Galaxy Funds
Galaxy Taxable Bond Funds
Annual Report
October 31, 1999
Galaxy Short-Term Bond Fund
Galaxy Intermediate Government Income Fund
Galaxy High Quality Bond Fund
Galaxy Corporate Bond Fund
[LOGO] Galaxy
Funds
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Chairman's Message
Dear Shareholder:
Enclosed is the annual report for the Galaxy Taxable Bond Funds that
covers the fiscal year ended October 31, 1999. The report includes a Market
Overview that explains the different economic and market factors influencing
bond investments during this time. Following the Market Overview are individual
reviews that describe how Fleet Investment Advisors Inc. managed each of the
Funds' portfolios in this climate. Financial statements and a list of portfolio
holdings for each of the Funds as of October 31, 1999 appear at the end of the
report.
Unexpected economic strength, inflation concerns and a tighter monetary
policy drove bond yields higher during the reporting period. After cutting
short-term interest rates by 25 basis points (0.25%) at the start of the period,
the Federal Reserve became concerned that the economy was advancing strongly
enough to prompt inflation that would curb future growth. This resulted in rate
increases later in the period totaling 50 basis points (0.50%). As bond yields
rose, the prices for bonds fell sharply. When investors were most uncertain
about where interest rates would head, many moved back into securities with the
strongest credit quality and liquidity. In this environment, the Galaxy
Tax-Exempt Bond Funds benefited from an emphasis on higher-quality issues with
good liquidity.
Although market changes like those of the past year can be unnerving, they
are typical of the ups and downs that occur with most investments. Even so, this
may be a good time to meet with a financial advisor who can help you determine
whether your current strategies suit your long-term goals. Investment
professionals at Fleet Bank branches can provide you with a no-obligation
analysis that will help you make this comparison and get the most from your
portfolio.
If you are saving for a child's education, or are helping a family member
prepare for college, ask our representatives about the Galaxy College Investment
Program.
Galaxy offers an Education IRA which allows for tax-free earnings to
accumulate on your investment if used to pay for qualified college expenses.
Remember that anyone, not just a child's parents, can make a contribution.
You might also consider a custodial account such as a Uniform
Gift/Transfer to Minor Account (UGMA/UTMA). The UGMA/UTMA account offers another
opportunity to transfer assets to minors with favorable tax consequences in
preparation for college expenses. Ask your investment professional or tax
advisor about this important gifting opportunity.
If you have any questions about college investing opportunities or
information in this report, please contact the Galaxy Information Center
toll-free at 1-877-BUY-GALAXY (1-877-289-4252). You can also visit one of our
investment professionals located at Fleet branches.
Sincerely,
/s/ Dwight E. Vicks, Jr.
Dwight E. Vicks, Jr.
Chairman of the Board of Trustees
Mutual Funds:
o are not bank deposits
o are not FDIC insured
o are not obligations of Fleet Bank
o are not guaranteed by Fleet Bank
o are subject to investment risk including possible loss of principal amount
invested
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Market Overview
Bond Market Overview
By Fleet Investment Advisors Inc.
Prices for bonds fell sharply over the past 12 months as an improving
economic outlook raised concern about higher inflation and the direction of
interest rates. While current inflation remained modest, interest rates rose and
flattened across the yield curve with short-term Treasury yields rising 150
basis points (1.5%) and long-term Treasury yields higher by just under 100 basis
points (1%). After slicing short-term rates by 25 basis points (0.25%) in
November of 1998, for a total rate cut of 75 basis points (0.75%) since
September 1998, the Federal Reserve ("the Fed") raised rates by 25 basis points
each at meetings on June 30, 1999 and August 24, 1999. The Fed adopted a tighter
monetary policy, framing the actions as reductions of the accommodative monetary
policy deemed necessary during the global financial crisis in 1998.
By taking advantage of investment opportunities in individual market
sectors created by near-term market fluctuations during the year, we helped the
Galaxy Taxable Bond Funds make the most of this environment.
"The Gross Domestic Product ("GDP"), which measures the output of U.S. goods and
services, surged from a growth rate of 3.8% in the third quarter of 1998 to 5.9%
in the fourth quarter of 1998, for a year-over-year gain of 4.6% -- one of it's
strongest showings in years."
A Changeable Outlook
At the start of the reporting period on November 1, 1998, 30-year Treasury
bonds were yielding 5.20% after hitting a low yield of 4.75% in October.
Economies overseas were still in turmoil and investors flocked to U.S. Treasury
Bonds for safety. The flight to quality caused demand for other fixed-income
securities to plummet. The annual rate of inflation, as measured by the Consumer
Price Index ("CPI"), was about 1.6% held down by deflationary trends overseas
and plummeting commodity prices. To prevent a seizing up in the financial
markets and restore confidence in other sectors, the Fed cut interest rates in
the fall of 1998.
As a result, both domestic and global growth rebounded strongly. The Gross
Domestic Product ("GDP"), which measures the output of U.S. goods and services,
surged from a growth rate of 3.8% in the third quarter of 1998 to 5.9% in the
fourth quarter of 1998, for a year-over-year gain of 4.6% -- one of it's
strongest showings in years.
Despite low levels of current inflation, which kept the Fed from acting at
this time, the yield for 30-year Treasuries rose to 5.62% by the end of March.
With energy prices on the rise, consumer spending in an upswing, and the
deflationary tailwinds from Asia ebbing, investors became concerned that the Fed
would have to start raising rates preemptively to keep an overheated economy
from igniting inflation. Headline inflation began to tick up slightly due to
energy prices, but core inflation continued to fall reflecting the persistent
lack of pricing pressure generally. However, with no signs of moderation in
economic growth and the Y2K window closing fast, the Fed raised short-term rates
at the end of June, the first time since March of 1997. While generalized wage
pressures remained absent, tightening labor markets and the lowest unemployment
rate in a generation prompted the Fed to raise short-term rates again in August.
Worries over the possible extent of this tightening cycle caused 30-year
Treasury yields to rise as high as 6.28% during the month. Signs of softer
growth appeared again as the fiscal year closed in October, as both housing and
consumer spending slowed in response to higher rates. Yields on long Treasuries
ended the year at 6.15%.
Gauging Market Trends
As the economic outlook improved in the first half of the period, many
sectors that had lagged Treasuries began to outperform, especially the lower
quality, emerging market, and Yankee sectors. Having placed an extra emphasis on
U.S. Government securities last year, in 1999 we selectively increased
investments in corporate issues, primarily in non-cyclical sectors. Fund returns
also benefited from sizable investments in mortgage-backed securities and
asset-backed issues, which were highlighted increasingly throughout the year. In
the first half of the year, the corporate bond mar-
1
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ket suffered from supply fears, as investors worried that a flood of new issues
in response to Y2K funding needs would require wider spread levels to attract
buyers. As the supply bulge failed to appear, investor appetite picked up in the
third quarter and risk premiums narrowed. Top performing corporate sectors
through the fiscal year-end included triple-B rated and Yankee (non-domestic)
issuers.
"After an average growth rate of about 4% in both 1998 and 1999, we believe GDP
will grow more moderately next year. If that's the case, inflation should remain
moderate, interest rates could retreat, and bond prices could rally."
Slower Growth Should Prompt Bond Rally
A greater emphasis on quality and liquidity should benefit the Funds if
high interest rates cause economic growth to slow in the coming year, as we
expect. Real Fed Funds (adjusted for core CPI) is now at a more restrictive
level than at the end of the last Fed tightening cycle in 1994. Based on this
measure, further tightening by the Fed will be limited and will focus primarily
on trends in core inflation. After an average growth rate of about 4% in both
1998 and 1999, we believe GDP will grow more moderately next year. If that's the
case, inflation should remain moderate, interest rates could retreat, and bond
prices could rally.
In the meantime, bonds should remain attractive to investors. Currently,
Treasuries offer real (inflation-adjusted) returns of more than 4%, which is
high versus historic norms. In addition, risk premiums, which are the
incremental yields that investors demand for investing in bonds other than
Treasuries, also remain wide versus historical measures. At these valuations,
high quality bonds remain an attractive choice for fixed-income investors.
Outside of seasonal demand, which typically picks up in the first quarter of a
new year, a slowing economy is expected to curtail demand for lower quality
product. With private-sector debt levels at a historically high level and higher
default rates in the high yield market, we continue to focus on high quality
issuers which we feel represent good long term value.
PERFORMANCE AT-A-GLANCE
AVERAGE ANNUAL TOTAL RETURNS -- RETAIL A SHARES*
10 Years/
As of October 31, 1999 1 Year 3 Years 5 Years Life of Fund
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Short-Term Bond Fund
(Inception date 12/30/91) -1.38% 3.48% 4.85% 4.54%
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Intermediate Government
Income Fund (Inception date 9/1/88)** -4.83 3.73 5.45 5.76
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High Quality Bond Fund
(Inception date 12/14/90) -6.34 3.81 6.68 6.68
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AVERAGE ANNUAL TOTAL RETURNS -- A PRIME SHARES*
As of October 31, 1999 1 Year 3 Years 5 Years Life of Fund
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High Quality Bond Fund
(Inception date 11/1/98) -7.31% N/A N/A -7.31%
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* Return figures for Retail A Shares have been restated to include the
effect of the maximum 3.75% front-end sales charge which became effective
on December 1, 1995. Return figures for A Prime Shares include the effect
of the maximum 4.75% front-end sales charge.
** Retail A Shares of the Intermediate Government Income Fund were first
offered during the fiscal year ended October 31, 1992. The returns for
Retail A Shares for prior periods represent the returns for Trust Shares
of the Fund. Prior to November 1, 1993, the returns for Retail A Shares
and Trust Shares of the Fund were the same because each series of shares
had the same expenses.
2
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PERFORMANCE AT-A-GLANCE
AVERAGE ANNUAL TOTAL RETURNS -- TRUST SHARES
10 Years/
As of October 31, 1999 1 Year 3 Years 5 Years Life of Fund
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Short-Term Bond Fund
(Inception date 12/30/91) 2.67% 5.03% 5.89% 5.21%
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Intermediate Government Income Fund
(Inception date 9/1/88) -0.86 5.33 6.56 6.27
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Corporate Bond Fund
(Inception date 12/12/94) -0.82 5.15 N/A 6.96
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High Quality Bond Fund
(Inception date 12/14/90) -2.52 5.29 7.66 7.24
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AVERAGE ANNUAL TOTAL RETURNS -- RETAIL B SHARES**
<TABLE>
<CAPTION>
1 Year 1 Year 3 Year 3 Year Life of Fund Life of Fund
Returns Before Returns After Returns Before Returns After Returns Before Returns After
Contingent Contingent Contingent Contingent Contingent Contingent
As of Deferred Sales Deferred Sales Deferred Sales Deferred Sales Deferred Sales Deferred Sales
October 31, 1999 Charge Deducted Charge Deducted* Charge Deducted Charge Deducted* Charge Deducted Charge Deducted*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Short-Term Bond Fund
(Inception date 3/4/96) 1.71% -3.17% 4.13% 3.21% 3.97% 3.48%
- ------------------------------------------------------------------------------------------------------------------------------------
Intermediate Government
Income Fund
(Inception date 11/1/98) -1.78 -6.47 N/A N/A -1.78 -6.47
- ------------------------------------------------------------------------------------------------------------------------------------
High Quality Bond Fund
(Inception date 3/4/96) -3.25 -7.82 4.53 3.63 4.02 3.55
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS -- B PRIME SHARES**
<TABLE>
<CAPTION>
1 Year 1 Year Life of Fund Life of Fund
Returns Before Returns After Returns Before Returns After
Contingent Contingent Contingent Contingent
As of Deferred Sales Deferred Sales Deferred Sales Deferred Sales
October 31, 1999 Charge Deducted Charge Deducted* Charge Deducted Charge Deducted*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
High Quality Bond Fund
(Inception date 11/1/98) -3.46% -8.03% -3.46% -8.03%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* As if shares were redeemed at end of period.
** Retail B Shares and B Prime 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 and B Prime
Shares automatically convert to A Prime Shares after eight years.
Past performance is no guarantee of future results. Investment returns and
principal values will vary with market conditions so that an investor's shares,
when redeemed, may be worth more or less than their original cost. The
Investment Advisor is presently waiving fees and/or reimbursing expenses and may
revise or discontinue such practice at any time. Without such waivers and/or
reimbursements, performance would be lower. Total return figures in this report
include changes in share price, reinvestment of dividends and capital gains
distributions and include the deduction of any sales charges, where applicable,
unless otherwise indicated.
3
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Portfolio Reviews
[PHOTO]
Glenn Migliozzi is the managing director of Fixed Income Investments for Fleet
Investment Advisors, Inc. He is also a member of Fleet's Taxable Fixed Income
Strategy Committee, which has managed the Galaxy Short-Term Bond Fund since
October of 1999.
GALAXY SHORT-TERM BOND FUND
By Glenn Migliozzi
Managing Director
Fixed Income Investments
As short-term interest rates edged higher over the past year, the Galaxy
Short-Term Bond Fund benefited from holding sizable investments in Treasury
securities and cash, and from keeping its maturity structure near or somewhat
shorter than that of its market benchmarks. We further enhanced returns by
taking advantage of near-term opportunities to increase yield that market
fluctuations created in individual bond sectors.
For the 12 months ended October 31, 1999, the Fund's Trust Shares earned a
total return of 2.67%, and its Retail A Shares had a total return of 2.43%
before deducting the 3.75% maximum front-end sales charge. During this time, the
Fund's Retail B Shares had a total return of 1.71% before deducting the maximum
5.00% contingent deferred sales charge. (Please see the chart on page 3 for
total returns after deducting the front-end sales charge and the chart on page 4
for total returns after deducting the contingent deferred sales charge.)
Over the same period, the average short-term bond fund tracked by Lipper
Analytical Services ("Lipper") earned a total return of 2.98%, and the Lehman
One-to-Three-Year Government Index had a total return of 2.97%.
On October 31, 1999, when the reporting period ended, the Galaxy
Short-Term Bond Fund had an average maturity near that of the Fund's benchmark,
and the Fund's Trust Shares had a 30-day Securities and Exchange Commission
("SEC") annualized yield of 5.31%. On the same date, Retail A Shares of the Fund
had a 30-day SEC annualized yield of 4.96%, and Retail B Shares had a 30-day SEC
annualized yield of 4.34%.
Enhancing Return as Yields Rose
In the final months of 1998 and the first months of 1999, the Fund
benefited from earlier additions of short-term issues, whose prices suffered
less than those with longer maturities as interest rates rose. Of further help
was the Fund's exposure to high-quality corporate bonds, which recorded
relatively good results as the economic outlook indicated continued strength.
Holdings in mortgage-backed securities also performed well, as rising interest
rates reduced the risk of home-loan prepayments. During this time we increased
investments in mortgage-backed securities and made opportunistic trades within
the corporate sector.
In the second quarter of 1999, with robust growth and the Fed's rate hike
of 25 basis points (0.25%), yields for shorter maturities rose 30 to 70 basis
points. While corporate bonds suffered from lighter demand and increased
supplies at this time, the added income from corporates more than compensated
for the slight lag in their price performance. During the second quarter, we
took advan-
4
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PORTFOLIO REVIEWS
tage of selected opportunities in corporates, as well as in asset-backed and
mortgage-backed securities.
With a further rise in yields, the higher yields earned on non-Treasury
debt helped offset any extra price loss by those securities. Anticipating a
continued flight to quality, we added Treasury securities to the portfolio and
increased the Fund's cash position. We also continued to take advantage of
selected trading opportunities that arose from market fluctuations.
Defensive Posture to Continue
Given the many uncertainties that investors will face at the end of 1999,
we intend to focus new purchases on issues that mature next year when many of
these concerns should be resolved. In addition, we plan to maintain large
investments in Treasuries and cash. Besides giving the Fund added liquidity,
Treasuries could benefit from any year-end flight to quality. As always, we plan
to focus on high-quality securities in other sectors and make the most of new
investment opportunities that arise.
Galaxy Short-Term Bond Fund
Distribution of Total Net Assets as of October 31, 1999
[The following table was originally a pie chart in the printed materials.]
Repurchase Agreement and Net Other Assets & Liabilities 13%
Commercial Paper 2%
U.S.Government and Agency Obligations 31%
Asset-Backed and Mortgage-Backed Securities 21%
Corporate Notes and Bonds 33%
Galaxy Short-Term Bond Fund
Growth of $10,000 investment*
[The following table was originally a mountain graph in the printed materials.]
<TABLE>
<CAPTION>
12/30/91 10/31/99
<S> <C> <C>
Lehman Brothers One to Three Year Government Bond Index $10,000 $15,562
Galaxy Short-Term Bond Fund - Retail A Shares $ 9,625 $14,164
Galaxy Short-Term Bond Fund - Trust Shares $10,000 $14,888
Galaxy Short-Term Bond Fund - Retail B Shares $10,000 $11,335
</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 3.00%
contingent deferred sales charge as if shares were redeemed on October 31,
1999. The Lehman Brothers One to Three Year Government Bond Index is an
unmanaged index in which investors cannot invest. Results for the index do
not reflect investment management fees and other expenses incurred by the
Fund.
5
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PORTFOLIO REVIEWS
[PHOTO]
Marie Schofield became manager of the Galaxy Intermediate Government Income Fund
in December of 1996. She has managed fixed-income investments since 1975.
GALAXY INTERMEDIATE GOVERNMENT INCOME FUND
By Marie Schofield
Portfolio Manager
In a climate where investors were concerned that rising interest rates
would curtail future growth and generally favored U.S. Government securities and
other issues with higher credit quality, the Galaxy Intermediate Government
Income Fund benefited from sizable holdings in government debt. We further
enhanced returns during this time by taking advantage of attractive yield
opportunities that arose in other sectors and by emphasizing investments with
longer maturities. While the increased yield from longer maturities was
sometimes offset by the lesser price performance of these issues, we feel the
Fund's longer maturity structure should serve it well once interest rates fall
and bond prices rally.
For the 12 months ended October 31, 1999, the Fund's Trust Shares had a
total return of -0.86% and its Retail A Shares had a total return of -1.11%
before deducting the maximum 3.75% front-end sales charge. During the same
period, the Fund's Retail B Shares had a total return of -1.78% before deducting
the maximum 5.00% contingent deferred sales charge. (Please see the chart on
page 3 for total returns after deducting the front-end charge and the chart on
page 4 for total returns after deducting the contingent deferred sales charge.)
Those returns compare with a total return of -0.83% for the average
intermediate government bond fund tracked by Lipper, a total return of 0.99% for
the Lehman Brothers Intermediate Government/Corporate Intermediate Bond Index
and a total return of 0.53% for the Lehman Brothers Aggregate Bond Index. As of
October 31, 1999, the Fund's Trust Shares had a 30-day SEC annualized yield of
5.76%. On the same date, Retail A Shares of the Fund had a 30-day SEC annualized
yield of 5.38% and Retail B Shares had a 30-day SEC annualized yield of 4.82%.
Adapting to Economic Changes
In the first half of the reporting period, the Fund increased investments
in corporate, asset-backed, and mortgage-backed securities as well as in issues
of U.S. Government agencies. Besides being attractive on an historical basis,
the yields of these "spread products" provided some protection as interest rates
rose and bond prices fell. To facilitate these purchases, we reduced our
allocation in Treasuries. Continually throughout the period, U.S. Government
issues represented more than 70% of the portfolio, which is well above the 65%
threshold required by the Fund's investment policies.
During this time we maintained a "barbelled" maturity structure, which
overweights both long and short maturities and underweights intermediate
maturities. This positioning is optimal when the yield curve flattens, and
serves to minimize the impact of falling prices as short-term interest rates
rise more than long-term interest rates. During this time, interest rates on
long-term Treasuries rose 100 basis points while interest rates on short-term
Treasuries rose nearly 170 basis points, which is typical in an environment of
monetary policy tightening. We reduced the Fund's duration early in the period
when long-term Treasury yields fell below 5.0%. Overall, this gave the Fund a
duration that was about 105% of the duration for the average of the Lehman
Brothers Intermediate Government/Corporate Bond Index and the Lehman Brothers
Aggregate Bond Index. When the 30-year Treasury yield moved above 5.40% in the
first quarter of 1999, we extended the Fund's duration to 109% of that of the
Index.
6
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PORTFOLIO REVIEWS
As yield spreads increased in the second quarter of 1999, we added
selectively to bonds of domestic banks and intermediate-term industrials and
consumer non-cyclicals. Throughout the period, however, holdings of corporate
issues remained light versus the Fund's benchmark, a blend of the Lehman
Brothers Intermediate Government/Corporate Bond Index and the Lehman Brothers
Aggregate Bond Index. We did maintain a significant overweight in mortgages due
to their ongoing attractive valuation, and increased holdings as the year
progressed. At the end of the period, weightings in mortgage-backed securities
were about double those of the benchmark. We reduced positions in
intermediate-term corporates in favor of government issues, as spread levels
between these two sectors narrowed dramatically. As real (inflation-adjusted)
yields rose, the Fund's duration was increased periodically when interest rates
spiked to historically attractive levels. While relative value was deemed high,
these moves also made the Fund more sensitive to changes in interest rates. The
Fund's duration was extended a final time in June as long-term Treasury yields
rose above 6%. By the end of June, the duration was approximately 114% of that
for the benchmark.
Strategies for Slower Growth
If slower growth allows yields to fall and prices to rally, as we expect,
longer-maturity issues should enjoy strong gains. In the meantime, they provide
the Fund with added income. The Fund should also benefit from its investments in
agencies and mortgage-backed securities, whose strong credit quality is likely
to attract investors in a less robust economy.
Galaxy Intermediate Government Income Fund
Distribution of Total Net Assets as of October 31, 1999
[The following table was originally a pie chart in the printed materials.]
Asset-Backed Securities, Foreign Bonds, Repurchase Agreement
and Net Other Assets & Liabilities 6%
Mortgage-Backed Securities 30%
U.S. Government and Agency Obligations 49%
Corporate Notes and Bonds 15%
Galaxy Intermediate Government Income Fund
Growth of $10,000 investment*
[The following table was originally a mountain graph in the printed materials.]
<TABLE>
<CAPTION>
9/1/88 10/31/99
<S> <C> <C>
Lehman Brothers Aggregate Bond Index $10,000 $23,892
Lehman Brothers Intermediate Government/Corporate Bond Index $10,000 $23,781
Galaxy Intermediate Government Income Fund - Retail A Shares $ 9,625 $20,046
Galaxy Intermediate Government Income Fund - Trust Shares $10,000 $21,038
Galaxy Intermediate Government Income Fund - Retail B Shares $10,000 $ 9,353
</TABLE>
* Since inception on 9/1/88 for Trust and Retail A Shares. Since inception
on 11/1/98 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, 1999. The Lehman Brothers Aggregate Bond Index and the
Lehman Brothers Intermediate Government/Corporate Bond Index are unmanaged
indices in which investors cannot invest. Results for the indices do not
reflect investment management fees and other expenses incurred by the
Fund.
7
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PORTFOLIO REVIEWS
[PHOTO]
David Lindsay has managed the Galaxy Corporate Bond Fund since its inception in
December of 1994. He has managed other fixed-income portfolios for Fleet
Investment Advisors Inc. since 1986.
GALAXY CORPORATE BOND FUND
By David Lindsay
Portfolio Manager
Trust Shares of the Galaxy Corporate Bond Fund earned a total return of
- -0.82% for the 12 months ended October 31, 1999. That compares to total returns
of -0.07% for the average intermediate investment-grade bond fund tracked by
Lipper and -0.66% for the Lehman Brothers Intermediate Government/Corporate Bond
Index. At the end of the period the Fund's Trust Shares had a 30-day SEC
annualized yield of 5.85%.
Seizing Investment Opportunities
With investors concerned about the outlook for the economy at the end of
calendar year 1998, we found selected opportunities to purchase attractively
priced corporate bonds. In addition, because overblown fears regarding the risk
of home-loan prepayments had made the prices of mortgage-backed securities more
attractive, we also increased our mortgage exposure and took advantage of
trading opportunities in that sector.
These strategies proved rewarding to Fund shareholders in the first months
of calendar year 1999. With an improving outlook for the economy and profits,
corporate bonds performed well. As rising interest rates reduced the risk of
home-loan prepayments, a strong performance by mortgage-backed securities
further enhanced returns. In response to the higher interest rates, we trimmed
investments in the debt of financial firms, which are especially sensitive to
climbing yields. We also took profits in bonds issued by drug and retail
companies that had recorded good relative price performance. We used the
proceeds from these sales to purchase the debt of telecommunications and
industrial firms that offered good value, and we increased the Fund's exposure
to bonds issued by U.S. Government agencies.
With the appearance of slower economic growth during the second quarter of
1999, securities possessing strong liquidity and high credit quality
outperformed. As a result, the Fund benefited from its sizable holdings in
Treasuries, agencies, and corporates with strong credit ratings. As increased
supplies of corporate bonds during this period made their prices more
attractive, we took advantage of opportunities to purchase the debt of utility
and industrial firms. We also continued to buy agencies and mortgage-backed
securities, as well as some dollar-denominated "Yankee" bonds issued in the U.S.
by foreign entities.
These investments helped to bolster yields in the final months of the
fiscal year. In recent months, we made further investments in Yankees,
asset-backed securities and agencies. To give the Fund added liquidity, we also
increased investments in Treasuries. We financed these purchases with sales of
utility and industrial bonds that had experienced good relative price
performance.
Throughout the fiscal year, we undertook a substantial number of
opportunistic trades, swapping out of Treasuries into new-issue corporate
securities, then back into Treasuries again, achieving a moderate gain on most
of these "round-
8
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PORTFOLIO REVIEWS
trips." The cumulative effect of these opportunistic transactions was favorable
to the Fund's return.
Reduced Weighting in Corporate Bonds
The Fund's allocation to corporate bonds is now less than it was a year
ago. With the prospect of slower growth and more moderately expanding earnings,
we think that corporate bonds could underperform in months to come. The Fund
should also benefit from a larger weighting in Treasuries and agencies. We
believe these securities could outperform as supplies of new issues from these
sectors ebb due to the Federal budget surplus and less vigorous housing
activity, and as economic uncertainty drives investors to securities with strong
credit quality and liquidity. Once prices for corporate bonds become more
attractive, we plan to look for opportunities to rebuild the Fund's weighting in
that sector. In the meantime, we may make additional purchases of Yankees, which
should benefit from continued improvement in economies abroad.
Galaxy Corporate Bond Fund
Distribution of Total Net Assets as of October 31, 1999
[The following table was originally a pie chart in the printed materials.]
Asset-Backed and Mortgage-Backed Securities 7%
Repurchase Agreement and Net Other Assets & Liabilities 2%
Foreign Bonds 2%
Corporate Notes and Bonds 63%
U.S. Government and Agency Obligations 26%
Galaxy Corporate Bond Fund
Growth of $10,000 investment*
[The following table was originally a mountain graph in the printed materials.]
<TABLE>
<CAPTION>
12/12/94 10/31/99
<S> <C> <C>
Lehman Brothers Intermediate Government/Corporate Bond Index $10,000 $15,263
Galaxy Corporate Bond Fund - Trust Shares $10,000 $13,896
</TABLE>
* Since inception on 12/12/94. The Lehman Brothers Intermediate
Government/Corporate Bond Index is an unmanaged index in which investors
cannot invest. Results for the index do not reflect investment management
fees and other expenses incurred by the Fund.
9
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO REVIEWS
[PHOTO]
Marie Schofield has managed the Galaxy High Quality Bond Fund since March of
1996. She has managed fixed-income investments since 1975.
GALAXY HIGH QUALITY BOND FUND
By Marie Schofield
Portfolio Manager
In the first half of the reporting period, as the global economic outlook
improved and risk premiums contracted, corporate, asset-backed, and
mortgage-backed securities outperformed Treasuries. Additional commitments made
to these sectors benefited Fund returns. Later in the period, risk premiums in
selected sectors saw renewed widening while certain favored sectors, such as
U.S. Government agency and mortgage-backed issues, asset-backed issues, and
especially the Yankee sector, continued to perform well. Throughout the period
we continued to increase our allocations to mortgage-backed and asset-backed
securities and adjusted our weightings to the corporate sector in order to take
advantage of these changes. During this time, we also remained overweighted in
short and long maturities following a barbell strategy throughout much of the
year. This positioning is optimal when the yield curve flattens and serves to
minimize the impact of falling prices as short-term interest rates rise more
than long-term interest rates. During this time, interest rates on long-term
Treasuries rose 100 basis points while interest rates on short-term Treasuries
rose nearly 170 basis points -- typical in an environment of monetary policy
tightening.
As real yields rose, the Fund's duration was increased periodically when
interest rates spiked to historically attractive levels. While relative value
was deemed high, these moves also made the Fund more sensitive to changes in
interest rates. As rates continued to march upward and top out at levels above
6%, the Fund underperformed for the reporting period. Since the Fund is
generally not permitted to invest in foreign securities, its returns also
suffered from an absence of dollar-denominated "Yankee" bonds issued by foreign
corporations and institutions. Yankee bonds saw stellar performance during the
period in response to exceptional demand, as wide spread levels attracted
investors. Financial issues also performed well during the period.
For the 12 months ended October 31, 1999, the Fund's Trust Shares earned a
total return of -2.52%. Over the same time, Retail A Shares of the Fund had a
total return of -2.66% before deducting the maximum 3.75% front-end sales
charge, and its Retail B Shares had a total return of -3.46% before deducting
the maximum 5.00% contingent deferred sales charge. A Prime Shares of the Fund
had a total return of -2.68% before deducting the maximum 4.75% front-end sales
charge and its B Prime Shares had a total return of -3.46% before deducting the
maximum 5.00% contingent deferred sales charge. (Please see the charts on page 3
for total returns after deducting the applicable front-end sales charge and the
charts on page 4 for total returns after deducting the applicable contingent
deferred sales charge.)
Over the same 12-month period, the average A-rated corporate bond fund
tracked by Lipper had a total return of -0.92%, the Lehman Brothers
Government/Corporate Bond Index had a total return of -0.66% and the Lehman
Brothers Long-Term Government/ Corporate Bond Index had a total return of
- -4.31%. The Fund has changed its benchmark from the Lehman Brothers Long-Term
Government/ Corporate Bond Index to the Lehman Brothers Government/Corporate
Bond Index, which is comprised of securities with remiaining maturities that
more closely approximate the remaining maturities of those securities held by
the Fund.
On October 31, 1999, the Fund's Trust Shares had a 30-day SEC annualized
yield of 5.76%, its Retail A Shares had a 30-day SEC annualized yield of 5.41%
and its Retail B Shares had a 30-day SEC annualized yield of 5.00%. On such
date, the Fund's A Prime Shares had a 30-day SEC annualized yield of 5.66% and
its B Prime Shares had a 30-day SEC annualized yield of 4.89%.
Portfolio Adjustments
Early in the fiscal year, we reduced Treasuries in favor of additional
corporate, asset-backed, and mortgage-backed securities, as well as U.S.
Government agency issues. As the yield for 30-year
10
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO REVIEWS
Treasuries fell below 5% in December of 1998, we reduced the Fund's duration to
104% of benchmark duration. When the 30-year Treasury yield moved above 5.40% in
the first quarter of 1999, we extended the Fund's duration to 109% of that for
the Index.
As the global economic outlook brightened in the first and second quarters
of 1999, corporate securities performed well versus Treasuries and our higher
allocation to this sector helped Fund performance. Specifically, our overweights
included issues in industrials, consumer non-cyclicals, and telecommunications
due to their stable outlook and strong credit quality. We remained underweighted
in corporate bonds issued by financial firms. We also found opportunities in
high-quality debt of retailers, drug companies, and energy firms. While
corporate bonds underperformed in the second half-year period, due to
expectations of a glut of new supply ahead of Y2K, agency, mortgage-backed and
asset-backed securities continued to contribute positively to Fund returns. In
June, after the yield on the 30-year Treasury bonds reached 6.15%, we further
extended the Fund's duration to 114% of the duration for its benchmark.
As rates rose further in the final months of the period, the Fund
benefited from its focus on better-quality issues and from a barbelled maturity
structure. The higher yields on investments in mortgage-backed securities and
corporate bonds helped to offset the price declines in those sectors. When risk
premiums on U.S. Government agencies became more attractive, we added to
holdings in that sector. As we approached the final quarter of this calendar
year, we increased investments in Treasuries in an effort to highlight
liquidity.
Prepared for Slower Growth
With a duration that remains 114% of its benchmark, the Fund should enjoy
strong gains when growth finally slows and bond prices rally. Tentative evidence
of slowing is already apparent in the housing sector and consumer demand has
slowed somewhat. In addition, employment gains have begun to soften. The Fed is
resolved to slow economic growth to head off any inflationary pressures from
tight labor markets. How much additional tightening, if any, that is required to
achieve this goal remains a major question. With the eventual slowdown, the Fund
should benefit from its emphasis on high credit quality and its longer maturity
structure.
Galaxy High Quality Bond Fund
Distribution of Total Net Assets as of October 31, 1999
[The following table was originally a pie chart in the printed materials.]
Foreign Bond, Repurchase Agreement and
Net Other Assets & Liabilities 4%
Mortgage-Backed Securities 18%
U.S. Government and Agency Obligations 40%
Asset-Backed Securities 6%
Corporate Notes and Bonds 32%
Galaxy High Quality Bond Fund
Growth of $10,000 investment*
[The following table was originally a mountain graph in the printed materials.]
<TABLE>
<CAPTION>
12/14/90 10/31/99
<S> <C> <C>
Lehman Brothers Long-Term Government/Corporate Bond Index $10,000 $20,028
Lehman Brothers Government/Corporate Bond Index $10,000 $23,623
Galaxy High Quality Bond Fund - Retail A Shares $ 9,625 $17,762
Galaxy High Quality Bond Fund - Trust Shares $10,000 $18,602
Galaxy High Quality Bond Fund - Retail B Shares $10,000 $11,362
Galaxy High Quality Bond Fund - A Prime Shares $ 9,525 $ 9,269
Galaxy High Quality Bond Fund - B Prime Shares $10,000 $ 9,197
</TABLE>
* Since inception on 12/14/90 for Trust and Retail A Shares. Since inception
on 3/4/96 for Retail B Shares. Since inception on 11/1/98 for A Prime and
B Prime Shares. Performance figures for Retail A Shares include the effect
of the maximum 3.75% front-end sales charge. Performance figures for Prime
A Shares include the effect of the maximum 4.75% front-end sales charge.
Performance figures for Retail B and B Prime Shares reflect the deduction
of the 3.00% contingent deferred sales charge (applicable to shares
redeemed in the fourth year after purchase) and maximum 5.00% contingent
deferred sales charge, respectively, as if shares were redeemed on October
31, 1999. The Lehman Brothers Long-Term Government/Corporate Bond Index
and the Lehman Brothers Government/Corporate Bond Index are unmanaged
indices in which investors cannot invest. Results for the indices do not
reflect investment management fees and other expenses incurred by the
Fund.
11
<PAGE>
- --------------------------------------------------------------------------------
Shareholder Services
AUTOMATIC INVESTMENT PROGRAM
The Golden Rule of investing is "pay yourself first." That is easy to do with
Galaxy's Automatic Investment Program. For as little as $50 per month deducted
directly from your checking, savings or bank money market account, you can
consistently and conveniently add to your Galaxy investment. When you establish
an Automatic Investment Program, the $2,500 initial investment requirement for
Galaxy is waived. Of course, such a program does not assure a profit and does
not protect against loss in a declining market.
"A well-balanced asset allocation plan may help to control your risk while
pursuing your goals."
DIVERSIFICATION
A fundamental investment practice is "diversification." A well-balanced asset
allocation plan may help to control your risk while pursuing your goals. Many
mutual funds offer a low-cost way to diversify your investments while you
benefit from professional management. Galaxy's comprehensive array of investment
choices can be used in combination to match the needs of nearly everyone.
EXCHANGE PRIVILEGES
As your investment needs change, you can conveniently exchange your shares in
one fund for shares in another fund at no cost (as long as you exchange within
the same share class).
CONSOLIDATED STATEMENTS
Timely, comprehensive mutual fund account statements offer detailed information
on your individual account. If you have a Fleet One 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 toll-free 1-877-BUY-GALAXY (1-877-289-4252) for
information on initial purchases and current performance.
- --------------------------------------------------------------------------------
Certain shareholder services may not be available to Trust, A Prime and B Prime
Share investors. Please consult your Fund Prospectus.
Shares of the Funds are distributed through Provident Distributors, Inc., member
NASD and SIPC.
12
<PAGE>
- --------------------------------------------------------------------------------
Short-Term Bond Fund
Portfolio of Investments
October 31, 1999
Par Value Value
--------- -----
CORPORATE NOTES AND BONDS - 32.55%
Automobile Finance - 11.75%
$ 1,000,000 Associates Corp. of North America
Senior Note
5.50%, 02/15/02 .......................... $ 975,000
1,250,000 Ford Motor Credit Co.
6.85%, 08/15/00 .......................... 1,256,051
250,000 Ford Motor Credit Co.
6.25%, 11/08/00 .......................... 249,778
1,200,000 Ford Motor Credit Co.
5.75%, 01/25/01 .......................... 1,191,000
500,000 Ford Motor Credit Co.
7.00%, 09/25/01 .......................... 503,750
500,000 General Motors Acceptance Corp.
5.63%, 02/15/01 .......................... 495,000
2,000,000 General Motors Acceptance Corp.
7.13%, 05/01/01 .......................... 2,017,500
------------
6,688,079
------------
Finance - 10.25%
2,000,000 Caterpillar Financial Services Corp., MTN
5.47%, 09/12/01 .......................... 1,960,000
1,600,000 General Electric Capital Corp.
Series A, MTN
6.33%, 09/17/01 .......................... 1,598,000
770,000 General Electric Capital Corp., MTN
6.81%, 11/03/03 .......................... 772,926
1,500,000 Wells Fargo Company, (C)
5.71%, 10/31/01 .......................... 1,500,015
------------
5,830,941
------------
Transportation - 3.21%
1,820,000 Norfolk Southern Corp.
6.70%, 05/01/00 .......................... 1,826,825
Technology - 3.49%
2,000,000 International Business
Machines Corp., MTN
5.80%, 05/15/01 .......................... 1,985,000
------------
Industrial - 2.16%
1,000,000 Pepsi Bottling Holdings, Inc.
5.38%, 02/17/04 (A) ...................... 942,500
300,000 Xerox Corp.
5.50%, 11/15/03 .......................... 285,750
------------
1,228,250
------------
Utilities - 1.69%
$ 1,000,000 Sprint Capital Corp.
5.88%, 05/01/04 .......................... 961,250
------------
Total Corporate Notes and Bonds.. 18,520,345
------------
(Cost $15,636,447)
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 31.51%
U.S. Treasury Notes - 8.46%
2,125,000 6.25%, 10/31/01 .......................... 2,142,786
1,000,000 5.88%, 09/30/02 .......................... 1,000,070
500,000 4.25%, 11/15/03 .......................... 469,700
1,200,000 6.00%, 08/15/04 .......................... 1,203,324
------------
4,815,880
------------
Government National
Mortgage Association - 6.27%
1,421,991 6.50%, 09/15/13, Pool 476201 ............ 1,396,652
893,628 7.00%, 11/15/13, Pool 780921 ............ 896,693
234,235 7.00%, 04/15/29, Pool 458548 ............ 229,768
982,495 7.00%, 04/15/29, Pool 458549 ............ 963,759
83,701 7.00%, 05/15/29, Pool 483358 ............ 82,102
------------
3,568,974
------------
Federal Home Loan Bank - 5.26%
1,000,000 5.63%, 03/19/01 .......................... 994,100
2,000,000 6.23%, 09/19/01 .......................... 1,999,680
------------
2,993,780
------------
Federal Home Loan
Mortgage Corporation - 5.08%
1,059,133 5.50%, 08/01/00, Pool M80285 ............ 1,053,933
1,000,000 6.25%, 07/15/04 .......................... 992,500
103,018 7.00%, 05/01/19, Pool D29158 ............ 103,572
745,138 6.50%, 11/15/23, Pool 002008 ............ 738,149
------------
2,888,154
------------
Federal Farm Credit Bank - 3.51%
2,000,000 6.10%, 09/24/01, MTN ..................... 1,995,320
------------
Federal National
Mortgage Association - 2.93%
797,869 6.50%, 03/01/12, Pool 313409 ............ 784,066
920,101 6.00%, 01/01/14, Pool 482523 ............ 885,597
------------
1,669,663
------------
Total U.S. Government
and Agency Obligations ................... 17,931,771
------------
(Cost $18,174,002)
See Notes to Financial Statements.
13
<PAGE>
- --------------------------------------------------------------------------------
Short-Term Bond Fund
Portfolio of Investments (continued)
October 31, 1999
Par Value Value
--------- -----
ASSET- BACKED AND MORTGAGED-BACKED SECURITIES - 21.06%
$ 4,000,000 Chemical Master Credit Card Trust I
Series 1995-2, Class A
6.23%, 06/15/03 .......................... $ 3,997,480
1,500,000 Discover Card Master Trust I
Series 1999-1, Class A
5.30%, 08/15/04 .......................... 1,455,930
975,000 Ford Credit Auto Owner Trust
Series 1999-D, Class A3
6.20%, 04/15/02 .......................... 973,781
1,000,000 MBNA Master Credit Card Trust II
Series1995-F, Class A
6.60%, 01/15/03 .......................... 1,002,500
1,433,003 Norwest Asset Securities Corp.
Series 1997-17, Class A1, CMO
6.75%, 11/25/27 .......................... 1,431,212
1,096,874 Prudential Home Mortgage Securities
Series 1996-7, Class A-1, CMO
6.75%, 06/25/11 .......................... 1,094,132
763,262 Prudential Home Mortgage Securities
Series 1993-38, Class A3, CMO
6.15%, 09/25/23 .......................... 750,615
1,031,250 Ryland Mortgage Securities Corp.
Series 1993-3, Class A, CMO
6.71%, 08/25/08 .......................... 1,028,672
250,000 Sears Credit Account Master Trust
Series 1996-2, Class A
6.50%, 10/15/03 .......................... 250,000
------------
Total Asset-Backed and
Mortgage-Backed Securities ............... 11,984,322
------------
(Cost $15,190,260)
COMMERCIAL PAPER (B) - 1.75%
1,000,000 BMW US Capital Corp.
5.29%, 11/26/99 .......................... 996,333
------------
Total Commercial Paper ................... 996,333
------------
(Cost $996,333)
REPURCHASE AGREEMENT - 11.96%
6,805,000 Repurchase Agreement with:
Chase Manhattan Bank
5.20%, 11/01/99, dated 10/29/99
Repurchase Price $6,807,949
(Collateralized by U.S. Treasury Bond
10.63%, Due 08/15/15;
Total Par $4,910,000
Market Value $6,947,650) ................. 6,805,000
------------
Total Repurchase Agreement ............... 6,805,000
------------
(Cost $6,805,000)
Total Investments - 98.83% ................................. 56,237,771
------------
(Cost $56,802,042)
Net Other Assets and Liabilities - 1.17% ................... 665,307
------------
Net Assets - 100.00% ....................................... $ 56,903,078
============
- ----------
(A) Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may only be resold, in transactions exempt from
registration, to qualified institutional buyers. At October 31, 1999,
these securities amounted to $942,500 or 1.66% of net assets.
(B) Discount yield at time of purchase.
(C) Floating rate note. Interest rate shown reflects rate in effect at October
31, 1999.
CMO Collateralized Mortgage Obligation
MTN Medium Term Note
See Notes to Financial Statements.
14
<PAGE>
- --------------------------------------------------------------------------------
Intermediate Government Income Fund
Portfolio of Investments
October 31, 1999
Par Value Value
--------- -----
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 48.88%
U.S. Treasury Bonds - 17.31%
$ 500,000 11.13%, 08/15/03 ......................... $ 583,745
1,200,000 11.88%, 11/15/03 ......................... 1,442,772
2,350,000 12.00%, 08/15/13 ......................... 3,221,709
1,050,000 7.50%, 11/15/16 .......................... 1,158,318
6,735,000 8.88%, 08/15/17 .......................... 8,397,669
3,000,000 8.50%, 02/15/20 .......................... 3,666,540
3,000,000 8.75%, 05/15/20 .......................... 3,755,160
1,500,000 8.75%, 08/15/20 .......................... 1,879,605
3,500,000 7.88%, 02/15/21 .......................... 4,045,685
6,750,000 8.13%, 08/15/21 .......................... 8,008,740
4,000,000 6.88%, 08/15/25 .......................... 4,222,160
1,500,000 6.38%, 08/15/27 .......................... 1,493,040
800,000 6.13%, 11/15/27 .......................... 772,480
2,000,000 5.50%, 08/15/28 .......................... 1,776,340
3,000,000 5.25%, 11/15/28 .......................... 2,578,920
1,000,000 5.25%, 02/15/29 .......................... 866,280
2,750,000 6.13%, 08/15/29 .......................... 2,740,348
------------
50,609,511
------------
U.S. Government-Backed Bonds - 11.17%
4,830,000 A.I.D. State of Israel
Series 2-D
5.63%, 09/15/03 .......................... 4,703,116
6,450,000 A.I.D. State of Israel
Series 8-B
6.05%, 08/15/00 .......................... 6,450,258
5,000,000 A.I.D. State of Israel
Series 8-B
6.38%, 08/15/01 .......................... 5,014,750
5,000,000 A.I.D. State of Israel
Series 8-C
6.63%, 08/15/03 .......................... 5,038,300
6,200,000 Private Export Funding Corp.
Series B
6.49%, 07/15/07 .......................... 6,099,250
5,432,567 Small Business Administration
Participation Certificates
Series SBIC-PS 1955-10B
7.25%, 05/10/05 .......................... 5,351,079
------------
32,656,753
------------
Federal Home Loan
Mortgage Corporation - 7.11%
5,500,000 5.20%, 11/15/99 (A) ...................... 5,488,878
5,000,000 6.25%, 07/15/04 .......................... 4,962,500
5,000,000 5.13%, 10/15/08 .......................... 4,478,950
360,000 6.63%, 09/15/09 .......................... 358,200
5,500,000 7.50%, 06/01/28 .......................... 5,520,625
------------
20,809,153
------------
U.S. Treasury Notes - 5.55%
2,500,000 6.38%, 03/31/01 .......................... 2,520,725
2,540,000 6.50%, 05/31/02 .......................... 2,578,227
7,720,000 7.00%, 07/15/06 .......................... 8,062,150
3,000,000 6.50%, 10/15/06 .......................... 3,053,460
------------
16,214,562
------------
Federal National
Mortgage Association - 4.79%
4,500,000 5.72%, 01/09/01, MTN ..................... 4,483,305
565,000 6.38%, 06/15/09 .......................... 551,683
2,050,000 6.16%, 08/07/28 .......................... 1,854,041
7,000,000 8.00%, 09/01/29 .......................... 7,131,250
------------
14,020,279
------------
Federal Farm Credit Bank (A) - 2.42%
7,100,000 5.13%, 11/15/99 .......................... 7,085,836
------------
U.S. Treasury Strips (A) - 0.53%
5,000,000 1.78%, 11/15/17 Interest only, (B) ....... 1,541,750
------------
Total U.S. Government
and Agency Obligations ................... 142,937,844
------------
(Cost $135,259,086)
MORTGAGE-BACKED SECURITIES - 30.04%
Government National
Mortgage Association - 15.35%
5,495,246 6.50%, 07/15/09, Pool 780357 ............ 5,423,094
21,304 6.50%, 06/15/13, Pool 462795 ............ 20,925
414,344 6.50%, 07/15/13, Pool 468077 ............ 406,960
959,475 6.50%, 09/15/13, Pool 464192 ............ 942,377
351,748 6.50%, 09/15/13, Pool 476619 ............ 345,480
457,093 6.50%, 09/15/13, Pool 487907 ............ 448,947
472,617 7.00%, 09/15/13, Pool 484233 ............ 474,238
94,473 6.50%, 10/15/13, Pool 464249 ............ 92,789
1,873,752 6.50%, 10/15/13, Pool 477500 ............ 1,840,362
482,995 6.50%, 10/15/13, Pool 481575 ............ 474,388
486,459 6.50%, 11/15/13, Pool 475712 ............ 477,639
475,436 6.50%, 11/15/13, Pool 492010 ............ 466,816
85,632 5.50%, 12/15/13, Pool 495780 ............ 80,869
408,100 5.50%, 01/15/14, Pool 464491 ............ 385,397
484,005 5.50%, 02/15/14, Pool 464568 ............ 457,079
483,020 5.50%, 03/15/14, Pool 487579 ............ 456,149
359,336 5.50%, 03/15/14, Pool 501523 ............ 339,346
66,431 5.50%, 04/15/14, Pool 496599 ............ 62,736
533,479 5.50%, 04/15/14, Pool 505596 ............ 503,801
467,912 5.50%, 04/15/14, Pool 506448 ............ 441,882
630,496 5.50%, 05/15/14, Pool 480524 ............ 595,421
492,037 5.50%, 05/15/14, Pool 505667 ............ 464,665
582,528 5.50%, 06/15/14, Pool 434398 ............ 550,122
450,431 5.50%, 06/15/14, Pool 507142 ............ 425,373
734,432 6.63%, 07/20/21, Pool 008809(D) ......... 740,858
2,604,637 6.38%, 04/20/22, Pool 008956(D) ......... 2,630,266
See Notes to Financial Statements.
15
<PAGE>
- --------------------------------------------------------------------------------
Intermediate Government Income Fund
Portfolio of Investments (continued)
October 31, 1999
Par Value Value
--------- -----
Government National
Mortgage Association (continued)
$ 1,468,557 6.50%, 12/15/28, Pool 495775 ............ $ 1,403,382
3,976,386 7.00%, 12/15/28, Pool 483886 ............ 3,900,557
321,134 7.00%, 01/15/29, Pool 499333 ............ 315,011
3,318,610 7.00%, 02/15/29, Pool 486937 ............ 3,255,324
3,373,092 6.00%, 03/15/29, Pool 464632 ............ 3,130,634
3,432,582 6.00%, 04/15/29, Pool 499445 ............ 3,185,848
994,653 6.50%, 04/15/29, Pool 506494 ............ 950,511
5,995,679 7.50%, 09/15/29, Pool 508805 ............ 6,010,668
3,197,398 7.50%, 09/15/29, Pool 508811 ............ 3,205,392
------------
44,905,306
------------
Federal Home Loan
Mortgage Corporation - 8.90%
5,000,000 6.70%, 07/15/06, Pool 1233-G ............ 4,998,400
6,770,733 5.00%, 12/01/13, Pool E73815 ............ 6,255,616
5,000,000 6.00%, 04/15/22, Pool 2118QC ............ 4,751,550
4,348,579 6.50%, 10/15/23, Pool 001990 ............ 4,309,137
5,508,000 8.50%, 10/01/29, Pool G01072 ............ 5,705,902
------------
26,020,605
------------
Federal National
Mortgage Association - 4.12%
2,156,109 5.00%, 05/01/09, Pool 326584 ............ 2,023,125
1,789 8.00%, 12/01/09, Pool 313180 ............ 1,828
1,459,918 6.00%, 04/01/11, Pool 398072 ............ 1,416,120
536,742 6.00%, 06/01/14, Pool 484967 ............ 516,276
3,315,163 6.00%, 06/01/14, Pool 495200 ............ 3,188,756
700,238 6.00%, 06/01/14, Pool 500131 ............ 673,538
2,183,829 6.75%, 04/25/21, Pool 0096-4 ............ 2,185,860
1,000,000 8.00%, 09/01/29, Pool 515880 ............ 1,018,750
1,000,100 8.00%, 09/01/29, Pool 518157 ............ 1,018,852
------------
12,043,105
------------
Structured Mortgage Product - 1.67%
1,828,124 Prudential Home Mortgage Securities
Series 1996-7, Class A-1, CMO
6.75%, 06/25/11 .......................... 1,823,554
3,110,809 Rural Housing Trust
Series 1987-1, Class 1-D, CMO
6.33%, 04/01/26 .......................... 3,049,079
------------
4,872,633
------------
Total Mortgage-Backed Securities ......... 87,841,649
------------
(Cost $89,100,999)
CORPORATE NOTES AND BONDS - 15.20%
Banking - 4.62%
7,500,000 Bank One Milwaukee
National Association, MTN
6.35%, 03/19/01 .......................... 7,500,000
6,000,000 Nations Bank Texas
National Association, MTN
6.35%, 03/15/01 .......................... 5,992,500
------------
13,492,500
------------
Utilities - 3.19%
5,125,000 Baltimore Gas & Electric
6.50%, 02/15/03 .......................... 5,080,156
1,975,000 Emerson Electric Co.
5.85%, 03/15/09 .......................... 1,829,344
2,500,000 Potomac Electric Power Co.
First Mortgage
6.25%, 10/15/07 .......................... 2,415,625
------------
9,325,125
------------
Consumer Cyclicals - 2.93%
5,000,000 Pepsi Bottling Holdings, Inc.
5.38%, 02/17/04 (C) ...................... 4,712,500
2,500,000 Stanford University
5.85%, 03/15/09 .......................... 2,285,050
1,575,000 Wal-Mart Stores, Inc.
6.88%, 08/10/09 .......................... 1,582,875
------------
8,580,425
------------
Finance - 2.59%
1,000,000 American Express
6.75%, 06/23/04 .......................... 991,250
1,650,000 National Rural Utilities
5.50%, 01/15/05 .......................... 1,536,563
5,000,000 Pitney Bowes Credit Corp.
Series C, MTN
6.78%, 07/16/01 .......................... 5,043,750
------------
7,571,563
------------
Automobile Finance - 1.87%
2,100,000 Ford Motor Credit Co.
6.25%, 11/08/00 .......................... 2,098,131
910,000 Ford Motor Credit Co.
6.55%, 09/10/02 .......................... 903,175
2,500,000 Ford Motor Credit Co.
6.70%, 07/16/04 .......................... 2,475,000
------------
5,476,306
------------
Total Corporate Notes and Bonds .......... 44,445,919
------------
(Cost $56,834,394)
See Notes to Financial Statements.
16
<PAGE>
- --------------------------------------------------------------------------------
Intermediate Government Income Fund
Portfolio of Investments (continued)
October 31, 1999
Par Value Value
--------- -----
ASSET-BACKED SECURITIES - 8.10%
$ 2,891,434 Chase Manhattan Auto Owner Trust
Series 1998-C, Class A3
5.80%, 01/15/02 .......................... $ 2,884,205
6,000,000 Chemical Master Credit Card Trust I
Series 1996-1, Class A
5.55%, 09/15/03 .......................... 5,938,080
6,000,000 Ford Credit Auto Owner Trust
Series 1999-D, Class A4
6.40%, 10/15/02 .......................... 5,996,220
850,000 Green Tree Financial Corp.
Series 1998-1, Class A4
6.04%, 11/01/29 .......................... 835,652
2,500,000 MBNA Master Credit Card Trust
Series 1998-J, Class A
5.25%, 02/15/06 .......................... 2,376,550
360,000 Premier Auto Trust
Series 1999-2, Class A4
5.59%, 02/09/04 .......................... 351,785
1,400,000 Premier Auto Trust
Series 1999-3, Class A4
6.43%, 03/08/04 .......................... 1,401,470
4,000,000 Standard Credit Card Master Trust
Series 1993-2, Class A
5.95%, 10/07/04 .......................... 3,888,720
------------
Total Asset-Backed Securities ............ 23,672,682
------------
(Cost $23,760,338)
FOREIGN BONDS - 1.24%
4,000,000 Province of Quebec (E)
5.75%, 02/15/09 .......................... 3,640,000
------------
Total Foreign Bonds ...................... 3,640,000
------------
(Cost $3,750,556)
REPURCHASE AGREEMENT - 0.13%
387,000 Repurchase Agreement with:
Chase Manhattan Bank
5.20%, 11/01/99, dated 10/29/99
Repurchase Price $387,168
(Collateralized by U.S. Treasury Bond
11.25%, Due 02/15/15;
Total Par $270,000
Market Value $393,575) ................... 387,000
------------
Total Repurchase Agreement ............... 387,000
------------
(Cost $387,000)
Total Investments - 103.59% ................................ 302,925,094
------------
(Cost $309,092,373)
Net Other Assets and Liabilities - (3.59)% ................. (10,507,415)
------------
Net Assets - 100.00% ....................................... $292,417,679
============
- ----------
(A) Discount yield at time of purchase.
(B) Stripped securities represent the splitting of cash flows into interest
and principal. Holders, as indicated, are entitled to that portion of the
payment representing interest only or principal only.
(C) Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may only be resold, in transactions exempt from
registration, to qualified institutional buyers. At October 31, 1999,
these securities amounted to $4,712,500 or 1.61% of net assets.
(D) Floating rate note. Interest rate shown reflects rate in effect at October
31, 1999.
(E) U.S. Dollar-Denominated.
CMO Collateralized Mortgage Obligation
MTN Medium Term Note
See Notes to Financial Statements.
17
<PAGE>
- --------------------------------------------------------------------------------
Corporate Bond Fund
Portfolio of Investments
October 31, 1999
Par Value Value
--------- -----
CORPORATE NOTES AND BONDS - 62.68%
Consumer Staples - 11.44%
$ 150,000 Becton Dickinson & Co., Debenture
8.80%, 03/01/01 .......................... $ 154,500
1,275,000 Becton Dickinson & Co., Debenture
6.70%, 08/01/28 .......................... 1,149,094
500,000 Crown Cork & Seal Co., Inc.
8.38%, 01/15/05 .......................... 515,625
1,000,000 Diageo Capital, Plc
6.00%, 03/27/03 .......................... 971,300
1,000,000 Diageo Capital, Plc
6.13%, 08/15/05 .......................... 960,000
1,100,000 Hershey Foods Corp., Debenture
7.20%, 08/15/27 .......................... 1,078,000
1,000,000 Mead Corp., Debenture
6.84%, 03/01/37 .......................... 1,000,000
1,000,000 Minnesota Mining & Manufacturing Co.
Debenture
6.38%, 02/15/28 .......................... 886,250
675,000 Sysco Corp., Debenture
6.50%, 08/01/28 .......................... 604,125
1,650,000 Time Warner Entertainment Co.
8.38%, 03/15/23 .......................... 1,761,375
------------
9,080,269
------------
Finance - 11.04%
250,000 CitiGroup, Inc.
6.63%, 09/15/05 .......................... 244,063
1,000,000 CitiGroup, Inc.
6.88%, 06/01/25 .......................... 993,750
1,000,000 Commercial Credit Co.
6.20%, 11/15/01 .......................... 992,500
720,000 Commercial Credit Co.
6.45%, 07/01/02 .......................... 715,500
500,000 Dean Witter Discover & Co.
6.75%, 08/15/00 .......................... 503,185
260,000 Goldman Sachs Group
6.65%, 05/15/09 .......................... 247,650
500,000 National Rural Utilities
Cooperative Finance Corp.
6.13%, 05/15/05 .......................... 477,500
1,000,000 Norwest Financial, Inc., Senior Note
6.88%, 06/15/00 .......................... 1,007,170
2,400,000 Paccar Financial Corp., Senior Note
Series H, MTN
5.86%, 03/15/01 .......................... 2,379,000
1,020,000 Pitney Bowes Credit Corp.
6.63%, 06/01/02 .......................... 1,026,375
180,000 USL Capital Corp., Senior Note
8.13%, 02/15/00 .......................... 181,084
------------
8,767,777
------------
Utilities - 9.88%
1,000,000 Baltimore Gas & Electric Co., Mortgage
8.38%, 08/15/01 .......................... 1,031,250
455,000 GTE California, Inc., Debenture
Series B
6.75%, 03/15/04 .......................... 453,294
350,000 GTE Corp., Debenture
9.38%, 12/01/00 .......................... 360,063
925,000 GTE Corp., Debenture
6.46%, 04/15/08 .......................... 886,844
1,000,000 GTE Southwest, Inc., Debenture
6.00%, 01/15/06 .......................... 946,250
2,000,000 MCI WorldCom, Inc.
6.13%, 04/15/02 .......................... 1,967,500
1,000,000 PacifiCorp, MTN
6.38%, 05/15/08 .......................... 950,000
1,000,000 Potomac Electric Power Co.
First Mortgage
6.25%, 10/15/07 .......................... 966,250
305,000 Sprint Capital Corp.
6.90%, 05/01/19 .......................... 285,556
------------
7,847,007
------------
Consumer Cyclical - 8.41%
1,000,000 Coca-Cola Enterprises, Inc.
7.88%, 02/01/02 .......................... 1,025,000
1,000,000 Coca-Cola Enterprises, Inc.
7.13%, 08/01/17 .......................... 965,000
1,000,000 McDonald's Corp., Senior MTN
5.95%, 01/15/08 .......................... 946,250
1,000,000 Pepsi Bottling Holdings, Inc.
5.38%, 02/17/04 (A) ...................... 942,500
1,000,000 PepsiCo, Inc., MTN
5.75%, 01/01/03 .......................... 973,750
300,000 Seagram Co., Ltd., Yankee Note
6.50%, 04/01/03 .......................... 292,875
1,000,000 Wal-Mart Stores, Inc.
8.63%, 04/01/01 .......................... 1,030,000
500,000 Wal-Mart Stores, Inc.
6.55%, 08/10/04 .......................... 500,625
------------
6,676,000
------------
Basic Materials - 5.72%
1,000,000 International Paper Co.
7.63%, 08/01/04 .......................... 1,013,750
500,000 Loral Corp., Senior Note
7.63%, 06/15/04 .......................... 507,500
1,000,000 Raytheon Co.
6.50%, 07/15/05 .......................... 953,750
1,000,000 Snap-On, Inc.
6.63%, 10/01/05 .......................... 1,002,500
1,000,000 Weyerhaeuser Co., Debenture
8.38%, 02/15/07 .......................... 1,063,750
------------
4,541,250
------------
See Notes to Financial Statements.
18
<PAGE>
- --------------------------------------------------------------------------------
Corporate Bond Fund
Portfolio of Investments (continued)
October 31, 1999
Par Value Value
--------- -----
Banking - 5.60%
$ 1,000,000 Bank One Milwaukee
National Association, MTN
6.35%, 03/19/01 .......................... $ 1,000,000
2,000,000 Branch Banking & Trust Co., Senior Note
5.70%, 02/01/01 .......................... 1,985,000
500,000 National City Bank of Kentucky
Subordinated Note
6.30%, 02/15/11 .......................... 455,625
500,000 SunTrust Bank, Atlanta
Subordinated Note
7.25%, 09/15/06 .......................... 501,250
500,000 Wells Fargo & Co.
6.50%, 09/03/02 .......................... 498,750
------------
4,440,625
------------
Automobile Finance - 3.33%
250,000 Ford Motor Credit Co.
Debenture
6.25%, 11/08/00 .......................... 249,778
1,000,000 Ford Motor Credit Co.
Senior Note
6.50%, 02/28/02 .......................... 996,250
180,000 Ford Motor Credit Co.
Senior Debenture
6.55%, 09/10/02 .......................... 178,650
1,000,000 General Motors Acceptance Corp.
6.88%, 07/15/01 .......................... 1,005,000
200,000 General Motors Acceptance Corp.
9.63%, 12/15/01 .......................... 211,500
------------
2,641,178
------------
Transportation - 1.56%
1,000,000 Burlington North Santa Fe
6.13%, 03/15/09 .......................... 926,250
300,000 Southwest Airlines Co.
8.00%, 03/01/05 .......................... 315,000
------------
1,241,250
------------
Publishing - 1.31%
1,000,000 New York Times Co., Note
7.63%, 03/15/05 .......................... 1,038,750
------------
Insurance - 1.24%
1,000,000 Hartford Financial Services Group
6.38%, 11/01/02 .......................... 987,500
------------
Technology - 1.24%
1,000,000 International Business Machines Corp.
Debenture
6.22%, 08/01/27 .......................... 981,250
------------
Capital Goods - 1.17%
1,000,000 Emerson Electric Co.
5.85%, 03/15/09 .......................... 926,250
------------
Energy - 0.74%
500,000 Atlantic Richfield Co., Debenture
10.88%, 07/15/05 ......................... 586,875
------------
Total Corporate Notes and Bonds .......... 49,755,981
------------
(Cost $51,556,667)
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 25.79%
U.S. Treasury Notes - 6.85%
500,000 6.25%, 08/31/02 .......................... 504,705
1,000,000 5.88%, 09/30/02 .......................... 1,000,070
1,200,000 5.75%, 08/15/03 .......................... 1,191,036
50,000 4.25%, 11/15/03 .......................... 46,970
2,135,000 6.00%, 08/15/04 .......................... 2,140,914
560,000 6.00%, 08/15/09 .......................... 559,524
------------
5,443,219
------------
Federal National
Mortgage Association - 6.32%
350,000 6.50%, 08/15/04 .......................... 350,868
57,899 7.50%, 11/01/07, Pool 188629 ............. 58,658
575,000 6.38%, 06/15/09 .......................... 561,447
145,000 6.63%, 09/15/09 .......................... 144,275
85,937 5.00%, 08/01/10, Pool 006893
Series A-1, CMO .......................... 79,948
981,743 7.50%, 06/01/13, Pool 457543 ............. 994,623
1,861,562 6.00%, 11/01/23, Pool 050940 ............. 1,753,945
636,071 6.50%, 03/01/28, Pool 412263 ............. 609,433
499,257 6.00%, 06/01/29, Pool 252496 ............. 465,397
------------
5,018,594
------------
U.S. Treasury Bonds - 4.74%
1,000,000 11.63%, 11/15/02 ......................... 1,156,160
1,000,000 12.00%, 08/15/13 ......................... 1,370,940
250,000 7.25%, 05/15/16 .......................... 269,348
600,000 8.88%, 08/15/17 .......................... 748,122
250,000 5.25%, 02/15/29 .......................... 216,570
------------
3,761,140
------------
Federal Home Loan
Mortgage Corporation - 4.64%
8,614 8.75%, 08/01/01, Pool 220011 ............. 8,716
1,000,000 5.75%, 07/15/03 .......................... 979,700
58,687 7.00%, 06/01/04, Pool 189683 ............. 58,586
1,215,000 6.25%, 07/15/04 .......................... 1,205,888
42,207 7.50%, 08/01/08, Pool 181313 ............. 42,149
750,000 6.63%, 09/15/09 .......................... 746,250
148,702 7.00%, 02/01/17, Pool 289284 ............. 146,623
141,775 7.00%, 10/01/22, Pool C00184 ............. 140,136
See Notes to Financial Statements.
19
<PAGE>
- --------------------------------------------------------------------------------
Corporate Bond Fund
Portfolio of Investments (continued)
October 31, 1999
Par Value Value
--------- -----
Federal Home Loan
Mortgage Corporation (continued)
$ 147,476 7.00%, 02/01/23, Pool C00213 ............. $ 145,678
217,752 6.00%, 09/01/23, Pool D41208 ............. 205,639
------------
3,679,365
------------
Government National
Mortgage Association - 2.61%
54,607 9.00%, 09/15/04, Pool 003669 ............. 56,560
42,542 9.00%, 12/15/08, Pool 027562 ............. 44,683
94,173 8.00%, 05/15/22, Pool 319062 ............. 96,409
482,868 6.00%, 03/15/29, Pool 487061 ............. 448,159
679,510 6.50%, 03/15/29, Pool 464613 ............. 649,354
774,460 7.50%, 09/15/29, Pool 466172 ............. 776,396
------------
2,071,561
------------
Federal Home Loan Bank - 0.63%
500,000 5.88%, 08/15/01 .......................... 497,730
------------
Total U.S. Government
and Agency Obligations ................... 20,471,609
------------
(Cost $20,921,912)
ASSET-BACKED SECURITIES - 6.78%
2,000,000 Chemical Master Credit Card Trust I
Series 1996-1, Class A
5.55%, 09/15/03 .......................... 1,979,360
1,000,000 Ford Credit Auto Owner Trust
Series 1999-D, Class A-4
6.40%, 10/15/02 .......................... 999,370
978,724 Guaranteed Export Trust Certificates
Series 1993-D, Class A-3
5.23%, 05/15/05 .......................... 940,362
500,000 MBNA Master Credit Card Trust
Series 1998-J, Class A
5.25%, 02/15/06 .......................... 475,310
600,000 Premier Auto Trust
Series 1999-2, Class A-4
5.59%, 02/09/04 .......................... 586,308
400,000 Premier Auto Trust
Series 1999-3, Class A-4
6.43%, 03/08/04 .......................... 400,420
------------
Total Asset-Backed Securities ............ 5,381,130
------------
(Cost $5,414,453)
FOREIGN BONDS - 2.48%
1,000,000 Heinz (H.J.) Co.
5.75%, 02/03/03 (B) ...................... 969,600
825,000 Province of Quebec
5.75%, 02/15/09 (C) ...................... 750,750
250,000 Province of Quebec
7.50%, 09/15/29 (C) ...................... 250,937
------------
Total Foreign Bonds ...................... 1,971,287
------------
(Cost $2,011,592)
REPURCHASE AGREEMENT - 0.95%
757,000 Repurchase Agreement with:
Chase Manhattan Bank
5.20%, 11/01/99, dated 10/29/99
Repurchase Price $757,328
(Collateralized by U.S. Treasury Bond
10.63%, Due 08/15/15;
Total Par $550,000
Market Value $778,250) ................... 757,000
------------
Total Repurchase Agreement ............... 757,000
------------
(Cost $757,000)
Total Investments - 98.68% ................................. 78,337,007
------------
(Cost $80,661,624)
Net Assets and Other Liabilities - 1.32% ................... 1,044,993
------------
Net Assets - 100.00% ....................................... $ 79,382,000
============
- ----------
(A) Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may only be resold, in transactions exempt from
registration, to qualified institutional buyers. At October 31 1999, these
securities amounted to $942,500 or 1.19% of net assets.
(B) Euro-Dollar Bond
(C) U.S. Dollar-Denominated
CMO Collateralized Mortgage Obligation
MTN Medium Term Note
See Notes to Financial Statements.
20
<PAGE>
- --------------------------------------------------------------------------------
High Quality Bond Fund
Portfolio of Investments
October 31, 1999
Par Value Value
--------- -----
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 39.76%
U.S. Treasury Bonds - 25.15%
$ 4,450,000 12.00%, 08/15/13 ......................... $ 6,100,683
4,000,000 13.25%, 05/15/14 ......................... 5,929,720
700,000 7.50%, 11/15/16 .......................... 772,212
6,760,000 8.88%, 08/15/17 .......................... 8,428,841
3,550,000 9.00%, 11/15/18 .......................... 4,506,619
5,500,000 8.75%, 05/15/20 .......................... 6,884,460
6,000,000 7.88%, 02/15/21 .......................... 6,935,460
200,000 8.13%, 05/15/21 .......................... 237,120
3,500,000 8.13%, 08/15/21 .......................... 4,152,680
5,975,000 6.38%, 08/15/27 .......................... 5,947,276
7,340,000 6.13%, 11/15/27 .......................... 7,087,504
4,250,000 5.50%, 08/15/28 .......................... 3,774,723
4,440,000 5.25%, 11/15/28 .......................... 3,816,802
6,895,000 5.25%, 02/15/29 .......................... 5,973,000
1,750,000 6.13%, 08/15/29 .......................... 1,743,857
------------
72,290,957
------------
Federal National
Mortgage Association - 2.78%
3,000,000 8.50%, 02/01/05 .......................... 3,017,430
3,199,000 6.38%, 06/15/09 .......................... 3,123,600
2,050,000 6.16%, 08/07/28 .......................... 1,854,041
------------
7,995,071
------------
U.S. Treasury Notes - 4.45%
5,000,000 6.63%, 06/30/01 .......................... 5,064,750
675,000 6.25%, 10/31/01 .......................... 680,650
2,000,000 7.50%, 11/15/01 .......................... 2,063,620
2,100,000 6.25%, 02/28/02 .......................... 2,118,732
1,530,000 6.00%, 08/15/04 .......................... 1,534,238
600,000 5.63%, 05/15/08 .......................... 578,910
755,000 6.00%, 08/15/09 .......................... 754,358
------------
12,795,258
------------
U.S. Government-Backed Bonds - 4.43%
2,000,000 Private Export Funding Corp., Series H
6.45%, 09/30/04 .......................... 1,987,500
4,000,000 Private Export Funding Corp., Series B
6.49%, 07/15/07 .......................... 3,935,000
1,800,000 A.I.D. State of Israel
Series 7-A
5.45%, 02/15/01 .......................... 1,784,484
5,000,000 A.I.D. Israel
Series 8-C
6.63%, 08/15/03 .......................... 5,038,300
------------
12,745,284
------------
Federal Home Loan
Mortgage Corporation - 1.13%
1,000,000 6.25%, 07/15/04 .......................... 992,500
2,280,000 6.63%, 09/15/09 .......................... 2,268,600
------------
3,261,100
------------
U.S. Treasury Strip (A) - 1.82%
9,000,000 4.86%, 05/15/08 Interest only, (B) 5,247,180
------------
Total U.S. Government
and Agency Obligations ................... 114,334,850
------------
(Cost $114,881,739)
CORPORATE NOTES AND BONDS - 31.90%
Utilities - 10.12%
500,000 Emerson Electric Co.
5.85%, 03/15/09 .......................... 463,125
1,950,000 GTE Corp., Debenture
6.46%, 04/15/08 .......................... 1,869,563
6,500,000 GTE Florida, Inc., Series A, Debenture
6.31%, 12/15/02 .......................... 6,418,750
3,000,000 MCI WorldCom, Inc.
6.13%, 04/15/02 .......................... 2,951,250
5,000,000 PacifiCorp, MTN
6.38%, 05/15/08 .......................... 4,750,000
2,750,000 Potomac Electric Power Co.
First Mortgage
6.25%, 10/15/07 .......................... 2,657,187
1,000,000 Sprint Capital Corp.
5.88%, 05/01/04 .......................... 961,250
2,250,000 Sprint Capital Corp.
6.90%, 05/01/19 .......................... 2,106,562
1,500,000 Tele-Communications, Inc.
7.25%, 08/01/05 .......................... 1,509,375
3,300,000 Telecom De Puerto Rico
6.15%, 05/15/02 (D) ...................... 3,238,926
2,250,000 Telecom De Puerto Rico
6.65%, 05/15/06 (D) ...................... 2,174,062
------------
29,100,050
------------
Consumer Cyclicals - 9.41%
1,650,000 Coca-Cola Enterprises, Inc.
7.13%, 08/01/17 .......................... 1,592,250
1,900,000 Colgate-Palmolive Co., Series C, MTN
5.27%, 12/01/03 .......................... 1,801,086
5,050,000 Hershey Foods Corp.
7.20%, 08/15/27 .......................... 4,949,000
1,650,000 McDonald's Corp., MTN
5.95%, 01/15/08 .......................... 1,561,313
2,000,000 Minnesota Mining & Manufacturing Co.
Debenture
6.38%, 02/15/28 .......................... 1,772,500
1,800,000 Pepsi Bottling Holdings, Inc.
5.38%, 02/17/04 (D) ...................... 1,696,500
See Notes to Financial Statements.
21
<PAGE>
- --------------------------------------------------------------------------------
High Quality Bond Fund
Portfolio of Investments (continued)
October 31, 1999
Par Value Value
--------- -----
Consumer Cyclicals (continued)
$ 250,000 Procter & Gamble Co.
8.50%, 08/10/09 .......................... $ 279,063
3,000,000 Sara Lee Corp., MTN
7.40%, 03/22/02 .......................... 3,048,750
3,000,000 Sysco Corp.
7.00%, 05/01/06 .......................... 3,007,500
3,675,000 Sysco Corp.
6.50%, 08/01/28 .......................... 3,289,125
1,450,000 Time Warner Entertainment Co.
8.38%, 03/15/23 .......................... 1,547,875
2,500,000 Wal-Mart Stores, Inc.
6.88%, 08/10/09 .......................... 2,512,500
------------
27,057,462
------------
Finance - 7.88%
2,000,000 Associates Corp. of North America
6.63%, 05/15/01 .......................... 2,002,500
2,000,000 Associates Corp. of North America, MTN
7.40%, 05/03/02 .......................... 2,027,500
4,000,000 Bank One Milwaukee
National Association, MTN
6.35%, 03/19/01 .......................... 4,000,000
1,500,000 Caterpillar Financial Services Corp.
Series F, MTN
5.47%, 09/12/01 .......................... 1,470,000
1,285,000 General Electric Capital Corp., MTN
6.33%, 09/17/01 .......................... 1,283,394
250,000 General Electric Capital Corp.
8.30%, 09/20/09 .......................... 271,875
1,165,000 Goldman Sachs Group
6.65%, 05/15/09 .......................... 1,109,663
2,000,000 Key Bank of North America
7.13%, 08/15/06 .......................... 1,972,500
3,500,000 National Rural Utilities
5.50%, 01/15/05 .......................... 3,259,375
1,025,000 National Rural Utilities Cooperative
Finance Corp.
6.20%, 02/01/08 .......................... 969,906
3,000,000 Suntrust Bank, Atlanta, MTN
7.25%, 09/15/06 .......................... 3,007,500
1,300,000 Suntrust Bank of Central Florida, MTN
6.90%, 07/01/07 .......................... 1,285,375
------------
22,659,588
------------
Health Care - 1.21%
800,000 Abbott Laboratories
6.40%, 12/01/06 .......................... 787,000
3,000,000 Becton Dickinson & Co., Debenture
6.70%, 08/01/28 .......................... 2,703,750
------------
3,490,750
------------
Automobile Finance - 1.21%
3,500,000 Ford Motor Credit Co.
6.70%, 07/16/04 ........................... 3,465,000
------------
Industrial - 1.18%
2,000,000 Illinois Tool Works
5.75%, 03/01/09 .......................... 1,835,000
1,650,000 Xerox Corp.
5.50%, 11/15/03 .......................... 1,571,625
------------
3,406,625
------------
Technology - 0.89%
2,500,000 International Business Machines Corp.
7.25%, 11/01/02 .......................... 2,546,875
------------
Total Corporate Notes and Bonds .......... 91,726,350
------------
(Cost $98,960,681)
MORTGAGE-BACKED SECURITIES - 18.11%
Government National
Mortgage Association - 10.58%
246,675 6.50%, 03/15/13, Pool 458165 ............ 242,358
75,943 6.50%, 03/15/13, Pool 463723 ............ 74,589
250,340 6.50%, 04/15/13, Pool 466013 ............ 245,879
279,576 6.50%, 04/15/13, Pool 473476 ............ 274,594
300,284 6.50%, 05/15/13, Pool 433742 ............ 294,933
136,908 6.50%, 05/15/13, Pool 476292 ............ 134,469
46,926 6.50%, 10/15/13, Pool 434026 ............ 46,090
341,920 6.50%, 10/15/13, Pool 434017 ............ 335,827
1,971,733 6.50%, 10/15/13, Pool 471586 ............ 1,936,597
382,752 6.50%, 10/15/13, Pool 464249 ............ 375,931
126,581 6.50%, 10/15/13, Pool 484576 ............ 124,325
1,108,232 6.50%, 11/15/13, Pool 454228 ............ 1,088,140
770,765 6.50%, 11/15/13, Pool 477529 ............ 757,030
824,926 6.50%, 11/15/13, Pool 490795 ............ 809,970
922,537 6.63%, 07/20/22, Pool 008022 (C) ........ 930,038
1,351,881 7.00%, 11/15/22, Pool 330551 ............ 1,335,199
969,745 6.50%, 01/15/29, Pool 482909 ............ 926,708
3,324,955 7.00%, 01/15/29, Pool 499333 ............ 3,261,548
742,694 7.00%, 02/15/29, Pool 470018 ............ 728,531
3,473,928 7.00%, 02/15/29, Pool 486937 ............ 3,407,680
4,699,758 7.00%, 02/15/29, Pool 492173 ............ 4,610,134
24,372 6.50%, 03/15/29, Pool 464613 ............ 23,291
3,530,962 6.00%, 03/15/29, Pool 464632 ............ 3,277,156
2,034,553 6.50%, 03/15/29, Pool 503051 ............ 1,944,260
1,926,550 6.50%, 04/15/29, Pool 483349 ............ 1,841,050
1,398,994 7.50%, 09/15/29, Pool 466158 ............ 1,402,491
------------
30,428,818
------------
Federal National
Mortgage Association - 3.39%
778,864 6.50%, 05/01/06, Pool 348137 ............. 773,801
2,183,829 6.75%, 04/25/21, Pool 0096-4 ............. 2,185,860
2,617,283 8.50%, 12/01/25, Pool 313420 ............. 2,711,322
4,000,000 8.00%, 10/01/29, Pool 252875 ............. 4,075,000
------------
9,745,983
------------
See Notes to Financial Statements.
22
<PAGE>
- --------------------------------------------------------------------------------
High Quality Bond Fund
Portfolio of Investments (continued)
October 31, 1999
Par Value Value
--------- -----
Federal Home Loan
Mortgage Corporation - 2.79%
$ 3,000,000 6.00%, 04/15/22, Pool 2118QC ............ $ 2,850,930
5,000,000 8.50%, 10/01/29, Pool G01072 ............ 5,179,650
------------
8,030,580
------------
Structured Mortgage Product - 1.35%
1,149,671 Prudential Home Mortgage Securities
Series 1993-38, Class A-3, CMO
6.15%, 09/25/23 .......................... 1,130,621
2,799,428 Rural Housing Trust
Series 1987-1, Class 1-D, CMO
6.33%, 04/01/26 .......................... 2,743,877
------------
3,874,498
------------
Total Mortgage-Backed Securities ......... 52,079,879
------------
(Cost $53,278,278)
ASSET-BACKED SECURITIES - 6.34%
2,216,766 Chase Manhattan Auto Owner Trust
Series 1998-C, Class A3
5.80%, 01/15/02 .......................... 2,211,224
6,000,000 Citibank Credit Card Master Trust I
Series 1998-6
5.85%, 04/10/03 .......................... 5,951,220
1,000,000 Citibank Credit Card Master Trust I
Series 1999-1, Class A
5.50%, 02/15/06 .......................... 952,810
3,500,000 Ford Credit Auto Owner Trust
Series 1999-D, Class A5
6.52%, 09/15/03 .......................... 3,498,880
850,000 Green Tree Financial Corp.
Series 1998-1, Class A4
6.04%, 11/01/29 .......................... 835,652
5,050,000 MBNA Master Credit Card Trust
Series 1998-J, Class A
5.25%, 02/15/06 .......................... 4,800,630
------------
Total Asset-Backed Securities ............ 18,250,416
------------
(Cost $18,377,977)
FOREIGN BOND - 1.77%
1,500,000 Heinz (H.J.) Co. (E)
5.75%, 02/03/03 .......................... 1,454,400
4,000,000 Province of Quebec (F)
5.75%, 02/15/09 .......................... 3,640,000
------------
Total Foreign Bond ....................... 5,094,400
------------
(Cost $5,233,631)
REPURCHASE AGREEMENT - 1.47%
4,220,000 Repurchase Agreement with:
Chase Manhattan Bank
5.20%, 11/01/99, dated 10/29/99
Repurchase Price $4,221,829
(Collateralized by U.S. Treasury Bond
10.63%, Due 08/15/15;
Total Par $3,045,000
Market Value $4,308,675) ................. 4,220,000
------------
Total Repurchase Agreement ............... 4,220,000
------------
(Cost $4,220,000)
Total Investments - 99.35% ................................. 285,705,895
------------
(Cost $294,952,306)
Net Other Assets and Liabilities - 0.65% ................... 1,860,432
------------
Net Assets - 100.00% ....................................... $287,566,327
============
- ----------
(A) Discount yield at time of purchase.
(B) Stripped securities represent the splitting of cash flows into interest
and principal. Holders, as indicated, are entitled to that portion of the
payment representing interest only or principal only.
(C) Floating rate note. Interest rate shown reflects rate in effect at October
31, 1999.
(D) Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may only be resold, in transactions exempt from
registration, to qualified institutional buyers. At October 31, 1999,
these securities amounted to $7,109,488 or 2.47% of net assets.
(E) Euro-Dollar Bond
(F) U.S. Dollar-Denominated
CMO Collateralized Mortgage Obligation
MTN Medium Term Note
See Notes to Financial Statements.
23
<PAGE>
- --------------------------------------------------------------------------------
Galaxy Taxable Bond Funds
Statements of Assets and Liabilities
October 31, 1999
<TABLE>
<CAPTION>
Intermediate
Short-Term Government Corporate High Quality
Bond Fund Income Fund Bond Fund Bond Fund
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
ASSETS:
Investments (Note 2):
Investments at cost ........................................ $ 49,997,042 $ 308,705,373 $ 79,904,624 $ 290,732,306
Repurchase Agreements ...................................... 6,805,000 387,000 757,000 4,220,000
Net unrealized appreciation (depreciation) on investments .. (564,271) (6,167,279) (2,324,617) (9,246,411)
------------- ------------- ------------- -------------
Total investments at value ............................... 56,237,771 302,925,094 78,337,007 285,705,895
Cash ......................................................... -- 67,201 7,342 15,546
Receivable for investments sold .............................. 1,100,890 11,427,453 1,093,072 1,961,287
Receivable for shares sold ................................... 190,590 804,171 315,098 1,095,375
Interest receivable .......................................... 582,081 3,114,903 1,154,264 4,505,548
Deferred organizational expense (Note 2) ..................... -- -- 448 --
Other Assets ................................................. -- -- 42,526 --
------------- ------------- ------------- -------------
Total Assets ............................................. 58,111,332 318,338,822 80,949,757 293,283,651
------------- ------------- ------------- -------------
LIABILITIES:
Dividends payable ............................................ 245,054 1,432,135 392,325 1,359,916
Payable for investments purchased ............................ 869,810 23,848,199 1,091,002 3,717,395
Payable for shares redeemed .................................. 16,730 392,997 1,666 437,303
Advisory fee payable (Note 3) ................................ 26,462 137,278 36,927 131,993
Payable to Fleet affiliates (Note 3) ......................... 8,388 12,733 6,727 345
Payable to Administrator (Note 3) ............................ 15,764 44,438 11,086 49,443
Trustees' fees and expenses payable (Note 3) ................. 2,943 9,749 3,159 7,331
Payable to Custodian ......................................... 5,597 -- -- --
Accrued expenses and other payables .......................... 17,506 43,614 24,865 13,598
------------- ------------- ------------- -------------
Total Liabilities ........................................ 1,208,254 25,921,143 1,567,757 5,717,324
------------- ------------- ------------- -------------
NET ASSETS ...................................................... $ 56,903,078 $ 292,417,679 $ 79,382,000 $ 287,566,327
============= ============= ============= =============
NET ASSETS consist of:
Par value (Note 5) ........................................... $ 5,770 $ 29,672 $ 7,770 $ 28,063
Paid-in capital in excess of par value ....................... 63,124,437 325,538,650 84,176,495 298,171,488
Undistributed net investment income .......................... 201,761 418,658 260,383 280,469
Accumulated net realized gain (loss) on investments sold ..... (5,864,619) (27,402,022) (2,738,031) (1,667,282)
Net unrealized appreciation (depreciation) of investments .... (564,271) (6,167,279) (2,324,617) (9,246,411)
------------- ------------- ------------- -------------
TOTAL NET ASSETS ................................................ $ 56,903,078 $ 292,417,679 $ 79,382,000 $ 287,566,327
============= ============= ============= =============
Retail A Shares:
Net Assets ................................................... $ 24,652,827 $ 56,453,630 N/A $ 42,905,576
Shares of beneficial interest outstanding .................... 2,499,555 5,728,355 N/A 4,187,138
NET ASSET VALUE and redemption price per share ............... $ 9.86 $ 9.86 N/A $ 10.25
Sales charge - 3.75% of offering price ....................... 0.38 0.38 N/A 0.40
------------- ------------- ------------- -------------
Maximum offering price per share ............................. $ 10.24 $ 10.24 N/A $ 10.65
============= ============= ============= =============
Retail B Shares:
Net Assets ................................................... $ 812,314 $ 1,084,478 N/A $ 6,550,339
Shares of beneficial interest outstanding .................... 82,355 110,102 N/A 639,249
------------- ------------- ------------- -------------
NET ASSET VALUE and offering price per share* ................ $ 9.86 $ 9.85 N/A $ 10.25
============= ============= ============= =============
Trust Shares:
Net Assets ................................................... $ 31,437,937 $ 234,879,571 $ 79,382,000 $ 237,771,762
Shares of beneficial interest outstanding .................... 3,187,772 23,833,798 7,769,810 23,203,752
------------- ------------- ------------- -------------
NET ASSET VALUE, offering and redemption price per share ..... $ 9.86 $ 9.85 $ 10.22 $ 10.25
============= ============= ============= =============
A Prime Shares:
Net Assets ................................................... N/A N/A N/A $ 16,084
Shares of beneficial interest outstanding .................... N/A N/A N/A 1,569
NET ASSET VALUE and redemption price per share ............... N/A N/A N/A $ 10.25
Sales charge - 4.75% of offering price ....................... N/A N/A N/A 0.51
------------- ------------- ------------- -------------
Maximum offering price per share ............................. N/A N/A N/A $ 10.76
============= ============= ============= =============
B Prime Shares:
Net Assets ................................................... N/A N/A N/A $ 322,566
Shares of beneficial interest outstanding .................... N/A N/A N/A 31,509
------------- ------------- ------------- -------------
NET ASSET VALUE and offering price per share* ................ N/A N/A N/A $ 10.24
============= ============= ============= =============
</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.
24
<PAGE>
- --------------------------------------------------------------------------------
Galaxy Taxable Bond Funds
Statements of Operations
For the year ended October 31, 1999
<TABLE>
<CAPTION>
Intermediate
Short-Term Government Corporate High Quality
Bond Fund Income Fund Bond Fund Bond Fund
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest (Note 2) ............................. $ 3,628,243 $ 19,014,124 $ 5,338,814 $ 17,710,263
----------- ------------ ----------- ------------
Total investment income ..................... 3,628,243 19,014,124 5,338,814 17,710,263
----------- ------------ ----------- ------------
EXPENSES:
Investment advisory fee (Note 3) .............. 457,152 2,282,992 619,564 2,106,150
Administration fee (Note 3) ................... 45,886 229,022 61,835 211,269
Custodian fee ................................. 21,969 32,652 24,991 36,686
Fund accounting fee (Note 3) .................. 45,674 71,627 46,812 78,661
Professional fees (Note 3) .................... 16,519 25,060 16,339 32,362
Transfer agent fee (Note 3) ................... 37,680 136,859 59,408 382,524
Shareholder services and 12b-1 fees (Note 3) .. 44,526 92,214 -- 120,520
Trustees' fees and expenses (Note 3) .......... 1,832 7,562 1,846 6,754
Amortization of organization costs (Note 2) ... -- -- 3,938 --
Reports to shareholders ....................... 9,774 31,528 20,190 32,573
Miscellaneous ................................. 34,248 42,370 8,536 58,011
----------- ------------ ----------- ------------
Total expenses before reimbursement/waiver .. 715,260 2,951,886 863,459 3,065,510
----------- ------------ ----------- ------------
Less: reimbursement/waiver (Note 4) ......... (122,717) (610,559) (165,217) (574,625)
----------- ------------ ----------- ------------
Total expenses net of reimbursement/waiver .. 592,543 2,341,327 698,242 2,490,885
----------- ------------ ----------- ------------
NET INVESTMENT INCOME ............................ 3,035,700 16,672,797 4,640,572 15,219,378
----------- ------------ ----------- ------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Note 2):
Net realized gain (loss) on investments sold .. 51,351 (3,699,849) (559,771) (1,517,657)
Net change in unrealized (depreciation)
of investments .............................. (1,554,809) (15,849,529) (4,858,917) (21,199,859)
----------- ------------ ----------- ------------
NET REALIZED AND UNREALIZED (LOSS)
ON INVESTMENTS ................................ (1,503,458) (19,549,378) (5,418,688) (22,717,516)
----------- ------------ ----------- ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ..................... $ 1,532,242 $ (2,876,581) $ (778,116) $ (7,498,138)
=========== ============ =========== ============
</TABLE>
See Notes to Financial Statements.
25
<PAGE>
- --------------------------------------------------------------------------------
Galaxy Taxable Bond Funds
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Intermediate Government
Short-Term Bond Fund Income Fund
--------------------------- -----------------------------
Years ended October 31, Years ended October 31,
1999 1998 1999 1998
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
NET ASSETS at beginning of period ........................ $ 68,224,850 $ 78,702,807 $ 306,627,909 $ 274,840,329
------------ ------------ ------------- -------------
Increase in Net Assets resulting from operations:
Net investment income ................................. 3,035,700 3,710,475 16,672,797 16,426,815
Net realized gain (loss) on investments sold .......... 51,351 276,632 (3,699,849) 3,980,175
Net change in unrealized appreciation (depreciation)
of investments ...................................... (1,554,809) 473,071 (15,849,529) 5,732,449
------------ ------------ ------------- -------------
Net increase (decrease) in net assets resulting
from operations ................................... 1,532,242 4,460,178 (2,876,581) 26,139,439
------------ ------------ ------------- -------------
Dividends to shareholders from:
Retail A Shares:
Net investment income ............................... (1,268,353) (1,464,083) (3,300,117) (3,735,466)
------------ ------------ ------------- -------------
Retail B Shares:
Net investment income ............................... (35,835) (44,206) (27,129) N/A
------------ ------------ ------------- -------------
Trust Shares:
Net investment income ............................... (1,693,636) (2,384,791) (13,345,551) (13,367,624)
------------ ------------ ------------- -------------
Total Dividends to shareholders ....................... (2,997,824) (3,893,080) (16,672,797) (17,103,090)
------------ ------------ ------------- -------------
Net increase (decrease) from share transactions(1) ....... (9,856,190) (11,045,055) 5,339,148 22,751,231
------------ ------------ ------------- -------------
Net increase (decrease) in net assets ................. (11,321,772) (10,477,957) (14,210,230) 31,787,580
------------ ------------ ------------- -------------
NET ASSETS at end of period (including line A) ........... $ 56,903,078 $ 68,224,850 $ 292,417,679 $ 306,627,909
============ ============ ============= =============
(A) Undistributed net investment income .................. $ 201,761 $ 123,662 $ 418,658 $ 169,845
============ ============ ============= =============
</TABLE>
- ----------
(1) For detail on share transactions by series, see Statements of Changes in
Net Assets - Capital Stock Activity on pages 28 and 29.
See Notes to Financial Statements.
26
<PAGE>
- --------------------------------------------------------------------------------
Galaxy Taxable Bond Funds
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Corporate Bond Fund High Quality Bond Fund
-------------------------- ---------------------------
Years ended October 31, Years ended October 31,
1999 1998 1999 1998
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET ASSETS at beginning of period ....................................... $83,564,654 $ 91,728,383 $268,441,362 $212,346,575
----------- ------------ ------------ ------------
Increase in Net Assets resulting from operations:
Net investment income ................................................ 4,640,572 5,160,979 15,219,378 12,717,417
Net realized gain (loss) on investments sold ......................... (559,771) 1,076,268 (1,517,657) 5,166,591
Net change in unrealized appreciation (depreciation) of investments .. (4,858,917) 1,374,412 (21,199,859) 5,644,735
----------- ------------ ------------ ------------
Net increase (decrease)in net assets resulting from operations ..... (778,116) 7,611,659 (7,498,138) 23,528,743
----------- ------------ ------------ ------------
Dividends to shareholders from:
Retail A Shares:
Net investment income .............................................. -- -- (2,585,461) (1,841,859)
Net realized gain on investments ................................... -- -- (406,430) --
----------- ------------ ------------ ------------
Total Dividends .................................................. -- -- (2,991,891) (1,841,859)
----------- ------------ ------------ ------------
Retail B Shares:
Net investment income .............................................. N/A N/A (313,178) (157,568)
Net realized gain on investments ................................... N/A N/A (48,125) --
----------- ------------ ------------ ------------
Total Dividends .................................................. N/A N/A (361,303) (157,568)
----------- ------------ ------------ ------------
Trust Shares:
Net investment income .............................................. (4,640,572) (5,434,239) (12,365,223) (10,708,262)
Net realized gain on investments ................................... -- -- (1,827,182) --
----------- ------------ ------------ ------------
Total Dividends .................................................. (4,640,572) (5,434,239) (14,192,405) (10,708,262)
----------- ------------ ------------ ------------
A Prime Shares:
Net investment income .............................................. N/A N/A (1,308) N/A
Net realized gain on investments ................................... N/A N/A (411) N/A
----------- ------------ ------------ ------------
Total Dividends .................................................. N/A N/A (1,719) N/A
----------- ------------ ------------ ------------
B Prime Shares:
Net investment income .............................................. N/A N/A (10,096) N/A
Net realized gain on investments ................................... N/A N/A (494) N/A
----------- ------------ ------------ ------------
Total Dividends .................................................. N/A N/A (10,590) N/A
----------- ------------ ------------ ------------
Total Dividends to shareholders ...................................... (4,640,572) (5,434,239) (17,557,908) (12,707,689)
----------- ------------ ------------ ------------
Net increase (decrease) from share transactions(1) ...................... 1,236,034 (10,341,149) 44,181,011 45,273,733
----------- ------------ ------------ ------------
Net increase (decrease) in net assets ................................ (4,182,654) (8,163,729) 19,124,965 56,094,787
----------- ------------ ------------ ------------
NET ASSETS at end of period (including line A) .......................... $79,382,000 $ 83,564,654 $287,566,327 $268,441,362
=========== ============ ============ ============
(A) Undistributed net investment income ................................. $ 260,383 $ 131,668 $ 280,469 $ 203,154
=========== ============ ============ ============
</TABLE>
- ----------
(1) For detail on share transactions by series, see Statements of Changes in
Net Assets-- Capital Stock Activity on pages 28 and 29.
See Notes to Financial Statements.
27
<PAGE>
- --------------------------------------------------------------------------------
Galaxy Taxable Bond Funds
Statements of Changes in Net Assets --
Capital Stock Activity
<TABLE>
<CAPTION>
Intermediate Government
Short-Term Bond Fund Income Fund
--------------------------- ---------------------------
Years ended October 31, Years ended October 31,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
DOLLAR AMOUNTS
Retail A Shares:
Sold ................................................. $ 26,400,028 $ 15,574,273 $ 10,176,855 $ 14,217,594
Issued to shareholders in reinvestment of dividends .. 1,090,190 1,235,792 2,559,568 2,790,118
Repurchased .......................................... (31,264,721) (15,956,842) (19,108,917) (17,809,958)
------------ ------------ ------------ ------------
Net increase (decrease) in shares outstanding ..... $ (3,774,503) $ 853,223 $ (6,372,494) $ (802,246)
============ ============ ============ ============
Retail B Shares:
Sold ................................................. $ 314,056 $ 1,004,036 $ 1,457,973 N/A
Issued to shareholders in reinvestment of dividends .. 29,447 41,720 22,337 N/A
Repurchased .......................................... (596,974) (873,621) (362,484) N/A
------------ ------------ ------------ ------------
Net increase (decrease) in shares outstanding ..... $ (253,471) $ 172,135 $ 1,117,826 N/A
============ ============ ============ ============
Trust Shares:
Sold ................................................. $ 5,131,414 $ 19,853,367 $ 43,486,208 $ 56,054,947
Issued to shareholders in reinvestment of dividends .. 765,143 1,021,177 3,528,720 3,567,705
Repurchased .......................................... (11,724,773) (32,944,957) (36,421,112) (36,069,175)
------------ ------------ ------------ ------------
Net increase (decrease) in shares outstanding ..... $ (5,828,216) $(12,070,413) $ 10,593,816 $ 23,553,477
============ ============ ============ ============
SHARE ACTIVITY
Retail A Shares:
Sold ................................................. 2,649,070 1,555,052 991,566 1,383,512
Issued to shareholders in reinvestment of dividends .. 111,011 124,057 254,097 272,011
Repurchased .......................................... (3,137,758) (1,595,494) (1,884,668) (1,731,933)
------------ ------------ ------------ ------------
Net increase (decrease) in shares outstanding ..... (377,677) 83,615 (639,005) (76,410)
============ ============ ============ ============
Retail B Shares:
Sold ................................................. 31,480 101,000 143,750 N/A
Issued to shareholders in reinvestment of dividends .. 2,980 4,171 2,260 N/A
Repurchased .......................................... (59,672) (88,011) (35,908) N/A
------------ ------------ ------------ ------------
Net increase (decrease) in shares outstanding ..... (25,212) 17,160 110,102 N/A
============ ============ ============ ============
Trust Shares:
Sold ................................................. 513,395 1,986,106 4,284,192 5,459,216
Issued to shareholders in reinvestment of dividends .. 77,948 102,083 349,318 347,783
Repurchased .......................................... (1,172,148) (3,298,697) (3,631,847) (3,517,644)
------------ ------------ ------------ ------------
Net increase (decrease) in shares outstanding ..... (580,805) (1,210,508) 1,001,663 2,289,355
============ ============ ============ ============
</TABLE>
See Notes to Financial Statements.
28
<PAGE>
- --------------------------------------------------------------------------------
Galaxy Taxable Bond Funds
Statements of Changes in Net Assets --
Capital Stock Activity
<TABLE>
<CAPTION>
Corporate Bond Fund High Quality Bond Fund
------------------------------ -------------------------------
Years ended October 31, Years ended October 31,
1999 1998 1999 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
DOLLAR AMOUNTS
Retail A Shares:
Sold ................................................. $ -- $ -- $ 21,457,219 $ 26,890,214
Issued to shareholders in reinvestment of dividends .. -- -- 2,682,994 1,560,277
Repurchased .......................................... -- -- (22,644,891) (12,206,245)
-------------- -------------- -------------- --------------
Net increase in shares outstanding ................ $ -- $ -- $ 1,495,322 $ 16,244,246
============== ============== ============== ==============
Retail B Shares:
Sold ................................................. N/A N/A $ 3,562,927 $ 3,721,786
Issued to shareholders in reinvestment of dividends .. N/A N/A 282,560 133,597
Repurchased .......................................... N/A N/A (2,119,922) (596,983)
-------------- -------------- -------------- --------------
Net increase in shares outstanding ................ N/A N/A $ 1,725,565 $ 3,258,400
============== ============== ============== ==============
Trust Shares:
Sold ................................................. $ 16,506,253 $ 23,376,133 $ 80,582,877 $ 63,505,520
Issued to shareholders in reinvestment of dividends .. 2,407,438 2,954,566 9,324,509 6,911,279
Repurchased .......................................... (17,677,657) (36,671,848) (49,305,977) (44,645,712)
-------------- -------------- -------------- --------------
Net increase (decrease) in shares outstanding ..... $ 1,236,034 $ (10,341,149) $ 40,601,409 $ 25,771,087
============== ============== ============== ==============
A Prime Shares:
Sold ................................................. N/A N/A $ 52,116 N/A
Issued to shareholders in reinvestment of dividends .. N/A N/A 70 N/A
Repurchased .......................................... N/A N/A (33,508) N/A
-------------- -------------- -------------- --------------
Net increase in shares outstanding ................ N/A N/A $ 18,678 N/A
============== ============== ============== ==============
B Prime Shares:
Sold ................................................. N/A N/A $ 359,496 N/A
Issued to shareholders in reinvestment of dividends .. N/A N/A 9,403 N/A
Repurchased .......................................... N/A N/A (28,862) N/A
-------------- -------------- -------------- --------------
Net increase in shares outstanding ................ N/A N/A $ 340,037 N/A
============== ============== ============== ==============
SHARE ACTIVITY
Retail A Shares:
Sold ................................................. -- -- 1,977,732 2,460,852
Issued to shareholders in reinvestment of dividends .. -- -- 251,778 142,902
Repurchased .......................................... -- -- (2,138,328) (1,118,893)
-------------- -------------- -------------- --------------
Net increase in shares outstanding ................ -- -- 91,182 1,484,861
============== ============== ============== ==============
Retail B Shares:
Sold ................................................. N/A N/A 329,766 339,876
Issued to shareholders in reinvestment of dividends .. N/A N/A 26,426 12,227
Repurchased .......................................... N/A N/A (200,809) (54,909)
-------------- -------------- -------------- --------------
Net increase in shares outstanding ................ N/A N/A 155,383 297,194
============== ============== ============== ==============
Trust Shares:
Sold ................................................. 1,552,757 2,187,748 7,573,939 5,817,335
Issued to shareholders in reinvestment of dividends .. 225,160 276,364 881,636 633,673
Repurchased .......................................... (1,674,792) (3,424,617) (4,636,948) (4,104,688)
-------------- -------------- -------------- --------------
Net increase (decrease) in shares outstanding ..... 103,125 (960,505) 3,818,627 2,346,320
============== ============== ============== ==============
A Prime Shares:
Sold ................................................. N/A N/A 4,700 N/A
Issued to shareholders in reinvestment of dividends .. N/A N/A 6 N/A
Repurchased .......................................... N/A N/A (3,137) N/A
-------------- -------------- -------------- --------------
Net increase in shares outstanding ................ N/A N/A 1,569 N/A
============== ============== ============== ==============
B Prime Shares:
Sold ................................................. N/A N/A 33,422 N/A
Issued to shareholders in reinvestment of dividends .. N/A N/A 897 N/A
Repurchased .......................................... N/A N/A (2,810) N/A
-------------- -------------- -------------- --------------
Net increase in shares outstanding ................ N/A N/A 31,509 N/A
============== ============== ============== ==============
</TABLE>
See Notes to Financial Statements.
29
<PAGE>
- --------------------------------------------------------------------------------
Short-Term Bond Fund
Financial Highlights
For a Share outstanding throughout each period.
Retail A Shares
<TABLE>
<CAPTION>
Years ended October 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ....................... $ 10.10 $ 10.01 $ 9.99 $ 10.06 $ 9.73
---------- ---------- ---------- ---------- ----------
Income from Investment Operations:
Net investment income (A) ................................ 0.49 0.51 0.53 0.52 0.55
Net realized and unrealized gain (loss) on investments ... (0.25) 0.11 0.02 (0.07) 0.33
---------- ---------- ---------- ---------- ----------
Total from Investment Operations ....................... 0.24 0.62 0.55 0.45 0.88
---------- ---------- ---------- ---------- ----------
Less Dividends:
Dividends from net investment income ..................... (0.48) (0.53) (0.53) (0.52) (0.55)
---------- ---------- ---------- ---------- ----------
Total Dividends ........................................ (0.48) (0.53) (0.53) (0.52) (0.55)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in net asset value ................. (0.24) 0.09 0.02 (0.07) 0.33
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period ............................. $ 9.86 $ 10.10 $ 10.01 $ 9.99 $ 10.06
========== ========== ========== ========== ==========
Total Return(2) ............................................ 2.43% 6.42% 5.64% 4.63% 9.28%
Ratios/Supplemental Data:
Net Assets, End of Period (000's) .......................... $ 24,653 $ 29,067 $ 27,961 $ 33,388 $ 31,542
Ratios to average net assets:
Net investment income including
reimbursement/waiver ................................. 4.86% 5.07% 5.29% 5.22% 5.54%
Operating expenses including reimbursement/waiver ...... 1.10% 1.11% 1.00% 1.11% 0.99%
Operating expenses excluding reimbursement/waiver ...... 1.30% 1.31% 1.21% 1.35% 1.32%
Portfolio Turnover Rate .................................... 151% 133% 173% 214% 289%
</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, 1999, 1998, 1997, 1996 and 1995 were $0.47, $0.49,
$0.51, $0.50 and $0.52, respectively. Net investment income per share
before reimbursement/waiver of fees by the Investment Advisor and/or
Administrator for the Trust Shares for the years ended October 31, 1999,
1998, 1997, 1996, and 1995 were $0.49 $0.52, $0.52, $0.53, and $0.54,
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, 1999, 1998, 1997 and 1996 were $0.39,
$0.42, $0.44 and $0.29, respectively.
See Notes to Financial Statements.
30
<PAGE>
Trust Shares
<TABLE>
<CAPTION>
Years ended October 31,
---------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ....................... $ 10.10 $ 10.01 $ 9.99 $ 10.06 $ 9.73
---------- ---------- ---------- ---------- ----------
Income from Investment Operations:
Net investment income (A) ................................ 0.51 0.54 0.54 0.55 0.57
Net realized and unrealized gain (loss) on investments ... (0.25) 0.11 0.02 (0.07) 0.33
---------- ---------- ---------- ---------- ----------
Total from Investment Operations ....................... 0.26 0.65 0.56 0.48 0.90
---------- ---------- ---------- ---------- ----------
Less Dividends:
Dividends from net investment income ..................... (0.50) (0.56) (0.54) (0.55) (0.57)
---------- ---------- ---------- ---------- ----------
Total Dividends ........................................ (0.50) (0.56) (0.54) (0.55) (0.57)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in net asset value ................. (0.24) 0.09 0.02 (0.07) 0.33
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period ............................. $ 9.86 $ 10.10 $ 10.01 $ 9.99 $ 10.06
========== ========== ========== ========== ==========
Total Return(2) ............................................ 2.67% 6.68% 5.77% 4.91% 9.55%
Ratios/Supplemental Data:
Net Assets, End of Period (000's) .......................... $ 31,438 $ 38,071 $ 49,837 $ 58,227 $ 35,088
Ratios to average net assets:
Net investment income including
reimbursement/waiver ................................. 5.10% 5.33% 5.43% 5.49% 5.79%
Operating expenses including reimbursement/waiver ...... 0.86% 0.85% 0.86% 0.84% 0.74%
Operating expenses excluding reimbursement/waiver ...... 1.06% 1.05% 1.07% 1.08% 1.02%
Portfolio Turnover Rate .................................... 151% 133% 173% 214% 289%
</TABLE>
Retail B Shares
<TABLE>
<CAPTION>
Years ended October 31,
-----------------------------------------------
1999 1998 1997 1996(1)
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ....................... $ 10.10 $ 10.01 $ 9.99 $ 10.09
-------- -------- -------- --------
Income from Investment Operations:
Net investment income(A) ................................. 0.42 0.45 0.46 0.31
Net realized and unrealized gain (loss) on investments ... (0.25) 0.11 0.03 (0.10)
-------- -------- -------- --------
Total from Investment Operations ....................... 0.17 0.56 0.49 0.21
-------- -------- -------- --------
Less Dividends:
Dividends from net investment income ..................... (0.41) (0.47) (0.47) (0.31)
-------- -------- -------- --------
Total Dividends ........................................ (0.41) (0.47) (0.47) (0.31)
-------- -------- -------- --------
Net increase (decrease) in net asset value ................. (0.24) 0.09 0.02 (0.10)
-------- -------- -------- --------
Net Asset Value, End of Period ............................. $ 9.86 $ 10.10 $ 10.01 $ 9.99
======== ======== ======== ========
Total Return(2) ............................................ 1.71% 5.73% 4.99% 2.12%**
Ratios/Supplemental Data:
Net Assets, End of Period (000's) .......................... $ 812 $ 1,087 $ 905 $ 260
Ratios to average net assets:
Net investment income including
reimbursement/waiver ................................. 4.17% 4.40% 4.56% 4.73%*
Operating expenses including reimbursement/waiver ...... 1.79% 1.78% 1.75% 1.77%*
Operating expenses excluding reimbursement/waiver ...... 2.08% 1.99% 2.01% 1.98%*
Portfolio Turnover Rate .................................... 151% 133% 173% 214%**
</TABLE>
31
<PAGE>
- --------------------------------------------------------------------------------
Intermediate Government Income Fund
Financial Highlights
For a Share outstanding throughout each period.
Retail A Shares
<TABLE>
<CAPTION>
Years ended October 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ........................ $ 10.50 10.18 $ 10.06 $ 10.28 $ 9.68
---------- ---------- ---------- ---------- ----------
Income from Investment Operations:
Net investment income(A) ................................. 0.54 0.57 0.59 0.57 0.61
Net realized and unrealized gain (loss) on investments ... (0.65) 0.34 0.12 (0.22) 0.60
---------- ---------- ---------- ---------- ----------
Total from Investment Operations ....................... (0.11) 0.91 0.71 0.35 1.21
---------- ---------- ---------- ---------- ----------
Less Dividends:
Dividends from net investment income ..................... (0.53) (0.59) (0.59) (0.57) (0.61)
---------- ---------- ---------- ---------- ----------
Total Dividends ........................................ (0.53) (0.59) (0.59) (0.57) (0.61)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in net asset value .................. (0.64) 0.32 0.12 (0.22) 0.60
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period .............................. $ 9.86 10.50 $ 10.18 $ 10.06 $ 10.28
========== ========== ========== ========== ==========
Total Return(2) ............................................. (1.11)% 9.22% 7.33% 3.58% 12.85%
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ........................... $ 56,454 $ 66,865 $ 65,626 $ 79,741 $ 79,558
Ratios to average net assets:
Net investment income including reimbursement/waiver ..... 5.28% 5.49% 5.90% 5.69% 6.10%
Operating expenses including reimbursement/waiver ........ 0.97% 1.01% 1.02% 1.04% 1.02%
Operating expenses excluding reimbursement/waiver ........ 1.17% 1.21% 1.22% 1.24% 1.26%
Portfolio Turnover Rate ..................................... 184% 205% 128% 235% 145%
</TABLE>
- ----------
(1) The Fund began offering Retail B Shares on November 1, 1998.
(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, 1999, 1998, 1997, 1996 and 1995 were $0.52, $0.55,
$0.57, $0.55 and $0.58, respectively. Net investment income per share
before reimbursement/waiver of fees by the Investment Advisor and/or
Administrator for the Trust Shares for the years ended October 31, 1999,
1998, 1997, 1996 and 1995 were $0.54, $0.57, $0.60, $0.58 and $0.62,
respectively. Net investment income per share before reimbursement/waiver
of fees by the Investment Advisor and/or Administrator for Retail B Shares
for the period ended October 31, 1999 was $0.42.
See Notes to Financial Statements.
32
<PAGE>
Trust Shares
<TABLE>
<CAPTION>
Years ended October 31,
-------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ....................... $ 10.50 $ 10.18 $ 10.06 $ 10.28 $ 9.68
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income(A) ................................ 0.56 0.59 0.62 0.60 0.64
Net realized and unrealized gain (loss) on investments .. (0.65) 0.35 0.12 (0.22) 0.60
-------- -------- -------- -------- --------
Total from Investment Operations ...................... (0.09) 0.94 0.74 0.38 1.24
-------- -------- -------- -------- --------
Less Dividends:
Dividends from net investment income .................... (0.56) (0.62) (0.62) (0.60) (0.64)
-------- -------- -------- -------- --------
Total Dividends ....................................... (0.56) (0.62) (0.62) (0.60) (0.64)
-------- -------- -------- -------- --------
Net increase (decrease) in net asset value ................. (0.65) 0.32 0.12 (0.22) 0.60
-------- -------- -------- -------- --------
Net Asset Value, End of Period ............................. $ 9.85 10.50 $ 10.18 $ 10.06 $ 10.28
======== ======== ======== ======== ========
Total Return(2) ............................................ (0.86)% 9.52% 7.63% 3.88% 13.18%
Ratios/Supplemental Data:
Net Assets, End of Period (000's) .......................... $234,880 $239,763 $209,215 $213,750 $186,037
Ratios to average net assets:
Net investment income including reimbursement/waiver .... 5.53% 5.77% 6.19% 5.98% 6.39%
Operating expenses including reimbursement/waiver ....... 0.72% 0.73% 0.74% 0.75% 0.73%
Operating expenses excluding reimbursement/waiver ....... 0.92% 0.93% 0.94% 0.95% 0.94%
Portfolio Turnover Rate .................................... 184% 205% 128% 235% 145%
</TABLE>
Retail B Shares
<TABLE>
<CAPTION>
Period ended
October 31,
1999(1)
--------
<S> <C>
Net Asset Value, Beginning of Period ....................... $ 10.50
--------
Income from Investment Operations:
Net investment income(A) ................................ 0.47
Net realized and unrealized gain (loss) on investments .. (0.66)
--------
Total from Investment Operations ...................... (0.19)
--------
Less Dividends:
Dividends from net investment income .................... (0.46)
--------
Total Dividends ....................................... (0.46)
--------
Net increase (decrease) in net asset value ................. (0.65)
--------
Net Asset Value, End of Period ............................. $ 9.85
========
Total Return(2) ............................................ (1.78)%
Ratios/Supplemental Data:
Net Assets, End of Period (000's) .......................... $ 1,084
Ratios to average net assets:
Net investment income including reimbursement/waiver .... 4.61%
Operating expenses including reimbursement/waiver ....... 1.64%
Operating expenses excluding reimbursement/waiver ....... 2.14%
Portfolio Turnover Rate .................................... 184%
</TABLE>
33
<PAGE>
- --------------------------------------------------------------------------------
Corporate Bond Fund
Financial Highlights
For a Share outstanding throughout each period.
Trust Shares
<TABLE>
<CAPTION>
Years ended October 31, Period ended
-------------------------------------------- October 31,
1999 1998 1997 1996 1995(1)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ........................ $ 10.90 $ 10.63 $ 10.53 $ 10.74 $ 10.00
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income(A) ................................. 0.59 0.62 0.66 0.64 0.61
Net realized and unrealized gain (loss) on investments ... (0.68) 0.30 0.11 (0.13) 0.74
-------- -------- -------- -------- --------
Total from Investment Operations ....................... (0.09) 0.92 0.77 0.51 1.35
-------- -------- -------- -------- --------
Less Dividends:
Dividends from net investment income ..................... (0.59) (0.65) (0.66) (0.64) (0.61)
Dividends from net realized capital gains ................ -- -- (0.01) (0.08) --
-------- -------- -------- -------- --------
Total Dividends ........................................ (0.59) (0.65) (0.67) (0.72) (0.61)
-------- -------- -------- -------- --------
Net increase (decrease) in net asset value .................. (0.68) 0.27 0.10 (0.21) 0.74
-------- -------- -------- -------- --------
Net Asset Value, End of Period .............................. $ 10.22 $ 10.90 $ 10.63 $ 10.53 $ 10.74
======== ======== ======== ======== ========
Total Return ................................................ (0.82)% 8.96% 7.56% 5.00% 13.85%**
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ........................... $ 79,382 $ 83,565 $ 91,728 $107,728 $ 37,391
Ratios to average net assets:
Net investment income including reimbursement/waiver ..... 5.62% 5.80% 6.27% 6.13% 6.61%*
Operating expenses including reimbursement/waiver ........ 0.85% 0.82% 0.80% 0.85% 1.06%*
Operating expenses excluding reimbursement/waiver ........ 1.05% 1.02% 1.00% 1.05% 1.26%*
Portfolio Turnover Rate ..................................... 206% 155% 37% 84% 41%**
</TABLE>
- ----------
* Annualized
** Not Annualized
(1) The Fund commenced operations on December 12, 1994.
(A) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or Administrator for the years ended October 31,
1999, 1998, 1997 and 1996 and the period ended October 31, 1995 were $0.57,
$0.60, $0.64, $0.62 and $0.57, respectively.
See Notes to Financial Statements.
34
<PAGE>
- --------------------------------------------------------------------------------
High Quality Bond Fund
Financial Highlights
For a Share outstanding throughout each period.
Retail A Shares
<TABLE>
<CAPTION>
Years ended October 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ........................ $ 11.20 $ 10.70 $ 10.47 $ 10.63 $ 9.54
---------- ---------- ---------- ---------- ----------
Income from Investment Operations:
Net investment income(A) ................................. 0.57 0.58 0.60 0.59 0.62
Net realized and unrealized gain (loss) on investments ... (0.86) 0.50 0.23 (0.16) 1.09
---------- ---------- ---------- ---------- ----------
Total from Investment Operations ..................... (0.29) 1.08 0.83 0.43 1.71
---------- ---------- ---------- ---------- ----------
Less Dividends:
Dividends from net investment income ..................... (0.57) (0.58) (0.60) (0.59) (0.62)
Dividends from net realized capital gains ................ (0.09) -- -- -- --
---------- ---------- ---------- ---------- ----------
Total Dividends ...................................... (0.66) (0.58) (0.60) (0.59) (0.62)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in net asset value .................. (0.95) 0.50 0.23 (0.16) 1.09
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period .............................. $ 10.25 $ 11.20 $ 10.70 $ 10.47 $ 10.63
========== ========== ========== ========== ==========
Total Return(1) ............................................. (2.66)% 10.35% 8.22% 4.24% 18.46
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ........................... $ 42,906 $ 45,879 $ 27,950 $ 30,984 $ 30,093
Ratios to average net assets:
Net investment income including reimbursement/waiver ..... 5.32% 5.30% 5.73% 5.66% 6.16%
Operating expenses including reimbursement/waiver ........ 0.99% 1.00% 1.01% 1.07% 1.02%
Operating expenses excluding reimbursement/waiver ........ 1.20% 1.20% 1.21% 1.28% 1.26%
Portfolio Turnover Rate ..................................... 226% 253% 182% 163% 110%
</TABLE>
- ----------
* Annualized
** Not Annualized
(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, 1999, 1998, 1997, 1996 and 1995 were $0.55, $0.56,
$0.58, $0.57 and $0.59, respectively.
See Notes to Financial Statements.
35
<PAGE>
- --------------------------------------------------------------------------------
High Quality Bond Fund
Financial Highlights (continued)
For a Share outstanding throughout each period.
Trust Shares
<TABLE>
<CAPTION>
Years ended October 31,
--------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ........................ $ 11.20 $ 10.70 $ 10.47 $ 10.63 $ 9.54
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income(A) ................................. 0.58 0.59 0.61 0.62 0.64
Net realized and unrealized gain (loss) on investments ... (0.86) 0.50 0.23 (0.16) 1.09
-------- -------- -------- -------- --------
Total from Investment Operations ..................... (0.28) 1.09 0.84 0.46 1.73
-------- -------- -------- -------- --------
Less Dividends:
Dividends from net investment income ..................... (0.58) (0.59) (0.61) (0.62) (0.64)
Dividends from net realized capital gains ................ (0.09) -- -- -- --
-------- -------- -------- -------- --------
Total Dividends ...................................... (0.67) (0.59) (0.61) (0.62) (0.64)
-------- -------- -------- -------- --------
Net increase (decrease) in net asset value .................. (0.95) 0.50 0.23 (0.16) 1.09
-------- -------- -------- -------- --------
Net Asset Value, End of Period .............................. $ 10.25 $ 11.20 $ 10.70 $ 10.47 $ 10.63
======== ======== ======== ======== ========
Total Return(2) ............................................. (2.52)% 10.50% 8.36% 4.46% 18.66%
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ........................... $237,772 $217,143 $182,398 $149,075 $134,631
Ratios to average net assets:
Net investment income including reimbursement/waiver ..... 5.46% 5.43% 5.88% 5.88% 6.33%
Operating expenses including reimbursement/waiver ........ 0.84% 0.87% 0.87% 0.85% 0.85%
Operating expenses excluding reimbursement/waiver ........ 1.04% 1.07% 1.09% 1.06% 1.07%
Portfolio Turnover Rate ..................................... 226% 253% 182% 163% 110%
</TABLE>
- ----------
* Annualized
** Not Annualized
(1) The Fund began offering Retail B Shares on March 4, 1996 and A Prime
Shares and B Prime Shares on November 1, 1998.
(2) Calculation does not include the effect of any sales charge for Retail B
Shares, A Prime Shares and B Prime Shares.
(A) 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, 1999, 1998, 1997, 1996 and 1995 were $0.56, $0.56,
$0.59, $0.60 and $0.62, 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, 1999,
1998, 1997 and 1996 were $0.47, $0.49, $0.51 and $0.34, respectively. Net
investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or Administrator for A Prime Shares for the year
ended October 31, 1999 was $0.54. Net investment income per share before
reimbursement/waiver of fees by the Investment Advisor and/or
Administrator for B Prime Shares for the year ended October 31, 1999 was
$0.45.
See Notes to Financial Statements.
36
<PAGE>
Retail B Shares
<TABLE>
<CAPTION>
Years ended October 31,
--------------------------------------------
1999 1998 1997 1996(1)
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ........................ $ 11.20 $ 10.70 $ 10.47 $ 10.72
-------- -------- -------- --------
Income from Investment Operations:
Net investment income(A) ................................. 0.50 0.51 0.53 0.36
Net realized and unrealized gain (loss) on investments ... (0.86) 0.51 0.24 (0.25)
-------- -------- -------- --------
Total from Investment Operations ..................... (0.36) 1.02 0.77 0.11
-------- -------- -------- --------
Less Dividends:
Dividends from net investment income ..................... (0.50) (0.52) (0.54) (0.36)
Dividends from net realized capital gains ................ (0.09) -- -- --
-------- -------- -------- --------
Total Dividends ...................................... (0.59) (0.52) (0.54) (0.36)
-------- -------- -------- --------
Net increase (decrease) in net asset value .................. (0.95) 0.50 0.23 (0.25)
-------- -------- -------- --------
Net Asset Value, End of Period .............................. $ 10.25 $ 11.20 $ 10.70 $ 10.47
======== ======== ======== ========
Total Return(2) ............................................. (3.25)% 9.73% 7.59% 1.14%**
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ........................... $ 6,550 $ 5,420 $ 1,998 $ 646
Ratios to average net assets:
Net investment income including reimbursement/waiver ..... 4.72% 4.69% 5.07% 5.34%*
Operating expenses including reimbursement/waiver ........ 1.59% 1.61% 1.69% 1.60%*
Operating expenses excluding reimbursement/waiver ........ 1.88% 1.81% 1.95% 1.81%*
Portfolio Turnover Rate ..................................... 226% 253% 182% 163%
</TABLE>
A Prime Shares
Period ended
October 31,
1999(1)
--------
Net Asset Value, Beginning of Period ........................ $ 11.20
--------
Income from Investment Operations:
Net investment income(A) ................................. 0.60
Net realized and unrealized gain (loss) on investments ... (0.89)
--------
Total from Investment Operations ..................... (0.29)
--------
Less Dividends:
Dividends from net investment income ..................... (0.57)
Dividends from net realized capital gains ................ (0.09)
--------
Total Dividends ...................................... (0.66)
--------
Net increase (decrease) in net asset value .................. (0.95)
--------
Net Asset Value, End of Period .............................. $ 10.25
========
Total Return(2) ............................................. (2.68)%
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ........................... $ 16
Ratios to average net assets:
Net investment income including reimbursement/waiver ..... 5.35%
Operating expenses including reimbursement/waiver ........ 0.96%
Operating expenses excluding reimbursement/waiver ........ 1.52%
Portfolio Turnover Rate ..................................... 226%
B Prime Shares
Period ended
October 31,
1999(1)
--------
Net Asset Value, Beginning of Period ........................ $ 11.20
--------
Income from Investment Operations:
Net investment income(A) ................................. 0.49
Net realized and unrealized gain (loss) on investments ... (0.87)
--------
Total from Investment Operations ..................... (0.38)
--------
Less Dividends:
Dividends from net investment income ..................... (0.49)
Dividends from net realized capital gains ................ (0.09)
--------
Total Dividends ...................................... (0.58)
--------
Net increase (decrease) in net asset value .................. (0.96)
--------
Net Asset Value, End of Period .............................. $ 10.24
========
Total Return(2) ............................................. (3.46)%
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ........................... $ 323
Ratios to average net assets:
Net investment income including reimbursement/waiver ..... 4.60%
Operating expenses including reimbursement/waiver ........ 1.71%
Operating expenses excluding reimbursement/waiver ........ 2.07%
Portfolio Turnover Rate ..................................... 226%
See Notes to Financial Statements.
37
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Notes to Financial Statements
1. Organization
The Galaxy Fund, a Massachusetts business trust (the "Trust"), is
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company. As of the date of this report, the Trust offered
twenty-nine managed investment portfolios. The accompanying financial statements
and financial highlights are those of the Short-Term Bond, Intermediate
Government Income, Corporate Bond and High Quality Bond Funds (individually, a
"Fund", collectively, the "Funds") only.
The Short-Term Bond, Intermediate Government Income and High Quality Bond
Funds are authorized to issue five series of shares (Trust Shares, Retail A
Shares, Retail B Shares, A Prime Shares and B Prime Shares). The Corporate Bond
Fund is authorized to issue two series of shares (Trust Shares and Retail A
Shares). Currently, the High Quality Bond Fund offers all five series of shares,
the Short-Term Bond and Intermediate Government Income Funds offer Trust Shares,
Retail A Shares and Retail B Shares and the Corporate Bond Fund offers Trust
Shares only. Trust Shares, Retail A Shares, Retail B Shares, A Prime Shares and
B Prime Shares are substantially the same except that (i) Retail A Shares are
subject to a maximum 3.75% front-end sales charge, (ii) A Prime Shares are
subject to a maximum 4.75% front-end sales charge, (iii) Retail B Shares and B
Prime Shares are subject to a maximum 5.00% contingent deferred sales charge,
and (iv) each series of shares bears the following series specific expenses:
distribution fees and/or shareholder servicing fees and transfer agency charges.
Six years after purchase, Retail B Shares will convert automatically to Retail A
Shares and eight years after purchase, B Prime Shares will automatically convert
to A Prime Shares. On November 29, 1999, A Prime Shares and B Prime Shares were
redesignated Prime A Shares and Prime B Shares, respectively.
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 income is
recorded on the accrual basis. Investment income and realized and unrealized
gains and losses are allocated to the separate series of a Fund based upon the
relative net assets of each series.
Dividends to Shareholders: Dividends from net investment income are
determined separately for each series and are declared daily and paid monthly.
Net realized capital gains, if any, are distributed at least annually.
Income dividends and capital gain dividends are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles.
Federal Income Taxes: The Trust treats each Fund as a separate entity for
federal income tax purposes. Each Fund intends to continue to qualify each year
as a "regulated investment company" under Subchapter M of the Internal Revenue
Code. 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.
Repurchase Agreements: Each Fund may engage in repurchase agreement
transactions with institutions that the Trust's investment advisor has
determined are creditworthy. Each repurchase agreement transaction is recorded
at cost plus accrued interest. Each Fund requires that the securities
collateralizing a repurchase agreement transaction be transferred to the Trust's
custodian in a manner that is intended to enable the Fund to obtain those
securities in the event of a counterparty default. The value of the collateral
securities is monitored daily to ensure that the value of the collateral,
including accrued interest, equals or exceeds the repurchase price. Repurchase
agreement transactions involve certain risks in the event of default or
insolvency of the counterparty, including possible delays or restrictions upon a
Fund's ability to dispose of the underlying securities, and a possi-
38
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Notes to Financial Statements
ble decline in the value of the underlying securities during the period while
the Fund seeks to assert its rights.
Expenses: The Trust accounts separately for the assets, liabilities and
operations of each Fund. Expenses directly attributable to a Fund are charged to
the Fund, while expenses which are attributable to more than one fund of the
Trust are allocated among the respective funds.
In addition, expenses of a Fund not directly attributable to the
operations of a particular series of shares of the Fund are allocated to the
separate series based upon the relative net assets of each series. Operating
expenses directly attributable to a series of shares of a Fund are charged to
the operations of that series.
Organization Costs: Each Fund bears all costs in connection with its
organization, including the fees and expenses of registering and qualifying its
initial shares for distribution under federal and state securities laws. All
such costs are deferred and amortized using the straight-line method over a
period of five years beginning with the commencement of each Fund's operations.
In the event that any of the initial shares purchased by a Fund's sponsor are
redeemed during such period by any holder thereof, the Fund involved will be
reimbursed by such holder for any unamortized organization costs in the same
proportion as the number of initial shares being redeemed bears to the number of
initial shares outstanding at the time of redemption.
3. Investment Advisory, Administration, Distribution, Shareholder Services and
Other Fees
The Trust and Fleet Investment Advisors Inc. (the "Investment Advisor"),
an indirect wholly-owned subsidiary of FleetBoston Corporation, are parties to
an investment advisory agreement under which the Investment Advisor provides
services for a fee, computed daily and paid monthly, at the annual rate of 0.75%
of the average daily net assets of each Fund (See Note 4).
The Trust and First Data Investor Services Group, Inc. ("Investor Services
Group"), a wholly-owned subsidiary of First Data Corporation, are parties to an
administration agreement under which Investor Services Group (the
"Administrator")provides services for a fee, computed daily and paid monthly, at
the annual rate, effective September 10, 1998, of 0.09% of the first $2.5
billion of the combined average daily net assets of the Funds and the other
funds offered by the Trust (whose financial statements are provided in separate
reports), 0.085% of the next $2.5 billion of combined average daily net assets,
0.075% of the next $7 billion of combined average daily net assets, 0.065% of
the next $3 billion of combined average daily net assets, 0.06% of the next $3
billion of combined average daily net assets and 0.0575% of combined average
daily net assets in excess of $18 billion. Prior to September 10, 1998, Investor
Services Group received administration fees at the annual rate of 0.09% of the
first $2.5 billion of combined average daily net assets of the Funds and the
other funds offered by the Trust, 0.085% of the next $2.5 billion of combined
average daily net assets and 0.075% of combined average daily net assets over $5
billion.
In addition, Investor Services Group also provides certain fund
accounting, custody administration and transfer agency services in accordance
with certain fee arrangements. Pursuant to these fee arrangements, Investor
Services Group compensates the Trust's custodian bank, The Chase Manhattan Bank,
for its services.
First Data Distributors, Inc. (the "Distributor"), a wholly-owned
subsidiary of Investor Services Group and an indirect wholly-owned subsidiary of
First Data Corporation, serves as the distributor of the Trust's shares.
The Trust has adopted a shareholder services plan ("Services Plan") with
respect to Retail A Shares and Trust Shares of the Funds. Currently, the
Services Plan has not been implemented with respect to the Funds' Trust Shares.
The Services Plan provides compensation to institutions (including and currently
limited to Fleet Bank and its affiliates) which provide administrative and
support services to their customers who beneficially own Retail A Shares at an
aggregate annual rate not to exceed 0.30% of the average daily net asset value
of the outstanding Retail A Shares of each Fund beneficially owned by such
customers. The Trust, under the direction of the Board of Trustees, is currently
limiting fees payable under the Services Plan with respect to each Fund to an
aggregate annual rate not to exceed 0.15% of the average daily net asset value
of the outstanding Retail A Shares beneficially owned by such customers.
The Trust has adopted a distribution and services plan (the "12b-1 Plan")
with respect to Retail B Shares of the Short-Term Bond, Intermediate Government
Income and High Quality Bond Funds. Under the 12b-1 Plan, the Trust may pay (i)
the Distributor or another person for expenses and activities primarily intended
to result in the sale of Retail B Shares, (ii) institutions for shareholder
liaison services and (iii) institutions for administrative support services.
Currently, payments under the 12b-1 Plan for distribution services are being
made solely to broker-dealer affiliates of Fleet Bank and payments under the
12b-1 Plan for shareholder liaison and administrative support services are being
made solely to Fleet Bank and its affiliates. Payments for distribution expenses
may not exceed an annual rate of 0.65% of the average daily net assets
attributable to each of the Funds' outstanding Retail B Shares. The fees paid
for shareholder liaison services and administrative support services may not
exceed the annual rates of 0.15% and 0.15%, respectively, of the average daily
net assets attributable to each of the Funds' outstanding Retail B Shares owned
of record or beneficially by the customers of institutions. The Trust, under the
direction of the Board of Trustees, is currently limiting each Fund's payments
for 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 the customers of
institutions. For the
39
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Notes to Financial Statements
year ended October 31, 1999, the Funds paid fees under the Services Plan and
12b-1 Plan as follows:
12b-1 Plan
Services ----------
Fund Plan Services Distribution
- ---- ---- -------- ------------
Short-Term Bond ............................ $37,626 $1,201 $ 5,699
Intermediate Government Income ............. 87,475 874 3,865
High Quality Bond .......................... 66,090 8,984 43,211
The Trust has adopted a Distribution Plan (the "A Prime Shares Plan") with
respect to A Prime Shares of the Short-Term Bond, Intermediate Government Income
and High Quality Bond Funds. Under the A Prime Shares Plan, the Trust may pay
the Distributor or another person for expenses and activities primarily intended
to result in the sale of A Prime Shares. Payments by the Trust under the A Prime
Shares Plan may not exceed the annual rate of 0.30% of the average daily net
assets attributable to each Fund's outstanding A Prime Shares. The Trust, under
the direction of the Board of Trustees, is currently limiting the Funds'
payments under the A Prime Shares Plan to an annual rate of not more than 0.25%
of the average daily net asset value of each Fund's outstanding A Prime Shares.
The Trust has adopted a Distribution and Services Plan (the "B Prime
Shares Plan") with respect to B Prime Shares of the Short-Term Bond,
Intermediate Government Income and High Quality Bond Funds. Under the B Prime
Shares Plan, the Trust may pay (i) the Distributor or another person for
expenses and activities primarily intended to result in the sale of B Prime
Shares, (ii) institutions for shareholder liaison services, and (iii)
institutions for administrative support services. Payments for distribution
expenses may not exceed an annual rate of 0.75% of the average daily net assets
attributable to each Fund's outstanding B Prime Shares. The fees paid to
institutions for shareholder liaison services and/or administrative support
services may not exceed the annual rates of 0.25% and 0.25%, respectively, of
the average daily net assets attributable to each Fund's outstanding B Prime
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 B
Prime Shares Plan to an aggregate fee of not more than 0.25% of the average
daily net asset value of B Prime Shares owned of record or beneficially by
customers of institutions. For the year ended October 31, 1999, the Funds paid
fees under the A Prime Shares Plan and B Prime Shares Plan as follows:
B Prime Shares Plan
A Prime -------------------
Fund Shares Plan Services Distribution
- ---- ----------- -------- ------------
High Quality Bond................ $ 63 $ 543 $ 1,629
Retail A Shares, Retail B Shares, Trust Shares, A Prime Shares and B Prime
Shares of the Funds each bear series specific transfer agent charges based upon
the number of shareholder accounts for each series. In addition, Trust Shares
also bear additional transfer agency fees in order to compensate Investor
Services Group for payments made to Fleet Bank, an affiliate of the Investment
Advisor, for performing certain sub-accounting and administrative functions on a
per account basis with respect to Trust Shares held by defined contribution
plans. These additional fees are based on the number of underlying participant
accounts. For the year ended October 31, 1999, transfer agent charges for each
series were as follows:
Fund Retail A Retail B Trust
- ---- -------- -------- -----
Short-Term Bond ...................... $ 29,872 $ 2,168 $ 5,640
Intermediate Government Income ....... 84,722 2,690 49,447
Corporate Bond ....................... N/A N/A 59,408
High Quality Bond .................... 72,862 11,912 297,298
Fund A Prime B Prime
- ---- ------- -------
High Quality Bond .................... $ 93 $ 359
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 May 28, 1999, 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 $45,000 per
annum plus certain other fees for attending or participating in meetings as well
as reimbursement for expenses incurred in attending meetings. Prior to May 28,
1999, each Trustee was entitled to receive for services as a trustee of the
Trust, VIP and 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. 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/The Galaxy VIP
Fund/Galaxy Fund 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, 1999 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 expense reimbursements at
any time. For the year ended October 31, 1999, the fees waived
40
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Notes to Financial Statements
and/or expenses reimbursed with respect to the Funds were as follows:
Expenses
Fund Fees Waived Reimbursed
- ---- ----------- ----------
Short-Term Bond ............................. $121,931 $ 786
Intermediate Government Income .............. 609,684 875
Corporate Bond .............................. 165,217 --
High Quality Bond ........................... 562,088 12,539
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-one classes of
shares each consisting of one or more series.
Each share represents an equal proportionate interest in the respective
Fund, bears the same fees and expenses (except that Retail A Shares of a Fund
bear the expense of payments under the Services Plan, Retail B Shares of a Fund
bear the expense of payments under the 12b-1 Plan, A Prime Shares of a Fund bear
the expense of payments under the A Prime Shares Plan, B Prime Shares of a Fund
bear the expense of payments under the B Prime Shares Plan and Trust Shares,
Retail A Shares, Retail B Shares, A Prime Shares and B Prime Shares of a Fund
each bear series specific transfer agent charges) and are entitled to such
dividends and distributions of income earned as are declared at the discretion
of the Trust's Board of Trustees.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and will vote in
the aggregate and not by class or series, except as otherwise expressly required
by law or when the Board of Trustees determines that the matter to be voted on
affects only the interests of shareholders of a particular class or series.
6. Purchases and Sales of Securities
The cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the year ended October 31, 1999 were as follows:
Fund Purchases Government Other
- -------------- ---------- -----
Short-Term Bond ........................ $ 43,611,398 $ 39,920,350
Intermediate Government Income ......... 412,841,184 148,082,791
Corporate Bond ......................... 95,946,852 70,996,082
High Quality Bond ...................... 448,366,755 212,085,841
Fund Sales
- ----------
Short-Term Bond ........................ $ 48,881,658 $ 49,846,491
Intermediate Government Income ......... 432,689,859 117,475,819
Corporate Bond ......................... 94,213,260 71,756,764
High Quality Bond ...................... 448,876,493 169,786,147
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, 1999 for each Fund is as follows:
Fund Appreciation (Depreciation)
- ---- ------------ --------------
Short-Term Bond ................... $ 68,057 $ (636,373)
Intermediate Government Income .... 878,680 (7,209,462)
Corporate Bond .................... 222,822 (2,574,824)
High Quality Bond ................. 782,088 (10,404,230)
Fund Net Cost
- ---- --- ----
Short-Term Bond ................... $ (568,316) $ 56,806,087
Intermediate Government Income .... (6,330,782) 309,255,876
Corporate Bond .................... (2,352,002) 80,689,009
High Quality Bond ................. (9,622,142) 295,328,037
7. Subsequent Event - Change in Control of Administrator and Change in
Distributor (unaudited)
On December 1, 1999, PFPC Trust Company, a wholly-owned subsidiary of PFPC
Worldwide, Inc. and an indirect wholly-owned subsidiary of PNC Bank Corp.,
acquired all of the outstanding stock of Investor Services Group (the
"Transaction"). On that same date and as part of the Transaction, PFPC Inc., an
indirect wholly-owned subsidiary of PNC Bank Corp., was merged into Investor
Services Group, which then changed its name to PFPC Inc.
In connection with the Transaction, on December 1, 1999, Provident
Distributors, Inc. became the distributor of the Trust's shares.
8. Federal Tax Information
At October 31, 1999, the following Funds had capital loss carryforwards:
Fund Amount Expiration
- ---- ------ ----------
Short-Term Bond ............................... $ 1,789,957 2001
2,843,359 2002
1,206,932 2003
10,917 2004
9,409 2005
Intermediate Government Income ................ 17,636,357 2002
3,291,626 2003
2,479,060 2004
3,831,476 2007
Corporate Bond ................................ 288,371 2002
1,309,536 2003
450,363 2005
662,376 2007
High Quality Bond ............................. 1,291,551 2007
41
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Notes to Financial Statements
9. Tax Information (unaudited)
During the fiscal year ended October 31, 1999, the following Funds earned
income from direct obligations of the U.S. Government:
U.S. Government
Fund Income
---- ---------------
Short-Term Bond......................................... 13.47%
Intermediate Government Income.......................... 30.83%
Corporate Bond.......................................... 11.18%
High Quality Bond....................................... 31.38%
Appropriate tax information detailing U.S. government income percentages
on a calendar basis will accompany each shareholder's year-end tax statement. As
each state's rules on the exemption of this income differ, please consult your
tax advisor regarding specific tax treatment.
42
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Notes to Financial Statements
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Shareholders and Board of Trustees of
The Galaxy Fund:
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of the Short-Term Bond Fund, Intermediate
Government Income Fund, Corporate Bond Fund and High Quality Bond Fund (four of
the portfolios constituting The Galaxy Fund) as of October 31, 1999, and the
related statements of operations, the statements of changes in net assets, and
the financial highlights for the year then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit. The statements of changes in net assets
for the year ended October 31, 1998 and the financial highlights for the four
years then ended were audited by other auditors whose report dated December 23,
1998, expressed an unqualified opinion on those statements and financial
highlights.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in financial statements and
financial highlights. Our procedures included confirmation of securities owned
as of October 31, 1999 by correspondence with the custodian and brokers or other
appropriate auditing procedures where replies from brokers were not received. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Short-Term Bond Fund, Intermediate Government Income Fund, Corporate Bond Fund
and High Quality Bond Fund portfolios of The Galaxy Fund at October 31, 1999,
the results of their operations, changes in their net assets and their financial
highlights for the year then ended, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
December 13, 1999
43
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Shareholder Information
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 and Assistant Treasurer
William Greilich
Vice President
INVESTMENT ADVISOR
Fleet Investment
Advisors, Inc.
75 StateStreet
Boston, MA
02109
DISTRIBUTOR
Provident Distributors, Inc.
Four Falls Corporate Center
6th Floor
West Conshohocken, PA
19428-2961
ADMINISTRATOR
PFPC Inc.
4400 Computer Drive
Westborough,
Massachusetts 01581-5108
AUDITOR
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116
LEGAL COUNSEL
Drinker Biddle & Reath LLP
One Logan Square
18th and Cherry Streets
Philadelphia, PA 19103
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 each Fund of The
Galaxy Fund, which contains more information concerning the investment policies
and expenses of the Funds as well as other pertinent information. For complete
information, and before making an investment decision on any of the Funds of The
Galaxy Fund, you should request a prospectus from the Funds' distributor by
calling toll-free 1-877-BUY-GALAXY (1-877-289-4252). Read the prospectus
carefully before you invest.
Shares of the Funds are not bank deposits or obligations of, or guaranteed or
endorsed by, FleetBoston Corporation or any of its affiliates, Fleet Investment
Advisors Inc., or any Fleet Bank. Shares of the Funds are not federally insured
by, guaranteed by, obligations of or otherwise supported by the U.S. Government,
the Federal Deposit Insurance Corporation, the Federal Reserve Board or any
other governmental agency. Investment return and principal value will vary as a
result of market conditions or other factors so that shares of the Funds, when
redeemed, may be worth more or less than their original cost. An investment in
the Funds involves investment risks, including the possible loss of principal
amount invested.
[RECYCLE LOGO]
This report was printed on recycled paper.
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[LOGO] Galaxy Funds P.O. Box 6520 BULK RATE
Providence, RI 02940-6520 U. S. POSTAGE PAID
PERMIT NO. 105
NORTH READING, MA
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