved payment of
commissions that was effected through Quick & Reilly during the period ended
October 31, 1998 and the fiscal year ended October 31, 1999.
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1998:
% OF
% OF AGGREGATE
AGGREGATE AGGREGATE COMMISSION
FUND AMOUNT COMMISSIONS TRANSACTIONS
- ---- ------ ----------- ------------
<S> <C> <C> <C>
Asset Allocation................. $130,968 72.93% 78.11%
Growth and Income................ $118,050 32.53% 32.56%
Equity Growth.................... $56,784 5.76% 8.21%
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1999:
% OF
% OF AGGREGATE
AGGREGATE AGGREGATE COMMISSION
FUND AMOUNT COMMISSIONS TRANSACTIONS
- ---- ------ ----------- ------------
<S> <C> <C> <C>
Asset Allocation................. $ % %
Growth and Income................ $ % %
Equity Growth.................... $ % %
</TABLE>
Transactions in the over-the-counter market are generally principal
transactions with dealers and the costs of such transactions involve dealer
spreads rather than brokerage commissions. With respect to over-the-counter
transactions, Fleet will normally deal directly
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with the dealers who make a market in the securities involved except in those
circumstances where better prices and execution are available elsewhere or as
described below.
Debt securities purchased or sold by the Money Market, U.S. Treasury,
Tax-Exempt, Short-Term Bond, Intermediate Government Income, High Quality Bond
and Rhode Island Municipal 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.
Each Fund may engage in short-term trading to achieve its investment
objective. Portfolio turnover may vary greatly from year to year as well as
within a particular year. The Money Market, U.S. Treasury and Tax-Exempt Funds
do not intend to seek profits from short-term trading. Their annual portfolio
turnover will be relatively high, but since brokerage commissions are normally
not paid on money market instruments, it should not have a material effect on
the net income of any of these Funds. Except as permitted by the SEC or
applicable law, the Funds will not acquire portfolio securities from, make
savings deposits in, enter into repurchase or reverse repurchase agreements
with, or sell securities to, Fleet, Oechsle, PFPC, or their affiliates, and will
not give preference to affiliates and correspondent banks of Fleet with respect
to such transactions.
Galaxy is required to identify any securities of its "regular brokers or
dealers" that the Funds have acquired during Galaxy's most recent fiscal year.
At October 31, 1999, [to be provided by PFPC].
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.
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<PAGE>
SHAREHOLDER SERVICES PLANS
BKB SHARES
Galaxy has adopted a Shareholder Services Plan (the "BKB Plan") pursuant
to which it intends to enter into servicing agreements with institutions
(including Fleet Bank and its affiliates). Pursuant to these servicing
agreements, institutions render certain shareholder liaison and/or
administrative support services to customers who are the beneficial owners of
BKB Shares. Such services are provided to customers who are the beneficial
owners of BKB Shares and are intended to supplement the services provided by
PFPC as administrator and transfer agent to the shareholders of record of BKB
Shares. The BKB Plan provides that Galaxy will pay fees for such services at
the following annual rates: (i) with respect to the Money Market, U.S.
Treasury and Tax-Exempt Funds, up to .25% of the average daily net asset value
of BKB Shares owned by customers, (ii) with respect tot he Short-Term Bond,
Intermediate Government Income, High Quality Bond and Rhode Island Municipal
Bond Funds, up to .30% of the average daily net asset value of BKB Shares
owned by customers, and (iii) with respect to the Asset Allocation, Growth and
Income, Equity Growth and International Equity Funds, up to .50% of the
average daily net asset value of BKB Shares owned beneficially by customers.
Institutions may receive up to one-half of this fee for providing one or more
of the following services to such customers: aggregating and processing
purchase and redemption requests and placing net purchase and redemption
orders with PDI; processing dividend payments from a Fund; providing
sub-accounting with respect to BKB Shares or the information necessary for
sub-accounting; and providing periodic mailings to customers. Institutions may
also receive up to one-half of this fee for providing one or more of these
additional services to such customers: providing customers with information as
to their positions in BKB Shares; responding to customer inquiries; and
providing a service to invest the assets of customers in BKB Shares.
Galaxy intends to limit the payment under any servicing agreements for each
Fund to an aggregate annual fee of not more than: (i) with respect to the Money
Market, U.S. Treasury and Tax-Exempt Funds, .10% of the average daily net asset
value of the BKB Shares of each Fund beneficially owned by customers of
institutions, (ii) with respect to the Short-Term Bond, Intermediate Government
Income, High Quality Bond and Rhode Island Municipal Bond Funds, .15% of the
average daily net asset value of the BKB Shares of each Fund beneficially owned
by customers of institutions, and (iii) with respect to the Asset Allocation,
Growth and Income, Equity Growth and International Equity Funds, .30% of the
average daily net asset value of the BKB Shares of the Fund beneficially owned
by customers of institutions. Galaxy understands that institutions may charge
fees to their customers who are the beneficial owners of BKB Shares in
connection with their accounts with such institutions. Any such fees would be in
addition to any amounts which may be received by an institution under the BKB
Plan. Under the terms of each servicing agreement entered into with Galaxy,
institutions are required to provide to their customers a schedule of any fees
that they may charge in connection with customer investments in BKB Shares.
Each Servicing Agreement between Galaxy and a Service Organization relating
to the BKB Plan requires that, with respect to those Funds which declare
dividends on a daily basis, the
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Service Organization agree to waive a portion of the servicing fee payable to it
under the BKB Plan to the extent necessary to ensure that the fees required to
be accrued with respect to the BKB Shares of such Funds on any day do not exceed
the income to be accrued to such BKB Shares on that day.
Galaxy's Servicing Agreements are governed by the BKB Plan that has been
adopted by Galaxy's Board of Trustees in connection with the offering of BKB
Shares of each Fund. Pursuant to the BKB Plan, the Board of Trustees reviews, at
least quarterly, a written report of the amounts paid under the Servicing
Agreements and the purposes for which the expenditures were made. In addition,
the arrangements with Service Organizations must be approved annually by a
majority of Galaxy's trustees, including a majority of the trustees who are not
"interested persons" of Galaxy as defined in the 1940 Act and who have no direct
or indirect financial interest in such arrangements (the "Disinterested
Trustees").
The Board of Trustees has approved Galaxy's arrangements with Service
Organizations based on information provided by Galaxy's service contractors that
there is a reasonable likelihood that the arrangements will benefit the Funds
and their shareholders by affording Galaxy greater flexibility in connection
with the efficient servicing of the accounts of the beneficial owners of BKB
Shares of the Funds. Any material amendment to Galaxy's arrangements with
Service Organizations must be approved by a majority of Galaxy's Board of
Trustees (including a majority of the Disinterested Trustees). So long as
Galaxy's arrangements with Service Organizations are in effect, the selection
and nomination of the members of Galaxy's Board of Trustees who are not
"interested persons" (as defined in the 1940 Act) of Galaxy will be committed to
the discretion of such Disinterested Trustees.
RETAIL A SHARES
Galaxy has adopted a separate Shareholder Services Plan (the "Retail A
Plan") pursuant to which it intends to enter into servicing agreements with
institutions (including Fleet Bank and its affiliates). Pursuant to these
servicing agreements, institutions render certain shareholder liaison and/or
administrative support services to customers who are the beneficial owners of
Retail A Shares. Such services are provided to customers who are the beneficial
owners of Retail A Shares and are intended to supplement the services provided
by PFPC as administrator and transfer agent to the shareholders of record of the
Retail A Shares. The Plan provides that Galaxy will pay fees for such services
at the following annual rates: (i) with respect to the Money Market, U.S.
Treasury and Tax-Exempt Funds, up to .25% of the average daily net asset value
of BKB Shares owned by customers, (ii) with respect to the Short-Term Bond,
Intermediate Government Income, High Quality Bond and Rhode Island Municipal
Bond Funds, up to .30% of the average daily net asset value of BKB Shares owned
by customers, and (iii) with respect to the Asset Allocation, Growth and Income,
Equity Growth and International Equity Funds, up to .50% of the average daily
net asset value of Retail A Shares owned beneficially by customers. Institutions
may receive up to one-half of this fee for providing one or more of the
following services to such customers: aggregating and processing purchase and
redemption requests and placing net purchase and redemption orders with PDI;
processing dividend payments from a Fund; providing sub-accounting with respect
to Retail A Shares or the information necessary for sub-accounting; and
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providing periodic mailings to customers. Institutions may also receive up to
one-half of this fee for providing one or more of these additional services to
such customers: providing customers with information as to their positions in
Retail A Shares; responding to customer inquiries; and providing a service to
invest the assets of customers in Retail A Shares.
Although the Retail A Plan has been approved with respect to both Retail A
Shares and Trust Shares of the Funds, as of the date of this Statement of
Additional Information, Galaxy has entered into servicing agreements under the
Retail A Plan only with respect to Retail A Shares of the Funds and limiting
payments under these servicing agreements for each Fund to an annual aggregate
fee of not more than (i) with respect to the Money Market, U.S. Treasury and
Tax-Exempt Funds, .10% of the average daily net asset value of the Retail A
Shares of each Fund beneficially owned by customers of institutions, (ii) with
respect to the Short-Term Bond, Intermediate Government Income, High Quality
Bond and Rhode Island Municipal Bond Funds, .15% of the average daily net asset
value of BKB Shares beneficially owned by customers of institutions, and (iii)
with respect to the Asset Allocation, Growth and Income, Equity Growth and
International Equity Fund, .30% of the average daily net asset value of the
Retail A Shares of the Fund beneficially owned by customers of institutions.
Galaxy understands that institutions may charge fees to their customers who are
the beneficial owners of Retail A Shares in connection with their accounts with
such institutions. Any such fees would be in addition to any amounts which may
be received by an institution under the Shareholder Services Plan. Under the
terms of each servicing agreement entered into with Galaxy, institutions are
required to provide to their customers a schedule of any fees that they may
charge in connection with customer investments in Retail A Shares. As of October
31, 1999, Galaxy had entered into Servicing Agreements only with Fleet Bank and
affiliates.
Each Servicing Agreement between Galaxy and a Service Organization relating
to the Retail A Plan requires that, with respect to those Funds which declare
dividends on a daily basis, the Service Organization agree to waive a portion of
the servicing fee payable to it under the Services Plan to the extent necessary
to ensure that the fees required to be accrued with respect to the Retail A
Shares of such Funds on any day do not exceed the income to be accrued to such
Retail A Shares on that day.
During the last three fiscal years, Galaxy made payments to Service
Organizations with respect to Retail A Shares as shown in the table below:
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<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Money Market..................... $_________ $2,057,474 $1,430,359
U.S. Treasury.................... $_________ $ 569,986 $ 507,400
Tax-Exempt....................... $_________ $ 163,842 $ 133,048
Short-Term Bond.................. $_________ $ 41,334 $ 43,131
Intermediate Government Income... $_________ $ 97,753 $ 102,805
High Quality..................... $_________ $ 52,525 $ 35,749
Rhode Island Municipal Bond...... $_________ $0 $0
Asset Allocation................. $_________ $ 763,611 $ 412,384
Growth and Income................ $_________ $ 472,627 $ 324,069
Equity Growth.................... $_________ $ 841,650 $ 558,695
International Equity............. $_________ $ 191,712 $ 102,465
</TABLE>
Galaxy's Servicing Agreements are governed by the Retail A Plan that has
been adopted by Galaxy's Board of Trustees in connection with the offering of
Retail A Shares of each Fund. Pursuant to the Retail A Plan, the Board of
Trustees reviews, at least quarterly, a written report of the amounts paid under
the Servicing Agreements and the purposes for which the expenditures were made.
In addition, the arrangements with Service Organizations must be approved
annually by a majority of Galaxy's trustees, including a majority of the
trustees who are not "interested persons" of Galaxy as defined in the 1940 Act
and who have no direct or indirect financial interest in such arrangements (the
"Disinterested Trustees").
The Board of Trustees has approved Galaxy's arrangements with Service
Organizations based on information provided by Galaxy's service contractors that
there is a reasonable likelihood that the arrangements will benefit the Funds
and their shareholders by affording Galaxy greater flexibility in connection
with the efficient servicing of the accounts of the beneficial owners of Retail
A Shares of the Funds. Any material amendment to Galaxy's arrangements with
Service Organizations must be approved by a majority of Galaxy's Board of
Trustees (including a majority of the Disinterested Trustees). So long as
Galaxy's arrangements with Service Organizations are in effect, the selection
and nomination of the members of Galaxy's Board of Trustees who are not
"interested persons" (as defined in the 1940 Act) of Galaxy will be committed to
the discretion of such Disinterested Trustees.
DISTRIBUTOR
PDI serves as Galaxy's distributor. Jane Haegele is the sole shareholder of
PDI.
Unless otherwise terminated, the Distribution Agreement between Galaxy and
PDI remains in effect until December 1, 2000, and thereafter will continue from
year to year upon annual approval by Galaxy's Board of Trustees, or by the vote
of a majority of the outstanding shares of Galaxy and by the vote of a majority
of the Board of Trustees of Galaxy who are not parties to the Agreement or
interested persons of any such party, cast in person at a meeting
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<PAGE>
called for the purpose of voting on such approval. The Agreement will terminate
in the event of its assignment, as defined in the 1940 Act.
AUDITORS
[____________], independent auditors, with offices at [____________], serve
as auditors for Galaxy. The financial highlights for the respective Funds
included in the Prospectus and the financial statements for the Funds contained
in Galaxy's Annual Reports and [____________] into this Statement of Additional
Information for the fiscal year ended October 31, 1999 have been audited by
[____________]. For the respective fiscal years and periods prior to October 31,
1999, the financial highlights for the Funds included in the Prospectus and the
financial statements for such years and periods contained in the Annual Reports
were audited by [____________], Galaxy's former auditors.
COUNSEL
Drinker Biddle & Reath LLP (of which W. Bruce McConnel, III, Secretary of
Galaxy, is a partner), One Logan Square, 18th and Cherry Streets, Philadelphia,
Pennsylvania 19103, are counsel to Galaxy and will pass upon certain legal
matters on its behalf. The law firm of Ropes & Gray, One International Place,
Boston, Massachusetts 02110-2624 serves as special Rhode Island Counsel to
Galaxy and has reviewed this Statement of Additional Information and the
Prospectus with respect to the Rhode Island Municipal Bond Fund concerning Rhode
Island taxes and the description of special consideration relating to Rhode
Island Municipal Securities.
PERFORMANCE AND YIELD INFORMATION
MONEY MARKET, U.S. TREASURY AND TAX-EXEMPT FUNDS
The standardized annualized seven-day yields for the Money Market, U.S.
Treasury and Tax-Exempt Funds are computed by: (1) determining the net change,
exclusive of capital changes and income other than investment income, in the
value of a hypothetical pre-existing account in a Fund having a balance of one
share at the beginning of a seven-day period, for which the yield is to be
quoted, (2) dividing the net change in account value by the value of the account
at the beginning of the base period to obtain the base period return, and (3)
annualizing the results (I.E., multiplying the base period return by (365/7)).
The net change in the value of the account in each Fund includes the value of
additional shares purchased with dividends from the original share and dividends
declared on both the original share and any such additional shares, and all fees
that are charged by a Fund to all shareholder accounts in proportion to the
length of the base period, other than non-recurring account and sales charges.
For any account fees that vary with the size of the account, the amount of fees
charged is computed with respect to the Fund's mean (or median) account size.
The capital changes to be excluded from the calculation of the net change in
account value are realized gains and losses from the sale of
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securities and unrealized appreciation and depreciation. The effective compound
yield quotation for each Fund is computed by adding 1 to the unannualized base
period return (calculated as described above), raising the sum to a power equal
to 365 divided by 7, and subtracting 1 from the result.
In addition, the Tax-Exempt Fund may calculate a "tax equivalent yield."
The tax equivalent yield is computed by dividing that portion of a Fund's yield
which is tax-exempt by one minus a stated income tax rate and adding the product
to that portion, if any, of the Fund's computed yield that is not tax-exempt.
Tax equivalent yields assume the payment of federal income taxes at a rate of
31%.
The current yields for the Funds may be obtained by calling PDI at
1-877-BUY-GALAXY (1-877-289-4252).
The U.S. Treasury Fund may calculate a "state flow through yield," which
shows the level of taxable yield needed to produce an after-tax yield equivalent
to a particular state's tax-exempt yield achieved by the Fund. The state flow
through yield refers to that portion of income that is derived from interest
income on direct obligations of the U.S. Government, its agencies or
instrumentalities and which qualifies for exemption from state taxes. The yield
calculation assumes that 100% of the interest income is exempt from state
personal income tax. A state flow through yield is computed by dividing that
portion of the Fund's yield which is tax-exempt by one minus a stated income tax
rate.
SHORT-TERM BOND, INTERMEDIATE GOVERNMENT INCOME, HIGH QUALITY BOND, RHODE ISLAND
MUNICIPAL BOND, ASSET ALLOCATION, GROWTH AND INCOME, EQUITY GROWTH AND
INTERNATIONAL EQUITY FUNDS
Investment returns and principal values will vary with market conditions so
that an investor's shares, when redeemed, may be worth more or less than their
original cost. Past performance is no guarantee of future results. Unless
otherwise indicated, total return figures include changes in share price,
deduction of any applicable sales charge, and reinvestment of dividends and
capital gains distributions, if any.
The Funds' 30-day (or one month) standard yields are calculated separately
for each series of shares in each Fund in accordance with the method prescribed
by the SEC for mutual funds:
6
YIELD = 2[(a-b)/cd +1 ) - 1]
Where: a = dividends and interest earned by a Fund during the period;
b = expenses accrued for the period (net of reimbursements);
c = average daily number of shares outstanding during the period
entitled to receive dividends; and
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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.
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.
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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The "tax-equivalent" yield of the Rhode Island Municipal Bond Fund is
computed by (a) dividing the portion of the Fund's yield (calculated as above)
that is exempt from both federal and state income taxes by one minus a stated
combined federal and state income tax rate; (b) dividing the portion of the
Fund's yield (calculated as above) that is exempt from federal income tax only
by one minus a stated federal income tax rate; and (c) adding the figures
resulting from (a) and (b) above to that portion if any, of the yield that is
not exempt from federal income tax.
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:
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.
TAX-EQUIVALENCY TABLE - RHODE ISLAND MUNICIPAL BOND FUND
The Rhode Island Municipal Bond Fund may use tax-equivalency tables in
advertising and sales literature. The interest earned by the Municipal
Securities in the respective portfolios generally remains free from federal
regular income tax, and from the regular personal income tax imposed by Rhode
Island. Some portion of the Fund's income may, however, be subject to the
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federal alternative minimum tax and state and local regular or alternative
minimum taxes. As the tables below indicate, "tax-free" investments may be
attractive choices for investors, particularly in times of narrow spreads
between "tax-free" and taxable yields.
The charts below are for illustrative purposes only and use tax brackets
that were in effect beginning January 1, 1999. These are not indicators of past
or future performance of the Rhode Island Municipal Bond Fund.
Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent for each chart. Furthermore, additional
state and local taxes paid on comparable taxable investments were not used to
increase federal deductions. Moreover, the charts do not reflect the possible
effect of all items relating to the effective marginal tax rate, such as
alternative minimum tax, personal exemptions, tax credits, the phase-out of
exemptions or credits, itemized deductions (including the federal deduction for
state taxes paid) or the possible partial disallowance of deductions.
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1999
STATE OF RHODE ISLAND
<S> <C> <C> <C> <C> <C>
Federal Tax Bracket: 15.00% 28.00% 31.00% 36.00% 39.60%
Combined Federal and State: 18.98% 35.42% 39.22% 45.54% 50.09%
Joint Return: $0-43,050 $43,051-104,050 $104,051-158,550 $158,551-283,150 Over $283,151
Single Return: $0-25,750 $25,751-62,450 $62,451-130,250 $130,251-283,150 Over $283,151
Tax-Exempt Yield:
<CAPTION>
TAXABLE YIELD EQUIVALENT
<S> <C> <C> <C> <C> <C>
1.50% 1.85% 2.32% 2.47% 2.75% 3.01%
2.00% 2.47% 3.10% 3.29% 3.67% 4.01%
2.50% 3.09% 3.87% 4.11% 4.59% 5.01%
3.00% 3.70% 4.65% 4.94% 5.51% 6.01%
3.50% 4.32% 5.42% 5.76% 6.43% 7.01%
4.00% 4.94% 6.19% 6.58% 7.34% 8.01%
4.50% 5.55% 6.97% 7.40% 8.26% 9.02%
5.00% 6.17% 7.74% 8.23% 9.18% 10.02%
5.50% 6.79% 8.52% 9.05% 10.10% 11.02%
6.00% 7.41% 9.29% 9.87% 11.02% 12.02%
</TABLE>
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 Asset Allocation, Growth and
Income, Equity Growth and International 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
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Industrial Average, a recognized unmanaged index of common stocks of 30
industrial companies listed on the New York Stock Exchange. In addition, the
performance of the International Equity Fund may be compared to the Morgan
Stanley Capital International Index or the FT World Actuaries Index.
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. The Money Market, U.S.
Treasury and Tax-Exempt Funds may also be compared to the average yields
reported by the BANK RATE MONITOR for money market deposit accounts offered by
the 50 leading banks and thrift institutions in the top five standard
metropolitan statistical areas.
The performance of the Funds will fluctuate and any quotation of
performance should not be considered as representative of the future performance
of the Funds. Since yields fluctuate, yield data cannot necessarily be used to
compare an investment in a Fund's shares with bank deposits, savings accounts
and similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that
performance data are generally functions of the kind and quality of the
instruments held in a portfolio, portfolio maturity, operating expenses, and
market conditions. Any additional fees charged by institutions with respect to
accounts of customers that have invested in shares of a Fund will not be
included in performance calculations.
The portfolio managers of the Funds and other investment professionals may
from time to time discuss in advertising, sales literature or other material,
including periodic publications, various topics of interest to shareholders and
prospective investors. The topics may include but are not limited to the
advantages and disadvantages of investing in tax-deferred and taxable
investments; Fund performance and how such performance may compare to various
market indices; shareholder profiles and hypothetical investor scenarios; the
economy; the financial and capital markets; investment strategies and
techniques; investment products; and tax, retirement and investment planning.
MISCELLANEOUS
As used in this Statement of Additional Information, "assets belonging to"
a particular Fund or series of a Fund means the consideration received by Galaxy
upon the issuance of shares in that particular Fund or series of the Fund,
together with all income, earnings, profits, and proceeds derived from the
investment thereof, including any proceeds from the sale of such investments,
any funds or payments derived from any reinvestment of such proceeds and a
portion of any general assets of Galaxy not belonging to a particular series or
Fund. In determining the net asset value of a particular series of a Fund,
assets belonging to the particular series of the Fund are charged with the
direct liabilities in respect of that series and with a share of the general
liabilities of Galaxy, which are allocated in proportion to the relative asset
values 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
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liabilities, and the allocable portion of any general assets with respect to a
particular series or Fund, are conclusive.
Shareholders will receive unaudited semi-annual reports describing the
Funds' investment operations and annual financial statements audited by
independent certified public accountants.
A "vote of the holders of a majority of the outstanding shares" of a
particular Fund or a particular series of shares in a Fund means, with respect
to the approval of an investment advisory agreement, a distribution plan or a
change in an investment objective or fundamental investment policy, the
affirmative vote of the holders of the lesser of (a) more than 50% of the
outstanding shares of such Fund or such series of shares, or (b) 67% or more of
the shares of such Fund or such series of shares present at a meeting if more
than 50% of the outstanding shares of such Fund or such series of shares are
represented at the meeting in person or by proxy.
As of November 30, 1999, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding Trust
Shares of each of Galaxy's investment portfolios (including shares of the
Institutional Government Money Market Fund) were as follows: Money Market Fund
- -- Fleet New York, Fleet Investment Services, 159 East Main Street, NY/RO/TO3C,
Rochester, NY 14638, Account 00000150286 (99.87%); Tax-Exempt Money Market Fund
- -- Fleet New York, Fleet Investment Services, 159 East Main Street, NY/RO/TO3C,
Rochester, NY 14638, Account 00000007717 (100.00%); Government Money Market Fund
- --Fleet New York, Fleet Investment Services, 159 East Main Street, NY/RO/TO3C,
Rochester, NY 14638, Account 00000012621 (98.58%); Equity Value Fund -- Gales &
Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000000064 (76.43%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000003204 (14.55%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000011551 (7.23%); Equity Growth Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000082 (70.31%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000010017 (15.31%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000030718 (14.04%); Equity Income Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000015771 (48.75%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000003748 (36.92%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000000037 (13.37%); International Equity Fund --Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000073 (42.99%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000000876 (39.29%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000004088 (14.13%);
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Growth and Income Fund -- Gales & Co., Fleet Investment Services, Mutual Funds
Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account
05000503793 (76.73%); Gales & Co., Fleet Investment Services, Mutual Funds Unit
- - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account 05000503873
(19.78%); Asset Allocation Fund -- Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000000073 (93.27%); Gales & Co., Fleet Investment Services, Mutual
Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account
00000002598 (5.98%); Small Company Equity -- Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000000046 (66.04%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000001492 (24.41%); Gales & Co., Fleet Investment Services, Mutual
Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account
00000006102 (7.33%); Institutional Treasury Money Market Fund -- Fleet New York,
Fleet Investment Services, 159 East Main Street, NY/RO/TO3C, Rochester, NY
14638, Account 00000000019 (91.11%); Luitpold Pharmaceuticals Inc., Kirk
Sobecki, CFO, Attn: Harold Noviello, One Luitpold Drive, Shirley, NY 11967,
Account 05100281441 (7.02%); Small Cap Value Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 05000503999 (48.74%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 05000503917 (31.01%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 05000503953 (19.77%); Strategic Equity Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 5100115522 (97.48%); Intermediate Government Income
Fund -- Gales & Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A,
159 East Main Street, Rochester, NY 14638, Account 00000038408 (38.48%); Gales &
Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000007183 (34.80%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000037 (26.20%); High Quality Bond Fund --
Gales & Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East
Main Street, Rochester, NY 14638, Account 00000000037 (62.76%); Gales & Co.,
Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000001465 (24.53%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000006095 (12.37%); Short-Term Bond Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000008627 (31.48%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000000064 (46.43%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000001090 (21.82%); Tax-Exempt Bond Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000005899 (34.38%) Gales & Co, Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000000028 (38.95%); Gales and Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account
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00000000670 (26.42%); Connecticut Municipal Bond Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000019 (74.69%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000000037 (24.84%); Massachusetts Municipal Bond Fund -- Gales
& Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000000019 (48.96%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000073 (49.06%); Corporate Bond Fund -- Gales
& Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000000046 (44.33%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000006102 (36.50%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000001492 (12.65%); New Jersey Municipal Bond Fund -- Gales &
Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/T04A, 159 East Main
Street, Rochester, NY 14638, Account 5100115489 (51.69%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 5100115504 (35.56%); BOB & Co., c/o Bank of Boston,
Attn: Mutual Fund Dept. 45-02-06, P.O. Box 1809, Boston, MA 02105, Account
5102076990 (12.74%); and New York Municipal Bond Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000019 (9.36%); Gales & Co., Fleet Investment
Services, Mutual Fund Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000001107 (70.04%); Gales & Co., Fleet Investment Services,
Mutual Fund Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000005292 (14.85%); BOB & Co., c/o Bank of Boston, Attn: Mutual Fund
Dept. 45-02-06, P.O. Box 1809, Boston, MA 02105, Account 5102076990 (5.68%).
As of November 30, 1999, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding Retail A
Shares of each of Galaxy's investment portfolios (including shares of the
Connecticut Municipal Money Market and Massachusetts Municipal Money Market
Funds) were as follows: Tax-Exempt Money Market Fund -Ellsworth Kelly, P.O. Box
151, 45 South Street, Spencertown, NY 12165, Account 0000063825 (6.99%); U.S.
Treasury Money Market Fund -- US Clearing, a Division of Fleet Securities Inc.,
26 Broadway, New York, NY 10004, Account 05100115684 (10.40%); Massachusetts
Municipal Money Market Fund -- Fleet New York, Fleet Investment Services, 159
East Main St., NY/RO/TO3C, Rochester, NY 14638, Account 05100058503 (61.34%);
Connecticut Municipal Money Market Fund -- Fleet New York, Fleet Investment
Services, 159 East Main St., NY/RO/TO3C, Rochester, NY 14638, Account
05100058521 (48.64%); William L. Bucknall & Norma Lee Bucknall, 5 Oak Ridge
Drive, Bethany, CT 06524, Account 0000002259 (5.16%); Rhode Island Municipal
Bond Fund --Gales & Co., Fleet Investment Services, Mutual Funds Unit -
NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account 00000001492
(40.88%); James R. McCulloch, c/o Microfibre, PO Box 1208, Pawtucket, RI 02860,
Account 05000414933 (9.11%); New York Municipal Bond Fund -- Marilyn J.
Brantley, 5954 Van Allen Road, Belfast, NY 14711, Account 05100977627 (11.78%);
New Jersey Municipal Bond Fund -- Jeffery W. Golden, 7 Hampton Ridge CT, Old
Tappan, NJ
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07675, Account 05100780704 (16.09%); John W. Maki & Kimberly McGrath Maki JT, 1
Connet Lane, Mendham, NJ, 07945, Account 05100011377 (33.47%); US Clearing
Corp., FBO 979-06374-12, 26 Broadway, New York, NY 10004-1798, Account
07000100574 (27.89%); Serene W. Peng, 70 Chelsea, Watchung, NJ 07060, Account
5101583480 (17.19%); Tax-Exempt Bond Fund -- Danny Schulman, 9 Corn Mill Ct.,
Upper Saddle River, NJ 07458, Account 510116598 (6.11%); and Massachusetts
Municipal Bond Fund -- New England Realty Assoc., Robert Blank, Ronald Brown,
Harold Brown and Carl Veleri, 39 Brighton Ave., Boston MA 02134, Account
5100587013 (6.59%).
As of November 30, 1999, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding Retail B
Shares of each of Galaxy's investment portfolios were as follows: Money Market
Fund -- Worldmark Master Fund, LLC, D. Dean Rhodes auth. officer or Richard J.
Gates (investment adviser), 11466 Old Harber Road, N. Palm Beach, FL 33408,
Account 5102031823 (18.24%); Worldmark Master Fund, LLC, D. Dean Rhodes auth.
officer or Richard J. Gates (investment adviser) 11465 Old Harbor Road, N. Palm
Beach, FL 33408, Account 5102074064 (20.78%); Intermediate Government Income
Fund; Adriana Vita, 345 Park Avenue, New York, NY 10154, Account 05101563377
(8.84%); Short-Term Bond Fund -- Elizabeth Mugar, 10 Chestnut St., Apt. 1808,
Springfield, MA 01103, Account 5100760012 (7.15%); Chelsea Police Relief Assoc.,
John R. Phillips, Treasurer, and Michael McCona, Clerk, 180 Crescent Avenue,
Chelsea, MA 02150, Account 0970036155 (13.23%); Josve Colon, Cust., Hazel Colon
UGMA CT, 400 LaSalle Street, New Britain, CT 06051, Account 5101157039 (7.37%);
U.S. Clearing Corp., FBO 978-02086-18, Eugene J. Margaret Dunscomb, 505 Apple
Tree Lane, Brewster, NY 10509-6004, Account 70000100609 (7.09%); Tax-Exempt Bond
Fund -- David Fendler & Sylvia Fendler JT WROS, 72 Brinkerhoff Ave., Stamford,
CT 06905, Account 05100255354 (7.48%); Frances E. Stady, P.O. Box 433, 3176 Main
Street, Yorkshire, NY 14173, Account 05102027437 (5.84%); and Strategic Equity
Fund -- Betsey Tan, 7 Donovan's Lane, Natick, MA 01760, Account 05101043778
(7.41%).
As of November 30 , 1999, the name, address and share ownership of the
entities or persons that held beneficially more than 5% of the outstanding Trust
Shares of each of Galaxy's investment portfolios were as follows: Money Market
Fund--Stable Asset Fund, c/o Norstar Trust Co., Gales & Co., 159 East Main
Street, Rochester, NY 14638, (12.05%); Hope-Sayles Trust, c/o Norstar Trust Co.,
Gales & Co., 159 East Main Street, Rochester, NY 14638, (10.65%); Government
Money Fund -- AMS Trust Account, c/o Norstar Trust Co., Gales & Co., 159 East
Main Street, Rochester, NY 14638, (9.76%); Beacon Mutual Insurance Co., c/o
Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638 (6.33%); U.S.
Treasury Money Fund -- Loring Walcott Client Sweep Acct., c/o Norstar Trust Co.,
Gales & Co., 159 East Main, Rochester, NY 14638, (23.17%); Equity Value
Fund--Fleet Savings Plus-Equity Value, c/o Norstar Trust Co., Gales & Co., 159
East Main, Rochester, NY 14638, (24.21%); Equity Growth Fund--Fleet Savings
Plus-Equity Growth, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (23.54%); Nusco Retiree Health VEBA Trust, c/o Norstar
Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638, (6.82%);
International Equity Fund--FFG International Equity Fund, c/o Norstar Trust Co.,
Gales & Co., 159 East Main, Rochester, NY 14638, (12.68%); Fleet Savings
Plus-Intl. Equity, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester,
NY 14638, (9.82%); Intermediate Government Income Fund -- Nusco Retiree Health
VEBA Trust, c/o Norstar
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Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638 (6.44%); Strategic
Equity Fund--FFG Retirement & Pension VDG, c/o Fleet Financial Group, 159 East
Main, Rochester, NY 14638, (93.39%); High Quality Bond Fund--Fleet Savings Plus
Plan-HQ Bond, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY
14638 (19.60%); Asset Allocation Fund--Fleet Savings Plus-Asset Allocation, c/o
Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638, (26.52%);
Small Company Equity Fund--Fleet Savings Plus-Small Company, c/o Norstar Trust
Co., Gales & Co., 159 East Main, Rochester, NY 14638, (33.58%); Tax Exempt Bond
Fund -- Nusco Retiree Health VEBA Trust, c/o Norstar Trust Co., Gales & Co., 159
East Main, Rochester, NY 14638, (37.64%); Corporate Bond Fund--Cole Hersee
Pension Plan, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY
14638, (8.40%); Growth Income Fund--Fleet Savings Plus-Growth Income, c/o
Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638, (43.81%);
Crumpton & Knowles IARP, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638 (10.11%); Small Cap Value Fund--FFG Emp. Ret. Misc. Assets
SNC, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638,
(25.16%); Institutional Government Fund -- IBEW Local #99 Annuity, c/o Norstar
Trust Co., Gales & Co., 159 East Main Street, Rochester, NY 14638 (5.26%); New
Jersey Municipal Bond Fund--Perillo Tours, c/o Norstar Trust Co., Gales & Co.,
159 East Main, Rochester, NY 14638, (22.47%); Royal Chambord IMA, c/o Norstar
Trust Co., Gales & Co., 159 East Main, Rochester, NY, 14638, (11.24%); McKee
Wendell A. Marital Trust, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (11.16%); Varco Inc. IMA, c/o Norstar Trust Co., Gales &
Co., 159 East Main, Rochester, NY 14638, (5.62%); and Tiernan Diana V IA, c/o
Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638, (5.10%).
As of November 30, 1999, the name, address and share ownership of the
entities or persons that held of record or beneficially more than 5% of the
outstanding A Prime Shares of Galaxy's Asset Allocation, Equity Income, Growth
and Income, Strategic Equity, Equity Value, Equity Growth, International Equity,
Small Cap Value, Small Company Equity, Short-Term Bond, Intermediate Government
Income, High Quality Bond and Tax-Exempt Bond Funds were as follows: Asset
Allocation Fund--U.S. Clearing, A Division of Fleet Securities, Inc., FBO
#147-97697-11, Ray Wayne Prince, 11010 Stephens Road, Berlin Heights, OH
44814-9673 (18.52%); U.S. Clearing, A Division of Fleet Securities, Inc., FBO
#135-29801-11, Joseph P. Quinn & Genevieve H. Quinn Trust, 725 N. Riverside
Drive, Apt. 405, Pompano Beach, FL 33062-4536 (12.47%); U.S. Clearing, A
Division of Fleet Securities, Inc., FBO #175-97327-10, Margaret Ann Gillenwater,
2525 E. Prince Road #23, Tucson, AZ 85716-1146 (11.92%); U.S. Clearing, A
Division of Fleet Securities, Inc., FBO #114-97238-17, Sara Mallow, 936
Broadway, New York, NY 10010-6013 (25.26%); U.S. Clearing, A Division of Fleet
Securities, Inc., FBO #166-88586-13, Pamela Ann Radamaker, 1001 Tramway Blvd.
NE, Albuquerque, NM 87112-6280 (10.72%); U.S. Clearing, A Division of Fleet
Securities, Inc., FBO #114-23817-12, John R. Johnson, P.O. Box 4338, Deerfield
Beach, FL 33442-4338 (8.31%); Growth and Income Fund--U.S. Clearing, A Division
of Fleet Securities Inc., FBO #160-27022-17, Linda Shaw, Trustee for the Linda
J. Shaw Trust, 920 Meadows Road, Geneva, IL 60134-3052 (34.66%); U.S. Clearing,
A Division of Fleet Securities Inc., FBO #113-27816-16, Pamela M. Fein, 68 Oak
Ridge Drive, Bethany, CT 06524-3118 (29.85%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO #175-97327-10, Margaret Ann Gillenwater, 2525 E. Prince
Road #23, Tucson, AZ 85716-1146 (23.43%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO #103-80080-19,
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Saint Clare School Endowment Fund, Attn: Fr. O'Shea/Andrew J. Houvouras and/or
Bruce Blatman, 821 Prosperity Farms Road, No. Palm Beach, FL 33408-4299 (6.09%);
Equity Growth Fund--U.S. Clearing, A Division of Fleet Securities Inc., FBO
#104-32732-16, Hilda Brandt, 3900 North Charles Street, Baltimore, MD 21218-1724
(50.91%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #114-97236-17,
Sara Mallow, 936 Broadway, New York, NY 10010-6013 (26.57%); U.S. Clearing, A
Division of Fleet Securities Inc., FBO #120-97689-18, Yook Y. Doo, 4634 Robinson
St., Flushing, NY 11355-3445 (8.84%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO #021-90471-15, Mabel L. Bowman, 35634 Meyers Ct., Fremont,
CA 84536-2540 (7.00%); U.S. Clearing, A Division of Fleet Securities Inc., FBO
#143-27206-11, Mary V. Mastroianni & Pasqual Mastroianni JT Ten, 1811 Randolph
Road, Schenectady, NY 12308-2021 (5.44%); International Equity Fund--U.S.
Clearing, A Division of Fleet Securities Inc., FBO #125-98055-11, Albert F.
Twanmo, 6508 81st St., Cabin John, MD 20818-1203 (94.66%); Small Cap Value Fund
- - U.S. Clearing, A Division of Fleet Securities Inc., FBO # 104-32732-16, Hilda
Brandt, 3900 North Charles Street, Baltimore, MD 21218-1724 (26.87%); U.S.
Clearing, A Division of Fleet Securities Inc., FBO # 150-98301-11, N. Clifford
Nelson Jr., 58 Middlebury Road, Orchard Park, NY 14127-3581 (16.93%); U.S.
Clearing, A Division of Fleet Securities Inc., FBO # 102-60254-19, Frederick W.
Geissinger, 601 NW 2nd Street, Evansville, IN 47708-1013 (16.81%); U.S.
Clearing, A Division of Fleet Securities Inc., FBO # 103-97564-14, Thomas X.
McKenna, 170 Turtle Creek Drive, Tequesta, FL 33469-1547 (12.55%); U.S.
Clearing, A Division of Fleet Securities Inc., FBO # 103-31296-18, Edward U.
Roddy III, 109 Angler Avenue, Palm Beach, FL 33480-3101 (8.27%); U.S. Clearing,
A Division of Fleet Securities Inc., FBO # 180-24606-24, Gary R. Plemons, P.O.
Box 190, Madisonville, TN 37354-0190 (5.56%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 165-26664-29, Special Risk Underwriters, P.O. Box 54699,
Phoenix, AZ 85078-4699 (5.31%); High Quality Bond Fund - U.S. Clearing, A
Division of Fleet Securities Inc., FBO # 103-30971-12, Doris G. Schack, FBO #
103-30971-12, Doris G. Schack Living Trust, 9161 East Evans, Scottsdale, AZ
85260-7575 (72.18%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #
013-02964-11, Jane L. Grayhurst, 770 Boylston St., Apt. 10G, Boston, MA
02199-7709 (15.46%); U.S. Clearing, A Division of Fleet Securities, Inc., FBO
#132-90090-11, Virginia Holmes, 303 Bella Vista Drive, Ithaca, NY 14850-5774
(12.10%).
As of November 30, 1999, the name, address and share ownership of the
entities or persons that held of record or beneficially more than 5% of the
outstanding B Prime Shares of Galaxy's Asset Allocation, Equity Income, Growth
and Income, Strategic Equity, Equity Value, Equity Growth, International Equity,
Small Cap Value, Small Company Equity, Short-Term Bond, Intermediate Government
Income, High Quality Bond and Tax-Exempt Bond Funds were as follows: Asset
Allocation Fund -- U.S. Clearing, A Division of Fleet Securities Inc., FBO #
138-97818-14, Carol Y. Foster, 524 Marie Ave., Blountstown, FL 32424-1218
(10.07%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #
102-92974-11, Ann E. Herzog, 74 Tacoma St., Staten Island, NY 10304-4222
(9.61%); U.S. Clearing, A Division of Fleet Securities Inc., FBO # 166-98559-16,
Ann P. Sargent, 422 Los Encinos Ave., San Jose, CA 95134-1336 (6.40%); U.S.
Clearing, A Division of Fleet Securities Inc., FBO # 166-97970-19, Alicia E.
Schober, 10139 Ridgeway Drive, Cupertino, CA 95014-2658 (6.22%); U.S. Clearing,
A Division of Fleet Securities Inc., FBO # 19414889-16, Paul R. Thornton & Karin
Z. Thornton, JT TEN, 1207 Oak Glen Lane, Sugar Land, TX 77479-6175 (5.70%); U.S.
Clearing, A Division of Fleet
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Securities, Inc., FBO #147-29049-19, Randall Prince, Rt. 1, Box 865, Turtletown,
TN 37391-9700 (6.06%); Growth and Income Fund - U.S. Clearing, A Division of
Fleet Securities Inc., FBO # 147-97497-13, Martin Allen Sante, 15222 Birch
Lakeshore Drive, Vandalia, MI 49095-9741 (27.18%); U.S. Clearing, A Division of
Fleet Securities Inc., FBO #103-31744-16, Irwin Luftig & Elaine Luftig, 6119
Bear Creek Ct., Lake Worth, FL 33467-6812 (19.02%); Linda M. Berke & Michael E.
Berke, JT WROS, 30941 Westwood Rd., Farmington Hills, MI 48331-1466 (15.25%);
U.S. Clearing, A Division of Fleet Securities Inc., FBO # 147-29019-15, Walter
W. Quan, 2617 Skyline Drive, Lorain, OH 44053-2243 (14.87%); U.S. Clearing, A
Division of Fleet Securities Inc., FBO #014-90365-19, Peter Burr Bickford, 65 A
Lazell St., Hingham, MA 02043-4403 (7.44%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO #108-00116-10, Michael Kennedy & Carleen Kennedy, JT WROS,
12 Walton Avenue, Locust Valley, NY 11560-1227 (5.48%); Equity Growth Fund -
U.S. Clearing, A Division of Fleet Securities Inc., FBO # 111-98315-17, Thomas
J. Bernfeld, 185 West End Ave., Apt. 21D, New York, NY 10023-5548 (29.52%); U.S.
Clearing, A Division of Fleet Securities Inc., FBO # 166-31108-13, Frank
Catanho, Trustee of the Frank Catanho 1996 Trust dated 10/22/96, 24297 Mission
Blvd., Hayward, CA 94544-1020 (19.07%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 183-97247-11, W.P. Fleming, 66500 E. 253rd, Grove, OK
74344-6163 (8.77%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #
131-96122-18, Elaine B. Odessa, 9 Newman Rd., Pawtucket, RI 02860-8183 (6.66%);
International Equity Fund - U.S. Clearing, A Division of Fleet Securities Inc.,
FBO # 102-5924-17, Church & Friary of St. Francis of Assisi, c/o Fr. Ronald P.
Stark OFM, 135 West 31st St., New York, NY 10001-3405 (82.40%); Small Cap Value
Fund - U.S. Clearing, A Division of Fleet Securities Inc., FBO # 147-97574-19,
Ray William Mominey, 1340 San Cristobal Villa, Punta Gorda, FL 33983-6616
(15.90%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #
111-98315-17, Thomas J. Bernfeld, 185 West End Ave., Apt. 21D, New York, NY
10023-5548 (10.13%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #
107-30623-15, Andrejs Zvejnieks, 2337 Christopher Walk, Atlanta, GA 30327-1110
(6.86%); E-Trade: Cust. for the rollover IRA, FBO Rufus O. Eddins, Jr., A/C #
11042697, 360 Dominion Circle, Knoxville, TN 37922-2750 (5.34%); U.S. Clearing,
A Division of Fleet Securities Inc., FBO # 221-97250-13, Micheal A. Veschi, 106
Exmoor Court, Leesburg, VA 20176-2049 (5.13%); High Quality Bond Fund U.S.
Clearing, A Division of Fleet Securities Inc., FBO # 200-70099-19, Neil C.
Feldman, 41 Windham Way, Englishtown, NJ 07726-8216 (25.37%); U.S. Clearing, A
Division of Fleet Securities Inc., FBO # 119-97697-10, Ira Sornborg, 4219
Nautilus Ave., Brooklyn, NY 11224-1019 (10.23%); U.S. Clearing, A Division of
Fleet Securities Inc., FBO # 216-12779-14, Les H. Galex & Nan Galex, JT TEN,
7540 Farragut St., Hollywood, FL 33024-2626 (8.11%); U.S. Clearing, A Division
of Fleet Securities Inc., FBO # 102-93287-11, Marjorie Dion, 301 Raimond St.,
Yaphank, NY 11980-9725 (7.31%); U.S. Clearing, A Division of Fleet Securities
Inc., FBO # 102-68909-11, Marjorie Dion, 301 Raimond St., Yaphank, NY 11980-9725
(8.61%); U.S. Clearing, A Division of Fleet Securities Inc., FBO # 147-24459-13,
Jay Robert Klein, 26800 Amhearst Circle, #209, Cleveland, OH 44122-7572 (8.40%);
U.S. Clearing, A Division of Fleet Securities Inc., FBO # 157-98031-13, Patricia
Fusco, 112 E. Chapel Ave., Cherry Hill, NJ 08034-1204 (6.53%); U.S. Clearing, A
Division of Fleet Securities, Inc., FBO # 216-13463-13, Jerry H. Dunmire, 5151
SW 89 Terrace, Cooper City, FL 33328-3631 (6.48%).
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As of November 30, 1999, the name, address and share ownership of the
entities or persons that held of record or beneficially more than 5% of the
outstanding shares of Galaxy's Prime Reserves, Government Reserves and Tax
Exempt Reserves were as follows: Prime Reserves -- U.S. Clearing, 26 Broadway,
New York, NY 10004 (6.96%); Government Reserves -- U.S. Clearing, 26 Broadway,
New York, NY 10004 (100.00%); and Tax Exempt Reserves -- U.S. Clearing, 26
Broadway, New York, NY 10004 (100.00%).
As of November 30, 1999, no entity or person held of record or beneficially
more than 5% of the outstanding Retail A and Retail B Shares of Galaxy's Equity
Income, New York Municipal Bond, Connecticut Municipal Bond, Massachusetts
Municipal Bond, Rhode Island Municipal Bond, Massachusetts Municipal Money
Market, Connecticut Municipal Money Market and Short Term Bond Funds.
FINANCIAL STATEMENTS
Galaxy's Annual Reports to Shareholders with respect to the Funds for the
fiscal year ended October 31, 1999 have been [___________] with the SEC. The
financial statements contained in such Annual Reports are [ ] into this
Statement of Additional Information. The financial statements and financial
highlights for the Funds for the fiscal year ended October 31, 1999 have been
audited by Galaxy's independent accountants, [ ], whose report thereon also
appears in such Annual Reports and [ ]. The financial statements in such Annual
Reports have been [ ] in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
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APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current opinion of
credit worthiness of an obligor with respect to financial obligations having an
original maturity of no more than 365 days. The following summarizes the rating
categories used by Standard and Poor's for commercial paper:
"A-1" - Obligations are rated in the highest category indicating that
the obligor's capacity to meet its financial commitment on the obligation is
strong. Within this category, certain obligations are designated with a plus
sign (+). This indicates that the obligor's capacity to meet its financial
commitment on these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rating categories. However, the obligor's capacity to meet its financial
commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
"B" - Obligations are regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and are
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.
"D" - Obligations are in payment default. The "D" rating category is
used when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's believes that
such payments will be made during such grace period. The "D" rating will be used
upon the filing of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually senior debt obligations not having an original
maturity in excess of one year, unless explicitly noted. The following
summarizes the rating categories used by Moody's for commercial paper:
"Prime-1" - Issuers (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be
A-1
<PAGE>
evidenced by many of the following characteristics: leading market positions in
well-established industries; high rates of return on funds employed;
conservative capitalization structure with moderate reliance on debt and ample
asset protection; broad margins in earnings coverage of fixed financial charges
and high internal cash generation; and well-established access to a range of
financial markets and assured sources of alternate liquidity.
"Prime-2" - Issuers (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an acceptable
ability for repayment of senior short-term debt obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
"Not Prime" - Issuers do not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps
employs three designations, "D-1+," "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"D-1+" - Debt possesses the highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
"D-2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.
"D-3" - Debt possesses satisfactory liquidity and other protection
factors qualify issues as to investment grade. Risk factors are larger and
subject to more variation. Nevertheless, timely payment is expected.
A-2
<PAGE>
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to insure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or interest
payments.
Fitch IBCA short-term ratings apply to debt obligations that have time
horizons of less than 12 months for most obligations, or up to three years for
U.S. public finance securities. The following summarizes the rating categories
used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This designation
indicates the strongest capacity for timely payment of financial commitments and
may have an added "+" to denote any exceptionally strong credit feature.
"F2" - Securities possess good credit quality. This designation
indicates a satisfactory capacity for timely payment of financial commitments,
but the margin of safety is not as great as in the case of the higher ratings.
"F3" - Securities possess fair credit quality. This designation
indicates that the capacity for timely payment of financial commitments is
adequate; however, near-term adverse changes could result in a reduction to
non-investment grade.
"B" - Securities possess speculative credit quality. This designation
indicates minimal capacity for timely payment of financial commitments, plus
vulnerability to near-term adverse changes in financial and economic conditions.
"C" - Securities possess high default risk. This designation indicates
that default is a real possibility and that the capacity for meeting financial
commitments is solely reliant upon a sustained, favorable business and economic
environment.
"D" - Securities are in actual or imminent payment default.
Thomson BankWatch short-term ratings assess the likelihood of an
untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson Financial BankWatch:
"TBW-1" - This designation represents Thomson Financial BankWatch's
highest category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson Financial BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of
A-3
<PAGE>
principal and interest is strong, the relative degree of safety is not as high
as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's lowest
investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's lowest
rating category and indicates that the obligation is regarded as non-investment
grade and therefore speculative.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
Obligations rated "BB," "B," "CCC," "CC" and "C" are regarded as
having significant speculative characteristics. "BB" indicates the least degree
of speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
"BB" - An obligation rated "BB" is less vulnerable to nonpayment than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to the obligor's inadequate capacity to meet its financial commitment on the
obligation.
A-4
<PAGE>
"B" - An obligation rated "B" is more vulnerable to nonpayment than
obligations rated "BB," but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
"CCC" - An obligation rated "CCC" is currently vulnerable to
nonpayment, and is dependent upon favorable business, financial and economic
conditions for the obligor to meet its financial commitment on the obligation.
In the event of adverse business, financial, or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the
obligation.
"CC" - An obligation rated "CC" is currently highly vulnerable to
nonpayment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
"D" - An obligation rated "D" is in payment default. The "D" rating
category is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period. The "D"
rating also will be used upon the filing of a bankruptcy petition or the taking
of a similar action if payments on an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
"r" - This symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or volatility of
expected returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk - such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as
high-grade bonds. They are rated lower
A-5
<PAGE>
than the best bonds because margins of protection may not be as large as in
"Aaa" securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-term risk
appear somewhat larger than the "Aaa" securities.
"A" - Bonds possess many favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds are considered as medium-grade obligations, (i.e., they
are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" indicates poor standing; "Ca" represents
obligations which are speculative in a high degree; and "C" represents the
lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (---) - Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic
rating classification from "Aa" through "Caa." The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the
lower end of its generic rating category.
The following summarizes the long-term debt ratings used by Duff &
Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered to be of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable in periods of greater economic
stress.
A-6
<PAGE>
"BBB" - Debt possesses below-average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt rated
"B" possesses the risk that obligations will not be met when due. Debt rated
"CCC" is well below investment grade and has considerable uncertainty as to
timely payment of principal, interest or preferred dividends. Debt rated "DD" is
a defaulted debt obligation, and the rating "DP" represents preferred stock with
dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch IBCA for corporate
and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. These ratings denote the lowest expectation of credit risk and
are assigned only in case of exceptionally strong capacity for timely payment of
financial commitments. This capacity is highly unlikely to be adversely affected
by foreseeable events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. These ratings denote a very low expectation of credit risk and indicate
very strong capacity for timely payment of financial commitments. This capacity
is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high credit
quality. These ratings denote a low expectation of credit risk and indicate
strong capacity for timely payment of financial commitments. This capacity may,
nevertheless, be more vulnerable to changes in circumstances or in economic
conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good credit
quality. These ratings denote that there is currently a low expectation of
credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity.
"BB" - Bonds considered to be speculative. These ratings indicate that
there is a possibility of credit risk developing, particularly as the result of
adverse economic changes over time; however, business or financial alternatives
may be available to allow financial commitments to be met. Securities rated in
this category are not investment grade.
A-7
<PAGE>
"B" - Bonds are considered highly speculative. These ratings indicate
that significant credit risk is present, but a limited margin of safety remains.
Financial commitments are currently being met; however, capacity for continued
payment is contingent upon a sustained, favorable business and economic
environment.
"CCC," "CC", and "C" - Bonds have high default risk. Default is a real
possibility, and capacity for meeting financial commitments is solely reliant
upon sustained, favorable business or economic developments. "CC" ratings
indicate that default of some kind appears probable, and "C" ratings signal
imminent default.
"DDD," "DD" and "D" - Bonds are in default. The ratings of obligations
in this category are based on their prospects for achieving partial or full
recovery in a reorganization or liquidation of the obligor. While expected
recovery values are highly speculative and cannot be estimated with any
precision, the following serve as general guidelines. "DDD" obligations have the
highest potential for recovery, around 90%-100% of outstanding amounts and
accrued interest. "DD" indicates potential recoveries in the range of 50%-90%,
and "D" the lowest recovery potential, i.e., below 50%.
Entities rated in this category have defaulted on some or all of their
obligations. Entities rated "DDD" have the highest prospect for resumption of
performance or continued operation with or without a formal reorganization
process. Entities rated "DD" and "D" are generally undergoing a formal
reorganization or liquidation process; those rated "DD" are likely to satisfy a
higher portion of their outstanding obligations, while entities rated "D" have a
poor prospect for repaying all obligations.
To provide more detailed indications of credit quality, the Fitch IBCA
ratings from and including "AA" to "CCC" may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within these major rating
categories.
Thomson Financial BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
"AAA" - This designation indicates that the ability to repay principal
and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis, with limited incremental risk compared
to issues rated in the highest category.
"A" - This designation indicates that the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
A-8
<PAGE>
"BBB" - This designation represents the lowest investment-grade
category and indicates an acceptable capacity to repay principal and interest.
Issues rated "BBB" are more vulnerable to adverse developments (both internal
and external) than obligations with higher ratings.
"BB," "B," "CCC," and "CC" - These designations are assigned by
Thomson Financial BankWatch to non-investment grade long-term debt. Such issues
are regarded as having speculative characteristics regarding the likelihood of
timely repayment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's note rating reflects the liquidity concerns and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess a
very strong capacity to pay debt service are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest, with some vulnerability to adverse
financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
A-9
<PAGE>
"MIG-1"/"VMIG-1" - This designation denotes best quality. There is
present strong protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality, with
all security elements accounted for but lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt instruments
in this category lack of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
A-10
<PAGE>
APPENDIX B
As stated above, the Short-Term Bond, Intermediate Government Income, High
Quality Bond, Rhode Island Municipal Bond and Growth and Income Funds may enter
into futures transactions for hedging purposes. The following is a description
of such transactions.
I. INTEREST RATE FUTURES CONTRACTS
USE OF INTEREST RATE FUTURES CONTRACTS. Bond prices are established in both
the cash market and the futures market. In the cash market, bonds are purchased
and sold with payment for the full purchase price of the bond being made in
cash, generally within five business days after the trade. In the futures
market, only a contract is made to purchase or sell a bond in the future for a
set price on a certain date. Historically, the prices for bonds established in
the futures markets have tended to move generally in the aggregate in concert
with the cash market prices and have maintained fairly predictable
relationships. Accordingly, the Funds may use interest rate futures contracts as
a defense, or hedge, against anticipated interest rate changes and not for
speculation. As described below, this would include the use of futures contract
sales to protect against expected increases in interest rates and futures
contract purchases to offset the impact of interest rate declines.
The Funds presently could accomplish a similar result to that which they
hope to achieve through the use of futures contracts by selling bonds with long
maturities and investing in bonds with short maturities when interest rates are
expected to increase, or conversely, selling short-term bonds and investing in
long-term bonds when interest rates are expected to decline. However, because of
the liquidity that is often available in the futures market, the protection is
more likely to be achieved, perhaps at a lower cost and without changing the
rate of interest being earned by the Funds, through using futures contracts.
DESCRIPTION OF INTEREST RATE FUTURES CONTRACTS. An interest rate futures
contract sale would create an obligation by a Fund, as seller, to deliver the
specific type of financial instrument called for in the contract at a specific
future time for a specified price. A futures contract purchase would create an
obligation by the Fund, as purchaser, to take delivery of the specific type of
financial instrument at a specific future time at a specific price. The specific
securities delivered or taken, respectively, at settlement date, would not be
determined until at or near that date. The determination would be in accordance
with the rules of the exchange on which the futures contract sale or purchase
was made.
Although interest rate futures contracts by their terms call for actual
delivery or acceptance of securities, in most cases the contracts are closed out
before the settlement date without the making or taking of delivery of
securities. Closing out a futures contract sale is effected by a Fund's entering
into a futures contract purchase for the same aggregate amount of the specific
type of financial instrument and the same delivery date. If the price of the
sale exceeds the price of the offsetting purchase, the Fund immediately is paid
the difference and thus realizes a gain. If the offsetting purchase price
exceeds the sale price, the Fund pays the difference and realizes a loss.
Similarly, the closing out of a futures contract purchase is effected
B-1
<PAGE>
by a Fund entering into a futures contract sale. If the offsetting sale price
exceeds the purchase price, the Fund realizes a gain, and if the purchase price
exceeds the offsetting sale price, the Fund realizes a loss.
Interest rate futures contracts are traded in an auction environment on the
floors of several exchanges -- principally, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Futures Exchange. The Funds would
deal only in standardized contracts on recognized exchanges. Each exchange
guarantees performance under contract provisions through a clearing corporation,
a nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various financial
instruments including long-term United States Treasury Bonds and Notes;
Government National Mortgage Association (GNMA) modified pass-through mortgage
backed securities; three-month United States Treasury Bills; and ninety-day
commercial paper. The Funds may trade in any interest rate futures contracts for
which there exists a public market, including, without limitation, the foregoing
instruments.
EXAMPLE OF FUTURES CONTRACT SALE. The Funds would engage in an interest
rate futures contract sale to maintain the income advantage from continued
holding of a long-term bond while endeavoring to avoid part or all of the loss
in market value that would otherwise accompany a decline in long-term securities
prices. Assume that the market value of a certain security held by a particular
Fund tends to move in concert with the futures market prices of long-term United
States Treasury bonds ("Treasury bonds"). Fleet wishes to fix the current market
value of this portfolio security until some point in the future. Assume the
portfolio security has a market value of 100, and Fleet believes that, because
of an anticipated rise in interest rates, the value will decline to 95. The Fund
might enter into futures contract sales of Treasury bonds for an equivalent of
98. If the market value of the portfolio security does indeed decline from 100
to 95, the equivalent futures market price for the Treasury bonds might also
decline from 98 to 93.
In that case, the five point loss in the market value of the portfolio
security would be offset by the five point gain realized by closing out the
futures contract sale. Of course, the futures market price of Treasury bonds
might well decline to more than 93 or to less than 93 because of the imperfect
correlation between cash and futures prices mentioned below.
Fleet could be wrong in its forecast of interest rates, and the equivalent
futures market price could rise above 98. In this case, the market value of the
portfolio securities, including the portfolio security being protected, would
increase. The benefit of this increase would be reduced by the loss realized on
closing out the futures contract sale.
If interest rate levels did not change, the Fund in the above example might
incur a loss of 2 points (which might be reduced by an offsetting transaction
prior to the settlement date). In each transaction, transaction expenses would
also be incurred.
B-2
<PAGE>
EXAMPLE OF FUTURES CONTRACT PURCHASE. A Fund would engage in an interest
rate futures contract purchase when it is not fully invested in long-term bonds
but wishes to defer for a time the purchase of long-term bonds in light of the
availability of advantageous interim investments, e.g., shorter term securities
whose yields are greater than those available on long-term bonds. A Fund's basic
motivation would be to maintain for a time the income advantage from investing
in the short-term securities; the Fund would be endeavoring at the same time to
eliminate the effect of all or part of an expected increase in market price of
the long-term bonds that the Fund may purchase.
For example, assume that the market price of a long-term bond that the Fund
may purchase, currently yielding 10%, tends to move in concert with futures
market prices of Treasury bonds. Fleet wishes to fix the current market price
(and thus 10% yield) of the long-term bond until the time (four months away in
this example) when it may purchase the bond. Assume the long-term bond has a
market price of 100, and Fleet believes that, because of an anticipated fall in
interest rates, the price will have risen to 105 (and the yield will have
dropped to about 9 1/2%) in four months. The Fund might enter into futures
contracts purchases of Treasury bonds for an equivalent price of 98. At the same
time, the Fund would assign a pool of investments in short-term securities that
are either maturing in four months or earmarked for sale in four months, for
purchase of the long-term bond at an assumed market price of 100. Assume these
short-term securities are yielding 15%. If the market price of the long-term
bond does indeed rise from 100 to 105, the equivalent futures market price for
Treasury bonds might also rise from 98 to 103. In that case, the 5 point
increase in the price that the Fund pays for the long-term bond would be offset
by the 5 point gain realized by closing out the futures contract purchase.
Fleet could be wrong in its forecast of interest rates; long-term interest
rates might rise to above 10%; and the equivalent futures market price could
fall below 98. If short-term rates at the same time fall to 10% or below, it is
possible that the Fund would continue with its purchase program for long-term
bonds. The market price of available long-term bonds would have decreased. The
benefit of this price decrease, and thus yield increase, will be reduced by the
loss realized on closing out the futures contract purchase.
If, however, short-term rates remained above available long-term rates, it
is possible that the Fund would discontinue its purchase program for long-term
bonds. The yield on short-term securities in the portfolio, including those
originally in the pool assigned to the particular long-term bond, would remain
higher than yields on long-term bonds. The benefit of this continued incremental
income will be reduced by the loss realized on closing out the futures contract
purchase. In each transaction, expenses would also be incurred.
II. 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
B-3
<PAGE>
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 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 Rhode Island Municipal 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 a Fund's entering into
a futures contract sale. If the offsetting sale price exceeds the purchase
price, the Fund realizes a gain, and if the purchase price exceeds the
offsetting sale price, the Fund realizes a loss.
EXAMPLE OF A MUNICIPAL BOND INDEX FUTURES CONTRACT
Consider a portfolio manager holding $1 million par value of each of the
following municipal bonds on February 2 in a particular year.
<TABLE>
<CAPTION>
Current Price
(points and
Maturity thirty-seconds
Issue Coupon Issue Date Date of a point)
- ------------------------------------------------------------------- ------------------------------
<S> <C> <C> <C> <C>
Ohio HFA 9 3/8 5/05/83 5/1/13 94-2
NYS Power 9 3/4 5/24/83 1/1/17 102-0
San Diego, CA IDR 10 6/07/83 6/1/18 100-14
Muscatine, IA Elec 10 5/8 8/24/83 1/1/08 103-16
Mass Health & Ed 10 9/23/83 7/1/16 100-12
</TABLE>
The current value of the portfolio is $5,003,750.
B-4
<PAGE>
To hedge against a decline in the value of the portfolio, resulting from a
rise in interest rates, the portfolio manager can use the municipal bond index
futures contract. The current value of the Municipal Bond Index is 86-09.
Suppose the portfolio manager takes a position in the futures market opposite to
his or her cash market position by selling 50 municipal bond index futures
contracts (each contract represents $100,000 in principal value) at this price.
On March 23, the bonds in the portfolio have the following values:
Ohio HFA 81-28
NYS Power 98-26
San Diego, CA IDB 98-11
Muscatine, IA Elec 99-24
Mass Health & Ed 97-18
The bond prices have fallen, and the portfolio has sustained a loss of
$130,312. This would have been the loss incurred without hedging. However, the
Municipal Bond Index also has fallen, and its value stands at 83-27. Suppose now
the portfolio manager closes out his or her futures position by buying back 50
municipal bond index futures contracts at this price.
The following table provides a summary of transactions and the results of
the hedge.
<TABLE>
<CAPTION>
Cash Market Futures Market
----------- ---------------
<S> <C> <C>
February 2 $5,003,750 long posi- Sell 50 Municipal Bond
tion in municipal futures contracts at
bonds 86-09
March 23 $4,873,438 long posi- Buy 50 Municipal Bond
tion in municipal futures contracts at
bonds 83-27
---------------------- -------------------------
$130,312 Loss $121,875 Gain
</TABLE>
While the gain in the futures market did not entirely offset the loss in
the cash market, the $8,437 loss is significantly lower than the loss which
would have been incurred without hedging.
The numbers reflected in this appendix do not take into account the effect
of brokerage fees or taxes.
III. MARGIN PAYMENTS
Unlike purchases or sales of portfolio securities, no price is paid or
received by a Fund upon the purchase or sale of a futures contract. Initially,
the Fund will be required to deposit with the broker or in a segregated account
with Galaxy's custodian an amount of cash or cash equivalents, known as initial
margin, based on the value of the contract. The nature of initial
B-5
<PAGE>
margin in futures transactions is different from that of margin in security
transactions in that futures contract margin does not involve the borrowing of
funds by the customer to finance the transactions. Rather, the initial margin is
in the nature of a performance bond or good faith deposit on the contract which
is returned to the Fund upon termination of the futures contract assuming all
contractual obligations have been satisfied. Subsequent payments, called
variation margin, to and from the broker, will be made on a daily basis as the
price of the underlying instruments fluctuates making the long and s>hort
positions in the futures contract more or less valuable, a process known as
marking-to-the-market. For example, when a particular Fund has purchased a
futures contract and the price of the contract has risen in response to a rise
in the underlying instruments, that position will have increased in value and
the Fund will be entitled to receive from the broker a variation margin payment
equal to that increase in value. Conversely, where the Fund has purchased a
futures contract and the price of the futures contract has declined in response
to a decrease in the underlying instruments, the position would be less valuable
and the Fund would be required to make a variation margin payment to the broker.
At any time prior to expiration of the futures contract, Fleet may elect to
close the position by taking an opposite position, subject to the availability
of a secondary market, which will operate to terminate the Fund's position in
the futures contract. A final determination of variation margin is then made,
additional cash is required to be paid by or released to the Fund, and the Fund
realizes a loss or gain.
IV. RISKS OF TRANSACTIONS IN FUTURES CONTRACTS
There are several risks in connection with the use of futures by the Funds
as hedging devices. One risk arises because of the imperfect correlation between
movements in the price of the futures and movements in the price of the
instruments that are the subject of the hedge. The price of the futures may move
more than or less than the price of the instruments being hedged. If the price
of the futures moves less than the price of the instruments which are the
subject of the hedge, the hedge will not be fully effective but, if the price of
the instruments being hedged has moved in an unfavorable direction, a Fund would
be in a better position than if it had not hedged at all. If the price of the
instruments being hedged has moved in a favorable direction, this advantage will
be partially offset by the loss on the futures. If the price of the futures
moves more than the price of the hedged instruments, the Funds involved will
experience either a loss or gain on the futures, which will not be completely
offset by movements in the price of the instruments which are the subject of the
hedge. To compensate for the imperfect correlation of movements in the price of
instruments being hedged and movements in the price of futures contracts, a Fund
may buy or sell futures contracts in a greater dollar amount than the dollar
amount of instruments being hedged if the volatility over a particular time
period of the prices of such instruments has been greater than the volatility
over such time period of the futures, or if otherwise deemed to be appropriate
by the investment adviser. Conversely, a Fund may buy or sell fewer futures
contracts if the volatility over a particular time period of the prices of the
instruments being hedged is less than the volatility over such time period of
the futures contract being used, or if otherwise deemed to be appropriate by
Fleet. It is also possible that, where a Fund had sold futures to hedge its
portfolio against a decline in the market, the market may advance and the value
of instruments held in the Fund may decline. If this occurred, the Fund would
lose money on the futures and also experience a decline in value in its
portfolio securities.
B-6
<PAGE>
Where futures are purchased to hedge against a possible increase in the
price of securities before a Fund is able to invest its cash (or cash
equivalents) in an orderly fashion, it is possible that the market may decline
instead; if the Fund then concludes not to invest its cash at that time because
of concern as to possible further market decline or for other reasons, the Fund
will realize a loss on the futures contract that is not offset by a reduction in
the price of the instruments that were to be purchased.
In instances involving the purchase of futures contracts by a Fund, an
amount of cash and cash equivalents, equal to the market value of the futures
contracts, will be deposited in a segregated account with Galaxy's custodian
and/or in a margin account with a broker to collateralize the position and
thereby insure that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between movements in the futures and the instruments
being hedged, the price of futures may not correlate perfectly with movement in
the cash market due to certain market distortions. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through off-setting transactions that could distort the normal relationship
between the cash and futures markets. Second, with respect to financial futures
contracts, the liquidity of the futures market depends on participants entering
into off-setting transactions rather than making or taking delivery. To the
extent participants decide to make or take delivery, liquidity in the futures
market could be reduced thus producing distortions. Third, from the point of
view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may also cause temporary
price distortions. Due to the possibility of price distortion in the futures
market, and because of the imperfect correlation between the movements in the
cash market and movements in the price of futures, a correct forecast of general
market trends or interest rate movements by the adviser may still not result in
a successful hedging transaction over a short time frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Funds
intend to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance that a liquid
secondary market on any exchange or board of trade will exist for any particular
contract or at any particular time. In such event, it may not be possible to
close a futures investment position, and in the event of adverse price
movements, a Fund would continue to be required to make daily cash payments of
variation margin. However, in the event futures contracts have been used to
hedge portfolio securities, such securities will not be sold until the futures
contract can be terminated. In such circumstances, an increase in the price of
the securities, if any, may partially or completely offset losses on the futures
contract. However, as described above, there is no guarantee that the price of
the securities will in fact correlate with the price movements in the futures
contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary market in a
futures contract may be adversely affected by "daily price fluctuation limits"
established by commodity
B-7
<PAGE>
exchanges which limit the amount of fluctuation in a futures contract price
during a single trading day. Once the daily limit has been reached in the
contract, no trades may be entered into at a price beyond the limit, thus
preventing the liquidation of open futures positions. The trading of futures
contracts is also subject to the risk of trading halts, suspensions, exchange or
clearing house equipment failures, government intervention, insolvency of a
brokerage firm or clearing house or other disruptions of normal activity, which
could at times make it difficult or impossible to liquidate existing positions
or to recover excess variation margin payments.
Successful use of futures by the Funds is also subject to Fleet's ability
to predict correctly movements in the direction of the market. For example, if a
particular Fund has hedged against the possibility of a decline in the market
adversely affecting securities held by it and securities prices increase
instead, the Fund will lose part or all of the benefit to the increased value of
its securities which it has hedged because it will have offsetting losses in its
futures positions. In addition, in such situations, if the Fund has insufficient
cash, it may have to sell securities to meet daily variation margin
requirements. Such sales of securities may be, but will not necessarily be, at
increased prices which reflect the rising market. The Funds may have to sell
securities at a time when it may be disadvantageous to do so.
B-8
<PAGE>
THE GALAXY FUND
FORM N-1A
PART C. OTHER INFORMATION
Item 23. Exhibits
(a) (1) Declaration of Trust dated March 31, 1986.(4)
(2) Amendment No. 1 to the Declaration of Trust dated as
of April 26, 1988.(4)
(3) Certificate pertaining to Classification of Shares
dated May 5, 1986 pertaining to Class A and Class B
shares.(4)
(4) Certificate of Classification of Shares dated
December 9, 1987 pertaining to Class C, Class D and
Class E shares.(4)
(5) Certificate of Classification of Shares dated
November 8, 1989 pertaining to Class C - Special
Series 1 and Class D - Special Series 1 shares.(4)
(6) Certificate of Classification of Shares dated August
16, 1990 pertaining to Class F shares; Class G -
Series 1 shares; Class G - Series 2 shares; Class H
- Series 1 shares; Class H - Series 2 shares; Class
I - Series 1 shares; Class I - Series 2 shares;
Class J - Series 1 shares; and Class J - Series 2
shares.(4)
(7) Certificate of Classification of Shares dated
December 10, 1991 pertaining to Class K - Series 1
shares; Class K - Series 2 shares; Class L - Series
1 shares; Class L - Series 2 shares; Class M -
Series 1 shares; Class M - Series 2 shares; Class N
- Series 1 shares; Class N - Series 2 shares; Class
O - Series 1 shares; and Class O - Series 2 shares.
(4)
(8) Certificate of Classification of Shares dated
February 22, 1993 pertaining to Class P - Series 1
shares; Class P - Series 2 shares; Class Q - Series
1 shares; Class Q - Series 2 shares; Class R -
Series 1 shares; Class R - Series 2 shares; and
Class S shares.(4)
<PAGE>
(9) Certificate of Classification of Shares dated
December 7, 1994 pertaining to Class T - Series 1
shares and Class T - Series 2 shares.(4)
(10) Certificate of Classification of Shares pertaining
to Class U - Series 1 shares and Class U - Series 2
shares; Class V shares; Class W shares; and Class X
- Series 1 shares and Class X - Series 2 shares.(8)
(11) Certificate of Classification of Shares pertaining
to Class C - Special Series 2 shares; Class H -
Series 3 shares; Class J - Series 3 shares; Class K
- Series 3 shares; Class L - Series 3 shares; Class
M - Series 3 shares; Class N - Series 3 shares; and
Class U - Series 3 shares.(8)
(l2) Certificate of Classification of Shares pertaining
to Class A - Special Series 2 shares.(8)
(13) Certificate of Classification of Shares pertaining
to Class Y - Series 1 shares and Class Y - Series 2
shares; Class Z - Series 1 shares, Class Z - Series
2 shares and Class Z - Series 3 shares; and Class AA
- Series 1 shares, Class AA - Series 2 shares and
Class AA - Series 3 shares.(8)
(14) Certificate of Classification of Shares pertaining
to Class BB; Class CC and Class DD shares.(8)
(15) Certificate of Classification of Shares pertaining
to Class C - Special Series 3 shares; Class C -
Special Series 4 shares; Class D - Special Series 3
shares; Class D - Special Series 4 shares; Class G -
Series 4 shares; Class G - Series 5 shares; Class H
- Series 4 shares; Class H - Series 5 shares; Class
I - Series 4 shares; Class I - Series 5 shares;
Class J - Series 4 shares; Class J - Series 5
shares; Class K - Series 4 shares; Class K - Series
5 shares; Class L - Series 4 shares; Class L -
Series 5 shares; Class M - Series 4 shares; Class M
- Series 5 shares; Class N - Series 4 shares; Class
N - Series 5 shares; Class U - Series 4 shares;
Class U - Series 5 shares; Class X - Series 4
shares; Class X - Series 5 shares; Class AA - Series
4 shares; and Class AA - Series 5 shares.(8)
(16) Certificate of Classification of Shares pertaining
to Class D - Special Series 2 shares; Class G -
Series 3 shares; Class I - Series 3 shares; and
Class X - Series 3 shares.(8)
-2-
<PAGE>
(17) Certificate of Classification of Shares Pertaining
to Class EE - Series shares and Class EE - Series 2
shares; Class V - Special Series 1 shares; and Class
W - Special Series 1 shares.(11)
(18) Certificate of Classification of Shares pertaining
to Class A - Special Series 3 shares; Class F -
Special Series 2 shares; Class E- Special Series 2
shares; Class L - Series 6 shares; Class D - Special
Series 5 shares; Class J - Series 6 shares; Class R
- Series 3 shares; Class N - Series 6 shares; Class
U - Series 6 shares; Class H - Series 6 shares and
Class G - Series 6 shares.
(b) Code of Regulations.(4)
(c) Article V, Section 5.1, and Article VIII, Section
8.1, of Registrant's Declaration of Trust
incorporated herein by reference as Exhibit (a)(1),
and Amendment No. 1 to Registrant's Declaration of
Trust incorporated herein by reference as Exhibit
(a)(2).
(d) (1) Advisory Agreement between the Registrant and Fleet
Investment Advisors Inc. with respect to the Money
Market, Government, U.S. Treasury, Tax-Exempt,
Institutional Government Money Market (formerly
Institutional Treasury Money Market), Short-Term
Bond, Intermediate Government Income (formerly
Intermediate Bond), Corporate Bond, High Quality
Bond, Tax-Exempt Bond, New York Municipal Bond,
Connecticut Municipal Bond, Massachusetts Municipal
Bond, Rhode Island Municipal Bond, Equity Value,
Equity Growth, Equity Income, International Equity,
Small Company Equity and Asset Allocation Funds
dated as of May 19, 1994.(2)
(2) Addendum No. 1 to Advisory Agreement between the
Registrant and Fleet Investment Advisors Inc. with
respect to the Connecticut Municipal Money Market,
Massachusetts Municipal Money Market, Growth and
Income and Small Cap Value Funds dated as of
December 1, 1995.(1)
(3) Addendum No. 2 to Advisory Agreement between the
Registrant and Fleet Investment Advisors Inc. with
respect to the New Jersey Municipal Bond Fund,
MidCap Equity Fund and Strategic Equity Fund dated
as of March 3, 1998.(5)
(4) Addendum No. 3 to Advisory Agreement dated September
18, 1998 between the Registrant and Fleet Investment
Advisors Inc.
-3-
<PAGE>
with respect to the Prime Reserves, Government
Reserves and Tax-Exempt Reserves.(8)
(5) Form of Addendum No. 4 to Advisory Agreement between
the Registrant and Fleet Investment Advisors Inc.
with respect to the New York Municipal Money Market
Fund.(11)
(6) Sub-Advisory Agreement between Fleet Investment
Advisors Inc. and Oechsle International Advisors,
LLC with respect to the International Equity Fund
dated as of October 8, 1998.(8)
(e) (1) Distribution Agreement between the Registrant and
Provident Distributors, Inc. dated as of December 1,
1999.
(2) Form of Amendment No. 1 to Distribution Agreement
between the Registrant and Provident Distributors,
Inc. with respect to the New York Municipal Money
Market Fund.(11)
(f) The Galaxy Fund/The Galaxy VIP Fund/Galaxy Fund II
Deferred Compensation Plan and Related Agreement
effective as of January 1, 1997.(2)
(g) (1) Global Custody Agreement between the Registrant and
The Chase Manhattan Bank dated as of November 1,
1991.(4)
(2) Form of Amendment to Global Custody Agreement
between the Registrant and The Chase Manhattan Bank
with respect to the New
-4-
<PAGE>
Jersey Municipal Bond, MidCap Equity and Strategic
Equity Funds.(3)
(3) Form of Amendment to Global Custody Agreement
between the Registrant and The Chase Manhattan Bank
with respect to the Prime Reserves, Government
Reserves and Tax-Exempt Reserves.(5)
(4) Form of Amendment to Global Custody Agreement
between the Registrant and The Chase Manhattan Bank
with respect to the New York Municipal Money Market
Fund.(11)
(5) Amendment dated December 2, 1998 to Global Custody
Agreement between the Registrant and The Chase
Manhattan Bank with respect to foreign custody
monitoring delegation.(9)
(6) Consent to Assignment of Global Custody Agreement
between the Registrant, The Chase Manhattan Bank,
N.A. and 440 Financial Group of Worcester, Inc. to
The Shareholder Services Group, Inc. d/b/a 440
Financial dated March 31, 1995.(11)
(h) (1) Administration Agreement between the Registrant and
PFPC Inc. (formerly known as First Data Investor
Services Group, Inc.) dated as of June 1, 1997.(3)
(2) Amendment No. 1 dated March 3, 1998 to
Administration Agreement between the Registrant and
PFPC Inc. (formerly known as First Data Investor
Services Group, Inc.) with respect to the New Jersey
Municipal Bond Fund, MidCap Equity Fund and
Strategic Equity Fund.(5)
(3) Amendment No. 2 dated as of March 5, 1998 to
Administration Agreement between the Registrant and
PFPC Inc. (formerly known as First Data Investor
Services Group, Inc.)(6)
(4) Amendment No. 3 dated as of September 18, 1998 to
Administration Agreement between the Registrant and
PFPC Inc. (formerly known as First Data Investor
Services Group, Inc.) with respect to the Prime
Reserves, Government Reserves and Tax-Exempt
Reserves Fund.(8)
(5) Amendment No. 4 dated as of September 10, 1998 to
Administration Agreement between the Registrant and
PFPC Inc. (formerly known as First Data Investor
Services Group, Inc.)(9)
-5-
<PAGE>
(6) Amendment No. 5 dated as of December 1, 1999 to
Administration Agreement between Registrant and
PFPC Inc. (formerly known as First Data Investor
Services Group, Inc.)
(7) Form of Amendment No. 6 to Administration Agreement
between Registrant and PFPC Inc. (formerly known as
First Data Investor Services Group, Inc.) with
respect to the New York Municipal Money Market
Fund.(11)
(8) Transfer Agency and Services Agreement between the
Registrant and PFPC Inc. (formerly known as First
Data Investor Services Group, Inc.) dated as of June
1, 1997.(3)
(9) Amendment No. 1 dated March 3, 1998 to Transfer
Agency and Services Agreement between the Registrant
and PFPC Inc. (formerly known as First Data Investor
Services Group, Inc.) with respect to the New Jersey
Municipal Bond Fund, MidCap Equity Fund and
Strategic Equity Fund.(5)
(10) Amendment No. 2 dated as of March 5, 1998 to
Transfer Agency and Services Agreement between the
Registrant and PFPC Inc. (formerly known as First
Data Investor Services Group, Inc.)(6)
(11) Amendment No. 3 dated as of September 18, 1998 to
Transfer Agency and Services Agreement between the
Registrant and PFPC Inc. (formerly known as First
Data Investor Services Group, Inc.) with respect to
the Prime Reserves, Government Reserves and
Tax-Exempt Reserves Fund.(8)
(12) Amendment No. 4 dated as of September 10, 1998 to
Transfer Agency and Services Agreement between
Registrant and PFPC Inc. (formerly known as First
Data Investor Services Group, Inc.)(9)
(13) Amendment No. 5 dated as of September 9, 1999 to
Transfer Agency and Services Agreement between
Registrant and PFPC Inc. (formerly known as First
Data Investor Services Group, Inc.)
(14) Amendment No. 6 dated as of December 2, 1999 to
Transfer Agency and Services Agreement between
Registrant and PFPC Inc. (formerly known as First
Data Investor Services Group, Inc.)
(15) Form of Amendment No. 7 to Transfer Agency and
Services Agreement between Registrant and PFPC Inc.
(formerly known as
-6-
<PAGE>
First Data Investor Services Group, Inc.) with
respect to the New York Municipal Money Market
Fund.(11)
(16) Shareholder Services Plan for Trust Shares and
Retail A Shares and Related Forms of Servicing
Agreements.
(17) Form of Shareholder Services Plan for BKB Shares
and Related Forms of Servicing Agreements.
(i) (1) Opinion and consent of counsel dated September 28,
1999.(10
(2) Opinion and consent of counsel dated December 3,
1999.(11)
(3) Opinion and Consent of counsel with respect to
BKB Shares to be filed by Amendment.
(j) (1) Consent of Drinker Biddle & Reath LLP.
(2) Consent of Ropes & Gray.
(k) None.
(l) (1) Purchase Agreement between the Registrant and
Shearson Lehman Brothers Inc. dated July 24,
1986.(4)
(2) Purchase Agreement between the Registrant and
Shearson Lehman Brothers Inc. dated October 11, 1990
with respect to the Treasury, Equity Growth, Equity
Income, International Equity and High Quality Bond
Funds.(4)
(3) Purchase Agreement between the Registrant and SMA
Equities, Inc. dated December 30, 1991 with respect
to the Small Company Equity Fund, Short-Term Bond
Fund, Tax-Exempt Bond Fund, Asset Allocation Fund,
and New York Municipal Bond Fund.(4)
(4) Purchase Agreement between the Registrant and
Allmerica Investments, Inc. dated February 22, 1993
with respect to the Connecticut Municipal Bond,
Massachusetts Municipal Bond, Rhode Island Municipal
Bond and Institutional Government Money Market
(formerly Institutional Treasury Money Market)
Funds.(4)
(5) Purchase Agreement between the Registrant and 440
Financial Distributors, Inc. dated May 19, 1994 with
respect to the Corporate Bond Fund.(4)
(6) Purchase Agreement between the Registrant and First
Data Investor Services, Inc. dated February 28, 1996
with respect to the Connecticut Municipal Money
Market, Massachusetts Municipal
-7-
<PAGE>
Money Market Money, Growth and Income and Small Cap
Value Funds.(4)
(7) Purchase Agreement between the Registrant and First
Data Distributors, Inc. with respect to the New
Jersey Municipal Bond Fund.(5)
(8) Form of Purchase Agreement between the Registrant
and First Data Distributors, Inc. with respect to
the MidCap Equity Fund.(3)
(9) Purchase Agreement between the Registrant and First
Data Distributors, Inc. with respect to the
Strategic Equity Fund.(5)
(10) Purchase Agreement between the Registrant and First
Data Distributors, Inc. dated September 18, 1998
with respect to the Prime Reserves, Government
Reserves and Tax-Exempt Reserves.(9)
(m) (1) Distribution and Services Plan for Retail B Shares
and Related Form of Servicing Agreement.(6)
(2) Distribution and Services Plan and Related Form of
Servicing Agreement with respect to the Prime
Reserves, Government Reserves and Tax-Exempt
Reserves.(5)
(3) Distribution Plan for A Prime Shares.(6)
(4) Distribution and Services Plan for B Prime Shares
and Related Form of Servicing Agreement.(6)
(5) Distribution and Services Plan and Related Form of
Servicing Agreement with respect to Prime Shares of
the New York Municipal Money Market, Connecticut
Municipal Money Market and Massachusetts Municipal
Money Market Funds.
(n) None.
(o) Amended and Restated Plan Pursuant to Rule 18f-3 for
Operation of a Multi-Class System.
- -------------------
-8-
<PAGE>
(1) Filed electronically as an Exhibit and incorporated herein by reference
to Post-Effective Amendment No. 27 to the Registrant's Registration
Statement on Form N-1A (File Nos. 33-4806 and 811-4636) as filed with the
Commission on March 4, 1996.
(2) Filed electronically as an Exhibit and incorporated herein by reference
to Post-Effective Amendment No. 29 to the Registrant's Registration
Statement on Form N-1A as filed with the Commission on December 30, 1996.
(3) Filed electronically as an Exhibit and incorporated herein by reference
to Post-Effective Amendment No. 31 to the Registrant's Registration
Statement on Form N-1A as filed with the Commission on December 15, 1997.
(4) Filed electronically as an Exhibit and incorporated herein by reference
to Post-Effective Amendment No. 32 to the Registrant's Registration
Statement on Form N-1A as filed with the Commission on February 27, 1998.
(5) Filed electronically as an Exhibit and incorporated herein by reference
to Post-Effective Amendment No. 33 to the Registrant's Registration
Statement on Form N-1A as filed with the Commission on June 30, 1998.
(6) Filed electronically as an Exhibit and incorporated herein by reference
to Post-Effective Amendment No. 34 to the Registrant's Registration
Statement on Form N-1A as filed with the Commission on September 11,
1998.
(7) Filed electronically as an Exhibit and incorporated herein by reference
to Post-Effective Amendment No. 35 to the Registrant's Registration
Statement on Form N-1A as filed with the Commission on October 6, 1998.
(8) Filed electronically as an Exhibit and incorporated herein by reference
to Post-Effective Amendment No. 36 to the Registrant's Registration
Statement on Form N-1A as filed with the Commission on December 30, 1998.
(9) Filed electronically as an Exhibit and incorporated herein by reference
to Post-Effective Amendment No. 37 to the Registrant's Registration
Statement on Form N-1A as filed with the Commission on February 26, 1999.
(10) Filed electronically as an Exhibit and incorporated herein by reference
to Post-Effective Amendment No. 38 to the Registrant's Registration
Statement on Form N-1A as filed with the Commission on September 28,
1999.
(11) Filed electronically as an Exhibit and incorporated herein by reference
to Post-Effective Amendment No. 40 to the Registrant's Registration
Statement on Form N-1A as filed with the Commission on December 3, 1999.
-9-
<PAGE>
Item 24. Persons Controlled By or Under Common Control with
Registrant
Registrant is controlled by its Board of Trustees.
Item 25. Indemnification
Indemnification of the Registrant's principal underwriter, custodian and
transfer agent against certain losses is provided for, respectively, in Section
1.19 of the Distribution Agreement incorporated herein by reference as Exhibit
(e)(1), in Section 12 of the Global Custody Agreement incorporated herein by
reference as Exhibit (g)(1) and in Article 10 of the Transfer Agency and
Services Agreement incorporated herein by reference as Exhibit (h)(6). The
Registrant has obtained from a major insurance carrier a directors' and
officers' liability policy covering certain types of errors and omissions. In
addition, Section 9.3 of the Registrant's Declaration of Trust dated March 31,
1986, incorporated herein by reference as Exhibit (a)(1), provides as follows:
9.3 INDEMNIFICATION OF TRUSTEES, REPRESENTATIVES AND EMPLOYEES. The
Trust shall indemnify each of its Trustees against all liabilities
and expenses (including amounts paid in satisfaction of judgments,
in compromise, as fines and penalties, and as counsel fees)
reasonably incurred by him in connection with the defense or
disposition of any action, suit or other proceeding, whether civil
or criminal, in which he may be involved or with which he may be
threatened, while as a Trustee or thereafter, by reason of his
being or having been such a Trustee EXCEPT with respect to any
matter as to which he shall have been adjudicated to have acted in
bad faith, willful misfeasance, gross negligence or reckless
disregard of his duties, PROVIDED that as to any matter disposed
of by a compromise payment by such person, pursuant to a consent
decree or otherwise, no indemnification either for said payment or
for any other expenses shall be provided unless the Trust shall
have received a written opinion from independent legal counsel
approved by the Trustees to the effect that if either the matter
of willful misfeasance, gross negligence or reckless disregard of
duty, or the matter of bad faith had been adjudicated, it would in
the opinion of such counsel have been adjudicated in favor of such
person. The rights accruing to any person under these provisions
shall not exclude any other right to which he may be lawfully
entitled, PROVIDED that no person may satisfy any right of
indemnity or reimbursement hereunder except out of the property of
the Trust. The Trustees may make advance payments in connection
with the indemnification under this Section 9.3, PROVIDED that the
indemnified person shall have given a written undertaking to
reimburse the Trust in the event it is subsequently determined
that he is not entitled to such indemnification.
-10-
<PAGE>
The Trustees shall indemnify representatives and employees of the
Trust to the same extent that Trustees are entitled to
indemnification pursuant to this Section 9.3.
Insofar as indemnification for liability arising under the
Securities Act of 1933, as amended, may be permitted to trustees,
officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or
paid by a trustee, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is
asserted by such trustee, officer or controlling person in
connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed
by the final adjudication of such issue.
Item 26. (a) Business and Other Connections of Investment Adviser
Fleet Investment Advisors Inc. ("Fleet") is an investment adviser
registered under the Investment Advisers Act of 1940 (the
"Advisers Act").
The list required by this Item 26 of officers and directors of
Fleet, together with information as to any business profession,
vocation or employment of a substantial nature engaged in by such
officers and directors during the past two years is incorporated
herein by reference to Schedules A and D of Form ADV filed by
Fleet pursuant to the Advisers Act (SEC File No. 801-20312).
(b) Business and Other Connections of Sub-Adviser
Oechsle International Advisors, LLC. ("Oechsle") is an investment
adviser registered under the Investment Advisers Act of 1940 (the
"Advisers Act").
The list required by this Item 26 of the officers of Oechsle,
together with information as to any business profession, vocation
or employment of a substantial nature engaged in by such officers
during the past two years, is incorporated herein by reference to
Schedules A and D of Form ADV filed by Oechsle pursuant to the
Advisers Act (SEC File No. 801-28111).
-11-
<PAGE>
Item 27. Principal Underwriter
(a) In addition to The Galaxy Fund, Provident Distributors, Inc. (the
"Distributor") currently acts as distributor for The Galaxy VIP
Fund, Galaxy Fund II, International Dollar Reserve Fund I, Ltd.,
Provident Institutional Funds Trust, Columbia Common Stock Fund,
Inc., Columbia Growth Fund, Inc., Columbia International Stock
Fund, Inc., Columbia Special Fund, Inc., Columbia Small Cap Fund,
Inc., Columbia Real Estate Equity Fund, Inc., Columbia Balanced
Fund, Inc., Columbia Daily Income Company, Columbia U.S.
Government Securities Fund, Inc., Columbia Fixed Income Securities
Fund, Inc., Columbia Municipal Bond Fund, Inc., Columbia High
Yield Fund, Inc., Columbia National Municipal Bond Fund, Inc.,
GAMNA Series Funds, Inc., WT Investment Trust, Kalmar Pooled
Investment Trust, The RBB Fund, Inc., Robertson Stephens
Investment Trust, HT Insight Funds Trust, Hilliard-Lyons
Government Fund, Inc., Hilliard-Lyons Growth Fund, Inc.,
Hilliard-Lyons Research Trust, The BlackRock Funds, Inc.
(Distributed by BlackRock Distributors, Inc. a wholly owned
subsidiary of Provident Distributors, Inc.), Northern Funds Trust
(Distributed by Northern Funds Distributors, LLC a wholly owned
subsidiary of Provident Distributors, Inc.), The OffitBank
Investment Fund, Inc. (Distributed by Offit Funds Distributor,
Inc. a wholly owned subsidiary of Provident Distributors, Inc.),
The OffitBank Variable Insurance Fund, Inc. (Distributed by Offit
Funds Distributor, Inc. a wholly owned subsidiary of Provident
Distributors, Inc.).
(b) The information required by this Item 27 (b) with respect to each
director, officer, or partner of the Distributor, is incorporated
by reference to Schedule A of Form BD filed by the Distributor,
with the Securities and Exchange Commission pursuant to the
Securities Act of 1934 (File No. 8-45467).
(c) The Distributor receives no compensation from the Registrant for
distribution of its shares other than payments for distribution
assistance pursuant to Registrant's Distribution and Services Plan
for Retail B Shares, Distribution and Services Plan for the Prime
Reserves, Government Reserves and Tax-Exempt Reserves,
Distribution Plan for A Prime Shares and Distribution and Services
Plan for B Prime Shares.
Item 28. Location of Accounts and Records
(1) Fleet Investment Advisors Inc., 75 State Street, Boston,
Massachusetts 02109 (records relating to its functions as
investment adviser to all of the Registrant's Funds).
-12-
<PAGE>
(2) Oechsle International Advisors, LLC, One International
Place, Boston, Massachusetts 02210 (records relating to its
functions as sub-investment adviser to the International
Equity Fund).
(3) Provident Distributors Inc., Four Falls Corporate Center,
6th Floor, West Conshohocken, Pennsylvania 19428-2961
(records relating to its functions as distributor).
(4) PFPC Inc. (formerly known as First Data Investor Services
Group, Inc.) 53 State Street, Mail Stop BOS 425, Boston, MA
02109 (records relating to its functions as administrator).
(5) PFPC Inc. (formerly known as First Data Investor Services
Group, Inc.) 4400 Computer Drive, Westborough, MA
01581-5108 (records relating to its functions as transfer
agent).
(6) Drinker Biddle & Reath LLP, One Logan Square, 18th and
Cherry Streets, Philadelphia, Pennsylvania 19103
(Registrant's Declaration of Trust, Code of Regulations and
Minute Books).
(7) The Chase Manhattan Bank, 1211 Avenue of the Americas, New
York, New York 10036 (records relating to its functions as
custodian).
Item 29. Management Services
Inapplicable.
Item 30. Undertakings
Registrant undertakes to furnish each person to whom a prospectus
is delivered with a copy of the Registrant's latest available
Annual Reports to Shareholders which includes Management's
Discussion of the Registrant's performance, upon request and
without charge.
-13-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, Registrant has duly caused
this Post-Effective Amendment No. 41 to its Registration Statement to be
signed on its behalf by the undersigned, thereto duly authorized, in Pawtucket,
Rhode Island, on the 29th day of December, 1999.
THE GALAXY FUND
Registrant
/s/ John T. O'Neill
-----------------------
President
John T. O'Neill
Pursuant to the requirements of the Securities Act of 1933,
this Post-Effective Amendment No. 41 to the Registration Statement has been
signed below by the following persons in the capacities and on the dates
indicated.
Signature Title Date
- --------- ----- ----
/s/ John T. O'Neill Trustee, President December 29, 1999
- --------------------- and Treasurer
John T. O'Neill
*Dwight E. Vicks, Jr. Chairman of the Board December 29, 1999
- --------------------- of Trustees
Dwight E. Vicks, Jr.
*Donald B. Miller Trustee December 29, 1999
- ---------------------
Donald B. Miller
*Louis DeThomasis Trustee December 29, 1999
- ---------------------
Louis DeThomasis
*Bradford S. Wellman Trustee December 29, 1999
- ---------------------
Bradford S. Wellman
*James M. Seed Trustee December 29, 1999
- ---------------------
James M. Seed
*By: /s/ John T. O'Neill
--------------------
John T. O'Neill
Attorney-In-Fact
<PAGE>
THE GALAXY FUND
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints
John T. O'Neill and W. Bruce McConnel, III, and either of them, his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
trustee or officer, or both, of The Galaxy Fund (the "Trust"), to execute any
and all amendments to the Trust's Registration Statement on Form N-1A pursuant
to the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended (the "Acts"), and all instruments necessary or incidental in
connection therewith pursuant to said Acts and any rules, regulations, or
requirements of the Securities and Exchange Commission in respect thereof, and
to file the same with the Securities and Exchange Commission, and either of said
attorneys shall have full power and authority, to do and perform in the name and
on behalf of the undersigned in any and all capacities, every act whatsoever
requisite or necessary to be done, as fully and to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorneys, or either of them, may lawfully do or cause to be done by virtue
hereof.
Dated: December 4, 1996 /s/Dwight E. Vicks, Jr.
--------------------------
Dwight E. Vicks, Jr.
<PAGE>
THE GALAXY FUND
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints
John T. O'Neill and W. Bruce McConnel, III, and either of them, his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
trustee or officer, or both, of The Galaxy Fund (the "Trust"), to execute any
and all amendments to the Trust's Registration Statement on Form N-1A pursuant
to the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended (the "Acts"), and all instruments necessary or incidental in
connection therewith pursuant to said Acts and any rules, regulations, or
requirements of the Securities and Exchange Commission in respect thereof,
and to file the same with the Securities and Exchange Commission, and either
of said attorneys shall have full power and authority, to do and perform in
the name and on behalf of the undersigned in any and all capacities, every
act whatsoever requisite or necessary to be done, as fully and to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys, or either of them, may lawfully do or cause to be done
by virtue hereof.
Dated: December 5, 1996 /s/Donald B. Miller
---------------------
Donald B. Miller
<PAGE>
THE GALAXY FUND
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby
appoints John T. O'Neill and W. Bruce McConnel, III, and either of them, his
true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, for him and in his name, place and stead, in his capacity
as trustee or officer, or both, of The Galaxy Fund (the "Trust"), to execute
any and all amendments to the Trust's Registration Statement on Form N-1A
pursuant to the Investment Company Act of 1940, as amended, and the Securities
Act of 1933, as amended (the "Acts"), and all instruments necessary or
incidental in connection therewith pursuant to said Acts and any rules,
regulations, or requirements of the Securities and Exchange Commission
in respect thereof, and to file the same with the Securities and Exchange
Commission, and either of said attorneys shall have full power and authority,
to do and perform in the name and on behalf of the undersigned in any and all
capacities, every act whatsoever requisite or necessary to be done, as fully
and to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys, or either of them, may
lawfully do or cause to be done by virtue hereof.
Dated: December 5, 1996 /s/Brother Louis DeThomasis
---------------------------
Brother Louis DeThomasis
<PAGE>
THE GALAXY FUND
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby
appoints John T. O'Neill and W. Bruce McConnel, III, and either of them, his
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
trustee or officer, or both, of The Galaxy Fund (the "Trust"), to execute any
and all amendments to the Trust's Registration Statement on Form N-1A pursuant
to the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended (the "Acts"), and all instruments necessary or incidental in
connection therewith pursuant to said Acts and any rules, regulations, or
requirements of the Securities and Exchange Commission in respect thereof, and
to file the same with the Securities and Exchange Commission, and either of said
attorneys shall have full power and authority, to do and perform in the name and
on behalf of the undersigned in any and all capacities, every act whatsoever
requisite or necessary to be done, as fully and to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorneys, or either of them, may lawfully do or cause to be done by virtue
hereof.
Dated: December 5, 1996 /s/Bradford S. Wellman
----------------------
Bradford S. Wellman
<PAGE>
THE GALAXY FUND
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby
appoints John T. O'Neill and W. Bruce McConnel, III, and either of them, his
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
trustee or officer, or both, of The Galaxy Fund (the "Trust"), to execute any
and all amendments to the Trust's Registration Statement on Form N-1A pursuant
to the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended (the "Acts"), and all instruments necessary or incidental in
connection therewith pursuant to said Acts and any rules, regulations, or
requirements of the Securities and Exchange Commission in respect thereof, and
to file the same with the Securities and Exchange Commission, and either of said
attorneys shall have full power and authority, to do and perform in the name and
on behalf of the undersigned in any and all capacities, every act whatsoever
requisite or necessary to be done, as fully and to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorneys, or either of them, may lawfully do or cause to be done by virtue
hereof.
Dated: December 5, 1996 /s/James M. Seed
----------------
James M. Seed
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
(a)(18) Certificate of Classification of Shares.
(e)(1) Distribution Agreement between the
Registrant and Provident Distributors,
Inc.
(h)(6) Amendment No. 5 to Administration
Agreement between Registrant and PFPC
Inc. (formerly known as First Data
Investor Services Group, Inc.)
(h)(13) Amendment No. 5 to Transfer Agency and
Services Agreement between Registrant
and PFPC Inc. (formerly known as First
Data Investor Services Group, Inc.)
(h)(14) Amendment No. 6 to Transfer Agency and
Services Agreement between Registrant
and PFPC Inc. (formerly known as First
Data Investor Services Group, Inc.)
(h)(17) Form of Shareholder Services Plan for
BKB Shares and Related Forms of Servicing
Agreements.
(j)(1) Consent of Drinker Biddle & Reath LLP.
(j)(2) Consent of Ropes & Gray.
(o) Amended and Restated Plan Pursuant to
Rule 18F-3 for Operation of a Multi-Class
System.
<PAGE>
Exhibit (a)(18)
THE GALAXY FUND
(A Massachusetts Business Trust)
CERTIFICATE OF CLASSIFICATION OF SHARES
I, W. Bruce McConnel, III, do hereby certify as follows:
(1) That I am the duly elected Secretary of The
Galaxy Fund (the "Trust");
(2) That in such capacity I have examined the
records of actions taken by the Board of Trustees of the Trust at the regular
meeting of the Board held on December 2, 1999;
(3) That the following resolutions were duly
adopted at the meeting by the Board of Trustees of the Trust:
RESOLVED, that pursuant to Section 5.1 of Galaxy's
Declaration of Trust, an unlimited number of authorized,
unissued and unclassified shares of beneficial interest of
Galaxy be, and hereby are, classified into each of eleven
additional separate series of shares which shall be
designated, respectively, Class A-Special Series 3, Class
F-Special Series 2, Class E-Special Series 2, Class L-Series
6, Class D-Special Series 5, Class J-Series 6, Class R-Series
3, Class N-Series 6, Class U-Series 6, Class H-Series 6 and
Class G-Series 6;
FURTHER RESOLVED, that (a) Class A-Special Series 3
shares of beneficial interest shall represent interests in the
Money Market Fund; (b) Class F-Special Series 2 shares of
beneficial interest shall represent interests in the U.S.
Treasury Fund; (c) Class E-Special Series 2 shares of
beneficial interest shall represent interests in the
Tax-Exempt Fund; (d) Class L-Series 6 shares of beneficial
interest shall represent interests in the Short-Term Bond
Fund; (e) Class D-Special Series 5 shares of beneficial
interest shall represent interests in the Intermediate
Government Income Fund; (f) Class J-Series 6 shares of
beneficial interest shall represent interests in the High
Quality Bond Fund; (g) Class R-Series 3 shares of beneficial
interest shall represent interests in the Rhode Island
Municipal Bond Fund; (h) Class N-Series 6 shares of beneficial
interest shall represent interests in the Asset Allocation
Fund; (i) Class U-Series 6 shares of beneficial interest shall
represent interests in the Growth and Income Fund; (j) Class
H-Series 6 shares of beneficial interest shall represent
interests in the Equity Growth Fund; and (k) Class G-Series 6
shares of beneficial interest shall represent interests in the
International Equity Fund;
<PAGE>
FURTHER RESOLVED, that each share of Class A-Special
Series 3, Class F-Special Series 2, Class E-Special Series 2,
Class L-Series 6, Class D-Special Series 5, Class J-Series 6,
Class R-Series 3, Class N-Series 6, Class U-Series 6, Class
H-Series 6 and Class G-Series 6 newly classified hereby shall
have all of the following preferences, conversion and other
rights, voting powers, restrictions, limitations,
qualifications and terms and conditions of redemption:
(1) ASSETS BELONG TO A CLASS. All consideration
received by Galaxy for the issue or sale of shares of Class
A-Special Series 3, Class F-Special Series 2, Class E-Special
Series 2, Class L-Series 6, Class D-Special Series 5, Class
J-Series 6, Class R-Series 3, Class N-Series 6, Class U-Series
6, Class H-Series 6 and Class G-Series 6 shall be invested and
reinvested with the consideration received by Galaxy for the
issue and sale of all other shares now or hereafter classified
as shares of Class A, Class F, Class E, Class L, Class D,
Class J, Class R, Class N, Class U, Class H and Class G,
respectively (irrespective of whether said shares have been
classified as part of a series of said Class and if so
classified as part of a series, irrespective of the particular
series classification), together with all income, earnings,
profits, and proceeds derived from the investment thereof,
including any proceeds derived from the sale, exchange, or
liquidation of such investment, any funds or payments derived
from any reinvestment of such proceeds in whatever form the
same may be, and any general assets of Galaxy allocated to
Class A, Class F, Class E, Class L, Class D, Class J, Class R,
Class N, Class U, Class H and Class G (including the Class A,
Class F, Class E, Class L, Class D, Class J, Class R, Class N,
Class U, Class H and Class G shares formerly classified, Class
A-Special Series 3, Class F-Special Series 2, Class E-Special
Series 2, Class L-Series 6, Class D-Special Series 5, Class
J-Series 6, Class R-Series 3, Class N-Series 6, Class U-Series
6, Class H-Series 6 and Class G-Series 6 shares herein
classified or such other shares with respect to such Class A,
Class F, Class E, Class L, Class D, Class J, Class R, Class N,
Class U, Class H and Class G) by the Board of Trustees in
accordance with Galaxy's Declaration of Trust. All income,
earnings, profits, and proceeds, including any profits derived
from the sale, exchange or liquidation .of such shares of
Class A, Class F, Class E, Class L, Class D, Class J, Class R,
Class N, Class U, Class H and Class G and any assets derived
from any reinvestment of such proceeds in whatever form shall
be allocated to the Class A-Special Series 3 shares, Class
F-Special Series 2 shares, Class E-Special Series 2 shares,
Class L-Series 6 shares, Class D-Special Series 5 shares,
Class J-Series 6 shares, Class R-Series 3 shares, Class
N-Series 6 shares, Class U-Series 6 shares, Class H-Series 6
shares and Class G-Series 6 shares in the proportion that the
net asset value of such Special Series or Series of shares of
such Class bears to the total net asset value of all shares of
such Class A, Class F, Class E, Class L, Class D, Class J,
Class R, Class N, Class U, Class H and Class G (irrespective
of whether said shares have been classified as part of a
series of said Class and, if so classified as part of a
series, irrespective of the particular series classification).
-2-
<PAGE>
(2) LIABILITIES BELONGING TO A CLASS. All the
liabilities (including expenses) of Galaxy in respect of Class
A, Class F, Class E, Class L, Class D, Class J, Class R, Class
N, Class U, Class H and Class G shall be allocated to the
Class A-Special Series 3 shares, Class F-Special Series 2
shares, Class E-Special Series 2 shares, Class L-Series 6
shares, Class D-Special Series 5 shares, Class J-Series 6
shares, Class R-Series 3 shares, Class N-Series 6 shares,
Class U-Series 6 shares, Class H-Series 6 shares and Class
G-Series 6 shares hereby classified of such Class A, Class F,
Class E, Class L, Class D, Class J, Class R, Class N, Class U,
Class H and Class G in the proportion that the net asset value
of such Special Series or Series of shares of such Class bears
to the total net asset value of all shares of such Class A,
Class F, Class E, Class L, Class D, Class J, Class R, Class N,
Class U, Class H and Class G (irrespective of whether said
shares have been classified as a part of a series of said
Class and, if so classified as a part of a series,
irrespective of the particular series classification), except
that to the extent that may be from time to time determined by
the Board of Trustees to allocate the following expenses to
such Class A-Special Series 3 shares, Class F-Special Series 2
shares, Class E-Special Series 2 shares, Class L-Series 6
shares, Class D-Special Series 5 shares, Class J-Series 6
shares, Class R-Series 3 shares, Class N-Series 6 shares,
Class U-Series 6 shares, Class H-Series 6 shares and Class
G-Series 6 shares (or any other series of shares of such
Class):
(a) only the Special Series 3 shares of
Class A, Special Series 2 shares of Class F, Special
Series 2 shares of Class E, Series 6 shares of Class L,
Special Series 5 shares of Class D, Series 6 shares of
Class J, Series 3 shares of Class R, Series 6 shares of
Class N, Series 6 shares of Class U, Series 6 shares of
Class H and Series 6 shares of Class G shall bear: (i)
the expenses and liabilities of payments to institutions
under any agreements entered into by or on behalf of
Galaxy which provide for services by the institutions
exclusively for their customers who own of record or
beneficially such Special Series 3 shares of Class A,
Special Series 2 shares of Class F, Special Series 2
shares of Class E, Series 6 shares of Class L, Special
Series 5 shares of Class D, Series 6 shares of Class J,
Series 3 shares of Class R, Series 6 shares of Class N,
Series 6 shares of Class U, Series 6 shares of Class H
and Series 6 shares of Class G; and (ii) such other
expenses and liabilities as the Board of Trustees may
from time to time determine are directly attributable to
such shares and which therefore should be borne solely
by the Special Series 3 shares of Class A, Special
Series 2 shares of Class F, Special Series 2 shares of
Class E, Series 6 shares of Class L, Special Series 5
shares of Class D, Series 6 shares of Class J, Series 3
shares of Class R, Series 6 shares of Class N, Series 6
shares of Class U, Series 6 shares of Class H and Series
6 shares of Class G; and
(b) no Special Series 3 shares of Class A,
Special Series 2 shares of Class F, Special Series 2
shares of Class E, Series 6 shares of Class L, Special
Series 5 shares of Class D, Series 6 shares of Class J,
-3-
<PAGE>
Series 3 shares of Class R, Series 6 shares of Class N,
Series 6 shares of Class U, Series 6 shares of Class H
and Series 6 shares of Class G shall bear (i) the
expenses and liabilities of payments to institutions
under any agreements entered into by or on behalf of
Galaxy which provide for services by the institutions
exclusively for their customers who own of record or
beneficially shares of Class A, Class F, Class E, Class
L, Class D, Class J, Class R, Class N, Class U, Class H
and Class G other than Special Series 3 shares of Class
A, Special Series 2 shares of Class F, Special Series 2
shares of Class E, Series 6 shares of Class L, Special
Series 5 shares of Class D, Series 6 shares of Class J,
Series 3 shares of Class R, Series 6 shares of Class N,
Series 6 shares of Class U, Series 6 shares of Class H
and Series 6 shares of Class G; and (ii) such other
expenses and liabilities as the Board of Trustees may
from time to time determine are directly attributable to
shares of Class A, Class F, Class E, Class L, Class D,
Class J, Class R, Class N, Class U, Class H and Class G
other than the Special Series 3 shares of Class A,
Special Series 2 shares of Class F, Special Series 2
shares of Class E, Series 6 shares of Class L, Special
Series 5 shares of Class D, Series 6 shares of Class J,
Series 3 shares of Class R, Series 6 shares of Class N,
Class 6 shares of Class U, Series 6 shares of Class H
and Series 6 shares of Class G and which therefore
should be borne solely by such other shares of Class A,
Class F, Class E, Class L, Class D, Class J, Class R,
Class N, Class U, Class H and Class G and not the
Special Series 3 shares of Class A, Special Series 2
shares of Class F, Special Series 2 shares of Class E,
Series 6 shares of Class L, Special Series 5 shares of
Class D, Series 6 shares of Class J, Series 3 shares of
Class R, Series 6 shares of Class N, Series 6 shares of
Class U, Series 6 shares of Class H and Series 6 shares
of Class G.
(3) PREFERENCES, CONVERSION AND OTHER RIGHTS, VOTING
POWERS, RESTRICTIONS, LIMITATIONS, QUALIFICATIONS, AND TERMS
AND CONDITIONS OF REDEMPTION. Except as provided hereby, each
Special Series 3 share of Class A, Special Series 2 share of
Class F, Special Series 2 share of Class E, Series 6 share of
Class L, Special Series 5 share of Class D, Series 6 share of
Class J, Series 3 share of Class R, Series 6 share of Class N,
Series 6 share of Class U, Series 6 share of Class H and
Series 6 share of Class G shall have the same preferences,
conversion, and other rights, voting powers, restrictions,
limitations, qualifications, and terms and conditions of
redemption applicable to all other shares as set forth in
Galaxy's Declaration of Trust and shall also have the same
preferences, conversion, and other rights, voting powers,
restrictions, limitations, qualifications, and terms and
conditions of redemption as each other share formerly, now or
hereafter classified as a share of Class A, Class F, Class E,
Class L, Class D, Class J, Class R, Class N, Class U, Class H
and Class G (irrespective of whether said share has been
classified as a part of a series of said Class and, if so
classified as a part of a series, irrespective of the
particular series classification) except that:
-4-
<PAGE>
(a) On any matter that pertains to the
agreements or expenses and liabilities described under
Section (2), clause (a) above (or to any plan or other
document adopted by Galaxy relating to said agreements,
expenses, or liabilities) and is submitted to a vote of
shareholders of Galaxy, only the Special Series 3 shares
of Class A, Special Series 2 shares of Class F, Special
Series 2 shares of Class E, Series 6 shares of Class L,
Special Series 5 shares of Class D, Series 6 shares of
Class J, Series 3 shares of Class R, Series 6 shares of
Class N, Series 6 shares of Class U, Series 6 shares of
Class H and Series 6 shares of Class G (excluding the
other shares classified as a series of such Class other
than Class A - Special Series 3 shares, Class F -
Special Series 2 shares, Class - E Special Series 2
shares, Class L - Series 6 shares, Class D - Special
Series 5 shares, Class J - Series 6 shares, Class R -
Series 3 shares, Class N - Series 6 shares, Class U -
Series 6 shares, Class H- Series 6 shares and Class G -
Series 6 shares) shall be entitled to vote, except that:
(i) if said matter affects shares in Galaxy
other than the Special Series 3 shares of
Class A, Special Series 2 shares of Class F,
Special Series 2 shares of Class E, Series 6
shares of Class L, Special Series 5 shares
of Class D, Series 6 shares of Class J,
Series 3 shares of Class R, Series 6 shares
of Class N, Series 6 shares of Class U,
Series 6 shares of Class H and Series 6
shares of Class G, such other affected
shares in Galaxy shall also be entitled to
vote, and in such case, such Special Series
3 shares of Class A, Special Series 2 shares
of Class F, Special Series 2 shares of Class
E, Series 6 shares of Class L, Special
Series 5 shares of Class D, Series 6 shares
of Class J, Series 3 shares of Class R,
Series 6 shares of Class N, Series 6 shares
of Class U, Series 6 shares of Class H and
Series 6 shares of Class G shall be voted in
the aggregate together with such other
affected shares and not by class or series
except where otherwise required by law or
permitted by the Board of Trustees of
Galaxy; and
(ii) if said matter does not affect the
Special Series 3 shares of Class A, Special
Series 2 shares of Class F, Special Series 2
shares of Class E, Series 6 shares of Class
L, Special Series 5 shares of Class D,
Series 6 shares of Class J, Series 3 shares
of Class R, Series 6 shares of Class N,
Series 6 shares of Class U, Series 6 shares
of Class H and Series 6 shares of Class G,
such shares shall not be entitled to vote
(except where required by law or permitted
by the Board of Trustees) even though the
matter is submitted to a vote of the holders
of shares in Galaxy other than said Special
Series 3 shares of Class A, Special Series 2
shares of Class F, Special Series 2 shares
of Class E, Series 6 shares of Class L,
Special Series 5 shares of Class D, Series 6
shares of Class J, Series 3 shares of Class
R, Series 6 shares of Class N, Series 6
-5-
<PAGE>
shares of Class U, Series 6 shares of Class
H and Series 6 shares of Class G.
(b) Class A-Special Series 3 shares, Class
F-Special Series 2 shares, Class E-Special Series 2
shares, Class L-Series 6 shares, Class D-Special Series
5 shares, Class J-Series 6 shares, Class R-Series 3
shares, Class N-Series 6 shares, Class U-Series 6
shares, Class H-Series 6 shares and Class G-Series 6
shares shall be convertible into Class A shares, Class F
shares, Class E shares, Class L-Series 2 shares, Class
D-Special Series 1 shares, Class J-Series 2 shares,
Class R-Series 2 shares, Class N-Series 2 shares, Class
U-Series 2 shares, Class H-Series 2 shares and Class
G-Series 2 shares, respectively, on the basis of the
relative net asset values of the shares converted, and
otherwise after such time or times, and upon such
conditions and pursuant to such procedures, as shall be
determined by the Trustees from time to time in
connection with the issuance and sale of such shares.
(4) That the foregoing resolutions remain in full
force and effect on the date hereof.
/s/ W. Bruce McConnel, III
----------------------------
W. Bruce McConnel, III
Secretary
Dated: December 23, 1999
Subscribed and sworn to before
me this 23rd day of December, 1999
Dorothea A. Natale
- ------------------------------------------------
Notary Public
-6-
<PAGE>
Exhibit (e)(1)
DISTRIBUTION AGREEMENT
THIS AGREEMENT is made as of this 1st day of December, 1999 (the
"Agreement") by and between The Galaxy Fund (the "Company"), a Massachusetts
business trust, and Provident Distributors, Inc. (the "Distributor"), a Delaware
corporation.
WHEREAS, the Company is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
and is currently offering units of beneficial interest (such units of all
classes and series are hereinafter called the "Shares"), representing interests
in investment portfolios of the Company identified on Schedule A hereto (the
"Funds") which are registered with the Securities and Exchange Commission (the
"SEC") pursuant to the Company's Registration Statement on Form N-1A (the
"Registration Statement"); and
WHEREAS, a front-end sales charge may be imposed in connection with the
sale of certain Shares of one or more of the Funds ("Load Shares"); and
WHEREAS, a contingent deferred sales charge ("CDSC") may be imposed in
connection with the redemption of certain Shares of one or more of the Funds
("CDSC Shares"); and
WHEREAS, the Company desires to retain the Distributor as distributor
for the Funds to provide for the sale and distribution of the Shares of the
Funds identified on Schedule A and for such additional classes or series as the
Company may issue, and the Distributor is prepared to provide such services
commencing on the date first written above.
NOW THEREFORE, in consideration of the premises and mutual covenants
set forth herein and intending to be legally bound hereby, the parties hereto
agree as follows:
1. SERVICE AS DISTRIBUTOR
1.1 The Distributor will act as the Company's disclosed agent for the
distribution of the Shares covered by the Registration Statement then
in effect under the Securities Act of 1933, as amended (the "1933
Act"). The Distributor will have no liability for payment for the
purchase of Shares sold pursuant to this Agreement or with respect to
redemptions or repurchases of Shares.
1.2 The Distributor agrees to use efforts deemed appropriate by the
Distributor to solicit orders for the sale of the Shares and will
undertake such advertising and promotion as it believes reasonable in
connection with such solicitation. The Distributor shall, at its own
expense, finance appropriate activities which it deems reasonable which
are primarily intended to result in the sale of Shares, including, but
not limited to, advertising, compensation of underwriters, dealers and
sales personnel, the printing and mailing of Prospectuses to other than
current shareholders, and the printing and mailing of sales literature;
provided, however, that each Fund shall bear the expenses incurred and
other payments made in accordance with the provisions of this Agreement
and any plan now in
<PAGE>
effect or hereafter adopted with respect to any one or more series of
Shares of such Fund pursuant to Rule 12b-1 under the 1940 Act
(collectively, the "Plans").
1.3 The Company understands that the Distributor is now, and may in the
future be, the distributor of the shares of several investment
companies or series (collectively, the "Investment Entities"),
including Investment Entities having investment objectives similar to
those of the Funds. The Company further understands that investors and
potential investors in the Funds may invest in shares of such other
Investment Entities. The Company agrees that the Distributor's duties
to such Investment Entities shall not be deemed in conflict with its
duties to the Company under this Section 1.3.
1.4 The Distributor agrees to provide two wholesalers dedicated to
supporting sales of Shares of the Funds and Galaxy Fund II.
1.5 The Distributor may enter into selling agreements with selected dealers
or other institutions with respect to the offering of Shares to the
public. Each selling agreement will provide that (a) all payments for
purchases of Shares will be sent directly from the dealer or such other
institution to the Funds' transfer agent and (b) if payment is not made
with respect to purchases of Shares at the customary or required time
for settlement of the transaction, the Distributor will have the right
to cancel the sale of Shares ordered by the dealer or such other
institution, in which case the dealer or such other institution will be
responsible for any loss suffered by any Fund or the Distributor
resulting from such cancellation. The Distributor may also act as
disclosed agent for a Fund and sell Shares of that Fund to individual
investors, such transactions to be specifically approved by an officer
of the Company.
1.6 The Distributor will send a confirmation to each purchaser of Shares
under this Agreement. Such confirmations will comply with all
applicable Federal and state laws and rules and regulations of
authorized regulatory bodies and will clearly state that the
Distributor is acting as agent in the transaction and that all
remittances, registration instructions and certifications for
redemption should be sent directly to the Funds' transfer agent. Such
confirmations will also set forth the mailing address and delivery
address of the Funds' transfer agent.
1.7 All Load Shares offered for sale by the Distributor shall be offered
for sale to the public at a price per share (the "Offering Price")
equal to (a) their net asset value (determined in the manner set forth
in the Company's Declaration of Trust and the then current
Prospectuses) plus, except with respect to certain classes of persons
and transactions set forth in the then current Prospectuses, or (b) a
sales charge which shall be the percentage of the Offering Price of
such Load Shares as set forth in the then current Prospectuses. The
Offering Price, if not an exact multiple of one cent, shall be adjusted
to the nearest cent. Concessions by the Distributor to dealers and
other institutions shall be set forth in either the selling agreements
between the Distributor and such dealers and institutions as from time
to time amended, or if such concessions are described in the then
current Prospectuses, shall be as so set forth. No dealer or other
institution who enters into a
-2-
<PAGE>
selling agreement with the Distributor shall be authorized to act as
agent for the Company in connection with the offering or sale of the
Load Shares to the public or otherwise.
1.8 If any Load Shares sold by the Company are redeemed or repurchased by
the Company or by the Distributor as disclosed agent or are tendered
for redemption within seven business days after the date of
confirmation of the original purchase of said Load Shares, the
Distributor shall forfeit the sales charge received by the Distributor
in respect of such Shares, provided that the portion, if any, of such
amount re-allowed by the Distributor to dealers or other institutions
shall be repayable to the Company only to the extent recovered by the
Distributor from the dealer or other institution involved. The
Distributor shall include in each selling agreement with such dealers
and other institutions a corresponding provision for the forfeiture by
them of their concession with respect to the Load Shares sold by them
or their principals and redeemed or repurchased by the Company or by
the Distributor as disclosed agent (or tendered for redemption) within
seven business days after the date of confirmation of such initial
purchases.
1.9 The Distributor agrees to be responsible for implementing and operating
the Plans in accordance with the terms thereof.
1.10 (a) With respect to CDSC Shares, the Distributor shall impose a
CDSC in connection with the redemption of such CDSC Shares, not to
exceed a specified percentage of the original purchase price of the
Shares, as from time to time set forth in the then current
Prospectuses. The Distributor may retain (or receive from the Company,
as the case may be) all or any CDSC. The Distributor may, but shall not
be required to, pay to broker-dealers or other persons through whom
such CDSC Shares are sold a commission or other payment to the extent
consistent with the then current Prospectuses and applicable rules and
regulations.
(b) The Distributor may assign or sell to a third party (a "CDSC
Financing Entity") all or part of the CDSC on any CDSC Shares that the
Distributor is entitled to receive under this Agreement. The
Distributor's right to a CDSC on such CDSC Shares, if assigned or sold
to a CDSC Financing Entity, shall continue after termination of this
Agreement.
(c)(i) The Distributor shall be entitled to receive all distribution
and service fees at a rate and under the terms and conditions set forth
in the Distribution and Services Plan adopted with respect to a
particular class of CDSC Shares (the "Plan") on the CDSC Shares of that
class which were sold during the period of this Agreement, so long as
the Plan is in effect. The Distributor may assign or sell to a CDSC
financing entity all or part of the distribution and service fees the
Distributor is entitled to receive from the Company under the
particular Plan. The Distributor's right to payment on such CDSC
Shares, if assigned or sold to a CDSC Financing Entity, shall continue
after termination of this Agreement.
(c)(ii) The Distributor shall not be required to offer or sell a
particular class of CDSC Shares unless and until it has received a
binding commitment from a CDSC Financing
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Entity (a "Commitment") satisfactory to the Distributor which
Commitment shall cover all expenses and fees related to the offer and
sale of such CDSC Shares including but not limited to dealer
reallowances, financing commitment fees, and legal fees. If at any time
during the term of this Agreement the then current CDSC financing is
terminated, the Distributor has the right to immediately suspend the
sale of such CDSC Shares until substitute financing becomes effective.
(c)(iii) If the Distributor determines, in its sole discretion, to pay
to broker-dealers or other persons through whom a particular class of
CDSC Shares are sold a commission or other payment, such commission or
payment shall not be due and payable by, and shall not become an
obligation of, the Distributor until the Distributor receives financing
relating to the sale of such CDSC Shares from the CDSC Financing
Entity. If the Distributor does not receive such financing, the
Distributor shall not be liable for the payment of any such commission
or other payment to any party.
(d) The Distributor and the Company hereby agree that the terms and
conditions set forth herein regarding the offer and sale of CDSC Shares
may be amended upon approval of both parties in order to comply with
the terms of any agreement with the CDSC Financing Entity to finance
the costs for the offer and sale of CDSC Shares so long as such terms
and conditions are in compliance with the particular Plan.
1.11 The Distributor shall not utilize any materials in connection with the
sale or offering of Shares except the Company's then current
Prospectuses and Statements of Additional Information and such other
materials as the Company shall provide or approve.
1.12 All activities by the Distributor and its agents and employees, as
distributor of the Shares, shall comply with all applicable laws, rules
and regulations, including, without limitation, all rules and
regulations made or adopted pursuant to the 1940 Act by the SEC or the
National Association of Securities Dealers.
1.13 The Distributor will transmit any orders received by it for purchase or
redemption of the Shares to the transfer agent and custodian for the
Company.
1.14 Whenever in their judgment such action is warranted by unusual market,
economic or political conditions or abnormal circumstances of any kind,
officers of the Company may decline to accept any orders for, or make
any sales of, the Shares until such time as those officers deem it
advisable to accept such orders and to make such sales, and the Company
shall notify the Distributor promptly of any such determination.
1.15 The Company agrees to pay all costs and expenses in connection with the
registration of Shares under the 1933 Act and all expenses in
connection with maintaining facilities for the issue and transfer of
Shares and for supplying information, prices and other data to be
furnished by the Company hereunder, and all expenses in connection with
the preparation and printing of the Company's Prospectuses and
Statements of Additional Information for regulatory purposes and for
distribution to existing shareholders.
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1.16 The Company agrees at its own expense to execute any and all documents
and to furnish any and all information and otherwise to take all
actions that may be reasonably necessary in connection with the
qualification of the Shares for sale in such states as the Distributor
may designate. The Company shall notify the Distributor in writing of
the states in which the Shares are to be sold and shall notify the
Distributor in writing of any changes to the information contained in
the previous notification.
1.17 The Company shall furnish from time to time, for use in connection with
the sale of the Shares, such information with respect to the Company
and the Shares as the Distributor may reasonably request; and the
Company warrants that the statements contained in any such information
shall fairly show or represent what they purport to show or represent.
The Company shall also furnish the Distributor upon request with: (a)
audited annual statements and unaudited semi-annual statements of the
Funds' books and accounts prepared by the Company, (b) quarterly
earnings statements of the Funds prepared by the Company, (c) a monthly
itemized list of the securities in the Funds, (d) monthly balance
sheets as soon as practicable after the end of each month, and (e) from
time to time such additional information regarding the Funds' financial
condition as the Distributor may reasonably request.
1.18 The Company represents to the Distributor that all Registration
Statements and Prospectuses filed by the Company with the SEC under the
1933 Act with respect to the Shares have been prepared in conformity
with the requirements of the 1933 Act and the rules and regulations of
the SEC thereunder. As used in this Agreement, the terms "Registration
Statement" and "Prospectus" shall mean any Registration Statement and
any Prospectus (including any Statement of Additional Information
incorporated therein by reference) relating to the Company filed with
the SEC and any amendments or supplements thereto at any time filed
with the SEC. The Company represents and warrants to the Distributor
that any Registration Statement and Prospectus, when such Registration
Statement becomes effective, will contain all statements required to be
stated therein in conformity with the 1933 Act and the rules and
regulations of the SEC; that all statements of fact contained in any
such Registration Statement and Prospectus will be true and correct
when such Registration Statement becomes effective; and that no
Registration Statement or Prospectus when such Registration Statement
becomes effective will include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading to a purchaser
of the Shares. The Distributor may but shall not be obligated to
propose from time to time such amendment or amendments to any
Registration Statement and such supplement or supplements to any
Prospectus as, in the light of future developments, may, in the opinion
of the Distributor's counsel, be necessary or advisable. The
Distributor shall promptly notify the Company of any advice given to it
by its counsel regarding the necessity or advisability of amending or
supplementing such Registration Statement or Prospectus. If the Company
shall not propose such amendment or amendments and/or supplement or
supplements within fifteen days after receipt by the Company of a
written request from the Distributor to do so, the Distributor may, at
its option, terminate this Agreement. The Company shall not file any
amendment to any Registration Statement or supplement to any Prospectus
without giving the Distributor
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reasonable notice thereof in advance; provided, however, that nothing
contained in this Agreement shall in any way limit the Company's right
to file at any time such amendments to any Registration Statement
and/or supplements to any Prospectus, of whatever character, as the
Company may deem advisable, such right being in all respects absolute
and unconditional.
1.19 The Company authorizes the Distributor (and dealers pursuant to any
agreements described in Section 1.5 above) to use any Prospectus in the
form furnished by the Company from time to time in connection with the
sale of the Shares. The Company agrees to indemnify, defend and hold
the Distributor, its several officers and directors, and any person who
controls the Distributor within the meaning of Section 15 of the 1933
Act, free and harmless from and against any and all claims, demands,
liabilities and expenses (including the cost of investigating or
defending such claims, demands or liabilities and any reasonable
counsel fees incurred in connection therewith) which the Distributor,
its officers and directors, or any such controlling person, may incur
under the 1933 Act, or under common law or otherwise, arising out of or
based upon any untrue statement, or alleged untrue statement of a
material fact contained in any Registration Statement or any Prospectus
or arising out of or based upon any omission, or alleged omission, to
state a material fact required to be stated in any Registration
Statement or any Prospectus or necessary to make the statements in
either thereof not misleading; provided, however, that the Company's
agreement to indemnify the Distributor, its officers or directors, and
any such controlling person, shall not be deemed to cover any claims,
demands, liabilities or expenses arising out of any representations or
statements contained in any Registration Statement or in any Prospectus
that were furnished in writing to the Company or its counsel by the
Distributor expressly for use in the answers to the Registration
Statement or in the corresponding statements made in the Prospectus, or
arising out of or based upon any omission or alleged omission to state
a material fact in connection with such information furnished in
writing by the Distributor to the Company or its counsel and required
to be stated in such answers or necessary to make such answers not
misleading; and further provided that the Company's agreement to
indemnify the Distributor and the Company's representations and
warranties hereinbefore set forth in Section 1.18 shall not be deemed
to cover any liability to the Company or its shareholders to which the
Distributor would otherwise be subject by reason of willful
misfeasance, bad faith or negligence in the performance of its duties,
or by reason of the Distributor's reckless disregard of its duties and
obligations under this Agreement. The Company's indemnification
agreement contained in this Section 1.19 and the Company's
representations and warranties in this Agreement shall remain operative
and in full force and effect regardless of any investigation made by or
on behalf of the Distributor, its officers and directors, or any
controlling person, and shall survive delivery of any Shares. The
Company agrees promptly to notify the Distributor of the commencement
of any litigation or proceedings against the Company or any of its
officers or trustees in connection with the issue and sale of any
Shares. This agreement to indemnify will inure exclusively to the
Distributor's benefit, to the benefit of its several officers and
directors and their respective estates, and to the benefit of its
controlling persons and their successors.
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1.20 The Distributor agrees to indemnify, defend and hold the Company, its
several officers and trustees, and any person who controls the Company
within the meaning of Section 15 of the 1933 Act, free and harmless
from and against any and all claims, demands, liabilities and expenses
(including the costs of investigating or defending such claims,
demands, or liabilities and any reasonable counsel fees incurred in
connection therewith) which the Company, its officers or trustees, or
any such controlling person, may incur under the 1933 Act, or under
common law or otherwise, but only to the extent that such liability or
expense incurred by the Company, its officers or trustees, or such
controlling person, resulting from such claims or demands, shall arise
out of or be based upon any untrue, or alleged untrue, statement of a
material fact contained in information furnished in writing by the
Distributor to the Company or its counsel expressly for use in the
answers to any of the items of the Registration Statement or in the
corresponding statements made in the Prospectus, or shall arise out of
or be based upon any omission, or alleged omission, to state a material
fact in connection with such information furnished in writing by the
Distributor to the Company or its counsel and required to be stated in
such answers or necessary to make such information not misleading. The
Distributor's indemnification agreement contained in this Section 1.20
and representations and warranties in this Agreement shall remain
operative and in full force and effect regardless of any investigation
made by or on behalf of the Company or its officers and trustees, and
shall survive the delivery of any Shares. The Distributor agrees
promptly to notify the Company of the commencement of any litigation or
proceedings against the Distributor or any of its officers, directors
or controlling persons in connection with the issuance and sale of any
of the Shares.
1.21 (a) In any case in which one party hereto (the "Indemnifying
Party") may be asked to indemnify or hold the other party hereto (the
"Indemnified Party") harmless, the Indemnified Party will notify the
Indemnifying Party in writing promptly after identifying any situation
which it believes presents or appears likely to present a claim for
indemnification (an "Indemnification Claim") against the Indemnifying
Party, although the failure to do so shall not relieve the Indemnifying
Party from any liability which it may otherwise have to the Indemnified
Party, and the Indemnified Party shall keep the Indemnifying Party
advised with respect to all developments concerning such situation. The
Indemnifying Party shall be entitled to participate at its own expense
in the defense, or if it so elects, to assume the defense of, any
Indemnification Claim which may be the subject of this indemnification,
and, in the event that the Indemnifying Party so elects, such defense
shall be conducted by counsel of good standing chosen by the
Indemnifying Party and approved by the Indemnified Party, which
approval shall not be unreasonably withheld. In the event the
Indemnifying Party elects to assume the defense of any such
Indemnification Claim and retain such counsel, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by
the Indemnified Party. The Indemnified Party will not confess any
Indemnification Claim or make any compromise in any case in which the
Indemnifying Party will be asked to provide indemnification, except
with the Indemnifying Party's prior written consent.
(b) In the event that the Company is the Indemnifying Party and the
Indemnifying Party does not elect to assume the defense of any such
Indemnification Claim, or in case
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the Distributor reasonably does not approve of counsel chosen by the
Company, the Company will reimburse the Distributor, its officers,
directors and employees, or the controlling person or persons named as
defendant or defendants in such Indemnification Claim, for the fees and
expenses of any counsel retained by the Distributor or them.
(c) The obligations of the parties hereto under Sections 1.19
through 1.21 shall survive the termination of this Agreement.
1.22 No Shares shall be offered by either the Distributor or the Company
under any of the provisions of this Agreement and no orders for the
purchase or sale of Shares hereunder shall be accepted by the Company
if and so long as effectiveness of the Registration Statement then in
effect or any necessary amendments thereto shall be suspended under any
of the provisions of the 1933 Act, or if and so long as a current
Prospectus as required by Section 5(b)(2) of the 1933 Act is not on
file with the SEC; provided, however, that nothing contained in this
Section 1.22 shall in any way restrict or have any application to or
bearing upon the Company's obligation to redeem Shares tendered for
redemption by any shareholder in accordance with the provisions of the
Company's Registration Statement or Declaration of Trust.
1.23 The Company agrees to advise the Distributor as soon as reasonably
practical by a notice in writing delivered to the Distributor:
(a) of any request by the SEC for amendments to the Registration
Statement or Prospectus then in effect or for additional information;
(b) in the event of the issuance by the SEC of any stop order
suspending the effectiveness of the Registration Statement or
Prospectus then in effect or the initiation by service of process on
the Company of any proceeding for that purpose;
(c) of the happening of any event that makes untrue any statement
of a material fact made in the Registration Statement or Prospectus
then in effect or that requires the making of a change in such
Registration Statement or Prospectus in order to make the statements
therein not misleading; and
(d) of all actions of the SEC with respect to any amendments to
any Registration Statement or Prospectus which may from time to time be
filed with the SEC.
For purposes of this Section 1.23, informal requests by or acts of the
staff of the SEC shall not be deemed actions of or requests by the SEC.
2. TERM
2.1 This Agreement shall become effective immediately upon the consummation
of the acquisition of First Data Investor Services Group, Inc. by a
subsidiary of PNC Bank Corp., which the parties anticipate to occur on
or about December 1, 1999, and, unless sooner terminated as provided
herein, shall continue for an initial one-year term and
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thereafter shall continue automatically for successive one-year terms,
provided such continuance is specifically approved at least annually by
(i) the Company's Board of Trustees or (ii) by a vote of a majority (as
defined in the 1940 Act and Rule 18f-2 thereunder) of the outstanding
voting securities of the Company, provided that in either event the
continuance is also approved by a majority of the Trustees who are not
parties to this Agreement and who are not interested persons (as
defined in the 1940 Act) of any party to this Agreement, by vote cast
in person at a meeting called for the purpose of voting on such
approval. This Agreement is terminable without penalty, on at least
sixty days' written notice, by the Company's Board of Trustees, by vote
of a majority (as defined in the 1940 Act and Rule 18f-2 thereunder) of
the outstanding voting securities of the Company, or by the
Distributor. This Agreement will also terminate automatically in the
event of its assignment (as defined in the 1940 Act and the rules
thereunder).
2.2 In the event a termination notice is given by the Company and provided
that the Distributor is not in default under this Agreement at the time
of such termination notice, all reasonable expenses associated with
movement of records and materials and conversion thereof to a successor
distributor will be borne by the Company.
3. LIMITATION OF LIABILITY
3.1 The Distributor shall not be liable to the Company for any error of
judgment or mistake of law or for any loss suffered by the Company in
connection with the performance of its obligations and duties under
this Agreement, except a loss resulting from the Distributor's willful
misfeasance, bad faith or negligence in the performance of such
obligations and duties, or by reason of its reckless disregard thereof.
3.2 Each party shall have the duty to mitigate damages for which the other
party may become responsible.
3.3 NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IN NO EVENT
SHALL EITHER PARTY, ITS AFFILIATES OR ANY OF ITS OR THEIR DIRECTORS,
TRUSTEES, OFFICERS, EMPLOYEES, AGENTS OR SUBCONTRACTORS BE LIABLE TO
THE OTHER PARTY FOR CONSEQUENTIAL DAMAGES, PROVIDED, HOWEVER, THAT
NOTHING CONTAINED IN THIS SECTION 3.3 SHALL BE CONSTRUED SO AS TO LIMIT
THE RIGHT OF ANY SHAREHOLDER OF THE COMPANY, WHETHER SUING ON HIS, HER
OR ITS OWN BEHALF OR DERIVATIVELY THROUGH THE COMPANY, TO CONSEQUENTIAL
DAMAGES.
4. MODIFICATIONS AND WAIVERS
No change, termination, modification, or waiver of any term or
condition of the Agreement shall be valid unless in writing signed by
each party. No such writing shall be effective as against the Company
unless said writing is executed by the President of the Company. No
such writing shall be effective as against the Distributor unless said
writing is executed by a Senior Vice President, Executive Vice
President or President of
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the Distributor. A party's waiver of a breach of any term or condition
in the Agreement shall not be deemed a waiver of any subsequent breach
of the same or another term or condition.
5. NO PRESUMPTION AGAINST DRAFTER
The Distributor and the Company have jointly participated in the
negotiation and drafting of this Agreement. The Agreement shall be
construed as if drafted jointly by the Company and the Distributor, and
no presumptions arise favoring any party by virtue of the authorship of
any provision of this Agreement.
6. PUBLICITY
Neither the Distributor nor the Company shall release or publish news
releases, public announcements, advertising or other publicity relating
to this Agreement or to the transactions contemplated by it without
prior review and written approval of the other party; provided,
however, that either party may make such disclosures as are required by
legal, accounting or regulatory requirements after making reasonable
efforts in the circumstances to consult in advance with the other
party.
7. SEVERABILITY
The parties intend every provision of this Agreement to be severable.
If a court of competent jurisdiction determines that any term or
provision is illegal or invalid for any reason, the illegality or
invalidity shall not affect the validity of the remainder of this
Agreement. In such case, the parties shall in good faith modify or
substitute such provision consistent with the original intent of the
parties. Without limiting the generality of this paragraph, if a court
determines that any remedy stated in this Agreement has failed of its
essential purpose, then all other provisions of this Agreement shall
remain fully effective.
8. FORCE MAJEURE
No party shall be liable for any default or delay in the performance of
its obligations under this Agreement if and to the extent such default
or delay is caused, directly or indirectly, by circumstances beyond
such party's reasonable control. In any such event, the non-performing
party shall be excused from any further performance and observance of
the obligations so affected only for so long as such circumstances
prevail and such party continues to use commercially reasonable efforts
to recommence performance or observance as soon as practicable.
9. MISCELLANEOUS
9.1 Any notice or other instrument authorized or required by this Agreement
to be given in writing to the Company or the Distributor shall be
sufficiently given if addressed to the
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party and received by it at its office set forth below or at such other
place as it may from time to time designate in writing.
To the Company:
John T. O'Neill, President
The Galaxy Fund
c/o Hasbro, Inc.
200 Narragansett Park Drive
Pawtucket, Rhode Island 02862
with a copy to:
W. Bruce McConnel, III, Esq.
Drinker Biddle & Reath LLP
One Logan Square
18th and Cherry Streets
Philadelphia, Pennsylvania 19103-6996
To the Distributor:
Provident Distributors, Inc.
Four Falls Corporate Center, 6th Floor
West Conshohocken, Pennsylvania 19428-2961
Attention: Philip Rinnander
9.2 The laws of the Commonwealth of Massachusetts, excluding the laws on
conflicts of laws, and the applicable provisions of the 1940 Act shall
govern the interpretation, validity, and enforcement of this Agreement.
To the extent the provisions of Massachusetts law or the provisions
hereof conflict with the 1940 Act, the 1940 Act shall control. All
actions arising from or related to this Agreement shall be brought in
the state and federal courts sitting in the City of Boston, and the
Distributor and the Company hereby submit themselves to the exclusive
jurisdiction of those courts.
9.3 This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original and which collectively shall be
deemed to constitute only one instrument.
9.4 The captions of this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions
hereof or otherwise affect their construction or effect.
9.5 This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and is not intended
to confer upon any other person any rights or remedies hereunder,
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10. CONFIDENTIALITY
10.1 The parties agree that the Proprietary Information (defined below) and
the contents of this Agreement (collectively "Confidential
Information") are confidential information of the parties and their
respective licensers. The Company and the Distributor shall exercise at
least the same degree of care, but not less than reasonable care, to
safeguard the confidentiality of the Confidential Information of the
other as it would to protect its own Confidential Information. The
Company and the Distributor may use the Confidential Information only
to exercise their respective rights or perform their respective duties
under this Agreement. Except as otherwise required by law and except as
disclosed in the Company's Registration Statement and filed as an
exhibit thereto, the Company and the Distributor shall not duplicate,
sell or disclose to others the Confidential Information of the other,
in whole or in part, without the prior written permission of the other
party. The Company and the Distributor may, however, disclose
Confidential Information to their respective employees who have a need
to know the Confidential Information to perform work for the other,
provided that the Company and the Distributor shall use reasonable
efforts to ensure that the Confidential Information is not duplicated
or disclosed by their respective employees in breach of this Agreement.
The Company and the Distributor may also disclose the Confidential
Information to independent contractors, auditors and professional
advisors, provided they first agree in writing to be bound by
confidentiality obligations substantially similar to this Section 10.
Notwithstanding the previous sentence, in no event shall either the
Company or the Distributor disclose the Confidential Information to any
competitor of the other without specific, prior written consent.
10.2 Proprietary Information means:
(a) any data or information that is competitively sensitive
material, and not generally known to the public, including, but not
limited to, information about product plans, marketing strategies,
finance, operations, customer relationships, customer profiles, sales
estimates, business plans, and internal performance results relating to
the past, present or future business activities of the Company or the
Distributor, their respective subsidiaries and affiliated companies and
the customers, clients and suppliers of any of them;
(b) any scientific or technical information, design, process,
procedure, formula, or improvement that is commercially valuable and
secret in the sense that its confidentiality affords the Company or the
Distributor a competitive advantage over its competitors; and
(c) all confidential or proprietary concepts, documentation,
reports, data, specifications, computer software, source code, object
code, flow charts, databases, inventions, know-how, show-how and trade
secrets, whether or not patentable or copyrightable.
10.3 Confidential Information includes, without limitation, all documents,
inventions, substances, engineering and laboratory notebooks, drawings,
diagrams, specifications, bills of material, equipment, prototypes and
models, and any other tangible manifestation
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of the foregoing of either party which now exist or come into the
control or possession of the other.
10.4 Notwithstanding the foregoing, it is hereby understood and agreed by
the parties hereto that any marketing strategies, financing plans,
customer profiles, sales estimates, business plans or similar items
prepared or developed by the Distributor for the benefit of the Company
shall be considered the Proprietary Information of the Company and
nothing in this Agreement shall be construed to prevent or prohibit the
Company from disclosing such Proprietary Information to a successor
distributor.
11. OBLIGATIONS OF THE TRUST
The names "The Galaxy Fund" and "Trustees of The Galaxy Fund" refer
respectively to the Trust created and the Trustees, as trustees but not
individually or personally, acting from time to time under a
Declaration of Trust dated March 31, 1986 which is hereby referred to
and a copy of which is on file at the office of the State Secretary of
the Commonwealth of Massachusetts and at the principal office of the
Company. The obligations of "The Galaxy Fund" entered into in the name
or on behalf thereof by any of the Trustees, representatives or agents
are made not individually, but in such capacities, and are not binding
upon any of the Trustees, Shareholders, or representatives of the
Company personally, but bind only the Trust Property, and all persons
dealing with any class of Shares of the Company must look solely to the
Trust Property belonging to such class for the enforcement of any
claims against the Company.
12. ENTIRE AGREEMENT
This Agreement, including the Schedule hereto, constitutes the entire
agreement between the parties with respect to the subject matter hereof
and supersedes all prior and contemporaneous proposals, agreements,
contracts, representations, and understandings, whether written or
oral, between the parties with respect to the subject matter hereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
THE GALAXY FUND
By: /s/ John T. O'Neill
------------------------------
Name: John T. O'Neill
----------------------------
Title: President
---------------------------
PROVIDENT DISTRIBUTORS, INC.
By: /s/ Philip H. Rinnander
------------------------------
Name: Philip H. Rinnander
----------------------------
Title: President
---------------------------
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SCHEDULE A
NAME OF FUNDS
Money Market Fund
Government Fund
Tax-Exempt Fund
U.S. Treasury Fund
Institutional Treasury Money Market Fund
Connecticut Municipal Money Market Fund
Massachusetts Municipal Money Market Fund
Equity Value Fund
Equity Growth Fund
Equity Income Fund
International Equity Fund
Asset Allocation Fund
Small Company Equity Fund
Growth and Income Fund
Small Cap Value Fund
Short-Term Bond Fund
Intermediate Government Income Fund
High Quality Bond Fund
Corporate Bond Fund
Tax-Exempt Bond Fund
New York Municipal Bond
Fund Connecticut Municipal Bond Fund
Massachusetts Municipal Bond Fund
Rhode Island Municipal Bond Fund
New Jersey Municipal Bond
Fund Mid Cap Equity Fund
Strategic Equity Fund
Prime Reserves
Government Reserves
Tax-Exempt Reserves
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Exhibit (h)(6)
AMENDMENT NO. 5 TO ADMINISTRATION AGREEMENT
This Amendment No. 5, dated as of December 1, 1999, is
entered into between PFPC, INC. (formerly known as First Data Investor
Services Group, Inc.) a Massachusetts corporation ("PFPC") and THE GALAXY
FUND, a Massachusetts business trust (the "Company").
WHEREAS, PFPC and the Company have entered into an
Administration Agreement dated as of June 1, 1997, as subsequently amended (as
so amended, the "Administration Agreement"), pursuant to which the Company
appointed PFPC to act as Administrator for the Company's portfolios; and
WHEREAS, Section 9 of the Administration Agreement provides
that no change, termination, modification, or waiver of any term or condition of
the Administration Agreement shall be valid unless in writing signed by each
party;
NOW THEREFORE, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. Schedule D of the Agreement is amended by adding the
following:
SALES SUPPORT SERVICES
- Sales literature review and recommendations for
compliance with NASD and SEC rules and regulations.
- Preparation of training materials for use by personnel
of the Company or the Adviser.
- Preparation of ongoing compliance updates.
- Coordination of registration of the Fund with National
Securities Clearing Corp. ("NSCC") and filing required
Fund/SERV reports with NSCC.
- Provision of advice and counsel to the Company with
respect to regulatory matters, including monitoring
regulatory and legislative developments that may
affect the Company.
- Assistance in the preparation of quarterly Board
materials with regard to sales and other
distribution-related data reasonably requested by the
Board.
- Wholesaler support services.
2. Except to the extent amended hereby, the
Administration Agreement shall remain unchanged and in full force and effect and
is hereby ratified and confirmed in all respects as amended hereby.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this
Amendment No. 5 as of the day and year first above written.
PFPC INC.
By: /s/ Jylanne M. Dunne
------------------------------------
Name: Jylanne M. Dunne
Title: Senior Vice President
THE GALAXY FUND
By: /s/ John T. O'Neill
------------------------------------
Name: John T. O'Neill
Title: President
<PAGE>
Exhibit (h)(13)
AMENDMENT NO. 5 TO
TRANSFER AGENCY AND SERVICES AGREEMENT
This Amendment No. 5, dated as of September 9, 1999, is
entered into between THE GALAXY FUND (the "Fund"), a Massachusetts business
trust, and FIRST DATA INVESTOR SERVICES GROUP, INC. ("FDISG"), a Massachusetts
corporation.
WHEREAS, the Fund and FDISG have entered into a Transfer
Agency and Services Agreement, dated as of June 1, 1997, as subsequently amended
(as so amended, the "Transfer Agency Agreement"), pursuant to which the Fund
appointed FDISG to act as the transfer agent, dividend disbursing agent and
agent in connection with certain other activities for the Fund's portfolios; and
WHEREAS, Section 25.1 of the Transfer Agency Agreement
provides, in part, that no change, termination, modification or waiver of any
term or condition of the Transfer Agency Agreement shall be valid unless in
writing signed by each party;
NOW THEREFORE, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. Article 6 of the Transfer Agency Agreement is
amended by adding the following Section 6.6:
"6.6. In addition to those fees set forth in Section
6.1 above, the Fund agrees that as part of the compensation payable to
FDISG for the performance of its obligations hereunder, FDISG shall be
entitled to retain any interest or dividend income earned on the
investment of the Fund's cash balances held in those cash management
accounts maintained by FDISG on behalf of the Fund. FDISG agrees to
provide the Fund's Board of Trustees with periodic reports, but no less
frequently than annually, as to the amount of such interest or dividend
income retained by FDISG."
2. Except to the extent amended hereby, the Transfer
Agency Agreement shall remain unchanged and in full force and effect and is
hereby ratified and confirmed in all respects as amended hereby.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this
Amendment No. 5 as of the day and year first above written.
THE GALAXY FUND
By: /s/ John T. O'Neill
----------------------
Name: John T. O'Neill
Title: President
FIRST DATA INVESTOR SERVICES
GROUP, INC.
By: /s/ Jylanne M. Dunne
----------------------
Name: Jylanne M. Dunne
Title: Senior Vice President
-2-
<PAGE>
Exhibit (h)(14)
AMENDMENT NO. 6 TO
TRANSFER AGENCY AND SERVICES AGREEMENT
This Amendment No. 6, dated as of December 1, 1999, is entered
into between THE GALAXY FUND (the "Fund"), a Massachusetts business trust,
and PFPC INC. (formerly known as First Data Investor Services Group, Inc.)
("PFPC"), a Massachusetts corporation.
WHEREAS, the Fund and PFPC have entered into a Transfer Agency and
Services Agreement dated as of June 1, 1997, as subsequently amended (as so
amended, the "Transfer Agency Agreement"), pursuant to which the Fund appointed
PFPC to act as the transfer agent, dividend disbursing agent and agent in
connection with certain other activities for the Fund's portfolios;
WHEREAS, PFPC has developed a recordkeeping service link
("DCXCHANGE -Registered Trademark-") between investment companies and benefit
plan consultants (the "Recordkeepers") which administer employee benefit plans,
including plans qualified under Section 401 of the Internal Revenue Code of
1986, as amended (the "Plan").
WHEREAS, PFPC has entered into agreements with various Recordkeepers
relating to recordkeeping and related services performed on behalf of such Plans
in connection with daily valuation and processing of orders for investment and
reinvestment of assets of the Plans in various investment options available to
the participants (the "Participants") under such Plans (the "DCXCHANGE
- -Registered Trademark- Program");
WHEREAS, the Fund desires to participate in the DCXCHANGE -Registered
Trademark- Program and to retain PFPC to perform such services with respect to
A Prime Shares of certain of the Fund's portfolios listed on Exhibit 1 of the
Transfer Agency Agreement held by or on behalf of the Participants as further
described herein and PFPC is willing and able to furnish such services on the
terms and conditions hereinafter set forth; and
WHEREAS, Section 25.1 of the Transfer Agency Agreement provides, in
part, that no change, termination, modification or waiver of any term or
condition of the Transfer Agency Agreement shall be valid unless in writing
signed by each party;
NOW THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Article 3 of the Transfer Agency Agreement is amended by adding the
following Section 3.4:
"3.4. PFPC shall perform recordkeeping and related services (the
"DCXCHANGE -Registered Trademark- Program") for the benefit of
participants (the "Participants") under certain employee benefit
plans, including plans qualified under Section 401 of the Internal
Revenue Code of 1986, as amended (the "Plans") that hold A Prime
Shares of a Portfolio through Plans administered by certain benefit
plan consultants (the "Recordkeepers").
<PAGE>
PFPC shall subcontract with Recordkeepers to link the PFPC
recordkeeping system with the Recordkeepers in order for the
Recordkeepers to maintain Prime A Share positions in the Portfolios
for each Participant. In connection with the DCXCHANGE -Registered
Trademark- Program, the Fund agrees (i) to waive all minimum
investment requirements with respect to Prime A Shares, (ii) to offer
Prime A Shares for purchase at net asset value, and (iii) to transmit
all net asset value calculations and accruals to PFPC via the NSCC
Price Profile. PFPC agrees that no fees or out-of-pocket expenses
shall be payable to it by the Fund in connection with the services
provided by PFPC under the DCXCHANGE -Registered Trademark- Program.
PFPC may discontinue the DCXCHANGE -Registered Trademark- Program
with respect to Prime A Shares upon sixty (60) days' prior written
notice to the Fund."
2. Except to the extent amended hereby, the Transfer Agency Agreement
shall remain unchanged and in full force and effect and is hereby ratified and
confirmed in all respects as amended hereby.
IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 6
as of the day and year first above written.
THE GALAXY FUND
By: /s/ John T. O'Neill
--------------------------------
Name: John T. O'Neill
Title: President
PFPC INC.
By: /s/ Robert Guillocheau
--------------------------------
Name: Robert Guillocheau
Title: Executive Vice President
-2-
<PAGE>
THE GALAXY FUND
SHAREHOLDER SERVICES PLAN
FOR
BKB SHARES
SECTION 1. Upon the recommendation of PFPC Inc. ("PFPC"), the
administrator of The Galaxy Fund (the "Trust"), any officer of the Trust is
authorized to execute and deliver, in the name and on behalf of the Trust,
written agreements in substantially the form attached hereto or in any other
form duly approved by the Board of Trustees ("Servicing Agreements") with
securities dealers, financial institutions and other industry professionals that
are shareholders or dealers of record or which have a servicing relationship
("Service Organizations") with the beneficial owners of BKB Shares of the Money
Market, U.S. Treasury, Tax-Exempt, Short-Term Bond, Intermediate Government
Income, High Quality Bond, Rhode Island Municipal Bond, Intermediate Tax-Exempt
Bond, Connecticut Intermediate Municipal Bond, Massachusetts Intermediate
Municipal Bond, Asset Allocation, Growth and Income, Equity Growth and
International Equity Funds of the Trust (the "Funds"). Pursuant to said
Agreements, Service Organizations shall provide shareholder liaison and/or
administrative support services as set forth therein to their customers who
beneficially own BKB Shares (as described in the Trust's prospectuses) of the
Funds in consideration of fees, computed and paid in the manner set forth in the
Servicing Agreements, at the annual rate of up to .50% in the aggregate of the
net asset value of the BKB Shares beneficially owned by such customers. Any
bank, trust company, thrift institution or broker-dealer is eligible to become a
Service Organization and to receive fees under this Plan, including FleetBoston
Corporation and its affiliates. All expenses incurred by the Trust with respect
to BKB Shares of a particular Fund in connection with Servicing Agreements and
the implementation of this Plan shall be borne entirely by the holders of BKB
Shares of the Fund. Each Servicing Agreement will provide for a fee waiver by a
Service Organization to the extent that the net investment income of BKB Shares
of a particular Fund earned in the applicable period is less than the fee due
from BKB Shares of the Fund for such period.
SECTION 2. PFPC shall monitor the arrangements pertaining to the Trust's
Servicing Agreements with Service Organizations in accordance with the terms of
the Administration Agreement between PFPC and the Trust. PFPC shall not,
however, be obliged by this Plan to recommend, and the Trust shall not be
obliged to execute, any Servicing Agreement with any qualifying Service
Organization.
SECTION 3. So long as this Plan is in effect, PFPC shall provide to the
Trust's Board of Trustees, and the trustees shall review, at least quarterly, a
written report of the amounts expended pursuant to this Plan and the purposes
for which such expenditures were made.
SECTION 4. Unless sooner terminated, this Plan shall continue until
January __, 2001 and thereafter shall continue automatically for successive
annual periods provided such continuance is approved at least annually by a
majority of the Board of Trustees, including a majority of the trustees who are
not "interested persons" (as defined in the Investment Company Act of 1940, as
amended (the "Act")) of the Trust and who have no direct or indirect financial
interest in the
<PAGE>
operation of this Plan or in any Servicing Agreement related to this Plan (the
"Disinterested Trustees").
SECTION 5. This Plan may be amended at any time with respect to any Fund
by the Board of Trustees, provided that any material amendments of the terms of
this Plan shall become effective only upon the approvals set forth in Section 4.
SECTION 6. This Plan is terminable at any time with respect to any Fund by
vote of a majority of the Disinterested Trustees.
SECTION 7. While this Plan is in effect, the selection and nomination of
the trustees of the Trust who are not "interested persons" (as defined in the
Act) of the Trust shall be committed to the discretion of the Trust's
Disinterested Trustees.
SECTION 8. This Plan has been adopted by the Trust as of January __, 2000.
-2-
<PAGE>
THE GALAXY FUND
SERVICING AGREEMENT
(Money Market, U.S.Treasury and Tax-Exempt Funds - BKB Shares)
Gentlemen:
We wish to enter into this Servicing Agreement with you concerning
the provision of shareholder liaison and/or administrative support services to
your customers ("Customers") who may from time to time beneficially own BKB
Shares of the Money Market, U.S. Treasury and Tax-Exempt Funds (collectively,
the "Funds") offered by The Galaxy Fund (the "Trust") to investors maintaining
with us certain qualified accounts as described in the applicable prospectuses
pertaining to BKB Shares.
The terms and conditions of this Servicing Agreement are as follows:
SECTION 1. You agree to offer to provide one or more of the
following administrative support services to Customers who may from time to time
beneficially own BKB Shares: (i) processing dividend payments from us on behalf
of Customers; (ii) providing information periodically to Customers showing their
positions in BKB Shares; (iii) arranging for bank wires; (iv) responding to
Customer inquiries relating to the services performed by you; (v) providing
subaccounting with respect to BKB Shares beneficially owned by Customers or the
information to us necessary for subaccounting; (vi) if required by law,
forwarding shareholder communications from us (such as proxies, shareholder
reports, annual and semi-annual financial statements and dividend, distribution
and tax notices) to Customers; (vii) forwarding to Customers proxy statements
and proxies containing any proposals regarding this Agreement or the Shareholder
Services Plan related hereto; (viii) aggregating and processing purchase,
exchange and redemption requests from Customers and placing net purchase,
exchange and redemption orders with our distributor or transfer agent; (ix)
providing Customers with a service that invests the assets of their accounts in
BKB Shares; and (x) providing such other similar services as we may reasonably
request to the extent you are permitted to do so under applicable statutes,
rules and regulations. It is understood that not all Customers may require or
wish to avail themselves of any or all such services.
SECTION 2. We recognize that you may be subject to the provisions of
certain laws governing, among other things, the conduct of activities by
federally-chartered and supervised banks and other banking organizations. As
such, you may be restricted in the activities you may undertake and for which
you may be paid and, therefore, you will perform only those activities which are
consistent with your statutory and regulatory obligations. You will act solely
as an agent for, upon the order of, and for the account of, your Customers.
SECTION 3. You will provide such office space and equipment,
telephone facilities and personnel (which may be any part of the space,
equipment and facilities currently used in
<PAGE>
your business, or any personnel employed by you) as may be reasonably necessary
or beneficial in order to provide the aforementioned services to Customers.
SECTION 4. Neither you nor any of your officers, employees or agents
are authorized to make any representations concerning BKB Shares except those
contained in the Trust's then current prospectuses and statements of additional
information pertaining to BKB Shares, copies of which will be supplied to you,
or in such supplemental literature or advertising as may be authorized by the
Trust in writing.
SECTION 5. For all purposes of this Agreement you will be deemed to
be an independent contractor, and will have no authority to act as agent for the
Trust in any matter or in any respect. By your written acceptance of this
Agreement, you agree to and do release, indemnify and hold the Trust harmless
from and against any and all direct or indirect liabilities or losses resulting
from requests, directions, actions or inactions of or by you or your officers,
employees or agents regarding your responsibilities hereunder for the purchase,
redemption, transfer or registration of BKB Shares by or on behalf of Customers.
You and your employees will, upon request, be available during normal business
hours to consult with the Trust or its designees concerning the performance of
your responsibilities under this Agreement.
SECTION 6. In consideration of the services and facilities provided
by you, the Trust will pay to you, and you will accept as full payment therefor,
a fee at the annual rate of [.25%] of the average daily net asset value of the
BKB Shares of the Funds beneficially owned as of the end of each month by your
Customers for whom you are the dealer of record or holder of record or with whom
you have a servicing relationship, which fee will be computed at that time. Fees
for the Funds will be payable monthly. For purposes of determining the fees
payable under this Section 6, the average daily net asset value of your
Customers' BKB Shares will be computed in the manner specified in the Trust's
Registration Statement (as the same is in effect from time to time) in
connection with the computation of the net asset value of BKB Shares for
purposes of purchases and redemptions. The fee rates stated above may be
prospectively increased or decreased by the Trust, in its sole discretion, at
any time upon notice to you. Further, the Trust may, in its discretion and
without notice, suspend or withdraw the sale of BKB Shares including the sale of
BKB Shares to you for the account of any Customer or Customers. All fees payable
by the Trust under this Agreement with respect to BKB Shares of a particular
Fund shall be payable entirely out of the net investment income allocable to
such BKB Shares, and no shares of the Fund involved, other than BKB Shares, and
no other class of shares of the Trust (or a separate series of shares of any
such class) shall be responsible for such fees. In addition, by your written
acceptance of this Agreement, you agree to and do waive such portion of the fee
payable under this Section 6 as is necessary to assure that the amount of such
fee which is required to be accrued on any day with respect to your Customers'
BKB Shares does not exceed the income to be accrued to your Customers' BKB
Shares on that day.
SECTION 7. Any person authorized to direct the disposition of the
monies paid or payable by the Trust pursuant to this Agreement will provide to
the Board of Trustees of the Trust, and the Board will review, at least
quarterly, a written report of the amounts so expended and the purposes for
which such expenditures were made. In addition, you will furnish the Trust or
its designees with such information as may be reasonably requested (including,
without
-2-
<PAGE>
limitation, periodic certifications confirming the provision to Customers of the
services described herein), and will otherwise cooperate with the Trust and its
designees (including, without limitation, any auditors designated by the Trust),
in connection with the preparation of reports to the Board of Trustees
concerning this Agreement and the monies paid or payable by the Trust pursuant
hereto, as well as any other reports or filings that may be required by law.
SECTION 8. The Trust may enter into other similar Servicing
Agreements with any other person or persons without your consent.
SECTION 9. By your written acceptance of this Agreement, you
represent, warrant and agree that: (i) in no event will any of the services
provided by you hereunder be primarily intended to result in the sale of any BKB
Shares; (ii) the compensation payable to you hereunder, together with any other
compensation payable to you by Customers in connection with the investment of
their assets in BKB Shares of the Funds, will be disclosed by you to your
Customers, will be authorized by your Customers and will not result in an
excessive or unreasonable fee to you; (iii) you will not advertise or otherwise
promote your Customer accounts primarily as a means of investing in BKB Shares
or establish or maintain Customer accounts for the primary purpose of investing
in BKB Shares; (iv) in the event an issue pertaining to this Agreement or our
Shareholder Services Plan related hereto is submitted for shareholder approval,
you will vote any BKB Shares held for your own account in the same proportion as
the vote of the BKB Shares held for your Customers' accounts; and (v) you will
not engage in activities pursuant to this Agreement which constitute acting as a
broker or dealer under state law unless you have obtained the licenses required
by such law.
SECTION 10. This Agreement will become effective on the date a fully
executed copy of this Agreement is received by the Trust or its designee. Unless
sooner terminated, this Agreement will continue until January __, 2001 and
thereafter will continue automatically for successive annual periods provided
such continuance is specifically approved at least annually by the Trust in the
manner described in Section 13 hereof. This Agreement is terminable with respect
to BKB Shares of any of the Funds, without penalty, at any time by the Trust
(which termination may be by a vote of a majority of the Disinterested Trustees
as defined in Section 13 hereof) or by you upon notice to the Trust.
SECTION 11. All notices and other communications between the parties
to this Agreement will be duly given if mailed, telegraphed, telexed or
transmitted by similar telecommunications device to the appropriate address
stated herein, or to such other address as either party shall so provide the
other.
SECTION 12. This Agreement will be construed in accordance with the
laws of the Commonwealth of Massachusetts and is nonassignable by the parties
hereto.
SECTION 13. This Agreement has been approved by vote of a majority
of (i) the Board of Trustees of the Trust and (ii) those trustees who are not
"interested persons" (as defined in the Investment Company Act of 1940, as
amended) of the Trust and who have no direct or indirect financial interest in
the operation of the Shareholder Services Plan adopted by the Trust
-3-
<PAGE>
regarding the provision of shareholder liaison and/or administrative support
services to the beneficial owners of BKB Shares or in any agreement related
thereto ("Disinterested Trustees").
SECTION 14. The names "The Galaxy Fund" and "Trustees of The Galaxy
Fund" refer respectively to the Trust created and the Trustees, as trustees but
not individually or personally, acting from time to time under a Declaration of
Trust dated March 31, 1986 which is hereby referred to and a copy of which is on
file at the office of the State Secretary of the Commonwealth of Massachusetts
and at the principal office of the Trust. The obligations of "The Galaxy Fund"
entered into in the name or on behalf thereof by any of the Trustees,
representatives or agents are made not individually, but in such capacities, and
are not binding upon any of the Trustees, shareholders, or representatives of
the Trust personally, but bind only the Trust property, and all persons dealing
with any class of shares of the Trust must look solely to the Trust property
belonging to such class for the enforcement of any claims against the Trust.
If you agree to be legally bound by the provisions of this
Agreement, please sign a copy of this letter where indicated below and promptly
return it to the Trust, c/o William Greilich, PFPC Inc., 4400 Computer Drive,
Westborough, MA 01581-5108.
Very truly yours,
THE GALAXY FUND
By:__________________________
Date:___________________ (Authorized Officer)
Accepted and Agreed to:
(Name of Service Organization)
Date:__________________ By:__________________________
(Authorized Officer)
-4-
<PAGE>
THE GALAXY FUND
SERVICING AGREEMENT
(Short-Term Bond, Intermediate Government Income, High Quality Bond, Rhode
Island Municipal Bond, Intermediate Tax-Exempt Bond, Connecticut Intermediate
Municipal Bond, Massachusetts Intermediate Municipal Bond, Asset Allocation,
Growth and Income, Equity Growth and International Equity Funds - BKB Shares)
Gentlemen:
We wish to enter into this Servicing Agreement with you concerning the
provision of shareholder liaison and/or administrative support services to your
customers ("Customers") who may from time to time beneficially own shares of the
Short-Term Bond, Intermediate Government Income, High Quality Bond, Rhode Island
Municipal Bond, Intermediate Tax-Exempt Bond, Connecticut Intermediate Municipal
Bond, Massachusetts Intermediate Municipal Bond, Asset Allocation, Growth and
Income, Equity Growth and International Equity Funds (collectively, the "Funds")
offered by The Galaxy Fund (the "Trust") to investors maintaining with us
certain qualified accounts as described in the applicable prospectuses
pertaining to BKB Shares.
The terms and conditions of this Servicing Agreement are as follows:
SECTION 1. You agree to offer to provide one or more of the following
shareholder liaison services to Customers who may from time to time beneficially
own BKB Shares: (i) providing information periodically to Customers showing
their positions in BKB Shares; (ii) responding to Customer inquiries relating to
the services performed by you; (iii) providing Customers with a service that
invests the assets of their accounts in BKB Shares; and (iv) providing such
other similar services as we may reasonably request to the extent you are
permitted to do so under applicable statutes, rules and regulations. It is
understood that not all Customers may require or wish to avail themselves of any
or all such services.
SECTION 2. You agree to offer to provide one or more of the following
administrative support services to Customers who may from time to time
beneficially own BKB Shares: (i) processing dividend payments from us on behalf
of Customers; (ii) arranging for bank wires; (iii) providing subaccounting with
respect to BKB Shares beneficially owned by Customers or the information to us
necessary for subaccounting; (iv) if required by law, forwarding shareholder
communications from us (such as proxies, shareholder reports, annual and
semi-annual financial statements and dividend, distribution and tax notices) to
Customers; (v) aggregating and processing purchase, exchange and redemption
requests from Customers and placing net purchase, exchange and redemption orders
with our distributor or transfer agent; and (vi) providing such other similar
services as we may reasonably request to the extent you are permitted to do so
under applicable statutes, rules and regulations. It is understood that not all
Customers may require or wish to avail themselves of any or all such services.
<PAGE>
SECTION 3. We recognize that you may be subject to the provisions of
certain laws governing, among other things, the conduct of activities by
federally-chartered and supervised banks and other banking organizations. As
such, you may be restricted in the activities you may undertake and for which
you may be paid and, therefore, you will perform only those activities which are
consistent with your statutory and regulatory obligations. You will act solely
as an agent for, upon the order of, and for the account of, your Customers.
SECTION 4. You will provide such office space and equipment, telephone
facilities and personnel (which may be any part of the space, equipment and
facilities currently used in your business, or any personnel employed by you) as
may be reasonably necessary or beneficial in order to provide the aforementioned
services to Customers.
SECTION 5. Neither you nor any of your officers, employees or agents are
authorized to make any representations concerning BKB Shares offered by the
Trust except those contained in the Trust's then current prospectuses and
statements of additional information pertaining to BKB Shares, copies of which
will be supplied to you, or in such supplemental literature or advertising as
may be authorized by the Trust in writing.
SECTION 6. For all purposes of this Agreement you will be deemed to be an
independent contractor, and will have no authority to act as agent for the Trust
in any matter or in any respect. By your written acceptance of this Agreement,
you agree to and do release, indemnify and hold the Trust harmless from and
against any and all direct or indirect liabilities or losses resulting from
requests, directions, actions or inactions of or by you or your officers,
employees or agents regarding your responsibilities hereunder for the purchase,
redemption, transfer or registration of BKB Shares by or on behalf of Customers.
You and your employees will, upon request, be available during normal business
hours to consult with the Trust or its designees concerning the performance of
your responsibilities under this Agreement.
SECTION 7. In consideration of the services and facilities provided by you
pursuant to Section 1 hereof, the Trust will pay to you, and you will accept as
full payment therefor, a fee at the annual rate of (a) [.25%] of the average
daily net asset value of BKB Shares of the Asset Allocation Fund, Growth and
Income Fund, Equity Growth Fund and International Equity Fund (collectively,
"Equity Funds") beneficially owned as of the end of each fiscal quarter by your
Customers for whom you are the dealer of record or holder of record or with whom
you have a servicing relationship, which fee will be computed at that time; and
(b) [.15%] of the average daily net asset value of BKB Shares of the Short-Term
Bond Fund, Intermediate Government Income Fund, High Quality Bond Fund, Rhode
Island Municipal Bond Fund, Intermediate Tax-Exempt Bond Fund, Connecticut
Intermediate Municipal Bond Fund and Massachusetts Intermediate Municipal Bond
Fund (collectively, "Bond Funds") beneficially owned as of the end of each month
by your Customers for whom you are the dealer of record or holder of record or
with whom you have a servicing relationship, which fee will be computed at that
time. In consideration of the additional services provided by you pursuant to
Section 2 hereof, the Trust will pay to you, and you will accept as full payment
therefor, a fee at the annual rate of (a) [.25%] of the average daily net asset
value of BKB Shares of the Equity Funds; and (b) [.15%] of the average daily net
asset value of BKB Shares of the Bond Funds. Fees for the Equity Funds will be
payable quarterly and for the Bond Funds, monthly. For purposes of determining
the fees
-2-
<PAGE>
payable under this Section 7, the average daily net asset value of your
Customers' BKB Shares will be computed in the manner specified in the Trust's
Registration Statement (as the same is in effect from time to time) in
connection with the computation of the net asset value of BKB Shares for
purposes of purchases and redemptions. The fee rates stated above may be
prospectively increased or decreased by the Trust, in its sole discretion, at
any time upon notice to you. Further, the Trust may, in its discretion and
without notice, suspend or withdraw the sale of BKB Shares including the sale of
BKB Shares to you for the account of any Customer or Customers. All fees payable
by the Trust under this Agreement with respect to BKB Shares of a particular
Fund shall be payable entirely out of the net investment income allocable to
such BKB Shares, and no shares of the Fund involved, other than the BKB Shares,
and no other class of shares of the Trust (or a separate series of shares of any
such class) shall be responsible for such fees. In addition, by your written
acceptance of this Agreement, you agree to and do waive such portion of the fee
payable under this Section 7 as is necessary to assure that the amount of such
fee which is required to be accrued on any day with respect to your Customers'
BKB Shares does not exceed the income to be accrued to your Customers' BKB
Shares on that day.
SECTION 8. Any person authorized to direct the disposition of the monies
paid or payable by the Trust pursuant to this Agreement will provide to the
Board of Trustees of the Trust, and the Board will review, at least quarterly, a
written report of the amounts so expended and the purposes for which such
expenditures were made. In addition, you will furnish the Trust or its designees
with such information as may be reasonably requested (including, without
limitation, periodic certifications confirming the provision to Customers of the
services described herein), and will otherwise cooperate with the Trust and its
designees (including, without limitation, any auditors designated by the Trust),
in connection with the preparation of reports to the Board of Trustees
concerning this Agreement and the monies paid or payable by the Trust pursuant
hereto, as well as any other reports or filings that may be required by law.
SECTION 9. The Trust may enter into other similar Servicing Agreements
with any other person or persons without your consent.
SECTION 10. By your written acceptance of this Agreement, you represent,
warrant and agree that: (i) in no event will any of the services provided by you
hereunder be primarily intended to result in the sale of any BKB Shares; (ii)
the compensation payable to you hereunder, together with any other compensation
payable to you by Customers in connection with the investment of their assets in
BKB Shares of the Funds, will be disclosed by you to your Customers, will be
authorized by your Customers and will not result in an excessive or unreasonable
fee to you; (iii) you will not advertise or otherwise promote your Customer
accounts primarily as a means of investing in BKB Shares or establish or
maintain Customer accounts for the primary purpose of investing in BKB Shares;
(iv) in the event an issue pertaining to this Agreement or our Shareholder
Services Plan related hereto is submitted for shareholder approval, you will
vote any BKB Shares held for your own account in the same proportion as the vote
of the BKB Shares held for your Customers' accounts; and (v) you will not engage
in activities pursuant to this Agreement which constitute acting as a broker or
dealer under state law unless you have obtained the licenses required by such
law.
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<PAGE>
SECTION 11. This Agreement will become effective on the date a fully
executed copy of this Agreement is received by the Trust or its designee. Unless
sooner terminated, this Agreement will continue until January __, 2001 and
thereafter will continue automatically for successive annual periods provided
such continuance is specifically approved at least annually by the Trust in the
manner described in Section 14 hereof. This Agreement is terminable with respect
to BKB Shares of any of the Funds, without penalty, at any time by the Trust
(which termination may be by a vote of a majority of the Disinterested Trustees
as defined in Section 14 hereof) or by you upon notice to the Trust.
SECTION 12. All notices and other communications between the parties to
this Agreement will be duly given if mailed, telegraphed, telexed or transmitted
by similar telecommunications device to the appropriate address stated herein,
or to such other address as either party shall so provide the other.
SECTION 13. This Agreement will be construed in accordance with the laws
of the Commonwealth of Massachusetts and is nonassignable by the parties hereto.
SECTION 14. This Agreement has been approved by vote of a majority of (i)
the Board of Trustees of the Trust and (ii) those trustees who are not
"interested persons (as defined in the Investment Company Act of 1940, as
amended) of the Trust and who have no direct or indirect financial interest in
the operation of the Shareholder Services Plan adopted by the Trust regarding
the provision of support services to the beneficial owners of BKB Shares or in
any agreement related thereto (the "Disinterested Trustees").
SECTION 15. The names "The Galaxy Fund" and "Trustees of The Galaxy Fund"
refer respectively to the Trust created and the Trustees, as trustees but not
individually or personally acting from time to time under a Declaration of Trust
dated March 31, 1986 which is hereby referred to and a copy of which is on file
at the office of the State Secretary of the Commonwealth of Massachusetts and at
the principal office of the Trust. The obligations of "The Galaxy Fund" entered
into in the name or on behalf thereof by any of the Trustees, representatives or
agents are made not individually, but in such capacities, and are not binding
upon any of the Trustees, shareholders, or representatives of the Trust
personally but bind only the Trust property, and all persons dealing with any
class of shares of the Trust must look solely to the Trust property belonging to
such class for the enforcement of any claims against the Trust.
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If you agree to be legally bound by the provisions of this Agreement,
please sign a copy of this letter where indicated below and promptly return it
to the Trust, c/o William Greilich, PFPC Inc., 4400 Computer Drive, Westborough,
MA 01581-5108.
Very truly yours,
THE GALAXY FUND
By:__________________________
Date:___________________ (Authorized Officer)
Accepted and Agreed to:
[Name of Service Organization]
Date:__________________ By:__________________________
(Authorized Officer)
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Exhibit (j)(1)
CONSENT OF COUNSEL
We hereby consent to (i) the use of our name and the references to
our firm under the caption "Counsel" in the Statement of Additional Information
that is included in Post-Effective Amendment No. 41 to the Registration
Statement on Form N-1A under the Investment Company Act of 1940, as amended, of
The Galaxy Fund, and (ii) the use and incorporation by reference in said
Post-Effective Amendment No. 41 of our firm's opinion of counsel filed as
Exhibit (i) to Post-Effective Amendment No. 38 to the Registration Statement on
Form N-1A under the Investment Company Act of 1940, as amended, of The Galaxy
Fund, and (iii) the use and incorporation by reference in said Post-Effective
Amendment No. 41 of our firm's opinion of counsel filed as Exhibit (i)(2) to
Post-Effective Amendment No. 40 to the Registration Statement on Form N-1A under
the Investment Company Act of 1940, as amended, of The Galaxy Fund.
/s/ Drinker Biddle & Reath LLP
------------------------------
Philadelphia, Pennsylvania Drinker Biddle & Reath LLP
December 29, 1999
<PAGE>
Exhibit (j)(2)
December 29, 1999
The Galaxy Fund
4400 Computer Drive
Westborough, Massachusetts 01581-5108
Ladies and Gentlemen:
We hereby consent to the reference to us under the caption "Counsel" in
the Statement of Additional Information that relates to your Rhode Island
Municipal Bond Fund that is included in Post-Effective Amendment No. 41 to your
Registration Statement on Form N-1A (No. 33-4806), which you have informed us is
to be filed with the Securities and Exchange Commission.
Very truly yours,
/s/Ropes & Gray
-----------------
Ropes & Gray
<PAGE>
THE GALAXY FUND
("GALAXY")
AMENDED AND RESTATED
PLAN PURSUANT TO RULE 18f-3 FOR OPERATION OF
A MULTI-CLASS SYSTEM
I. INTRODUCTION
On February 23, 1995, the Securities and Exchange Commission (the
"Commission") promulgated Rule 18f-3 under the Investment Company Act of 1940,
as amended (the "1940 Act"), which permits the creation and operation of a
multi-class distribution structure without the need to obtain an exemptive order
under Section 18 of the 1940 Act. Rule 18f-3, which became effective on April 3,
1995, requires an investment company to file with the Commission a written plan
specifying all of the differences among the classes, including the various
services offered to shareholders, the different distribution arrangements for
each class, the methods for allocating expenses relating to those differences
and any conversion features or exchange privileges. On May 25, 1995, the Board
of Trustees of Galaxy authorized Galaxy to operate its multi-class distribution
structure in compliance with Rule 18f-3. On October 10, 1995, Galaxy filed a
Plan pursuant to Rule 18f-3 for operation of a multi-class system (the "Prior
Plan"), which had been approved by the Board of Trustees of Galaxy on September
7, 1995, with the Commission. Prior to the filing of the Prior Plan, Galaxy
operated a multi-class distribution structure pursuant to an exemptive order
granted by the Commission on February 19, 1992. The Amended and Restated Plan
pursuant to Rule 18f-3 for operation of a multi-class system presented herewith,
which was approved by the Board of Trustees of Galaxy on December 2, 1999,
supersedes the Prior Plan and any subsequent Plans pursuant to Rule 18f-3
approved by the Board of Trustees of Galaxy prior to December 2, 1999.
II. ATTRIBUTES OF CLASSES
A. GENERALLY
EQUITY FUNDS
Galaxy shall offer (a) six classes of shares -- Retail A Shares,
Retail B Shares, Prime A Shares, Prime B Shares, BKB Shares and Trust Shares --
in the Asset Allocation Fund, Growth and Income Fund, Equity Growth Fund and
International Equity Fund, (b) five classes of shares -- Retail A Shares, Retail
B Shares, Prime A Shares, Prime B Shares and Trust Shares -- in the Equity Value
Fund, Equity Income Fund, Small Company Equity Fund, Small Cap Value Fund and
Strategic Equity Fund, and (c) three classes of shares -- Retail A Shares,
Retail B
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Shares and Trust Shares -- in the MidCap Equity Fund (each a "Fund" and
collectively, the "Equity Funds").
BOND FUNDS
Galaxy shall offer (a) six classes of shares -- Retail A Shares,
Retail B Shares, Prime A Shares, Prime B Shares, BKB Shares and Trust Shares --
in the Short-Term Bond Fund, Intermediate Government Income Fund and High
Quality Bond Fund, (b) five classes of shares -- Retail A Shares, Retail B
Shares, Prime A Shares, Prime B Shares and Trust Shares -- in the Tax-Exempt
Bond Fund, (c) three classes of shares -- Retail A Shares, BKB Shares and Trust
Shares -- in the Intermediate Tax-Exempt Bond Fund, Connecticut Intermediate
Municipal Bond Fund, Massachusetts Intermediate Municipal Bond Fund and Rhode
Island Municipal Bond Fund, and (d) two classes of shares -- Retail A Shares and
Trust Shares -- in the Corporate Bond Fund, California Municipal Bond Fund, New
Jersey Municipal Bond Fund, New York Municipal Bond Fund, Connecticut Municipal
Bond Fund and Massachusetts Municipal Bond Fund (each a "Fund" and collectively,
the "Bond Funds").
MONEY MARKET FUNDS
Galaxy shall offer (a) three classes of shares -- Retail A Shares,
Retail B Shares and Trust Shares -- in the Money Market Fund, (b) two classes of
shares -- Retail A Shares and Trust Shares -- in the Government Fund, Tax-Exempt
Fund and U.S. Treasury Fund, and (c) two classes of shares -- Retail A Shares
and Prime Shares -- in the Connecticut Municipal Money Market Fund,
Massachusetts Municipal Money Market Fund and New York Municipal Money Market
Fund (each a "Fund" and collectively, the "Money Market Funds").
In general, shares of each class shall be identical except for
different expense variables (which will result in different returns for each
class), certain related rights and certain shareholder services. More
particularly, the Retail A Shares, the Retail B Shares, the Prime A Shares, the
Prime B Shares, the BKB Shares, the Prime Shares and/or the Trust Shares of each
Fund shall represent interests in the same portfolio of investments of the
particular Fund, and shall be identical in all respects, except for: (a) the
impact of (i) expenses assessed to a class pursuant to the Shareholder Services
Plan, Distribution and Services Plan or Distribution Plan adopted for that
class, (ii) transfer agency expenses, and (iii) any other incremental expenses
identified from time to time that should be properly allocated to one class so
long as any changes in expense allocations are reviewed and approved by a vote
of the Board of Trustees, including a majority of the independent Trustees; (b)
the fact that (i) the Retail A Shares shall vote separately on any matter
submitted to holders of Retail A Shares that pertains to the Shareholder
Services Plan adopted for that class; (ii) the Retail B Shares shall vote
separately on any matter submitted to holders of Retail B Shares that pertains
to the Distribution and Services Plan adopted for that class; (iii) the Prime A
Shares shall vote separately on any matter submitted to holders of Prime A
Shares that pertains to the Distribution Plan adopted for that class; (iv) the
Prime B Shares shall vote separately on any matter submitted to holders of B
Prime Shares that pertains to the Distribution and Services Plan adopted for
that class; (v) the Prime Shares shall vote separately on any matter submitted
to holders of Prime Shares that pertains to the Distribution and Services Plan
adopted for that class; (vi) the BKB Shares shall vote separately on any matter
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submitted to holders of BKB Shares that pertains to the Shareholder Services
Plan adopted for that class; (vii) the Trust Shares shall vote separately on any
matter submitted to holders of Trust Shares that pertains to the Shareholder
Services Plan adopted for that class; and (viii) each class shall vote
separately on any matter submitted to shareholders that pertains to the class
expenses borne by that class; (c) the exchange privileges of each class of
shares; (d) the designation of each class of shares; and (e) the different
shareholder services relating to a class of shares.
B. DISTRIBUTION ARRANGEMENTS, EXPENSES AND SALES CHARGES
1. EQUITY FUNDS
RETAIL A SHARES
Retail A Shares of the Equity Funds shall be offered to
individuals or corporations who submit a purchase application to Galaxy,
purchasing directly either for their own accounts or for the accounts of others
("Direct Investors") and shall be offered to FIS Securities, Inc., Fleet
Brokerage Securities, Inc., Fleet Securities, Inc., Fleet Enterprises, Inc.,
FleetBoston Corporation, its affiliates, their correspondent banks and other
qualified banks, savings and loan associations and broker/dealers
("Institutions") who purchase the shares on behalf of their customers
("Customers") who are the beneficial owners of the shares.
Retail A Shares of the Equity Funds shall be subject to a
front-end sales charge which shall not initially exceed 3.75% of the offering
price of Retail A Shares of those Funds (subject to the reductions and
exemptions described in the prospectus and Statement of Additional Information
("SAI") for such Shares). When the aggregate offering price of Retail A Shares
of the Equity and Bond Funds purchased by an investor qualifies the investor to
purchase such Retail A Shares without payment of a front-end sales charge, a
contingent deferred sales charge of 1% may be imposed if such Retail A Shares
are redeemed within one year of purchase.
Retail A Shares of the Equity Funds shall further be subject
to a fee payable pursuant to the Shareholder Services Plan adopted for that
class of up to .25% (on an annualized basis) of the average daily net asset
value of Retail A Shares beneficially owned by Customers of Institutions.
Services provided by Institutions for such fee may include: (a) aggregating and
processing purchase and redemption requests and placing net purchase and
redemption orders with the distributor; (b) processing dividend payments from an
Equity Fund; (c) providing sub-accounting with respect to Retail A Shares or the
information necessary for sub-accounting; and (d) providing periodic mailings to
Customers.
Retail A Shares of the Equity Funds shall further be subject
to a separate fee payable pursuant to the same Shareholder Services Plan adopted
for that class of up to .25% (on an annualized basis) of the average daily net
asset value of Retail A Shares beneficially owned by Customers of Institutions.
Services provided by Institutions for such separate fee may include: (a)
providing Customers with information as to their positions in Retail A Shares;
(b) responding to Customer inquiries; and (c) providing a service to invest the
assets of Customers in Retail A Shares.
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Galaxy shall initially limit the total fees payable by Retail
A Shares of the Equity Funds pursuant to the Shareholder Services Plan adopted
for that class to an amount which shall not initially exceed .30% (on an
annualized basis) of the average daily net asset value of Retail A Shares
beneficially owned by Customers of Institutions.
RETAIL B SHARES
Retail B Shares of the Equity Funds shall be offered to Direct
Investors and to Institutions who purchase the shares on behalf of Customers who
are the beneficial owners of the shares.
Retail B Shares of the Equity Funds, if redeemed within six
years of purchase, shall be subject to a contingent deferred sales charge which
shall not initially exceed 5.0% of the original purchase price or redemption
proceeds, whichever is lower (subject to the reductions and exemptions described
in the prospectus and SAI for such Shares).
Retail B Shares of the Equity Funds shall be further subject
to a fee payable pursuant to the Distribution and Services Plan adopted for the
class (a) for distribution expenses, which shall not initially exceed .65% (on
an annualized basis) of the average daily net asset value of the Equity Funds'
respective outstanding Retail B Shares, (b) for shareholder liaison services,
which shall not initially exceed .25% (on an annualized basis) of the average
daily net assets attributable to Retail B Shares of the respective Equity Funds
that are owned of record or beneficially by customers of securities dealers,
brokers, financial institutions or other industry professionals ("Service
Organizations") that provide shareholder liaison services with respect to such
customers' Retail B Shares, and (c) for administrative support services, which
shall not initially exceed .25% (on an annualized basis) of the average daily
net assets attributable to Retail B Shares of the respective Equity Funds that
are owned of record or beneficially by customers of Service Organizations that
provide administrative support services with respect to such customers' Retail B
Shares.
Galaxy shall initially limit the total fees payable by Retail
B Shares of the Equity Funds for shareholder liaison services and administrative
support services pursuant to the Distribution and Services Plan adopted for that
class to an amount not to exceed .30% (on an annualized basis) of the average
daily net asset value of Retail B Shares owned of record or beneficially by
customers of Service Organizations.
Shareholder liaison services provided under the Distribution
and Services Plan means "personal service and/or the maintenance of shareholder
accounts" within the meaning of the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. ("NASD"), such as responding to customer
inquiries and providing information on their investments.
Administrative support services provided under the
Distribution and Services Plan may include, but are not limited to, (a) transfer
agent and subtransfer agent services for beneficial owners of Retail B Shares;
(b) aggregating and processing purchase and redemption orders; (c) providing
beneficial owners with statements showing their positions in
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<PAGE>
Retail B Shares; (d) processing dividend payments; (e) providing sub-accounting
services for Retail B Shares held beneficially; (f) forwarding shareholder
communications, such as proxies, shareholder reports, dividend and tax notices,
and updating prospectuses to beneficial owners; and (g) reviewing, tabulating
and transmitting proxies executed by beneficial owners.
PRIME A SHARES
Prime A Shares of the Equity Funds shall be offered through
selected Primes to individual or institutional customers.
Prime A Shares of the Equity Funds shall be subject to a
front-end sales charge which shall not initially exceed 5.50% of the offering
price of Prime A Shares of those Funds (subject to the reductions and exemptions
described in the prospectus and SAI for such Shares). When the aggregate
offering price of Prime A Shares of the Equity and Bond Funds purchased by an
investor qualifies the investor to purchase such Prime A Shares without payment
of a front-end sales charge, a contingent deferred sales charge of 1% may be
imposed if such Prime A Shares are redeemed within one year of purchase.
Prime A Shares of the Equity Funds shall further be subject to
a fee payable pursuant to the Distribution Plan adopted for that class for
distribution expenses, which shall not initially exceed .30% (on an annualized
basis) of the average daily net asset value of the Equity Funds' respective
outstanding Prime A Shares.
PRIME B SHARES
Prime B Shares of the Equity Funds shall be offered through
selected Primes to individual or institutional customers.
Prime B Shares of the Equity Funds, if redeemed within six
years of purchase, shall be subject to a contingent deferred sales charge which
shall not initially exceed 5.0% of the original purchase price or redemption
proceeds, whichever is lower (subject to the reductions and exemptions described
in the prospectus and SAI for such Shares).
Prime B Shares of the Equity Funds shall be further subject to
a fee payable pursuant to the Distribution and Services Plan adopted for the
class (a) for distribution expenses, which shall not initially exceed .75% (on
an annualized basis) of the average daily net asset value of the Equity Funds'
respective outstanding Prime B Shares, (b) for shareholder liaison services,
which shall not initially exceed .25% (on an annualized basis) of the average
daily net assets attributable to Prime B Shares of the respective Equity Funds
that are owned of record or beneficially by customers of securities dealers,
brokers, financial institutions or other industry professionals ("Service
Organizations") that provide shareholder liaison services with respect to such
customers' Prime B Shares, and (c) for administrative support services, which
shall not initially exceed .25% (on an annualized basis) of the average daily
net assets attributable to Prime B Shares of the respective Equity Funds that
are owned of record or beneficially by customers of Service Organizations that
provide administrative support services with respect to such customers' Prime B
Shares.
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Galaxy shall initially limit the total fees payable by Prime B
Shares of the Equity Funds for shareholder liaison services and administrative
support services pursuant to the Distribution and Services Plan adopted for that
class to an amount not to exceed .25% (on an annualized basis) of the average
daily net asset value of Prime B Shares owned of record or beneficially by
customers of Service Organizations.
Shareholder liaison services provided under the Distribution
and Services Plan means "personal service and/or the maintenance of shareholder
accounts" within the meaning of the Rules of Fair Practice of the NASD, such as
responding to customer inquiries and providing information on their investments.
Administrative support services provided under the
Distribution and Services Plan may include, but are not limited to, (a) transfer
agent and subtransfer agent services for beneficial owners of Prime B Shares;
(b) aggregating and processing purchase and redemption orders; (c) providing
beneficial owners with statements showing their positions in Prime B Shares; (d)
processing dividend payments; (e) providing subaccounting services for Prime B
Shares held beneficially; (f) forwarding shareholder communications, such as
proxies, shareholder reports, dividend and tax notices, and updating
prospectuses to beneficial owners; and (g) reviewing, tabulating and
transmitting proxies executed by beneficial owners.
BKB SHARES
BKB Shares of the Equity Funds shall be issued to retail
shareholders of corresponding portfolios of the Boston 1784 Funds (the "1784
Funds") in connection with the reorganization of the 1784 Funds into Galaxy (the
"Galaxy/1784 Reorganization"). Following the Galaxy/1784 Reorganization, BKB
Shares of the Equity Funds shall be available for purchase only by those
shareholders who received BKB Shares in the Galaxy/1784 Reorganization.
BKB Shares of the Equity Funds shall not be subject to a sales
charge.
BKB Shares of the Equity Funds shall be subject to a fee
payable pursuant to the Shareholder Services Plan adopted for that class for
shareholder liaison services, which shall not initially exceed .25% (on an
annualized basis) of the average daily net asset value of BKB Shares
beneficially owned by Customers of Institutions. Services provided by
Institutions for such fee may include: (a) providing Customers with information
as to their positions in BKB Shares; (b) responding to Customer inquiries; and
(c) providing a service to invest the assets of Customers in BKB Shares.
BKB Shares of the Equity Funds shall be subject to a separate
fee payable pursuant to the same Shareholder Services Plan adopted for that
class for administrative support for services, which shall not initially exceed
.25% (on an annualized basis) of the average daily net asset value of BKB Shares
beneficially owned by Customers of Institutions. Services provided by
Institutions for such separate fee may include: (a) aggregating and processing
purchase and redemption requests and placing net purchase and redemption orders
with the distributor; (b) processing dividend payments from an Equity Fund; (c)
providing sub-accounting
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with respect to BKB Shares or the information necessary for sub-accounting; and
(d) providing periodic mailings to Customers.
Galaxy shall initially limit the total fees payable by BKB
Shares of the Equity Funds pursuant to the Shareholder Services Plan adopted for
that class to an amount which shall not initially exceed .30% (on an annualized
basis) of the average daily net asset value of BKB Shares beneficially owned by
Customers of Institutions.
TRUST SHARES
Trust Shares of the Equity Funds shall be offered to investors
maintaining qualified accounts at bank and trust institutions, including
subsidiaries of FleetBoston Corporation and to participants in
employer-sponsored defined contribution plans. Trust Shares of the International
Equity Fund also shall be offered to clients, members and employees of Oechsle
International Advisors, LLC, the sub-adviser to that Fund.
Trust Shares of the Equity Funds shall not be subject to a
sales charge and shall not initially be subject to the shareholder servicing fee
payable pursuant to the Shareholder Services Plan adopted but not yet
implemented with respect to such class.
2. BOND FUNDS
RETAIL A SHARES
Retail A Shares of the Bond Funds shall be offered to Direct
Investors and shall be offered to Institutions who purchase shares on behalf of
Customers. As of the date of filing of this Plan with the Commission, Retail A
Shares of the Corporate Bond Fund shall not initially be offered to investors.
Retail A Shares of the Bond Funds shall be subject to a
front-end sales charge which shall not initially exceed 3.75% of the offering
price of Retail A Shares of those Funds (subject to the reductions and
exemptions described in the prospectus and SAI for such Shares). When the
aggregate offering price of Retail A Shares of the Equity and Bond Funds
purchased by an investor qualifies the investor to purchase such Retail A Shares
without payment of a front-end sales charge, a contingent deferred sales charge
of 1% may be imposed if such Retail A Shares are redeemed within one year of
purchase.
Retail A Shares of the Bond Funds shall further be subject to
a fee payable pursuant to the Shareholder Services Plan adopted for that class
of up to .15% (on an annualized basis) of the average daily net asset value of
Retail A Shares beneficially owned by Customers of Institutions. Services
provided by Institutions for such fee may include: (a) aggregating and
processing purchase and redemption requests and placing net purchase and
redemption orders with the distributor; (b) processing dividend payments from a
Bond Fund; (c) providing sub-accounting with respect to Retail A Shares or the
information necessary for sub-accounting; and (d) providing periodic mailings to
Customers.
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Retail A Shares of the Bond Funds shall further be subject to
a separate fee payable pursuant to the same Shareholder Services Plan adopted
for that class of up to .15% (on an annualized basis) of the average daily net
asset value of Retail A Shares beneficially owned by Customers of Institutions.
Services provided by Institutions for such separate fee may include: (a)
providing Customers with information as to their positions in Retail A Shares;
(b) responding to Customer inquiries; and (c) providing a service to invest the
assets of Customers in Retail A Shares.
Galaxy shall initially limit the total fees payable by Retail
A Shares of the Bond Funds pursuant to the Shareholder Services Plan adopted for
that class to an amount which shall not initially exceed .15% (on an annualized
basis) of the average daily net asset value of Retail A Shares beneficially
owned by Customers of Institutions.
RETAIL B SHARES
Retail B Shares of the Bond Funds shall be offered to Direct
Investors and to Institutions who purchase the shares on behalf of Customers who
are the beneficial owners of the shares.
Retail B Shares of the Bond Funds, if redeemed within six
years of purchase, shall be subject to a contingent deferred sales charge which
shall not initially exceed 5.0% of the original purchase price or redemption
proceeds, whichever is lower (subject to the reductions and exemptions described
in the prospectus and SAI for such Shares).
Retail B Shares of the Bond Funds shall be further subject to
a fee payable pursuant to the Distribution and Services Plan adopted for the
class (a) for distribution expenses, which shall not initially exceed .65% (on
an annualized basis) of the average daily net asset value of the Bond Funds'
respective outstanding Retail B Shares, (b) for shareholder liaison services,
which shall not initially exceed .25% (on an annualized basis) of the average
daily net assets attributable to Retail B Shares of the respective Bond Funds
that are owned of record or beneficially by customers of securities dealers,
brokers, financial institutions or other industry professionals ("Service
Organizations") that provide shareholder liaison services with respect to such
customers' Retail B Shares, and (c) for administrative support services, which
shall not initially exceed .25% (on an annualized basis) of the average daily
net assets attributable to Retail B Shares of the respective Bond Funds that are
owned of record or beneficially by customers of Service Organizations that
provide administrative support services with respect to such customers' Retail B
Shares.
Galaxy shall initially limit the total fees payable by Retail
B Shares of the Bond Funds for shareholder liaison services and administrative
support services pursuant to the Distribution and Services Plan adopted for that
class to an amount not to exceed .15% (on an annualized basis) of the average
daily net asset value of Retail B Shares owned of record or beneficially by
customers of Service Organizations.
Shareholder liaison services provided under the Distribution
and Services Plan means "personal service and/or the maintenance of shareholder
accounts" within the
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meaning of the Rules of Fair Practice of the NASD, such as responding to
customer inquiries and providing information on their investments.
Administrative support services provided under the
Distribution and Services Plan may include, but are not limited to, (a) transfer
agent and subtransfer agent services for beneficial owners of Retail B Shares;
(b) aggregating and processing purchase and redemption orders; (c) providing
beneficial owners with statements showing their positions in Retail B Shares;
(d) processing dividend payments; (e) providing subaccounting services for
Retail B Shares held beneficially; (f) forwarding shareholder communications,
such as proxies, shareholder reports, dividend and tax notices, and updating
prospectuses to beneficial owners; and (g) reviewing, tabulating and
transmitting proxies executed by beneficial owners.
PRIME A SHARES
Prime A Shares of the Bond Funds shall be offered through
selected Primes to individual or institutional customers.
Prime A Shares of the Bond Funds shall be subject to a
front-end sales charge which shall not initially exceed 4.75% of the offering
price of Prime A Shares of those Funds (subject to the reductions and exemptions
described in the prospectus and SAI for such Shares). When the aggregate
offering price of Prime A Shares of the Equity and Bond Funds purchased by an
investor qualifies the investor to purchase such Prime A Shares without payment
of a front-end sales charge, a contingent deferred sales charge of 1% may be
imposed if such Prime A Shares are redeemed within one year of purchase.
Prime A Shares of the Bond Funds shall further be subject to a
fee payable pursuant to the Distribution Plan adopted for that class for
distribution expenses, which shall not initially exceed .30% (on an annualized
basis) of the average daily net asset value of the Bond Funds' respective
outstanding Prime A Shares.
PRIME B SHARES
Prime B Shares of the Bond Funds shall be offered through
selected Primes to individual or institutional customers.
Prime B Shares of the Bond Funds, if redeemed within six years
of purchase, shall be subject to a contingent deferred sales charge which shall
not initially exceed 5.0% of the original purchase price or redemption proceeds,
whichever is lower (subject to the reductions and exemptions described in the
prospectus and SAI for such Shares).
Prime B Shares of the Bond Funds shall be further subject to a
fee payable pursuant to the Distribution and Services Plan adopted for the class
(a) for distribution expenses, which shall not initially exceed .75% (on an
annualized basis) of the average daily net asset value of the Bond Funds'
respective outstanding Prime B Shares, (b) for shareholder liaison services,
which shall not initially exceed .25% (on an annualized basis) of the average
daily net assets attributable to Prime B Shares of the respective Bond Funds
that are owned of record or
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beneficially by customers of securities dealers, brokers, financial institutions
or other industry professionals ("Service Organizations") that provide
shareholder liaison services with respect to such customers' Prime B Shares, and
(c) for administrative support services, which shall not initially exceed .25%
(on an annualized basis) of the average daily net assets attributable to Prime B
Shares of the respective Bond Funds that are owned of record or beneficially by
customers of Service Organizations that provide administrative support services
with respect to such customers' Prime B Shares.
Galaxy shall initially limit the total fees payable by Prime B
Shares of the Bond Funds for shareholder liaison services and administrative
support services pursuant to the Distribution and Services Plan adopted for that
class to an amount not to exceed .25% (on an annualized basis) of the average
daily net asset value of Prime B Shares owned of record or beneficially by
customers of Service Organizations.
Shareholder liaison services provided under the Distribution
and Services Plan means "personal service and/or the maintenance of shareholder
accounts" within the meaning of the Rules of Fair Practice of the NASD, such as
responding to customer inquiries and providing information on their investments.
Administrative support services provided under the
Distribution and Services Plan may include, but are not limited to, (a) transfer
agent and subtransfer agent services for beneficial owners of Prime B Shares;
(b) aggregating and processing purchase and redemption orders; (c) providing
beneficial owners with statements showing their positions in Prime B Shares; (d)
processing dividend payments; (e) providing subaccounting services for Prime B
Shares held beneficially; (f) forwarding shareholder communications, such as
proxies, shareholder reports, dividend and tax notices, and updating
prospectuses to beneficial owners; and (g) reviewing, tabulating and
transmitting proxies executed by beneficial owners.
BKB SHARES
BKB Shares of the Bond Funds shall be issued to retail
shareholders of corresponding portfolios of the 1784 Funds in connection with
the Galaxy/1784 Reorganization. Following the Galaxy/1784 Reorganization, BKB
Shares of the Bond Funds shall be available for purchase only by those
shareholders who received BKB Shares in the Galaxy/1784 Reorganization.
BKB Shares of the Bond Funds shall not be subject to a sales
charge.
BKB Shares of the Bond Funds shall be subject to a fee payable
pursuant to the Shareholder Services Plan adopted for that class for shareholder
liaison services, which shall not initially exceed .15% (on an annualized basis)
of the average daily net asset value of BKB Shares beneficially owned by
Customers of Institutions. Services provided by Institutions for such fee may
include: (a) providing Customers with information as to their positions in BKB
Shares; (b) responding to Customer inquiries; and (c) providing a service to
invest the assets of Customers in BKB Shares.
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BKB Shares of the Bond Funds shall further be subject to a
separate fee payable pursuant to the same Shareholder Services Plan adopted for
that class for administrative support services, which shall not initially exceed
.15% (on an annualized basis) of the average daily net asset value of BKB Shares
beneficially owned by Customers of Institutions. Services provided by
Institutions for such separate fee may include: (a) aggregating and processing
purchase and redemption requests and placing net purchase and redemption orders
with the distributor; (b) processing dividend payments from a Bond Fund; (c)
providing sub-accounting with respect to BKB Shares or the information necessary
for sub-accounting; and (d) providing periodic mailings to Customers.
Galaxy shall initially limit the total fees payable by BKB
Shares of the Bond Funds pursuant to the Shareholder Services Plan adopted for
that class to an amount which shall not initially exceed .15% (on an annualized
basis) of the average daily net asset value of BKB Shares beneficially owned by
Customers of Institutions.
TRUST SHARES
Trust Shares of the Bond Funds shall be offered to investors
maintaining qualified accounts at bank and trust institutions, including
subsidiaries of FleetBoston Corporation and, with respect to each Bond Fund
other than the tax-exempt Bond Funds, to participants in employer-sponsored
defined contribution plans. Trust Shares of the Corporate Bond Fund shall also
be offered to Direct Investors and to Institutions who purchase shares on behalf
of Customers. As of the date of filing of this Plan with the Commission, Trust
Shares of the Rhode Island Municipal Bond Fund shall not initially be offered to
investors.
Trust Shares of the Bond Funds shall not be subject to a sales
charge and shall not initially be subject to the shareholder servicing fee
payable pursuant to the Shareholder Services Plan adopted but not yet
implemented with respect to such class.
3. MONEY MARKET FUNDS
RETAIL A SHARES
Retail A Shares of the Money Market Funds shall be offered to
Direct Investors and shall be offered to Institutions who purchase shares on
behalf of Customers.
Retail A Shares of the Money Market Funds shall not be subject
to a sales charge.
Retail A Shares of the Money Market Funds shall be subject to
a shareholder servicing fee payable pursuant to the Shareholder Services Plan
adopted for that class of up to .25% (on an annualized basis) of the average
daily net asset value of the Retail A Shares beneficially owned by Customers of
Institutions.
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Services provided by Institutions for such fee may include:
(a) aggregating and processing purchase and redemption requests and placing net
purchase and redemption orders with Galaxy's distributor; (b) processing
dividend payments from a Money Market Fund; (c) providing Customers with
information as to their position in BKB Shares; (d) providing sub-accounting
with respect to Retail A Shares or the information necessary for sub-accounting;
and (e) providing periodic mailings to Customers.
Galaxy shall initially limit the shareholder servicing fee
payable by Retail A Shares of the Money Market Funds pursuant to the Shareholder
Services Plan adopted for that class to an amount which shall not initially
exceed .10% (on an annualized basis) of the average daily net asset value of
Retail A Shares beneficially owned by Customers of Institutions.
RETAIL B SHARES
Retail B Shares of the Money Market Fund shall be offered to
Direct Investors and to Institutions who purchase the shares on behalf of
Customers who are the beneficial owners of the shares.
Retail B Shares of the Money Market Fund, if redeemed within
six years of purchase, shall be subject to a contingent deferred sales charge
which shall not initially exceed 5.0% of the original purchase price or
redemption proceeds, whichever is lower (subject to the reductions and
exemptions described in the prospectus and SAI for such Shares).
Retail B Shares of the Money Market Fund shall be further
subject to a fee payable pursuant to the Distribution and Services Plan adopted
for the class (a) for distribution expenses, which shall not initially exceed
.65% (on an annualized basis) of the average daily net asset value of the Money
Market Fund's outstanding Retail B Shares, (b) for shareholder liaison services,
which shall not initially exceed .05% (on an annualized basis) of the average
daily net assets attributable to Retail B Shares of the Money Market Fund that
are owned of record or beneficially by customers of securities dealers, brokers,
financial institutions or other industry professionals ("Service Organizations")
that provide shareholder liaison services with respect to such customers' Retail
B Shares, and (c) for administrative support services, which shall not initially
exceed .05% (on an annualized basis) of the average daily net assets
attributable to Retail B Shares of the Money Market Fund that are owned of
record or beneficially by customers of Service Organizations that provide
administrative support services with respect to such customers' Retail B Shares.
Shareholder liaison services provided under the Distribution
and Services Plan means "personal service and/or the maintenance of shareholder
accounts" within the meaning of the Rules of Fair Practice of the NASD, such as
responding to customer inquiries and providing information on their investments.
Administrative support services provided under the
Distribution and Services Plan may include, but are not limited to, (a) transfer
agent and subtransfer agent services for beneficial owners of Retail B Shares;
(b) aggregating and processing purchase and redemption orders; (c) providing
beneficial owners with statements showing their positions in
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Retail B Shares; (d) processing dividend payments; (e) providing sub-accounting
services for Retail B Shares held beneficially; (f) forwarding shareholder
communications, such as proxies, shareholder reports, dividend and tax notices,
and updating prospectuses to beneficial owners; and (g) reviewing, tabulating
and transmitting proxies executed by beneficial owners.
PRIME SHARES
Prime Shares of the Money Market Funds shall be offered
through selected Primes to individual or institutional customers.
Prime Shares of the Money Market Funds shall not be subject to
a sales charge.
Prime Shares of the Money Market Funds will be subject to a
fee payable pursuant to the Distribution and Services Plan adopted for the class
(a) for distribution expenses, which shall not initially exceed .75% (on an
annualized basis) of the average daily net asset value of the Money Market
Funds' respective outstanding Prime Shares, and (b) for administrative support
services, which shall not initially exceed .25% (on an annualized basis) of the
average daily net assets attributable to Prime Shares of the respective Money
Market Funds that are owned of record or beneficially by customers of Service
Organizations that provide administrative support services with respect to such
customers' Prime Shares.
Administrative support services provided under the
Distribution and Services Plan may include, but are not limited to, (a)
processing dividend and distribution payments; (b) providing beneficial owners
with statements showing their positions in Prime Shares; (c) arranging for bank
wires; (d) responding to routine inquiries from beneficial owners concerning
their investments in Prime Shares; (e) providing subaccounting services for
Prime Shares; (f) forwarding shareholder communications, such as proxies,
shareholder reports, dividends and tax notices, and updating prospectuses to
beneficial owners; and (g) aggregating and processing purchase and redemption
orders and placing net purchase and redemption orders for beneficial owners.
BKB SHARES
BKB Shares of the Money Market Funds shall be issued to retail
shareholders of corresponding portfolios of the 1784 Funds in connection with
the Galaxy/1784 Reorganization. Following the Galaxy/1784 Reorganization, BKB
Shares of the Money Market Funds shall be available for purchase only by those
shareholders who received BKB Shares in the Galaxy/1784 Reorganization.
BKB Shares of the Money Market Funds shall not be subject to a
sales charge.
BKB Shares of the Money Market Funds shall be subject to a fee
payable pursuant to the Shareholder Services Plan adopted for that class for
shareholder liaison and/or
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administrative support services, which shall not initially exceed .25% (on an
annualized basis) of the average daily net asset value of BKB Shares
beneficially owned by Customers of Institutions.
Services provided by Institutions for such fee may include:
(a) aggregating and processing purchase and redemption requests and placing net
purchase and redemption orders with the distributor; (b) processing dividend
payments from a Money Market Fund; (c) providing Customers with information as
to their position in BKB Shares; (d) providing sub-accounting with respect to
BKB Shares or the information necessary for sub-accounting; and (e) providing
periodic mailings to Customers.
Galaxy shall initially limit the fees payable by BKB Shares of
the Money Market Funds pursuant to the Shareholder Services Plan adopted for
that class to an amount which shall not initially exceed .10% (on an annualized
basis) of the average daily net asset value of BKB Shares beneficially owned by
Customers of Institutions.
TRUST SHARES
Trust Shares of the Money Market Funds shall be offered to
investors maintaining qualified accounts at bank and trust institutions,
including subsidiaries of FleetBoston Corporation, and with respect to each
Money Market Fund other than the Tax-Exempt Fund, to participants in
employer-sponsored defined contribution plans.
Trust Shares of the Money Market Funds shall not be subject to
a sales charge and shall not initially be subject to the shareholder servicing
fee payable pursuant to the Shareholder Services Plan adopted but not yet
implemented with respect to such class.
C. EXCHANGE PRIVILEGES
RETAIL A SHARES
Holders of Retail A Shares generally shall be permitted to
exchange their Retail A Shares in a Fund for Retail A Shares of other Funds of
Galaxy or shares of other funds advised by Fleet Investment Advisors Inc. or its
affiliates in which the shareholders maintain an existing account. No additional
sales charge will be incurred when exchanging Retail A Shares of a Fund for
Retail A Shares of another Fund that imposes a sales charge. Galaxy shall not
initially charge any exchange fee.
RETAIL B SHARES
Holders of Retail B Shares generally shall be permitted to
exchange their Retail B Shares in a Fund for Retail B Shares of other Funds of
Galaxy without paying any exchange fee or contingent deferred sales charge at
the time the exchange is made.
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PRIME A SHARES
Holders of Prime A Shares generally shall be permitted to
exchange their Prime A Shares in a Fund for Prime A Shares of other Funds of
Galaxy. No additional sales charge will be incurred when exchanging Prime A
Shares of a Fund for Prime A Shares of another Fund. Galaxy shall not initially
charge any exchange fee.
PRIME B SHARES
Holders of Prime B Shares generally shall be permitted to
exchange their Prime B Shares in a Fund for Prime B Shares of other Funds of
Galaxy without paying any exchange fee or contingent deferred sales charge at
the time the exchange is made.
BKB SHARES
Holders of BKB Shares generally shall be permitted to exchange
their BKB Shares in a Fund for BKB Shares of other Funds of Galaxy. Galaxy shall
not initially charge any exchange fee.
PRIME SHARES
Galaxy shall not initially offer an exchange privilege to
holders of Prime Shares.
TRUST SHARES
Galaxy shall not initially offer an exchange privilege to
holders of Trust Shares.
D. CONVERSION FEATURES
RETAIL A SHARES
Galaxy shall not initially offer a conversion feature to
holders of Retail A Shares.
RETAIL B SHARES
Retail B Shares acquired by purchase generally shall convert
automatically to Retail A Shares, based on relative net asset value, six years
after the beginning of the calendar month in which the Shares were purchased.
Retail B Shares acquired through a reinvestment of dividends
or distributions generally shall convert automatically to Retail A Shares, based
on relative net asset value, at the earlier of (a) six years after the beginning
of the calendar month in which the reinvestment occurred or (b) the date of the
most recently purchased Retail B Shares that were not acquired through
reinvestment of dividends or distributions.
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PRIME A SHARES
Galaxy shall not initially offer a conversion feature to
holders of Prime A Shares.
PRIME B SHARES
Prime B Shares acquired by purchase generally shall convert
automatically to Prime A Shares, based on relative net asset value, eight years
after the beginning of the calendar month in which the Shares were purchased.
Prime B Shares acquired through a reinvestment of dividends or
distributions generally shall convert automatically to Prime A Shares, based on
relative net asset value, at the earlier of (a) eight years after the beginning
of the calendar month in which the reinvestment occurred or (b) the date of the
most recently purchased Prime B Shares that were not acquired through
reinvestment of dividends or distributions.
BKB SHARES
BKB Shares generally shall convert to Retail A Shares, based
on relative net asset value, one year after the date of the Galaxy/1784
Reorganization, provided that Galaxy's Board of Trustees has determined that
such conversion is in the best interest of the holders of BKB Shares.
PRIME SHARES
Galaxy shall not initially offer a conversion feature to
holders of Prime Shares.
TRUST SHARES
Galaxy shall not initially offer a conversion feature to
holders of Trust Shares.
E. SHAREHOLDER SERVICES
1. RETIREMENT PLANS
RETAIL A SHARES AND RETAIL B SHARES
Galaxy shall initially make Retail A Shares and Retail B
Shares of the Funds (other than the tax-exempt Funds) available for purchase in
connection with the following tax-deferred prototype retirement plans:
individual retirement accounts, simplified employee pension plans,
multi-employee retirement plans and Keogh plans.
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PRIME A SHARES, PRIME B SHARES, BKB SHARES, PRIME SHARES
AND TRUST SHARES
Galaxy shall not initially make Prime A Shares, Prime B
Shares, BKB Shares, Prime Shares or Trust Shares of the Funds available for
purchase in connection with any retirement plans.
2. CHECKWRITING PRIVILEGE
RETAIL A SHARES AND RETAIL B SHARES - MONEY MARKET FUNDS
Galaxy shall initially offer a checkwriting privilege to
holders of Retail A Shares and/or Retail B Shares of the Money Market Funds. A
charge for use of the checkwriting privilege may be imposed by Galaxy.
RETAIL A SHARES AND RETAIL B SHARES - EQUITY FUNDS AND
BOND FUNDS
Galaxy shall not initially offer a checkwriting
privilege to holders of Retail A Shares or Retail B Shares of the Equity or Bond
Funds.
PRIME A SHARES, PRIME B SHARES, BKB SHARES, PRIME SHARES
AND TRUST SHARES
Galaxy shall not initially offer a checkwriting
privilege to holders of Prime A Shares, Prime B Shares, BKB Shares, Prime Shares
or Trust Shares.
3. AUTOMATIC INVESTMENT PROGRAM
RETAIL A SHARES AND RETAIL B SHARES
Direct Investors shall initially be offered an automatic
investment program whereby a Direct Investor generally may purchase Retail A
Shares and/or Retail B Shares of a Fund on a monthly or quarterly basis by
having a specific amount of money debited from his/her account at a financial
institution.
Galaxy shall not initially offer an automatic investment
program to Customers of Institutions.
PRIME A SHARES, PRIME B SHARES, BKB SHARES, PRIME SHARES
AND TRUST SHARES
Galaxy shall not initially offer an automatic investment
program to holders of Prime A Shares, Prime B Shares, BKB Shares, Prime Shares
or Trust Shares.
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4. SYSTEMATIC WITHDRAWAL PLAN
RETAIL A SHARES AND RETAIL B SHARES
Direct Investors shall initially be offered a systematic
withdrawal plan which, in general, shall permit a Direct Investor to
automatically redeem Retail A Shares and/or Retail B Shares on a monthly,
quarterly, semi-annual or annual basis.
Galaxy shall not initially offer a systematic withdrawal
plan to Customers of Institutions.
PRIME A SHARES, PRIME B SHARES, BKB SHARES, PRIME SHARES
AND TRUST SHARES
Galaxy shall not initially offer a systematic withdrawal
plan to holders of Prime A Shares, Prime B Shares, Prime Shares or Trust Shares.
5. COLLEGE INVESTMENT PROGRAM
RETAIL A SHARES AND RETAIL B SHARES
Direct Investors shall initially be offered a college
investment program whereby a Direct Investor may purchase Retail A Shares and/or
Retail B Shares of a Fund as a means to finance a college savings plan.
Galaxy shall not initially offer a college investment
program to Customers of Institutions.
PRIME A SHARES, PRIME B SHARES, BKB SHARES, PRIME SHARES
AND TRUST SHARES
Galaxy shall not initially offer a college investment
program to holders of Prime A Shares, Prime B Shares, BKB Shares, Prime Shares
or Trust Shares.
6. DIRECT DEPOSIT PROGRAM
RETAIL A SHARES AND RETAIL B SHARES
Direct Investors receiving social security benefits
shall initially be eligible for a direct deposit program whereby a Direct
Investor generally may purchase Retail A Shares and/or Retail B Shares of a Fund
by having social security payments automatically deposited into his or her Fund
account.
Galaxy shall not initially offer a direct deposit
program to Customers of Institutions.
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PRIME A SHARES, PRIME B SHARES, BKB SHARES, PRIME SHARES
AND TRUST SHARES
Galaxy shall not initially offer a direct deposit
program to holders of Prime A Shares, Prime B Shares, BKB Shares, Prime Shares
or Trust Shares.
7. INFORMATION SERVICES
RETAIL A SHARES AND RETAIL B SHARES
Holders of Retail A Shares and Retail B Shares shall
initially be able to obtain Fund performance and investment information 24 hours
a day, 7 days a week by telephoning the Galaxy Information Center - 24 Hour
Information Service.
Galaxy shall initially offer Direct Investors a Voice
Response System which, in general, will provide a Direct Investor with automated
telephone access to Fund and account information and the ability to make
telephone exchanges and redemptions. Galaxy shall not initially offer Customers
of Institutions a voice response system.
Galaxy shall initially offer Direct Investors a Galaxy
Shareholder Services telephone number which, in general, will provide a Direct
Investor with account information and recent exchange transaction information.
Galaxy shall not initially offer Customers of Institutions a shareholder
services telephone number.
PRIME A SHARES, PRIME B SHARES, BKB SHARES, PRIME SHARES
AND TRUST SHARES
Galaxy shall initially offer holders of Prime A Shares,
Prime B Shares, BKB Shares, Prime Shares and Trust Shares a telephone number to
call for applications and information concerning initial purchases and current
performance and a telephone number to call for additional purchases,
redemptions, exchanges and other shareholder services.
Galaxy shall initially offer holders of Trust Shares in
the Corporate Bond Fund the information services described for Retail Shares.
8. PAYROLL DEDUCTION PROGRAM
RETAIL A SHARES AND RETAIL B SHARES
Direct Investors shall initially be offered a payroll
deduction program whereby a Direct Investor may purchase Retail A Shares and/or
Retail B Shares of a Fund each pay period by having a specific amount of money
debited from his/her paycheck.
Galaxy shall not initially offer a payroll deduction
program to Customers of Institutions.
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PRIME A SHARES, PRIME B SHARES, BKB SHARES, PRIME SHARES
AND TRUST SHARES
Galaxy shall not initially offer a payroll deduction
program to holders of Prime A Shares, Prime B Shares, BKB Shares, Prime Shares
or Trust Shares.
F. METHODOLOGY FOR ALLOCATING EXPENSES AMONG CLASSES
Class-specific expenses of a Fund shall be allocated to the specific
class of shares of that Fund. Non-class-specific expenses of a Fund shall be
allocated in accordance with Rule 18f-3(c) under the 1940 Act.
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