[front cover]
Annual Report
October 31, 1998
[cover graphics: acorn, column, graduation cap, handshake]
Galaxy Tax-Free Bond Funds
Galaxy Funds
Galaxy Tax-Exempt Bond Fund
Galaxy New Jersey Municipal
Bond Fund
Galaxy New York Municipal
Bond Fund
Galaxy Connecticut Municipal
Bond Fund
Galaxy Massachusetts Municipal
Bond Fund
Galaxy Rhode Island Municipal
Bond Fund
[Galaxy Funds logo]
<PAGE>
- ----------
CHAIRMAN'S
MESSAGE
- ----------
Dear Shareholder:
Enclosed is the performance report for the Galaxy Tax-Free Bond Funds,
which covers the fiscal year ended October 31, 1998. This report includes a
Market Overview that discusses the key economic and market trends affecting your
investments over this time, as well as individual Portfolio Reviews that
describe the strategies Fleet Investment Advisors used in this environment. In
the pages that follow, you will find separate financial statements and financial
highlights for each Fund and a list of Fund investments as of October 31, 1998.
The fiscal year brought many dramatic changes to the bond market. Despite
continued economic strength, inflation remained low. With signs that growth was
slowing, the Federal Reserve reduced interest rates twice near the end of the
period ended October 31, 1998. In this climate, bond prices rallied for much of
the year and yields moved lower.
The possibility for slower growth came largely from increasing economic
problems in Asia and other emerging markets. With expectations for lower
corporate earnings, investors from many parts of the world looked to U.S.
Treasury securities for safety. In this "flight to quality," stock prices
experienced a sharp correction, and gains for other fixed-income securities --
including municipal bonds -- lagged increasingly behind those for Treasuries.
Price gains for municipals also suffered as lower interest rates increased the
supply of issues.
During this time we emphasized quality municipal bonds with strong credit
characteristics. We also gave added attention to municipals that offered good
value and could make the most of a bond market rally. These strategies helped
the Galaxy Tax-Free Bond Funds perform well against other funds with similar
investment objectives.
Given the strong fluctuations in stocks and bonds over the last few
months, this may be a good time to rebalance your investments. By restoring your
portfolio to its original allocations, you improve the chance that it is
properly diversified. Diversification, as experienced investors know, can help
to minimize investment risk. You can further limit risk by maintaining your
long-term investment plan and by using strategies like dollar-cost averaging --
in which you invest the same amount of money at regular intervals, in good times
and bad.
Your investment professional can help you implement these and other
risk-reduction techniques. If you have any questions about the information in
this report, please contact the Galaxy Information Center at 1-877-BUY-GALAXY
(289-4252), or visit our Investment Specialists located at Fleet branches.
Sincerely,
/s/ Dwight E. Vicks, Jr.
Dwight E. Vicks, Jr.
Chairman of the Board of Trustees
[start sidebar]
Mutual Funds:
[bullet] are not bank deposits
[bullet] are not FDIC insured
[bullet] are not obligations of Fleet Bank
[bullet] are not guaranteed by Fleet Bank
[bullet] are subject to investment risk including possible loss of principal
amount invested
[end sidebar]
<PAGE>
- ---------------
MARKET OVERVIEW
- ---------------
TAX-FREE BOND MARKET OVERVIEW
By Fleet Investment Advisors Inc.
[start sidebar]
"Bonds rallied as
foreign economic
problems clouded the
outlook for U.S.
economic growth, and
the Federal Reserve
(the "Fed") cut
short-term interest
rates on two
different occasions
by a total of 50
basis points. Low
inflation, a
decreased supply of
Treasury securities
and the flight of
investors from
stocks into safer
investments also
helped bonds
advance."
[end sidebar]
Bond prices traded in a narrow range for much of the fiscal year ended
October 31, 1998, and then rose sharply during the last four months of the
period. Bonds rallied as foreign economic problems clouded the outlook for U.S.
economic growth, and the Federal Reserve (the "Fed") cut short-term interest
rates on two different occasions by a total of 50 basis points. Low inflation, a
decreased supply of Treasury securities and the flight of investors from stocks
into safer investments also helped bonds advance.
Although municipal bonds participated in the rally, they underperformed
Treasury issues for most of the period. This was due largely to the low interest
rates, which encouraged the issuance of new municipal debt, which in turn
dampened the demand for municipals.
Interest Rates Plummet
By the end of 1997 the annual rate of inflation was about 2.2%, 30-year
Treasury bonds were yielding 6.15% and the Bond Buyer Index (a market benchmark
for municipal bonds) had a yield of 5.40%. During the fourth quarter of 1997,
the gross domestic product ("GDP"), which measures the production of U.S. goods
and services, grew to an annual rate of 3.7%. Although employment remained
strong, keeping upward pressure on wages, inflation fell to an annual rate of
1.9% by year's end.
Overseas, the emerging economies of Asia continued the downward spiral
that began in the summer of 1997. Believing this could threaten U.S. exports and
growth, investors waited for the Fed to cut interest rates. Meanwhile, a flight
to quality drove the world's investors into U.S. Treasury securities. In this
climate, the yield for long-term Treasuries fell to 5.69% by the middle of
January 1998 -- the lowest level since 30-year bonds were introduced in 1977.
In 1998's first quarter, inflation dropped to an annual rate of 1.4% due
largely to a steep drop in energy prices. With a flood of cash from Asia, lower
import prices, and con-
Performance At-A-Glance
Average Annual Returns as of October 31, 1998
Trust Shares
[start bar charts]
Tax-Exempt Bond Fund
Inception Date 12/30/91
<TABLE>
<S> <C>
1 year 7.85%
3 years 6.87%
5 years 5.73%
Life of Fund 7.09%
</TABLE>
New Jersey Municipal Bond Fund
Inception Date 4/3/98
<TABLE>
<S> <C>
Life of Fund 4.48%
</TABLE>
New York Municipal Bond Fund
Inception Date 12/31/91
<TABLE>
<S> <C>
1 year 7.82%
3 years 6.84%
5 years 5.55%
Life of Fund 6.85%
</TABLE>
Connecticut Municipal Bond Fund
Inception Date 3/16/93
<TABLE>
<S> <C>
1 year 7.81%
3 years 6.79%
5 years 5.61%
Life of Fund 6.02%
</TABLE>
Massachusetts Municipal Bond Fund
Inception Date 3/12/93
<TABLE>
<S> <C>
1 year 7.42%
3 years 6.57%
5 years 5.37%
Life of Fund 5.73%
</TABLE>
[end bar charts]
1
<PAGE>
- ---------------
MARKET OVERVIEW
- ---------------
[start sidebar]
"The Fed reduced
short-term rates by
25 basis points on
September 29, 1998.
This helped drive
30-year Treasury
yields to 4.71% by
October 5, 1998."
[end sidebar]
tinued gains for U.S. stocks, U.S. growth in GDP reached an annual rate of 5.5%.
This reduced the chance of a rate cut, which sent bond yields higher.
As Asia's troubles spread to Japan and dampened earnings for U.S. firms,
GDP growth slowed to an annual rate of 1.6% in the second quarter of 1998.
However, with consumer spending still strong, and inflation modest, stock prices
continued to rally. This caused the Fed to suggest it might have to raise
interest rates to keep stocks from overheating the economy. In this environment
of economic uncertainty, bonds traded in a narrow range.
By June, with further evidence that U.S. growth was slowing, bonds resumed
their advance. The rally continued into the third quarter of 1998. Although U.S.
GDP grew at an annual rate of 3.9%, economic turmoil in the emerging economies
of Russia and Latin America prompted fears of a worldwide recession. As a
result, investors sought safety, demand for Treasuries rose, and the market
began to anticipate a cut in interest rates again.
The Fed reduced short-term rates by 25 basis points on September 29, 1998.
This helped drive 30-year Treasury yields to 4.71% by October 5, 1998. Demand
for corporate bonds and even issues of U.S. government agencies dried up with
growing credit quality concerns. On October 15, 1998, the Fed reduced rates by
another 25 basis points to dampen the impact of a developing credit crunch.
As the threat of a worldwide recession ebbed, and the Japanese yen
improved against the U.S. dollar, long-term Treasury yields edged higher. At the
close of the reporting period, 30-year Treasuries were yielding 5.16%. With the
Bond Buyer Index bearing a yield of 5.13%, municipal yields had reached an
historically high percentage versus yields for Treasuries of comparable
maturities.
[start bar charts]
Performance At-A-Glance
Average Annual Returns as of October 31, 1998
Retail A Shares*
Tax-Exempt Bond Fund
Inception Date 12/30/91
<TABLE>
<S> <C>
1 year 3.57%
3 years 5.26%
5 years 4.73%
Life of Fund 6.35%
</TABLE>
New Jersey Municipal Bond Fund
Inception Date 4/3/98
<TABLE>
<S> <C>
Life of Fund 0.43%
</TABLE>
New York Municipal Bond Fund
Inception Date 12/31/91
<TABLE>
<S> <C>
1 year 3.63%
3 years 5.27%
5 years 4.58%
Life of Fund 6.13%
</TABLE>
Connecticut Municipal Bond Fund
Inception Date 3/16/93
<TABLE>
<S> <C>
1 year 3.52%
3 years 5.24%
5 years 4.63%
Life of Fund 5.14%
</TABLE>
Massachusetts Municipal Bond Fund
Inception Date 3/12/93
<TABLE>
<S> <C>
1 year 3.19%
3 years 5.03%
5 years 4.42%
Life of Fund 4.89%
</TABLE>
Rhode Island Municipal Bond Fund
Inception Date 12/20/94
<TABLE>
<S> <C>
1 year 3.28%
3 years 5.41%
Life of Fund 7.11%
</TABLE>
*Return figures have been restated to include the
effect of the maximum 3.75% front-end sales charge
which became effective on December 1, 1995.
[end bar charts]
2
<PAGE>
- ---------------
MARKET OVERVIEW
- ---------------
Adding Income and Price Gains
During this time we tried to add municipal bonds to the portfolios of the
Galaxy Tax-Free Bond Funds that would perform well in a falling interest rate
environment. Near the end of 1997, we bought municipals with lower coupons that
were selling at discounted prices and we also added longer-term bonds to our
portfolios. Both investments performed well as bonds rallied at the end of year.
When the extra value in lower-coupon issues became exhausted at the start
of 1998, we swapped into municipals with higher coupons. These issues, along
with the longer maturities, performed well when bonds rallied later in the year.
Throughout the period we emphasized municipals with strong credit
fundamentals. We also increased investments in municipals that could not be
called in for refinancing by their issuers. These securities outperformed as
rates fell and helped reduce the volatility of returns for the Funds.
Reduced Supplies Likely
With U.S. trade, manufacturing, and consumer confidence now easing, we
think U.S. earnings are likely to shrink in the months ahead. This could slow
GDP growth in the first half of 1999. To keep economies growing at home and
abroad, the Fed may have to cut interest rates further. In this climate, bond
prices could continue to rally -- perhaps with periods of significant
volatility.
In 1999, returns for municipals may benefit from an easing in supply. In
this environment, with municipal yields historically high versus yields for
Treasuries, we will remain focused on noncallable municipals with premium
coupons and strong credit fundamentals. For now, we plan to maintain our current
maturity structure.
[start bar charts]
Performance At-A-Glance
Average Annual Returns as of October 31, 1998
Retail B Shares*
<TABLE>
<S> <C>
One year returns before contingent
deferred sales charge deducted. 6.95%
One year returns after contingent
deferred sales charge deducted as if
shares were redeemed at the end of
period. 1.95%
Life of fund returns before contingent
deferred sales charge deducted. 5.56%
Life of fund returns after contingent
deferred sales charge deducted as if
shares were redeemed at end of period. 4.52%
</TABLE>
[end bar charts]
* Retail B Shares are subject to a 5.00% contingent deferred sales charge if
shares are redeemed within the first year. The charge decreases to 4.00%,
3.00%, 3.00%, 2.00% and 1.00% for redemptions made during the second through
sixth years, respectively. Retail B Shares automatically convert to Retail A
Shares after six years.
3
<PAGE>
- -----------------
PORTFOLIO REVIEWS
- -----------------
GALAXY TAX-EXEMPT BOND FUND
By Glenn Migliozzi
Member, Tax-Exempt Investment Policy Committee
[photo: Glenn Migliozzi]
With more than half of new municipal bonds having insurance in the year
ended October 31, 1998, much of the credit risk municipals carry shifted to bond
issuers. Meanwhile, a strong economy boosted state and local tax collections,
which helped municipal balance sheets. The Galaxy Tax-Exempt Bond Fund
outperformed in this environment, as we continued to emphasize issues with
strong credit fundamentals, premium coupons, longer maturities and good call
protection.
During the reporting period the Fund's Trust Shares earned a total return
of 7.85%. Over the same time, Retail A Shares had a total return of 7.60% before
deducting the maximum 3.75% front-end sales charge, and Retail B Shares had a
total return of 6.95% before deducting the maximum 5.00% contingent deferred
sales charge. (Please see the chart on page 2 for total returns after deducting
the front-end sales charge and the chart on page 3 for returns after deducting
the contingent deferred sales charge.)
Over the same time, the average general municipal bond fund followed by
Lipper Analytical Services ("Lipper"), a mutual fund performance tracking
service, had a total return of 7.12%, and the Lehman Brothers Municipal Bond
Index had a total return of 8.02%.
[start pie chart]
Galaxy Tax-Exempt Bond Fund
Distribution of Total Net Assets as of October 31, 1998
East 36%
South 32%
North Central 15%
Pacific 8%
Mountain 4%
Other Territories 3%
Cash Equivalents &
Net Other Assets & Liabilities 2%
[end pie chart]
On October 31, 1998, the Fund's Trust Shares had a 30-day Securities and
Exchange Commission ("SEC") annualized yield of 3.97%. On the same date, Retail
A Shares had a 30-day SEC annualized yield of 3.68%, and Retail B Shares had a
30-day SEC annualized yield of 3.14%. For shareholders in the 36% federal income
tax bracket, these equaled taxable yields of 6.20%, 5.75%, and 4.91%
respectively.
Higher Coupons, Longer Maturities
In the final months of 1997, we found attractive opportunities in
municipal bonds with lower coupons that were selling at discounted prices.
Having underperformed earlier in the year, these issues outperformed as interest
rates fell at year's end. The emphasis on longer-term issues continued to
benefit the Fund when bonds rallied early in 1998. As yields rose in the spring,
we had the opportunity to increase the Fund's income with higher-coupon
municipals. The Fund's overall
[start mountain chart]
Galaxy Tax-Exempt Bond Fund
Growth of $10,000 investment*
<TABLE>
<CAPTION>
Lehman Galaxy Galaxy Galaxy
Brothers Tax-Exempt Tax-Exempt Tax-Exempt
Municipal Bond Fund - Bond Fund - Bond Fund -
Bond Index Retail A Shares Trust Shares Retail B Shares
<S> <C> <C> <C> <C>
12/30/91 10000 9625 10000
1992 10582 10062 10455
1993 12072 11635 12089
1994 11546 11082 11515
1995 13213 12657 13084 10000
1996 13967 13167 13742 9615
1997 15465 14153 14807 10398
10/31/98 16705 15229 15970 11250
</TABLE>
*Since inception on 12/30/91 for Trust and Retail A Shares. Since inception on
3/4/96 for Retail B Shares. Performance figures for Retail A Shares include the
effect of the maximum 3.75% front-end sales charge. Performance figures for
Retail B Shares reflect the deduction of the maximum 5.00% contingent deferred
sales charge as if shares were redeemed on October 31, 1998. The Lehman
Brothers Municipal Bond Index is an unmanaged index in which investors cannot
invest. Results for the index do not reflect investment management fees and
other expenses incurred by the Fund.
[end mountain chart]
4
<PAGE>
- -----------------
PORTFOLIO REVIEWS
- -----------------
maturity structure enhanced returns as bonds rallied in the second and third
quarters of 1998.
Throughout the period, we remained committed to municipals with strong
credit fundamentals and good call protection. These issues performed
particularly well as the bond market rallied in the third quarter of 1998. The
Fund also benefitted from our focus on states where high tax rates kept demand
for tax-free income relatively strong.
Looking Ahead
If interest rates decline further, as we expect, the Fund should continue
to benefit from its emphasis on high coupons and longer maturities. As in
previous months, we will continue to look for noncallable issues from states
with strong demand for tax-free income.
GALAXY NEW JERSEY MUNICIPAL BOND FUND
By Glenn Migliozzi
Member, Tax-Exempt Investment Policy Committee
The Galaxy New Jersey Municipal Bond Fund seeks a high level of current
interest income that is exempt from federal income tax and, to the extent
possible, from New Jersey personal income tax. To achieve this objective, the
Fund invests primarily in securities issued by state and municipal government
agencies or other issuers of tax-exempt debt in New Jersey.
From the Fund's inception on April 3, 1998 through October 31, 1998, its
Trust Shares had a total return of 4.48%. Over the same time, Retail A Shares
had return of 4.34% before deducting the maximum 3.75% front-end sales charge.
(Please see the chart on page 2 for total returns after deducting the front-end
sales charge.) The Lehman Brothers Municipal Bond Index had a total return of
4.64% for the same period.
On October 31, 1998, the Fund's Trust Shares had a 30-day SEC annualized
yield of 3.55%. On the same date, the Fund's Retail A Shares had a 30-day SEC
annualized yield of 3.40%. This equaled a taxable yield of 5.55% and 5.31%,
respectively, for taxpayers in the 36% federal income tax bracket who live in
the State of New Jersey.
Attention to Income
As we launched the Fund in April of 1998, the direction of the economy was
uncertain. In order to generate strong income for shareholders, we bought
municipals with coupons of 5% or higher and maturities of 10 to 20 years. We
felt these issues could also help protect the value of Fund shares if the
economy continued to grow rapidly and bond prices weakened.
In choosing the Fund's investments we bought a diverse mix of state and
local general obligation bonds and revenue bonds. By
[start pie chart]
Galaxy New Jersey Municipal Bond Fund
Distribution of Total Net Assets as of October 31, 1998
New Jersey 92%
Other Territories and
Net Other Assets & Liabilities 6%
Cash Equivalents 2%
[end pie chart]
5
<PAGE>
- -----------------
PORTFOLIO REVIEWS
- -----------------
emphasizing securities that could not be called in by their issuers, we hoped to
further enhance the Fund's performance. During this year's volatile market, a
focus on municipals with strong credit fundamentals helped the Fund's
performance.
Well Positioned for Lower Interest Rates
The Fund should continue to benefit in the months to come from its
emphasis on quality, high coupon issues with good call structure. If interest
rates continue to decline, as we expect, the portfolio should maintain a strong
income stream. As before, we plan to look for opportunities to invest in
municipals that offer good value -- while maintaining a diversified mix of
securities.
[start mountain chart]
Galaxy New Jersey Municipal Bond Fund
Growth of $10,000 investment*
<TABLE>
<CAPTION>
Galaxy
New Jersey Galaxy
Municipal New Jersey
Lehman Brothers Bond Fund - Municipal
Municipal Bond Retail A Bond Fund -
Index Shares Trust Shares
<S> <C> <C> <C>
4/3/98 10,000 9,625 10,000
10/31/98 10,464 10,043 10,448
</TABLE>
*Since inception on 4/3/98. Performance figures for Retail A Shares include the
effect of the maximum 3.75% front-end sales charge. The Lehman Brothers
Municipal Bond Index is an unmanaged index in which investors cannot invest.
Results for the index do not reflect investment management fees and other
expenses incurred by the Fund. Results for the index are calculated since
4/30/98 because the index returns are calculated at month-end only.
[end mountain chart]
GALAXY NEW YORK MUNICIPAL BOND FUND
By Glenn Migliozzi
Member, Tax-Exempt Investment Policy Committee
Supplies of municipals were heavy in the State of New York in the past
year, as the strong economy led to an upgrade for credit ratings of several
large issuers. By emphasizing investments with high coupons, longer maturities,
and good call protection, we provided the Galaxy New York Municipal Bond Fund
with a solid stream of income and healthy price gains. This helped the Fund earn
a total return that outpaced the average annual return for other funds in its
class.
For the fiscal year ended October 31, 1998, the Fund's Trust Shares had a
total return of 7.82%. During the same time, Retail A Shares returned 7.65%
before deducting the maximum 3.75% front-end sales charge. (Please see the chart
on page 2 for total returns after deducting the front-end sales charge.) Over
this period the average New York tax-exempt bond fund tracked by Lipper returned
7.34%, and the Lehman Municipal Bond Index returned 8.02%.
On October 31, 1998, the Fund's Trust Shares had a 30-day SEC annualized
yield of 3.74%. On the same date, Retail A Shares had a 30-day SEC annualized
yield of 3.45%. These are the same as taxable yields of 5.84% and 5.39%,
respectively, for shareholders in
[start pie chart]
Galaxy New York Municipal Bond Fund
Distribution of Total Net Assets as of October 31, 1998
New York 96%
Cash Equivalents 1%
Net Other Assets & Liabilities 1%
Pennsylvania 1%
Other Territories 1%
[end pie chart]
6
<PAGE>
- -----------------
PORTFOLIO REVIEWS
- -----------------
the 36% federal income tax bracket who live in the State of New York.
Increasing Income and Appreciation
When the period began in November 1997, we were swapping investments with
coupons near market rates for issues with coupons slightly below market rates
that were selling at discounted prices. In the months that followed we also
added longer-term issues to the portfolio. These strategies helped Fund returns
as interest rates fell.
The investments in longer-term issues further enhanced returns when bonds
rallied early in 1998. When bond prices fell in the spring, we offset the
underperformance of longer maturities with premium-coupon issues that had
shorter maturities. This portfolio structure continued to enhance returns as
bond prices rose in the second and third quarters of 1998.
The Fund also benefited from our commitment to municipals with strong
credit fundamentals. With investors focused on quality in the third quarter,
these issues performed especially well. As before, we emphasized issues that had
good call protection.
[start mountain chart]
Galaxy New York Municipal Bond Fund
Growth of $10,000 investment*
<TABLE>
<CAPTION>
Galaxy
New York Galaxy
Lehman Municipal New York
Brothers Bond Fund - Municipal
Municipal Retail A Bond Fund -
Bond Index Shares Trust Shares
<S> <C> <C> <C>
12/31/91 10000 9625 10000
1992 10582 9993 10383
1993 12072 11558 12009
1994 11546 10870 11294
1995 13213 12395 12901
1996 13967 12928 13488
10/31/97 15465 13954 14590
10/31/98 16705 15021 15731
</TABLE>
*Since inception on 12/31/91. Performance figures for Retail A Shares include
the effect of the maximum 3.75% front-end sales charge. The Lehman Brothers
Municipal Bond Index is an unmanaged index in which investors cannot invest.
Results for the index do not reflect investment management fees and other
expenses incurred by the Fund.
[end mountain chart]
Anticipating Further Rate Declines
We believe these strategies will continue to serve the Fund well in months
to come. Should interest rates fall further, as we expect, municipals with
longer maturities, high coupons, and good call protection should again
outperform. As economic uncertainty brings volatility in bond prices, we plan to
take advantage of changes in yield spread relationships among municipal credits
to add value to the portfolio.
GALAXY CONNECTICUT MUNICIPAL BOND FUND
By Glenn Migliozzi
Member, Tax-Exempt Investment Policy Committee
Although interest rate declines of the past year led to increased supplies
of municipal bonds elsewhere in the country, municipal supplies in Connecticut
remained relatively light. This provided additional price support to investments
in the Galaxy Connecticut Municipal Bond Fund. The Fund also benefited from our
emphasis on longer-
[start pie chart]
Galaxy Connecticut Municipal Bond Fund
Distribution of Total Net Assets as of October 31, 1998
Connecticut 86%
Other Territories 12%
Net Other Assets & Liabilities 1%
Cash Equivalents 1%
[end pie chart]
7
<PAGE>
- -----------------
PORTFOLIO REVIEWS
- -----------------
term issues and our selection of coupons.
For the fiscal year ended October 31, 1998, the Fund's Trust Shares earned
a total return of 7.81%. Before deducting the maximum 3.75% front-end sales
charge, Retail A Shares earned a return of 7.58%. (Please see the chart on page
2 for total returns after deducting the front-end sales charge.) During the same
period, the average Connecticut municipal bond fund tracked by Lipper returned
7.19% and the Lehman Brothers Municipal Bond Index returned 8.02%.
On October 31, 1998, the Fund's Trust Shares had a 30-day SEC annualized
yield of 3.57%. On the same date, Retail A Shares had a SEC 30-day annualized
yield of 3.28%. These equal taxable yields of 5.58% and 5.13%, respectively, for
shareholders in the 36% federal income tax bracket who live in the State of
Connecticut.
[start mountain chart]
Galaxy Connecticut
Municipal Bond Fund
Growth of $10,000 investment*
<TABLE>
<CAPTION>
Galaxy
Connecticut Galaxy
Municipal Connecticut
Lehman Brothers Bond Fund - Municipal
Municipal Bond Retail A Bond Fund-
Index Shares Trust Shares
<S> <C> <C> <C>
3/16/93 10000 9625 10000
1993 10697 10183 10580
1994 10231 9532 9902
1995 12594 10956 11413
1996 12952 11429 11930
1997 14776 12327 12891
10/31/98 15961 13261 13898
</TABLE>
* Since inception on 3/16/93. Performance figures for Retail A Shares include
the effect of the maximum 3.75% front-end sales charge. The Lehman Brothers
Municipal Bond Index is an unmanaged index in which investors cannot invest.
Results for the index do not reflect the expenses and investment management
fees and other expenses incurred by the Fund. Results for the index are
calculated since 3/31/93 because the index returns are calculated at month-end
only.
[end mountain chart]
Longer Maturities Boost Income and
Price Gains
At the start of the reporting period (the final months of 1997) we
purchased municipals with longer maturities. We also bought issues with lower
coupons that had underperformed earlier in the year and were selling at
discounted prices. These additions performed well as bonds rallied at the end of
the year.
When bonds rallied early in 1998, the longer maturities continued to
outperform. As bond prices fell in the spring, we took the opportunity to buy
municipals with higher coupons. The attention to higher coupons and longer
maturities served the Fund well when bonds rallied again in the second and third
quarters of 1998.
During the reporting period, the Fund also benefited from our emphasis on
high-quality issues with top credit ratings. These issues performed especially
well as credit quality became increasingly important to investors in the third
quarter. A commitment to municipals that could not be called by their issuers
further enhanced returns as interest rates fell.
A Good Mix for Falling Interest Rates
We plan to maintain a similar portfolio mix in the months ahead. We
believe municipals with longer maturities, high coupons, and good call
protection will continue to out-
8
<PAGE>
- -----------------
PORTFOLIO REVIEWS
- -----------------
perform if interest rates fall. As in previous months, we plan to continue to
look for opportunities to add value to the portfolio by taking advantage of
changes in profit spreads among municipal securities.
GALAXY MASSACHUSETTS
MUNICIPAL BOND FUND
By Glenn Migliozzi
Member, Tax-Exempt Investment Policy Committee
As falling interest rates encouraged heavy supplies of municipal issues,
issuance in Massachusetts increased substantially. In this environment we sought
investments for the Galaxy Massachusetts Municipal Bond Fund that offered
particularly good value and adjusted the portfolio's mix of coupons and
maturities to enhance the Fund's income and share price. These strategies helped
the Fund perform well against other funds in its class.
For the fiscal year ended October 31, 1998, the Fund's Trust Shares earned
a total return of 7.42%. Over the same time, Retail A Shares had a return of
7.22% before deducting the maximum 3.75% front-end sales charge. (Please see the
chart on page 2 for total returns after deducting the front-end sales charge.)
These returns compared to 7.02% for the average Massachusetts Municipal Bond
Fund tracked by Lipper and 8.02% for the benchmark Lehman Brothers Municipal
Bond Index.
[start pie chart]
Galaxy Massachusetts
Municipal Bond Fund
Distribution of Total Net Assets as of October 31, 1998
Massachusetts 89%
Other Territories 7%
Cash Equivalents &
Net Other Assets & Liabilities 2%
Texas 2%
[end pie chart]
On October 31, 1998, the Fund's Trust Shares had a 30-day SEC annualized
yield of 4.00% and Retail A Shares had a 30-day SEC annualized yield of 3.84%.
These equaled taxable yields of 6.25% and 6.00% for shareholders in the 36%
federal income tax bracket who live in the Commonwealth of Massachusetts.
Making the Most of Falling Interest Rates
At the end of 1997, when the reporting period started, we bought municipal
bonds with low coupons that had underperformed earlier in the year and were
selling at discounted prices. We also increased the Fund's position in
longer-term issues. These investments outperformed other sectors of the
municipal market as interest rates fell in November and December.
[start mountain chart]
Galaxy Massachusetts Municipal Bond Fund
Growth of $10,000 investment*
<TABLE>
<CAPTION>
Galaxy Galaxy
Lehman Brothers Massachusetts Massachusetts
Municipal Bond Municipal Bond Fund - Municipal Bond Fund -
Index Retail A Shares Trust Shares
<S> <C> <C> <C>
3/12/93 10000 9625 10000
1993 10584 10146 10542
1994 10231 9491 9859
1995 12594 10868 11312
1996 12952 11309 11795
10/31/97 14776 12204 12746
</TABLE>
[end mountain chart]
* Since inception on 3/12/93. Performance figures for Retail A Shares include
the effect of the maximum 3.75% front-end sales charge. The Lehman Brothers
Municipal Bond Index is an unmanaged index in which investors cannot invest.
Results for the index do not reflect investment management fees and other
expenses incurred by the Fund. Results for the index are calculated since
3/31/93 because the index returns are calculated at month-end only.
9
<PAGE>
- -----------------
PORTFOLIO REVIEWS
- -----------------
The addition of longer maturities continued to enhance Fund returns when
bonds rallied early in 1998. While the longer maturities underperformed, as bond
prices retreated in the spring, we were able to improve Fund returns by adding
higher-coupon issues. The emphasis on higher coupons and longer maturities
contributed further to returns as bonds rallied in the second and third quarters
of 1998.
With investors focused on quality, the Fund further benefited during the
period from our attention to issues with strong credit ratings. Throughout the
period, we also increased the representation of municipals that could not be
called in by their issuers. Besides adding income as interest rates fell, these
issues enhanced the value of Fund shares.
Continued Focus on Income
These strategies should further enhance Fund returns if interest rates
continue to fall -- since investors typically favor issues with high coupons,
longer maturities, and good call protection in such an environment. As before,
we plan to monitor changes in the spreads between yields of different securities
to add investments that offer good value.
[start pie chart]
Galaxy Rhode Island Municipal Bond Fund
Distribution of Total Net Assets as of October 31, 1998
Rhode Island 79%
Other Territories 16%
Cash Equivalents &
Net Other Assets & Liabilities 3%
Illinois 1%
Texas 1%
[end pie chart]
GALAXY RHODE ISLAND
MUNICIPAL BOND FUND
By Glenn Migliozzi
Member, Tax-Exempt Investment Policy Committee
Although low interest rates increased new issues of municipal bonds in
much of the country, supplies remained relatively modest in Rhode Island. This
increased the value of existing municipal issues in the state. In this climate,
we enhanced returns for the Galaxy Rhode Island Municipal Bond Fund by
emphasizing a portfolio structure that could make the most of a low interest
rate environment.
During the period the Fund's Retail A Shares earned a total return of
7.35% before deducting the maximum 3.75% front-end sales charge. (Please see
chart on page 2 for total returns after deducting the front-end sales charge.)
Over the same time the average Rhode Island municipal bond fund tracked by
Lipper had a total return of 7.19%, and the Lehman Brothers Municipal Bond Index
had
[start mountain chart]
Galaxy Rhode Island Municipal Bond Fund
Growth of $10,000 investment*
<TABLE>
<CAPTION>
Galaxy
Rhode Island
Lehman Brothers Municipal
Municipal Bond Bond Fund -
Index Retail A Shares
<S> <C> <C>
12/20/94 10000 9625
1995 11445 10711
1996 12050 11270
10/31/97 12507 12146
</TABLE>
*Since inception on 12/20/94 Performance figures for Retail A Shares include
the effect of the maximum 3.75% front-end sales charge. The Lehman Brothers
Municipal Bond Index is an unmanaged index in which investors cannot invest.
Results for the index do not reflect investment management fees and other
expenses incurred by the Fund. Results for the index are calculated since
12/31/94 because the index returns are calculated at month-end only.
[end mountain chart]
10
<PAGE>
- -----------------
PORTFOLIO REVIEWS
- -----------------
a total return of 8.02%.
On October 31, 1998, the Fund's Retail A Shares had a 30-day SEC
annualized yield of 3.97%. This equaled a taxable yield of 6.20% for taxpayers
in the 36% federal income tax bracket who live in the State of Rhode Island.
Finding Value in a Tight Market
Early in 1997, before the reporting period began, issues with below-market
coupons had underperformed as interest rates rose. By November 1997, these
issues were selling at discounted prices and we began to add them to the Fund's
portfolio. When interest rates fell, the lower-coupon issues enjoyed strong
price gains. By increasing investments in longer-maturity issues where supplies
allowed, we took further advantage of the decline in interest rates (longer
maturities tend to gain more in price when rates fall).
When lower-coupon issues became less attractive early in 1998, we swapped
them for issues with higher coupons. These bonds provided the Fund with extra
income and helped protect the value of Fund shares during periods of market
weakness. We continued to add longer-term municipals to the portfolio, given our
expectations for slower growth and lower interest rates. This strategy enhanced
returns as rates fell later in the year.
During the period we also increased the percentage of premium,
non-callable bonds in the Fund. This gave the Fund extra income and price
appreciation as interest rates declined. Throughout the year, we emphasized
issues with strong credit fundamentals.
A Good Mix for Lower Rates
If interest rates continue to decline, as we expect, this mix of
investments should continue to boost Fund returns. With lower rates, investors
should favor issues with enhanced income streams -- including municipals with
high coupons, longer maturities, and strong call protection. Because economic
uncertainty will probably remain, we plan to watch for short-term market
fluctuations that may change the spread between yields for different municipal
sectors. Where we can, we plan to make the most of these opportunities to add
value to the Fund's portfolio.
Glenn Migliozzi is a member of the Tax-Exempt Investment Policy Committee of
Fleet Investment Advisors Inc., which has managed the Galaxy Tax-Exempt Bond,
New York Municipal Bond, Connecticut Municipal Bond, Massachusetts Municipal
Bond and the Galaxy Rhode Island Municipal Bond Funds since 1996 and the Galaxy
New Jersey Municipal Bond Fund since it commenced operations in April of 1998.
- --------------------------------------------------------------------------------
Past performance is no guarantee of future results. Investment returns and
principal values will vary with market conditions so that an investor's shares,
when redeemed, may be worth more or less than their original cost. The
Investment Adviser and Administrator are presently waiving fees and/or
reimbursing expenses and may revise or discontinue such practice at any time.
Without such waivers and/or reimbursements, performance would be lower. Total
return figures in this report include changes in share price, reinvestment of
dividends and capital gains distributions and exclude the deduction of any front
end or contingent deferred sales charge where applicable unless otherwise
indicated.
11
<PAGE>
[start sidebar text]
TRUSTEES
AND OFFICERS
Dwight E. Vicks, Jr.
Chairman and Trustee
John T. O'Neill
President, Treasurer
and Trustee
Louis DeThomasis,
F.S.C., Ph.D.
Trustee
Donald B. Miller
Trustee
James M. Seed
Trustee
Bradford S. Wellman
Trustee
W. Bruce
McConnel, III, Esq.
Secretary
Jylanne Dunne
Vice President &
Assistant Treasurer
William Greilich
Vice President
INVESTMENT ADVISOR
Fleet Investment
Advisors Inc.
75 State Street
Boston, MA
02109
DISTRIBUTOR
First Data
Distributors, Inc.
4400 Computer Drive
Westborough,
Massachusetts 01581-5108
ADMINISTRATOR
First Data Investor
Services Group,
Inc.
4400 Computer Drive
Westborough,
Massachusetts 01581-5108
[end sidebar text]
This report is submitted for the general information of shareholders of The
Galaxy Fund. It is not authorized for distribution to prospective investors
unless accompanied or preceded by an effective prospectus for the Fund, which
contains more information concerning the Fund's investment policies, as well as
fees and expenses and other pertinent information. Read the prospectus carefully
before you invest.
Shares of the Funds are not bank deposits or obligations of, or guaranteed or
endorsed by, Fleet Financial Group, Inc. or any of its affiliates, Fleet
Investment Advisors Inc., or any Fleet bank. Shares of the Funds are not
federally insured by, guaranteed by, obligations of or otherwise supported by
the U.S. Government, the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other governmental agency. Investment return and principal
value will vary as a result of market conditions or other factors so that shares
of the Funds, when redeemed, may be worth more or less than their original cost.
An investment in the Funds involves investment risks, including the possible
loss of the principal amount invested.
[Recycle symbol]
This report was printed on recycled paper.
<PAGE>
- --------------- Tax-Exempt Bond Fund
THE GALAXY FUND PORTFOLIO OF INVESTMENTS
- --------------- October 31, 1998
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
MUNICIPAL SECURITIES - 98.25%
Alaska - 0.82%
$ 1,275,000 Anchorage Hospital Revenue
Sisters of Providence Project
6.75%, 10/01/00 ................ $ 1,343,531
-------------
California - 6.36%
1,000,000 California East Bay Municipal
Utilities District Water System,
Revenue 5.25%, 06/01/17 ........ 1,035,000
2,500,000 California Educational Facilities
Authority, Stanford University,
Series O
5.13%, 01/01/31 ................ 2,531,250
2,000,000 California Rural Home Mortgage
Finance Authority, Series A
6.35%, 12/01/29 ................ 2,187,500
2,000,000 California State, GO
5.00%, 10/01/19 ................ 2,005,000
1,500,000 California State Veteran Bond,
GO Series BH
5.40%, 12/01/15
Insured: FSA ................... 1,537,500
1,000,000 San Diego, California
Water Utilities Funding
5.38%, 08/01/12
Insured: FGIC .................. 1,077,500
-------------
10,373,750
-------------
Colorado - 0.68%
1,000,000 Colorado Housing Financial
Authority Single Families,
Series B-3 6.55%, 05/01/25 ..... 1,106,250
-------------
Connecticut - 2.17%
1,000,000 Connecticut State HEFA
Trinity College, Series F
5.50%, 07/01/21
Insured: MBIA .................. 1,108,750
765,000 Connecticut State Housing Finance
Authority, Housing Mortgage
Finance Program, Series A
6.10%, 05/15/13 ................ 811,856
1,000,000 Connecticut State Housing Finance
Authority, Housing Mortgage
Finance Program, SubSeries B-1
6.25%, 05/15/11 ................ 1,067,500
500,000 Connecticut State Special Tax
Obligation Transportation
Infrastructure, Series B
6.10%, 09/01/07 ................ 550,000
-------------
3,538,106
-------------
Florida - 4.46%
$ 2,000,000 Hillsborough County
School Board, Series A
5.50%, 07/01/14
Insured: MBIA .................. $ 2,162,500
2,835,000 Miami, Dade County
Special Obligation, Series A
5.22%, 10/01/14 (A)
Insured: MBIA .................. 1,268,663
2,690,000 Tampa Bay Water Utilities
Series B
5.13%,10/01/14
Insured: FGIC .................. 2,770,700
1,000,000 Tampa Catholic
Health Systems, Series A-1
5.50%, 11/15/14 ................ 1,082,500
-------------
7,284,363
-------------
Georgia - 4.06%
2,000,000 De Kalb County
Water and Sewer, Revenue
6.25%, 10/01/06 ................ 2,290,000
1,000,000 Fulton County School District,
GO 5.60%, 01/01/11 ............. 1,092,500
3,000,000 Georgia State, GO
Series D
5.25%,10/01/12 ................. 3,243,750
-------------
6,626,250
-------------
Idaho - 1.07%
500,000 Boise-Kuna Irrigation District
Lucky Peak Hydroelectric Project
6.60%, 07/01/05 ................ 543,750
1,160,000 Idaho Housing & Finance
Assistance Single Family
Mortgage, Senior Series G-2,
AMT 5.70%, 07/01/16 ............ 1,194,800
-------------
1,738,550
-------------
Illinois - 4.06%
1,000,000 Cook County, GO
7.25%, 11/01/07
Insured: MBIA .................. 1,226,250
3,000,000 Illinois Educational Facilities
Authority Wesleyan University
5.65%, 09/01/26
Insured: MBIA .................. 3,217,500
1,000,000 Illinois State, GO
5.80%, 09/01/18
Insured: FGIC .................. 1,067,500
1,000,000 Regional Transportation
Authority Series A
6.25%, 06/01/15 ................ 1,107,500
-------------
6,618,750
-------------
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
- --------------- Tax-Exempt Bond Fund
THE GALAXY FUND PORTFOLIO OF INVESTMENTS (continued)
- --------------- October 31, 1998
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
Indiana - 1.33%
$ 2,000,000 Indianapolis Local Public Improvement
Bond Bank, Series A
6.00%, 01/10/18 $ 2,162,500
-------------
Iowa - 1.11%
1,745,000 Iowa Finance Authority Single Family
Revenue, Mortgage, Series F
5.55%, 01/01/16 ................ 1,803,894
-------------
Kansas - 1.04%
1,575,000 Kansas State
Department of Highway
Transportation 5.50%, 09/01/14 . 1,695,094
-------------
Kentucky - 1.30%
1,000,000 Kentucky Housing Corp. Guaranteed
Series C-3
5.70%, 01/01/11 ................ 1,050,000
1,000,000 Kentucky State Turnpike Authority
Economic Development, Road Revenue
Revitalization Projects
7.13%, 05/15/01
Pre-refunded 05/15/00 .......... 1,068,750
-------------
2,118,750
-------------
Maine - 1.17%
250,000 Maine Municipal Bond Bank
Series B
6.75%, 11/01/12 ................ 281,250
500,000 Maine Municipal Bond Bank
Sewer & Water, SRF Program,
Series A 6.50%, 11/01/08 ....... 546,875
1,000,000 Maine State Housing Authority
Mortgage, Series C-1
6.50%, 11/15/11 ................ 1,076,250
-------------
1,904,375
-------------
Maryland - 3.70%
2,875,000 Maryland State Community
Development Administration,
Department of Housing & Community
Development, Series A, AMT
5.70%, 07/01/17 ................ 2,986,406
1,500,000 Maryland State Health & Higher
Education, Facilities Authority
Johns Hopkins University
6.00%, 07/01/10 ................ 1,732,500
1,250,000 Montgomery County Housing
Opportunity, Commission Single
Family Mortgage Revenue
5.75%, 07/01/13 ................ 1,321,875
-------------
6,040,781
-------------
Massachusetts - 6.82%
$ 2,000,000 Massachusetts State HEFA
Partners Healthcare Systems,
Series A 5.38%, 07/01/17
Insured: MBIA .................. $ 2,052,500
200,000 Massachusetts State HEFA
South Shore Hospital, Series D
6.50%, 07/01/10
Insured: MBIA .................. 218,750
2,000,000 Massachusetts State IFA
Tufts University, Series H
5.50%, 02/15/12
Insured: MBIA .................. 2,180,000
1,000,000 Massachusetts State Industrial
Finance Electric Utility Revenue
Nantucket Electric, Series A, AMT
5.88%, 07/01/17
Insured: AMBAC ................. 1,081,250
2,000,000 Massachusetts State Port
Authority Series A
5.38%, 07/01/18 ................ 2,075,000
2,500,000 Massachusetts State Turnpike
Authority, Series A
5.00%, 01/01/37
Insured: MBIA .................. 2,434,375
1,000,000 Massachusetts State
Water Resource Authority, Series B
5.50%, 08/01/15
Insured: FSA ................... 1,078,750
-------------
11,120,625
-------------
Michigan - 0.66%
1,000,000 Central Michigan University
6.00%, 10/01/13
Insured: MBIA .................. 1,081,250
-------------
Minnesota - 1.30%
1,000,000 Minnesota Public Facilities
Authority Water PCR, Series A
6.90%, 03/01/03
Pre-refunded 03/01/00 .......... 1,065,000
1,000,000 Rochester Health Care Facilities
Mayo Foundation, Series A
5.50%, 11/15/27
Insured: GO of Mayo Foundation . 1,052,500
-------------
2,117,500
-------------
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
- --------------- Tax-Exempt Bond Fund
THE GALAXY FUND PORTFOLIO OF INVESTMENTS (continued)
- --------------- October 31, 1998
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
Missouri - 2.59%
$ 1,000,000 Missouri State HEFA
St. Louis University
5.50%, 10/01/16 ................ $ 1,077,500
790,000 Missouri State
Housing and Development,
Single Family, Series B-2
6.40%, 03/01/29 ................ 866,038
2,000,000 Sikeston Electric Revenue
6.00%, 06/01/14
Insured: MBIA .................. 2,290,000
-------------
4,233,538
-------------
Nevada - 0.66%
1,000,000 Clark County
Series A, GO & Revenue
6.00%, 06/01/16
Pre-refunded 06/01/02
Insured: AMBAC ................. 1,077,500
-------------
New Jersey - 3.40%
1,000,000 Mercer County Improvement
Authority Customer Receipts,
Justice Complex
6.05%, 01/01/07 ................ 1,001,740
1,500,000 New Jersey Health Care Facilities
Financing, AHS Hospital Corp.,
Series A
6.00%, 07/01/12
Insured: AMBAC ................. 1,755,000
1,700,000 New Jersey Health Care Facilities
Finance Authority, Medical
Center at Princeton
5.13%, 07/01/18
Insured: AMBAC ................. 1,738,250
500,000 New Jersey State Housing & Mortgage
Finance Agency, Home Buyer, Series X
AMT
5.35%, 04/01/29
Insured: MBIA .................. 505,625
500,000 New Jersey State
Transportation Systems
Series A
5.50%, 06/15/09 ................ 548,750
-------------
5,549,365
-------------
New Mexico - 1.30%
$ 750,000 Dona Ana County
Gross Receipt Tax Revenue
5.50%, 06/01/16
Insured: AMBAC ................. $ 806,250
1,285,000 New Mexico Mortgage Finance
Authority Single Family Mortgage,
Series B-3
5.50%, 07/01/28
Insured: Fannie Mae/
GNMA/FHLMC ..................... 1,309,094
-------------
2,115,344
-------------
New York - 8.56%
1,000,000 Battery Park City Authority
Senior Lien, Series A
5.50%, 11/01/10 ................ 1,046,250
2,165,000 Metropolitan Transportation
Authority Dedicated Tax Fund,
Series C-1 5.25%, 07/01/17
Insured: FGIC .................. 2,221,831
1,500,000 New York City
Transitional Finance Authority
Revenue, Series C
5.00%, 05/01/26 ................ 1,479,375
1,000,000 New York Municipal Water Finance
Authority, Water and Sewer System
Series A
5.50%, 06/15/11 ................ 1,045,000
2,110,000 New York State Dormitory Authority
Columbia University
5.00%, 07/01/18 ................ 2,139,013
4,000,000 New York State Dormitory Authority
Capital Appreciation, State
University 5.18%, 05/15/10 (A)
Insured: MBIA .................. 2,410,000
30,000 New York State Dormitory Authority
University of Rochester
6.50%, 07/01/09 ................ 30,580
250,000 New York State, GO
6.10%, 11/15/09 ................ 275,937
1,000,000 New York State, GO
5.50%, 06/15/10 ................ 1,067,500
1,000,000 New York State, Series I, GO
6.00%, 04/15/09 ................ 1,113,750
1,000,000 Port Authority of New York &
New Jersey, JFK International Air
Terminal, Series 6, SP OB, AMT
6.00%, 12/01/07
Insured: MBIA .................. 1,140,000
-------------
13,969,236
-------------
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
- --------------- Tax-Exempt Bond Fund
THE GALAXY FUND PORTFOLIO OF INVESTMENTS (continued)
- --------------- October 31, 1998
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
North Carolina - 1.58%
$ 1,500,000 Charlotte Certificates of Participation
Convention Facility Project
6.35%, 12/01/00
Insured: AMBAC ................. $ 1,590,000
925,000 North Carolina Housing Finance
Agency Single Family Revenue,
Series Y
6.30%, 09/01/15 ................ 993,219
-------------
2,583,219
-------------
Ohio - 4.63%
955,000 Cleveland Waterworks
First Mortgage, Series F-92 A
6.25%, 01/01/15
Insured: AMBAC ................. 1,045,725
1,000,000 Cleveland Waterworks
Refunding & Improvement
First Mortgage
5.50%, 01/01/10
Insured: MBIA .................. 1,082,500
45,000 Cleveland Waterworks Revenue
6.25%, 01/01/15
Insured: AMBAC ................. 48,712
1,460,000 Forest Hills School District, GO
6.00%, 12/01/10
Insured: MBIA .................. 1,682,650
1,000,000 Ohio State Building Authority
State Facilities, Adult
Correctional Series A
6.00%, 04/01/06
Insured: AMBAC ................. 1,120,000
750,000 Ohio State Public Facilities
Commission Higher Educational
Facilities, Series B
6.50%, 12/01/99
Insured: AMBAC ................. 777,945
1,785,000 Ohio State Water Development
Authority Pollution Center,
Facilities, Water Control Loan
Fund, Water Quality Series
5.00%, 12/01/15
Insured: MBIA .................. 1,800,619
-------------
7,558,151
-------------
Pennsylvania - 6.33%
2,000,000 Delaware Valley Regional Finance
Authority, Local Government Revenue
Series B
5.60%, 07/01/17
Insured: AMBAC ................. 2,180,000
2,210,000 Elizabeth Forward School District
Capital Appreciation, Series B, GO
5.52%, 09/01/21 (A)
Insured: MBIA .................. 718,250
Pennsylvania (continued)
$ 2,210,000 Elizabeth Forward School District
Capital Appreciation, Series B, GO
5.52%, 09/01/22 (A)
Insured: MBIA .................. $ 676,812
1,000,000 Luzerne County, Series B, GO
6.00%, 09/15/11
Insured: FGIC .................. 1,035,000
1,500,000 Pennsylvania Housing Finance
Agency Single Family Mortgage,
Series 59-A, AMT
5.75%, 10/01/23 ................ 1,546,875
1,900,000 Pennsylvania State Higher
Educational Facilities Authority,
Health Services University of
Pennsylvania, Series B 5.88%,
01/01/15 ....................... 2,035,375
1,000,000 Pennsylvania State Higher
Educational Facilities Authority
Temple University, First Series
5.25%, 04/01/14
Insured: MBIA .................. 1,037,500
1,000,000 Pennsylvania State
Second Series A, GO
6.50%, 11/01/04
Pre-refunded 11/01/01
Insured: MBIA .................. 1,093,750
-------------
10,323,562
-------------
Rhode Island - 3.59%
200,000 Rhode Island Clean Water Protection
Finance Agency, Revolving Fund
Pooled Loan Issue, Series A
6.75%, 10/01/13
Insured: MBIA .................. 223,000
700,000 Rhode Island Housing & Mortgage
Finance, Homeownership Opportunity
Series 13
6.70%, 10/01/15 ................ 755,125
1,000,000 Rhode Island Housing & Mortgage
Finance, Homeownership Opportunity
Series 19-A
5.70%, 04/01/15 ................ 1,035,000
1,500,000 Rhode Island State Health &
Educational Building Corp.,
Higher Education, Johnson & Wales
University 6.38%, 04/01/12
Insured: Connie Lee ............ 1,670,625
1,500,000 Rhode Island State Health &
Educational Building Corp., Higher
Education Johnson & Wales University,
Series A 5.75%, 04/01/12
Insured: Connie Lee ............ 1,612,500
500,000 Rhode Island State Health &
Educational Building Corp., Miriam
Hospital, Series B
6.50%, 04/01/13
Pre-refunded 04/01/03 .......... 560,625
-------------
5,856,875
-------------
</TABLE>
See Notes to Financial Statements.
16
<PAGE>
- --------------- Tax-Exempt Bond Fund
THE GALAXY FUND PORTFOLIO OF INVESTMENTS (continued)
- --------------- October 31, 1998
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
South Carolina - 3.16%
$ 1,500,000 Greenville Waterworks, Revenue
5.50%, 02/01/22 ................ $ 1,556,250
2,100,000 Oconee County, PCR
Duke Power Co. Project
5.80%, 04/01/14 ................ 2,236,500
500,000 Piedmont Municipal
Power Agency Electric
6.10%, 01/01/06
Insured: MBIA .................. 565,000
750,000 Richland County
Certificates of Participation
6.90%, 02/01/01
Insured: FGIC .................. 803,437
-------------
5,161,187
-------------
South Dakota - 0.66%
1,000,000 Rapid City Sales Tax
Series B
6.20%, 06/01/12
Insured: FGIC .................. 1,085,000
-------------
Tennessee - 2.32%
500,000 Memphis Water Revenue
Series A
6.00%, 01/01/07 ................ 536,875
2,000,000 Metropolitan Government
Nashville & Davidson County, GO
5.88%, 05/15/26 ................ 2,160,000
1,000,000 Metropolitan Government
Nashville & Davidson County
Health & Education Facilities
Board, Vanderbilt University
Series B
6.30%, 10/01/14 ................ 1,090,000
-------------
3,786,875
-------------
Texas - 11.05%
1,000,000 Amarillo Texas Health
Facilities Corp
Baptist St. Anthony
Hospital Corp. 5.50%, 01/01/14
Insured: FSA ................... 1,072,500
5,000,000 Harris County Capital
Appreciation Series A, GO &
Revenue 5.18%, 08/15/07 (A)
Insured: FGIC .................. 3,481,250
2,170,000 Harris County Health Facilities
Development Corp., Memorial Hospital
System Project, Series A
6.00%, 06/01/13
Insured: MBIA .................. 2,462,950
4,000,000 Houston Water & Sewer System
Junior Lien, Series C
5.35%, 12/01/11 (A)
Insured: AMBAC ................. 2,190,000
Texas (continued)
$ 1,775,000 Katy, Texas Indepenant School District
Capital Appreciation Refunded
3.56%, 08/15/11 (A) ............ $ 991,781
1,750,000 Lower Colorado River Authority
Capital Appreciation, Junior Lien
4th Supplement
5.45%, 01/01/13 (A)
Insured: FGIC .................. 892,500
2,000,000 Lower Neches Valley Authority, IDC
Mobil Oil Refining Project
5.80%, 05/01/22 ................ 2,110,000
2,000,000 New Braunfels Independent School
District, Capital Appreciation, GO
5.23%, 02/01/07 (A) ............ 1,420,000
1,000,000 North Central Health Facilities
Development Corp., Hospital
Presbyterian Healthcare
5.90%, 06/01/21
Pre-refunded 06/01/05 .......... 1,106,250
2,000,000 San Antonio Airport System
7.13%, 07/01/05
Insured: AMBAC ................. 2,292,500
-------------
18,019,731
-------------
Utah - 0.63%
1,000,000 Utah State Housing Finance Agency
Single Family Mortgage, Series D-1
Class I
5.65%, 07/01/16 ................ 1,030,000
-------------
Virginia - 0.66%
1,000,000 Norfolk Industrial Development
Authority Childrens Hospital
Kings Group
6.50%, 06/01/21
Insured: AMBAC ................. 1,075,000
-------------
Washington - 1.58%
1,370,000 Seattle, GO
Series A
5.50%, 03/01/11 ................ 1,512,136
1,000,000 Washington State Public Power
Supply System, Nuclear Project
No. 2, Series C 7.30%, 07/01/00 1,060,000
-------------
2,572,136
-------------
West Virginia - 1.32%
2,000,000 West Virginia School Building
Authority Capital Improvement
5.50%, 07/01/11
Insured: AMBAC ................. 2,160,000
-------------
</TABLE>
See Notes to Financial Statements.
17
<PAGE>
- --------------- Tax-Exempt Bond Fund
THE GALAXY FUND PORTFOLIO OF INVESTMENTS (continued)
- --------------- October 31, 1998
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
Other Territories - 2.12%
$ 3,000,000 Puerto Rico Electric Power
Authority Series BB
6.00%, 07/01/12
Insured: MBIA .................. $ 3,461,250
-------------
Total Municipal Securities ..... 160,292,288
(Cost $152,114,277) -------------
<CAPTION>
Shares
------
<S> <C> <C>
INVESTMENT COMPANY - 0.53%
859,754 Federated Tax-Free
Obligations Fund ............... 859,754
-------------
Total Investment Company ....... 859,754
(Cost $859,754) -------------
Total Investments - 98.78% ....................... 161,152,042
(Cost $152,974,031) -------------
Net Other Assets and Liabilities - 1.22% ......... 1,990,458
-------------
Net Assets - 100.00% ............................. $163,142,500
=============
</TABLE>
- --------------------------------------------------------------------------------
(A) Zero Coupon Bond. Rate shown reflects effective yield to maturity at
time of purchase.
AMBAC American Municipal Bond Assurance Corp.
AMT Alternative Minimum Tax. Private activity obligations whose interest
is subject to the federal AMT for individuals.
Connie Lee College Construction Loan Association
FGIC Federal Guaranty Insurance Corp.
FHLMC Federal Home Loan Mortgage Corp.
FSA Financial Security Assurance Company
GNMA Government National Mortgage Association
GO General Obligation
HEFA Health and Educational Facilities Authority
IDC Industrial Development Corp.
IFA Industrial Finance Agency
MBIA Municipal Bond Insurance Association
PCR Pollution Control Revenue
SP OB Special Obligation
See Notes to Financial Statements.
18
<PAGE>
- --------------- New Jersey Municipal Bond Fund
THE GALAXY FUND PORTFOLIO OF INVESTMENTS
- --------------- October 31, 1998
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
MUNICIPAL SECURITIES - 99.96%
New Jersey - 92.00%
$ 235,000 Freehold Board of Education, GO
5.38%, 07/15/10
Insured: FSA ................... $ 251,450
250,000 Lacey Municipal Utilities
Authority New Jersey Water
Revenue 5.10%, 12/01/16
Insured: MBIA .................. 255,312
250,000 Lenape Regional High School
District, GO
5.00%, 04/01/08
Insured: FGIC .................. 264,062
50,000 Lenape Regional High School
District, GO
5.00%, 04/01/12
Insured: FGIC .................. 51,563
250,000 Mercer County Improvement
Authority Revenue Youth Center,
Series B
5.00%, 02/15/14
Insured: FGIC .................. 256,563
250,000 Metuchen School District, GO
5.13%, 09/15/12
Insured: FGIC .................. 261,250
250,000 Middlesex County
Certificate of Participation
4.63%, 02/15/11
Insured: MBIA .................. 252,500
50,000 Monmouth County Improvement
Authority Revenue Governmental
Loan 5.50%, 12/01/07
Insured: AMBAC ................. 55,750
100,000 Morristown, GO
5.15%, 02/01/09
Insured: FSA ................... 105,875
250,000 New Brunswick, GO
4.80%, 09/15/13
Insured: MBIA .................. 252,188
250,000 New Jersey Development Authority
Educational Testing Service,
Series A 4.00%, 05/15/06 ....... 250,000
75,000 New Jersey
Environmental Infrastructure
Wastewater Treatment, Series F
5.00%, 04/01/14
Insured: MBIA .................. 77,063
500,000 New Jersey
Environmental Infrastructure
Wastewater Treatment, Series G
5.00%, 04/01/12
Insured: FGIC .................. 521,875
New Jersey (continued)
$ 500,000 New Jersey Health Care Facilities
Financing Authority Revenue
Hackensack University Medical Center
Series A
5.38%, 01/01/13
Insured: MBIA .................. $ 535,625
300,000 New Jersey Health Care Facilities
Financing Authority Revenue
Medical Center at Princeton
5.13%, 07/01/18
Insured: AMBAC ................. 306,750
50,000 New Jersey Health Care Facilities
Kennedy Healthcare Sytems, Series B
5.00%, 07/01/09
Insured: MBIA .................. 53,125
190,000 New Jersey Sports & Exposition
Authority Convention Center
Luxury Tax Revenue, Series A
6.00%, 07/01/13
Insured: MBIA .................. 204,963
50,000 New Jersey State, GO
7.00%, 04/01/07
Pre-refunded 04/01/01 .......... 54,563
1,000,000 New Jersey State, GO
5.00%, 03/01/11 ................ 1,042,500
75,000 New Jersey State, GO
Series D
5.40%, 02/15/03 ................ 79,875
250,000 New Jersey State Building Authority
6.00%, 06/15/07 ................ 284,063
200,000 New Jersey State Building Authority
7.50%, 06/15/09
Pre-refunded 06/15/99 .......... 209,352
250,000 New Jersey State
Educational Facilities Authority
Richard Stockton College, Series C
5.10%, 07/01/23
Insured: AMBAC ................. 253,437
250,000 New Jersey State Higher Education
Assistance Authority
Student Loan Revenue, Series A
5.30%, 06/01/17
Insured: AMBAC ................. 250,312
500,000 New Jersey State
Housing and Mortgage
Finance Authority
Home Buyer, Series G
4.63%, 04/01/15
Insured: MBIA .................. 506,875
250,000 New Jersey State
Transportation Systems, Series A
5.50%, 06/15/09 ................ 274,375
</TABLE>
See Notes to Financial Statements.
19
<PAGE>
- --------------- New Jersey Municipal Bond Fund
THE GALAXY FUND PORTFOLIO OF INVESTMENTS (continued)
- --------------- October 31, 1998
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
New Jersey (continued)
$ 50,000 Old Tappan Board of Education, GO
5.10%, 04/01/15
Insured: FGIC .................. $ 50,875
50,000 Plumstead Board of Education, GO
5.00%, 03/01/14
Insured: FGIC .................. 51,000
250,000 Port Authority, New York &
New Jersey
5.00%, 12/01/15 ................ 249,062
250,000 Somerset Raritan Valley,
New Jersey Sewer Authority,
Series A 5.25%, 07/01/12
Insured: MBIA .................. 263,750
250,000 Wall Township New Jersey
School District, GO
4.35%, 07/15/05
Insured: FSA ................... 255,625
50,000 Woodbridge Sewer and Utility
6.80%, 08/01/05
Pre-refunded 08/01/00 .......... 53,250
-------------
7,834,828
-------------
Other Territories - 7.96%
60,000 Puerto Rico Commonwealth, GO
7.63%, 07/01/10
Pre-refunded 07/01/00 .......... 65,175
250,000 Puerto Rico Commonwealth, GO
6.00%, 07/01/16
Insured: MBIA .................. 290,625
250,000 Puerto Rico Commonwealth
Infrastructure, Series A
Financing Authority Special Tax
5.13%, 07/01/09
Insured: AMBAC ................. 269,686
50,000 Puerto Rico
Electric Power Authority,
Series AA 5.25%, 07/01/17
Insured: MBIA .................. 52,000
-------------
677,486
-------------
Total Municipal Securities ..... 8,512,314
(Cost $8,329,222) -------------
<CAPTION>
Value
Shares (Note 2)
--------- --------
<S> <C> <C>
INVESTMENT COMPANY - 2.06%
175,714 Federated Tax-Free
Obligations Fund ............... $ 175,714
-------------
Total Investment Company ....... 175,714
(Cost $175,714) -------------
Total Investments - 102.02% ...................... 8,688,028
(Cost $8,504,936) -------------
Net Assets and Other Liabilities - (2.02)% ....... (171,810)
-------------
Net Assets - 100.00% ............................. $ 8,516,218
=============
</TABLE>
- --------------------------------------------------------------------------------
AMBAC American Municipal Bond Assurance Corp.
FGIC Federal Guaranty Insurance Corp.
FSA Financial Security Assurance Company
GO General Obligation
MBIA Municipal Bond Insurance Association
See Notes to Financial Statements.
20
<PAGE>
- --------------- New York Municipal Bond Fund
THE GALAXY FUND PORTFOLIO OF INVESTMENTS
- --------------- October 31, 1998
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
MUNICIPAL SECURITIES - 97.86%
New York - 95.56 %
$ 1,000,000 Albany County, GO
5.50%, 06/01/08
Insured: FGIC .................. $ 1,086,250
1,000,000 Albany County Airport Authority
5.38%, 12/15/17
Insured: FSA ................... 1,028,750
100,000 Canandaigua City
School District, GO
6.50%, 06/01/10
Insured: AMBAC ................. 120,000
1,000,000 Dutchess County
Waste Water Authority Service
Agreement Series 1
5.38%, 06/01/19 ................ 1,013,750
2,000,000 Long Island Power Authority
New York Electric System
Revenue, Series A
5.50%, 12/01/12 ................ 2,187,500
Insured: FSA
500,000 Long Island Power Authority
New York Electric System
Revenue, Series 6
3.25%, 05/01/33 (B) ............ 500,000
1,000,000 Metropolitan Transportation
Authority Dedicated Tax Fund,
Series A 5.50%, 04/01/16
Insured: MBIA .................. 1,058,750
1,000,000 Metropolitan Transportation
Authority Dedicated Tax Fund,
Series C-1 5.25%, 07/01/17
Insured: FGIC .................. 1,026,250
750,000 Monroe County
Public Improvement, GO
6.10%, 03/01/09
Insured: MBIA .................. 805,969
900,000 Monroe County
Public Improvement, GO
6.10%, 06/01/14
Pre-refunded 06/01/04
Insured: AMBAC ................. 1,012,500
1,000,000 Monroe County Water Authority
Series A
6.25%, 08/01/11 ................ 1,076,250
1,000,000 Monroe Woodbury
Central School District, GO
5.63%, 05/15/18
Insured: MBIA .................. 1,065,000
1,500,000 Municipal Assistance Corporation
for New York City, New York
Series L
6.00%, 07/01/08 ................ 1,723,125
500,000 New Castle Public Improvement, GO
5.88%, 09/15/09 ................ 542,500
1,000,000 New York, GO, Series I
6.00%, 04/15/09 ................ 1,113,750
New York (continued)
$ 2,060,000 New York City
Capital Appreciation, Series F, GO
4.59%, 08/01/08 (A)
Insured: MBIA .................. $ 1,362,175
3,500,000 New York City
Capital Appreciation, Series G, GO
4.65%, 08/01/08 (A)
Insured: MBIA .................. 2,314,375
1,000,000 New York City, IDA
Civic Facility
Trinity Episcopal School Corp.
Project 5.25%, 06/15/17
Insured: MBIA .................. 1,030,000
500,000 New York City Municipal Water
Finance Authority
Water & Sewer System, Series A
6.10%, 06/15/06 ................ 538,750
2,000,000 New York City Municipal Water
Finance Authority
Water & Sewer System, Series A
5.13%, 06/15/15 ................ 2,010,000
1,000,000 New York City Municipal Water
Finance Authority
Water & Sewer System, Series A
6.00%, 06/15/17 ................ 1,075,000
1,000,000 New York City Municipal Water
Finance Authority
Water & Sewer System, Series A
5.75%, 06/15/18
Insured: AMBAC ................. 1,060,000
750,000 New York City Municipal Water
Finance Authority
Water & Sewer System, Series B
5.75%, 06/15/13
Insured: MBIA .................. 810,938
1,000,000 New York City Municipal Water
Finance Authority
Water & Sewer System, Series B
5.75%, 06/15/26
Insured: MBIA .................. 1,076,250
2,750,000 New York City
Transitional Finance Authority
Revenue, Series C
5.00%, 05/01/26 ................ 2,712,188
2,000,000 New York City Trust
Cultural Resources
American Museum
of National History, Series A
5.60%, 04/01/18
Insured: MBIA .................. 2,122,500
1,000,000 New York State, GO
6.25%, 09/15/07 ................ 1,106,250
100,000 New York State, GO
6.90%, 02/01/08 ................ 111,500
1,000,000 New York State, GO
6.13%, 11/15/10 ................ 1,105,000
2,500,000 New York State, GO
5.25%, 09/15/13 ................ 2,628,125
</TABLE>
See Notes to Financial Statements.
21
<PAGE>
- --------------- New York Municipal Bond Fund
THE GALAXY FUND PORTFOLIO OF INVESTMENTS (continued)
- --------------- October 31, 1998
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
New York (continued)
$ 3,000,000 New York State, GO
5.25%, 03/01/15 ................ $ 3,093,750
2,000,000 New York State Dormitory Authority
Columbia University
5.00%, 07/01/18 ................ 2,027,500
1,030,000 New York State Dormitory Authority
Cornell University
5.40%, 07/01/12 ................ 1,093,087
1,675,000 New York State Dormitory Authority
Fordham University
5.00%, 07/01/28 ................ 1,656,156
Insured: MBIA
1,000,000 New York State Dormitory Authority
Ithaca College
5.00%, 07/01/21 ................ 995,000
1,175,000 New York State Dormitory Authority
Mt. Sinai School of Medicine,
Series B 5.70%, 07/01/11
Insured: MBIA .................. 1,311,594
500,000 New York State Dormitory Authority
New York University
6.25%, 07/01/09
Insured: FGIC .................. 537,500
1,000,000 New York State Dormitory Authority
New York University, Series A
6.00%, 07/01/17
Insured: MBIA .................. 1,150,000
2,225,000 New York State Dormitory Authority
Rochester Institute of Technology
5.30%, 07/01/17 ................ 2,311,219
Insured: MBIA
1,500,000 New York State Dormitory Authority
Rockefeller University
5.00%, 07/01/28 ................ 1,513,125
1,000,000 New York State Dormitory Authority
State University Educational
Facilities, Series B
5.25%, 05/15/12 ................ 1,058,750
15,000 New York State Dormitory Authority
University of Rochester
6.50%, 07/01/09 ................ 15,289
1,125,000 New York State Dormitory Authority
University of Rochester, Series A
5.00%, 07/01/27
Insured: MBIA .................. 1,109,531
100,000 New York State Environmental
Facilities Corp., State Water
Revolving Fund, PCR
Pooled Loan, Series A
6.40%, 09/15/06 ................ 110,875
1,000,000 New York State Environmental
Facilities Corp., State Water
Revolving Fund, PCR
Pooled Loan, Series A
5.40%, 09/15/07 ................ 1,075,000
New York (continued)
$ 500,000 New York State Environmental
Facilities Corp., State Water
Revolving Fund, PCR
Pooled Loan, Series B
6.50%, 09/15/08 ................ $ 555,000
100,000 New York State Environmental
Facilities Corp., State Water
Revolving Fund, PCR, Series E
6.88%, 06/15/10
Pre-refunded 06/15/01 .......... 110,000
1,000,000 New York State Environmental
Facilities Corp., State Clean
Water and Drinking Water,
Revolving Fund, Series F
5.25%, 06/15/12 ................ 1,051,250
1,000,000 New York State Environmental
Facilities Corp., State Water
Subordinated Revolving Fund, PCR
Series E
5.00%, 06/15/13
Insured: MBIA .................. 1,016,250
500,000 New York State Housing
Finance Agency Multifamily Mortgage
Housing, Series A
6.95%, 08/15/12 ................ 543,125
300,000 New York State Local Government
Assistance Corp., Series A
6.88%, 04/01/06
Pre-refunded 04/01/02 .......... 336,000
1,000,000 New York State Local Government
Assistance Corp., Series B
6.00%, 04/01/18 ................ 1,091,250
1,250,000 New York State Local Government
Assistance Corp., Series C
6.00%, 04/01/07 ................ 1,365,625
800,000 New York State Medical Care
Facilities Finance Agency
Second Mortgage Program
Health Care Projects, Series B
6.35%, 11/01/14 ................ 858,000
500,000 New York State Mortgage Agency
Homeowner Mortgage, Series 27
6.90%, 04/01/15 ................ 541,250
3,000,000 New York State Mortgage Agency
Homeowner Mortgage, Series 67
5.70%, 10/01/17 ................ 3,078,750
145,000 New York State Mortgage Agency
Revenue, 8th Series
6.88%, 04/01/17 ................ 145,402
1,000,000 New York State Power Authority
Revenue, General Purpose,
Series AA 6.38%, 01/01/12 ...... 1,096,250
500,000 New York State Power Authority
Revenue, General Purpose, Series Z
6.63%, 01/01/12 ................ 551,875
1,250,000 New York State Thruway Authority
Revenue, Series A
5.88%, 01/01/07 ................ 1,353,125
500,000 Onondaga County, GO
5.88%, 02/15/10 ................ 572,500
</TABLE>
See Notes to Financial Statements.
22
<PAGE>
- --------------- New York Municipal Bond Fund
THE GALAXY FUND PORTFOLIO OF INVESTMENTS (continued)
- --------------- October 31, 1998
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
New York (continued)
$ 100,000 Orleans County, GO
6.50%, 09/15/08 ................ $ 118,375
1,000,000 Port Authority of New York
and New Jersey
JFK International Air Terminal
6.00%, 12/01/07
Insured: MBIA .................. 1,140,000
200,000 Port Authority of New York
and New Jersey
Consolidated Loan, Series 71
6.90%, 07/15/09 ................ 215,750
500,000 Port Authority of New York
and New Jersey
Consolidated Loan, Series 78
6.50%, 04/15/11 ................ 535,625
545,000 Rensselaer County, GO
5.25%, 06/01/11
Insured: AMBAC ................. 589,962
1,315,000 Triborough Bridge and
Tunnel Authority, Revenue
General Purpose, Series A
5.13%, 01/02/22 ................ 1,328,150
500,000 Triborough Bridge and
Tunnel Authority, Revenue
General Purpose, Series X
6.00%, 01/01/06 ................ 528,125
500,000 Triborough Bridge and
Tunnel Authority, Revenue
General Purpose, Series X
6.00%, 01/01/07 ................ 527,500
750,000 Triborough Bridge and
Tunnel Authority, Revenue
General Purpose, Series X
6.00%, 01/01/08 ................ 789,374
300,000 Triborough Bridge and
Tunnel Authority, Revenue
General Purpose, Series X
6.63%, 01/01/12 ................ 360,000
750,000 Triborough Bridge and
Tunnel Authority, Revenue
General Purpose, Series Y
6.00%, 01/01/12 ................ 854,062
100,000 Triborough Bridge and
Tunnel Authority, Revenue, SP OB
6.10%, 01/01/05
Insured: FGIC .................. 108,500
250,000 Triborough Bridge and
Tunnel Authority, Revenue, SP OB
6.15%, 01/01/06
Insured: FGIC .................. 271,563
500,000 United Nations Development Corp.
Senior Lien, Series A
6.00%, 07/01/06
Pre-refunded 07/01/03 .......... 555,000
1,000,000 United Nations Development Corp.
Senior Lien, Series A
6.00%, 07/01/12
Pre-refunded 07/01/03 .......... 1,110,000
New York (continued)
$ 500,000 United Nations Development Corp.
Subordinated Lien, Series B
6.20%, 07/01/11
Pre-refunded 07/01/03 .......... $ 559,375
-------------
79,338,784
-------------
Pennsylvania - 0.91%
2,210,000 Elizabeth Forward School District
Capital Appreciation, Series B, GO
5.68%, 09/01/20 (A) ............ 754,163
-------------
Other Territories - 1.39 %
1,000,000 Puerto Rico Electric Power Authority
Series BB
6.00%, 07/01/12
Insured: MBIA .................. 1,153,750
-------------
Total Municipal Securities ..... 81,246,697
(Cost $76,823,547) -------------
<CAPTION>
Shares
------
INVESTMENT COMPANY - 0.92 %
<S> <C> <C>
763,333 New York Federated
Municipal Cash Trust ........... 763,333
-------------
Total Investment Company ....... 763,333
(Cost $763,333) -------------
Total Investments - 98.78% ....................... 82,010,030
(Cost $77,586,880) -------------
Net Assets and Other Liabilities - 1.22% ......... 1,009,646
-------------
Net Assets - 100.00% ............................. $83,019,676
=============
</TABLE>
- --------------------------------------------------------------------------------
(A) Zero Coupon Bond. Rate shown reflects effective yield to maturity at time
of purchase.
(B) Interest is reset once a year. The interest rate shown reflects the rate
in effect at October 31, 1998.
AMBAC American Municipal Bond Assurance Corp.
FGIC Federal Guaranty Insurance Corp.
FSA Financial Security Assurance Company
GO General Obligation
IDA Industrial Development Agency
MBIA Municipal Bond Insurance Association
PCR Pollution Control Revenue
SP OB Special Obligation
See Notes to Financial Statements.
23
<PAGE>
- --------------- Connecticut Municipal Bond Fund
THE GALAXY FUND PORTFOLIO OF INVESTMENTS
- --------------- October 31, 1998
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
MUNICIPAL SECURITIES - 98.40 %
California-0.77%
$ 300,000 Los Angeles Regional
Airport Improvement Corp.
Lease Revenue, American Airlines
Los Angeles International Airport,
Series D
3.65%,12/01/24 (A)
LOC: Wachovia Bank of Georgia .. $ 300,000
-------------
Connecticut - 86.45%
355,000 Bristol Water, GO
5.15%, 06/15/07 ................ 386,506
250,000 Cheshire, GO
5.10%, 08/15/07 ................ 266,250
885,000 Colchester, GO, Lot A
5.40%, 08/15/10
Insured: AMBAC ................. 977,925
400,000 Connecticut State Airport Revenue
Bradley International Airport
7.40%, 10/01/04
Insured: FGIC .................. 464,000
325,000 Connecticut State Clean Water Fund
5.50%, 10/01/04 ................ 353,844
500,000 Connecticut State Clean Water Fund
7.00%, 01/01/11 ................ 543,125
200,000 Connecticut State Clean Water Fund
6.00%, 10/01/12 ................ 229,750
250,000 Connecticut State, GO, Series A
5.10%, 11/15/04 ................ 267,500
1,000,000 Connecticut State, GO, Series A
5.13%, 03/01/10 ................ 1,060,000
100,000 Connecticut State, GO, Series B
6.50%, 08/01/06 ................ 104,499
400,000 Connecticut State, GO, Series B
5.40%, 03/15/08 ................ 440,000
1,000,000 Connecticut State, GO, Series B
5.38%, 10/01/11 ................ 1,063,750
100,000 Connecticut State, GO, Series C
5.00%, 05/01/05 ................ 105,750
500,000 Connecticut State, GO, Series C
5.50%, 08/15/05 ................ 545,000
500,000 Connecticut State, GO, Series E
6.00%, 03/15/12 ................ 580,000
500,000 Connecticut State HEFA
Backus (William W.) Hospital Issue
Series D
5.63%, 07/01/17
Insured: AMBAC ................. 546,875
750,000 Connecticut State HEFA
Greenwich Hospital Issue, Series A
5.30%, 07/01/08
Insured: MBIA .................. 818,438
250,000 Connecticut State HEFA
Hospital for Special Care Issue,
Series B 5.38%, 07/01/17 ....... 253,438
Connecticut (continued)
$ 1,060,000 Connecticut State HEFA
Middlesex Hospital, Series H
5.00%, 07/01/12
Insured: MBIA .................. $ 1,099,750
375,000 Connecticut State HEFA
Newington Childrens Hospital
Series A
5.65%, 07/01/05
Insured: MBIA .................. 412,500
500,000 Connecticut State HEFA
Trinity College, Series F
5.50%, 07/01/21
Insured: MBIA .................. 554,375
200,000 Connecticut State Housing
Finance Authority
Housing Mortgage Finance Program
Series A
5.40%, 05/15/04 ................ 211,250
105,000 Connecticut State Housing
Finance Authority
Housing Mortgage Finance Program
Series A
5.60%, 05/15/05 ................ 111,563
125,000 Connecticut State Housing
Finance Authority
Housing Mortgage Finance Program
Series A-1
5.85%, 11/15/16 ................ 130,000
400,000 Connecticut State Housing
Finance Authority
Housing Mortgage Finance Program
Series B
6.25%, 11/15/05 ................ 429,500
100,000 Connecticut State Housing
Finance Authority
Housing Mortgage Finance Program
Series B
6.20%, 05/15/12 ................ 106,000
415,000 Connecticut State Housing
Finance Authority
Housing Mortgage Finance Program
Series F-1
5.60%, 05/15/14 ................ 429,525
1,500,000 Connecticut State Housing
Finance Authority
Housing Mortgage Finance Program
Series D-2
5.45%, 11/15/24 ................ 1,522,500
1,000,000 Connecticut State Resource
Recovery Authority
Series A
5.75%, 11/15/07 ................ 1,130,000
300,000 Connecticut State Resource
Recovery Authority
Mid-Connecticut System, Series A
5.60%, 11/15/99 ................ 306,471
</TABLE>
See Notes to Financial Statements.
24
<PAGE>
- --------------- Connecticut Municipal Bond Fund
THE GALAXY FUND PORTFOLIO OF INVESTMENTS (continued)
- --------------- October 31, 1998
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
Connecticut (continued)
$ 200,000 Connecticut State
Special Tax Obligation
Transportation Infrastructure,
Series A 6.80%, 06/01/99 ....... $ 204,318
150,000 Connecticut State
Special Tax Obligation
Transportation Infrastructure,
Series A 5.10%, 09/01/04 ....... 159,375
950,000 Connecticut State
Special Tax Obligation
Transportation Infrastructure,
Series A 5.13%, 09/01/05 ....... 1,012,938
700,000 Connecticut State
Special Tax Obligation
Transportation Infrastructure,
Series A 5.40%, 04/01/07 ....... 752,500
1,250,000 Connecticut State
Special Tax Obligation
Transportation Infrastructure,
Series A 5.25%, 09/01/07 ....... 1,353,125
925,000 Connecticut State
Special Tax Obligation
Transportation Infrastructure,
Series A 5.38%, 09/01/08 ....... 1,007,093
1,750,000 Connecticut State
Special Tax Obligation
Transportation Infrastructure,
Series A 5.50%, 10/01/12 ....... 1,957,812
1,000,000 Connecticut State
Special Tax Obligation
Transportation Infrastructure,
Series A 5.00%, 11/01/15
Insured: FSA ................... 1,021,250
400,000 Connecticut State
Special Tax Obligation
Transportation Infrastructure,
Series B 6.13%, 09/01/12 ....... 457,000
200,000 Danbury, GO
5.63%, 02/01/13 ................ 221,750
250,000 East Hampton, GO
5.10%, 06/15/05
Insured: MBIA .................. 266,563
1,100,000 Fairfield, GO
5.00%, 01/01/18 ................ 1,117,875
500,000 Hamden, GO
5.50%, 08/15/14
Insured: MBIA .................. 533,125
250,000 Hartford County
Metropolitan District, GO
6.70%, 10/01/09 ................ 305,937
Connecticut (continued)
$ 300,000 Meriden, GO
5.75%, 10/15/04
Insured: AMBAC ................. $ 331,125
580,000 Monroe, GO
5.63%, 04/15/14
Insured: FGIC .................. 619,875
370,000 Montville, GO
5.30%, 12/01/09 ................ 406,538
1,500,000 New Haven, GO
5.38%, 02/15/11
Insured: FGIC .................. 1,605,000
100,000 New Milford, GO
5.80%, 10/01/01 ................ 106,375
250,000 New Milford, GO
5.50%, 08/01/08 ................ 277,500
1,000,000 New Milford, GO
5.00%, 05/15/15 ................ 1,020,000
350,000 Norwalk, GO
5.00%, 01/15/05 ................ 368,375
200,000 Norwalk, GO
5.00%, 01/15/06 ................ 210,250
500,000 Norwich, GO
5.63%, 09/15/07 ................ 550,625
330,000 Regional School District No. 5, GO
5.05%, 05/15/04 ................ 341,962
135,000 Regional School District No. 5, GO
5.15%, 05/15/05 ................ 140,230
225,000 South Central Regional
Water Authority
Water System, Series 11
5.75%, 08/01/12
Insured: FGIC .................. 245,250
175,000 South Central Regional
Water Authority
Water System, Series 12
5.13%, 08/01/07
Insured: FGIC .................. 186,156
100,000 Trumbull, GO
6.00%, 05/15/04 ................ 111,500
500,000 University of Connecticut, GO
Series A
5.25%, 06/01/15 ................ 528,125
Insured: MBIA
100,000 West Hartford, GO
6.00%, 05/01/07 ................ 115,125
250,000 West Haven, GO, Series B
5.20%, 06/01/05 ................ 264,688
250,000 West Haven, GO, Series B
5.40%, 06/01/09 ................ 264,375
-------------
33,513,819
-------------
</TABLE>
See Notes to Financial Statements.
25
<PAGE>
- --------------- Connecticut Municipal Bond Fund
THE GALAXY FUND PORTFOLIO OF INVESTMENTS (continued)
- --------------- October 31, 1998
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
Other Territories - 11.18%
$ 1,000,000 Puerto Rico Commonwealth, GO
6.00%, 07/01/16
Insured: MBIA .................. $ 1,162,500
1,000,000 Puerto Rico Commonwealth
Public Improvement, GO
5.50%, 07/01/11 ................ 1,075,000
1,000,000 Puerto Rico Electric Power
Authority Revenue, Series GG
5.13%, 07/01/16
Insured: FSA ................... 1,030,000
1,000,000 Puerto Rico Municipal
Finance Agency, Series A
5.50%, 07/01/17
Insured: FSA ................... 1,065,000
-------------
4,332,500
-------------
Total Municipal Securities ..... 38,146,319
(Cost $35,984,152) -------------
<CAPTION>
Value
Shares (Note 2)
------ ---------
<S> <C> <C>
INVESTMENT COMPANY - 0.54%
210,308 Connecticut Federated
Municipal Cash Trust ........... $ 210,308
-------------
Total Investment Company ....... 210,308
(Cost $210,308) -------------
Total Investments - 98.94% ....................... 38,356,627
(Cost $36,194,460) -------------
Net Assets and Other Liabilities - 1.06% ......... 411,458
-------------
Net Assets - 100.00% $38,768,085
=============
</TABLE>
- --------------------------------------------------------------------------------
(A) Interest is reset once a year. The interest rate shown reflects the rate
in effect at October 31, 1998.
AMBAC American Municipal Bond Assurance Corp.
FGIC Federal Guaranty Assurance Corp.
FSA Federal Security Assurance Company
GO General Obligation
HEFA Health and Education Facilities Authority
LOC Letter of Credit
MBIA Municipal Bond Investors Assurance
See Notes to Financial Statements.
26
<PAGE>
- --------------- Massachusetts Municipal Bond Fund
THE GALAXY FUND PORTFOLIO OF INVESTMENTS
- --------------- October 31, 1998
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
MUNICIPAL SECURITIES - 97.46%
Massachusetts - 89.26%
$ 700,000 Andover, GO
5.00%, 12/01/10 ................ $ 739,375
300,000 Attleboro,GO
5.20%, 07/01/02
Insured: AMBAC ................. 315,375
250,000 Boston, GO
5.25%, 10/01/05
Insured: MBIA .................. 269,375
360,000 Boston, GO, Series A
5.45%, 02/01/07
Insured: AMBAC ................. 385,650
225,000 Boston, GO, Series A
5.55%, 02/01/08
Insured: AMBAC ................. 240,187
200,000 Boston Water and Sewer Commission
General Purpose, Senior Series A
5.50%, 11/01/01
Insured: FSA ................... 211,000
230,000 Boston Water and Sewer Commission
General Purpose, Senior Series A
7.00%, 11/01/18
Pre-refunded 11/01/01
Insured: FGIC .................. 256,163
100,000 Brookline, GO
5.60%, 09/01/10 ................ 106,625
250,000 Deerfield, GO
5.60%, 06/15/02 ................ 265,937
250,000 Franklin, GO
5.50%, 11/15/02
Insured: MBIA .................. 266,875
100,000 Kingston, GO
5.70%, 08/01/07 ................ 106,750
250,000 Lowell, GO
6.05%, 04/01/11
Insured: FSA ................... 276,563
100,000 Lynn Water and Sewer Commission
5.30%, 12/01/06
Insured: FGIC .................. 106,500
130,000 Massachusetts Bay Transportation
Authority, Series A
6.00%, 03/01/12 ................ 141,537
200,000 Massachusetts Bay Transportation
Authority, Series A
5.75%, 03/01/22 ................ 212,750
1,000,000 Massachusetts Bay Transportation
Authority, Series D
5.00%, 03/01/11 ................ 1,041,250
750,000 Massachusetts Educational
Financing Authority
Revenue, Issue G, Series A
5.15%, 12/01/15
Insured: MBIA .................. 737,813
370,000 Massachusetts State, GO
Federal Assisted Housing
6.00%, 02/01/08 ................ 411,625
250,000 Massachusetts State, GO, Series A
6.25%, 07/01/02 ................ 272,188
Massachusetts (continued)
$ 250,000 Massachusetts State, GO, Series A
6.25%, 07/01/04 ................ $ 279,687
750,000 Massachusetts State, GO, Series A
5.25%, 02/01/08 ................ 794,062
200,000 Massachusetts State, GO, Series B
5.30%, 11/01/05 ................ 216,500
100,000 Massachusetts State, GO, Series B
5.50%, 11/01/07 ................ 110,875
4,000,000 Massachusetts State Capital
Appreciation, Series A
Federal Highway Note
5.15%, 06/15/15 (A) ............ 1,800,000
250,000 Massachusetts State Consolidated
Loan GO, Series A
5.75%, 02/01/15
Insured: MBIA .................. 274,375
250,000 Massachusetts State Consolidated
Loan GO, Series B
5.10%, 07/01/03 ................ 264,063
1,000,000 Massachusetts State Consolidated
Loan GO, Series C
5.02%, 08/01/18 (A) ............ 385,000
100,000 Massachusetts State Convention
Center Authority
Boston Common Parking Garage
Series A
5.35%, 09/01/06 ................ 107,625
100,000 Massachusetts State Convention
Center Authority
Boston Common Parking Garage
Series A
5.40%, 09/01/07 ................ 107,500
1,000,000 Massachusetts State Grant
Anticipation Notes, Series A
5.50%, 06/15/14 ................ 1,052,500
1,000,000 Massachusetts State HEFA
Amherst College, Series G
5.00%, 11/01/18 ................ 1,000,000
2,000,000 Massachusetts State HEFA
Amherst College, Series G
5.38%, 11/01/20 ................ 2,050,000
400,000 Massachusetts State HEFA
Beth Israel Hospital, Series G
5.70%, 07/01/05
Insured: AMBAC ................. 427,500
2,000,000 Massachusetts State HEFA
Boston College, Series L
5.00%, 06/01/26 ................ 2,002,500
1,000,000 Massachusetts State HEFA
Caregroup, Series A
5.50%, 07/01/08 ................ 1,091,250
1,640,000 Massachusetts State HEFA
Catholic Health East, Series A
5.25%, 11/15/13 ................ 1,689,200
1,000,000 Massachusetts State HEFA
Harvard University, Series P
5.63%, 11/01/26 ................ 1,068,750
</TABLE>
See Notes to Financial Statements.
27
<PAGE>
- --------------- Massachusetts Municipal Bond Fund
THE GALAXY FUND PORTFOLIO OF INVESTMENTS (continued)
- --------------- October 31, 1998
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
Massachusetts (continued)
$ 1,000,000 Massachusetts State HEFA
Harvard University, Series P
5.38%, 11/01/32 ................ $ 1,027,500
100,000 Massachusetts State HEFA
McLean Hospital Issue, Series C
6.63%, 07/01/15
Insured: FGIC .................. 110,000
250,000 Massachusetts State HEFA
Medical Center of
Central Massachusetts
Series B
6.00%, 07/01/02
Insured: AMBAC ................. 269,375
1,435,000 Massachusetts State HEFA
Partners Healthcare System,
Series A 5.38%, 07/01/17
Insured: MBIA .................. 1,472,669
100,000 Massachusetts State HEFA
South Shore Hospital, Series E
5.40%, 07/01/07
Insured: MBIA .................. 105,125
325,000 Massachusetts State HEFA
South Shore Hospital, Series E
5.50%, 07/01/13
Insured: MBIA .................. 341,250
500,000 Massachusetts State HEFA
Williams College, Series D
5.40%, 07/01/05 ................ 535,625
1,750,000 Massachusetts State HEFA
Williams College, Series F
5.50%, 07/01/26 ................ 1,809,062
150,000 Massachusetts State Housing
Finance Agency
Single Family, Series 41
5.25%, 06/01/01 ................ 154,500
1,250,000 Massachusetts State IFA
Belmont Hill School
5.63%, 09/01/20 ................ 1,301,563
400,000 Massachusetts State IFA
Brooks School
5.95%, 07/01/23 ................ 418,000
2,000,000 Massachusetts State IFA
College of the Holy Cross
5.00%, 09/01/23
Insured: MBIA ................. 1,967,500
1,000,000 Massachusetts State IFA
Combined Jewish Philanthropies
Series A
6.38%, 02/01/15
Insured: AMBAC ................. 1,112,500
1,000,000 Massachusetts State IFA
Concord Academy
5.50%, 09/01/27 ................ 1,012,500
1,000,000 Massachusetts State IFA
Groton School, Series A
5.00%, 03/01/28 ................ 1,000,000
Massachusetts (continued)
$ 250,000 Massachusetts State IFA
Lesley College Project, Series A
6.00%, 07/01/10
Insured: Connie Lee ............ $ 276,250
300,000 Massachusetts State IFA
Milton Academy, Series B
5.30%, 09/01/08
Insured: MBIA .................. 317,250
950,000 Massachusetts State IFA
Nantucket Electric Company,
Series A AMT
5.88%, 07/01/17
Insured: AMBAC ................. 1,027,187
500,000 Massachusetts State IFA
Park School
5.90%, 09/01/26 ................ 528,750
2,000,000 Massachusetts State IFA
Phillips Academy Issue
5.38%, 09/01/23 ................ 2,047,500
1,210,000 Massachusetts State IFA
Trustees Deerfield Academy,
Revenue 5.00%, 10/01/23 ........ 1,220,588
1,830,000 Massachusetts State IFA
Tufts University, Series H
5.50%, 02/15/13
Insured: MBIA .................. 1,992,412
1,200,000 Massachusetts State IFA
Wentworth Institute of Technology
5.65%, 10/01/18 ................ 1,236,000
1,300,000 Massachusetts State IFA
Worcester Polytechnic Institute
Series 2
5.25%, 09/01/14
Insured: MBIA .................. 1,340,625
635,000 Massachusetts State Port
Authority 5.63%, 07/01/12 ...... 681,831
1,000,000 Massachusetts State Port
Authority Series A
5.75%, 07/01/12 ................ 1,115,000
250,000 Massachusetts State Port
Authority Series B
5.30%, 07/01/01 ................ 260,312
1,000,000 Massachusetts State Port
Authority Series C
5.13%, 07/01/16 ................ 1,017,500
350,000 Massachusetts State, SP OB
and Revenue, Series A
5.80%, 06/01/00
Insured: AMBAC ................. 362,250
300,000 Massachusetts State, SP OB
and Revenue, Series A
7.00%, 06/01/02 ................ 332,250
1,000,000 Massachusetts State, SP OB
and Revenue, Series A
5.50%, 06/01/13 ................ 1,085,000
200,000 Massachusetts State, SP OB
and Revenue, Series A
6.00%, 06/01/13
Insured: AMBAC ................. 215,250
</TABLE>
See Notes to Financial Statements.
28
<PAGE>
- --------------- Massachusetts Municipal Bond Fund
THE GALAXY FUND PORTFOLIO OF INVESTMENTS (continued)
- --------------- October 31, 1998
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
Massachusetts (continued)
$ 250,000 Massachusetts State, SP OB
and Revenue, Series A
5.80%, 06/01/14
Pre-refunded 06/01/04 .......... $ 275,000
250,000 Massachusetts State
Turnpike Authority, Series A
5.00%, 01/01/13 ................ 261,250
250,000 Massachusetts State
Water Pollution Abatement Trust
MWRA Loan Program, Series A
5.40%, 08/01/11 ................ 266,250
250,000 Massachusetts State
Water Pollution Abatement Trust
Pooled Loan Program, Series 1
5.00%, 02/01/02 ................ 259,687
300,000 Massachusetts State
Water Resource Authority,
Series A 6.30%, 12/01/01 ....... 322,500
100,000 Massachusetts State
Water Resource Authority,
Series A 6.00%, 04/01/20 ....... 103,625
190,000 Massachusetts State
Water Resource Authority,
Series A 6.50%, 07/15/21
Pre-refunded 07/15/02 .......... 211,613
300,000 Massachusetts State
Water Resource Authority,
Series B 5.88%, 11/01/04 ....... 327,000
1,000,000 Massachusetts State
Water Resource Authority,
Series B 5.50%, 08/01/10
Insured: FSA ................... 1,107,500
1,165,000 Massachusetts State
Water Resource Authority,
Series B 5.50%, 08/01/15
Insured: FSA ................... 1,256,744
1,000,000 Methuen, GO
5.63%, 11/15/14
Insured: FSA ................... 1,075,000
220,000 Nantucket Island Land Bank
GO and Revenue, Series E
7.25%, 07/01/19 ................ 243,925
450,000 New England Education
Loan Marketing Corp.
Massachusetts Student
Loan Revenue, Issue A
5.80%, 03/01/02 ................ 474,750
200,000 Northampton, GO
5.30%, 09/01/10
Insured: AMBAC ................. 210,500
150,000 Salem, GO
5.80%, 07/15/06
Insured: AMBAC ................. 161,813
100,000 Salem, GO
5.90%, 07/15/07
Insured: AMBAC ................. 108,000
Massachusetts (continued)
$ 200,000 Sandwich, GO
5.40%, 11/01/07
Insured: AMBAC ................. $ 215,250
1,000,000 Southeastern Massachusetts
University Building Authority
Project Revenue, Series A
5.75%, 05/01/16
Insured: AMBAC ................. 1,070,000
1,500,000 Springfield Municipal Purpose
Loan, GO
5.00%, 09/01/15 ................ 1,516,875
400,000 Taunton, GO
8.00%, 02/01/01 ................ 436,000
250,000 University of Lowell
Building Authority
Fifth Series A
6.75%, 11/01/03
Insured: AMBAC ................. 283,125
200,000 University of Massachusetts
Building Authority, Series A
5.50%, 05/01/03
Insured: MBIA .................. 214,000
100,000 Woods Hole,
Martha's Vineyard and Nantucket
Steamship Bonds, Series B
6.00%, 03/01/02 ................ 107,500
1,000,000 Worcester, Series A
5.00%, 07/01/14
Insured: FSA ................... 1,016,250
-------------
60,302,206
-------------
Other Territories - 6.51%
500,000 Puerto Rico Commonwealth
Aqueduct and Sewer Authority
6.00%, 07/01/09
Insured: Commonwealth Guaranteed 576,250
500,000 Puerto Rico Commonwealth
Infrastructure Financing Authority
Special Tax Revenue, Series A
5.13%, 07/01/09 ................ 539,375
1,000,000 Puerto Rico Commonwealth
Public Improvement, GO
5.50%, 07/01/13 ................ 1,067,500
1,000,000 Puerto Rico Electric Power
Authority Series BB
6.00%, 07/01/12
Insured: MBIA .................. 1,153,750
1,000,000 Puerto Rico Municipal
Finance Agency, Series A
5.50%, 07/01/17
Insured: FSA ................... 1,065,000
-------------
4,401,875
-------------
</TABLE>
See Notes to Financial Statements.
29
<PAGE>
- --------------- Massachusetts Municipal Bond Fund
THE GALAXY FUND PORTFOLIO OF INVESTMENTS (continued)
- --------------- October 31, 1998
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
Texas - 1.69%
$ 1,000,000 Lubbock, Texas, Independent School
District GO, Capital Appreciation
6.01%, 02/15/09 (A) ............ $ 638,750
500,000 North Central Texas Health
Facility Development Corp.,
Series C Presbyterian Medical
Center 3.65%, 12/01/15 (B)
Insured: MBIA
SPA: NationsBank of Texas ...... 500,000
-------------
1,138,750
-------------
Total Municipal Securities ..... 65,842,831
(Cost $63,357,172) -------------
<CAPTION>
Shares
------
<S> <C> <C>
INVESTMENT COMPANY - 1.31%
885,722 Massachusetts Federated
Municipal Cash Trust ........... 885,722
-------------
Total Investment Company ....... 885,722
(Cost $885,722) -------------
Total Investments - 98.77% ....................... 66,728,553
(Cost $64,242,894) -------------
Net Assets and Other Liabilities - 1.23% ......... 831,177
-------------
Net Assets - 100.00% ............................. $67,559,730
=============
</TABLE>
- --------------------------------------------------------------------------------
(A) Zero Coupon Bond. Rate shown reflects effective yield to maturity at
time of purchase.
(B) Variable rate bond. Rate shown reflects rate in effect at
October 31, 1998.
AMBAC American Municipal Bond Assurance Corp.
AMT Alternative Minimum Tax. Private activity obligations whose interest
is subject to the Federal AMT for individuals.
Connie Lee College Construction Loan Association
FGIC Federal Guaranty Insurance Corp.
FSA Financial Security Assurance Company
GO General Obligation
HEFA Health and Educational Facilities Authority
IFA Industrial Finance Agency
MBIA Municipal Bond Insurance Association
MWRA Massachusetts Water Resource Authority
SPA Stand-by Purchase Agreement
SP OB Special Obligation
See Notes to Financial Statements.
30
<PAGE>
- --------------- Rhode Island Municipal Bond Fund
THE GALAXY FUND PORTFOLIO OF INVESTMENTS
- --------------- October 31, 1998
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
MUNICIPAL SECURITIES - 96.85%
Illinois - 0.99%
$ 200,000 Joliet Regional Port District
Marine Terminal Revenue
Exxon Project
3.70%, 10/01/24 (B) ............ $ 200,000
-------------
Rhode Island - 78.81%
500,000 Bristol County Water Authority
Revenue, General, Series A
5.00%, 07/01/16
Insured: MBIA .................. 505,625
200,000 Burrillville, GO
5.85%, 05/01/14
Insured: FGIC .................. 219,000
500,000 Convention Center Authority,
Series A 6.38%, 05/15/23
Insured: MBIA .................. 542,500
700,000 Lincoln, GO
5.50%, 08/15/10
Insured: MBIA .................. 742,000
300,000 Pawtucket, GO
5.63%, 04/15/07 ................ 323,250
400,000 Pawtucket, GO
5.75%, 04/15/11
Insured: FGIC .................. 429,000
500,000 Providence, GO
5.70%, 01/15/06
Insured: MBIA .................. 533,750
500,000 Providence, GO
5.45%, 01/15/10
Insured: FSA ................... 537,500
225,000 Providence, GO
6.75%, 01/15/10
Pre-refunded 01/15/00
Insured: MBIA .................. 237,938
250,000 Rhode Island
Clean Water Protection
Finance Agency
Wastewater Treatment System
Cranston
5.80%, 09/01/22
Insured: MBIA .................. 269,063
150,000 Rhode Island
Clean Water Protection
Finance Agency
Revenue, Safe Drinking Water
Providence, Series A
6.20%, 01/01/06
Insured: AMBAC ................. 168,188
100,000 Rhode Island
Clean Water Protection
Finance Agency
Revenue, Safe Drinking Water
Providence, Series A
6.70%, 01/01/15
Insured: AMBAC ................. 113,875
Rhode Island (continued)
$ 500,000 Rhode Island
Depositors Economic Protection Corp.
SP OB, Series A
5.75%, 08/01/21 ................ $ 558,750
250,000 Rhode Island
Depositors Economic Protection Corp.
SP OB, Series B
5.25%, 08/01/21
Insured: MBIA .................. 268,750
300,000 Rhode Island
Housing and Mortgage Finance Corp.
Revenue, Homeownership
Opportunity Series 17-A
6.25%, 04/01/17 ................ 317,625
500,000 Rhode Island
Housing and Mortgage Finance Corp.
Revenue, Homeownership
Opportunity, Series 19-A
5.70%, 04/01/15 ................ 517,500
500,000 Rhode Island
Housing and Mortgage Finance Corp.
Revenue, Homeownership
Opportunity, Series 22-A
5.55%, 04/01/17 ................ 513,750
500,000 Rhode Island
Housing and Mortgage Finance Corp.
Revenue, Multifamily Housing
Series A
5.60%, 07/01/10
Insured: AMBAC ................. 535,625
500,000 Rhode Island
Housing and Mortgage Finance Corp.
Multifamily Housing, Series A
6.15%, 07/01/17
Insured: AMBAC ................. 535,000
250,000 Rhode Island
Housing and Mortgage Finance Corp.
Revenue, Rental Housing Program
Series A
5.65%, 10/01/07 ................ 261,563
150,000 Rhode Island State, GO, Series A
6.25%, 06/15/07
Pre-refunded 06/15/02
Insured: FGIC .................. 165,375
200,000 Rhode Island State, GO, Series A
6.10%, 06/15/03
Insured: FGIC .................. 218,750
150,000 Rhode Island State, GO, Series A
6.25%, 06/15/07
Unrefunded
Insured: FGIC .................. 163,687
250,000 Rhode Island State
Consolidated Capital Development
Loan GO, Series A
5.13%, 07/15/12
Insured: FGIC .................. 261,250
</TABLE>
See Notes to Financial Statements.
31
<PAGE>
- --------------- Rhode Island Municipal Bond Fund
THE GALAXY FUND PORTFOLIO OF INVESTMENTS (continued)
- --------------- October 31, 1998
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
Rhode Island (continued)
$ 250,000 Rhode Island State
Economic Development Corp.
Revenue, Airport Series B
5.25%, 07/01/11
Insured: FSA ................... $ 265,312
500,000 Rhode Island State
Economic Development Corp.
Revenue, Airport Series B
5.00%, 07/01/18
Insured: FSA ................... 495,000
250,000 Rhode Island State
Economic Development Corp.
Revenue, Airport Series B
5.00%, 07/01/23
Insured: FSA ................... 245,937
130,000 Rhode Island State
Health and Educational Building Corp.
Revenue, Higher Education Facility
Brown University
6.75%, 09/01/16 ................ 136,418
500,000 Rhode Island State
Health and Educational Building Corp.
Revenue, Higher Education Facility
Brown University
6.00%, 09/01/20 ................ 545,000
1,000,000 Rhode Island State
Health and Educational Building Corp.
Revenue, Higher Education Facility
Brown University
5.00%, 09/01/23 ................ 1,000,000
275,000 Rhode Island State
Health and Educational Building Corp.
Revenue, Higher Education Facility
Bryant College, SP OB
6.50%, 06/01/05
Insured: MBIA .................. 301,812
475,000 Rhode Island State
Health and Educational Building Corp.
Revenue, Higher Education Facility
New England Institute
6.00%, 03/01/15
Insured: Connie Lee ............ 513,594
300,000 Rhode Island State
Health and Educational Building Corp.
Revenue, Higher Education Facility
Providence College
5.60%, 11/01/09
Insured: MBIA .................. 321,000
500,000 Rhode Island State
Health and Educational Building Corp.
Revenue, Higher Education Facility
Rhode Island School of Design
5.63%, 06/01/16
Insured: MBIA .................. 537,500
Rhode Island (continued)
$ 500,000 Rhode Island State
Health and Educational Building Corp.
Revenue, Higher Education Facility
Roger Williams
6.50%, 11/15/24
Insured: Connie Lee ............ $ 547,500
260,000 Rhode Island State
Health and Educational Building Corp.
Revenue, Higher Education Facility
Salve Regina
6.25%, 03/15/13
Insured: Connie Lee ............ 284,375
500,000 Rhode Island State
Health and Educational Building Corp.
Revenue, Miriam Hospital Issue
Series B
6.60%, 04/01/19 ................ 562,500
300,000 Rhode Island State
Health and Educational Building Corp.
Revenue, Saint Antoine
6.75%, 11/15/18
LOC: Allied Irish Banks NY ..... 326,250
500,000 Rhode Island State
Industrial Facilities Corp.,
Revenue Marine Terminal, Mobil
Oil Refining 6.00%, 11/01/14 .. 538,125
100,000 South Kingstown, GO, Series B
5.50%, 06/15/10
Insured: FSA ................... 108,500
100,000 Warwick, GO
7.00%, 11/15/02
Insured: FGIC .................. 105,968
140,000 Westerly, GO
6.00%, 09/15/14
Insured: AMBAC ................. 153,475
-------------
15,927,580
-------------
Other Territories - 15.63%
250,000 Puerto Rico Commonwealth, GO
6.00%, 07/01/16
Insured: MBIA .................. 290,625
500,000 Puerto Rico Commonwealth, GO
Public Improvement
5.50%, 07/01/12 ................ 535,000
500,000 Puerto Rico Commonwealth
Special Tax Revenue, Series A
Infrastructure Finance Authority
5.00%, 07/01/16
Insured: AMBAC ................. 506,250
500,000 Puerto Rico Electric Power Authority
Revenue, Series EE
5.25%, 07/01/15
Insured: MBIA .................. 524,375
</TABLE>
See Notes to Financial Statements.
32
<PAGE>
- --------------- Rhode Island Municipal Bond Fund
THE GALAXY FUND PORTFOLIO OF INVESTMENTS (continued)
- --------------- October 31, 1998
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
Other Territories (continued)
$ 400,000 Puerto Rico Municipal
Finance Agency, Series A
6.00%, 07/01/14
Insured: FSA ................... $ 440,500
315,000 Puerto Rico Municipal
Finance Agency, Series A
5.50%, 07/01/17
Insured: FSA ................... 335,475
500,000 Puerto Rico Public Buildings
Authority Government Facilities,
Series A 5.50%, 07/01/21
Insured: AMBAC ................. 525,625
-------------
3,157,850
-------------
Texas - 1.42%
450,000 Lubbock, Texas,
Independent School District GO,
Capital Appreciation
6.10%, 02/15/09 (A) ............ 287,437
-------------
Total Municipal Securities ..... 19,572,867
(Cost $18,552,341) -------------
<CAPTION>
Value
Shares (Note 2)
------ --------
INVESTMENT COMPANY - 4.29%
<S> <C> <C>
867,675 Federated Tax-Free Obligations
Fund ........................... $ 867,675
-------------
Total Investment Company ....... 867,675
(Cost $867,675) -------------
Total Investments - 101.14% ...................... 20,440,542
(Cost $19,420,016) -------------
Net Other Assets and Liabilities - (1.14)% ....... (230,885)
-------------
Net Assets - 100.00% ............................. $20,209,657
=============
</TABLE>
- --------------------------------------------------------------------------------
(A) Zero Coupon Bond. Rate shown reflects effective yield to maturity at
time of purchase.
(B) Interest is reset once a year. The interest rate shown reflects the
rate in effect at October 31, 1998.
AMBAC American Municipal Bond Assurance Corp.
Connie Lee College Construction Loan Association
FGIC Federal Guaranty Insurance Corp.
FSA Financial Security Assurance Company
GO General Obligation
LOC Letter of Credit
MBIA Municipal Bond Investors Assurance
SP OB Special Obligation
See Notes to Financial Statements.
33
<PAGE>
- ---------------
THE GALAXY FUND STATEMENTS OF ASSETS AND LIABILITIES
- --------------- October 31, 1998
<TABLE>
<CAPTION>
New Jersey New York
Tax-Exempt Municipal Municipal
Bond Fund Bond Fund Bond Fund
------------- ---------- ----------
<S> <C> <C> <C>
ASSETS:
Investments (Note 2):
Investments at cost .............................. $152,974,031 $8,504,936 $77,586,880
Net unrealized appreciation ...................... 8,178,011 183,092 4,423,150
------------ ---------- -----------
Total investments at value ....................... 161,152,042 8,688,028 82,010,030
Cash ............................................... -- 1,238 --
Receivable for shares sold ......................... 151,158 1,092 84,453
Interest and dividend receivables .................. 2,387,819 111,788 1,252,443
Deferred organizational expense (Note 2) ........... -- 15,026 --
------------ ---------- -----------
Total Assets ..................................... 163,691,019 8,817,172 83,346,926
------------ ---------- -----------
LIABILITIES:
Dividends payable .................................. 347,782 27,462 153,492
Payable for investments purchased .................. -- 250,750 --
Payable to Custodian ............................... 1,611 -- 72,781
Payable for shares repurchased ..................... 60,974 -- 23,366
Advisory fee payable (Note 3) ...................... 76,797 1,800 38,881
Payable to Fleet affiliates (Note 3) ............... 9,757 360 10,334
Payable to Administrator (Note 3) .................. 19,393 4,241 6,183
Trustees' fees and expenses payable (Note 3) ....... 1,482 87 626
Accrued expenses and other payables ................ 30,723 16,254 21,587
------------ ---------- -----------
Total Liabilities ................................ 548,519 300,954 327,250
------------ ---------- -----------
NET ASSETS ............................................ $163,142,500 $8,516,218 $83,019,676
============ ========== ===========
NET ASSETS consist of:
Par value (Note 5) ................................. $ 14,441 $ 832 $ 7,260
Paid-in capital in excess of par value ............. 152,983,395 8,331,009 79,103,454
Undistributed net investment income (loss) ......... (18,625) 1,972 (839)
Accumulated net realized gain (loss) on
investments sold ................................. 1,985,278 (687) (513,349)
Net unrealized appreciation of investments ......... 8,178,011 183,092 4,423,150
------------ ---------- -----------
TOTAL NET ASSETS ...................................... $163,142,500 $8,516,218 $83,019,676
============ ========== ===========
Retail A Shares:
Net Assets ......................................... $ 24,763,900 $ 814,931 $48,218,478
Shares of beneficial interest outstanding .......... 2,191,991 79,614 4,216,530
NET ASSET VALUE and redemption price per share ..... $ 11.30 $ 10.24 $ 11.44
Sales charge - 3.75% of offering price ............. 0.44 0.40 0.45
------------ ---------- -----------
Maximum offering price per share ................... $ 11.74 $ 10.64 $ 11.89
============ ========== ===========
Retail B Shares:
Net Assets ......................................... $ 2,714,900 N/A N/A
Shares of beneficial interest outstanding .......... 240,316 N/A N/A
------------ ---------- -----------
NET ASSET VALUE and offering price per share* ...... $ 11.30 N/A N/A
============ ========== ===========
Trust Shares:
Net Assets ......................................... $135,663,700 $7,701,287 $34,801,198
Shares of beneficial interest outstanding .......... 12,008,253 752,364 3,043,195
------------ ---------- -----------
NET ASSET VALUE, offering and
redemption price per share ....................... $ 11.30 $ 10.24 $ 11.44
============ ========== ===========
</TABLE>
- --------------------------------------------------------------------------------
*Redemption price per share is equal to the Net Asset Value per share less any
applicable contingent deferred sales charge.
See Notes to Financial Statements.
34
<PAGE>
<TABLE>
<CAPTION>
Connecticut Massachusetts Rhode Island
Municipal Municipal Municipal
Bond Fund Bond Fund Bond Fund
----------------- ----------------- -----------------
<S> <C> <C>
$36,194,460 $64,242,894 $19,420,016
2,162,167 2,485,659 1,020,526
----------- ----------- -----------
38,356,627 66,728,553 20,440,542
-- 88,191 43
353,259 31,675 28,999
530,932 955,348 302,165
-- -- 3,439
----------- ----------- -----------
39,240,818 67,803,767 20,775,188
----------- ----------- -----------
42,105 118,484 35,679
-- -- 508,056
28,677 -- --
354,788 59,303 --
11,583 20,046 6,390
3,807 7,471 --
11,196 19,383 3,832
1,104 1,827 2,682
19,473 17,523 8,892
----------- ----------- -----------
472,733 244,037 565,531
----------- ----------- -----------
$38,768,085 $67,559,730 $20,209,657
=========== =========== ===========
$ 3,584 $ 6,416 $ 1,808
37,415,897 65,461,237 19,111,028
(14,614) (21,727) (10,223)
(798,949) (371,855) 86,518
2,162,167 2,485,659 1,020,526
----------- ----------- -----------
$38,768,085 $67,559,730 $20,209,657
=========== =========== ===========
$24,855,550 $44,188,605 $20,209,657
2,297,604 4,196,694 1,807,697
$ 10.82 $ 10.53 $ 11.18
0.42 0.41 0.44
----------- ----------- -----------
$ 11.24 $ 10.94 $ 11.62
=========== =========== ===========
N/A N/A N/A
N/A N/A N/A
----------- ----------- -----------
N/A N/A N/A
=========== =========== ===========
$13,912,535 $23,371,125 $ --
1,286,023 2,219,558 --
----------- ----------- -----------
$ 10.82 $ 10.53 $ --
=========== =========== ===========
</TABLE>
35
<PAGE>
- ---------------
THE GALAXY FUND STATEMENTS OF OPERATIONS
- --------------- For the year ended October 31, 1998
<TABLE>
<CAPTION>
New Jersey New York
Tax-Exempt Municipal Municipal
Bond Fund Bond Fund* Bond Fund
------------- ------------- -------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest (Note 2) .................................. $ 8,313,696 $185,972 $3,786,066
Dividends (Note 2) ................................. 77,144 3,660 32,849
------------ -------- ----------
Total investment income .......................... 8,390,840 189,632 3,818,915
------------ -------- ----------
EXPENSES:
Investment advisory fee (Note 3) ................... 1,195,175 30,230 557,232
Administration fee (Note 3) ........................ 127,627 3,235 59,776
Custodian fee ...................................... 14,275 4,815 9,915
Registration fees .................................. 20,433 4,446 12,336
Fund accounting fee (Note 3) ....................... 59,288 23,167 54,770
Legal fee (Note 3) ................................. 6,903 307 3,078
Audit fee .......................................... 16,031 13,639 16,031
Transfer agent fee (Note 3) ........................ 21,437 3,701 24,440
12b-1 fee (Note 3) ................................. 18,960 -- --
Shareholder servicing fee (Note 3) ................. 38,181 386 64,145
Trustees' fees and expenses (Note 3) ............... 3,726 150 1,665
Amortization of organization costs (Note 2) ........ -- 1,974 --
Reports to shareholders ............................ 14,850 1,215 18,498
Insurance .......................................... 1,445 65 641
Miscellaneous ...................................... 6,550 281 2,915
------------ -------- ----------
Total expenses before reimbursement/waiver ....... 1,544,881 87,611 825,442
------------ -------- ----------
Less: reimbursement/waiver (Note 4) .............. (331,140) (50,147) (224,252)
------------ -------- ----------
Total expenses net of reimbursement/waiver ....... 1,213,741 37,464 601,190
------------ -------- ----------
NET INVESTMENT INCOME ................................. 7,177,099 152,168 3,217,725
------------ -------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (Note 2):
Net realized gain (loss) on investments sold ....... 1,998,815 (687) 822,875
Net change in unrealized appreciation of
investments ..................................... 2,771,283 183,092 1,441,749
------------ -------- ----------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS ................................ 4,770,098 182,405 2,264,624
------------ -------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS .......................... $ 11,947,197 $334,573 $5,482,349
============ ======== ==========
</TABLE>
- --------------------------------------------------------------------------------
* The New Jersey Municipal Bond Fund commenced operations on April 3, 1998.
See Notes to Financial Statements.
36
<PAGE>
<TABLE>
<CAPTION>
Connecticut Massachusetts Rhode Island
Municipal Municipal Municipal
Bond Fund Bond Fund Bond Fund
------------ --------------- -------------
<S> <C> <C>
$1,805,097 $2,890,345 $ 991,044
19,448 29,122 12,988
---------- ---------- ----------
1,824,545 2,919,467 1,004,032
---------- ---------- ----------
279,113 430,637 140,738
29,946 46,188 15,172
11,382 11,141 8,934
9,116 10,245 8,077
44,081 52,953 30,735
1,539 2,265 807
17,124 17,124 15,101
17,012 14,666 5,001
-- -- --
37,207 58,742 --
834 1,232 438
926 882 3,420
12,237 13,322 3,227
309 457 162
1,447 2,111 757
---------- ---------- ----------
462,273 661,965 232,569
---------- ---------- ----------
(160,488) (246,101) (80,524)
---------- ---------- ----------
301,785 415,864 152,045
---------- ---------- ----------
1,522,760 2,503,603 851,987
---------- ---------- ----------
229,881 342,455 87,401
949,373 1,189,694 376,671
---------- ---------- ----------
1,179,254 1,532,149 464,072
---------- ---------- ----------
$2,702,014 $4,035,752 $1,316,059
========== ========== ==========
</TABLE>
37
<PAGE>
- ---------------
THE GALAXY FUND STATEMENTS OF CHANGES IN NET ASSETS
- ---------------
<TABLE>
<CAPTION>
New Jersey New York
Tax-Exempt Bond Fund Municipal Bond Fund* Municipal Bond Fund
-------------------------- ----------------------- ---------------------------
Years ended October 31, Period ended October 31, Years ended October 31,
-------------------------- ----------------------- ---------------------------
1998 1997 1998 1998 1997
------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
NET ASSETS at beginning of period......... $149,372,871 $132,288,859 $ 20(B) $65,995,842 $63,915,925
------------ ------------ ----------- ----------- -----------
Increase in Net Assets resulting
from operations:
Net investment income.................. 7,177,099 6,889,204 152,168 3,217,725 2,943,627
Net realized gain (loss) on
investments sold .................... 1,998,815 1,296,888 (687) 822,875 564,735
Net change in unrealized appreciation
of investments....................... 2,771,283 2,503,907 183,092 1,441,749 1,436,259
------------ ------------ ----------- ----------- -----------
Net increase in net assets
resulting from operations............ 11,947,197 10,689,999 334,573 5,482,349 4,944,621
------------ ------------ ----------- ----------- -----------
Dividends to shareholders from:
Retail A Shares:
Net investment income................ (1,112,636) (1,214,501) (8,997) (1,819,081) (1,750,144)
Net realized gain on investments..... (209,493) (16,116) -- -- --
------------ ------------ ----------- ----------- -----------
Total Dividends.................... (1,322,129) (1,230,617) (8,997) (1,819,081) (1,750,144)
------------ ------------ ----------- ----------- -----------
Retail B Shares:
Net investment income................ (87,830) (47,668) N/A N/A N/A
Net realized gain on investments..... (14,276) (462) N/A N/A N/A
------------ ------------ ----------- ----------- -----------
Total Dividends.................... (102,172) (48,130) N/A N/A N/A
------------ ------------ ----------- ----------- -----------
Trust Shares:
Net investment income................ (6,048,821) (5,646,255) (143,171) (1,398,277) (1,197,633)
Dividends in excess of net
investment income ................. -- -- (2) -- --
Net realized gain on investments..... (1,016,251) (63,205) -- -- --
------------ ------------ ----------- ----------- -----------
Total Dividends.................... (7,065,072) (5,709,460) (143,173) (1,398,277) (1,197,633)
------------ ------------ ----------- ----------- -----------
Total Dividends to shareholders.... (8,489,307) (6,988,207) (152,170) (3,217,358) (2,947,777)
------------ ------------ ----------- ----------- -----------
Net increase from share transactions(1)... 10,311,739 13,382,220 8,333,795 14,758,843 83,073
------------ ------------ ----------- ----------- -----------
Net increase in net assets............. 13,769,629 17,084,012 8,516,198 17,023,834 2,079,917
------------ ------------ ----------- ----------- -----------
NET ASSETS at end of period
(including line A) ..................... $163,142,500 $149,372,871 $ 8,516,218 $83,019,676 $65,995,842
============ ============ =========== =========== ===========
(A) Undistributed (overdistributed) net
investment income.................... $ (18,625) $ 40,027 $ 1,972 $ (839) $ (4,150)
============ ============ =========== =========== ===========
</TABLE>
- --------------------------------------------------------------------------------
* The New Jersey Municipal Bond Fund commenced operations on April 3, 1998.
(1) For detail on share transactions by series, see Statements of Changes in Net
Assets - Capital Stock Activity on pages 40 and 41.
(B) Represents initial seed money.
See Notes to Financial Statements.
38
<PAGE>
<TABLE>
<CAPTION>
Connecticut Municipal Massachusetts Municipal Rhode Island Municipal
Bond Fund Bond Fund Bond Fund
- -------------------------- -------------------------- -------------------------
Years ended October 31, Years ended October 31, Years ended October 31,
- -------------------------- -------------------------- -------------------------
1998 1997 1998 1997 1998 1997
- ------------- ----------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$33,221,284 $29,592,030 $47,304,792 $37,321,817 $17,134,415 $14,899,739
- ----------- ----------- ----------- ----------- ----------- -----------
1,522,760 1,303,267 2,503,603 1,813,708 851,987 677,105
229,881 (82,263) 342,455 66,828 87,401 37,141
949,373 1,036,480 1,189,694 1,298,792 376,671 416,740
- ----------- ----------- ----------- ----------- ----------- -----------
2,702,014 2,257,484 4,035,752 3,179,328 1,316,059 1,130,986
- ----------- ----------- ----------- ----------- ----------- -----------
(996,397) (984,379) (1,670,216) (1,277,846) (837,786) (704,462)
-- -- -- -- (37,141) (58,722)
- ----------- ----------- ----------- ----------- ----------- -----------
(996,397) (984,379) (1,670,216) (1,277,846) (874,927) (763,184)
- ----------- ----------- ----------- ----------- ----------- -----------
N/A N/A N/A N/A N/A N/A
N/A N/A N/A N/A N/A N/A
- ----------- ----------- ----------- ----------- ----------- -----------
N/A N/A N/A N/A N/A N/A
- ----------- ----------- ----------- ----------- ----------- -----------
(526,684) (337,583) (814,636) (600,444) -- --
-- -- -- -- -- --
-- -- -- -- -- --
- ----------- ----------- ----------- ----------- ----------- -----------
(526,684) (337,583) (814,636) (600,444) -- --
- ----------- ----------- ----------- ----------- ----------- -----------
(1,523,081) (1,321,962) (2,484,852) (1,878,290) (874,927) (763,184)
- ----------- ----------- ----------- ----------- ----------- -----------
4,367,868 2,693,732 18,704,038 8,681,937 2,634,110 1,866,874
- ----------- ----------- ----------- ----------- ----------- -----------
5,546,801 3,629,254 20,254,938 9,982,975 3,075,242 2,234,676
- ----------- ----------- ----------- ----------- ----------- -----------
$38,768,085 $33,221,284 $67,559,730 $47,304,792 $20,209,657 $17,134,415
=========== =========== =========== =========== =========== ===========
$ (14,614) $ (14,293) $ (21,727) $ (45,590) $ (10,223) $ (25,307)
=========== =========== =========== =========== =========== ===========
</TABLE>
39
<PAGE>
- ---------------
THE GALAXY FUND STATEMENTS OF CHANGES IN NET ASSETS -
- --------------- Capital Stock Activity
<TABLE>
<CAPTION>
New Jersey New York
Tax-Exempt Bond Fund Municipal Bond Fund* Municipal Bond Fund
----------------------- ------------------------ -------------------------
Years ended October 31, Period ended October 31, Years ended October 31,
----------------------- ------------------------ -------------------------
1998 1997 1998 1998 1997
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
DOLLAR AMOUNTS
Retail A Shares:
Sold ......................... $ 4,120,071 $ 2,646,111 $ 795,210 $16,948,796 $ 4,874,717
Issued to shareholders in
reinvestment of dividends ... 993,669 885,221 4,695 1,196,021 1,251,447
Repurchased .................. (6,326,395) (7,050,231) -- (9,680,079) (9,033,566)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in
shares outstanding ......... $(1,212,655) $(3,518,899) $ 799,905 $ 8,464,738 $(2,907,402)
=========== =========== =========== =========== ===========
Retail B Shares:
Sold ......................... $ 1,425,757 $ 970,301 N/A N/A N/A
Issued to shareholders in
reinvestment of dividends .. 58,048 17,346 N/A N/A N/A
Repurchased .................. (509,491) (123,614) N/A N/A N/A
----------- ----------- ----------- ----------- -----------
Net increase in shares
outstanding ................. $ 974,314 $ 864,033 N/A N/A N/A
=========== =========== =========== =========== ===========
Trust Shares:
Sold ......................... $23,518,359 $27,034,670 $ 7,558,900 $ 8,629,198 $ 6,640,097
Issued to shareholders in
reinvestment of dividends ... 3,119,314 1,908,816 -- 192,826 158,550
Repurchased .................. (16,087,593) (12,906,400) (25,010) (2,527,919) (3,808,172)
----------- ----------- ----------- ----------- -----------
Net increase in shares
outstanding ................ $10,550,080 $16,037,086 $ 7,533,890 $ 6,294,105 $ 2,990,475
=========== =========== =========== =========== ===========
SHARE ACTIVITY
Retail A Shares:
Sold ......................... 367,769 241,746 79,151 1,490,812 448,266
Issued to shareholders in
reinvestment of dividends . 90,143 81,401 463 117,233 114,934
Repurchased .................. (568,242) (649,802) -- (856,236) (833,825)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in
shares outstanding ......... (110,330) (326,655) 79,614 751,809 (270,625)
=========== =========== =========== =========== ===========
Retail B Shares:
Sold ......................... 127,743 89,576 N/A N/A N/A
Issued to shareholders in
reinvestment of dividends .. 5,196 1,593 N/A N/A N/A
Repurchased .................. (45,412) (11,358) N/A N/A N/A
----------- ----------- ----------- ----------- -----------
Net increase in shares
outstanding ................ 87,527 79,811 N/A N/A N/A
=========== =========== =========== =========== ===========
Trust Shares:
Sold ......................... 2,106,905 2,493,761 754,850 771,140 610,447
Issued to shareholders in
reinvestment of dividends . 279,668 175,380 -- 17,092 14,549
Repurchased .................. (1,428,414) (1,189,272) (2,486) (229,638) (350,861)
----------- ----------- ----------- ----------- -----------
Net increase in shares
outstanding ................ 958,159 1,479,869 752,364 558,594 274,135
=========== =========== =========== =========== ===========
</TABLE>
- --------------------------------------------------------------------------------
* The New Jersey Municipal Bond Fund commenced operations on April 3, 1998.
(1) As of October 31, 1998, the Rhode Island Municipal Bond Fund had not issued
Trust Shares.
See Notes to Financial Statements.
40
<PAGE>
<TABLE>
<CAPTION>
Connecticut Municipal Massachusetts Municipal Rhode Island Municipal
Bond Fund Bond Fund Bond Fund(1)
- ----------------------------- -------------------------- --------------------------
Years ended October 31, Years ended October 31, Years ended October 31,
- ----------------------------- -------------------------- --------------------------
1998 1997 1998 1997 1998 1997
- -------------- ------------- ------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
$ 7,407,851 $ 3,252,075 $ 19,663,945 $11,981,846 $ 8,016,637 $ 5,083,499
732,578 702,784 1,310,122 957,093 417,557 311,919
(7,427,287) (4,550,082) (11,175,520) (6,781,712) (5,800,084) (3,528,544)
----------- ----------- ------------ ----------- ----------- -----------
$ 713,142 $ (595,223) $ 9,798,547 $ 6,157,227 $ 2,634,110 $ 1,866,874
=========== =========== ============ =========== =========== ===========
N/A N/A N/A N/A N/A N/A
N/A N/A N/A N/A N/A N/A
N/A N/A N/A N/A N/A N/A
----------- ----------- ------------ ----------- ----------- -----------
N/A N/A N/A N/A N/A
=========== =========== ============ =========== =========== ===========
$13,217,871 $ 5,259,690 $ 12,225,250 $ 4,805,492 $ -- $ --
3,553 17,100 587 451 -- --
(9,566,698) (1,987,835) (3,320,346) (2,281,233) -- --
----------- ----------- ------------ ----------- ----------- -----------
$ 3,654,726 $ 3,288,955 $ 8,905,491 $ 2,524,710 $ -- $ --
=========== =========== ============ =========== =========== ===========
697,310 315,384 1,892,528 1,185,033 725,416 472,719
64,175 68,408 126,721 95,167 37,745 29,036
(694,286) (444,610) (1,072,707) (672,810) (526,601) (329,120)
----------- ----------- ------------ ----------- ----------- -----------
67,199 (60,818) 946,542 607,390 236,560 172,635
=========== =========== ============ =========== =========== ===========
N/A N/A N/A N/A N/A N/A
N/A N/A N/A N/A N/A N/A
N/A N/A N/A N/A N/A N/A
----------- ----------- ------------ ----------- ----------- -----------
N/A N/A N/A N/A N/A N/A
=========== =========== ============ =========== =========== ===========
1,242,161 507,333 1,174,113 478,517 -- --
308 1,664 57 44 -- --
(898,692) (192,523) (318,922) (225,905) -- --
----------- ----------- ------------ ----------- ----------- -----------
343,777 316,474 855,248 252,656 -- --
=========== =========== ============ =========== =========== ===========
</TABLE>
41
<PAGE>
- --------------- Tax-Exempt Bond Fund
THE GALAXY FUND FINANCIAL HIGHLIGHTS
- --------------- For a Share outstanding throughout each period.
Retail A Shares
<TABLE>
<CAPTION>
Years ended October 31,
---------------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period....... $ 11.06 $ 10.78 $ 10.78 $ 9.99 $ 11.12
------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income (A)............... 0.48 0.50 0.50 0.52 0.53
Net realized and unrealized
gain (loss) on investments............ 0.34 0.29 -- 0.79 (1.04)
------- ------- ------- ------- -------
Total from Investment Operations:... 0.82 0.79 0.50 1.31 (0.51)
------- ------- ------- ------- -------
Less Dividends:
Dividends from net investment income.... (0.49) (0.50) (0.50) (0.52) (0.53)
Dividends from net realized capital gains (0.09) (0.01) -- -- --
Dividends in excess of net realized
capital gains......................... -- -- -- -- (0.09)
------- ------- ------- ------- -------
Total Dividends:...................... (0.58) (0.51) (0.50) (0.52) (0.62)
------- ------- ------- ------- -------
Net increase (decrease) in net asset value. 0.24 0.28 -- 0.79 (1.13)
------- ------- ------- ------- -------
Net Asset Value, End of Period............. $ 11.30 $ 11.06 $ 10.78 $ 10.78 $ 9.99
======= ======= ======= ======= =======
Total Return(2)............................ 7.60% 7.49% 4.77% 13.40% (4.75)%
Ratios/Supplemental Data:
Net Assets, End of Period (000's).......... $24,764 $25,465 $28,339 $31,609 $35,911
Ratios to average net assets:
Net investment income including
reimbursement/waiver.................. 4.32% 4.60% 4.68% 4.99% 5.01%
Operating expenses including
reimbursement/waiver.................. 0.94% 0.95% 0.93% 0.91% 0.80%
Operating expenses excluding
reimbursement/waiver.................. 1.15% 1.18% 1.18% 1.24% 1.03%
Portfolio Turnover Rate.................... 59% 78% 15% 11% 17%
</TABLE>
- --------------------------------------------------------------------------------
* Annualized
** Not Annualized
(1) The Fund began offering Retail B shares on March 4, 1996.
(2) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares.
(A) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or Administrator for Retail A Shares for the years
ended October 31, 1998, 1997, 1996, 1995 and 1994 were $0.46, $0.47, $0.48,
$0.48 and $0.50, respectively. Net investment income per share before
reimbursement/waiver of fees by the Investment Advisor and/or Administrator
for Trust Shares for the years ended October 31, 1998, 1997, 1996, 1995 and
1994 were $0.48, $0.51, $0.51, $0.51 and $0.50, respectively. Net investment
income per share before reimbursement/waiver of fees by the Investment
Advisor and/or Administrator for Retail B Shares for the years ended October
31, 1998 and 1997 and for the period ended October 31, 1996 were $0.40,
$0.40 and $0.25, respectively.
See Notes to Financial Statements.
42
<PAGE>
<TABLE>
<CAPTION>
Trust Shares Retail B Shares
Years ended October 31, Years ended October 31, Period ended
- --------------------------------------------------------------- ----------------------- October 31,
1998 1997 1996 1995 1994 1998 1997 1996(1)
- ---------- ----------- ----------- ----------- ------------ ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$11.06 $10.78 $10.78 $9.99 $11.12 $11.06 $10.78 $10.94
- -------- ------- -------- ------- ------- ------ ------ ------
0.50 0.53 0.53 0.54 0.53 0.42 0.43 0.27
0.34 0.29 -- 0.79 (1.04) 0.33 0.29 (0.16)
- -------- ------- -------- ------- ------- ------ ------ ------
0.84 0.82 0.53 1.33 (0.51) 0.75 0.72 0.11
- -------- ------- -------- ------- ------- ------ ------ ------
(0.51) (0.53) (0.53) (0.54) (0.53) (0.42) (0.43) (0.27)
(0.09) (0.01) -- -- -- (0.09) (0.01) --
-- -- -- -- (0.09) -- -- --
- -------- ------- -------- ------- ------- ------ ------ ------
(0.60) (0.54) (0.53) (0.54) (0.62) (0.51) (0.44) (0.27)
- -------- ------- -------- ------- ------- ------ ------ ------
0.24 0.28 -- 0.79 (1.13) 0.24 0.28 (0.16)
- -------- ------- -------- ------- ------- ------ ------ ------
$11.30 11.06 $10.78 $10.78 $9.99 $11.30 $11.06 $10.78
======== ======= ======== ======= ======= ====== ====== ======
7.85% 7.75% 5.03% 13.62% (4.75)% 6.95% 6.83% 1.08%**
$135,664 $122,218 $103,163 $91,740 $91,647 $2,715 $1,690 $787
4.55% 4.85% 4.91% 5.18% 5.01% 3.71% 3.95% 4.08%*
0.71% 0.70% 0.70% 0.72% 0.78% 1.55% 1.60% 1.57%*
0.92% 0.96% 0.95% 0.97% 1.00% 1.76% 1.83% 1.77%*
59% 78% 15% 11% 17% 59% 78% 15%
</TABLE>
43
<PAGE>
- --------------- New Jersey Municipal Bond Fund
THE GALAXY FUND FINANCIAL HIGHLIGHTS
- --------------- For a Share outstanding throughout the period.
Retail A Shares
<TABLE>
<CAPTION>
Period ended October 31,
------------------------
1998(1)
------------------
<S> <C>
Net Asset Value, Beginning of Period........................ $10.00
------
Income from Investment Operations:
Net investment income (A)................................ 0.20
Net realized and unrealized (loss) on investments........ 0.24
------
Total from Investment Operations:.................... 0.44
------
Less Dividends:
Dividends from net investment income..................... (0.20)
------
Total Dividends:....................................... (0.20)
------
Net (decrease) in net asset value........................... 0.24
------
Net Asset Value, End of Period.............................. $10.24
======
Total Return(2)............................................. 4.34%**
Ratios/Supplemental Data:
Net Assets, End of Period (000's)........................... $ 815
Ratios to average net assets:
Net investment income including reimbursement/waiver..... 3.62%*
Operating expenses including reimbursement/waiver........ 1.09%*
Operating expenses excluding reimbursement/waiver........ 3.65%*
Portfolio Turnover Rate..................................... 53%**
</TABLE>
- --------------------------------------------------------------------------------
* Annualized.
** Not Annualized.
(1) The Fund commenced operations on April 3, 1998.
(2) Calculation does not include the effect of any sales charge for Retail A
Shares.
(A) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or Administrator for Retail A Shares for the period
ended October 31, 1998 was $0.06. Net investment income per share before
reimbursement/waiver of fees by the Investment Advisor and/or Administrator
for Trust Shares for the period ended October 31, 1998 was $0.15.
See Notes to Financial Statements.
44
<PAGE>
Trust Shares
Period ended October 31,
-----------------------
1998(1)
-----------------
$10.00
------
0.21
0.24
------
0.45
------
(0.21)
------
(0.21)
------
0.24
------
$10.24
======
4.48%**
$7,701
3.79%*
0.92%*
2.07%*
53%**
45
<PAGE>
- --------------- New York Municipal Bond Fund
THE GALAXY FUND FINANCIAL HIGHLIGHTS
- --------------- For a Share outstanding throughout each period.
Retail A Shares
<TABLE>
<CAPTION>
Years ended October 31,
------------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period..... $ 11.09 $ 10.75 $ 10.78 $ 9.89 $ 11.04
------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income (A)............. 0.48 0.49 0.48 0.49 0.49
Net realized and unrealized
gain (loss) on investments.......... 0.35 0.34 (0.03) 0.89 (1.15)
------- ------- ------- ------- -------
Total from Investment Operations:. 0.83 0.83 0.45 1.38 (0.66)
------- ------- ------- ------- -------
Less Dividends:
Dividends from net investment income.. (0.48) (0.49) (0.48) (0.49) (0.49)
------- ------- ------- ------- -------
Total Dividends:.................... (0.48) (0.49) (0.48) (0.49) (0.49)
------- ------- ------- ------- -------
Net increase (decrease) in net asset value 0.35 0.34 (0.03) 0.89 (1.15)
------- ------- ------- ------- -------
Net Asset Value, End of Period........... $ 11.44 $ 11.09 $ 10.75 $ 10.78 $ 9.89
======= ======= ======= ======= =======
Total Return(1).......................... 7.65% 7.93% 4.31% 14.03% (6.14)%
Ratios/Supplemental Data:
Net Assets, End of Period (000's)........ $48,218 $38,434 $40,154 $42,870 $42,451
Ratios to average net assets:
Net investment income including
reimbursement/waiver................ 4.27% 4.52% 4.50% 4.73% 4.64%
Operating expenses including
reimbursement/waiver................ 0.87% 0.94% 0.95% 0.92% 0.87%
Operating expenses excluding
reimbursement/waiver................ 1.20% 1.26% 1.35% 1.31% 1.10%
Portfolio Turnover Rate.................. 27% 61% 12% 5% 18%
</TABLE>
- --------------------------------------------------------------------------------
(1) Calculation does not include the effect of any sales charge for Retail A
Shares.
(A) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or Administrator for Retail A Shares for the years
ended October 31, 1998, 1997, 1996, 1995 and 1994 were $0.45, $0.45, $0.44,
$0.44 and $0.46, respectively. Net investment income per share before
reimbursement/waiver of fees by the Investment Advisor and/or Administrator
for Trust Shares for the years ended October 31, 1998, 1997, 1996, 1995 and
1994 were $0.47, $0.49, $0.47, $0.48 and $0.47, respectively.
See Notes to Financial Statements.
46
<PAGE>
<TABLE>
<CAPTION>
Trust Shares
Years ended October 31,
- ----------------------------------------------------------------
1998 1997 1996 1995 1994
- ----------- ----------- --------- ---------- ------------
<S> <C> <C> <C> <C>
$ 11.09 $ 10.75 $ 10.78 $ 9.89 $ 11.04
- ------- ------- ------- ------- -------
0.50 0.52 0.51 0.51 0.49
0.35 0.34 (0.03) 0.89 (1.15)
- ------- ------- ------- ------- -------
0.85 0.86 0.48 1.40 (0.66)
- ------- ------- ------- ------- -------
(0.50) (0.52) (0.51) (0.51) (0.49)
- ------- ------- ------- ------- -------
(0.50) (0.52) (0.51) (0.51) (0.49)
- ------- ------- ------- ------- -------
0.35 0.34 (0.03) 0.89 (1.15)
- ------- ------- ------- ------- -------
$ 11.44 $ 11.09 $ 10.75 $ 10.78 $ 9.89
======= ======= ======= ======= =======
7.82% 8.17% 4.55% 14.23% (6.14)%
$34,801 $27,562 $23,762 $23,077 $24,209
4.42% 4.75% 4.75% 4.91% 4.64%
0.72% 0.71% 0.70% 0.74% 0.87%
0.99% 1.02% 1.10% 1.07% 1.08%
27% 61% 12% 5% 18%
</TABLE>
47
<PAGE>
- --------------- Connecticut Municipal Bond Fund
THE GALAXY FUND FINANCIAL HIGHLIGHTS
- --------------- For a Share outstanding throughout each period.
Retail A Shares
<TABLE>
<CAPTION>
Years ended October 31,
------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 10.47 $ 10.14 $ 10.13 $ 9.22 $ 10.32
------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income (A)............ 0.43 0.45 0.42 0.44 0.46
Net realized and unrealized
gain (loss) on investments......... 0.35 0.33 0.01 0.91 (1.10)
------- ------- ------- ------- -------
Total from Investment Operations: 0.78 0.78 0.43 1.35 (0.64)
------- ------- ------- ------- -------
Less Dividends:
Dividends from net investment income. (0.43) (0.45) (0.42) (0.44) (0.46)
------- ------- ------- ------- -------
Total Dividends:................... (0.43) (0.45) (0.42) (0.44) (0.46)
------- ------- ------- ------- -------
Net increase (decrease) in net asset value 0.35 0.33 0.01 0.91 (1.10)
------- ------- ------- ------- -------
Net Asset Value, End of Period.......... $ 10.82 $ 10.47 $ 10.14 $ 10.13 $ 9.22
======= ======= ======= ======= =======
Total Return (1)........................ 7.58% 7.86% 4.32% 14.94% (6.39)%
Ratios/Supplemental Data:
Net Assets, End of Period (000's)....... $24,856 $23,355 $23,244 $18,066 $18,229
Ratios to average net assets:
Net investment income including
reimbursement/waiver............... 4.02% 4.30% 4.13% 4.53% 4.66%
Operating expenses including
reimbursement/waiver............... 0.88% 0.70% 0.70% 0.68% 0.25%
Operating expenses excluding
reimbursement/waiver............... 1.31% 1.31% 1.38% 1.48% 1.42%
Portfolio Turnover Rate................. 46% 42% 3% 7% 4%
</TABLE>
- --------------------------------------------------------------------------------
(1) Calculation does not include the effect of any sales charge for Retail A
Shares.
(A) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or Administrator for Retail A Shares for the years
ended October 31, 1998, 1997, 1996, 1995 and 1994 were $0.38, $0.38, $0.35,
$0.37 and $0.34, respectively. Net investment income per share before
reimbursement/waiver of fees by the Investment Advisor and/or Administrator
for Trust Shares for the years ended October 31, 1998, 1997, 1996, 1995 and
1994 were $0.40, $0.41, $0.37, $0.38 and $0.35, respectively.
See Notes to Financial Statements.
48
<PAGE>
<TABLE>
<CAPTION>
Trust Shares
Years ended October 31,
- ---------------------------------------------------
1998 1997 1996 1995 1994
- -------- ------- ------ ------ --------
<S> <C> <C> <C> <C>
$ 10.47 $10.14 $10.13 $ 9.22 $10.32
- ------- ------ ------ ------ ------
0.45 0.47 0.44 0.46 0.46
0.35 0.33 0.01 0.91 (1.10)
- ------- ------ ------ ------ ------
0.80 0.80 0.45 1.37 (0.64)
- ------- ------ ------ ------ ------
(0.45) (0.47) (0.44) (0.46) (0.46)
- ------- ------ ------ ------ ------
(0.45) (0.47) (0.44) (0.46) (0.46)
- ------- ------ ------ ------ ------
0.35 0.33 0.01 0.91 (1.10)
- ------- ------ ------ ------ ------
$ 10.82 $10.47 $10.14 $10.13 $ 9.22
======= ====== ====== ====== ======
7.81% 8.06% 4.54% 15.21% (6.37)%
$13,913 $9,866 $6,348 $4,083 $4,419
4.24% 4.51% 4.34% 4.76% 4.66%
0.67% 0.49% 0.49% 0.45% 0.23%
1.10% 1.10% 1.17% 1.24% 1.41%
46% 42% 3% 7% 4%
</TABLE>
49
<PAGE>
- --------------- Massachusetts Municipal Bond Fund
THE GALAXY FUND FINANCIAL HIGHLIGHTS
- --------------- For a Share outstanding throughout each period.
<TABLE>
<CAPTION>
Retail A Shares
Years ended October 31,
--------------------------------------------------
- -------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 10.25 $ 9.94 $ 9.98 $ 9.12 $ 10.24
------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income (A)............ 0.46 0.45 0.43 0.44 0.47
Net realized and unrealized
gain (loss) on investments......... 0.27 0.32 (0.04) 0.86 (1.12)
------- ------- ------- ------- -------
Total from Investment Operations: 0.73 0.77 0.39 1.30 (0.65)
------- ------- ------- ------- -------
Less Dividends:
Dividends from net investment income. (0.45) (0.46) (0.43) (0.44) (0.47)
------- ------- ------- ------- -------
Total Dividends:................... (0.45) (0.46) (0.43) (0.44) (0.47)
------- ------- ------- ------- -------
Net increase (decrease) in net asset value 0.28 0.31 (0.04) 0.86 (1.12)
------- ------- ------- ------- -------
Net Asset Value, End of Period.......... $ 10.53 $ 10.25 $ 9.94 $ 9.98 $ 9.12
======= ======= ======= ======= =======
Total Return (1)........................ 7.22% 7.92% 4.05% 14.52% (6.46)%
Ratios/Supplemental Data:
Net Assets, End of Period (000's)....... $44,189 $33,318 $26,275 $16,113 $15,966
Ratios to average net assets:
Net investment income including
reimbursement/waiver............... 4.30% 4.38% 4.42% 4.56% 4.89%
Operating expenses including
reimbursement/waiver............... 0.78% 0.63% 0.66% 0.70% 0.33%
Operating expenses excluding
reimbursement/waiver............... 1.21% 1.20% 1.32% 1.58% 1.43%
Portfolio Turnover Rate................. 44% 48% 16% 19% 11%
</TABLE>
- --------------------------------------------------------------------------------
(1) Calculation does not include the effect of any sales charge for Retail A
Shares.
(A) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or Administrator for Retail A Shares for the years
ended October 31, 1998, 1997, 1996, 1995 and 1994 were $0.41, $0.39, $0.37,
$0.36 and $0.37, respectively. Net investment income per share before
reimbursement/waiver of fees by the Investment Advisor and/or Administrator
for Trust Shares for the years ended October 31, 1998, 1997, 1996, 1995 and
1994 were $0.42, $0.40, $0.40, $0.38 and $0.38, respectively.
See Notes to Financial Statements.
50
<PAGE>
<TABLE>
<CAPTION>
Trust Shares
Years ended October 31,
- --------------------------------------------------------
1998 1997 1996 1995 1994
- --------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C>
$ 10.25 $ 9.94 $ 9.98 $ 9.12 $10.24
- ------- ------- ------- ------ ------
0.47 0.46 0.46 0.45 0.48
0.27 0.32 (0.04) 0.86 (1.12)
- ------- ------- ------- ------ ------
0.74 0.78 0.42 1.31 (0.64)
- ------- ------- ------- ------ ------
(0.46) (0.47) (0.46) (0.45) (0.48)
- ------- ------- ------- ------ ------
(0.46) (0.47) (0.46) (0.45) (0.48)
- ------- ------- ------- ------ ------
0.28 0.31 (0.04) 0.86 (1.12)
- ------- ------- ------- ------ ------
$ 10.53 $ 10.25 $ 9.94 $ 9.98 $ 9.12
======= ======= ======= ====== ======
7.42% 8.06% 4.27% 14.72% (6.46)%
$23,371 $13,986 $11,047 $7,607 $5,617
4.49% 4.57% 4.60% 4.73% 4.89%
0.60% 0.44% 0.48% 0.52% 0.33%
1.03% 1.01% 1.14% 1.31% 1.41%
44% 48% 16% 19% 11%
</TABLE>
51
<PAGE>
- --------------- Rhode Island Municipal Bond Fund
THE GALAXY FUND FINANCIAL HIGHLIGHTS
- --------------- For a Share outstanding throughout each period.
<TABLE>
<CAPTION>
Retail A Shares
Years ended October 31, Period ended
----------------------------- October 31,
1998 1997 1996 1995(1)
---- ---- ---- -------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period..... $ 10.91 $ 10.65 $ 10.67 $10.00
------- ------- ------- -------
Income from Investment Operations:
Net investment income (A)............. 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 (2)......................... 7.35% 7.78% 5.22% 11.29%**
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%*
Operating expenses including
reimbursement/waiver................ 0.81% 0.83% 0.77% 0.40%*
Operating expenses excluding
reimbursement/waiver................ 1.23% 1.34% 1.34% 2.25%*
Portfolio Turnover Rate.................. 41% 19% 13% 34%**
</TABLE>
- --------------------------------------------------------------------------------
* Annualized
** Not Annualized
(1) The Fund commenced operations on December 20, 1994.
(2) Calculation does not include the effect of any sales charge for Retail A
Shares.
(A) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or Administrator for the years ended October 31,
1998, 1997 and 1996 and for the period ended October 31, 1995 were $0.45,
$0.43, $0.45 and $0.28, respectively.
See Notes to Financial Statements.
52
<PAGE>
- ---------------
THE GALAXY FUND NOTES TO FINANCIAL STATEMENTS
- ---------------
1. Organization
The Galaxy Fund, a Massachusetts business trust (the "Trust"), is registered
under the Investment Company Act of 1940, as amended, as an open-end management
investment company. As of the date of this report, the Trust offered twenty-nine
managed investment portfolios. The accompanying financial statements and
financial highlights are those of the Tax-Exempt Bond, New Jersey Municipal
Bond, New York Municipal Bond, Connecticut Municipal Bond, Massachusetts
Municipal Bond and Rhode Island Municipal Bond Funds (individually, a "Fund",
collectively, the "Funds") only.
Each Fund is authorized to issue two series of shares (Trust Shares and Retail
A Shares), except for the Tax-Exempt Bond Fund, which is authorized to issue
three series of shares (Trust Shares, Retail A Shares and Retail B Shares). As
of October 31, 1998, the Rhode Island Municipal Bond Fund has offered only
Retail A Shares. Trust Shares, Retail A Shares and Retail B Shares are
substantially the same except that (i) Retail A Shares are subject to a maximum
3.75% front-end sales charge, (ii) Retail B Shares are subject to a maximum
5.00% contingent deferred sales charge, and (iii) each series of shares bears
the following series specific expenses: distribution fees and/or shareholder
servicing and related fees and transfer agency charges. Six years after
purchase, Retail B Shares will convert automatically to Retail A Shares.
2. Significant Accounting Policies
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies in conformity with generally accepted accounting
principles consistently followed by the Funds in the preparation of their
financial statements.
Portfolio Valuation: Investment securities are valued by an independent
pricing service approved by the Trust's Board of Trustees. When, in the judgment
of the service, quoted bid prices are readily available and are representative
of the bid side of the market, investments are valued at the mean between quoted
bid prices and asked prices. Other investments are carried at fair value as
determined by the service based on methods which include consideration of yields
or prices of bonds of comparable quality, coupon maturity and type; indications
as to values from dealers; and general market conditions. Short-term obligations
that mature in 60 days or less are valued at amortized cost, which approximates
fair value. All other securities and other assets are appraised at their fair
value as determined in good faith under consistently applied procedures
established by and under the general supervision of the Board of Trustees.
Securities Transactions and Investment Income: Securities transactions are
accounted for on a trade date basis. Net realized gains or losses on sales of
securities are determined by the identified cost method. Interest and dividend
income is recorded on the accrual basis. Investment income and realized and
unrealized gains and losses are allocated to the separate series of a Fund based
upon the relative net assets of each series.
Dividends to Shareholders: Dividends from net investment income are determined
separately for each series and are declared daily and paid monthly. Net realized
capital gains, if any, are distributed at least annually.
Income dividends and capital gain dividends are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles.
Federal Income Taxes: The Trust treats each Fund as a separate entity for
federal income tax purposes. Each Fund intends to qualify or continue to qualify
each year as a "regulated investment company" under Subchapter M of the Internal
Revenue Code of 1986, as amended. By so qualifying, each Fund will not be
subject to federal income taxes to the extent that it distributes substantially
all of its taxable or tax-exempt income, if any, for its tax year ending October
31. In addition, by distributing in each calendar year substantially all of its
net investment income, capital gains and certain other amounts, if any, each
Fund will not be subject to a federal excise tax. Therefore, no federal income
or excise tax provision is recorded.
Expenses: The Trust accounts separately for the assets, liabilities and
operations of each Fund. Expenses directly attributable to a Fund are charged to
the Fund, while expenses which are attributable to more than one fund of the
Trust are allocated among the respective funds.
53
<PAGE>
- ---------------
THE GALAXY FUND NOTES TO FINANCIAL STATEMENTS (continued)
- ---------------
In addition, expenses of a Fund not directly attributable to the operations of
a particular series of shares of the Fund are allocated to the separate series
based upon the relative net assets of each series. Operating expenses directly
attributable to a series of shares of a Fund are charged to the operations of
that series.
Organization Costs: Each Fund bears all costs in connection with its
organization, including the fees and expenses of registering and qualifying its
initial shares for distribution under federal and state securities laws. All
such costs are amortized using the straight-line method over a period of five
years beginning with the commencement of each Fund's operations. In the event
that any of the initial shares purchased by a Fund's sponsor are redeemed during
such period by any holder thereof, the Fund involved will be reimbursed by such
holder for any unamortized organization costs in the same proportion as the
number of initial shares being redeemed bears to the number of initial shares
outstanding at the time of redemption.
When-Issued Securities: Each Fund may purchase and sell securities, such as
municipal obligations, on a "when-issued" basis. Delivery of the security and
payment take place after the date of the commitment to purchase and such
securities are subject to market fluctuations during this period. The fair value
of these securities is determined in the same manner as other municipal
obligations. The Trust's custodian will set aside cash or liquid portfolio
securities equal to the amount of the when-issued commitment in a separate
account.
3. Investment Advisory, Administration, Distribution
Shareholder Services and Other Fees
The Trust and Fleet Investment Advisors Inc. (the "Investment Advisor" or
"Fleet"), an indirect wholly-owned subsidiary of Fleet Financial Group, Inc.,
and affiliate of the Fund, are parties to an investment advisory agreement
under which the Investment Advisor provides services for a fee, computed daily
and paid monthly, at the annual rate of 0.75% of the average daily net assets of
each Fund (See Note 4).
The Trust and First Data Investor Services Group, Inc. ("Investor Services
Group"), a wholly-owned subsidiary of First Data Corporation, are parties to an
administration agreement under which Investor Services Group (the
"Administrator") provides services for a fee, computed daily and paid monthly,
at the annual rate, effective September 10, 1998, of 0.09% of the first $2.5
billion of the combined average daily net assets of the Funds and the other
funds offered by the Trust with an October 31 fiscal year (whose financial
statements are provided in separate reports), 0.085% of the next $2.5 billion of
combined average daily net assets, 0.075% of the next $7 billion of combined
average daily net assets, 0.065% of the next $3 billion of combined average
daily net assets, 0.06% of the next $3 billion of combined average daily net
assets and 0.0575% of combined average daily net assets in excess of $18
billion. Prior to September 10, 1998, Investor Services Group received
administration fees at the annual rate of 0.09% of the first $2.5 billion of
combined average daily net assets of the Funds and the other funds offered by
the Trust, 0.085% of the next $2.5 billion of combined average daily net assets
and 0.075% of combined average daily net assets over $5 billion.
In addition, Investor Services Group also provides certain fund accounting,
custody administration and transfer agency services in accordance with certain
fee arrangements. Pursuant to such fee arrangements, Investor Services Group
compensates The Chase Manhattan Bank, the Trust's custodian bank, for its
services.
First Data Distributors, Inc. (the "Distributor"), a wholly-owned subsidiary
of Investor Services Group and an indirect wholly-owned subsidiary of First Data
Corporation, serves as the exclusive distributor of the Trust's shares.
The Trust has adopted a shareholder services plan ("Services Plan") with
respect to Retail A Shares and Trust Shares of the Funds. Currently, the
Services Plan has not been implemented with respect to the Funds' Trust Shares.
The Services Plan provides compensation to institutions (including and currently
limited to Fleet Bank and its affiliates) which provide administrative and
support services to their customers who beneficially own Retail A Shares at an
aggregate annual rate not to exceed 0.30% of the average daily net asset value
of the outstanding Retail A Shares of each Fund beneficially owned by such
customers. The Trust, under the direction of the Board of Trustees, is currently
limiting fees payable under the Services Plan with respect to each Fund to an
aggregate annual rate not to exceed 0.15% of the average daily net asset value
of the outstanding Retail A Shares beneficially owned by such customers. No fees
were charged under the Services Plan with respect to the Rhode Island Municipal
Bond Fund for the year ended October 31, 1998.
The Trust has adopted a distribution and shareholder services plan (the "12b-1
Plan") with respect to Retail B
54
<PAGE>
- ---------------
THE GALAXY FUND NOTES TO FINANCIAL STATEMENTS (continued)
- ---------------
Shares of the Tax-Exempt Bond Fund. Under the 12b-1 Plan, the Trust may pay
(i) the Distributor or another person for expenses and activities primarily
intended to result in the sale of Retail B Shares, (ii) institutions for
shareholder liaison services and (iii) institutions for administrative support
services. Currently, payments under the 12b-1 Plan for distribution services are
being made solely to broker-dealer affiliates of Fleet Bank and payments under
the 12b-1 Plan for shareholder liaison and shareholder administrative support
services are being made solely to Fleet Bank and its affilitates. Payments for
distribution expenses may not exceed an annual rate of 0.65% of the average
daily net assets attributable to each of the Fund's outstanding Retail B Shares.
The fees for shareholder liaison services and/or administrative support services
may not exceed the annual rates of 0.15% and 0.15%, respectively, of the average
daily net assets attributable to the Fund's outstanding Retail B Shares owned of
record or beneficially by customers of institutions. The Trust, under the
direction of the Board of Trustees, is currently limiting each Fund's payments
for shareholder liaison and administrative support services under the 12b-1 Plan
to an aggregate fee of not more than 0.15% of the average daily net asset value
of Retail B Shares owned of record or beneficially by customers of institutions.
For the year ended October 31, 1998, the Funds accrued fees under the Services
Plan and 12b-1 Plan as follows:
<TABLE>
<CAPTION>
12b-1 Plan
Services ----------
Fund Plan Services Distribution
---- ---- --------- ------------
<S> <C> <C> <C>
Tax-Exempt Bond .............. $38,181 $ 3,555 $15,405
New Jersey Municipal Bond .... 386 N/A N/A
New York Municipal Bond ...... 64,145 N/A N/A
Connecticut Municipal Bond ... 37,207 N/A N/A
Massachusetts Municipal Bond . 58,742 N/A N/A
Rhode Island Municipal Bond .. -- N/A N/A
</TABLE>
Retail A Shares, Retail B Shares and Trust Shares of the Funds each bear series
specific transfer agent charges based upon the number of shareholder accounts
for each series. For the year ended October 31, 1998, transfer agent charges for
each series were as follows:
<TABLE>
<CAPTION>
Fund Retail A Retail B Trust
- ---- -------- -------- -----
<S> <C> <C> <C>
Tax-Exempt Bond .............. $ 20,442 $ 868 $ 127
New Jersey Municipal Bond .... 3,676 N/A 25
New York Municipal Bond ...... 24,356 N/A 84
Connecticut Municipal Bond ... 16,947 N/A 65
Massachusetts Municipal Bond . 14,605 N/A 61
Rhode Island Municipal Bond .. 5,001 N/A --
</TABLE>
Certain officers of the Trust may be officers of the Administrator. Such
officers receive no compensation from the Trust for serving in their respective
roles. No officer, director or employee of the Investment Advisor serves as an
officer, trustee or employee of the Trust. Effective March 5, 1998, each Trustee
is entitled to receive for services as a trustee of the Trust, The Galaxy VIP
Fund ("VIP") and Galaxy Fund II ("Galaxy II") an aggregate fee of $40,000 per
annum plus certain other fees for attending or participating in meetings as well
as reimbursement for expenses incurred in attending meetings. Prior to March 5,
1998, each Trustee was entitled to receive for services as a trustee of the
Trust, VIP and Galaxy II an aggregate fee of $29,000 per annum plus certain
other fees for attending or participating in meetings as well as reimbursement
for expenses incurred in attending meetings. The Chairman of the Boards of
Trustees and the President and Treasurer of the Trust, VIP and Galaxy II are
also entitled to additional fees for their services in these capacities. These
fees are allocated among the funds of the Trust, VIP and Galaxy II, based on
their relative net assets.
Each Trustee is eligible to participate in The Galaxy Fund/VIP/Galaxy II
Deferred Compensation Plan (the "Plan"), an unfunded, non-qualified deferred
compensation plan. The Plan allows each trustee to defer receipt of all or a
percentage of fees which otherwise would be payable for services performed.
Expenses for the year ended October 31, 1998 include legal fees paid to
Drinker Biddle & Reath LLP. A partner of that firm is Secretary to the Trust.
4. Waiver of Fees and Reimbursement of Expenses
The Advisor and/or its affiliates and/or the Administrator voluntarily agreed
to waive a portion of their fees and/or reimburse the Funds for certain expenses
so that total expenses would not exceed certain expense limitations established
for each Fund. The respective parties, at their discretion, may revise or
discontinue the voluntary fee waivers and/or expense reimbursements at any time.
For the year ended October 31, 1998, the Investment Advisor and Administrator
waived fees and/or reimbursed expenses with respect to the Funds are as follows:
<TABLE>
<CAPTION>
Fund Fees Waived
------ -----------
<S> <C>
Tax-Exempt Bond.............. $ 318,713
New Jersey Municipal Bond.... 47,418
New York Municipal Bond...... 222,468
Connecticut Municipal Bond... 160,488
Massachusetts Municipal Bond. 246,101
Rhode Island Municipal Bond.. 80,524
</TABLE>
<TABLE>
<CAPTION>
Expenses
Fund Reimbursed
------ -----------
<S> <C>
Tax-Exempt Bond................ $ 12,427
New Jersey Municipal Bond...... 2,729
New York Municipal Bond........ 1,784
</TABLE>
55
<PAGE>
- ---------------
THE GALAXY FUND NOTES TO FINANCIAL STATEMENTS (continued)
- ---------------
5. Shares of Beneficial Interest
The Trust's Declaration of Trust authorizes the Trustees to issue an unlimited
number of shares of beneficial interest, each with a par value of $0.001. Shares
of the Trust are currently classified into thirty classes of shares each
consisting of one or more series including: Class M - Series 1 Shares (Trust
Shares), Class M - Series 2 Shares (Retail A Shares) and Class M - Series 3
Shares (Retail B Shares) - Tax-Exempt Bond Fund; Class Y - Series 1 shares
(Trust Shares) and Class Y - Series 2 shares (Retail A Shares) - New Jersey
Municipal Bond Fund; Class O - Series 1 Shares (Trust Shares) and Class O -
Series 2 Shares (Retail A Shares) - New York Municipal Bond Fund; Class P -
Series 1 Shares (Trust Shares) and Class P - Series 2 Shares (Retail A Shares) -
Connecticut Municipal Bond Fund; Class Q - Series 1 Shares (Trust Shares) and
Class Q - Series 2 Shares (Retail A Shares) - Massachusetts Municipal Bond Fund;
and Class R - Series 1 Shares (Trust Shares) and Class R - Series 2 Shares
(Retail A Shares) - Rhode Island Municipal Bond Fund.
Each share represents an equal proportionate interest in the respective Fund,
bears the same fees and expenses (except that Retail A Shares bear the expense
of payments under the Services Plan, Retail B Shares bear the expense of
payments under the 12b-1 Plan and Trust Shares, Retail A Shares and Retail B
Shares each bear series specific transfer agent charges as discussed in footnote
3) and are entitled to such dividends and distributions of income earned as are
declared at the discretion of the Trust's Board of Trustees.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held, and will vote in
the aggregate and not by class or series, except as otherwise expressly required
by law or when the Board of Trustees determines that the matter to be voted on
affects only the interests of shareholders of a particular class or series.
6. Purchases and Sales of Securities
The cost of purchases and proceeds from sales of securities, other than
short-term investments, for the year ended October 31, 1998 were as follows:
<TABLE>
<CAPTION>
Fund Purchases Sales
- ---- --------- -----
<S> <C> <C>
Tax-Exempt Bond.................. $98,831,689 $91,110,351
New Jersey Municipal Bond........ 10,450,780 2,114,511
New York Municipal Bond.......... 34,903,120 19,738,542
Connecticut Municipal Bond....... 19,661,000 16,744,327
Massachusetts Municipal Bond .... 43,536,767 24,400,769
Rhode Island Municipal Bond ..... 10,392,753 7,382,866
</TABLE>
The aggregate gross unrealized appreciation and depreciation, net unrealized
appreciation (depreciation), and cost for all securities as computed on a
federal income tax basis at October 31, 1998 for each Fund is as follows:
<TABLE>
<CAPTION>
Fund Appreciation (Depreciation)
- ---- ------------ --------------
<S> <C> <C>
Tax-Exempt Bond .................. $8,277,606 $ (99,595)
New Jersey Municipal Bond ........ 189,313 (6,221)
New York Municipal Bond .......... 4,426,382 (9,244)
Connecticut Municipal Bond ....... 2,173,035 (10,868)
Massachusetts Municipal Bond ..... 2,418,817 (18,024)
Rhode Island Municipal Bond ...... 1,024,361 (3,835)
</TABLE>
<TABLE>
<CAPTION>
Fund Net Cost
- ---- --- ----
<S> <C> <C>
Tax-Exempt Bond .................. $8,178,011 $152,974,031
New Jersey Municipal Bond ........ 183,092 8,504,936
New York Municipal Bond .......... 4,417,138 77,592,892
Connecticut Municipal Bond ....... 2,162,167 36,194,460
Massachusetts Municipal Bond ..... 2,400,793 64,327,760
Rhode Island Municipal Bond ...... 1,020,526 19,420,016
</TABLE>
At October 31, 1998, the following Funds had capital loss carryforwards:
<TABLE>
<CAPTION>
Fund Amount Expiration
- ---- ------ ----------
<S> <C> <C>
New Jersey Municipal Bond ........ $ 687 2006
New York Municipal Bond .......... 490,748 2003
16,589 2004
Connecticut Municipal Bond ....... 31,295 2002
685,391 2003
82,263 2005
Massachusetts Municipal Bond ..... 286,989 2003
</TABLE>
7. Concentration of Credit
The New Jersey Municipal Bond, New York Municipal Bond, Connecticut Municipal
Bond, Massachusetts Municipal Bond and Rhode Island Municipal Bond Funds invest
primarily in debt obligations issued by the State of New Jersey, the State of
New York, the State of Connecticut, the Commonwealth of Massachusetts and the
State of Rhode Island, respectively, and their respective political
subdivisions, agencies and public authorities to obtain funds for various public
purposes. The Funds, as non-diversified investment portfolios, are more
susceptible to economic and political factors adversely affecting issuers of
each respective state's specific municipal securities than are municipal bond
funds that are not concentrated in these issuers to the same extent.
56
<PAGE>
- ---------------
THE GALAXY FUND NOTES TO FINANCIAL STATEMENTS (continued)
- ---------------
Tax Information (unaudited)
During the fiscal year ended October 31, 1998, the Funds earned the following
percent of their income from municipal obligations which generally qualify as
exempt from federal and state taxation:
<TABLE>
<CAPTION>
Fund Income
----- ----------
<S> <C>
Tax-Exempt Bond............................. 100.00%
New Jersey Municipal Bond................... 100.00%
New York Municipal Bond..................... 100.00%
Connecticut Municipal Bond.................. 100.00%
Massachusetts Municipal Bond................ 100.00%
Rhode Island Municipal Bond................. 100.00%
</TABLE>
During the fiscal year ended October 31, 1998, the following Funds made
distributions from long-term capital gains as follows:
Fund Amount
----- ---------
Tax-Exempt Bond............................. $506,100
Rhode Island Municipal Bond................. 17,960
57
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To Shareholders and the Board of Trustees of
The Galaxy Fund:
In our opinion, the accompanying statements of assets and liabilities,
including the portfolios of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of the 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 (six series of The Galaxy Fund) at October 31, 1998, the
results of their operations, the changes in their net assets, and their
financial highlights for each of the periods indicated therein, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of The Galaxy Fund's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
Boston, Massachusetts PricewaterhouseCoopers LLP
December 23, 1998
<PAGE>
- -----------
SHAREHOLDER
SERVICES
- -----------
[start sidebar]
"A well-balanced asset
allocation plan may help
to control your risk
while pursuing
your goals."
[end sidebar]
AUTOMATIC INVESTMENT PROGRAM
The Golden Rule of investing is "pay yourself first." That is easy to do with
Galaxy's Automatic Investment Program. For as little as $50 per month deducted
directly from your checking, savings or bank money market account, you can
consistently and conveniently add to your Galaxy investment. When you establish
an Automatic Investment Program, the $2,500 initial investment requirement for
Galaxy is waived. Of course, such a program does not assure a profit and does
not protect against loss in a declining market.
DIVERSIFICATION
A fundamental investment practice is "diversification." A well-balanced asset
allocation plan may help to control your risk while pursuing your goals. Many
mutual funds offer a low-cost way to diversify your investments while you
benefit from professional management. Galaxy's comprehensive array of investment
choices can be used in combination to match the needs of nearly everyone.
EXCHANGE PRIVILEGES
As your investment needs change, you can conveniently exchange your shares in
one fund for shares in another fund within the same share class.
QUARTERLY MAGAZINE
Service also means giving you the practical information you need, in language
you can understand, to make smart investment decisions. The quarterly magazine,
Galaxy Observer, brings news, strategies and simple, straight-forward
explanations of investment basics and terminology.
CONSOLIDATED STATEMENTS
Timely, comprehensive mutual fund account statements offer detailed information
on your individual account. If you have a Fleet One, Fleet Gold, or a Fleet
Private Banking Account, your Galaxy Fund information can be added to these
statements.
24-HOUR ACCESS TO REGISTERED REPRESENTATIVES
24 hours a day, seven days a week, 365 days a year, we are ready and available
to help. Our toll-free telephone lines offer round-the-clock access to Fund
information and service. Call 1-877-BUY-GALAXY (289-4252) for information on
initial purchases and current performance.
CUSTOMER SERVICE
Quality customer service is only a phone call away. Call 1-877-BUY-GALAXY
(289-4252) between 8 a.m. and 6 p.m. to arrange bank wires, or to make telephone
exchanges and redemptions.
- --------------------------------------------------------------------------------
Certain shareholder services may not be available to Trust Share investors.
Please consult the Fund Prospectus.
* Shares of the Funds are distributed through First Data Distributors, Inc.,
member NASD and SIPC. Investment Specialists are registered representatives of
FIS Securities, Inc., Fleet Enterprises, Inc., or Quick & Reilly, Inc.,
members NASD and SIPC.
<PAGE>
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<PAGE>
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ANTXEBND (11/98) Date of first use: January 1, 1999
- ------------------
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