<PAGE>
As filed with the Securities and Exchange Commission on February 26, 1999
Securities Act File No. 33-4806
Investment Company Act File No. 811-4636
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /x/
PRE-EFFECTIVE AMENDMENT NO.
POST-EFFECTIVE AMENDMENT NO. 37 /x/
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No. 38 /x/
The Galaxy Fund
(Exact Name of Registrant as Specified in Charter)
4400 Computer Drive
Westborough, Massachusetts 01581-5108
(Address of Principal Executive Officers)
Registrant's Telephone Number:
(800) 628-0414
W. Bruce McConnel, III
DRINKER BIDDLE & REATH LLP
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, Pennsylvania 19107
(Name and Address of Agent for Service)
Copy to:
Jylanne Dunne, Vice President
First Data Investor Services Group, Inc.
4400 Computer Drive
Westborough, Massachusetts 01581-5108
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[X] on February 28, 1999 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered: Shares of Beneficial Interest.
<PAGE>
[GRAPHIC]
GALAXY EQUITY FUNDS
THE GALAXY FUND
PROSPECTUS
February 28, 1999
Galaxy Asset Allocation Fund
Galaxy Equity Income Fund
Galaxy Growth and Income Fund
Galaxy Strategic Equity Fund
Galaxy Equity Value Fund
Galaxy Equity Growth Fund
Galaxy International Equity Fund
Galaxy Small Cap Value Fund
Galaxy Small Company Equity Fund
RETAIL A SHARES AND RETAIL B SHARES
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved any shares of these Funds or determined if this
prospectus is accurate or complete. Anyone who tells you otherwise is
committing a crime.
[LOGO]
<PAGE>
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
1 RISK/RETURN SUMMARY
1 Introduction
2 Galaxy Asset Allocation Fund
6 Galaxy Equity Income Fund
9 Galaxy Growth and Income Fund
12 Galaxy Strategic Equity Fund
14 Galaxy Equity Value Fund
17 Galaxy Equity Growth Fund
20 Galaxy International Equity Fund
24 Galaxy Small Cap Value Fund
28 Galaxy Small Company Equity Fund
31 Additional information about risk
32 Investor guidelines
33 FUND MANAGEMENT
34 HOW TO INVEST IN THE FUNDS
34 How sales charges work
36 Buying, selling and exchanging shares
36 HOW TO BUY SHARES
38 HOW TO SELL SHARES
38 HOW TO EXCHANGE SHARES
39 OTHER TRANSACTION POLICIES
40 DIVIDENDS, DISTRIBUTIONS AND TAXES
42 GALAXY INVESTOR PROGRAMS
42 Retirement plans
42 Other programs
43 HOW TO REACH GALAXY
44 FINANCIAL HIGHLIGHTS
</TABLE>
<PAGE>
RISK/RETURN SUMMARY
INTRODUCTION
THIS PROSPECTUS describes the Galaxy Equity Funds. Each Fund invests primarily
or to a significant degree in equity securities, such as common stock, preferred
stock and securities that are convertible into common stock.
On the following pages, you'll find important information about each Fund,
including:
- - the Fund's investment objective (sometimes called the Fund's goal) and the
main investment strategies used by the Fund's investment adviser in trying
to achieve that objective
- - the main risks associated with an investment in the Fund
- - the Fund's past performance measured on both a year-by-year and long-term
basis
- - the fees and expenses that you will pay as an investor in the Fund.
WHICH FUND IS RIGHT FOR YOU?
Not all mutual funds are for everyone. Your investment goals and tolerance for
risk will determine which fund is right for you.
Equity funds are generally best suited to investors seeking growth of their
investment over time and who are prepared to accept the risks associated with
equity securities. Equity funds have the potential for higher returns than other
funds, such as bond funds or money market funds, but also carry more risk.
Different equity funds have different levels of risk. They have varying
objectives and investment styles, and some are considered more aggressive than
others. Generally, a fund's objective and the types of investments it makes can
help you gauge its level of risk. On page 32, you'll find a table that gives
a general overview of the risk spectrum of the Galaxy Equity Funds.
THE FUNDS' INVESTMENT ADVISER
Fleet Investment Advisors Inc., which is referred to in this prospectus as
THE ADVISER, is the investment adviser for all of these Funds. The Adviser,
an indirect wholly-owned subsidiary of Fleet Financial Group, Inc., was
established in 1984 and has its main office at 75 State Street, Boston,
Massachusetts 02109. The Adviser also provides investment management
and advisory services to individual and institutional clients and manages the
other Galaxy investment portfolios. As of December 31, 1998, the Adviser
managed over $64 billion in assets.
- --------------------------------------------------------------------------------
AN INVESTMENT IN THE FUNDS ISN'T A FLEET BANK DEPOSIT AND IT ISN'T INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. YOU COULD LOSE MONEY BY INVESTING IN THE FUNDS.
GALAXY EQUITY FUNDS 1
<PAGE>
GALAXY ASSET ALLOCATION FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks a high total return by providing both a current level of income
that is greater than that provided by the popular stock market averages, as well
as long-term growth in the value of the Fund's assets.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund aims to provide income that is higher than that provided by the
popular stock market averages. The Adviser interprets this to mean the Dow
Jones Industrial Average of 30 major companies and the Standard & Poor's 500
Composite Stock Price Index (commonly referred to as the S&P 500). Due to the
Fund's expenses, however, net income paid to you may be less than that. The Fund
also seeks long-term growth in the value of its assets. The Adviser attempts to
achieve these goals and reduce risk by allocating the Fund's assets among
short-term debt securities, common stocks, preferred stocks and bonds.
The Fund seeks a mix of stocks and bonds that will produce both income and
long-term capital growth. This mix will change from time to time as a result of
economic and market conditions. However, the Fund keeps at least 25% of its
total assets in fixed income investments, including debt securities and
preferred stocks, at all times.
Debt securities purchased by the Fund will be of investment grade quality,
which means that they will have one of the top four ratings assigned by
Standard & Poor's Ratings Group (S&P) or Moody's Investor Services, Inc.
(Moody's) or will be unrated securities determined by the Adviser to be of
comparable quality. Occasionally, the rating of a security held by the Fund
may be downgraded below investment grade. If that happens, the Fund doesn't
have to sell the security unless the Adviser determines that under the
circumstances the security is no longer an appropriate investment for the
Fund.
In selecting portfolio securities for the Fund, the Adviser's investment policy
committee develops an economic outlook and sets guidelines for the industries
and sectors in which the Fund should invest. It also forecasts the direction and
degree of change in long-term interest rates to help in the selection of fixed
income securities.
The Fund will sell a security when, as a result of changes in the economy,
the Adviser determines it appropriate to revise the allocation of the Fund's
assets between stocks and bonds. A security may also be sold as a result of
a deterioration in the performance of the security or in the financial
condition of the issuer of the security.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform
as well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The value of fixed income investments such as bonds
are affected by movements in interest rates. Bond prices tend to fall when
interest rates rise and to rise when interest rates fall.
- - CREDIT RISK - The value of fixed income investments also depends on the
ability of an
[Sidenote:]
CURRENT INCOME
Current income includes both dividends from stocks and interest income from
fixed income securities, less Fund expenses.
2 GALAXY EQUITY FUNDS
<PAGE>
GALAXY ASSET ALLOCATION FUND
issuer to make principal and interest payments. If an issuer can't meet
its payment obligations or if its credit rating is lowered, the value of
its securities will decline. Debt securities which have the lowest of
the top four ratings assigned by S&P or Moody's have speculative
characteristics. Changes in the economy are more likely to affect the
ability of the issuers of these securities to make payments of principal
and interest than is the case with higher-rated securities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
fixed income investments held by the Fund to be paid off much sooner or
later than expected, which could adversely affect the Fund's value.
- - PORTFOLIO COMPOSITION - The level of risk could increase if a larger
percentage of the Fund is invested in one particular asset class, such as
stocks or bonds. However, asset allocation funds are generally less
volatile than portfolios that contain only stocks.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance
the Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
- - FREQUENT TRADING - The Fund may trade its investments frequently in
trying to achieve its investment goal. This usually increases the chance
that the Fund will pay investors short-term capital gains. These gains
are taxable at higher rates than long-term capital gains. Frequent
trading could also mean higher brokerage commissions and other transaction
costs, which could reduce the Fund's returns.
GALAXY EQUITY FUNDS 3
<PAGE>
GALAXY ASSET ALLOCATION FUND
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past. Both
assume that all dividends and distributions are reinvested in the Fund. How the
Fund has performed in the past doesn't necessarily show how it will perform in
the future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares has varied from year
to year, thereby giving some indication of the risk of investing in the Fund.
The returns for Retail B Shares were different than the figures shown because
each class of shares has different expenses. The figures don't include any sales
charges that investors pay when buying or selling shares of the Fund. If sales
charges were included, the returns would be lower.
BEST QUARTER
11.74% for the quarter ending December 31, 1998
WORST QUARTER
- -3.80% for the quarter ending September 30, 1998
[CHART]
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
6.58% 8.08% -2.47% 30.29% 15.11% 19.76% 17.73%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1998, as
compared to a broad-based market index. The returns for Retail A Shares of
the Fund for periods prior to December 1, 1995 have been restated to include
the effect of the maximum 3.75% front-end sales charge which went into effect
on that date.
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS INCEPTION
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares 13.29% 14.70% 12.54% (12/30/91)
- ---------------------------------------------------------------------------------------
Retail B Shares 11.92% - 15.76% (3/4/96)
- ---------------------------------------------------------------------------------------
S&P 500 28.60% 24.05% 19.50% (since 12/31/91)
28.10% (since 2/29/96)
- ---------------------------------------------------------------------------------------
DJIA 18.15% 22.30% 19.29% (since 12/31/91)
22.22% (since 2/29/96)
- ---------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The S&P 500 is an unmanaged index that tracks the performance of 500 widely
held common stocks listed on the New York Stock Exchange, the American Stock
Exchange and NASDAQ. The S&P 500 is heavily weighted with the stocks of large
companies.
The Dow Jones Industrial Average (DJIA) is an unmanaged price-weighted average
based on the "price only" performance of 30 blue chip stocks.
4 GALAXY EQUITY FUNDS
<PAGE>
GALAXY ASSET ALLOCATION FUND
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES YOU PAY DIRECTLY)
<TABLE>
<CAPTION>
MAXIMUM SALES CHARGE (LOAD) MAXIMUM DEFERRED SALES CHARGE
ON PURCHASES SHOWN (LOAD) SHOWN AS A % OF THE OFFERING
AS A % OF THE OFFERING PRICE PRICE OR SALE PRICE, WHICHEVER IS LESS
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
- ---------------------------------------------------------------------------------------------------------
Retail B Shares None 5.00%(3)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
ANNUAL FUND OPERATING EXPENSES (FEES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
DISTRIBUTION TOTAL FUND
MANAGEMENT AND SERVICE OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.75% None 0.62% 1.37%
- --------------------------------------------------------------------------------
Retail B Shares 0.75% 0.95% 0.33% 2.03%
- --------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds -
How sales charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the Funds
- How sales charges work."
(3) This amount applies if you sell your shares in the first year after
purchase and gradually declines to 1% in the sixth year after purchase.
After six years, your Retail B Shares will automatically convert to Retail
A Shares. See "How to invest in the Funds - How sales charges work."
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your Retail B Shares convert to Retail A Shares after six years
- - the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $509 $793 $1,097 $1,960
- --------------------------------------------------------------------------------
Retail B Shares $706 $937 $1,293 $2,025
- --------------------------------------------------------------------------------
If you hold Retail B Shares, you would pay the following expenses if you didn't
sell your shares:
Retail B Shares $206 $637 $1,093 $2,025
- --------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGERS
The Fund's portfolio managers are Donald Jones, a Vice President of the
Adviser, since 1991, and David Lindsay, CFA, a Senior Vice President of the
Adviser since 1992. They are primarily responsible for the day-to-day
management of the Fund's investment portfolio. Mr. Jones has managed the
equity portion of the Fund's portfolio, including determining the allocation
of the Fund's assets between equities and fixed income investments, since May
of 1995. He has been with the Adviser and its predecessors since 1977.
Mr. Lindsay has managed the fixed income portion of the Fund since January of
1997. He has been with the Adviser and its predecessors since 1986.
GALAXY EQUITY FUNDS 5
<PAGE>
GALAXY EQUITY INCOME FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks current income and capital appreciation.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 75% of its total assets in a diversified
portfolio of equity securities, primarily common stocks, which offer income
potential. The Adviser looks for investments that offer dividends, prospects
for dividend growth and capital appreciation. However, the Fund's portfolio
may include securities that offer only growth potential or only income
potential.
The Fund will sell a portfolio security when, as a result of changes in the
economy, the Adviser believes that holding the security is no longer
consistent with the Fund's investment objective. A security may also be sold
as a result of a deterioration in the performance of the security or in the
financial condition of the issuer of the security.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform
as well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risk:
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
- --------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
The bar chart and table on the following page show how the Fund has
performed in the past. Both assume that all dividends and distributions are
reinvested in the Fund. How the Fund has performed in the past doesn't
necessarily show how it will perform in the future.
Retail A Shares of the Fund were first issued during the fiscal year ending
October 31, 1992. The returns for Retail A Shares of the Fund for prior
periods represent the returns for Trust Shares of the Fund which are offered
in a separate prospectus. Prior to November 1, 1993, Retail A Shares and
Trust Shares of the Fund had the same returns because each class of shares
had the same expenses.
[Sidenote:]
CURRENT INCOME
Current income includes both dividends from stocks and interest income from
fixed income securities, less Fund expenses.
6 GALAXY EQUITY FUNDS
<PAGE>
GALAXY EQUITY INCOME FUND
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares has varied from year
to year, thereby giving some indication of the risk of investing in the Fund.
The returns for Retail B Shares would have been different than the figures shown
because each class of shares has different expenses. The figures don't include
any sales charges that investors pay when buying or selling shares of the Fund.
If sales charges were included, the returns would be lower.
BEST QUARTER
13.31% for the quarter ending June 30, 1997
WORST QUARTER
- -8.41% for the quarter ending September 30, 1998
[CHART]
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C>
22.37% 7.43% 8.05% 0.75% 32.96% 16.53% 25.51% 15.63%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1998, as
compared to a broad-based market index. The returns for Retail A Shares of
the Fund for periods prior to December 1, 1995 have been restated to include
the effect of the maximum 3.75% front-end sales charge which went into effect
on that date.
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS INCEPTION
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares 11.31% 16.87% 15.07% (12/14/90)
- --------------------------------------------------------------------------------------
Retail B Shares(1) - - -
- --------------------------------------------------------------------------------------
S&P 500 28.60% 24.05% 20.99% (since 1/31/90)
- --------------------------------------------------------------------------------------
</TABLE>
(1) Retail B Shares were first offered on November 1, 1998.
[Sidenote:]
The S&P 500 is an unmanaged index that tracks the performance of 500 widely
held common stocks listed on the New York Stock Exchange, the American Stock
Exchange and NASDAQ. The S&P 500 is heavily weighted with the stocks of large
companies.
GALAXY EQUITY FUNDS 7
<PAGE>
GALAXY EQUITY INCOME FUND
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES YOU PAY DIRECTLY)
<TABLE>
<CAPTION>
MAXIMUM SALES CHARGE (LOAD) MAXIMUM DEFERRED SALES CHARGE
ON PURCHASES SHOWN (LOAD) SHOWN AS A % OF THE OFFERING
AS A % OF THE OFFERING PRICE PRICE OR SALE PRICE, WHICHEVER IS LESS
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
- ----------------------------------------------------------------------------------------------------------
Retail B Shares None 5.00%(3)
- ----------------------------------------------------------------------------------------------------------
</TABLE>
ANNUAL FUND OPERATING EXPENSES (FEES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
DISTRIBUTION TOTAL FUND
MANAGEMENT AND SERVICE OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.75% None 0.63% 1.38%
- ---------------------------------------------------------------------------
Retail B Shares 0.75% 0.95% 0.28% 1.98%
- ---------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds -
How sales charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the Funds
- How sales charges work."
(3) This amount applies if you sell your shares in the first year after
purchase and gradually declines to 1% in the sixth year after purchase.
After six years, your Retail B Shares will automatically convert to Retail
A Shares. See "How to invest in the Funds - How sales charges work."
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your Retail B Shares convert to Retail A Shares after six years
- - the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $510 $796 $1,102 $1,970
- -----------------------------------------------------------------------------
Retail B Shares $701 $921 $1,268 $2,002
- -----------------------------------------------------------------------------
If you hold Retail B Shares, you would pay the following expenses if you
didn't sell your shares:
Retail B Shares $201 $621 $1,068 $2,002
- -----------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is J. Edward Klisiewicz, a Senior Vice President
of the Adviser. He's primarily responsible for the day-to-day management of
the Fund's investment portfolio. Mr. Klisiewicz has been the Fund's portfolio
manager since it began operations in 1990. He has been with the Adviser and
its predecessors since 1970.
8 GALAXY EQUITY FUNDS
<PAGE>
GALAXY GROWTH AND INCOME FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks to provide a relatively high total return through long-term
capital appreciation and current income.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its total assets in the common
stocks of U.S. companies with large market capitalizations (generally over $2
billion) that have prospects for above-average growth and dividends. The
Adviser focuses on stocks which are believed to be attractively priced
relative to expectations for the future performance of the issuing company.
The Adviser also seeks a current yield greater than that of the S&P 500,
although not all Fund investments will pay dividends.
The Fund will sell a portfolio security when, as a result of changes in the
economy, the Adviser believes that holding the security is no longer
consistent with the Fund's investment objective. A security may also be sold
as a result of a deterioration in the performance of the security or in the
financial condition of the issuer of the security.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
The value of your investment in the Fund will go up and down with the value
of the investments which the Fund holds. The Fund's investments may not
perform as well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risk:
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
- --------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
The bar chart and table on the following page show how the Fund has performed
in the past. Both assume that all dividends and distributions are reinvested in
the Fund. How the Fund has performed in the past doesn't necessarily show how it
will perform in the future.
[Sidenote:]
CURRENT INCOME
Current income includes both dividends from stocks and interest income from
fixed income securities, less Fund expenses.
MARKET CAPITALIZATION
A company's market capitalization is the price of a share of its stock,
multiplied by the number of shares held by investors.
GALAXY EQUITY FUNDS 9
<PAGE>
GALAXY GROWTH AND INCOME FUND
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares has varied from year
to year, thereby giving some indication of the risk of investing in the Fund.
The returns for Retail B Shares were different than the figures shown because
each class of shares has different expenses. The figures don't include any sales
charges that investors pay when buying or selling shares of the Fund. If sales
charges were included, the returns would be lower.
The Fund began operations on December 14, 1992 as a separate portfolio (the
Predecessor Fund) of The Shawmut Funds. On December 4, 1995, the Predecessor
Fund was reorganized as a new portfolio of Galaxy. Prior to the
reorganization, the Predecessor Fund offered and sold two classes of shares,
Investment Shares (which were first offered on February 12, 1993) and Trust
Shares (which were first offered on December 14, 1992), that were similar to
the Fund's Retail A Shares and Trust Shares. In connection with the
reorganization, shareholders of the Predecessor Fund exchanged their
Investment Shares and Trust Shares for Retail A Shares and Trust Shares of
the Fund. The returns for periods prior to December 4, 1995 are for
Investment Shares of the Predecessor Fund.
BEST QUARTER
20.66% for the quarter ending December 31, 1998
WORST QUARTER
- -13.50% for the quarter ending September 30, 1998
[CHART]
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C>
4.83% 29.34% 19.85% 29.19% 15.71%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1998, as
compared to a broad-based market index. The returns for Retail A Shares of
the Fund for periods prior to December 1, 1995 have been restated to include
the effect of the maximum 3.75% front-end sales charge which went into effect
on that date.
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS INCEPTION
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares 11.37% 18.52% 17.51% (2/12/93)
- ------------------------------------------------------------------------------------
Retail B Shares 9.83% - 19.13% (3/4/96)
- ------------------------------------------------------------------------------------
S&P 500 28.60% 24.05% 21.75% (since 1/31/93)
28.30% (since 2/29/96)
- ------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The S&P 500 is an unmanaged index that tracks the performance of 500 widely
held common stocks listed on the New York Stock Exchange, the American Stock
Exchange and NASDAQ. The S&P 500 is heavily weighted with the stocks of large
companies.
10 GALAXY EQUITY FUNDS
<PAGE>
GALAXY GROWTH AND INCOME FUND
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES YOU PAY DIRECTLY)
<TABLE>
<CAPTION>
MAXIMUM SALES CHARGE (LOAD) MAXIMUM DEFERRED SALES CHARGE
ON PURCHASES SHOWN (LOAD) SHOWN AS A % OF THE OFFERING
AS A % OF THE OFFERING PRICE PRICE OR SALE PRICE, WHICHEVER IS LESS
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
- ---------------------------------------------------------------------------------------------------------
Retail B Shares None 5.00%(3)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
ANNUAL FUND OPERATING EXPENSES (FEES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
DISTRIBUTION TOTAL FUND
MANAGEMENT AND SERVICES OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.75% None 0.61%(4) 1.36%(4)
- ---------------------------------------------------------------------------
Retail B Shares 0.75% 0.95% 0.36% 2.06%
- ---------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds -
How sales charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the Funds
- How sales charges work."
(3) This amount applies if you sell your shares in the first year after
purchase and gradually declines to 1% in the sixth year after purchase.
After six years, your Retail B Shares will automatically convert to Retail
A Shares. See "How to invest in the Funds - How sales charges work."
(4) Affiliates of the Adviser are waiving a portion of the shareholder
servicing fees (that are included in Other expenses) for Retail A Shares
so that Other expenses for Retail A Shares are expected to be 0.53%.
Total Fund operating expenses for Retail A Shares after these fee
waivers are expected to be 1.28%. These fee waivers may be revised or
discontinued at any time.
- -------------------------------------------------------------------------------
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your Retail B Shares convert to Retail A Shares after six years
- - the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $508 $790 $1,092 $1,949
- ---------------------------------------------------------------------------
Retail B Shares $709 $946 $1,308 $2,036
- ---------------------------------------------------------------------------
If you hold Retail B Shares, you would pay the following expenses if you
didn't sell your shares:
Retail B Shares $209 $646 $1,108 $2,036
- ---------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Gregory M. Miller, a Vice President of the
Adviser since 1996. He's been primarily responsible for the day-to-day
management of the Fund's investment portfolio since July 1998. Before
that, Mr. Miller assisted his predecessor in managing the Fund for seven
years. He joined the Adviser in 1985.
GALAXY EQUITY FUNDS 11
<PAGE>
GALAXY STRATEGIC EQUITY FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests at least 65% of its total assets in U.S. equity securities,
primarily common stock and securities that can be converted into common
stock. The Fund's "Value Driven Growth" investment process emphasizes
securities believed to have the potential for the best one- to two-year
returns. These securities are generally selected from a universe of large and
medium size companies representative of the S&P 500, although the universe of
stocks monitored by the Adviser is not limited to stocks of companies
included in the S&P 500. The Fund may invest up to 20% of its total assets
in foreign equity securities. In selecting individual stocks, the Adviser
looks at the current price, projected earnings growth, and historical
valuations. The Fund may give emphasis to growth stocks, value stocks or
particular industries, depending upon the Adviser's assessment of economic
conditions.
The Fund will sell a portfolio security when, as a result of changes in the
economy, the Adviser believes that holding the security is no longer
consistent with the Fund's investment objective. A security may also be sold
as a result of a deterioration in the performance of the security or in the
financial condition of the issuer of the security.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
The value of your investment in the Fund will go up and down with the value
of the investments which the Fund holds. The Fund's investments may not
perform as well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risks:
- - CONVERTIBLE SECURITIES - Securities that can be converted into common
stock, such as certain debt securities and preferred stock, are subject to
the usual risks associated with fixed income investments, such as interest
rate risk and credit risk. In addition, because they react to changes in
the value of the equity securities into which they will convert,
convertible securities are also subject to stock market risk.
- - FOREIGN INVESTMENTS - Foreign investments may be riskier than U.S.
investments because of factors such as foreign government restrictions,
changes in currency exchange rates, incomplete financial information about
the issuers of securities, and political or economic instability. Foreign
stocks may be more volatile and less liquid than U.S. stocks.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
- --------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
The Fund began operations in March of 1998 and has a performance record of
less than a full calendar year.
[Sidenote:]
VALUE STOCKS AND GROWTH STOCKS
Value stocks are ones that appear to be underpriced based on measures such as
lower price-to-earnings and price-to-book value ratios. Growth stocks offer
strong revenue and earnings potential, and accompanying capital growth, with
less dividend income than value stocks.
12 GALAXY EQUITY FUNDS
<PAGE>
GALAXY STRATEGIC EQUITY FUND
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES YOU PAY DIRECTLY)
<TABLE>
<CAPTION>
MAXIMUM SALES CHARGE (LOAD) MAXIMUM DEFERRED SALES CHARGE
ON PURCHASES SHOWN (LOAD) SHOWN AS A % OF THE OFFERING
AS A % OF THE OFFERING PRICE PRICE OR SALE PRICE, WHICHEVER IS LESS
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
- --------------------------------------------------------------------------------------------------------------
Retail B Shares None 5.00%(3)
- --------------------------------------------------------------------------------------------------------------
</TABLE>
ANNUAL FUND OPERATING EXPENSES (FEES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
DISTRIBUTION TOTAL FUND
MANAGEMENT AND SERVICE OTHER OPERATING
FEES (12B-1) FEES EXPENSES EXPENSES
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.75%(4) None 0.65% 1.40%(4)
- ---------------------------------------------------------------------------
Retail B Shares 0.75%(4) 0.95% 0.34% 2.04%(4)
- ---------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds -
How sales charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the Funds
- How sales charges work."
(3) This amount applies if you sell your shares in the first year after
purchase and gradually declines to 1% in the sixth year after purchase.
After six years, your Retail B Shares will automatically convert to Retail
A Shares. See "How to invest in the Funds - How sales charges work."
(4) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be 0.55%. Total Fund operating expenses after this
waiver are expected to be 1.20% for Retail A Shares and 1.84% for Retail B
Shares. This fee waiver may be revised or discontinued at any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your Retail B Shares convert to Retail A Shares after six years
- - the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $512 $802 $1,112 $1,992
- --------------------------------------------------------------------------------------------------
Retail B Shares $707 $940 $1,298 $2,045
- --------------------------------------------------------------------------------------------------
If you hold Retail B Shares, you would pay the following expenses if you didn't sell your shares:
Retail B Shares $207 $640 $1,098 $2,045
- --------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Peter B. Hathaway, CFA, a Senior Vice
President of the Adviser. He's primarily responsible for the day-to-day
management of the Fund's investment portfolio. Mr. Hathaway has been the
Fund's portfolio manager since it began operations in March 1998. He has
been in the investment management business with the Adviser and its
predecessors since 1965 and has been responsible for the Adviser's Value
Driven Growth investment process since 1991.
GALAXY EQUITY FUNDS 13
<PAGE>
GALAXY EQUITY VALUE FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation. Income is secondary to the
objective of capital appreciation.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 75% of its total assets in equity
securities, mainly common stocks, that the Adviser believes are undervalued.
The Fund invests most of its assets in companies that have a market
capitalization of more than $500 million.
The Adviser uses proprietary computer models to compare share price and company
value, both compared to the market and over time. This helps the Adviser to
identify out-of-favor, undervalued securities (often called value stocks) which
may subsequently increase in value. These models focus on fundamental aspects
such as earnings and dividend growth, reinvestment of returns and the ability of
companies to finance their own growth. The models also take into account factors
such as how easily the stocks may be traded. The Adviser then reviews the
results and looks for risks that may account for a stock's low price. It
evaluates factors the computer models can't measure, such as the quality of a
company's management and the impact of technological change. Stocks which pass
all tests are eligible to be included in the Fund's portfolio. Fund holdings are
frequently reviewed and are sold automatically when the computer models show
they are overvalued.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
The value of your investment in the Fund will go up and down with the value
of the investments which the Fund holds. The Fund's investments may not
perform as well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risks:
- - SMALL COMPANIES RISK - Smaller companies (generally, those with market
capitalizations below $1.5 billion) tend to have limited resources,
product lines and market share. As a result, their share prices tend to
fluctuate more than those of larger companies. Their shares may also trade
less frequently and in limited volume, making them potentially less liquid.
The price of small company stocks might fall regardless of trends in the
broader market.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
[Sidenote:]
MARKET CAPITALIZATION
A company's market capitalization is the price of a share of its stock,
multiplied by the number of shares held by investors.
VALUE STOCKS
Value stocks are ones that appear to be underpriced based on measures such as
lower price-to-earnings and price-to-book value ratios.
14 GALAXY EQUITY FUNDS
<PAGE>
GALAXY EQUITY VALUE FUND
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past. Both
assume that all dividends and distributions are reinvested in the Fund. How the
Fund has performed in the past doesn't necessarily show how it will perform in
the future.
Retail A Shares of the Fund were first issued during the fiscal year ended
October 31, 1991. The returns for Retail A Shares of the Fund for prior
periods represent the returns for Trust Shares of the Fund which are offered
in a separate prospectus. Prior to November 1, 1993, Retail A Shares and
Trust Shares of the Fund had the same returns because each class of shares
had the same expenses.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares has varied from year
to year, thereby giving some indication of the risk of investing in the Fund.
The returns for Retail B Shares were different than the figures shown because
each class of shares has different expenses. The figures don't include any sales
charges that investors pay when buying or selling shares of the Fund. If sales
charges were included, the returns would be lower.
BEST QUARTER
27.15% for the quarter ending December 31, 1998
WORST QUARTER
- -15.28% for the quarter ending September 30, 1998
[CHART]
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
16.93% -3.20% 23.36% 8.21% 14.75% 3.51% 27.78% 21.09% 27.66% 23.75%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1998, as
compared to broad-based market indices. The returns for Retail A Shares of
the Fund for periods prior to December 1, 1995 have been restated to include
the effect of the maximum 3.75% front-end sales charge which went into effect
on that date.
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS 10 YEARS INCEPTION
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A shares 19.13% 19.48% 15.50% 15.40% (9/1/88)
- -----------------------------------------------------------------------------------------------
Retail B Shares 17.94% - - 21.56% (3/4/96)
- -----------------------------------------------------------------------------------------------
S&P 500 28.60% 24.05% 19.19% 19.35% (since 9/1/88)
28.10% (since 2/29/96)
- -----------------------------------------------------------------------------------------------
Lipper Growth and Income
Funds Average 15.59% 18.35% 15.52% 15.66% (since 9/1/88)
20.59% (since 2/29/96)
- -----------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The S&P 500 is an unmanaged index that tracks the performance of 500 widely
held common stocks listed on the New York Stock Exchange, the American Stock
Exchange and NASDAQ. The S&P 500 is heavily weighted with the stocks of large
companies.
The Lipper Growth and Income Funds Average is an unmanaged index that measures
the performance of a select group of mutual funds with investment objectives
similar to that of the Fund.
GALAXY EQUITY FUNDS 15
<PAGE>
GALAXY EQUITY VALUE FUND
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES YOU PAY DIRECTLY)
<TABLE>
<CAPTION>
MAXIMUM SALES CHARGE (LOAD) MAXIMUM DEFERRED SALES CHARGE
ON PURCHASES SHOWN (LOAD) SHOWN AS A % OF THE OFFERING
AS A % OF THE OFFERING PRICE PRICE OR SALE PRICE, WHICHEVER IS LESS
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
- ---------------------------------------------------------------------------------------------------------
Retail B Shares None 5.00%(3)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
ANNUAL FUND OPERATING EXPENSES (FEES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
DISTRIBUTION TOTAL FUND
MANAGEMENT AND SERVICE OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.75% None 0.64% 1.39%
- ---------------------------------------------------------------------------
Retail B Shares 0.75% 0.95% 0.39% 2.09%
- ---------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the
Funds - How sales charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the
Funds - How sales charges work."
(3) This amount applies if you sell your shares in the first year after
purchase and gradually declines to 1% in the sixth year after purchase.
After six years, your Retail B Shares will automatically convert to Retail
A Shares. See "How to invest in the Funds - How sales charges work."
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your Retail B Shares convert to Retail A Shares after six years
- - the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $511 $799 $1,107 $1,981
- -------------------------------------------------------------------------------------------------
Retail B Shares $712 $955 $1,324 $2,068
- -------------------------------------------------------------------------------------------------
If you hold Retail B Shares, you would pay the following expenses if you didn't sell your shares:
Retail B Shares $212 $655 $1,124 $2,068
- -------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is G. Jay Evans, CFA, a Senior Vice President
of the Adviser since 1994. He's primarily responsible for the day-to-day
management of the Fund's investment portfolio. Mr. Evans has been the
Fund's portfolio manager since 1993. He has been with the Adviser and its
predecessors since 1978.
16 GALAXY EQUITY FUNDS
<PAGE>
GALAXY EQUITY GROWTH FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 75% of its total assets in a broadly
diversified portfolio of equity securities, primarily common stocks and
securities that can be converted into common stocks. The Fund invests mainly
in the securities of U.S. issuers, but may invest up to 20% of its total
assets in foreign securities.
The Fund invests mainly in companies which the Adviser believes will have
faster earnings growth than the economy in general. The Adviser looks for
large-capitalization companies (generally over $2 billion) in growing
industries, focusing on technological advances, good product development,
strong management and other factors which support future growth. The Adviser
seeks out companies that have a history of strong earnings growth and are
projected to continue a similar pattern of growth over the next three to five
years.
The Fund will sell a security if there is an adverse change in the projected
earnings growth of the company issuing the security. A security will also be
sold when, as a result of changes in the economy or the performance of the
security or other circumstances, the Adviser believes that holding the
security is no longer consistent with the Fund's investment objective.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
The value of your investment in the Fund will go up and down with the value
of the investments which the Fund holds. The Fund's investments may not
perform as well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risks:
- - CONVERTIBLE SECURITIES - Securities that can be converted into common
stock, such as certain debt securities and preferred stock, are subject to
the usual risks associated with fixed income investments, such as interest
rate risk and credit risk. In addition, because they react to changes in
the value of the equity securities into which they will convert,
convertible securities are also subject to stock market risk.
- - FOREIGN INVESTMENTS - Foreign investments may be riskier than U.S.
investments because of factors such as foreign government restrictions,
changes in currency exchange rates, incomplete financial information about
the issuers of securities, and political or economic instability. Foreign
stocks may be more volatile and less liquid than U.S. stocks.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
[Sidenote:]
GROWTH STOCKS
Growth stocks offer strong revenue and earnings potential, and accompanying
capital growth, with less dividend income than value stocks.
GALAXY EQUITY FUNDS 17
<PAGE>
GALAXY EQUITY GROWTH FUND
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past. Both
assume that all dividends and distributions are reinvested in the Fund. How the
Fund has performed in the past doesn't necessarily show how it will perform in
the future.
Retail A Shares of the Fund were first issued during the fiscal year ended
October 31, 1991. The returns for Retail A Shares of the Fund for prior
periods represent the returns for Trust Shares of the Fund which are offered
in a separate prospectus. Prior to November 1, 1993, Retail A Shares and Trust
Shares of the Fund had the same returns because each class of shares had the
same expenses.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares has varied from year
to year, thereby giving some indication of the risk of investing in the Fund.
The returns for Retail B Shares were different than the figures shown because
each class of shares has different expenses. The figures don't include any sales
charges that investors pay when buying or selling shares of the Fund. If sales
charges were included, the returns would be lower.
BEST QUARTER
24.04% for the quarter ending December 31, 1998
WORST QUARTER
- -11.70% for the quarter ending September 30, 1998
[CHART]
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C>
30.40% 6.11% 5.37% 0.60% 33.66% 20.46% 30.43% 25.66%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1998, as
compared to broad-based market index. The returns for Retail A Shares of
the Fund for periods prior to December 1, 1995 have been restated to include
the effect of the maximum 3.75% front-end sales charge which went into effect
on that date.
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS INCEPTION
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares 20.97% 20.64% 17.79% (12/14/90)
- ------------------------------------------------------------------------------------
Retail B Shares 19.86% - 23.02% (3/4/96)
- ------------------------------------------------------------------------------------
S&P 500 28.60% 24.05% 20.99% (since 11/30/90)
28.10% (since 2/29/96)
- ------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The S&P 500 is an unmanaged index that tracks the performance of 500 widely
held common stocks listed on the New York Stock Exchange, the American Stock
Exchange and NASDAQ. The S&P 500 is heavily weighted with the stocks of large
companies.
18 GALAXY EQUITY FUNDS
<PAGE>
GALAXY EQUITY GROWTH FUND
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES YOU PAY DIRECTLY)
<TABLE>
<CAPTION>
MAXIMUM SALES CHARGE (LOAD) MAXIMUM DEFERRED SALES CHARGE
ON PURCHASES SHOWN (LOAD) SHOWN AS A % OF THE OFFERING
AS A % OF THE OFFERING PRICE PRICE OR SALE PRICE, WHICHEVER IS LESS
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
- ---------------------------------------------------------------------------------------------------------
Retail B Shares None 5.00%(3)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
ANNUAL FUND OPERATING EXPENSES (FEES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
DISTRIBUTION TOTAL FUND
MANAGEMENT AND SERVICE OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.75% None 0.62% 1.37%
- ---------------------------------------------------------------------------
Retail B Shares 0.75% 0.95% 0.37% 2.07%
- ---------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds -
How sales charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the Funds
- How sales charges work."
(3) This amount applies if you sell your shares in the first year after
purchase and gradually declines to 1% in the sixth year after purchase.
After six years, your Retail B Shares will automatically convert to Retail
A Shares. See "How to invest in the Funds - How sales charges work."
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your Retail B shares convert to Retail A Shares after six years
- - the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $509 $793 $1,097 $1,960
- ------------------------------------------------------------------------------------------------
Retail B Shares $710 $949 $1,314 $2,047
- -------------------------------------------------------------------------------------------------
If you hold Retail B Shares, you would pay the following expenses if you didn't sell your shares:
Retail B Shares $210 $649 $1,114 $2,047
- -------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Robert G. Armknecht, CFA, an Executive Vice
President of the Adviser since 1988. He's primarily responsible for the
day-to-day management of the Fund's investment portfolio. Mr. Armknecht has
been with the Adviser and its predecessors since 1988 and has been the Fund's
portfolio manager since it began operations in 1990.
GALAXY EQUITY FUNDS 19
<PAGE>
GALAXY INTERNATIONAL EQUITY FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 75% of its total assets in the equity
securities of foreign issuers. At all times, the Fund's assets will be
invested in companies located in at least three different foreign countries.
Normally, no more than 20% of the Fund's total assets will be invested in
companies located in countries with emerging economies or emerging securities
markets. The Fund emphasizes larger established companies, although it may
invest in companies of any size. The Fund may engage in transactions for the
purpose of hedging its portfolio, such as options, futures and foreign
currencies.
The Sub-Adviser determines how much to invest in each country and region by
looking at factors such as prospects for economic growth, expected inflation
levels, government policies and the range of investment opportunities available.
Decisions as to particular investments are made with the guidance of the
Sub-Adviser's Investment Strategy Committee under the supervision of the
Adviser. The Sub-Adviser looks at the potential return of each investment over a
one- to two-year period.
The Fund will sell a security if, as a result of changes in the economy of a
particular country or region, the Sub-Adviser believes that holding the
security is no longer consistent with the Fund's investment objective. A
security may also be sold as a result of a deterioration in the performance
of the security or in the financial condition of the company that issued the
security.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. U.S. and foreign stock markets tend to move in cycles, with
periods of rising prices and periods of falling prices.
The value of your investment in the Fund will go up and down with the value
of the investments which the Fund holds. The Fund's investments may not
perform as well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risks:
- - FOREIGN INVESTMENTS - Foreign investments may be riskier than U.S.
investments because of factors such as foreign government restrictions,
changes in currency exchange rates, incomplete financial information about
the issuers of securities, and political or economic instability. Foreign
stocks may be more volatile and less liquid than U.S. stocks.
- - EMERGING MARKETS - The risks associated with foreign investments are
heightened when investing in emerging markets. The governments and
economies of emerging market countries feature greater instability than
those of more developed countries. Such investments tend to fluctuate in
price more widely and to be less liquid than other foreign investments.
- - COUNTRY RISK - The Fund may invest 25% or more of its assets in the
securities of companies located in one country. When
[Sidenote:]
SUB-ADVISER
The Adviser has appointed Oechsle International Advisors, LLC as Sub-Adviser to
assist it in the day-to-day management of the Fund's investment portfolio.
20 GALAXY EQUITY FUNDS
<PAGE>
GALAXY INTERNATIONAL EQUITY FUND
the Fund invests a high percentage of its assets in a particular country,
the Fund will be especially susceptible to factors affecting that country.
- - CURRENCY EXCHANGE - Although the Fund usually makes investments that are
sold in foreign currencies, it values its holdings in U.S. dollars. If the
U.S. dollar rises compared to a foreign currency, the Fund loses on the
currency exchange.
- - HEDGING - The Fund may invest in derivatives, such as options, futures and
foreign currencies, to hedge against market risk or the currency risk of
its foreign investments. There's no guarantee hedging will always work. It
can also prevent the Fund from making a gain if markets move in the
opposite direction to the hedge.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance
the Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
- --------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past. Both
assume that all dividends and distributions are reinvested in the Fund. How the
Fund has performed in the past doesn't necessarily show how it will perform in
the future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares has varied from year
to year, thereby giving some indication of the risk of investing in the Fund.
The returns for Retail B Shares would have been different than the figures shown
because each class of shares has different expenses. The figures don't include
any sales charges that investors pay when buying or selling shares of the Fund.
If sales charges were included, the returns would be lower.
BEST QUARTER
16.98% for the quarter ending December 31, 1998
WORST QUARTER
- -14.61% for the quarter ending September 30, 1998
[CHART]
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
- -2.29% 31.62% -2.54% 11.04% 10.03% 13.59% 21.24%
</TABLE>
[Sidenote:]
DERIVATIVES
A derivative is an investment whose value is based on or DERIVED from the
performance of other securities or interest or currency exchange rates or
indices. Derivatives are considered to carry a higher degree of risk than other
types of securities.
GALAXY EQUITY FUNDS 21
<PAGE>
GALAXY INTERNATIONAL EQUITY FUND
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1998, as
compared to a broad-based market index. The returns for Retail A Shares of
the Fund for periods prior to December 1, 1995 have been restated to include
the effect of the maximum 3.75% front-end sales charge which went into
effect on that date.
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS INCEPTION
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares 16.68% 9.55% 10.64% (12/30/91)
- --------------------------------------------------------------------------------
Retail B Shares(1) - - -
- --------------------------------------------------------------------------------
MSCI EAFE Index 20.00% 9.19% 8.82% (since 12/31/91)
- --------------------------------------------------------------------------------
</TABLE>
(1) Retail B Shares were first offered on November 1, 1998.
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES YOU PAY DIRECTLY)
<TABLE>
<CAPTION>
MAXIMUM SALES CHARGE MAXIMUM DEFERRED SALES CHARGE
(LOAD) ON PURCHASES (LOAD) SHOWN AS A % OF THE
SHOWN AS A % OF THE OFFERING PRICE OR SALE
OFFERING PRICE PRICE, WHICHEVER IS LESS
- --------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
- --------------------------------------------------------------------------------
Retail B Shares None 5.00%(3)
- --------------------------------------------------------------------------------
</TABLE>
ANNUAL FUND OPERATING EXPENSES (FEES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
DISTRIBUTION TOTAL FUND
MANAGEMENT AND SERVICE OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.90%(4) None 0.88% 1.78%(4)
- --------------------------------------------------------------------------------
Retail B Shares 0.90%(4) 0.95% 0.37% 2.22%(4)
- --------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds -
How sales charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the Funds
- How sales charges work."
(3) This amount applies if you sell your shares in the first year after
purchase and gradually declines to 1% in the sixth year after purchase.
After six years, your Retail B Shares will automatically convert to Retail
A Shares. See "How to invest in the Funds - How sales charges work."
(4) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be 0.65%. Total Fund operating expenses after this waiver
are expected to be 1.53% for Retail A Shares and 1.97% for Retail B Shares.
This fee waiver may be revised or discontinued at any time.
[Sidenote:]
The Morgan Stanley Capital International Europe, Australasia and Far East
(MSCI EAFE) Index is an unmanaged index which tracks the performance of
selected equity securities in Europe, Australia and the Far East.
PORTFOLIO MANAGERS
The Fund's portfolio managers are Singleton Dewey Keesler, Jr. and Kathleen
Harris, CFA. They are primarily responsible for the day-to-day management of
the Fund's investment portfolio. Mr. Keesler is Chief Investment Officer and
portfolio manager/research analyst with the Sub-Adviser. He has been
associated with the Sub-Adviser and its predecessor since 1985.
22 GALAXY EQUITY FUNDS
<PAGE>
GALAXY INTERNATIONAL EQUITY FUND
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your Retail B Shares convert to Retail A Shares after six years
- - the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $549 $914 $1,303 $2,391
- --------------------------------------------------------------------------------
Retail B Shares $723 $988 $1,380 $2,324
- --------------------------------------------------------------------------------
If you hold Retail B Shares, you would pay the following expenses if you didn't
sell your shares:
Retail B Shares $223 $688 $1,180 $2,324
- --------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGERS
(CONTINUED)
Ms. Harris has been a portfolio manager at the Sub-Adviser and its
predecessor since January of 1995. She was previously portfolio manager and
investment director for the State of Wisconsin Investment Board. Mr. Keesler
and Ms. Harris have co-managed the Fund since August of 1996.
GALAXY EQUITY FUNDS 23
<PAGE>
GALAXY SMALL CAP VALUE FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks to provide long-term capital appreciation.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests mainly in the common stocks of small companies that the Adviser
believes are undervalued. Under normal market conditions, the Fund invests at
least 65% of its total assets in the common stocks of companies that have market
capitalizations of $1.5 billion or less. The Fund invests primarily in the
common stock of U.S. issuers, but may invest up to 20% of its total assets in
foreign equity securities.
In selecting portfolio securities for the Fund, the Adviser looks at the
underlying strength of companies, their products, their competitive positions
and the quality of their management. It also does research to attempt to
identify companies likely to benefit from emerging industry trends and potential
market recoveries.
A portfolio security may be sold if the Adviser determines that it is no
longer undervalued or if there has been a deterioration in the performance
of the security or in the financial condition of the company that issued the
security.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
The value of your investment in the Fund will go up and down with the value
of the investments which the Fund holds. The Fund's investments may not
perform as well as other investments, even in times of rising markets.
In addition, the Fund also carries the following risks:
- - SMALL COMPANIES RISK - Smaller companies tend to have limited resources,
product lines and market share. As a result, their share prices tend to
fluctuate more than those of larger companies. Their shares may also trade
less frequently and in limited volume, making them potentially less liquid.
The price of small company stocks might fall regardless of trends in the
broader market.
- - FOREIGN INVESTMENTS - Foreign investments may be riskier than U.S.
investments because of factors such as foreign government restrictions,
changes in currency exchange rates, incomplete financial information about
the issuers of securities, and political or economic instability. Foreign
stocks may be more volatile and less liquid than U.S. stocks.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance
the Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
[Sidenote:]
MARKET
CAPITALIZATION
A company's market capitalization is the price of a share of its stock,
multiplied by the number of shares held by investors.
VALUE STOCKS
Value stocks are ones that appear to be underpriced based on measures such as
lower price-to-earnings and price-to-book value ratios.
24 GALAXY EQUITY FUNDS
<PAGE>
GALAXY SMALL CAP VALUE FUND
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past. Both
assume that all dividends and distributions are reinvested in the Fund. How the
Fund has performed in the past doesn't necessarily show how it will perform in
the future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares has varied from year
to year, thereby giving some indication of the risk of investing in the Fund.
The returns for Retail B Shares would have been different than the figures shown
because each class of shares has different expenses. The figures don't include
any sales charges that investors pay when buying or selling shares of the Fund.
If sales charges were included, the returns would be lower.
The Fund began operations on December 14, 1992 as a separate portfolio (the
Predecessor Fund) of The Shawmut Funds. On December 4, 1995, the Predecessor
Fund was reorganized as a new portfolio of Galaxy. Prior to the
reorganization, the Predecessor Fund offered and sold two classes of shares,
Investment Shares (which were first offered on February 12, 1993) and Trust
Shares (which were first offered on December 14, 1992), that were similar to
the Fund's Retail A Shares and Trust Shares. In connection with the
reorganization, shareholders of the Predecessor Fund exchanged their
Investment Shares and Trust Shares for Retail A Shares and Trust Shares of
the Fund. The returns for the periods prior to December 4, 1995 are for
Investment Shares of the Predecessor Fund.
BEST QUARTER
18.67% for the quarter ending September 30, 1997
WORST QUARTER
- -15.93% for the quarter ending September 30, 1998
[CHART]
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C>
0.32% 31.49% 26.74% 31.23% -5.66%
</TABLE>
GALAXY EQUITY FUNDS 25
<PAGE>
GALAXY SMALL CAP VALUE FUND
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1998, as
compared to broad-based market indices. The returns for Retail A Shares of
the Fund for periods prior to December 1, 1995 have been restated to include the
effect of the maximum 3.75% front-end sales charge which went into effect on
that date.
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS INCEPTION
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares -9.21% 14.78% 14.59% (2/12/93)
- -----------------------------------------------------------------------------
Retail B Shares(1) - - -
- -----------------------------------------------------------------------------
Russell 2000 Index -2.55% 11.87% 12.56% (since 1/31/93)
- -----------------------------------------------------------------------------
S&P 600 -1.31% 13.22% 13.83% (since 1/31/93)
- -----------------------------------------------------------------------------
</TABLE>
(1) Retail B Shares were first offered on November 1, 1998.
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES YOU PAY DIRECTLY)
<TABLE>
<CAPTION>
MAXIMUM SALES CHARGE (LOAD) MAXIMUM DEFERRED SALES CHARGE
ON PURCHASES SHOWN (LOAD) SHOWN AS A % OF THE OFFERING
AS A % OF THE OFFERING PRICE PRICE, OR SALE PRICE, WHICHEVER IS LESS
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
- ---------------------------------------------------------------------------------------------------------
Retail B Shares None 5.00%(3)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
ANNUAL FUND OPERATING EXPENSES (FEES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
DISTRIBUTION TOTAL FUND
MANAGEMENT AND SERVICE OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.75% None 0.75%(4) 1.50%(4)
- --------------------------------------------------------------------------------
Retail B Shares 0.75% 0.95% 0.42% 2.12%
- --------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds
- How sales charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the Funds
- How sales charges work."
(3) This amount applies if you sell your shares in the first year after
purchase and gradually declines to 1% in the sixth year after purchase.
After six years, your Retail B Shares will automatically convert to Retail
A Shares. See "How to invest in the Funds - How sales charges work."
(4) Affiliates of the Adviser are waiving a portion of the shareholder
servicing fees (that are included in Other expenses) for Retail A Shares
so that Other expenses are expected to be 0.56%. Total Fund operating
expenses for Retail A Shares after these fee waivers are expected to be
1.31%. These fee waivers may be revised or discontinued at any time.
[Sidenote:]
The Russell 2000 Index is an unmanaged index that tracks the performance of the
2,000 smallest of the 3,000 largest U.S. companies, based on market
capitalization.
The Standard & Poor's SmallCap 600 Composite Index (S&P 600) is an unmanaged
index that tracks the performance of 600 domestic companies traded on the New
York Stock Exchange, the American Stock Exchange and NASDAQ. The S&P 600 is
heavily weighted with the stocks of small companies.
26 GALAXY EQUITY FUNDS
<PAGE>
GALAXY SMALL CAP VALUE FUND
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your Retail B Shares convert to Retail A Shares after six years
- - the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $522 $831 $1,163 $2,098
- --------------------------------------------------------------------------------
Retail B Shares $715 $964 $1,339 $2,140
- --------------------------------------------------------------------------------
If you hold Retail B Shares, you would pay the following expenses if you didn't
sell your shares:
Retail B Shares $215 $664 $1,139 $2,140
- --------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Peter Larson, a Senior Vice President of the
Adviser. He's primarily responsible for the day-to-day management of the
Fund's investment portfolio. Mr. Larson has been with the Adviser and its
predecessors since 1963 and has managed the Fund, including the Predecessor
Fund, since it began operations in 1992.
GALAXY EQUITY FUNDS 27
<PAGE>
GALAXY SMALL COMPANY EQUITY FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks capital appreciation.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its total assets in the equity
securities, primarily common stocks, of small companies that have market
capitalizations of $1.5 billion or less. The Fund invests primarily in the
common stock of U.S. companies, but may invest up to 20% of its total assets
in foreign equity securities.
In selecting investments for the Fund, the Adviser looks for promising
industries. It then looks within those industries for what are judged to be
reasonably priced companies that have above-average growth potential. The
Adviser consults a wide range of sources, including management, competitors,
other industry sources and regional brokerage analysts.
The Fund will sell a portfolio security when, as a result of changes in the
economy, the Adviser believes that holding the security is no longer
consistent with the Fund's investment objective. A security may also be sold
as a result of a deterioration in the performance of the security or in the
financial condition of the issuer of the security.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
The value of your investment in the Fund will go up and down with the value
of the investments which the Fund holds. The Fund's investments may not
perform as well as other investments, even in times of rising markets.
In addition, the Fund also carries the following risks:
- - SMALL COMPANIES RISK - Smaller companies tend to have limited resources,
product lines and market share. As a result, their share prices tend to
fluctuate more than those of larger companies. Their shares may also trade
less frequently and in limited volume, making them potentially less liquid.
The price of small company stocks might fall regardless of trends in the
broader market.
- - FOREIGN INVESTMENTS - Foreign investments may be riskier than U.S.
investments because of factors such as foreign government restrictions,
changes in currency exchange rates, incomplete financial information about
the issuers of securities, and political or economic instability. Foreign
stocks may be more volatile and less liquid than U.S. stocks.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance
the Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
[Sidenote:]
MARKET CAPITALIZATION
A company's market capitalization is the price of a share of its stock,
multiplied by the number of shares held by investors.
GROWTH STOCKS
Growth stocks offer strong revenue and earnings potential, and accompanying
capital growth, with less dividend income than value stocks.
28 GALAXY EQUITY FUNDS
<PAGE>
GALAXY SMALL COMPANY EQUITY FUND
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past. Both
assume that all dividends and distributions are reinvested in the Fund. How the
Fund has performed in the past doesn't necessarily show how it will perform in
the future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares has varied from year
to year, thereby giving some indication of the risk of investing in the Fund.
The returns for Retail B Shares were different than the figures shown because
each class of shares has different expenses. The figures don't include any sales
charges that investors pay when buying or selling shares of the Fund. If sales
charges were included, the returns would be lower.
BEST QUARTER
22.52% for the quarter ending December 31, 1992
WORST QUARTER
- -24.02% for the quarter ending September 30, 1998
[CHART]
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
1.20% 22.75% -0.06% 38.80% 20.84% 14.17% -10.94%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1998, as
compared to a broad-based market index. The returns for Retail A Shares of
the Fund for periods prior to December 1, 1995 have been restated to include
the effect of the maximum 3.75% front-end sales charge which went into effect
on that date.
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS INCEPTION
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares -14.29% 10.41% 10.70% (12/30/91)
- --------------------------------------------------------------------------------
Retail B Shares -16.00% - 4.77% (3/4/96)
- --------------------------------------------------------------------------------
Russell 2000 Index -2.55% 11.87% 13.76% (since 12/31/91)
11.11% (since 2/29/96)
- --------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The Russell 2000 Index is an unmanaged index that tracks the performance of the
2,000 smallest of the 3,000 largest U.S. companies, based on market
capitalization.
GALAXY EQUITY FUNDS 29
<PAGE>
GALAXY SMALL COMPANY EQUITY FUND
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES YOU PAY DIRECTLY)
<TABLE>
<CAPTION>
MAXIMUM SALES CHARGE (LOAD) MAXIMUM DEFERRED SALES CHARGE
ON PURCHASES SHOWN (LOAD) SHOWN AS A % OF THE OFFERING
AS A % OF THE OFFERING PRICE PRICE OR SALE PRICE, WHICHEVER IS LESS
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
- ---------------------------------------------------------------------------------------------------------
Retail B Shares None 5.00%(3)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
ANNUAL FUND OPERATING EXPENSES (FEES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
DISTRIBUTION TOTAL FUND
MANAGEMENT AND SERVICE OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.75% None 0.82%(4) 1.57%(4)
- --------------------------------------------------------------------------------
Retail B Shares 0.75% 0.95%(4) 0.54% 2.24%(4)
- --------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds
- How sales charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the Funds
- How sales charges work."
(3) This amount applies if you sell your shares in the first year after
purchase and gradually declines to 1% in the sixth year after purchase.
After six years, your Retail B Shares will automatically convert to Retail
A Shares. See "How to invest in the Funds - How sales charges work."
(4) Affiliates of the Adviser are waiving a portion of the shareholder
servicing fees (that are included in Other expenses) for Retail A Shares
so that Other expenses for Retail A Shares are expected to be 0.78%.
Affiliates of the Adviser are also waiving a portion of the Distribution
and service (12b-1) fees for Retail B Shares so that such fees are
expected to be 0.87%. Total Fund operating expenses after these fee
waivers are expected to be 1.53% for Retail A Shares and 2.16% for
Retail B Shares. These fee waivers may be revised or discontinued at any
time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your Retail B Shares convert to Retail A Shares after six years
- - the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $529 $852 $1,198 $2,172
- --------------------------------------------------------------------------------
Retail B Shares $727 $1,000 $1,400 $2,241
- --------------------------------------------------------------------------------
If you hold Retail B Shares, you would pay the following expenses if you didn't
sell your shares:
Retail B Shares $227 $700 $1,200 $2,241
- --------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Stephen D. Barbaro, CFA, a Senior Vice
President of the Adviser since 1996. He's primarily responsible for the
day-to-day management of the Fund's investment portfolio. Mr. Barbaro has
been the Fund's portfolio manager since it began operations in 1991. He has
been with the Adviser and its predecessors since 1976.
30 GALAXY EQUITY FUNDS
<PAGE>
ADDITIONAL INFORMATION ABOUT RISK
The main risks associated with an investment in each of the Galaxy Equity Funds
have been described above. The following supplements that discussion.
TEMPORARY DEFENSIVE POSITIONS
Each Fund may temporarily hold up to 100% of its total assets in investments
that are not part of its principal investment strategy to try to avoid losses
during unfavorable market conditions. These investments may include cash
(which will not earn any income), money market instruments, debt securities
issued or guaranteed by the U.S. Government or its agencies and, in the case
of the International Equity Fund, foreign money market instruments, debt
securities of foreign national governments and their agencies, and the
securities of U.S. issuers. This strategy could prevent a Fund from achieving
its investment objective and could reduce the Fund's return and affect its
performance during a market upswing.
OTHER TYPES OF INVESTMENTS
This prospectus describes each Fund's main investment strategies and the
particular types of securities in which each Fund mainly invests. Each Fund
may, from time to time, pursue other investment strategies and make other
types of investments in support of its overall investment goal. These
supplemental investment strategies - and the risks involved - are described
in detail in the Statement of Additional Information (SAI) which is referred
to on the back cover of this prospectus.
YEAR 2000 RISKS
As with other mutual funds, financial and business organizations and
individuals around the world, the Funds could be adversely affected if the
computer systems used by the Adviser and the Funds' other service providers
don't properly process and calculate date-related information and data from
and after January 1, 2000. This is commonly known as the "Year 2000" or "Y2K"
problem. The Adviser is taking steps to address the Y2K problem with respect
to the computer systems that it uses and to obtain assurances that comparable
steps are being taken by the Funds' other major service providers. At this
time, however, there can be no assurance that these steps will be sufficient
to avoid any adverse impact on the Funds. The Y2K problem could have a
negative inpact on the issuers of the securities in which the Funds invest,
which could hurt the Funds' investment returns.
GALAXY EQUITY FUNDS 31
<PAGE>
INVESTOR GUIDELINES
The following table gives you a general overview of the risk spectrum for the
Galaxy Equity Funds. This is a guide only. It shows the Adviser's current
assessment of the potential risk of the Funds relative to one another, but
this can change over time. It should not be used to compare the Funds with
other mutual funds or other types of investments. Consult your financial
professional to help you decide which Fund is right for you.
<TABLE>
<CAPTION>
RISK SPECTRUM FUND PRIMARY INVESTMENTS
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Asset Allocation Common stocks and fixed income securities of
domestic companies
---------------------------------------------------------------------------------
Conservative Equity Income Common stocks of domestic companies selected
primarily for their income potential
---------------------------------------------------------------------------------
Growth and Income Common stocks of companies selected for their
growth and income potential
---------------------------------------------------------------------------------
Strategic Equity Equity securities of large and medium sized
companies believed to be undervalued
---------------------------------------------------------------------------------
Moderate Equity Value Equity securities of all size companies believed to
be undervalued
---------------------------------------------------------------------------------
Equity Growth Equity securities of growth-oriented companies
---------------------------------------------------------------------------------
International Equity Equity securities of foreign companies
---------------------------------------------------------------------------------
Aggressive Small Cap Value Equity securities of smaller companies believed to
be undervalued
---------------------------------------------------------------------------------
Small Company Equity Equity securities of smaller growth-oriented
companies
- -----------------------------------------------------------------------------------------------------
</TABLE>
32 GALAXY EQUITY FUNDS
<PAGE>
FUND MANAGEMENT
ADVISER
The Adviser, subject to the general supervision of Galaxy's Board of Trustees,
manages each Fund in accordance with its investment objective and policies,
makes decisions with respect to and places orders for all purchases and sales of
its portfolio securities, and maintains related records.
The management fees paid to the Adviser by the Funds during the last fiscal year
are set forth below. The Strategic Equity Fund began operations during the last
fiscal year, and the fee shown is that which is currently in effect.
<TABLE>
<CAPTION>
MANAGEMENT FEE AS
FUND A % OF AVERAGE NET ASSETS
- -----------------------------------------------
<S> <C>
Asset Allocation 0.75%
- -----------------------------------------------
Equity Income 0.75%
- -----------------------------------------------
Growth and Income 0.75%
- -----------------------------------------------
Strategic Equity 0.55%
- -----------------------------------------------
Equity Value 0.75%
- -----------------------------------------------
Equity Growth 0.75%
- -----------------------------------------------
International Equity 0.65%
- -----------------------------------------------
Small Cap Value 0.75%
- -----------------------------------------------
Small Company Equity 0.75%
- -----------------------------------------------
</TABLE>
SUB-ADVISER
The Adviser has delegated some of its advisory responsibilities with respect to
the International Equity Fund to Oechsle International Advisors, LLC as
Sub-Adviser. The Sub-Adviser determines which securities will be purchased,
retained or sold for the Fund, places orders for the Fund and provides the
Adviser with information on international investment and economic developments.
The Adviser assists and consults with the Sub-Adviser as to the Fund's
investment program, approves the list of foreign countries recommended by the
Sub-Adviser for investment and manages the Fund's daily cash position. The
Sub-Adviser's fees are paid by the Adviser.
The Sub-Adviser has its main office at One International Place, Boston,
Massachusetts 02210. The Sub-Adviser is the successor to Oechsle International
Advisors, L.P., an international investment firm founded in 1986. At
December 31, 1998, the Sub-Adviser had discretionary management authority
over approximately $11 billion in assets. The Adviser's parent company, Fleet
Financial Group, Inc., owns an interest in the Sub-Adviser.
ALLOCATION OF ORDERS FOR PORTFOLIO SECURITIES
The Adviser and Sub-Adviser may allocate orders for the purchase and sale of
portfolio securities to certain financial institutions, including those that
are affiliated with the Adviser or Sub-Adviser or that have sold shares of the
Funds, to the extent permitted by law or by order of the Securities and
Exchange Commission. The Adviser and Sub-Adviser will allocate orders to
such institutions only if they believe that the quality of the transaction
and the commission are comparable to what they would be with other qualified
brokerage firms.
GALAXY EQUITY FUNDS 33
<PAGE>
HOW TO INVEST IN THE FUNDS
HOW SALES CHARGES WORK
You will normally pay a sales charge to invest in the Funds. If you buy Retail A
Shares, you'll usually pay a sales charge (sometimes called a front-end load) at
the time you buy your shares. If you buy Retail B Shares, you may have to pay a
contingent deferred sales charge (sometimes called a back-end load or CDSC) when
you sell your shares. This section explains these two options.
RETAIL A SHARES
The table below shows the sales charge you'll pay if you buy Retail A Shares of
the Funds. The offering price is the NAV of the shares purchased, plus any
applicable sales charge.
<TABLE>
<CAPTION>
TOTAL SALES CHARGE
-----------------------------------------
AS A % OF AS A % OF
AMOUNT OF THE OFFERING PRICE YOUR
YOUR INVESTMENT PER SHARE INVESTMENT
- ---------------------------------------------------------------
<S> <C> <C>
Less than $50,000 3.75% 3.90%
- ---------------------------------------------------------------
$50,000 but less
than $100,000 3.50% 3.63%
- ---------------------------------------------------------------
$100,000 but less
than $250,000 3.00% 3.09%
- ---------------------------------------------------------------
$250,000 but less
than $500,000 2.50% 2.56%
- ---------------------------------------------------------------
$500,000 and over 0.00%(1) 0.00%(1)
- ---------------------------------------------------------------
</TABLE>
(1) There is no front-end sales charge on investments in Retail A Shares of
$500,000 or more. However, if you sell the shares within one year after
buying them, you'll pay a CDSC of 1% of the offering price or 1% of the net
asset value of your shares, whichever is less, unless the shares were sold
because of the death or disability of the shareholder.
Galaxy's distributor may, from time to time, implement programs under which a
broker-dealer's sales force may be eligible to win nominal awards for certain
sales efforts. If any such program is made available to any broker-dealer, it
will be made available to all broker-dealers on the same terms. Payments made
under such programs are made by Galaxy's distributor out of its own assets and
not out of the assets of the Funds. These programs will not change the price of
Retail A Shares or the amount that the Funds will receive from such sales.
Certain affiliates of the Adviser may, at their own expense, provide additional
compensation to affiliated broker-dealers whose customers purchase significant
amounts of Retail A Shares of one or more Funds and to unaffiliated
broker-dealers whose customers purchase Retail A Shares of one or more of the
Funds. Such compensation will not represent an additional expense to the Funds
or their shareholders, since it will be paid from the assets of the Adviser's
affiliates.
There's no sales charge when you buy Retail A Shares if:
- - You buy shares by reinvesting your dividends and distributions.
- - You buy shares for a 401(k) or SIMPLE IRA retirement account.
- - You buy shares for any retirement account that held Galaxy shares prior to
January 1, 1999.
- - You buy shares for any Traditional IRA, Roth IRA, Education IRA, Keogh or
SEP retirement account and your total Retail A Share retirement account
balance is $30,000 or more.
- - You buy shares with money from another Galaxy Fund on which you've already
paid a sales charge (as long as you buy the new shares within 90 days after
selling your other shares).
- - You're an investment professional who places trades for your clients and
charges them a fee.
[Sidenote:]
NET ASSET VALUE
The price you pay for your shares is based on the net asset value per share
(NAV). It's the value of a Fund's assets attributable to Retail A Shares or
Retail B Shares, minus the value of the Fund's liabilities attributable to
Retail A Shares or Retail B Shares, divided by the number of Retail A Shares or
Retail B Shares held by investors.
34 GALAXY EQUITY FUNDS
<PAGE>
- - You buy shares under an all-inclusive fee program (sometimes called a "wrap
fee program") offered by a broker-dealer or other financial institution.
- - You were a Galaxy shareholder before December 1, 1995.
- - You previously paid a sales charge for the shares of another mutual fund
company (as long as you buy the Galaxy shares within 60 days of selling
your other shares).
RETAIL B SHARES
If you buy Retail B Shares of the Funds, you won't pay a CDSC unless you sell
your shares within six years of buying them. The following table shows the
schedule of CDSC charges:
<TABLE>
<CAPTION>
IF YOU SELL YOU'LL PAY A
YOUR SHARES CDSC OF
- -------------------------------------------
<S> <C>
during the first year 5.00%
- -------------------------------------------
during the second year 4.00%
- -------------------------------------------
during the third year 3.00%
- -------------------------------------------
during the fourth year 3.00%
- -------------------------------------------
during the fifth year 2.00%
- -------------------------------------------
during the sixth year 1.00%
- -------------------------------------------
after the sixth year None
- -------------------------------------------
</TABLE>
For purposes of calculating the CDSC, all purchases made during a calendar
month are considered to be made on the first day of that month. The CDSC is
based on the value of the Retail B Shares on the date that they are sold or
the original cost of the shares, whichever is lower. To keep your CDSC as low
as possible each time you sell shares, Galaxy will first sell any shares in
your account that are not subject to a CDSC. If there are not enough of
these, Galaxy will sell those shares that have the lowest CDSC. There is no
CDSC on Retail B Shares that you acquire by reinvesting your dividends and
distributions.
In addition, there's no CDSC when Retail B Shares are sold because of the death
or disability of a shareholder and in certain other circumstances such as
exchanges. Ask your investment professional or Galaxy's distributor, or consult
the SAI, for other instances in which the CDSC is waived. To contact Galaxy's
distributor, call 1-877-BUY-GALAXY (1-877-289-4252).
DISTRIBUTION AND SHAREHOLDER SERVICE FEES
Retail A Shares of the Funds can pay shareholder service fees at an annual
rate of up to 0.50% of each Fund's Retail A Share assets. The Funds do not
intend to pay more than 0.30% in shareholder service fees with respect to
Retail A Shares during the current fiscal year.
Retail B Shares of the Funds can pay distribution and shareholder service
(12b-1) fees at an annual rate of up to 1.15% of each Fund's Retail B Share
assets. The Funds do not intend to pay more than 0.95% in distribution and
shareholder service (12b-1) fees during the current fiscal year. Galaxy has
adopted a plan under Rule 12b-1 that allows each Fund to pay fees from its
Retail B Share assets for selling and distributing Retail B Shares and for
services provided to shareholders. Because 12b-1 fees are paid on an ongoing
basis, over time they increase the cost of your investment and may cost more
than paying other sales charges.
CONVERTING RETAIL B SHARES TO RETAIL A SHARES
Six years after you buy Retail B Shares of a Fund, they will automatically
convert to Retail A Shares of the Fund. This allows you to benefit from the
lower annual expenses of Retail A Shares.
[Sidenote:]
Ask your investment professional or Galaxy's distributor, or consult the SAI
for other instances in which the sales load on Retail A Shares is waived.
When you buy your shares, you must tell your investment professional or
Galaxy's distributor that you qualify for a sales load waiver. To contact
Galaxy's distributor, call 1-877-BUY-GALAXY (1-877-289-4252).
GALAXY EQUITY FUNDS 35
<PAGE>
CHOOSING BETWEEN RETAIL A SHARES AND RETAIL B SHARES
In deciding whether to buy Retail A Shares or Retail B Shares, you should
consider how long you plan to hold the shares. Over time, the higher fees on
Retail B Shares may equal or exceed the initial sales charge and fees for Retail
A Shares. Retail A Shares may be a better choice if you qualify to have the
sales charge reduced or eliminated or if you plan to sell your shares within one
or two years. Consult your financial professional for help in choosing the
appropriate share class.
BUYING, SELLING AND EXCHANGING SHARES
You can buy and sell Retail A Shares and Retail B Shares of the Funds on any day
that the Funds are open for business, which is any day that the New York Stock
Exchange is open. The New York Stock Exchange is generally open for trading
every Monday through Friday, except for national holidays.
Retail A Shares and Retail B Shares have different prices. The price at which
you buy shares is the NAV next determined after your order is accepted, plus
any applicable sales charge. The price at which you sell shares is the NAV
next determined, after receipt of your order in proper form as described
below, less any applicable CDSC. NAV is determined on each day the New York
Stock Exchange is open for trading at the close of regular trading that day
(usually 4:00 p.m. Eastern time). If market prices are readily available for
securities owned by the Fund, they're valued at those prices. If market
prices are not readily available for some securities, they are valued at fair
value under the supervision of Galaxy's Board of Trustees.
Sometimes, the price of a security trading on a foreign stock exchange may be
affected by events that happen after that exchange closes. If this happens, the
fair value of the security may be determined using other factors and may not
reflect the security's last quoted price. In addition, foreign securities may
trade on days when shares of the Funds are not priced. As a result, the net
asset value per share of a Fund holding these securities may change on days when
you won't be able to buy or sell Fund shares.
HOW TO BUY SHARES
You can buy shares through your financial institution or directly from Galaxy's
distributor by calling 1-877-BUY-GALAXY (1-877-289-4252). A broker or agent who
places orders on your behalf may charge you a separate fee for their services.
BUYING BY MAIL
Complete an account application and mail it, together with a check payable to
each Fund in which you want to invest, to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
[Sidenote:]
MINIMUM INVESTMENT AMOUNTS
The minimum initial investment to open a Fund account is:
- - $2,500 for regular accounts
- - $500 for retirement plan accounts, such as IRA, SEP and Keogh Plan accounts
- - $100 for college savings accounts, including Education IRA accounts.
There is generally no minimum initial investment if you participate in the
Automatic Investment Program or in a salary reduction retirement plan such
as a SIMPLE IRA or 401(k). You generally can make additional investments
for as little as $100. See GALAXY INVESTOR PROGRAMS below for information
on other minimums for initial and additional investments.
Usually, you must keep at least $250 in your account other than retirement plan
accounts. If your account falls below $250 because you sell or exchange shares,
Galaxy may redeem your shares and close your account. Galaxy will give you 60
days' notice in writing before closing your account.
36 GALAXY EQUITY FUNDS
<PAGE>
To make additional investments, send your check to the address above along with
one of the following:
- - the detachable form that's included with your Galaxy statement or your
confirmation of a prior transaction
- - a letter stating the amount of your investment, the name of the Fund you
want to invest in, and your account number.
If your check is returned because of insufficient funds, Galaxy will cancel your
order.
BUYING BY WIRE
To make an initial or additional investment by wire, send U.S. funds through the
Federal Reserve System to Fleet National Bank as agent for Galaxy's distributor.
You should wire money and registration instructions to:
Fleet National Bank
75 State Street
Boston, MA 02109
ABA #0110-0013-8, DDA #79673-5702
Ref: The Galaxy Fund (Account number)
(Account registration)
Before making an initial investment by wire, you must complete an
account application and send it to The Galaxy Fund, P.O. Box 6520, Providence,
RI 02940-6520. Your order will not be effected until the completed account
application is received by Galaxy. Call Galaxy's distributor at 1-877-BUY-GALAXY
(1-877-289-4252) for an account application.
Your financial institution may charge you a fee for sending funds by wire.
CUSTOMERS OF FINANCIAL INSTITUTIONS
If you are a customer of a financial institution such as a bank, savings and
loan association or broker-dealer, including a financial institution affiliated
with the Adviser, you should place your order through your financial
institution. Your financial institution is responsible for sending your order to
Galaxy's distributor and wiring the money to Galaxy's custodian. For details,
please contact your financial institution.
DISCOUNT PLANS
You may have the sales charges on purchases of Retail A Shares reduced or waived
completely through the discount plans described below:
- - RIGHTS OF ACCUMULATION - You can add the value of the Retail A Shares that
you already own in any Galaxy Fund that charges a sales load to your next
investment in Retail A Shares for purposes of calculating the sales charge.
- - LETTER OF INTENT - You can purchase Retail A Shares of any Galaxy Fund that
charges a sales load over a 13-month period and receive the same sales
charge as if all of the shares had been purchased at the same time. To
participate, complete the Letter of Intent section on the account
application.
- - REINVESTMENT PRIVILEGE - You can reinvest some or all of the money that you
receive when you sell Retail A Shares of the Funds in Retail A Shares of
any Galaxy Fund within 90 days without paying a sales charge.
- - GROUP SALES - If you belong to a qualified group with 50,000 or more
members, you can buy Retail A Shares at a reduced sales charge, based on
the number of qualified group members.
[Sidenote:]
You must tell your investment professional or Galaxy's distributor when you buy
your shares that you want to take advantage of any of these discount plans. See
the SAI for additional requirements that may apply. To contact Galaxy's
distributor, call 1-877-BUY-GALAXY (1-877-289-4252).
GALAXY EQUITY FUNDS 37
<PAGE>
HOW TO SELL SHARES
You can sell your shares in several ways: by mail, by telephone, by wire, or
through your financial institution.
SELLING BY MAIL
Send your request in writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
You must include the following:
- - The name of the Fund
- - The number of shares or the dollar amount you want to sell
- - Your account number
- - Your Social Security number or tax identification number
- - The signatures of each registered owner of the account (the signatures must
match the names on the account registration).
Additional documents may be required for certain types of shareholders, such as
corporations, partnerships, executors, trustees, administrators or guardians.
SELLING BY PHONE
You can sell shares by calling Galaxy's distributor at 1-877-BUY-GALAXY
(1-877-289-4252) unless you tell Galaxy on the account application or in writing
that you don't want this privilege. If you have difficulty getting through to
Galaxy because of unusual market conditions, consider selling your shares by
mail or wire.
SELLING BY WIRE
Notify Galaxy's distributor by phone or wire that you wish to sell shares and
have the sale proceeds wired to your account at any financial institution in the
U.S. To be eligible to use this privilege, you must complete the appropriate
section on the account application or notify Galaxy in writing (with a signature
guarantee). Your sale proceeds must be more than $1,000.
The sale proceeds must be paid to the same bank and account you named on your
application or in your written instructions.
CUSTOMERS OF FINANCIAL INSTITUTIONS
Please contact your financial institution for information on how to sell your
shares. The financial institution is responsible for sending your order to
Galaxy's distributor and for crediting your account with the proceeds. Galaxy
doesn't charge a fee for wiring sale proceeds to your financial institution, but
your financial institution may charge you a fee.
HOW TO EXCHANGE SHARES
You may exchange Retail A Shares of a Fund having a value of at least $100 for
Retail A Shares of any other Galaxy Fund or for
[Sidenote:]
SIGNATURE GUARANTEES
When selling your shares by mail or by phone, you must have your signature
guaranteed if:
- - you're selling shares worth more than $50,000
- - you want Galaxy to send your money to an address other than the address on
your account, unless your assets are transferred to a successor custodian
- - you want Galaxy to send your money to the address on your account that's
changed within the last 30 days, or
- - you want Galaxy to make the check payable to someone else.
Your signature must be guaranteed by a bank that's a member of the FDIC, a trust
company, a member firm of a national securities exchange or any other eligible
institution. A notarized signature is not sufficient.
38 GALAXY EQUITY FUNDS
<PAGE>
shares of any other Fund that's managed by the Adviser or any of its affiliates
in which you have an existing account. You won't pay a sales charge for
exchanging your Retail A Shares.
You may exchange Retail B Shares of a Fund for Retail B Shares of any other
Galaxy Fund. You won't pay a CDSC when you exchange your Retail B Shares.
However, when you sell the Retail B Shares you acquired in the exchange, you'll
pay a contingent deferred sales charge based on the date you bought the Retail B
Shares which you exchanged.
TO EXCHANGE SHARES:
- - call Galaxy's distributor or use the InvestConnect voice response line at
1-877-BUY-GALAXY (1-877-289-4252)
- - send your request in writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
- - ask your financial institution.
Galaxy doesn't charge any fee for making exchanges but your financial
institution might do so. You are generally limited to three exchanges per
year. Galaxy may change or cancel the exchange privilege with 60 days'
advance written notice to shareholders.
OTHER TRANSACTION POLICIES
If Galaxy doesn't receive full payment for your order to buy shares within three
business days of the order date, Galaxy won't accept your order. Galaxy will
advise you if this happens and return any payment it may eventually receive. You
can only invest in shares of the Funds that are legally available in your state.
Galaxy may refuse any order to buy shares. Galaxy doesn't issue a certificate
when you buy shares but it does keep a record of shares issued to investors.
Galaxy may refuse your order to sell or exchange shares by wire or telephone
if it believes it is advisable to do so. Galaxy or its distributor may change
or cancel the procedures for selling or exchanging shares by wire or
telephone at any time without notice.
If you sell or exchange shares by telephone, you may be responsible for any
fraudulent telephone orders as long as Galaxy has taken reasonable
precautions to verify your identity, such as requesting information about the
way in which your account is registered or about recent transactions in your
account.
Galaxy normally pays you cash when you sell your shares, but it has the right to
deliver securities owned by a Fund instead of cash. When you sell these
securities, you'll pay brokerage charges.
Sales proceeds are normally sent to you within three business days but Galaxy
reserves the right to send sales proceeds within seven days if sending
proceeds earlier could adversely affect a Fund.
If any shares that you're selling are part of an investment you've paid for with
a personal check, Galaxy will delay sending your sales proceeds until the check
clears, which can take up to 15 days from the purchase date.
Galaxy reserves the right to vary or waive any minimum investment requirement.
GALAXY EQUITY FUNDS 39
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Each Fund, except the International Equity Fund, pays any dividends from net
investment income each quarter. The International Equity Fund pays any dividends
from net investment income annually. Each Fund pays any net capital gains at
least once a year. It's expected that the Funds' annual distributions will
normally - but not always - consist primarily of capital gains rather than
ordinary income. Dividends and distributions are paid in cash unless you
indicate in the account application or in a letter to Galaxy that you want to
have dividends and distributions reinvested in additional shares.
FEDERAL TAXES
Each Fund contemplates declaring as dividends each year all or substantially all
of its taxable income, including its net capital gain (the excess of long-term
capital gain over short-term capital loss). You will be subject to income tax on
these distributions regardless of whether they are paid in cash or reinvested in
additional shares. Distributions attributable to the net capital gain of a Fund
will be taxable to you as long-term capital gain, regardless of how long you
have held your shares. Other Fund distributions will generally be taxable as
ordinary income. You will be notified annually of the tax status of
distributions to you.
You should note that if you purchase shares just prior to a capital gain
distribution, the purchase price will reflect the amount of the upcoming
distribution, but you will be taxed on the entire amount of the distribution
received, even though, as an economic matter, the distribution simply
constitutes a return of capital. This is known as "buying into a dividend."
You will recognize taxable gain or loss on a sale, exchange or redemption of
your shares, including an exchange for shares of another Fund, based on the
difference between your tax basis in the shares and the amount you receive for
them. (To aid in computing your tax basis, you generally should retain your
account statements for the periods during which you held shares.) Any loss
realized on shares held for six months or less will be treated as a long-term
capital loss to the extent of any capital gain dividends that were received on
the shares.
The one major exception to these tax principles is that distributions on, and
sales, exchanges and redemptions of, shares held in an IRA (or other tax-
qualified plan) will not be currently taxable.
40 GALAXY EQUITY FUNDS
<PAGE>
It is expected that the International Equity Fund will be subject to foreign
withholding taxes with respect to dividends or interest received from sources in
foreign countries. The Fund may make an election to treat a proportionate amount
of such taxes as constituting a distribution to each shareholder, which would
allow each shareholder to either (1) credit such proportionate amount of taxes
against U.S. federal income tax liability or (2) take such amount as an itemized
deduction.
The foregoing is only a summary of certain tax considerations under current law,
which may be subject to change in the future. You should consult your tax
adviser for further information regarding federal, state, local and/or foreign
tax consequences relevant to your specific situation.
STATE AND LOCAL TAXES
Shareholders may also be subject to state and local taxes on distributions and
redemptions. State income taxes may not apply however to the portions of each
Fund's distributions, if any, that are attributable to interest on U.S.
Government securities. Shareholders should consult their tax advisers regarding
the tax status of distributions in their state and locality.
GALAXY EQUITY FUNDS 41
<PAGE>
GALAXY INVESTOR PROGRAMS
RETIREMENT PLANS
Retail A Shares and Retail B Shares of the Funds are available for purchase in
connection with any of the following retirement plans:
- - Individual Retirement Arrangements (IRAs), including Traditional, Roth,
Rollover and Education IRAs.
- - Simplified Employee Pension Plans (SEPs).
- - Keogh money purchase and profit sharing plans.
- - Salary reduction retirement plans set up by employers for their employees
which are qualified under Section 401(k) and 403(b) of the Internal
Revenue Code.
- - SIMPLE IRA plans which are qualified under Section 408(p) of the
Internal Revenue Code.
For information about eligibility requirements and other matters concerning
these plans and to obtain an application, call Galaxy's distributor at
1-877-BUY-GALAXY (1-877-289-4252).
OTHER PROGRAMS
It's also easy to buy or sell shares of the Funds by using one of the programs
described below. Just tell Galaxy the amount and how frequently you want to buy
or sell shares and Galaxy does the rest. For further information on any of these
programs, call Galaxy's distributor at 1-877-BUY-GALAXY (1-877-289-4252) or your
financial institution.
AUTOMATIC INVESTMENT PROGRAM
You can make automatic investments from your bank account every month or every
quarter. You can choose to make your investment on any day of the month or
quarter. The minimum investment is $50 a month or $150 a quarter except for
Education IRAs, in which case the minimum investment is $40 a month or $125 a
quarter.
PAYROLL DEDUCTION PROGRAM
You can make regular investments from your paycheck. The minimum investment is
$25 per pay period. Send a completed Galaxy Payroll Deduction Application to
your employer's payroll department. They'll arrange to have your investment
deducted from your paycheck.
COLLEGE INVESTMENT PROGRAM
The minimum for initial and additional investments through the College
Investment Program is $100 unless you participate in the Automatic Investment
Program, in which case the minimum for initial and additional investments is
$50. You can also save for college by opening an Education IRA account. The
minimum for initial and additional investments in an Education IRA is $100
unless you participate in the Automatic Investment Program, in which case the
minimum for initial and additional investments is $40.
42 GALAXY EQUITY FUNDS
<PAGE>
HOW TO REACH GALAXY
DIRECT DEPOSIT PROGRAM
This program lets you deposit your social security payments in your Fund account
automatically. There's no minimum deposit. You can cancel the program by
notifying the Social Security Administration in writing.
SYSTEMATIC WITHDRAWAL PLAN
You can make regular withdrawals from your investment account every month, every
quarter, every six months or once a year. You need a minimum account balance of
$10,000 to participate in the plan. No CDSC will be charged on withdrawals of
Retail B Shares made through the plan that don't annually exceed 12% of your
account's value.
You may cancel your participation in any of these programs, other than the
Direct Deposit Program, by writing to Galaxy at:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
Please allow at least five days for the cancellation to be processed.
THROUGH YOUR FINANCIAL INSTITUTION
Your financial institution can help you buy, sell or exchange shares and can
answer questions about your account.
GALAXY SHAREHOLDER SERVICES
Call Galaxy's distributor at 1-877-BUY-GALAXY (1-877-289-4252), Monday through
Friday, 8 a.m. to 6 p.m. (Eastern time) for help from a Galaxy representative.
INVESTCONNECT
InvestConnect is Galaxy's shareholder voice response system. Call
1-877-BUY-GALAXY (1-877-289-4252) from any touch-tone phone for automated access
to account information and current Fund prices and performance, or to place
orders to sell or exchange shares. It's available 24 hours a day, seven days
a week.
If you live outside the United States, you can contact Galaxy by calling
1-508-871-4121.
THE INTERNET
Please visit Galaxy's website at: www.galaxyfunds.com
[Sidenote:]
Galaxy also offers a TDD service for the hearing impaired. Just call
1-800-696-6515, 24 hours a day, seven days a week.
GALAXY EQUITY FUNDS 43
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables shown below will help you understand the
financial performance for the Funds' Retail A Shares and Retail B Shares for the
past five years (or the period since a particular Fund began operations or a
particular class of shares was first offered). Certain information reflects the
financial performance of a single Retail A Share or Retail B Share. The total
returns in the tables represent the rate that an investor would have earned (or
lost) on an investment in Retail A Shares and Retail B Shares of each Fund,
assuming all dividends and distributions were reinvested. This information has
been audited by PricewaterhouseCoopers LLP, independent accountants, whose
report, along with the Funds' financial statements, are included in the Funds'
Annual Report and are incorporated by reference into the SAI. The Annual
Report and SAI are available free of charge upon request. The Equity Income,
International Equity and Small Cap Value Funds did not sell Retail B Shares
during the periods covered by the tables.
GALAXY ASSET ALLOCATION FUND
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
FOR THE YEAR ENDING OCTOBER 31,
------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------------ ------------------ ------------------- -------- --------
Retail A Retail B Retail A Retail B Retail A Retail B Retail A Retail A
Shares Shares Shares Shares Shares Shares(1) Shares Shares
- -------------------------------------------- ------------------ ------------------ ------------------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $16.46 $16.43 $14.52 $14.51 $12.82 $13.59 $10.67 $11.15
- -------------------------------------------- ------------------ ------------------ ------------------ -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(2) 0.38 0.29 0.40 0.29 0.30 0.13 0.30 0.27
- -------------------------------------------- ------------------ ------------------ ------------------ -------- --------
Net realized and unrealized
gain (loss) on investments 1.72 1.71 2.43 2.42 1.83 0.91 2.16 (0.49)
- -------------------------------------------- ------------------ ------------------ ------------------ -------- --------
Total from investment operations 2.10 2.00 2.83 2.71 2.13 1.04 2.46 (0.22)
LESS DIVIDENDS:
Dividends from net investment
income (0.40) (0.30) (0.38) (0.28) (0.30) (0.12) (0.31) (0.26)
- -------------------------------------------- ------------------ ------------------ ------------------ -------- --------
Dividends from net realized
capital gains (1.21) (1.21) (0.51) (0.51) (0.13) - - -
- -------------------------------------------- ------------------ ------------------ ------------------ -------- --------
Total dividends (1.61) (1.51) (0.89) (0.79) (0.43) (0.12) (0.31) (0.26)
Net increase (decrease) in net
asset value 0.49 0.49 1.94 1.92 1.70 0.92 2.15 (0.48)
- -------------------------------------------- ------------------ ------------------ ------------------ -------- --------
Net asset value, end of period $16.95 $16.92 $16.46 $16.43 $14.52 $14.51 $12.82 $10.67
- -------------------------------------------- ------------------ ------------------ ------------------ -------- --------
- -------------------------------------------- ------------------ ------------------ ------------------ -------- --------
Total return(5) 13.85% 13.14% 20.23% 19.34% 16.92% 7.71%(3) 23.42% (2.02)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $323,498 $57,876 $177,239 $30,688 $116,852 $3,557 $76,368 $73,574
- -------------------------------------------- ------------------ ------------------ ------------------ -------- --------
RATIOS TO AVERAGE NET ASSETS:
Net investment income
including reimbursement/waiver 2.43% 1.77% 2.66% 1.95% 2.29% 1.73%(4) 2.52% 2.66%
- -------------------------------------------- ------------------ ------------------ ------------------ -------- --------
Operating expenses including
reimbursement/waiver 1.33% 1.99% 1.37% 2.10% 1.42% 1.95%(4) 1.48% 1.21%
- -------------------------------------------- ------------------ ------------------ ------------------ -------- --------
Operating expenses excluding
reimbursement/waiver 1.33% 1.99% 1.37% 2.19% 1.42% 2.15%(4) 1.50% 1.22%
- -------------------------------------------- ------------------ ------------------ ------------------ -------- --------
Portfolio turnover rate 108% 108% 58% 58% 48% 48% 41% 23%
</TABLE>
(1) The Fund began issuing Retail B Shares on March 4, 1996.
(2) Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for Retail A Shares for the years
ended October 31, 1998, 1997, 1996, 1995 and 1994 was $0.38, $0.40, $0.30,
$0.30 and $0.27, respectively. Net investment income per share before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for Retail B Shares for the years ended October 31, 1998 and 1997 and for
the period ended October 31, 1996 was $0.29, $0.28 and $0.12, respectively.
(3) Not annualized.
(4) Annualized.
(5) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares.
44 GALAXY EQUITY FUNDS
<PAGE>
GALAXY EQUITY INCOME FUND
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
FOR THE YEAR ENDING OCTOBER 31,
-------------------------------------------------
1998 1997 1996 1995 1994
--------- -------- -------- -------- --------
Retail A Retail A Retail A Retail A Retail A
Shares Shares Shares Shares Shares
- -------------------------------------------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $18.82 $16.91 $14.98 $12.74 $12.85
- -------------------------------------------- --------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(1) 0.25 0.30 0.30 0.28 0.30
- -------------------------------------------- --------- -------- -------- -------- --------
Net realized and unrealized
gain on investments 2.43 3.35 2.47 2.47 0.07
- -------------------------------------------- --------- -------- -------- -------- --------
Total from investment operations 2.68 3.65 2.77 2.75 0.37
LESS DIVIDENDS:
Dividends from net investment
income (0.25) (0.30) (0.30) (0.30) (0.29)
- -------------------------------------------- --------- -------- -------- -------- --------
Dividends from net realized
capital gains (1.58) (1.44) (0.54) (0.21) (0.19)
- -------------------------------------------- --------- -------- -------- -------- --------
Total dividends (1.83) (1.74) (0.84) (0.51) (0.48)
Net increase (decrease) in net
asset value 0.85 1.91 1.93 2.24 (0.11)
- -------------------------------------------- --------- -------- -------- -------- --------
Net asset value, end of period $19.67 $18.82 $16.91 $14.98 $12.74
- -------------------------------------------- --------- -------- -------- -------- --------
- -------------------------------------------- --------- -------- -------- -------- --------
Total return(2) 15.23% 23.28% 19.01% 22.23% 2.94%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $207,850 $169,276 $126,952 $81,802 $63,532
- -------------------------------------------- --------- -------- -------- -------- --------
RATIOS TO AVERAGE NET ASSETS:
Net investment income
including reimbursement/waiver 1.30% 1.70% 1.86% 2.08% 2.45%
- -------------------------------------------- --------- -------- -------- -------- --------
Operating expenses including
reimbursement/waiver 1.34% 1.39% 1.40% 1.49% 1.11%
- -------------------------------------------- --------- -------- -------- -------- --------
Operating expenses excluding
reimbursement/waiver 1.34% 1.41% 1.40% 1.51% 1.12%
- -------------------------------------------- --------- -------- -------- -------- --------
Portfolio turnover rate 46% 37% 45% 21% 31%
</TABLE>
(1) Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for Retail A Shares for the years
ended October 31, 1998, 1997, 1996, 1995 and 1994 was $0.25, $0.30, $0.30,
$0.28 and $0.30, respectively.
(2) Calculation does not include the effect of any sales charge for
Retail A Shares.
GALAXY EQUITY FUNDS 45
<PAGE>
GALAXY GROWTH AND INCOME FUND(1)
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
FOR THE YEAR ENDING OCTOBER 31,
-------------------------------------------------------------------------------
1998 1997 1996(2) 1995 1994
------------------ ------------------ ------------------- -------- --------
Retail A Retail B Retail A Retail B Retail A Retail B Retail A Retail A
Shares Shares Shares Shares Shares Shares(2) Shares Shares
- -------------------------------------------- ------------------ ------------------ ------------------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $16.24 $16.23 $13.78 $13.77 $12.35 $12.97 $11.15 $10.69
- -------------------------------------------- ------------------ ------------------ ------------------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(3) 0.12 -(7) 0.18 0.10 0.21 0.07 0.24 0.22
- -------------------------------------------- ------------------ ------------------ ------------------- -------- --------
Net realized and unrealized
gain on investments 1.32 1.31 3.67 3.65 2.16 0.81 1.70 0.72
- -------------------------------------------- ------------------ ------------------ ------------------- -------- --------
Total from investment operations 1.44 1.31 3.85 3.75 2.37 0.88 1.94 0.94
LESS DIVIDENDS:
Dividends from net investment
income (0.13) (0.03) (0.20) (0.10) (0.21) (0.08) (0.25) (0.20)
- -------------------------------------------- ------------------ ------------------ ------------------- -------- --------
Dividends from net realized
capital gains (2.68) (2.68) (1.19) (0.19) (0.73) - (0.49) (0.28)
- -------------------------------------------- ------------------ ------------------ ------------------- -------- --------
Total dividends (2.81) (2.71) (1.39) (1.29) (0.94) (0.08) (0.74) (0.48)
Net increase (decrease) in net
asset value (1.37) (1.40) 2.46 2.46 1.43 0.80 1.20 0.46
- -------------------------------------------- ------------------ ------------------ ------------------- -------- --------
Net asset value, end of period $14.87 $14.83 $16.24 $16.23 $13.78 $13.77 $12.35 $11.15
- -------------------------------------------- ------------------ ------------------ ------------------- -------- --------
- -------------------------------------------- ------------------ ------------------ ------------------- -------- --------
Total return(4) 9.93% 9.09% 30.10% 29.11% 20.25% 6.83%(5) 18.52% 9.12%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $214,110 $53,216 $141,884 $35,178 $77,776 $4,562 $51,078 $22,244
- -------------------------------------------- ------------------ ------------------ ------------------- -------- --------
RATIOS TO AVERAGE NET ASSETS:
Net investment income
including reimbursement/waiver 0.75% 0.01% 1.18% 0.31% 1.65% 0.79%(6) 2.10% 2.06%
- -------------------------------------------- ------------------ ------------------ ------------------- -------- --------
Operating expenses including
reimbursement/waiver 1.28% 2.02% 1.27% 2.05% 1.34% 1.96%(6) 1.32% 1.29%
- -------------------------------------------- ------------------ ------------------ ------------------- -------- --------
Operating expenses excluding
reimbursement/waiver 1.35% 2.02% 1.45% 2.28% 1.45% 2.11%(6) 1.77% 1.74%
- -------------------------------------------- ------------------ ------------------ ------------------- -------- --------
Portfolio turnover rate 38% 38% 93% 93% 59% 59% 51% 73%
</TABLE>
(1) The Fund commenced operations on December 14, 1992 as a separate investment
portfolio (the "Predecessor Fund") of The Shawmut Funds. The Predecessor
Fund began offering Investment Shares on February 12, 1993. On December
4, 1995, the Predecessor Fund was reorganized as a new portfolio of Galaxy.
Prior to the reorganization, the Predecessor Fund offered and sold two
series of shares, Investment Shares and Trust Shares, that were similar to
the Fund's Retail A Shares and Trust Shares, respectively. In connection
with the reorganization, shareholders of the Predecessor Fund exchanged
Investment Shares and Trust Shares for Retail A Shares and Trust Shares,
respectively, in the Fund.
(2) The Fund began issuing Retail B Shares on March 4, 1996.
(3) Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for Retail A Shares for the years
ended October 31, 1998, 1997 and 1996 was $0.10, $0.18 and $0.19,
respectively. Net investment income per share before reimbursement/waiver
of fees by the Adviser and/or the Fund's administrator for Retail B Shares
for the years ended October 31, 1998 and 1997 and for the period ended
October 31, 1996 was $0.00, $0.08 and $0.05, respectively. Net investment
income per share before reimbursement/waiver of fees by other parties for
Retail A Shares for the years ended October 31, 1995 and 1994 was $0.22 and
$0.18, respectively (unaudited).
(4) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares.
(5) Not annualized.
(6) Annualized.
(7) Net investment income per share is less than $0.005.
46 GALAXY EQUITY FUNDS
<PAGE>
GALAXY STRATEGIC EQUITY FUND
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
FOR THE PERIOD ENDING
OCTOBER 31, 1998(1)
-----------------------
Retail A Retail B
Shares Shares
- ---------------------------------------------- --------- --------
<S> <C> <C>
Net asset value, beginning of period $10.00 $10.00
- ---------------------------------------------- --------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)(2) -(3) (0.02)
- ---------------------------------------------- --------- --------
Net realized and unrealized
(loss) on investments (0.38) (0.37)
- ---------------------------------------------- --------- --------
Total from investment operations (0.38) (0.39)
LESS DIVIDENDS:
Dividends from net investment income - -
- ---------------------------------------------- --------- --------
Dividends from net realized capital gains - -
- ---------------------------------------------- --------- --------
Total dividends - -
Net (decrease) in net asset value (0.38) (0.39)
- ---------------------------------------------- --------- --------
Net asset value, end of period $9.62 $9.61
- ---------------------------------------------- --------- --------
- ---------------------------------------------- --------- --------
Total return(4) (3.75)%(5) 4.76%(5)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $4,051 $583
- ---------------------------------------------- --------- --------
RATIOS TO AVERAGE NET ASSETS:
Net investment income including
reimbursement/waiver 0.06%(6) (0.55)%(6)
- ---------------------------------------------- --------- --------
Operating expenses including
reimbursement/waiver 1.40%(6) 2.01%(6)
- ---------------------------------------------- --------- --------
Operating expenses excluding
reimbursement/waiver 2.41%(6) 3.05%(6)
- ---------------------------------------------- --------- --------
Portfolio turnover rate 30%(5) 30%(5)
</TABLE>
(1) The Fund commenced operations on March 4, 1998.
(2) Net investment income (loss) per share before reimbursement/waiver of
fees by Adviser and/or the the Fund's administrator for retail A Shares for
the period ended October 31, 1998 was $0.00. Net investment income (loss)
per share before reimbursement/waiver of fees by the Adviser and/or the
Fund's administrator for Retail B Shares for period ended October 31, 1998
was $-0.06.
(3) Net investment income per share is less than $0.00.
(4) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares.
(5) Not annualized.
(6) Annualized.
GALAXY EQUITY FUNDS 47
<PAGE>
GALAXY EQUITY VALUE FUND
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
FOR THE YEAR ENDING OCTOBER 31,
------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------------ ------------------ ------------------- -------- --------
Retail A Retail B Retail A Retail B Retail A Retail B Retail A Retail A
Shares Shares Shares Shares Shares Shares(1) Shares Shares
- -------------------------------------------- ------------------ ------------------ ------------------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $18.21 $18.24 $15.96 $15.99 $14.33 $14.74 $13.31 $13.12
- -------------------------------------------- ------------------ ------------------ ------------------ -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)(2) 0.03 (0.08) 0.11 - 0.14 0.04 0.22 0.18
- -------------------------------------------- ------------------ ------------------ ------------------ -------- --------
Net realized and unrealized
gain on investments 1.50 1.48 4.16 4.17 2.74 1.25 2.24 0.45
- -------------------------------------------- ------------------ ------------------ ------------------ -------- --------
Total from investment operations 1.53 1.40 4.27 4.17 2.88 1.29 2.46 0.63
LESS DIVIDENDS:
Dividends from net investment
income (0.04) - (0.12) (0.02) (0.14) (0.04) (0.23) (0.16)
- -------------------------------------------- ------------------ ------------------ ------------------ -------- --------
Dividends from net realized
capital gains (3.20) (3.20) (1.90) (1.90) (1.11) - (1.21) (0.28)
- -------------------------------------------- ------------------ ------------------ ------------------ -------- --------
Total dividends (3.24) (3.20) (2.02) (1.92) (1.25) (0.04) (1.44) (0.44)
Net increase (decrease) in net
asset value (1.71) (1.80) 2.25 2.25 1.63 1.25 1.02 0.19
- -------------------------------------------- ------------------ ------------------ ------------------ -------- --------
Net asset value, end of period $16.50 $16.44 $18.21 $18.24 $15.96 $15.99 $14.33 $13.31
- -------------------------------------------- ------------------ ------------------ ------------------ -------- --------
- -------------------------------------------- ------------------ ------------------ ------------------ -------- --------
Total return(3) 9.88% 9.07% 29.48% 28.60% 21.49% 8.80%(4) 20.81% 4.97%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $234,730 $23,103 $182,641 $14,958 $131,998 $1,916 $96,555 $74,001
- -------------------------------------------- ------------------ ------------------ ------------------ -------- --------
RATIOS TO AVERAGE NET ASSETS:
Net investment income
including reimbursement/waiver 0.15% (0.54)% 0.63% (0.13)% 1.00% 0.43%(5) 1.62% 1.45%
- -------------------------------------------- ------------------ ------------------ ------------------ -------- --------
Operating expenses including
reimbursement/waiver 1.37% 2.06% 1.38% 2.07% 1.45% 1.94%(5) 1.49% 1.08%
- -------------------------------------------- ------------------ ------------------ ------------------ -------- --------
Operating expenses excluding
reimbursement/waiver 1.37% 2.06% 1.38% 2.38% 1.45% 2.24%(5) 1.50% 1.11%
- -------------------------------------------- ------------------ ------------------ ------------------ -------- --------
Portfolio turnover rate 82% 82% 111% 111% 116% 116% 76% 71%
</TABLE>
(1) The Fund began issuing Retail B Shares on March 4, 1996.
(2) Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for Retail A Shares for the years
ended October 31, 1998, 1997, 1996, 1995 and 1994 was $0.03, $0.11, $0.14,
$0.22 and $0.18, respectively. Net investment income (loss) per share
before reimbursement/waiver of fees by the Adviser and/or the Fund's
administrator for Retail B Shares for the years ended October 31, 1998 and
1997 and for the period ended October 31, 1996 was $-0.08, $-0.03 and
$0.01, respectively.
(3) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares.
(4) Not annualized.
(5) Annualized.
48 GALAXY EQUITY FUNDS
<PAGE>
GALAXY EQUITY GROWTH FUND
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
FOR THE YEAR ENDING OCTOBER 31,
------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------------- ------------------- ---------------------- -------- --------
Retail A Retail B Retail A Retail B Retail A Retail B Retail A Retail A
Shares Shares Shares Shares Shares Shares(1) Shares Shares
- --------------------------------------- ------------------- ------------------- ---------------------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $25.14 $24.91 $20.37 $20.26 $17.29 $18.77 $14.18 $13.76
- --------------------------------------- ------------------- ------------------- ---------------------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)(2) 0.01 (0.16)(2) 0.07 (0.09)(4) 0.10 (0.01) 0.14 0.17
- --------------------------------------- ------------------- ------------------- ---------------------- -------- --------
Net realized and unrealized
gain on investments 3.19 3.16 6.05 6.02 3.39 1.50 3.28 0.47
- --------------------------------------- ------------------- ------------------- ---------------------- -------- --------
Total from investment operations 3.20 3.00 6.12 5.93 3.49 1.49 3.42 0.64
LESS DIVIDENDS:
Dividends from net investment
income (0.03) - (0.07) - (0.11) - (0.14) (0.16)
- --------------------------------------- ------------------- ------------------- ---------------------- -------- --------
Dividends in excess of net
investment income -(5) - - - - - - -
- --------------------------------------- ------------------- ------------------- ---------------------- -------- --------
Dividends from net realized
capital gains (3.84) (3.84) (1.28) (1.28) (0.30) - (0.17) (0.06)
- --------------------------------------- ------------------- ------------------- ---------------------- -------- --------
Total dividends (3.87) (3.84) (1.35) (1.28) (0.41) - (0.31) (0.22)
Net increase (decrease) in net
asset value (0.67) (0.84) 4.77 4.65 3.08 1.49 3.11 0.42
- --------------------------------------- ------------------- ------------------- ---------------------- -------- --------
Net asset value, end of period $24.47 $24.07 $25.14 $24.91 $20.37 $20.26 $17.29 $14.18
- --------------------------------------- ------------------- ------------------- ---------------------- -------- --------
- --------------------------------------- ------------------- ------------------- ---------------------- -------- --------
Total return(3) 14.73% 13.98% 31.61% 30.78% 20.51% 7.95%(6) 24.54% 4.72%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $312,951 $34,693 $226,330 $20,363 $160,800 $3,995 $98,911 $70,338
- --------------------------------------- ------------------- ------------------- ---------------------- -------- --------
RATIOS TO AVERAGE NET ASSETS:
Net investment income
including reimbursement/waiver 0.02% (0.68)% 0.30% (0.40)% 0.50% (0.16)%(7) 0.85% 1.22%
- --------------------------------------- ------------------- ------------------- ---------------------- -------- --------
Operating expenses including
reimbursement/waiver 1.34% 2.04% 1.37% 2.07% 1.40% 1.92%(7) 1.45% 0.98%
- --------------------------------------- ------------------- ------------------- ---------------------- -------- --------
Operating expenses excluding
reimbursement/waiver 1.34% 2.04% 1.37% 2.30% 1.40% 2.29%(7) 1.47% 0.99%
- --------------------------------------- ------------------- ------------------- ---------------------- -------- --------
Portfolio turnover rate 60% 60% 66% 66% 36% 36% 14% 18%
</TABLE>
(1) The Fund began issuing Retail B Shares on March 4, 1996.
(2) Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for Retail A Shares for the years
ended October 31, 1998, 1997, 1996, 1995 and 1994 was $0.01, $0.07, $0.10,
$0.13 and $0.17, respectively. Net investment income (loss) per share
before reimbursement/waiver of fees by the Adviser and/or the Fund's
administrator for Retail B Shares for the years ended October 31, 1998 and
1997 and for the period ended October 31, 1996 was $-0.16(4), $-0.14(4)
and $-0.03, respectively.
(3) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares.
(4) The selected per share data was calculated using the weighted average
shares outstanding method for the year.
(5) Dividends in excess of net investment income per share were less than
$0.005.
(6) Not annualized.
(7) Annualized.
GALAXY EQUITY FUNDS 49
<PAGE>
GALAXY INTERNATIONAL EQUITY FUND
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
FOR THE YEAR ENDING OCTOBER 31,
-------------------------------------------------
1998 1997 1996 1995 1994
--------- -------- -------- -------- --------
Retail A Retail A Retail A Retail A Retail A
Shares Shares Shares Shares Shares
- -------------------------------------------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $15.18 $13.94 $12.92 $13.20 $12.13
- -------------------------------------------- --------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(1) 0.07 0.01 0.11 0.11 0.06
- -------------------------------------------- --------- -------- -------- -------- --------
Net realized and unrealized
gain (loss) on investments 1.93 2.09 1.27 (0.21) 1.02
- -------------------------------------------- --------- -------- -------- -------- --------
Total from investment operations 2.00 2.10 1.38 (0.10) 1.08
LESS DIVIDENDS:
Dividends from net investment
income (0.07) (0.18) (0.12) (0.02) (0.01)
- -------------------------------------------- --------- -------- -------- -------- --------
Dividends from net realized
capital gains (0.36) (0.68) (0.24) (0.16) -
- -------------------------------------------- --------- -------- -------- -------- --------
Total dividends (0.43) (0.86) (0.36) (0.18) (0.01)
Net increase (decrease) in net
asset value 1.57 1.24 1.02 (0.28) 1.07
- -------------------------------------------- --------- -------- -------- -------- --------
Net asset value, end of period $16.75 $15.18 $13.94 $12.92 $13.20
- -------------------------------------------- --------- -------- -------- -------- --------
- -------------------------------------------- --------- -------- -------- -------- --------
Total return(2) 13.64% 15.88% 10.86% (0.64)% 8.91%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $66,541 $56,592 $35,144 $30,104 $32,887
- -------------------------------------------- --------- -------- -------- -------- --------
RATIOS TO AVERAGE NET ASSETS:
Net investment income
including reimbursement/waiver 0.39% 0.03% 0.78% 0.84% 0.69%
- -------------------------------------------- --------- -------- -------- -------- --------
Operating expenses including
reimbursement/waiver 1.48% 1.60% 1.70% 1.76% 1.49%
- -------------------------------------------- --------- -------- -------- -------- --------
Operating expenses excluding
reimbursement/waiver 1.73% 1.85% 1.98% 2.03% 1.79%
- -------------------------------------------- --------- -------- -------- -------- --------
Portfolio turnover rate 49% 45% 146% 48% 39%
</TABLE>
(1) Net investment income (loss) per share before reimbursement/waiver of fees
by the Adviser and/or the Fund's administrator for Retail A Shares for the
years ended October 31, 1998, 1997, 1996, 1995 and 1994 was $0.03, $-0.01,
$0.07, $0.08 and $0.03, respectively.
(2) Calculation does not include the effect of any sales charge for
Retail A Shares.
50 GALAXY EQUITY FUNDS
<PAGE>
GALAXY SMALL CAP VALUE FUND
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
FOR THE YEAR ENDING OCTOBER 31,
--------------------------------------------------
1998 1997 1996(1) 1995 1994
-------- -------- -------- -------- --------
Retail A Retail A Retail A Retail A Retail A
Shares Shares Shares Shares Shares
- -------------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $18.29 $14.75 $12.68 $11.06 $11.21
- -------------------------------------------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)(2) 0.08 (0.04)(4) 0.01 (0.02) (0.01)
- -------------------------------------------- -------- -------- -------- -------- --------
Net realized and unrealized
gain (loss) on investments (2.08) 5.72 2.95 2.21 0.18
- -------------------------------------------- -------- -------- -------- -------- --------
Total from investment operations (2.00) 5.68 2.96 2.19 0.17
LESS DIVIDENDS:
Dividends from net investment
income (0.08) - (0.02) - -
- -------------------------------------------- -------- -------- -------- -------- --------
Dividends in excess of net
investment income - - - - -
- -------------------------------------------- -------- -------- -------- -------- --------
Dividends from net realized
capital gains (2.68) (2.14) (0.87) (0.57) (0.32)
- -------------------------------------------- -------- -------- -------- -------- --------
Total dividends (2.76) (2.14) (0.89) (0.57) (0.32)
Net increase (decrease) in net
asset value (4.76) 3.54 2.07 1.62 (0.15)
- -------------------------------------------- -------- -------- -------- -------- --------
Net asset value, end of period $13.53 $18.29 $14.75 $12.68 $11.06
- -------------------------------------------- -------- -------- -------- -------- --------
- -------------------------------------------- -------- -------- -------- -------- --------
Total return(3) (12.52)% 43.58% 24.77% 21.27% 1.64%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $87,781 $63,658 $34,402 $27,546 $19,764
- -------------------------------------------- -------- -------- -------- -------- --------
RATIOS TO AVERAGE NET ASSETS:
Net investment income
including reimbursement/waiver 0.38% (0.25)% 0.08% (0.19)% (0.10)%
- -------------------------------------------- -------- -------- -------- -------- --------
Operating expenses including
reimbursement/waiver 1.31% 1.30% 1.40% 1.35% 1.31%
- -------------------------------------------- -------- -------- -------- -------- --------
Operating expenses excluding
reimbursement/waiver 1.45% 1.52% 1.55% 1.85% 1.84%
- -------------------------------------------- -------- -------- -------- -------- --------
Portfolio turnover rate 33% 52% 39% 32% 29%
</TABLE>
(1) The Fund commenced operations on December 14, 1992 as a separate investment
portfolio (the "Predecessor Fund") of The Shawmut Funds. The Predecessor
Fund began offering Investment Shares on February 12, 1993. On December 4,
1995, the Predecessor Fund was reorganized as a new portfolio of Galaxy.
Prior to the reorganization, the Predecessor Fund offered and sold two
series of shares, Investment Shares and Trust Shares, that were similar to
the Fund's Retail A and Trust Shares, respectively. In connection with the
reorganization, shareholders of the Predecessor Fund exchanged Investment
Shares and Trust Shares for Retail A Shares and Trust Shares, respectively,
in the Fund.
(2) Net investment income (loss) per share before reimbursement/waiver of fees
by the Adviser and/or the Fund's administrator for Retail A Shares for the
years ended October 31, 1998, 1997 and 1996 was $0.05, $-0.02 and $0.01,
respectively. Net investment income (loss) per share before
reimbursement/waiver of fees by other parties for Retail A Shares for the
years ended October 31, 1995 and 1994 was $-0.08 and $-0.06, respectively
(unaudited).
(3) Calculation does not include the effect of any sales charge for Retail A
Shares.
(4) The selected per share data was calculated using the weighted average
shares outstanding method for the year.
GALAXY EQUITY FUNDS 51
<PAGE>
GALAXY SMALL COMPANY EQUITY FUND
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
FOR THE YEAR ENDING OCTOBER 31,
----------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------------ ------------------- ----------------------- -------- --------
Retail A Retail B Retail A Retail B Retail A Retail B Retail A Retail A
Shares Shares Shares Shares Shares(1) Shares(1) Shares Shares
- -------------------------------------- ------------------ ------------------- ----------------------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $20.94 $20.73 $19.96 $19.91 $16.28 $17.27 $12.35 $12.41
- -------------------------------------- ------------------- ------------------- ----------------------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)(2) (0.19) (0.30) (0.18) (0.21) (0.14) (0.19)(3) (0.09) (0.01)
- -------------------------------------- ------------------- ------------------- ----------------------- -------- --------
Net realized and unrealized
gain (loss) on investments (4.86) (4.78) 3.54 3.41 3.99 2.83 4.21 -
- -------------------------------------- ------------------- ------------------- ----------------------- -------- --------
Total from investment operations (5.05) (5.08) 3.36 3.20 3.85 2.64 4.12 (0.01)
LESS DIVIDENDS:
Dividends from net investment
income - - - - - - - -
- -------------------------------------- ------------------- ------------------- ----------------------- -------- --------
Dividends from net realized
capital gains (2.26) (2.26) (2.38) (2.38) (0.17) - (0.19) (0.05)
- -------------------------------------- ------------------- ------------------- ----------------------- -------- --------
Total dividends (2.26) (2.26) (2.38) (2.38) (0.17) - (0.19) (0.05)
Net increase (decrease) in net
asset value (7.31) (7.34) 0.98 0.82 3.68 2.64 3.93 (0.06)
- -------------------------------------- ------------------- ------------------- ----------------------- -------- --------
Net asset value, end of period $13.63 $13.39 $20.94 $20.73 $19.96 $19.91 $16.28 $12.35
- -------------------------------------- ------------------- ------------------- ----------------------- -------- --------
- -------------------------------------- ------------------- ------------------- ----------------------- -------- --------
Total return(4) (26.26)% (26.72)% 19.08% 18.23% 23.97% 15.34%(5) 34.01% (0.06)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $95,831 $12,565 $135,593 $14,731 $111,101 $3,659 $45,668 $30,845
- -------------------------------------- ------------------- ------------------- ----------------------- -------- --------
RATIOS TO AVERAGE NET ASSETS:
Net investment income
including reimbursement/waiver (1.13)% (1.78)% (1.02)% (1.76)% (1.03)% (1.50)%(6) (0.85)% (0.40)%
- -------------------------------------- ------------------ ------------------- ----------------------- -------- --------
Operating expenses including
reimbursement/waiver 1.46% 2.11% 1.46% 2.20% 1.57% 2.04%(6) 1.60% 1.31%
- -------------------------------------- ------------------ ------------------- ----------------------- -------- --------
Operating expenses excluding
reimbursement/waiver 1.47% 2.16% 1.48% 2.44% 1.57% 2.44%(6) 1.64% 1.34%
- -------------------------------------- ------------------ ------------------- ----------------------- -------- --------
Portfolio turnover rate 78% 78% 69% 69% 82% 82% 54% 35%
</TABLE>
(1) The Fund began issuing Retail B Shares on March 4, 1996.
(2) Net investment income (loss) per share before reimbursement/waiver of
fees by the Adviser and/or the Fund's administrator for Retail A Shares for
the years ended October 31, 1998, 1997, 1996, 1995 and 1994 was $-0.19,
$-0.18, $-0.14, $-0.09 and $-0.01, respectively. Net investment
income (loss) per share before reimbursement/waiver of fees by the Adviser
and/or the Fund's administrator for Retail B Shares for the years ended
October 31, 1998 and 1997 and for the period ended October 31, 1996 was
$-0.30, $-0.24 and $-0.24, respectively.
(3) The selected per share data was calculated using the weighted average
shares outstanding method for the period.
(4) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares.
(5) Not annualized.
(6) Annualized.
52 GALAXY EQUITY FUNDS
<PAGE>
WHERE TO FIND MORE INFORMATION
You'll find more information about the Funds in the following documents:
ANNUAL AND SEMI-ANNUAL REPORTS
Galaxy's annual and semi-annual reports contain more information about each Fund
and a discussion about the market conditions and investment strategies that had
a significant effect on each Fund's performance during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains detailed information about the Funds and their policies. By
law, it's incorporated by reference into (considered to be part of) this
prospectus.
You can get a free copy of these documents, request other information about the
Funds and make shareholder inquiries by calling Galaxy at 1-877-BUY-GALAXY
(1-877-289-4252) or by writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
If you buy your shares through a financial institution, you may contact your
institution for more information.
You can write to the Securities and Exchange Commission (SEC) Public Reference
Section and ask them to mail you information about the Funds, including the SAI.
They'll charge you a fee for this service. You can also visit the SEC Public
Reference Room and copy the documents while you're there. For information about
the operation of the Public Reference Room, call the SEC.
Public Reference Section of the SEC
Washington, DC 20549-6009
1-800-SEC-0330.
Reports and other information about the Funds are also available on the SEC's
website at http://www.sec.gov.
Galaxy's Investment Company Act File No. is 811-4636.
PROGALEQ 3/1/99
<PAGE>
[GRAPHIC]
GALAXY EQUITY FUNDS
THE GALAXY FUND
PROSPECTUS
February 28, 1999
Galaxy Asset Allocation Fund
Galaxy Equity Income Fund
Galaxy Growth and Income Fund
Galaxy Strategic Equity Fund
Galaxy Equity Value Fund
Galaxy Equity Growth Fund
Galaxy International Equity Fund
Galaxy Small Cap Value Fund
Galaxy Small Company Equity Fund
TRUST SHARES
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved any shares of these Funds or determined if this
prospectus is accurate or complete. Anyone who tells you otherwise is committing
a crime.
[LOGO]
<PAGE>
CONTENTS
<TABLE>
<S> <C>
1 RISK/RETURN SUMMARY
1 Introduction
2 Galaxy Asset Allocation Fund
6 Galaxy Equity Income Fund
8 Galaxy Growth and Income Fund
11 Galaxy Strategic Equity Fund
13 Galaxy Equity Value Fund
16 Galaxy Equity Growth Fund
19 Galaxy International Equity Fund
22 Galaxy Small Cap Value Fund
25 Galaxy Small Company Equity Fund
28 Additional information about risk
29 Investor guidelines
30 FUND MANAGEMENT
31 HOW TO INVEST IN THE FUNDS
31 Buying and selling shares
31 HOW TO BUY SHARES
32 HOW TO SELL SHARES
32 OTHER TRANSACTION POLICIES
33 DIVIDENDS, DISTRIBUTIONS AND TAXES
34 FINANCIAL HIGHLIGHTS
</TABLE>
<PAGE>
RISK/RETURN SUMMARY
INTRODUCTION
THIS PROSPECTUS describes the Galaxy Equity Funds. Each Fund invests primarily
or to a significant degree in equity securities, such as common stock, preferred
stock and securities that are convertible into common stock.
On the following pages, you'll find important information about each Fund,
including:
- - the Fund's investment objective (sometimes called the Fund's goal) and the
main investment strategies used by the Fund's investment adviser in trying
to achieve that objective
- - the main risks associated with an investment in the Fund
- - the Fund's past performance measured on both a year-by-year and long-term
basis
- - the fees and expenses that you will pay as an investor in the Fund.
WHICH FUND IS RIGHT FOR YOU?
Not all mutual funds are for everyone. Your investment goals and tolerance for
risk will determine which fund is right for you.
Equity funds are generally best suited to investors seeking growth of their
investment over time and who are prepared to accept the risks associated with
equity securities. Equity funds have the potential for higher returns than
other funds, such as bond funds or money market funds, but also carry more
risk.
Different equity funds have different levels of risk. They have varying
objectives and investment styles, and some are considered more aggressive
than others. Generally, a fund's objective and the types of investments it
makes can help you gauge its level of risk. On page 29, you'll find a table
that gives a general overview of the risk spectrum of the Galaxy Equity Funds.
THE FUNDS' INVESTMENT ADVISER
Fleet Investment Advisors Inc., which is referred to in this prospectus as
the ADVISER, is the investment adviser for all of these Funds. The Adviser,
an indirect wholly-owned subsidiary of Fleet Financial Group, Inc., was
established in 1984 and has its main office at 75 State Street, Boston,
Massachusetts 02109. The Adviser also provides investment management and
advisory services to individual and institutional clients and manages the
other Galaxy investment portfolios. As of December 31, 1998, the Adviser
managed over $64 billion in assets.
- --------------------------------------------------------------------------------
AN INVESTMENT IN THE FUNDS ISN'T A FLEET BANK DEPOSIT AND IT ISN'T INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. YOU COULD LOSE MONEY BY INVESTING IN THE FUNDS.
GALAXY EQUITY FUNDS 1
<PAGE>
GALAXY ASSET ALLOCATION FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks a high total return by providing both a current level of income
that is greater than that provided by the popular stock market averages, as well
as long-term growth in the value of the Fund's assets.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund aims to provide income that is higher than that provided by the
popular stock market averages. The Adviser interprets this to mean the Dow
Jones Industrial Average of 30 major companies and the Standard & Poor's 500
Composite Stock Price Index (commonly referred to as the S&P 500). Due to the
Fund's expenses, however, net income paid to you may be less than that. The
Fund also seeks long-term growth in the value of its assets. The Adviser
attempts to achieve these goals and reduce risk by allocating the Fund's
assets among short-term debt securities, common stocks, preferred stocks and
bonds.
The Fund seeks a mix of stocks and bonds that will produce both income and
long-term capital growth. This mix will change from time to time as a result of
economic and market conditions. However, the Fund keeps at least 25% of its
total assets in fixed income investments, including debt securities and
preferred stocks, at all times.
Debt securities purchased by the Fund will be of investment grade quality,
which means that they will have one of the top four ratings assigned by
Standard & Poor's Ratings Group (S&P) or Moody's Investor Services, Inc.
(Moody's), or will be unrated securities determined by the Adviser to be of
comparable quality. Occasionally, the rating of a security held by the Fund
may be downgraded below investment grade. If that happens, the Fund doesn't
have to sell the security, unless the Adviser determines that under the
circumstances, the security is no longer an appropriate investment for the
Fund.
In selecting portfolio securities for the Fund, the Adviser's investment policy
committee develops an economic outlook and sets guidelines for the industries
and sectors in which the Fund should invest. It also forecasts the direction and
degree of change in long-term interest rates to help in the selection of fixed
income securities.
The Fund will sell a security when, as a result of changes in the economy,
the Adviser determines it appropriate to revise the allocation of the Fund's
assets between stocks and bonds. A security may also be sold as a result of
a deterioration in the performance of the security or in the financial
condition of the issuer of the security.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
The value of your investment in the Fund will go up and down with the value
of the investments which the Fund holds. The Fund's investments may not
perform as well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The value of fixed income investments such as bonds
are
[Sidenote:]
CURRENT INCOME
Current income includes both dividends from stocks and interest income from
fixed income securities, less Fund expenses.
2 GALAXY EQUITY FUNDS
<PAGE>
GALAXY ASSET ALLOCATION FUND
affected by movements in interest rates. Bond prices tend to fall when
interest rates rise and to rise when interest rates fall.
- - CREDIT RISK - The value of fixed income investments also depends on the
ability of an issuer to make principal and interest payments. If an issuer
can't meet its payment obligations or if its credit rating is lowered, the
value of its securities will decline.
Debt securities which have the lowest of the four investment grade ratings
assigned by S&P or Moody's have speculative characteristics. Changes in the
economy are more likely to affect the ability of issuers of these
securities to make payments of principal and interest than is the case with
higher-rated securities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
fixed income investments held by the Fund to be paid off much sooner or
later than expected, which could adversely affect the Fund's value.
- - PORTFOLIO COMPOSITION - The level of risk could increase if a larger
percentage of the Fund is invested in one particular asset class, such as
stocks or bonds. However, asset allocation funds are generally less
volatile than portfolios that contain only stocks.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
- - FREQUENT TRADING - The Fund may trade its investments frequently in trying
to achieve its investment goal. This usually increases the chance that the
Fund will pay investors short-term capital gains. These gains are taxable
at higher rates than long-term capital gains. Frequent trading could also
mean higher brokerage commissions and other transaction costs, which could
reduce the Fund's returns.
- --------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past. Both
assume that all dividends and distributions are reinvested in the Fund. How the
Fund has performed in the past doesn't necessarily show how it will perform in
the future.
GALAXY EQUITY FUNDS 3
<PAGE>
GALAXY ASSET ALLOCATION FUND
YEAR-BY-YEAR TOTAL RETURNS -- CALENDAR YEARS
The bar chart shows how the performance of Trust Shares has varied from year to
year, thereby giving some indication of the risk of investing in the Fund.
BEST QUARTER
11.74% for the quarter ending December 31, 1998
WORST QUARTER
- -3.75% for the quarter ending September 30, 1998
[CHART]
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
6.58% 8.08% (2.29)% 30.54% 15.36% 19.86% 17.89%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1998 as compared to a broad-based market index.
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS INCEPTION
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Trust Shares 17.89% 15.76% 13.28% (12/30/91)
- --------------------------------------------------------------------------------
S&P 500 28.60% 24.05% 19.50% (since 12/31/91)
- --------------------------------------------------------------------------------
DJIA 18.15% 22.30% 19.29% (since 12/31/91)
- --------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The S&P 500 is an unmanaged index that tracks the performance of 500 widely held
common stocks listed on the New York Stock Exchange, the American Stock Exchange
and NASDAQ. The S&P 500 is heavily weighted with the stocks of large companies.
[Sidenote:]
The Dow Jones Industrial Average (DJIA) is an unmanaged price-weighted
average based on the "price only" performance of 30 blue chip stocks.
4 GALAXY EQUITY FUNDS
<PAGE>
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
ANNUAL FUND OPERATING EXPENSES (FEES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT DISTRIBUTION OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75% None 0.43% 1.18%
- --------------------------------------------------------------------------------
</TABLE>
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $120 $275 $649 $1,432
- --------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGERS
The Fund's portfolio managers are Donald Jones, a Vice President of the Adviser
since 1991, and David Lindsay, CFA, a Senior Vice President of the Adviser since
1992. They are primarily responsible for the day-to-day management of the Fund's
investment portfolio. Mr. Jones has managed the equity portion of the Fund's
portfolio, including determining the allocation of the Fund's assets between
equities and fixed income investments, since May of 1995. He has been with the
Adviser and its predecessors since 1977. Mr. Lindsay has managed the fixed
income portion of the Fund since January of 1997. He has been with the Adviser
and its predecessors since 1986.
GALAXY EQUITY FUNDS 5
<PAGE>
GALAXY EQUITY INCOME FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks current income and capital appreciation.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 75% of its total assets in a diversified
portfolio of equity securities, primarily common stocks, which offer income
potential. The Adviser looks for investments that offer dividends, prospects
for dividend growth and capital appreciation. However, the Fund's portfolio
may include securities that offer only growth potential or only income
potential.
The Fund will sell a portfolio security when, as a result of changes in the
economy, the Adviser believes that holding the security is no longer
consistent with the Fund's investment objective. A security may also be sold
as a result of a deterioration in the performance of the security or in the
financial condition of the issuer of the security.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
The value of your investment in the Fund will go up and down with the value
of the investments which the Fund holds. The Fund's investments may not
perform as well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risk:
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance
the Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
- -------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past. Both
assume that all dividends and distributions are reinvested in the Fund. How the
Fund has performed in the past doesn't necessarily show how it will perform in
the future.
YEAR-BY-YEAR TOTAL RETURNS -- CALENDAR YEARS
The bar chart shows how the performance of Trust Shares has varied from year to
year, thereby giving some indication of the risk of investing in the Fund.
BEST QUARTER
13.37% for the quarter ending June 30, 1997
WORST QUARTER
- -8.31% for the quarter ending September 30, 1998
[CHART]
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C>
22.37% 7.43% 8.05% 0.88% 33.73% 17.06% 26.01% 16.10%
</TABLE>
[Sidenote:]
CURRENT INCOME
Current income includes both dividends from stocks and interest income from
fixed income securities, less Fund expenses.
6 GALAXY EQUITY FUNDS
<PAGE>
GALAXY EQUITY INCOME FUND
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1998 as compared to a broad-based market index.
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS INCEPTION
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Trust Shares 16.10% 18.23% 15.90% (12/14/90)
- --------------------------------------------------------------------------------
S&P 500 28.60% 24.05% 20.99% (since 12/1/90)
- --------------------------------------------------------------------------------
</TABLE>
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
ANNUAL FUND OPERATING EXPENSES (FEES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT DISTRIBUTION OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75% None 0.22% 0.97%
- --------------------------------------------------------------------------------
</TABLE>
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $99 $309 $536 $1,190
- --------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The S&P 500 is an unmanaged index that tracks the performance of 500 widely held
common stocks listed on the New York Stock Exchange, the American Stock Exchange
and NASDAQ. The S&P 500 is heavily weighted with the stocks of large companies.
PORTFOLIO MANAGER
The Fund's portfolio manager is J. Edward Klisiewicz, a Senior Vice President of
the Adviser. He's primarily responsible for the day-to-day management of the
Fund's investment portfolio. Mr. Klisiewicz has been the Fund's portfolio
manager since it began operations in 1990. He has been with the Adviser and its
predecessors since 1970.
GALAXY EQUITY FUNDS 7
<PAGE>
GALAXY GROWTH AND INCOME FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks to provide a relatively high total return through long-term
capital appreciation and current income.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its total assets in the common
stocks of U.S. companies with large market capitalizations (generally over
$2 billion) that have prospects for above-average growth and dividends. The
Adviser focuses on stocks which are believed to be attractively priced
relative to expectations for the future performance of the issuing company.
The Adviser also seeks a current yield greater than that of the S&P 500,
although not all Fund investments will pay dividends.
The Fund will sell a portfolio security when, as a result of changes in the
economy, the Adviser believes that holding the security is no longer
consistent with the Fund's investment objective. A security may also be sold
as a result of a deterioration in the performance of the security or in the
financial condition of the issuer of the security.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
The value of your investment in the Fund will go up and down with the value
of the investments which the Fund holds. The Fund's investments may not
perform as well as other investments, even in times of rising markets.
In addition, Fund also carries the following main risk:
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance
the Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
[Sidenote:]
CURRENT INCOME
Current income includes both dividends from stocks and interest income from
fixed income securities, less Fund expenses.
MARKET CAPITALIZATION
A company's market capitalization is the price of a share of its stock,
multiplied by the number of shares held by investors.
8 GALAXY EQUITY FUNDS
<PAGE>
GALAXY GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past. Both
assume that all dividends and distributions are reinvested in the Fund. How the
Fund has performed in the past doesn't necessarily show how it will perform in
the future.
YEAR-BY-YEAR TOTAL RETURNS -- CALENDAR YEARS
The bar chart shows how the performance of Trust Shares has varied from year to
year, thereby giving some indication of the risk of investing in the Fund.
The Fund began operations on December 14, 1992 as a separate portfolio (the
Predecessor Fund) of The Shawmut Funds. On December 4, 1995, the Predecessor
Fund was reorganized as a new portfolio of Galaxy. Prior to the reorganization,
the Predecessor Fund offered and sold two classes of shares, Investment Shares
and Trust Shares, that were similar to the Fund's Retail A Shares and Trust
Shares. In connection with the reorganization, shareholders of the Predecessor
Fund exchanged their Investment Shares and Trust Shares for Retail A Shares and
Trust Shares of the Fund. The returns for periods prior to December 4, 1995 are
for Trust Shares of the Predecessor Fund.
BEST QUARTER
20.76% for the quarter ending December 31, 1998
WORST QUARTER
- -13.49% for the quarter ending September 30, 1998
[CHART]
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C>
9.56% 5.12% 29.67% 20.20% 29.66% 15.96%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1998 as compared to a broad-based market index.
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS INCEPTION
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Trust Shares 15.96% 19.76% 18.06% (12/14/92)
- --------------------------------------------------------------------------------
S&P 500 28.60% 24.05% 21.53% (since 12/1/92)
- --------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The S&P 500 is an unmanaged index that tracks the performance of 500 widely held
common stocks listed on the New York Stock Exchange, the American Stock Exchange
and NASDAQ. The S&P 500 is heavily weighted with the stocks of large companies.
GALAXY EQUITY FUNDS 9
<PAGE>
GALAXY GROWTH AND INCOME FUND
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
ANNUAL FUND OPERATING EXPENSES (FEES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT DISTRIBUTION OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75% None 0.32% 1.07%
- --------------------------------------------------------------------------------
</TABLE>
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $109 $340 $590 $1,306
- --------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Gregory M. Miller, a Vice-President of the
Adviser since 1996. He's been primarily responsible for the day-to-day
management of the Fund's investment portfolio since July 1998. Before
that, Mr. Miller assisted his predecessor in managing the Fund for seven
years. He joined the Adviser in 1985.
10 GALAXY EQUITY FUNDS
<PAGE>
GALAXY STRATEGIC EQUITY FUND
THE FUND'S INVESTMENT OBJECTIVE
The fund seeks long-term capital appreciation.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests at least 65% of its total assets in U.S. equity securities,
primarily common stock and securities that can be converted into common
stock. The Fund's "Value Driven Growth" investment process emphasizes
securities believed to have the potential for the best one- to two-year
returns. These securities are generally selected from a universe of large and
medium size companies of the S&P 500, although the universe of stocks
monitored by the Adviser is not limited to stocks of companies included in
the S&P 500. The Fund may invest up to 20% of its total assets in foreign
equity securities. In selecting individual stocks, the Adviser looks at the
current price, projected earnings growth, and historical valuations. The Fund
may give emphasis to growth stocks, value stocks or particular industries.
The Fund will sell a portfolio security when, as a result of changes in the
economy, the Adviser believes that holding the security is no longer
consistent with the Fund's investment objective. A security may also be sold
as a result of a deterioration in the performance of the security or in the
financial condition of the issuer of the security.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
The value of your investment in the Fund will go up and down with the value
of the investments which the Fund holds. The Fund's investments may not
perform as well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risks:
- - CONVERTIBLE SECURITIES - Securities that can be converted into common
stock, such as certain debt securities and preferred stock, are subject to
the usual risks associated with fixed income investments, such as interest
rate risk and credit risk. In addition, because they react to changes in
the value of the equity securities into which they will convert,
convertible securities are also subject to stock market risk.
- - FOREIGN INVESTMENTS - Foreign investments may be riskier than U.S.
investments because of factors such as foreign government restrictions,
changes in currency exchange rates, incomplete financial information about
the issuers of securities, and political or economic instability. Foreign
stocks may be more volatile and less liquid than U.S. stocks.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance
the Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
[Sidenote:]
VALUE STOCKS AND GROWTH STOCKS
Value stocks are ones that appear to be underpriced based on measures such as
lower price-to-earnings and price-to-book value ratios. Growth stocks offer
strong revenue and earnings potential, and accompanying capital growth, with
less dividend income than value stocks.
GALAXY EQUITY FUNDS 11
<PAGE>
GALAXY STRATEGIC EQUITY FUND
HOW THE FUND HAS PERFORMED
The Fund began operations in March of 1998 and has a performance record of less
than one full calendar year.
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
ANNUAL FUND OPERATING EXPENSES (FEES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT DISTRIBUTION OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75%(1) None 0.30% 1.05%(1)
- -----------------------------------------------------------------------------------
</TABLE>
(1)The Adviser is waiving a portion of the Management fees so that such fees
are expected to be 0.55%. Total Fund operating expenses after this waiver are
expected to be 0.85%. This fee waiver may be revised or discontinued at any
time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $107 $334 $579 $1,283
- --------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Peter B. Hathaway, CFA, a Senior Vice
President of the Adviser. He's primarily responsible for the day-to-day
management of the Fund's investment portfolio. Mr. Hathaway has been the
Fund's portfolio manager since it began operations in March 1998. He has been
in the investment management business with the Adviser and its predecessors
since 1965 and has been responsible for the Adviser's Value Driven Growth
investment Process since 1991.
12 GALAXY EQUITY FUNDS
<PAGE>
GALAXY EQUITY VALUE FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation. Income is secondary to the
objective of capital appreciation.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 75% of its total assets in equity
securities, mainly common stocks, that the Adviser believes are undervalued.
The Fund invests most of its assets in companies that have a market
capitalization of more than $500 million.
The Adviser uses proprietary computer models to compare share price and company
value, both compared to the market and over time. This helps the Adviser to
identify out-of-favor, undervalued securities (often called value stocks) which
may subsequently increase in value. These models focus on fundamental aspects
such as earnings and dividend growth, reinvestment of returns and the ability of
companies to finance their own growth. The models also take into account factors
such as how easily the stocks may be traded. The Adviser then reviews the
results and looks for risks that may account for a stock's low price. It
evaluates factors the computer models can't measure, such as the quality of a
company's management and the impact of technological change. Stocks which pass
all tests are eligible to be included in the Fund's portfolio. Fund holdings are
frequently reviewed and are sold automatically when the computer models show
they are overvalued.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
The value of your investment in the Fund will go up and down with the value
of the investments which the Fund holds. The Fund's investments may not
perform as well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risks:
- - SMALL COMPANIES RISK - Smaller companies, (generally those with market
capitalizations of $1.5 billion) or less, tend to have limited resources,
product lines and market share. As a result, their share prices tend to
fluctuate more than those of larger companies. Their shares may also trade
less frequently and in limited volume, making them potentially less liquid.
The price of small company stocks might fall regardless of trends in the
broader market.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance
the Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
[Sidenote:]
MARKET CAPITALIZATION
A company's market capitalization is the price of a share of its stock,
multiplied by the number of shares held by investors.
VALUE STOCKS
Value stocks are ones that appear to be underpriced based on measures such as
lower price-to-earnings and price-to-book value ratios.
GALAXY EQUITY FUNDS 13
<PAGE>
GALAXY EQUITY VALUE FUND
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past. Both
assume that all dividends and distributions are reinvested in the Fund. How the
Fund has performed in the past doesn't necessarily show how it will perform in
the future.
YEAR-BY-YEAR TOTAL RETURNS -- CALENDAR YEARS
The bar chart shows how the performance of Trust Shares has varied from year to
year, thereby giving some indication of the risk of investing in the Fund.
BEST QUARTER
27.21% for the quarter ending December 31, 1998
WORST QUARTER
- -15.22% for the quarter ending September 30, 1998
[CHART]
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
16.93% -3.20% 23.36% 8.21% 14.75% 3.56% 28.45% 21.61% 28.08% 24.15%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1998 as compared to broad-based market indices.
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS 10 YEARS INCEPTION
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 24.15% 20.80% 16.13% 16.02% (9/1/88)
- -----------------------------------------------------------------------------------------
S&P 500 28.60% 24.05% 19.19% 19.35% (since (9/1/88)
- -----------------------------------------------------------------------------------------
Lipper Growth and Income
Funds Average 15.59% 18.35% 15.52% 15.66% (since (9/1/88)
- -----------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The S&P 500 is an unmanaged index that tracks the performance of 500 widely held
common stocks listed on the New York Stock Exchange, the American Stock Exchange
and NASDAQ. The S&P 500 is heavily weighted with the stocks of large companies.
The Lipper Growth and Income Funds Average is an unmanaged index that measures
the performance of a select group of mutual funds with investment objectives
similar to that of the Fund.
14 GALAXY EQUITY FUNDS
<PAGE>
GALAXY EQUITY VALUE FUND
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
ANNUAL FUND OPERATING EXPENSES (FEES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT DISTRIBUTION OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75% None 0.30% 1.05%
- --------------------------------------------------------------------------------
</TABLE>
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $107 $334 $579 $1,283
- --------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is G. Jay Evans, CFA, a Senior Vice President of
the Adviser since 1994. He's primarily responsible for the day-to-day
management of the Fund's investment portfolio. Mr. Evans has been the Fund's
portfolio manager since 1993. He has been with the Adviser and its
predecessors since 1978.
GALAXY EQUITY FUNDS 15
<PAGE>
GALAXY EQUITY GROWTH FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 75% of its total assets in a broadly
diversified portfolio of equity securities, primarily common stocks and
securities that can be converted into common stocks. The Fund invests mainly
in the securities of U.S. issuers, but may invest up to 20% of its total
assets in foreign securities.
The Fund invests mainly in companies which the Adviser believes will have
faster earnings growth than the economy in general. The Adviser looks for
large-capitalization companies (generally over $2 billion) in growing
industries, focusing on technological advances, good product development,
strong management and other factors which support future growth. The Adviser
seeks out companies that have a history of strong earnings growth and are
projected to continue a similar pattern of growth over the next three to five
years
The Fund will sell a security if there is an adverse change in the projected
earnings growth of the company issuing the security. A security will also
be sold when, as a result of changes in the economy or the performance of the
security or other circumstances, the Adviser believes that holding the
security is no longer consistent with the Fund's investment objective.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
The value of your investment in the Fund will go up and down with the value
of the investments which the Fund holds. The Fund's investments may not
perform as well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risks:
- - CONVERTIBLE SECURITIES - Securities that can be converted into common
stock, such as certain debt securities and preferred stock, are subject to
the usual risks associated with fixed income investments, such as interest
rate risk and credit risk. In addition, because they react to changes in
the value of the equity securities into which they will convert,
convertible securities are also subject to stock market risk.
- - FOREIGN INVESTMENTS - Foreign investments may be riskier than U.S.
investments because of factors such as foreign government restrictions,
changes in currency exchange rates, incomplete financial information about
the issuers of securities, and political or economic instability. Foreign
stocks may be more volatile and less liquid than U.S. stocks.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance
the Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
[Sidenote:]
GROWTH STOCKS
Growth stocks offer strong revenue and earnings potential, and accompanying
capital growth, with less dividend income than value stocks.
14 GALAXY EQUITY FUNDS
<PAGE>
GALAXY EQUITY GROWTH FUND
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past. Both
assume that all dividends and distributions are reinvested in the Fund. How the
Fund has performed in the past doesn't necessarily show how it will perform in
the future.
YEAR-BY-YEAR TOTAL RETURNS -- CALENDAR YEARS
The bar chart shows how the performance of Trust Shares has varied from year to
year, thereby giving some indication of the risk of investing in the Fund.
BEST QUARTER
24.20% for the quarter ending December 31, 1998
WORST QUARTER
- -11.64% for the quarter ending September 30, 1998
[CHART]
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C>
30.40% 6.11% 5.37% 0.72% 34.29% 20.95% 30.97% 26.15%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1998 as compared to a broad-based market index.
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS INCEPTION
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Trust Shares 26.15% 22.00% 18.61% (12/14/90)
- --------------------------------------------------------------------------------
S&P 500 28.60% 24.05% 20.99% (since 12/1/90)
- --------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The S&P 500 is an unmanaged index that tracks the performance of 500 widely held
common stocks listed on the New York Stock Exchange, the American Stock Exchange
and NASDAQ. The S&P 500 is heavily weighted with the stocks of large companies.
GALAXY EQUITY FUNDS 17
<PAGE>
GALAXY EQUITY GROWTH FUND
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
ANNUAL FUND OPERATING EXPENSES (FEES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT DISTRIBUTION OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75% None 0.23% 0.98%
- --------------------------------------------------------------------------------
</TABLE>
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $100 $362 $542 $1,201
- --------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Robert G. Armknecht, CFA, an Executive Vice
President of the Adviser since 1988. He's primarily responsible for the
day-to-day management of the Fund's investment portfolio. Mr. Armknecht has
been with the Adviser and its predecessors since 1988 and has been the Fund's
portfolio manager since it began operation since 1990.
18 GALAXY EQUITY FUNDS
<PAGE>
GALAXY INTERNATIONAL EQUITY FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 75% of its total assets in the equity
securities of foreign issuers. At all times, the Fund's assets will be
invested in companies located in at least three different foreign countries.
Normally, no more than 20% of the Fund's total assets will be invested in
companies located in countries with emerging economies or emerging securities
markets. The Fund emphasizes larger established companies, although it may
invest in companies of any size. The Fund may also engage in transactions for
the purpose of hedging its portfolio, such as options, futures and foreign
currencies.
The Sub-Adviser determines how much to invest in each country and region by
looking at factors such as prospects for economic growth, expected inflation
levels, government policies and the range of investment opportunities available.
Decisions as to particular investments are made with the guidance of the
Sub-Adviser's Investment Strategy Committee under the supervision of the
Adviser. The Sub-Adviser looks at the potential return of each investment over a
one- to two-year period.
The Fund will sell a security if, as a result of changes in the economy of a
particular country or region, the Sub-Adviser believes that holding the
security is no longer consistent with the Fund's investment objective. A
security may also be sold as a result of a deterioration in the performance
of the security or in the financial condition of the company that issued the
security.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. U.S. and foreign stock markets tend to move in cycles, with
periods of rising prices and periods of falling prices.
The value of your investment in the Fund will go up and down with the value
of the investments which the Fund holds. The Fund's investments may not
perform as well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risks:
- - FOREIGN INVESTMENTS - Foreign investments may be riskier than U.S.
investments because of factors such as foreign government restrictions,
changes in currency exchange rates, incomplete financial information about
the issuers of securities, and political or economic instability. Foreign
stocks may be more volatile and less liquid than U.S. stocks.
- - EMERGING MARKETS - The risks associated with foreign investments are
heightened when investing in emerging markets. The governments and
economies of emerging market countries feature greater instability than
those of more developed countries. Such investments tend to fluctuate in
price more widely and to be less liquid than other foreign investments.
- - COUNTRY RISK - The Fund may invest 25% or more of its assets in the
securities of companies located in one country. When the Fund invests a
high percentage of its assets in a particular country, the Fund will be
especially susceptible to factors affecting that country.
[Sidenote:]
SUB-ADVISER
The Adviser has appointed Oechsle International Advisors, LLC as Sub-Adviser to
assist it in the day-to-day management of the Fund's investment portfolio.
GALAXY EQUITY FUNDS 19
<PAGE>
GALAXY INTERNATIONAL EQUITY FUND
- - CURRENCY EXCHANGE - Although the Fund usually makes investments that are
sold in foreign currencies, it values its holdings in U.S. dollars. If the
U.S. dollar rises compared to a foreign currency, the Fund loses on the
currency exchange.
- - HEDGING - The Fund may invest in derivatives, such as options, futures and
foreign currencies, to hedge against market risk or the currency risk of
its foreign investments. There's no guarantee hedging will always work. It
can also prevent the Fund from making a gain if markets move in the
opposite direction to the hedge.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance
the Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
- --------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past. Both
assume that all dividends and distributions are reinvested in the Fund. How the
Fund has performed in the past doesn't necessarily show how it will perform in
the future.
YEAR-BY-YEAR TOTAL RETURNS -- CALENDAR YEARS
The bar chart shows how the performance of Trust Shares has varied from year to
year, thereby giving some indication of the risk of investing in the Fund.
BEST QUARTER
17.15% for the quarter ending December 31, 1998
WORST QUARTER
- -14.53% for the quarter ending September 30, 1998
[CHART]
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
- -2.29% 31.62% -2.39% 11.74% 10.74% 14.09% 21.99%
</TABLE>
[Sidenote:]
DERIVATIVES
A derivative is an investment whose value is based on or DERIVED from the
performance of other securities or interest or currency exchange rates or
indices. Derivatives are considered to carry a higher degree of risk than other
types of securities.
20 GALAXY EQUITY FUNDS
<PAGE>
GALAXY INTERNATIONAL EQUITY FUND
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1998 as compared to a broad-based market index.
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS INCEPTION
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Trust Shares 21.99% 10.95% 11.64% (12/30/91)
- --------------------------------------------------------------------------------
MSCI EAFE Index 20.00% 9.19% 8.82% (since 12/31/91)
- --------------------------------------------------------------------------------
</TABLE>
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
ANNUAL FUND OPERATING EXPENSES (FEES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT DISTRIBUTION OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.90%(1) None 0.35% 1.25%(1)
- -----------------------------------------------------------------------------------
</TABLE>
(1)The Adviser is waiving a portion of the Management fees so that such fees are
expected to be 0.65%. Total Fund operating expenses after this waiver are
expected to be 1.00%. This fee waiver may be revised or discontinued at any
time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $127 $397 $686 $1,511
- --------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The Morgan Stanley Capital International Europe, Australasia and Far East (MSCI
EAFE) Index is an unmanaged index which tracks the performance of selected
equity securities in Europe, Australia, Asia and the Far East.
PORTFOLIO MANAGERS
The Fund's portfolio managers are Singleton Dewey Keesler, Jr. and Kathleen
Harris, CFA. They're primarily responsible for the day-to-day management of the
Fund's investment portfolio. Mr. Keesler is Chief Investment Officer and
portfolio manager/research analyst with the Sub-Adviser. He has been associated
with the Sub-Adviser and its predecessor since 1985. Ms. Harris has been a
portfolio manager at the Sub-Adviser and its predecessor since January 1995. She
was previously portfolio manager and investment director for the State of
Wisconsin Investment Board. Mr. Keesler and Ms. Harris have co-managed the Fund
since August of 1996.
GALAXY EQUITY FUNDS 21
<PAGE>
GALAXY SMALL CAP VALUE FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks to provide long-term capital appreciation.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests mainly in the common stocks of small companies that the
Adviser believes are undervalued. Under normal market conditions, the Fund
invests at least 65% of its total assets in the common stocks of companies
that have market capitalizations of $1.5 billion or less. The Fund invests
primarily in the common stock of U.S. issuers, but may invest up to 20% of
its total assets in foreign equity securities.
In selecting portfolio securities for the Fund, the Adviser looks at the
underlying strength of companies, their products, their competitive positions
and the quality of their management. It also does research to attempt to
identify companies likely to benefit from emerging industry trends and potential
market recoveries.
A portfolio security may be sold if the Adviser determines that it is no
longer undervalued or if there has been a deterioration in the performance
of the security or in the financial condition of the company that issued
the security.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
The value of your investment in the Fund will go up and down with the value
of the investments which the Fund holds. The Fund's investments may not
perform as well as other investments, even in times of rising markets.
In addition, the Fund also carries the following risks:
- - SMALL COMPANIES RISK - Smaller companies tend to have limited resources,
product lines and market share. As a result, their share prices tend to
fluctuate more than those of larger companies. Their shares may also trade
less frequently and in limited volume, making them potentially less liquid.
The price of small company stocks might fall regardless of trends in the
broader market.
- - FOREIGN INVESTMENTS - Foreign investments may be riskier than U.S.
investments because of factors such as foreign government restrictions,
changes in currency foreign exchange rates, incomplete financial
information about the issuers of securities, and political or economic
instability. Foreign stocks may be more volatile and less liquid than
U.S. stocks.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance
the Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
[Sidenote:]
MARKET CAPITALIZATION
A company's market capitalization is the price of a share of its stock,
multiplied by the number of shares held by investors.
VALUE STOCKS
Value stocks are ones that appear to be underpriced based on measures such as
lower price-to-earnings and price-to-book value ratios.
22 GALAXY EQUITY FUNDS
<PAGE>
GALAXY SMALL CAP VALUE FUND
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past. Both
assume that all dividends and distributions are reinvested in the Fund. How the
Fund has performed in the past doesn't necessarily show how it will perform in
the future.
YEAR-BY-YEAR TOTAL RETURNS -- CALENDAR YEARS
The bar chart shows how the performance of Trust Shares has varied from year to
year, thereby giving some indication of the risk of investing in the Fund.
The Fund began operations on December 14, 1992 as a separate portfolio (the
Predecessor Fund) of The Shawmut Funds. On December 4, 1995, the Predecessor
Fund was reorganized as a new portfolio of Galaxy. Prior to the reorganization,
the Predecessor Fund offered and sold two classes of shares, Investment Shares
and Trust Shares, that were similar to the Fund's Retail A Shares and Trust
Shares. In connection with the reorganization, shareholders of the Predecessor
Fund exchanged their Investment Shares and Trust Shares for Retail A Shares and
Trust Shares of the Fund. The returns for the periods prior to December 4, 1995
are for Trust Shares of the Predecessor Fund.
BEST QUARTER
18.80% for the quarter ending September 30, 1997
WORST QUARTER
- -15.84% for the quarter ending September 30, 1998
[CHART]
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C>
7.83% 0.53% 31.78% 27.19% 31.67% -5.22%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1998 as compared to broad-based market indices.
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS INCEPTION
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Trust Shares -5.22% 16.03% 15.21% (12/14/92)
- --------------------------------------------------------------------------------
Russell 2000 Index -2.55% 11.87% 13.46% (since 12/1/92)
- --------------------------------------------------------------------------------
S&P 600 -1.31% 13.22% 14.59% (since 12/1/92)
- --------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The Russell 2000 Index is an unmanaged index that tracks the performance of the
2,000 smallest of the 3,000 largest U.S. companies, based on market
capitalization.
GALAXY EQUITY FUNDS 23
<PAGE>
GALAXY SMALL CAP VALUE FUND
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold Trust Shares of the Fund.
ANNUAL FUND OPERATING EXPENSES (FEES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT DISTRIBUTION OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75% None 0.25% 1.00%
- --------------------------------------------------------------------------------
</TABLE>
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $102 $318 $552 $1,225
- --------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The Standard & Poor's SmallCap 600 Composite Index (S&P 600) is an unmanaged
index that tracks the performance of 600 domestic companies traded on the New
York Stock Exchange, the American Stock Exchange and NASDAQ. The S&P 600 is
heavily weighted with the stocks of small companies.
PORTFOLIO MANAGER
The Fund's portfolio manager is Peter Larson, a Vice President of the Adviser.
He's primarily responsible for the day-to-day management of the Fund's
investment portfolio. Mr. Larson has been with the Adviser and its predecessors
since 1963 and has managed the Fund, including the Predecessor Fund, since it
began operations in 1992.
24 GALAXY EQUITY FUNDS
<PAGE>
GALAXY SMALL COMPANY EQUITY FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks capital appreciation.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its total assets in equity
securities, primarily, common stocks, of small companies that have market
capitalizations of $1.5 billion or less. The Fund invests primarily in the
common stock of U.S. companies, but may invest up to 20% of its total assets
in foreign equity securities.
In selecting investments for the Fund, the Adviser looks for promising
industries. It then looks within those industries for what are judged to be
reasonably priced companies that have above-average growth potential. The
Adviser consults a wide range of sources, including management, competitors,
other industry sources and regional brokerage analysts.
The Fund will sell a portfolio security when, as a result of changes in the
economy, the Adviser believes that holding the security is no longer
consistent with the Fund's investment objective. A security may also be sold
as a result of a deterioration in the performance of the security or in the
financial condition of the issuer of the security.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
The value of your investment in the Fund will go up and down with the value
of the investments which the Fund holds. The Fund's investments may not
perform as well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risks:
- - SMALL COMPANIES RISK - Smaller companies tend to have limited resources,
product lines and market share. As a result, their share prices tend to
fluctuate more than those of larger companies. Their shares may also trade
less frequently and in limited volume, making them potentially less liquid.
The price of small company stocks might fall regardless of trends in the
broader market.
- - FOREIGN INVESTMENTS - Foreign investments may be riskier than U.S.
investments because of factors such as foreign government restrictions,
changes in currency exchange rates, incomplete financial information about
the issuers of securities, and political or economic instability. Foreign
stocks may be more volatile and less liquid than U.S. stocks.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance
the Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
[Sidenote:]
MARKET CAPITALIZATION
A company's market capitalization is the price of a share of its stock,
multiplied by the number of shares held by investors.
GROWTH STOCKS
Growth stocks offer strong revenue and earnings potential, and accompanying
capital growth, with less dividend income than value stocks.
GALAXY EQUITY FUNDS 25
<PAGE>
GALAXY SMALL COMPANY EQUITY FUND
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past. Both
assume that all dividends and distributions are reinvested in the Fund. How the
Fund has performed in the past doesn't necessarily show how it will perform in
the future.
YEAR-BY-YEAR TOTAL RETURNS -- CALENDAR YEARS
The bar chart shows how the performance of Trust Shares has varied from year to
year, thereby giving some indication of the risk of investing in the Fund.
BEST QUARTER
22.52% for the quarter ending December 31, 1992
WORST QUARTER
- -23.91% for the quarter ending September 30, 1998
[CHART]
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
1.20% 22.75% 0.02 39.67% 21.59% 14.64% -10.66%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1998 as compared to a broad-based market index.
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS INCEPTION
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Trust Shares -10.66% 11.71% 11.64% (12/30/91)
- --------------------------------------------------------------------------------
Russell 2000 Index -2.55% 11.87% 13.76% (since 12/31/91)
- --------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The Russell 2000 Index is an unmanaged index that tracks the performance of the
2,000 smallest of the 3,000 largest U.S. companies, based on market
capitalization.
26 GALAXY EQUITY FUNDS
<PAGE>
GALAXY SMALL COMPANY EQUITY FUND
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
ANNUAL FUND OPERATING EXPENSES (FEES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT DISTRIBUTION OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75% None 0.41% 1.16%
- --------------------------------------------------------------------------------
</TABLE>
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $118 $368 $658 $1,409
- --------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Stephen D. Barbaro, CFA, a Senior Vice
President of the Adviser. He's primarily responsible for the day-to-day
management of the Fund's investment portfolio. Mr. Barbaro has been the
Fund's portfolio manager since it began operations in 1991. He has been with
the Adviser and its predecessors since 1976.
GALAXY EQUITY FUNDS 27
<PAGE>
ADDITIONAL INFORMATION ABOUT RISK
The main risks associated with an investment in each of the Galaxy Equity Funds
have been described above. The following supplements that discussion.
TEMPORARY DEFENSIVE POSITIONS
Each Fund may temporarily hold up to 100% of its total assets in investments
that are not part of its investment strategy to try to avoid losses during
unfavorable market conditions. These investments may include cash (which will
not earn any income), money market instruments, debt securities issued or
guaranteed by the U.S. Government or its agencies and, in the case of the
International Equity Fund, foreign money market instruments, debt securities
of foreign national governments and their agencies, and the securities of
U.S. issuers. This strategy could prevent a Fund from achieving its
investment objective and could reduce the Fund's return and affect its
performance during a market upswing.
OTHER TYPES OF INVESTMENTS
This prospectus describes each Fund's main investment strategies and the
particular types of securities in which each Fund mainly invests. Each Fund
may, from time to time pursue other investment strategies and make other types
of investments in support of its overall investment goal. These supplemental
investment strategies-and the risks involved-are described in detail in the
Statement of Additional Information (SAI) which is referred to on the back cover
of this prospectus.
YEAR 2000 RISKS
As with other mutual funds, financial and business organizations and individuals
around the world, the Funds could be adversely affected if the computer systems
used by the Adviser and the Funds' other service providers don't properly
process and calculate date-related information and data from and after January
1, 2000. This is commonly known as the "Year 2000" or "Y2K" problem. The Adviser
is taking steps to address the Y2K problem with respect to the computer systems
that it uses and to obtain assurances that comparable steps are being taken by
the Funds' other major service providers. At this time, however, there can be no
assurance that these steps will be sufficient to avoid any adverse impact on the
Funds. The Y2K problem could have a negative impact on the issuers of
securities in which the Funds invest, which could hurt the Funds' investment
returns.
28 GALAXY EQUITY FUNDS
<PAGE>
Investor guidelines
The following table gives you a general overview of the risk spectrum for the
Galaxy Equity Funds. This is a guide only. It shows the Adviser's
current assessment of the potential risk of the Funds relative to one another,
but this can change over time. It should not be used to compare the Funds with
other mutual funds or other types of investments. Consult your financial
professional to help you decide which Fund is right for you.
RISK SPECTRUM FUND PRIMARY INVESTMENTS
- --------------------------------------------------------------------------------
Asset Allocation Common stocks and fixed income
securities of domestic
companies
------------------------------------------------------------
Conservative Equity Income Common stocks of domestic companies
selected primarily for their income
potential
------------------------------------------------------------
Growth and Income Common stocks of companies selected
for their growth and
income potential
------------------------------------------------------------
Strategic Equity Equity securities of large and
medium sized companies believed to
be undervalued
------------------------------------------------------------
Moderate Equity Value Equity securities of all size
companies believed to
be undervalued
------------------------------------------------------------
Equity Growth Equity securities of
growth-oriented companies
------------------------------------------------------------
International Equity Equity securities of foreign
companies
------------------------------------------------------------
Aggressive Small Cap Value Equity securities of smaller
companies believed to
be undervalued
------------------------------------------------------------
Small Company Equity Equity securities of smaller
growth-oriented companies
- --------------------------------------------------------------------------------
GALAXY EQUITY FUNDS 29
<PAGE>
FUND MANAGEMENT
ADVISER
The Adviser, subject to the general supervision of Galaxy's Board of Trustees,
manages each Fund in accordance with its investment objective and policies,
makes decisions with respect to and places orders for all purchases and sales of
its portfolio securities, and maintains related records.
The management fees paid to the Adviser by the Funds during the last fiscal year
are set forth below. The Strategic Equity Fund began operations during the last
fiscal year and the fee shown is that which is currently in effect.
<TABLE>
<CAPTION>
MANAGEMENT FEE
FUND AS A % OF AVERAGE NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Asset Allocation 0.75%
- --------------------------------------------------------------------------------
Equity Income 0.75%
- --------------------------------------------------------------------------------
Growth and Income 0.75%
- --------------------------------------------------------------------------------
Strategic Equity 0.55%
- --------------------------------------------------------------------------------
Equity Value 0.75%
- --------------------------------------------------------------------------------
Equity Growth 0.75%
- --------------------------------------------------------------------------------
International Equity 0.65%
- --------------------------------------------------------------------------------
Small Cap Value 0.75%
- --------------------------------------------------------------------------------
Small Company Equity 0.75%
- --------------------------------------------------------------------------------
</TABLE>
SUB-ADVISER
The Adviser has delegated some of its advisory responsibilities with respect to
the International Equity Fund to Oechsle International Advisors, LLC as
Sub-Adviser. The Sub-Adviser determines which securities will be purchased,
retained or sold for the Fund, places orders for the Fund and provides the
Adviser with information on international investment and economic developments.
The Adviser assists and consults with the Sub-Adviser as to the Fund's
investment program, approves the list of foreign countries recommended by the
Sub-Adviser for investment and manages the Fund's daily cash position. The
Sub-Adviser's fees are paid by the Adviser.
The Sub-Adviser has its main office at One International Place, Boston,
Massachusetts 02210. The Sub-Adviser is the successor to Oechsle International
Advisors, L.P., an international investment firm founded in 1986. At December
31, 1998, the Sub-Adviser had discretionary management authority over
approximately $11 billion in assets. The Adviser's parent company, Fleet
Financial Group, Inc., owns an interest in the Sub-Adviser.
ALLOCATION OF ORDERS FOR PORTFOLIO SECURITIES
The Adviser and Sub-Adviser may allocate orders for the purchase and sale of
portfolio securities to certain financial institutions, including those that
are affiliated with the Adviser or Sub-Adviser or that have sold shares of
the Funds, to the extent permitted by law or by order of the Securities and
Exchange Commission. The Adviser and Sub-Adviser will allocate orders to such
institutions only if they believe that the quality of the transaction and the
commission are comparable to what they would be with other qualified
brokerage firms.
SUB-ACCOUNT SERVICES
Affiliates of the Adviser and certain other parties may receive fees from
Galaxy's transfer agent for providing certain sub-accounting and administrative
services to participant sub-accounts with respect to Trust Shares of the Funds
held by defined contribution plans. The transfer agency fees payable by Trust
Shares of the Funds have been increased by an amount equal to these fees, so
that the holders of Trust Shares indirectly bear these fees.
30 GALAXY EQUITY FUNDS
<PAGE>
HOW TO INVEST IN THE FUNDS
BUYING AND SELLING SHARES
Trust Shares of the Funds are available for purchase by the following types of
investors:
- - investors maintaining a qualified account at a bank or trust institution,
including subsidiaries of Fleet Financial Group, Inc.
- - participants in employer-sponsored defined contribution plans.
Qualified accounts include discretionary investment management accounts,
custodial accounts, agency accounts and different types of tax-advantaged
accounts. Your institution can provide more information about which types of
accounts are eligible.
You can buy and sell Trust Shares of the Funds on any business day. A business
day is any day that Galaxy's distributor, Galaxy's custodian and your
institution or employer-sponsored plan are open for business.
The price at which you buy shares is the net asset value (NAV) per share next
determined after your order is accepted. The price at which you sell shares
is the NAV per share next determined after receipt of your order. NAV is
determined on each day the New York Stock Exchange is open for trading at the
close of regular trading that day (usually 4:00 p.m. Eastern time). The New
York Stock Exchange is generally open for trading every Monday through
Friday, exept for national holidays.
If market prices are readily available for securities owned by the Fund,
they're valued at those prices. If market prices are not readily available
for some securities, they are valued at fair value under the supervision of
Galaxy's Board of Trustees.
Sometimes, the price of a security trading on a foreign stock exchange may be
affected by events that happen after that exchange closes. If this happens, the
fair value of the security may be determined using other factors and may not
reflect the security's last quoted price. In addition, foreign securities may
trade on days when shares of the Funds are not priced. As a result, the net
asset value per share of a Fund holding these securities may change on days when
you won't be able to buy or sell Fund shares.
HOW TO BUY SHARES
You can buy Trust Shares by following the procedures established by your
financial institution or your employer-sponsored plan. Your financial
institution or plan administrator is responsible for sending your order to
Galaxy's distributor and wiring payment to Galaxy's custodian. The institution
or employer-sponsored plan holds the shares in your name and receives all
confirmations of purchases and sales.
Clients, members and employees of the Sub-Adviser also may buy Trust Shares of
the International Equity Fund by contacting Galaxy's distributor at
1-877-BUY-GALAXY (1-877-289-4252).
[Sidenote:]
NET ASSET VALUE
The price you pay for your shares is based on the net asset value per share
(NAV). It's the value of a Fund's assets attributable to Trust Shares, minus the
value of the Fund's liabilities attributable to Trust Shares, divided by the
number of Trust Shares held by investors.
INVESTMENT MINIMUMS
Galaxy does not have any minimum investment requirements for initial or
additional investments in Trust Shares but financial institutions and
employer-sponsored plans may do so. They may also require you to maintain
a minimum account balance.
GALAXY EQUITY FUNDS 31
<PAGE>
HOW TO SELL SHARES
You can sell Trust Shares by following the procedures established by your
financial institution or your employer-sponsored plan. Your financial
institution or plan administrator is responsible for sending your order to
Galaxy's distributor and for crediting your account with the proceeds. Galaxy
doesn't charge for wiring the proceeds, but your financial institution or
employer-sponsored plan may do so. Contact your financial institution or plan
administrator for more information.
OTHER TRANSACTION POLICIES
If Galaxy doesn't receive full payment for your order to buy shares by 4:00 p.m.
on the next business day, Galaxy won't accept your order. Galaxy will advise
your institution or plan administrator if this happens.
Galaxy may refuse any order to buy shares. Galaxy doesn't issue a certificate
when you buy shares but it does keep a record of shares issued to investors.
Sales proceeds are normally wired to your institution or plan administrator on
the next business day but Galaxy reserves the right to send sales proceeds
within seven business days if sending proceeds earlier could adversely affect a
Fund.
Galaxy may ask for any information it might reasonably need to make sure that
you've authorized a sale of shares.
Galaxy may close any account after 60 days' written notice if the value of the
account drops below $250 as a result of selling shares.
32 GALAXY EQUITY FUNDS
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Each Fund, except the International Equity Fund, pays any dividends from net
investment income each quarter. The International Equity Fund pays any dividends
from net investment income annually. Each Fund pays any net capital gains at
least once a year. It's expected that the Funds' annual distributions will
normally -- but not always -- consist primarily of capital gains rather than
ordinary income. Dividends and distributions are paid in cash unless you tell
your financial institution or plan administrator in writing that you want to
have dividends and distributions reinvested in additional shares.
FEDERAL TAXES
Each Fund contemplates declaring as dividends each year all or substantially all
of its taxable income, including its net capital gain (the excess of long-term
capital gain over short-term capital loss). You will be subject to income tax on
these distributions regardless of whether they are paid in cash or reinvested in
additional shares. Distributions attributable to the net capital gain of a Fund
will be taxable to you as long-term capital gain, regardless of how long you
have held your shares. Other Fund distributions will generally be taxable as
ordinary income. You will be notified annually of the tax status of
distributions to you.
You should note that if you purchase shares just prior to a capital gain
distribution, the purchase price will reflect the amount of the upcoming
distribution, but you will be taxed on the entire amount of the distribution
received, even though, as an economic matter, the distribution simply
constitutes a return of capital. This is known as "buying into a dividend."
You will recognize taxable gain or loss on a sale or redemption of your
shares, including an exchange for shares of another Fund, based on the
difference between your tax basis in the shares and the amount you receive
for them. (To aid in computing your tax basis, you generally should retain
your account statements for the periods during which you held shares.)
Any loss realized on shares held for six months or less will be treated as a
long-term capital loss to the extent of any capital gain dividends that were
received on the shares.
It is expected that the International Equity Fund will be subject to foreign
withholding taxes with respect to dividends received from sources in foreign
countries. The Fund may make an election to treat a proportionate amount of
such taxes as constituting a distribution to each shareholder, which would
allow each shareholder either (1) to credit such proportionate amount of taxes
against U.S. federal income tax liability or (2) to take such amount as an
itemized deduction.
The foregoing is only a summary of certain tax considerations under current law,
which may be subject to change in the future. You should consult your tax
adviser for further information regarding federal, state, local and/or foreign
tax consequences relevant to your specific situation.
STATE AND LOCAL TAXES
Shareholders may also be subject to state and local taxes on distributions and
redemptions. State income taxes may not apply however to the portions of each
Fund's distributions, if any, that are attributable to interest on U.S.
Government securities. Shareholders should consult their tax advisers regarding
the tax status of distributions in their state and locality.
GALAXY EQUITY FUNDS 33
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables shown below will help you understand the
financial performance for the Funds' Trust Shares for the past five years (or
the period since a particular Fund began operations). Certain information
reflects the financial performance of a single Trust Share. The total returns in
the tables represent the rate that an investor would have earned (or lost) on an
investment in Trust Shares of each Fund, assuming all dividends and
distributions were reinvested. This information has been audited by
PricewaterhouseCoopers LLP, independent accountants, whose report, along with
the Funds' financial statements, are included in the Funds' Annual Report and
are incorporated by reference into the SAI. The Annual Report and SAI are
available free of charge upon request.
GALAXY ASSET ALLOCATION FUND
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
FOR THE YEAR ENDING OCTOBER 31,
------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
Trust Shares
- ------------------------------------------------------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $16.47 $14.53 $12.83 $10.68 $11.15
- ------------------------------------------------------------ -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(1) 0.42 0.43 0.33 0.32 0.28
------------------------------------------------------- -------- -------- -------- -------- --------
Net realized and unrealized
gain (loss) on investments 1.71 2.42 1.83 2.16 (0.49)
------------------------------------------------------- -------- -------- -------- -------- --------
TOTAL FROM INVESTMENT OPERATIONS 2.13 2.85 2.16 2.48 (0.21)
LESS DIVIDENDS:
Dividends from net investment income (0.43) (0.40) (0.33) (0.33) (0.26)
------------------------------------------------------- -------- -------- -------- -------- --------
Dividends from net realized capital gains (1.21) (0.51) (0.13) - -
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Total dividends (1.64) (0.91) (0.46) (0.33) (0.26)
Net increase (decrease) in net asset value 0.49 1.94 1.70 2.15 (0.47)
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Net asset value, end of period $16.96 $16.47 $14.53 $12.83 $10.68
- ------------------------------------------------------------ -------- -------- -------- -------- --------
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Total return 14.05% 20.42% 17.19% 23.68% (1.93)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $218,666 $171,741 $123,603 $76,771 $65,464
------------------------------------------------------- -------- -------- -------- -------- --------
RATIOS TO AVERAGE NET ASSETS:
Net investment income
including reimbursement/waiver 2.63% 2.82% 2.52% 2.74% 2.70%
------------------------------------------------------- -------- -------- -------- -------- --------
Operating expenses including
reimbursement/waiver 1.13% 1.21% 1.19% 1.26% 1.18%
------------------------------------------------------- -------- -------- -------- -------- --------
Operating expenses excluding
reimbursement/waiver 1.13% 1.22% 1.21% 1.30% 1.18%
------------------------------------------------------- -------- -------- -------- -------- --------
Portfolio turnover rate 108% 58% 48% 41% 23%
</TABLE>
(1) Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for Trust Shares for the years
ended October 31, 1998, 1997, 1996, 1995 and 1994 was $0.42, $0.43, $0.33,
$0.32 and $0.28, respectively.
34 GALAXY EQUITY FUNDS
<PAGE>
GALAXY EQUITY INCOME FUND
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
FOR THE YEAR ENDING OCTOBER 31,
------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
Trust Shares
- ------------------------------------------------------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $18.84 $16.93 $14.99 $12.75 $12.85
- ------------------------------------------------------------ -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(1) 0.34 0.38 0.37 0.36 0.31
------------------------------------------------------- -------- -------- -------- -------- --------
Net realized and unrealized
gain on investments 2.42 3.35 2.48 2.45 0.07
------------------------------------------------------- -------- -------- -------- -------- --------
Total from investment operations 2.76 3.73 2.85 2.81 0.38
LESS DIVIDENDS:
Dividends from net investment income (0.33) (0.38) (0.37) (0.36) (0.29)
------------------------------------------------------- -------- -------- -------- -------- --------
Dividends from net realized capital gains (1.58) (1.44) (0.54) (0.21) (0.19)
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Total dividends (1.91) (1.82) (0.91) (0.57) (0.48)
Net increase (decrease) in net asset value 0.85 1.91 1.94 2.24 (0.10)
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Net asset value, end of period $19.69 $18.84 $16.93 $14.99 $12.75
- ------------------------------------------------------------ -------- -------- -------- -------- --------
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Total return 15.67% 23.80% 19.65% 22.81% 3.02%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $127,367 $119,505 $106,094 $87,819 $78,880
------------------------------------------------------- -------- -------- -------- -------- --------
RATIOS TO AVERAGE NET ASSETS:
Net investment income
including reimbursement/waiver 1.72% 2.14% 2.32% 2.60% 2.49%
------------------------------------------------------- -------- -------- -------- -------- --------
Operating expenses including
reimbursement/waiver 0.92% 0.95% 0.94% 0.98% 1.07%
------------------------------------------------------- -------- -------- -------- -------- --------
Operating expenses excluding
reimbursement/waiver 0.92% 0.97% 0.94% 1.00% 1.07%
------------------------------------------------------- -------- -------- -------- -------- --------
Portfolio turnover rate 46% 37% 45% 21% 31%
</TABLE>
(1) Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for Trust Shares for the years
ended October 31, 1998, 1997, 1996, 1995 and 1994 was $0.34, $0.38, $0.37,
$0.36 and $0.31, respectively.
GALAXY EQUITY FUNDS 35
<PAGE>
GALAXY GROWTH AND INCOME FUND(1)
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
FOR THE YEAR ENDING OCTOBER 31,
------------------------------------------------
1998 1997 1996(1) 1995 1994
-------- -------- -------- -------- --------
Trust Shares
- ------------------------------------------------------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $16.28 $13.80 $12.35 $11.15 $10.69
- ------------------------------------------------------------ -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(2) 0.15 0.22 0.27 0.28 0.25
------------------------------------------------------- -------- -------- -------- -------- --------
Net realized and unrealized
gain on investments 1.31 3.68 2.16 1.69 0.72
------------------------------------------------------- -------- -------- -------- -------- --------
Total from investment operations 1.46 3.90 2.43 1.97 0.97
LESS DIVIDENDS:
Dividends from net investment income (0.16) (0.23) (0.25) (0.28) (0.23)
------------------------------------------------------- -------- -------- -------- -------- --------
Dividends from net realized capital gains (2.68) (1.19) (0.73) (0.49) (0.28)
------------------------------------------------------- -------- -------- -------- -------- --------
Total dividends (2.84) (1.42) (0.98) (0.77) (0.51)
Net increase (decrease) in net asset value (1.38) 2.48 1.45 1.20 0.46
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Net asset value, end of period $14.90 $16.28 $13.80 $12.35 $11.15
- ------------------------------------------------------------ -------- -------- -------- -------- --------
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Total return 10.10% 30.43% 20.77% 18.80% 9.45%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $254,060 $246,654 $186,708 $189,011 $156,827
------------------------------------------------------- -------- -------- -------- -------- --------
RATIOS TO AVERAGE NET ASSETS:
Net investment income
including reimbursement/waiver 1.00% 1.44% 2.01% 2.42% 2.31%
------------------------------------------------------- -------- -------- -------- -------- --------
Operating expenses including
reimbursement/waiver 1.03% 1.03% 1.02% 1.07% 1.04%
------------------------------------------------------- -------- -------- -------- -------- --------
Operating expenses excluding
reimbursement/waiver 1.03% 1.06% 1.03% 1.27% 1.24%
------------------------------------------------------- -------- -------- -------- -------- --------
Portfolio turnover rate 38% 93% 59% 51% 73%
</TABLE>
(1) The Fund commenced operations on December 14, 1992 as a separate investment
portfolio (the "Predecessor Fund") of The Shawmut Funds. On December 4,
1995, the Predecessor Fund was reorganized as a new portfolio of Galaxy.
Prior to the reorganization, the Predecessor Fund offered and sold two
series of shares, Investment Shares and Trust Shares, that were similar to
the Fund's Retail A and Trust Shares, respectively. In connection with the
reorganization, shareholders of the Predecessor Fund exchanged Investment
Shares and Trust Shares for Retail A Shares and Trust Shares, respectively,
in the Fund.
(2) Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for the years ended October 31,
1998, 1997 and 1996 was $0.15, $0.21 and $0.27, respectively.
Net investment income per share before reimbursement/waiver of fees by
other parties for the years ended October 31, 1995 and 1994 was $0.25 and
$0.22.
36 GALAXY EQUITY FUNDS
<PAGE>
GALAXY STRATEGIC EQUITY FUND
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 31, 1998(1)
----------------
Trust Shares
- ------------------------------------------------------- ----------------
<S> <C>
Net asset value, beginning of period $10.00
- ------------------------------------------------------- ----------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(2) 0.01
-------------------------------------------------- ----------------
Net realized and unrealized
(loss) on investments (0.37)
-------------------------------------------------- ----------------
Total from investment operations (0.36)
LESS DIVIDENDS:
Dividends from net investment income (0.01)
-------------------------------------------------- ----------------
Dividends from net realized capital gains -
- ------------------------------------------------------- ----------------
Total dividends (0.01)
Net decrease in net asset value (0.37)
- ------------------------------------------------------- ----------------
Net asset value, end of period $9.63
- ------------------------------------------------------- ----------------
- ------------------------------------------------------- ----------------
Total return (3.62)%(3)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $63,061
-------------------------------------------------- ----------------
RATIOS TO AVERAGE NET ASSETS:
Net investment income
including reimbursement/waiver 0.19%(4)
-------------------------------------------------- ----------------
Operating expenses including
reimbursement/waiver 1.27%(4)
-------------------------------------------------- ----------------
Operating expenses excluding
reimbursement/waiver 1.47%(4)
-------------------------------------------------- ----------------
Portfolio turnover rate 30%(3)
</TABLE>
(1) The Fund commenced operations on March 4, 1998.
(2) Net investment income per share before reimbursement/waiver of fees by the
Adviser and the Fund's administrator for Trust Shares for the period
ended October 31, 1998 was $0.00.
(3) Not annualized.
(4) Annualized.
GALAXY EQUITY FUNDS 37
<PAGE>
GALAXY EQUITY VALUE FUND
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
FOR THE YEAR ENDING OCTOBER 31,
------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
Trust Shares
- ------------------------------------------------------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $18.21 $15.96 $14.33 $13.32 $13.12
- ------------------------------------------------------------ -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(1) 0.08 0.17 0.21 0.28 0.19
------------------------------------------------------- -------- -------- -------- -------- --------
Net realized and unrealized
gain on investments 1.49 4.16 2.74 2.24 0.45
------------------------------------------------------- -------- -------- -------- -------- --------
Total from investment operations 1.57 4.33 2.95 2.52 0.64
LESS DIVIDENDS:
Dividends from net investment income (0.07) (0.18) (0.21) (0.30) (0.16)
------------------------------------------------------- -------- -------- -------- -------- --------
Dividends from net realized capital gains (3.20) (1.90) (1.11) (1.21) (0.28)
------------------------------------------------------- -------- -------- -------- -------- --------
Total dividends (3.27) (2.08) (1.32) (1.51) (0.44)
Net increase (decrease) in net asset value (1.70) 2.25 1.63 1.01 0.20
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Net asset value, end of period $16.51 $18.21 $15.96 $14.33 $13.32
- ------------------------------------------------------------ -------- -------- -------- -------- --------
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Total return 10.27% 29.87% 22.05% 21.31% 5.05%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $254,432 $241,532 $194,827 $165,330 $154,403
------------------------------------------------------- -------- -------- -------- -------- --------
RATIOS TO AVERAGE NET ASSETS:
Net investment income
including reimbursement/waiver 0.49% 0.98% 1.42% 2.10% 1.46%
------------------------------------------------------- -------- -------- -------- -------- --------
Operating expenses including
reimbursement/waiver 1.03% 1.04% 1.03% 1.02% 1.06%
------------------------------------------------------- -------- -------- -------- -------- --------
Operating expenses excluding
reimbursement/waiver 1.03% 1.04% 1.03% 1.02% 1.06%
------------------------------------------------------- -------- -------- -------- -------- --------
Portfolio turnover rate 82% 111% 116% 76% 71%
</TABLE>
(1) Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for Trust Shares for the years
ended October 31, 1998, 1997, 1996, 1995 and 1994 was $0.08, $0.17, $0.21,
$0.28 and $0.19, respectively.
38 GALAXY EQUITY FUNDS
<PAGE>
GALAXY EQUITY GROWTH FUND
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
FOR THE YEAR ENDING OCTOBER 31,
------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
Trust Shares
- ------------------------------------------------------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $25.17 $20.39 $17.30 $14.19 $13.76
- ------------------------------------------------------------ -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(1) 0.09 0.16 0.17 0.20 0.18
------------------------------------------------------- -------- -------- -------- -------- --------
Net realized and unrealized
gain on investments 3.20 6.06 3.40 3.28 0.47
------------------------------------------------------- -------- -------- -------- -------- --------
Total from investment operations 3.29 6.22 3.57 3.48 0.65
LESS DIVIDENDS:
Dividends from net investment income (0.09) (0.16) (0.18) (0.20) (0.16)
------------------------------------------------------- -------- -------- -------- -------- --------
Dividends in excess of net investment income (0.01) - - - -
------------------------------------------------------- -------- -------- -------- -------- --------
Dividends from net realized capital gains (3.84) (1.28) (0.30) (0.17) (0.06)
------------------------------------------------------- -------- -------- -------- -------- --------
Total dividends (3.94) (1.44) (0.48) (0.37) (0.22)
Net increase (decrease) in net asset value (0.65) 4.78 3.09 3.11 0.43
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Net asset value, end of period $24.52 $25.17 $20.39 $17.30 $14.19
- ------------------------------------------------------------ -------- -------- -------- -------- --------
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Total return 15.17% 32.16% 21.03% 25.08% 4.80%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $815,756 $745,537 $562,419 $420,016 $362,094
------------------------------------------------------- -------- -------- -------- -------- --------
RATIOS TO AVERAGE NET ASSETS:
Net investment income
including reimbursement/waiver 0.40% 0.72% 0.92% 1.31% 1.27%
------------------------------------------------------- -------- -------- -------- -------- --------
Operating expenses including
reimbursement/waiver 0.96% 0.95% 0.98% 1.00% 0.93%
------------------------------------------------------- -------- -------- -------- -------- --------
Operating expenses excluding
reimbursement/waiver 0.96% 0.95% 0.98% 1.00% 0.93%
------------------------------------------------------- -------- -------- -------- -------- --------
Portfolio turnover rate 60% 66% 36% 14% 18%
</TABLE>
(1) Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for Trust Shares for the years
ended October 31, 1998, 1997, 1996, 1995 and 1994 was $0.09, $0.16, $0.17,
$0.20, and $0.18, respectively.
GALAXY EQUITY FUNDS 39
<PAGE>
GALAXY INTERNATIONAL EQUITY FUND
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
FOR THE YEAR ENDING OCTOBER 31,
------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
Trust Shares
- ------------------------------------------------------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $15.33 $14.01 $12.98 $13.20 $12.13
- ------------------------------------------------------------ -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(1) 0.14 0.08 0.17 0.16 0.06
------------------------------------------------------- -------- -------- -------- -------- --------
Net realized and unrealized
gain on investments 1.98 2.12 1.30 (0.18) 1.02
------------------------------------------------------- -------- -------- -------- -------- --------
Total from investment operations 2.12 2.20 1.47 (0.02) 1.08
LESS DIVIDENDS:
Dividends from net investment income (0.09) (0.20) (0.20) (0.04) (0.01)
------------------------------------------------------- -------- -------- -------- -------- --------
Dividends from net realized capital gains (0.36) (0.68) (0.24) (0.16) -
------------------------------------------------------- -------- -------- -------- -------- --------
Total dividends (0.45) (0.88) (0.44) (0.20) (0.01)
Net increase (decrease) in net asset value 1.67 1.32 1.03 (0.22) 1.07
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Net asset value, end of period $17.00 $15.33 $14.01 $12.98 $13.20
- ------------------------------------------------------------ -------- -------- -------- -------- --------
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Total return 14.32% 16.60% 11.51% (0.02)% 8.91%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $345,692 $265,124 $172,561 $89,614 $82,350
------------------------------------------------------- -------- -------- -------- -------- --------
RATIOS TO AVERAGE NET ASSETS:
Net investment income
including reimbursement/waiver 0.91% 0.57% 1.40% 1.36% 0.74%
------------------------------------------------------- -------- -------- -------- -------- --------
Operating expenses including
reimbursement/waiver 0.96% 1.06% 1.08% 1.22% 1.43%
------------------------------------------------------- -------- -------- -------- -------- --------
Operating expenses excluding
reimbursement/waiver 1.21% 1.32% 1.36% 1.48% 1.72%
------------------------------------------------------- -------- -------- -------- -------- --------
Portfolio turnover rate 49% 45% 146% 48% 39%
</TABLE>
(1) Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for Trust Shares for the years
ended October 31, 1998, 1997, 1996, 1995 and 1994 was $0.10, $0.04, $0.13,
$0.13 and $0.04, respectively.
40 GALAXY EQUITY FUNDS
<PAGE>
GALAXY SMALL CAP VALUE FUND(1)
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
FOR THE YEAR ENDING OCTOBER 31,
--------------------------------------------------------
1998 1997 1996(1) 1995 1994
-------- -------- -------- -------- --------
Trust Shares
- ------------------------------------------------------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $18.37 $14.76 $12.71 $11.07 $11.21
- ------------------------------------------------------------ -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(2) 0.11 0.01(3) 0.05 0.01 0.02
------------------------------------------------------- -------- -------- -------- -------- --------
Net realized and unrealized
gain (loss) on investments (2.06) 5.74 2.97 2.21 0.17
------------------------------------------------------- -------- -------- -------- -------- --------
Total from investment operations (1.95) 5.75 3.02 2.22 0.19
LESS DIVIDENDS:
Dividends from net investment income (0.13) - (0.05) (0.01) (0.01)
------------------------------------------------------- -------- -------- -------- -------- --------
Dividends in excess of net investment income - - (0.01) - -
------------------------------------------------------- -------- -------- -------- -------- --------
Dividends from net realized capital gains (2.68) (2.14) (0.91) (0.57) (0.32)
------------------------------------------------------- -------- -------- -------- -------- --------
Total dividends (2.81) (2.14) (0.97) (0.58) (0.33)
Net increase (decrease) in net asset value (4.76) 3.61 2.05 1.64 (0.14)
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Net asset value, end of period $13.61 $18.37 $14.76 $12.71 $11.07
- ------------------------------------------------------------ -------- -------- -------- -------- --------
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Total return (12.07)% 44.08% 25.22% 21.52% 1.86%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $202,385 $189,257 $137,341 $121,364 $101,905
------------------------------------------------------- -------- -------- -------- -------- --------
RATIOS TO AVERAGE NET ASSETS:
Net investment income including reimbursement/waiver 0.73% 0.09% 0.45% 0.07% 0.15%
------------------------------------------------------- -------- -------- -------- -------- --------
Operating expenses including reimbursement/waiver 0.96% 0.96% 1.05% 1.10% 1.06%
------------------------------------------------------- -------- -------- -------- -------- --------
Operating expenses excluding reimbursement/waiver 0.96% 0.96% 1.06% 1.35% 1.34%
------------------------------------------------------- -------- -------- -------- -------- --------
Portfolio turnover rate 33% 52% 39% 32% 29%
</TABLE>
(1) The Fund commenced operations on December 14, 1992 as a separate investment
portfolio (the "Predecessor Fund") of The Shawmut Funds. On December 4,
1995, the Predecessor Fund was reorganized as a new portfolio of Galaxy.
Prior to the reorganization, the Predecessor Fund offered and sold two
series of shares, Investment Shares and Trust Shares, that were similar to
the Fund's Retail A and Trust Shares, respectively. In connection with the
reorganization, shareholders of the Predecessor Fund exchanged Investment
Shares and Trust Shares for Retail A Shares and Trust Shares, respectively,
in the Fund.
(2) Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for the years ended October 31,
1998, 1997 and 1996 was $(0.11), $0.05 and $0.05, respectively. Net
investment loss per share before reimbursement/waiver of fees by other
parties for the years ended October 31, 1995 and 1994 was $(0.03) and
$(0.01), respectively.
(3) The selected per share data was calculated using the weighted average
shares outstanding method for the year.
GALAXY EQUITY FUNDS 41
<PAGE>
GALAXY SMALL COMPANY EQUITY FUND
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
FOR THE YEAR ENDING OCTOBER 31,
------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
Trust Shares
- ------------------------------------------------------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $21.32 $20.20 $16.38 $12.36 $12.41
- ------------------------------------------------------------ -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)(1) (0.14) (0.11) (0.09) (0.04) -
------------------------------------------------------- -------- -------- -------- -------- --------
Net realized and unrealized
gain (loss) on investments (4.96) 3.61 4.08 4.25 -
------------------------------------------------------- -------- -------- -------- -------- --------
Total from investment operations (5.10) 3.50 3.99 4.21 -
LESS DIVIDENDS:
Dividends from net investment income - - - - -
------------------------------------------------------- -------- -------- -------- -------- --------
Dividends from net realized capital gains (2.26) (2.38) (0.17) (0.19) (0.05)
------------------------------------------------------- -------- -------- -------- -------- --------
Total dividends (2.26) (2.38) (0.17) (0.19) (0.05)
Net increase (decrease) in net asset value (7.36) 1.12 3.82 4.02 (0.05)
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Net asset value, end of period $13.96 $21.32 $20.20 $16.38 $12.36
- ------------------------------------------------------------ -------- -------- -------- -------- --------
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Total return (26.00)% 19.59% 24.69% 34.73% 0.02%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $222,675 $310,751 $174,990 $94,831 $66,462
------------------------------------------------------- -------- -------- -------- -------- --------
RATIOS TO AVERAGE NET ASSETS:
Net investment income
including reimbursement/waiver (0.76)% (0.65)% (0.60)% (0.37)% (0.35)%
------------------------------------------------------- -------- -------- -------- -------- --------
Operating expenses including
reimbursement/waiver 1.09% 1.09% 1.14% 1.12% 1.27%
------------------------------------------------------- -------- -------- -------- -------- --------
Operating expenses excluding
reimbursement/waiver 1.09% 1.12% 1.14% 1.12% 1.27%
------------------------------------------------------- -------- -------- -------- -------- --------
Portfolio turnover rate 78% 69% 82% 54% 35%
</TABLE>
(1) Net investment income (loss) per share before reimbursement/waiver of fees
by the Adviser and/or the Fund's administrator for Trust Shares for the
years ended October 31, 1998, 1997, 1996, 1995 and 1994 was $(0.14),
$(0.11), $(0.09), $(0.04), and $0.00, respectively.
42 GALAXY EQUITY FUNDS
<PAGE>
WHERE TO FIND MORE INFORMATION
You'll find more information about the Funds in the following documents:
ANNUAL AND SEMI-ANNUAL REPORTS
Galaxy's annual and semi-annual reports contain more information about each Fund
and a discussion about the market conditions and investment strategies that had
a significant effect on each Fund's performance during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains detailed information about the Funds and their policies. By
law, it's incorporated by reference into (considered to be part of) this
prospectus.
You can get a free copy of these documents, request other information about the
Funds and make shareholder inquiries by calling Galaxy at 1-877-BUY-GALAXY
(1-877-289-4252) or writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
If you buy your shares through a financial institution, you may contact your
institution for more information.
You can write to the Securities and Exchange Commission (SEC) Public Reference
Section and ask them to mail you information about the Funds, including the SAI.
They'll charge you a fee for this service. You can also visit the SEC Public
Reference Room and copy the documents while you're there. For information about
the operation of the Public Reference Room, call the SEC.
Public Reference Section of the SEC Washington, DC 20549-6009
1-800-SEC-0330.
Reports and other information about the Funds are also available on the SEC's
website at http://www.sec.gov.
Galaxy's Investment Company Act File No. is 811-4636.
PROTREQU 15038 3/1/99 PKG = 50
<PAGE>
[GRAPHIC]
GALAXY TAXABLE BOND FUNDS
THE GALAXY FUND
PROSPECTUS
February 28, 1999
Galaxy Short-Term Bond Fund
Galaxy Intermediate
Government Income Fund
Galaxy High Quality Bond Fund
RETAIL A SHARES AND RETAIL B SHARES
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved any shares of these Funds or determined if this
prospectus is accurate or complete. Anyone who tells you otherwise is
committing a crime.
[LOGO]
<PAGE>
CONTENTS
1 RISK/RETURN SUMMARY
1 Introduction
2 Galaxy Short-Term Bond Fund
6 Galaxy Intermediate Government Income Fund
9 Galaxy High Quality Bond Fund
13 Additional information about risk
14 Investor guidelines
15 FUND MANAGEMENT
16 HOW TO INVEST IN THE FUNDS
16 How sales charges work
18 Buying, selling and exchanging shares
19 HOW TO BUY SHARES
20 HOW TO SELL SHARES
21 HOW TO EXCHANGE SHARES
22 OTHER TRANSACTION POLICIES
23 DIVIDENDS, DISTRIBUTIONS AND TAXES
24 GALAXY INVESTOR PROGRAMS
24 Retirement plans
24 Other programs
26 HOW TO REACH GALAXY
27 FINANCIAL HIGHLIGHTS
<PAGE>
RISK/RETURN SUMMARY
INTRODUCTION
THIS PROSPECTUS describes the Galaxy Taxable Bond Funds. Each Fund invests
primarily in debt obligations, such as bonds, notes and commercial paper.
On the following pages, you'll find important information about each Fund,
including:
- - The Fund's investment objective (sometimes called the Fund's goal) and the
main investment strategies used by the Fund's investment adviser in trying
to achieve that objective
- - The main risks associated with an investment in the Fund
- - The Fund's past performance measured on both a year-by-year and long-term
basis
- - The fees and expenses that you will pay as an investor in the Fund
WHICH FUND IS RIGHT FOR YOU?
Not all mutual funds are for everyone. Your investment goals and tolerance
for risk will determine which fund is right for you. On page 14, you'll find
a table which sets forth general guidelines to help you decide which of the
Galaxy Taxable Bond Funds is best suited to you.
THE FUNDS' INVESTMENT ADVISER
Fleet Investment Advisors Inc., which is referred to in this prospectus as THE
ADVISER, is the investment adviser for all of these Funds. The Adviser, which
is an indirect wholly-owned subsidiary of Fleet Financial Group, Inc., was
established in 1984 and has its main office at 75 State Street, Boston,
Massachusetts 02109. The Adviser also provides investment management and
advisory services to individual and institutional clients and manages the other
Galaxy investment portfolios. As of December 31, 1998, the Adviser managed
over $64 billion in assets.
- --------------------------------------------------------------------------------
AN INVESTMENT IN THE FUNDS ISN'T A FLEET BANK DEPOSIT AND IT ISN'T INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. YOU COULD LOSE MONEY BY INVESTING IN THE FUNDS.
GALAXY TAXABLE BOND FUNDS 1
<PAGE>
GALAXY SHORT-TERM BOND FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks a high level of current income consistent with preservation of
capital.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests primarily in debt obligations of U.S. and foreign corporations,
including bonds and notes, and in debt obligations issued or guaranteed by the
U.S. Government and its agencies or instrumentalities or by foreign governments
or their political subdivisions and instrumentalities. It also invests in
asset-backed and mortgage-backed securities and in money market instruments,
such as commercial paper and the obligations of U.S. and foreign banks. The
Fund normally invests at least 65% of its total assets in bonds and debentures.
In selecting portfolio securities for the Fund, the Adviser monitors and
evaluates economic trends. It establishes duration targets, ranges of
interest payments on bonds of various maturities and determines the
appropriate allocation of the Fund's assets among various market sectors.
Nearly all Fund investments will be of investment grade quality. These are
securities which have one of the top four ratings assigned by Standard &
Poor's Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or
are unrated securities determined by the Adviser to be of comparable quality.
Under normal market conditions, the Fund will invest at least 65% of its
total assets in securities which have one of the top three ratings assigned
by S&P or Moody's, or unrated securities determined by the Adviser to be of
comparable quality. Occasionally, the rating of a security held by the Fund
may be downgraded to below investment grade. If that happens, the Fund
doesn't have to sell the security unless the Adviser determines that under
the circumstances the security is no longer an appropriate investment for the
Fund.
The Fund's average weighted maturity will generally be less than three years.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the
Adviser believes that holding the security is no longer consistent with the
Fund's investment objective.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets. These can occur within or outside the U.S. or worldwide, and may affect
only particular companies or industries.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities generally tend to move
in the opposite direction to interest rates. When rates are rising, the
prices of debt securities tend to fall. When rates are falling, the prices
of debt securities tend to rise. Generally, the longer the time until
maturity, the more sensitive the price of a debt security is to interest
rate changes.
- - CREDIT RISK - The value of debt securities also depends on the ability of
issuers to make principal and interest payments. If an issuer can't meet
its payment obligations or if its credit rating is lowered, the value of
its debt securities may fall. Debt securities which have the lowest of
the top four ratings assigned by S&P and Moody's are considered to have
speculative characteristics. Changes in the economy are more likely to
affect the ability of the issuers of these securities to make payments of
principal and interest than is the case with higher-rated securities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
debt securities held by the Fund, particularly asset-backed and
mortgage-backed securities, to be paid off much sooner or later than
expected, which could adversely affect the Fund's value.
- - FOREIGN INVESTMENTS - Foreign investments may be riskier than U.S.
investments because of factors such as foreign government restrictions,
changes in currency exchange rates, incomplete
[Sidenote:]
PRESERVATION OF CAPITAL
Preservation of capital means protecting the amount of money you invest in a
fund. If a fund seeks to preserve capital, it will try to maintain a relatively
stable share price so your investment is protected.
AVERAGE WEIGHTED MATURITY
Average weighted maturity gives you the average time until all debt obligations
in a fund come due or MATURE. It is calculated by averaging the time to maturity
of all debt obligations held by a fund with each maturity "weighted" according
to the percentage of assets it represents.
DEBT OBLIGATION
When a fund buys a debt obligation such as a bond, it is in effect lending money
to the company, government or other entity that issued the bond. In return, the
issuer has an obligation to make regular interest payments and to repay the
original amount
2 GALAXY TAXABLE BOND FUNDS
<PAGE>
GALAXY SHORT-TERM BOND FUND
financial information about the issuers of securities, and political or
economic instability. Foreign securities may be more volatile and less
liquid than U.S. securities.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
- - FREQUENT TRADING - The Fund may trade its investments frequently in trying
to achieve its investment goal. This usually increases the chance that the
Fund will pay investors short-term capital gains. These gains are taxable
at higher rates than long-term capital gains. Frequent trading could also
mean higher brokerage commissions and other transaction costs, which could
reduce the Fund's returns.
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past.
Both assume that all dividends and distributions are reinvested in the Fund. How
the Fund has performed in the past doesn't necessarily show how it will perform
in the future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares of the Fund has
varied from year to year, thereby giving some indication of the risk of
investing in the Fund. The returns for Retail B Shares were different than the
figures shown because each class of shares has different expenses. The figures
don't include any sales charges that investors pay when buying or selling shares
of the Fund. If sales charges were included, the returns would be lower.
[CHART]
BEST QUARTER
4.14% for the quarter ending September 30, 1992
WORST QUARTER
- -0.66% for the quarter ending June 30, 1994
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
5.81% 6.41% -0.37% 10.96% 3.38% 5.68% 6.07%
</TABLE>
[Sidenote:]
DEBT OBLIGATION (CONTINUED)
of the loan on a given date, known as the maturity date. A bond MATURES when it
reaches its maturity date. Bonds usually have fixed interest rates, although
some have rates that fluctuate based on market conditions and other factors.
GALAXY TAXABLE BOND FUNDS 3
<PAGE>
GALAXY SHORT-TERM BOND FUND
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1998, as
compared to a broad-based market index. The returns for Retail A Shares of
the Fund for periods prior to December 1, 1995 have been restated to include
the effect of the maximum 3.75% front-end sales charge which went into
effect on that date.
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS INCEPTION
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares 2.08% 4.27% 4.80% (12/30/91)
- -----------------------------------------------------------------------------
Retail B Shares 0.36% - 3.66% (3/4/96)
- -----------------------------------------------------------------------------
Lehman Brothers 6.98% 5.96% 5.92% (since 12/31/91)
One to Three Year
Government Bond Index 6.44% (since 2/29/96)
- -----------------------------------------------------------------------------
</TABLE>
For current yield information, please call 1-877-BUY-GALAXY (1-877-289-4252).
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (FEES YOU PAY DIRECTLY)
MAXIMUM SALES CHARGE (LOAD) MAXIMUM DEFERRED SALES CHARGE
ON PURCHASES SHOWN (LOAD) SHOWN AS A % OF THE OFFERING
AS A % OF THE OFFERING PRICE PRICE OR SALE PRICE, WHICHEVER IS LESS
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
- ------------------------------------------------------------------------------------------------
Retail B Shares None 5.00%(3)
- ------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The Lehman Brothers One to Three Year Government Bond Index is an unmanaged
index which tracks the performance of short-term U.S. Government bonds.
4 GALAXY TAXABLE BOND FUNDS
<PAGE>
GALAXY SHORT-TERM BOND FUND
ANNUAL FUND OPERATING EXPENSES (FEES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
DISTRIBUTION TOTAL FUND
MANAGEMENT AND SERVICE OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.75%(4) None 0.58% 1.33%(4)
- ---------------------------------------------------------------------------------
Retail B Shares 0.75%(4) 0.80% 0.44% 1.99%(4)
- ---------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds -
How sales charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the Funds
- How sales charges work."
(3) This amount applies if you sell your shares in the first year after
purchase and gradually declines to 1% in the sixth year after purchase.
After six years, your Retail B Shares will automatically convert to Retail
A Shares. See "How to invest in the Funds - How sales charges work."
(4) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be 0.55%. Affiliates of the Advisor are waiving a
portion of the Distribution and service (12b-1) fees for Retail B Shares
so that such fees are expected to be 0.79%. Total Fund operating expenses
after these waivers are expected to be 1.13% for Retail A Shares and 1.78%
for Retail B Shares. These fee waivers may be revised or discontinued at
any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your Retail B Shares convert to Retail A Shares after six years
- - the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $505 $781 $1,076 $1,916
- --------------------------------------------------------------------------------
Retail B Shares $702 $924 $1,273 $1,982
- --------------------------------------------------------------------------------
If you hold Retail B Shares, you would pay the following expenses if you didn't
sell your shares:
Retail B Shares $202 $624 $1,073 $1,982
- --------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Perry Vieth, CFA, a Senior Vice President of
the Adviser. He's primarily responsible for the day-to-day management of the
Fund's investment portfolio. Mr. Vieth's investment experience dates from
1986. He joined the Adviser in 1993 and served as a Vice President until
February 1999. Prior to joining the Advisor, he was associated with Shawmut
Investment Advisors and with Fuji Securities Inc. He has managed the Fund
since March 1996.
GALAXY TAXABLE BOND FUNDS 5
<PAGE>
GALAXY INTERMEDIATE GOVERNMENT INCOME FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks the highest level of current income consistent with prudent risk
of capital.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its total assets in debt obligations
issued or guaranteed by the U.S. Government or its agencies and
instrumentalities. It also invests in debt obligations of U.S. corporations,
asset-backed and mortgage-backed securities and money market instruments,
such as commercial paper and obligations of U.S. banks and U.S. branches of
foreign banks.
In selecting portfolio securities for the Fund, the Adviser monitors and
evaluates economic trends. It establishes duration targets, ranges of interest
rates on bonds of various maturities and determines the appropriate allocation
of the Fund's investments among various market sectors.
Nearly all Fund investments will be of investment grade quality and will have
one of the top three ratings assigned by Standard & Poor's Ratings Group
(S&P) or Moody's Investors Service, Inc. (Moody's), or will be unrated
securities determined by the Adviser to be of comparable quality.
Occasionally, the rating of a security held by the Fund may be downgraded to
below the minimum required rating. If that happens, the Fund doesn't have to
sell the security unless the Adviser determines that under the circumstances
the security is no longer an appropriate investment for the Fund.
The Fund's average weighted maturity will generally be between three and ten
years.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the
Adviser believes that holding the security is no longer consistent with the
Fund's investment objective.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets. These can occur within or outside the U.S. or worldwide, and may affect
only particular companies or industries.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities generally tend to move
in the opposite direction to interest rates. When rates are rising, the
prices of debt securities tend to fall. When rates are falling, the prices
of debt securities tend to rise. Generally, the longer the time until
maturity, the more sensitive the price of a debt security is to interest
rate changes.
- - CREDIT RISK - The value of debt securities also depends on the ability of
issuers to make principal and interest payments. If an issuer can't meet
its payment obligations or if its credit rating is lowered, the value of
its debt securities may fall.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
debt securities held by the Fund, particularly asset-backed and
mortgage-backed securities, to be paid off much sooner or later than
expected, which could adversely affect the Fund's value.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
- - FREQUENT TRADING - The Fund may trade its investments frequently in trying
to achieve its investment goal. This usually increases the chance that the
Fund will pay investors short-term capital gains. These gains are taxable
at higher rates than long-term capital gains. Frequent trading could also
mean higher brokerage commissions and other transaction costs, which could
reduce the Fund's returns.
[Sidenote:]
U.S. Government obligations are debt obligations issued or guaranteed by the
U.S. Government or one of its agencies or instrumentalities. U.S. Government
obligations generally have less credit risk than other debt obligations.
6 GALAXY TAXABLE BOND FUNDS
<PAGE>
GALAXY INTERMEDIATE GOVERNMENT INCOME FUND
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past.
Both assume that all dividends and distributions are reinvested in the Fund. How
the Fund has performed in the past doesn't necessarily show how it will perform
in the future.
Retail A Shares of the Fund were first issued during the fiscal year ended
October 31, 1992. The returns for Retail A Shares of the Fund for prior
periods represent the returns for Trust Shares of the Fund which are offered
in a separate prospectus. Prior to November 1, 1993, the returns for Retail A
Shares and Trust Shares of the Fund were the same because each class of
shares had the same expenses.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares of the Fund has
varied from year to year, thereby giving some indication of the risk of
investing in the Fund. The returns for Retail B Shares which were first
offered on November 1, 1998, would have been different than the figures shown
because each class of shares has different expenses. The figures don't
include any sales charges that investors pay when buying or selling shares of
the Fund. If sales charges were included, the returns would be lower.
BEST QUARTER
8.56% for the quarter ending June 30, 1989
WORST QUARTER
- -2.90% for the quarter ending March 31, 1994
[CHART]
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
11.54% 5.87% 15.77% 7.11% 5.57% -3.77% 15.67% 1.75% 7.83% 8.32%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1998, as
compared to broad-based market indices. The returns for Retail A Shares of
the Fund for periods prior to December 1, 1995 have been restated to include
the effect of the maximum 3.75% front-end sales charge which went into effect
on that date.
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS 10 YEARS INCEPTION
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 4.22% 4.95% 7.00% 6.82% (9/1/88)
- -----------------------------------------------------------------------------------
Retail B Shares(1) - - - -
- -----------------------------------------------------------------------------------
Lehman Brothers
Intermediate
Government/Corporate
Bond Index 8.44% 6.60% 8.52% 8.47% (since 9/1/88)
- -----------------------------------------------------------------------------------
Lehman Brothers
Aggregate Bond Index 8.69% 7.27% 9.26% 9.27% (since 9/1/88)
- -----------------------------------------------------------------------------------
</TABLE>
(1) Retail B shares were first offered on November 1, 1998.
For current yield information, please call 1-877-BUY-GALAXY (1-877-289-4252).
[Sidenote:]
The Lehman Brothers Intermediate Government/Corporate Bond Index is an
unmanaged index which tracks the performance of intermediate U.S. Government
and corporate bonds.
GALAXY TAXABLE BOND FUNDS 7
<PAGE>
GALAXY INTERMEDIATE GOVERNMENT INCOME FUND
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES YOU PAY DIRECTLY)
<TABLE>
<CAPTION>
MAXIMUM SALES CHARGE (LOAD) MAXIMUM DEFERRED SALES CHARGE
ON PURCHASES SHOWN (LOAD) SHOWN AS A % OF THE OFFERING
AS A % OF THE OFFERING PRICE PRICE OR SALE PRICE, WHICHEVER IS LESS
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
- ------------------------------------------------------------------------------------------------
Retail B Shares None 5.00%(3)
- ------------------------------------------------------------------------------------------------
</TABLE>
ANNUAL FUND OPERATING EXPENSES (FEES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
DISTRIBUTION TOTAL FUND
MANAGEMENT AND SERVICE OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.75%(4) None 0.49% 1.24%(4)
- --------------------------------------------------------------------------------
Retail B Shares 0.75%(4) 0.80% 0.29% 1.84%(4)
- --------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds -
How sales charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the Funds
- How sales charges work."
(3) This amount applies if you sell your shares in the first year after
purchase and gradually declines to 1% in the sixth year after purchase.
After six years, your Retail B Shares will automatically convert to Retail
A Shares. See "How to invest in the Funds - How sales charges work."
(4) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be 0.55%. Total Fund operating expenses after this waiver
are expected to be 1.04% for Retail A Shares and 1.64% for Retail B Shares.
This fee waiver may be revised or discontinued at any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your Retail B Shares convert to Retail A Shares after six years
- - the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $497 $754 $1,030 $1,819
- --------------------------------------------------------------------------------
Retail B Shares $687 $879 $1,195 $1,850
- --------------------------------------------------------------------------------
If you hold Retail B Shares, you would pay the following expenses if you didn't
sell your shares:
Retail B Shares $187 $579 $995 $1,850
- --------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The Lehman Brothers Aggregate Bond Index is an unmanaged index made up of the
Lehman Brothers Government/Corporate Bond Index, its Mortgage Backed Securities
Index and its Asset Backed Securities Index.
PORTFOLIO MANAGER
The Fund's portfolio manager is Marie M. Schofield, CFA, a Senior Vice President
of the Adviser. She's primarily responsible for the day-to-day management of the
Fund's investment portfolio. Ms. Schofield, who has over 20 years of investment
experience, has been with the Adviser since 1990 and served as a Vice
President and Manager of Fixed Income Investments until February 1999. She has
managed the Fund since December 1996.
8 GALAXY TAXABLE BOND FUNDS
<PAGE>
GALAXY HIGH QUALITY BOND FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks a high level of current income consistent with prudent risk of
capital.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests primarily in obligations issued or guaranteed by the U.S.
Government, its agencies and instrumentalities, as well as in corporate debt
obligations such as notes and bonds. The Fund also invests in asset-backed and
mortgage-backed securities and in money market instruments, such as commercial
paper and bank obligations.
In selecting portfolio securities for the Fund, the Adviser monitors and
evaluates economic trends. It establishes duration targets, ranges of interest
rates on bonds of various maturities and determines the appropriate allocation
of the Fund's investments among various market sectors.
Nearly all Fund investments will be of investment grade quality. These are
securities which have one of the top four ratings assigned by Standard &
Poor's Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or are
unrated securities determined by the Adviser to be of comparable quality.
Under normal market conditions, the Fund will invest at least 65% of its
total assets in high quality securities that have one of the top two ratings
assigned by S&P or Moody's, or unrated securities determined by the Adviser
to be of comparable quality. High quality securities tend to pay less income
than lower-rated securities. Occasionally, the rating of a security held by
the Fund may be downgraded to below investment grade. If that happens, the
Fund doesn't have to sell the security unless the Adviser determines that
under the circumstances the security is no longer an appropriate investment
for the Fund.
The Fund's average weighted maturity will vary from time to time depending on
current market and economic conditions and the Adviser's assessment of probable
changes in interest rates.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the
Adviser believes that holding the security is no longer consistent with the
Fund's investment objective.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets. These can occur within or outside the U.S. or worldwide, and may affect
only particular companies or industries.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities generally tend to move
in the opposite direction to interest rates. When rates are rising, the
prices of debt securities tend to fall. When rates are falling, the prices
of debt securities tend to rise. Generally, the longer the time until
maturity, the more sensitive the price of a debt security is to interest
rate changes.
- - CREDIT RISK - The value of debt securities also depends on the ability of
issuers to make principal and interest payments. If an issuer can't meet
its payment obligations or if its credit rating is lowered, the value of
its debt securities may fall. Debt securities which have the lowest of
the top four ratings assigned by S&P and Moody's are considered to have
speculative characteristics. Changes in the economy are more likely to
affect the ability of the issuers of these securities to make payments
of principal and interest than is the case with higher-rated securities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
debt securities held by the Fund, particularly asset-backed and
mortgage-backed securities, to be paid off much sooner or
GALAXY TAXABLE BOND FUNDS 9
<PAGE>
GALAXY HIGH QUALITY BOND FUND
later than expected, which could adversely affect the Fund's value.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance
the Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
- - FREQUENT TRADING - The Fund may trade its investments frequently in trying
to achieve its investment goal. This usually increases the chance that
the Fund will pay investors short-term capital gains. These gains are
taxable at higher rates than long-term capital gains. Frequent trading
could also mean higher brokerage commissions and other transaction costs,
which could reduce the Fund's returns.
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past.
Both assume that all dividends and distributions are reinvested in the Fund. How
the Fund has performed in the past doesn't necessarily show how it will perform
in the future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares of the Fund has
varied from year to year, thereby giving some indication of the risk of
investing in the Fund. The returns for Retail B Shares were different than the
figures shown because each class of shares has different expenses. The figures
don't include any sales charges that investors pay when buying or selling shares
of the Fund. If sales charges were included, the returns would be lower.
BEST QUARTER
7.54% for the quarter ending June 30, 1995
WORST QUARTER
- -3.85% for the quarter ending March 31, 1994
[CHART]
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C>
15.12% 6.77% 12.81% -6.48% 21.20% 1.37% 9.11% 9.27%
</TABLE>
10 GALAXY TAXABLE BOND FUNDS
<PAGE>
GALAXY HIGH QUALITY BOND FUND
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1998, as
compared to a broad-based market index. The returns for Retail A Shares of
the Fund for periods prior to December 1, 1995 have been restated to include
the effect of the maximum 3.75% front-end sales charge which went into effect
on that date.
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS INCEPTION
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares 5.17% 5.69% 7.83% (12/14/90)
- -----------------------------------------------------------------------------------------
Retail B Shares 3.61% - 5.67% (3/4/96)
- -----------------------------------------------------------------------------------------
Lehman Brothers Intermediate 8.44% 6.60% 8.02% (since 12/31/90)
Government/Corporate 7.28% (since 2/29/96)
Bond Index
- -----------------------------------------------------------------------------------------
</TABLE>
For current yield information, please call 1-877-BUY-GALAXY (1-877-289-4252).
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (FEES YOU PAY DIRECTLY)
MAXIMUM SALES CHARGE (LOAD) MAXIMUM DEFERRED SALES CHARGE
ON PURCHASES SHOWN (LOAD) SHOWN AS A % OF THE OFFERING
AS A % OF THE OFFERING PRICE PRICE OR SALE PRICE, WHICHEVER IS LESS
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
- ------------------------------------------------------------------------------------------------
Retail B Shares None 5.00%(3)
- ------------------------------------------------------------------------------------------------
</TABLE>
ANNUAL FUND OPERATING EXPENSES (FEES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
DISTRIBUTION TOTAL FUND
MANAGEMENT AND SERVICE OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.75%(4) None 0.48% 1.23%(4)
- --------------------------------------------------------------------------------
Retail B Shares 0.75%(4) 0.80% 0.30% 1.85%(4)
- --------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds -
How sales charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the Funds
- How sales charges work."
(3) This amount applies if you sell your shares in the first year after
purchase and gradually declines to 1% in the sixth year after purchase.
After six years, your Retail B Shares will automatically convert to Retail
A Shares. See "How to invest in the Funds - How sales charges work."
(4) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be 0.55%. Total Fund operating expenses after this waiver
are expected to be 1.03% for Retail A Shares and 1.65% for Retail B Shares.
This fee waiver may be revised or discontinued at any time.
[Sidenote:]
The Lehman Brothers Intermediate Government/Corporate Bond Index is an
unmanaged index which tracks the performance of intermediate-term U.S.
Government and corporate bonds.
PORTFOLIO MANAGER
The Fund's portfolio manager is Marie M. Schofield, CFA, a Senior Vice President
of the Adviser. She's primarily responsible for the day-to-day management of
the Fund's investment portfolio. Ms. Schofield who has over 20 years of
investment experience, has been with the Adviser since 1990 and served as a Vice
President and Manager of Fixed Income Investments until February 1999. She has
managed the Fund since December 1996.
GALAXY TAXABLE BOND FUNDS 11
<PAGE>
GALAXY HIGH QUALITY BOND FUND
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your Retail B Shares convert to Retail A Shares after six years
- - the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $496 $751 $1,025 $1,808
- --------------------------------------------------------------------------------
Retail B Shares $688 $882 $1,201 $1,851
- --------------------------------------------------------------------------------
If you hold Retail B Shares, you would pay the following expenses if you didn't
sell your shares:
Retail B Shares $188 $582 $1,001 $1,851
- --------------------------------------------------------------------------------
</TABLE>
12 GALAXY TAXABLE BOND FUNDS
<PAGE>
ADDITIONAL INFORMATION ABOUT RISK
The principal risks associated with an investment in each of the Galaxy Taxable
Bond Funds have been described above. The following supplements that discussion.
TEMPORARY DEFENSIVE POSITIONS
Under unusual market conditions, each Fund may hold uninvested cash (which will
not earn any income) and invest without limit in money market instruments,
including short-term U.S. Government securities. This strategy could prevent a
Fund from achieving its investment objective.
OTHER TYPES OF INVESTMENTS
This prospectus describes each Fund's main investment strategies and the
particular types of securities in which each Fund mainly invests. Each Fund
may, from time to time, pursue other investment strategies and make other types
of investments in support of its overall investment goal. These supplemental
investment strategies - and the risks involved - are described in detail in the
Statement of Additional Information (SAI) which is referred to on the back
cover of this prospectus.
YEAR 2000 RISKS
As with other mutual funds, financial and business organizations and individuals
around the world, the Funds could be adversely affected if the computer systems
used by the Adviser and the Funds' other service providers don't properly
process and calculate date-related information and data from and after January
1, 2000. This is commonly known as the "Year 2000" or "Y2K" problem. The Adviser
is taking steps to address the Y2K problem with respect to the computer systems
that it uses and to obtain assurances that comparable steps are being taken by
the Funds' other major service providers. At this time, however, there can
be no assurance that these steps will be sufficient to avoid any adverse impact
on the Funds. The Y2K problem could have a negative impact on the issuers of
the securities in which the Funds invest, which could hurt the Funds'
investment returns.
GALAXY TAXABLE BOND FUNDS 13
<PAGE>
INVESTOR GUIDELINES
The table below provides information as to which type of investor
might want to invest in each of the Galaxy Taxable Bond Funds. It's meant as
a general guide only. Consult your financial professional to help you decide
which Fund is right for you.
<TABLE>
<CAPTION>
GALAXY FUND MAY BE BEST SUITED FOR INVESTORS WHO...
- --------------------------------------------------------------------------------
<S> <C>
GALAXY SHORT-TERM BOND FUND - want current income greater than that
normally provided by a money market fund
- want less change in the value of their
investment than normally associated with
long-term funds
- --------------------------------------------------------------------------------
GALAXY INTERMEDIATE GOVERNMENT - want current income
INCOME FUND - want the extra margin of safety
associated with U.S. Government
securities
- can accept fluctuations in price and
yield
- --------------------------------------------------------------------------------
GALAXY HIGH QUALITY BOND FUND - want current income
- want the added safety associated with
bonds with lower credit risk than other
debt securities
- can accept fluctuations in price and
yield
</TABLE>
14 GALAXY TAXABLE BOND FUNDS
<PAGE>
FUND MANAGEMENT
ADVISER
The Adviser, subject to the general supervision of Galaxy's Board of Trustees,
manages each Fund in accordance with its investment objective and policies,
makes decisions with respect to and places orders for all purchases and sales of
portfolio securities, and maintains related records.
ALLOCATION OF ORDERS FOR PORTFOLIO SECURITIES
The Adviser may allocate orders for the purchase and sale of portfolio
securities to certain financial institutions, including those that are
affiliated with the Adviser or that have sold shares of the Funds, to the
extent permitted by law or by order of the Securities and Exchange Commission.
The Adviser will allocate orders to such institutions only if it believes
that the quality of the transaction and the commission are comparable to what
they would be with other qualified brokerage firms.
MANAGEMENT FEES
The management fees paid to the Adviser by the Funds during the last fiscal year
are set forth below.
<TABLE>
<CAPTION>
MANAGEMENT FEE
FUND AS A % OF AVERAGE NET ASSETS
- ----------------------------------------------------------------------------
<S> <C>
Short-Term Bond Fund 0.55%
- ----------------------------------------------------------------------------
Intermediate
Government Income Fund 0.55%
- ----------------------------------------------------------------------------
High Quality Bond Fund 0.55%
- ----------------------------------------------------------------------------
</TABLE>
GALAXY TAXABLE BOND FUNDS 15
<PAGE>
HOW TO INVEST IN THE FUNDS
HOW SALES CHARGES WORK
You will normally pay a sales charge to invest in the Funds. If you buy Retail A
Shares, you'll usually pay a sales charge (sometimes called a front-end load) at
the time you buy your shares. If you buy Retail B Shares, you may have to pay a
contingent deferred sales charge (sometimes called a back-end load or CDSC) when
you sell your shares. This section explains these two options.
RETAIL A SHARES
The table below shows the sales charge you'll pay if you buy Retail A Shares of
the Funds. The offering price is the NAV of the shares purchased, plus any
applicable sales charge.
<TABLE>
<CAPTION>
TOTAL SALES CHARGE
--------------------------------------------
AS A % OF AS A % OF
AMOUNT OF THE OFFERING PRICE YOUR
YOUR INVESTMENT PER SHARE INVESTMENT
- -----------------------------------------------------------------------------
<S> <C> <C>
Less than $50,000 3.75% 3.90%
- -----------------------------------------------------------------------------
$50,000 but less
than $100,000 3.50% 3.63%
- -----------------------------------------------------------------------------
$100,000 but less
than $250,000 3.00% 3.09%
- -----------------------------------------------------------------------------
$250,000 but less
than $500,000 2.50% 2.56%
- -----------------------------------------------------------------------------
$500,000 and over 0.00%(1) 0.00%(1)
- -----------------------------------------------------------------------------
</TABLE>
(1) There is no front-end sales charge on investments in Retail A Shares of
$500,000 or more. However, if you sell the shares within one year after
buying them, you'll pay a CDSC of 1% of the offering price or 1% of the net
asset value of your shares, whichever is less, unless the shares were sold
because of the death or disability of the shareholder.
Galaxy's distributor may from time to time implement programs under which a
broker-dealer's sales force may be eligible to win nominal awards for certain
sales efforts. If any such program is made available to any broker-dealer, it
will be made available to all broker-dealers on the same terms. Payments made
under such programs are made by Galaxy's distributor out of its own assets
and not out of the assets of the Funds. These programs will not change the
price of Retail A Shares or the amount that the Funds will receive from such
sales.
Certain affiliates of the Adviser may, at their own expense, provide additional
compensation to affiliated broker-dealers whose customers purchase significant
amounts of Retail A Shares of one or more Funds and to unaffiliated broker-
dealers whose customers purchase Retail A Shares of one or more of the Funds.
Such compensation will not represent an additional expense to the Funds or their
shareholders, since it will be paid from the assets of the Adviser's affiliates.
There's no sales charge when you buy Retail A Shares if:
- - You buy shares by reinvesting your dividends and distributions.
- - You buy shares for a 401(k) or SIMPLE IRA retirement account.
- - You buy shares for any retirement account that held Galaxy shares prior to
January 1, 1999.
- - You buy shares for any Traditional IRA, Roth IRA, Education IRA, Keogh or
SEP retirement account and your total Retail A Share retirement account
balance is $30,000 or more.
- - You buy shares with money from another Galaxy Fund on which you've already
paid a sales charge (as long as you buy the new shares within 90 days after
selling your other shares).
- - You're an investment professional who places trades for your clients and
charges them a fee.
[Sidenote:]
NET ASSET VALUE
The price you pay for your shares is based on the net asset value per share
(NAV). It's the value of a Fund's assets attributable to Retail A Shares or
Retail B Shares, minus the value of the Fund's liabilities attributable to
Retail A Shares or Retail B Shares, divided by the number of Retail A Shares or
Retail B Shares held by investors.
16 GALAXY TAXABLE BOND FUNDS
<PAGE>
- - You buy shares under an all-inclusive fee program (sometimes called a "wrap
fee program") offered by a broker-dealer or other financial institution.
- - You were a Galaxy shareholder before December 1, 1995.
- - You previously paid a sales charge for the shares of another mutual fund
company (as long as you buy the Galaxy shares within 60 days of selling
your other shares).
RETAIL B SHARES
If you buy Retail B Shares of the Funds, you won't pay a CDSC unless you sell
your shares within six years of buying them. The following table shows the
schedule of CDSC charges:
<TABLE>
<CAPTION>
IF YOU SELL YOU'LL PAY A
YOUR SHARES CDSC OF
- -------------------------------------------------------------------------------
<S> <C>
during the first year 5.00%
- -------------------------------------------------------------------------------
during the second year 4.00%
- -------------------------------------------------------------------------------
during the third year 3.00%
- -------------------------------------------------------------------------------
during the fourth year 3.00%
- -------------------------------------------------------------------------------
during the fifth year 2.00%
- -------------------------------------------------------------------------------
during the sixth year 1.00%
- -------------------------------------------------------------------------------
after the sixth year None
- -------------------------------------------------------------------------------
</TABLE>
For purposes of calculating the CDSC, all purchases made during a calendar month
are considered to be made on the first day of that month. The CDSC is based on
the value of the Retail B Shares on the date that they are sold or the original
cost of the shares, whichever is lower. To keep your CDSC as low as possible
each time you sell shares, Galaxy will first sell any shares in your account
that are not subject to a CDSC. If there are not enough of these, Galaxy will
sell those shares that have the lowest CDSC. There is no CDSC on Retail B
Shares that you acquire by reinvesting your dividends and distributions.
In addition, there's no CDSC when Retail B Shares are sold because of the death
or disability of a shareholder and in certain other circumstances such as
exchanges. Ask your investment professional or Galaxy's distributor, or consult
the SAI, for other instances in which the CDSC is waived. To contact Galaxy's
distributor, call 1-877-BUY-GALAXY (1-877-289-4252).
DISTRIBUTION AND SHAREHOLDER SERVICE FEES
Retail A Shares of the Funds can pay shareholder service fees at an annual rate
of up to 0.50% of each Fund's Retail A Share assets. The Funds do not intend to
pay more than 0.15% in shareholder service fees with respect to Retail A Shares
during the current fiscal year.
Retail B Shares of the Funds can pay distribution and shareholder service
(12b-1) fees at an annual rate of up to 1.15% of each Fund's Retail B Share
assets. The Funds do not intend to pay more than 0.80% in distribution and
service (12b-1) fees during the current fiscal year. Galaxy has adopted a
plan under Rule 12b-1 that allows each Fund to pay fees from its Retail B
Share assets for selling and distributing Retail B Shares and for services
provided to shareholders. Because 12b-1 fees are paid on an ongoing basis,
over time they increase the cost of your investment and may cost more than
paying other sales charges.
CONVERTING RETAIL B SHARES TO RETAIL A SHARES
Six years after you buy Retail B Shares of a Fund, they will automatically
convert to Retail A Shares of the Fund. This allows you
[Sidenote:]
Ask your investment professional or Galaxy's distributor, or consult the SAI,
for other instances in which the sales load on Retail A Shares is waived. When
you buy your shares, you must tell your investment professional or Galaxy's
distributor that you qualify for a sales load waiver. To contact Galaxy's
distributor call 1-877-BUY-GALAXY (1-877-289-4252).
GALAXY TAXABLE BOND FUNDS 17
<PAGE>
to benefit from the lower annual expenses of Retail A Shares.
CHOOSING BETWEEN RETAIL A SHARES AND RETAIL B SHARES
In deciding whether to buy Retail A Shares or Retail B Shares, you should
consider how long you plan to hold the shares. Over time, the higher fees on
Retail B Shares may equal or exceed the initial sales charge and fees for Retail
A Shares. Retail A Shares may be a better choice if you qualify to have the
sales charge reduced or eliminated or if you plan to sell your shares within one
or two years. Consult your financial professional for help in choosing the
appropriate share class.
BUYING, SELLING AND EXCHANGING SHARES
You can buy and sell Retail A Shares and Retail B Shares of the Funds on any day
that the Funds are open for business, which is any day that the New York Stock
Exchange is open. The New York Stock Exchange is generally open for trading
every Monday through Friday, except for national holidays.
Retail A Shares and Retail B Shares have different prices. The price at which
you buy shares is the NAV next determined after your order is accepted, plus
any applicable sales charge. The price at which you sell shares is the NAV next
determined after receipt of your order in proper form, as described below, less
any applicable CDSC. NAV is determined on each day the New York Stock Exchange
is open for trading at the close of regular trading that day (usually 4:00 p.m.
Eastern time). If market prices are readily available for securities owned by
the Fund, they're valued at those prices. If market prices are not readily
available for some securities, they are valued at fair value under the
supervision of Galaxy's Board of Trustees.
Sometimes, the price of a security trading on a foreign stock exchange may be
affected by events that happen after that exchange closes. If this happens, the
fair value of the security may be determined using other factors and may not
reflect the security's last quoted price. In addition, foreign securities may
trade on days when shares of the Funds are not priced. As a result, the net
asset value per share of a Fund holding these securities may change on days when
you won't be able to buy or sell Fund shares.
There is generally no minimum initial investment if you participate in the
Automatic Investment Program or in a salary reduction retirement plan such as a
SIMPLE IRA or 401(k). You generally can make additional investments for as
little as $100. See GALAXY INVESTOR PROGRAMS below for information on other
minimums for initial and additional investments.
Usually, you must keep at least $250 in your account other than retirement plan
accounts. If your account falls below $250 because you sell or exchange shares,
Galaxy may redeem your shares and close your account. Galaxy
[Sidenote:]
MINIMUM INVESTMENT AMOUNTS
The minimum initial investment to open a Fund account is:
- - $2,500 for regular accounts
- - $500 for retirement plan accounts such as IRA, SEP and Keogh Plan accounts
- - $100 for college savings accounts, including Education IRA accounts.
18 GALAXY TAXABLE BOND FUNDS
<PAGE>
will give you 60 days' notice in writing before closing your account.
HOW TO BUY SHARES
You can buy shares through your financial institution or directly from Galaxy's
distributor by calling 1-877-BUY-GALAXY (1-877-289-4252). A broker or agent who
places orders on your behalf may charge you a separate fee for their services.
BUYING BY MAIL
Complete an account application and mail it, together with a check payable to
each Fund in which you want to invest, to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
To make additional investments, send your check to the address above along with
one of the following:
- - the detachable form that's included with your Galaxy statement or your
confirmation of a prior transaction
- - a letter stating the amount of your investment, the name of the Fund you
want to invest in, and your account number.
If your check is returned because of insufficient funds, Galaxy will cancel your
order.
BUYING BY WIRE
To make an initial or additional investment by wire, send U.S. funds through the
Federal Reserve System to Fleet National Bank as agent for Galaxy's distributor.
You should wire money and registration instructions to:
Fleet National Bank
75 State Street
Boston, MA 02109
ABA #0110-0013-8, DDA #79673-5702
Ref: The Galaxy Fund (Account number)
(Account registration)
Before making an initial investment by wire, you must complete an account
application and send it to The Galaxy Fund, P.O. Box 6520, Providence,
RI 02940-6520. Your order will not be effected until the completed account
application is received by Galaxy. Call Galaxy's distributor at
1-877-BUY-GALAXY (1-877-289-4252) for an account application.
Your financial institution may charge you a fee for sending funds by wire.
CUSTOMERS OF FINANCIAL INSTITUTIONS
If you are a customer of a financial institution such as a bank, savings and
loan association or broker-dealer, including a financial institution
affiliated with the Adviser, you should place your order through your
financial institution. Your financial institution is responsible for sending
your order to Galaxy's distributor and wiring the money to Galaxy's
custodian. For details, please contact your financial institution.
GALAXY TAXABLE BOND FUNDS 19
<PAGE>
DISCOUNT PLANS
You may have the sales charges on purchases of Retail A Shares reduced or waived
completely through the discount plans described below:
- - RIGHTS OF ACCUMULATION - You can add the value of the Retail A Shares that
you already own in any Galaxy Fund that charges a sales load to your next
investment in Retail A Shares for purposes of calculating the sales charge.
- - LETTER OF INTENT - You can purchase Retail A Shares of any Galaxy Fund that
charges a sales load over a 13-month period and receive the same sales
charge as if all of the shares had been purchased at the same time. To
participate, complete the Letter of Intent section on the account
application.
- - REINVESTMENT PRIVILEGE - You can reinvest some or all of the money that you
receive when you sell Retail A Shares of the Funds in Retail A Shares of
any Galaxy Fund within 90 days without paying a sales charge.
- - GROUP SALES - If you belong to a qualified group with 50,000 or more
members, you can buy Retail A Shares at a reduced sales charge, based on
the number of qualified group members.
HOW TO SELL SHARES
You can sell your shares in several ways: by mail, by telephone, by wire, or
through your financial institution.
SELLING BY MAIL
Send your request in writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
You must include the following:
- - The name of the Fund
- - The number of shares or the dollar amount you want to sell
- - Your account number
- - Your Social Security number or tax identification number
- - The signatures of each registered owner of the account (the signatures must
match the names on the account registration).
Additional documents may be required for certain types of shareholders, such as
corporations, partnerships, executors, trustees, administrators or guardians.
[Sidenote:]
You must tell your investment professional or Galaxy's distributor when you buy
your shares that you want to take advantage of any of these discount plans. See
the SAI for additional requirements that may apply. To contact Galaxy's
distributor, call 1-877-BUY-GALAXY (1-877-289-4252).
20 GALAXY TAXABLE BOND FUNDS
<PAGE>
SELLING BY PHONE
You can sell shares by calling Galaxy's distributor at 1-877-BUY-GALAXY
(1-877-289-4252) unless you tell Galaxy on the account application or in writing
that you don't want this privilege. If you have difficulty getting through to
Galaxy because of unusual market conditions, consider selling your shares by
mail or wire.
SELLING BY WIRE
Notify Galaxy's distributor by phone or wire that you wish to sell shares and
have the sale proceeds wired to your account at any financial institution in the
U.S. To be eligible to use this privilege, you must complete the appropriate
section on the account application or notify Galaxy in writing (with a signature
guarantee). Your sale proceeds must be more than $1,000.
The sale proceeds must be paid to the same bank and account you named on your
application or in your written instructions.
CUSTOMERS OF FINANCIAL INSTITUTIONS
Please contact your financial institution for information on how to sell your
shares. The financial institution is responsible for sending your order to
Galaxy's distributor and for crediting your account with the proceeds. Galaxy
doesn't charge a fee for wiring sale proceeds to your financial institution, but
your financial institution may charge you a fee.
HOW TO EXCHANGE SHARES
You may exchange Retail A Shares of a Fund having a value of at least $100 for
Retail A Shares of any other Galaxy Fund or for shares of any other Fund that's
managed by the Adviser or any of its affiliates in which you have an existing
account. You won't pay a sales charge for exchanging your Retail A Shares.
You may exchange Retail B Shares of a Fund for Retail B Shares of any other
Galaxy Fund. You won't pay a CDSC when you exchange your Retail B Shares.
However, when you sell the Retail B Shares you acquired in the exchange, you'll
pay a contingent deferred sales charge based on the date you bought the Retail B
Shares which you exchanged.
TO EXCHANGE SHARES:
- - call Galaxy's distributor or use the InvestConnect voice response line at
1-877-BUY-GALAXY (1-877-289-4252)
- - send your request in writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
- - ask your financial institution.
Galaxy doesn't charge any fee for making exchanges but your financial
institution might do so. You are generally limited to three exchanges per year.
Galaxy may change or cancel the exchange privilege by giving 60 days' advance
written notice to shareholders.
[Sidenote:]
SIGNATURE GUARANTEES
When selling your shares by mail or by phone, you must have your signature
guaranteed if:
- - you're selling shares worth more than $50,000
- - you want Galaxy to send your money to an address other than the address on
your account, unless your assets are transferred to a successor custodian
- - you want Galaxy to send your money to the address on your account that's
changed within the last 30 days, or
- - you want Galaxy to make the check payable to someone else.
Your signature must be guaranteed by a bank that's a member of the FDIC, a trust
company, a member firm of a national securities exchange or any other eligible
institution. A notarized signature is not sufficient.
GALAXY TAXABLE BOND FUNDS 21
<PAGE>
OTHER TRANSACTION POLICIES
If Galaxy doesn't receive full payment for your order to buy shares within three
business days of the order date, Galaxy won't accept your order. Galaxy will
advise you if this happens and return any payment it may eventually receive. You
can only invest in shares of the Funds that are legally available in your state.
Galaxy may refuse any order to buy shares. Galaxy doesn't issue a certificate
when you buy shares but it does keep a record of shares issued to investors.
Galaxy may refuse your order to sell or exchange shares by
wire or telephone if it believes it is advisable to do so. Galaxy or its
distributor may change or cancel the procedures for selling or exchanging shares
by wire or telephone at any time without notice.
If you sell or exchange shares by telephone you may be responsible for any
fraudulent telephone orders as long as Galaxy has taken reasonable precautions
to verify your identity, such as requesting information about the way in
which your account is registered or about recent transactions in your account.
Galaxy normally pays you cash when you sell your shares, but it has the right to
deliver securities owned by a Fund instead of cash. When you sell these
securities, you'll pay brokerage charges.
Sales proceeds are normally sent to you within three business days but Galaxy
reserves the right to send sales proceeds within seven days if sending
proceeds earlier could adversely affect a Fund.
If any shares that you're selling are part of an investment you've paid for with
a personal check, Galaxy will delay sending your sales proceeds until the check
clears, which can take up to 15 days from the purchase date.
Galaxy reserves the right to vary or waive any minimum investment requirement.
22 GALAXY TAXABLE BOND FUNDS
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Each Fund declares any dividends from net investment income daily and pays them
monthly. Each Fund pays any net capital gains at least once a year. It's
expected that the Funds' annual distributions will normally -- but not always --
consist primarily of ordinary income rather than capital gains. Dividends and
distributions are paid in cash unless you indicate in the account application or
in a letter to Galaxy that you want to have dividends and distributions
reinvested in additional shares.
FEDERAL TAXES
Each Fund contemplates declaring as dividends each year all or substantially all
of its taxable income, including its net capital gain (the excess of long-term
capital gain over short-term capital loss). You will be subject to income tax on
these distributions regardless of whether they are paid in cash or reinvested in
additional shares. Distributions attributable to the net capital gain of a Fund
will be taxable to you as long-term capital gain, regardless of how long you
have held your shares. Other Fund distributions will generally be taxable as
ordinary income. You will be notified annually of the tax status of
distributions to you.
You should note that if you purchase shares just prior to a capital gain
distribution, the purchase price will reflect the amount of the upcoming
distribution, but you will be taxed on the entire amount of the distribution
received, even though, as an economic matter, the distribution simply
constitutes a return of capital. This is known as "buying into a dividend."
You will recognize taxable gain or loss on a sale, exchange or redemption of
your shares, including an exchange for shares of another Fund, based on the
difference between your tax basis in the shares and the amount you receive for
them. (To aid in computing your tax basis, you generally should retain your
account statements for the periods during which you held shares.) Any loss
realized on shares held for six months or less will be treated as a long-term
capital loss to the extent of any capital gain dividends that were received on
the shares.
The one major exception to these tax principles is that distributions on, and
sales, exchanges and redemptions of, shares held in an IRA (or other
tax-qualified plan) will not be currently taxable.
The foregoing is only a summary of certain tax considerations under current law,
which may be subject to change in the future. You should consult your tax
adviser for further information regarding federal, state, local and/or foreign
tax consequences relevant to your specific situation.
STATE AND LOCAL TAXES
Shareholders may also be subject to state and local taxes on distributions and
redemptions. State income taxes may not apply however to the portions of each
Fund's distributions, if any, that are attributable to interest on U.S.
Government securities or on securities of a particular state. Shareholders
should consult their tax advisers regarding the tax status of distributions in
their state and locality.
GALAXY TAXABLE BOND FUNDS 23
<PAGE>
GALAXY INVESTOR PROGRAMS
RETIREMENT PLANS
Retail A Shares and Retail B Shares of the Funds are available for purchase in
connection with any of the following retirement plans:
- - Individual Retirement Arrangements (IRAs), including Traditional, Roth,
Rollover and Education IRAs.
- - Simplified Employee Pension Plans (SEPs).
- - Keogh money purchase and profit sharing plans.
- - Salary reduction retirement plans set up by employers for their employees
which are qualified under Section 401(k) and 403(b) of the Internal Revenue
Code.
- - SIMPLE IRA plans which are qualified under Section 408(p) of the
Internal Revenue Code.
For information about eligibility requirements and other matters concerning
these plans and to obtain an application, call Galaxy's distributor at
1-877-BUY-GALAXY (1-877-289-4252).
OTHER PROGRAMS
It's also easy to buy or sell shares of the Funds by using one of the programs
described below. Just tell Galaxy the amount and how frequently you want to buy
or sell shares and Galaxy does the rest. For further information on any of these
programs, call Galaxy's distributor at 1-877-BUY-GALAXY (1-877-289-4252) or your
financial institution.
AUTOMATIC INVESTMENT PROGRAM
You can make automatic investments from your bank account every month or every
quarter. You can choose to make your investment on any day of the month or
quarter. The minimum investment is $50 a month or $150 a quarter except for
Education IRAs, in which case the minimum investment is $40 a month or $125 a
quarter.
PAYROLL DEDUCTION PROGRAM
You can make regular investments from your paycheck. The minimum investment is
$25 per pay period. Send a completed Galaxy Payroll Deduction Application to
your employer's payroll department. They'll arrange to have your investment
deducted from your paycheck.
COLLEGE INVESTMENT PROGRAM
The minimum for initial and additional investments through the College
Investment Program is $100 unless you participate in the Automatic Investment
Program, in which case the minimum for initial and additional investments is
$50. You can also save for college by opening an Education IRA account. The
minimum for initial and additional investments in an Education IRA is $100
unless you participate in the Automatic Investment Program, in which case the
minimum for initial and additional investments is $40.
24 GALAXY TAXABLE BOND FUNDS
<PAGE>
DIRECT DEPOSIT PROGRAM
This program lets you deposit your social security payments in your Fund account
automatically. There's no minimum deposit. You can cancel the program by
notifying the Social Security Administration in writing.
SYSTEMATIC WITHDRAWAL PLAN
You can make regular withdrawals from your investment account every month, every
quarter, every six months or once a year. You need a minimum account balance of
$10,000 to participate in the plan. No CDSC will be charged on withdrawals of
Retail B Shares made through the plan that don't annually exceed 12% of your
account's value.
You may cancel your participation in any of these programs, other than the
Direct Deposit Program, by writing to Galaxy at:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
Please allow at least five days for the cancellation to be processed.
GALAXY TAXABLE BOND FUNDS 25
<PAGE>
HOW TO REACH GALAXY
THROUGH YOUR FINANCIAL INSTITUTION
Your financial institution can help you buy, sell or exchange shares and can
answer questions about your account.
GALAXY SHAREHOLDER SERVICES
Call Galaxy's distributor at 1-877-BUY-GALAXY (1-877-289-4252), Monday through
Friday, 8 a.m. to 6 p.m. (Eastern time) for help from a Galaxy representative.
INVESTCONNECT
InvestConnect is Galaxy's shareholder voice response system. Call
1-877-BUY-GALAXY (1-877-289-4252) from any touch-tone phone for automated access
to account information and current Fund prices and performance, or to place
orders to sell or exchange shares. It's available 24 hours a day, seven days
a week.
If you live outside the United States, you can contact Galaxy by calling
1-508-871-4121.
THE INTERNET
Please visit Galaxy's website at:
www.galaxyfunds.com
[Sidenote:]
Galaxy also offers a TDD service for the hearing impaired. Just call
1-800-696-6515, 24 hours a day, seven days a week.
26 GALAXY TAXABLE BOND FUNDS
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables shown below will help you understand the
financial performance for the Funds' Retail A Shares and Retail B Shares for the
past five years (or the period since a particular Fund began operations or a
particular class of shares was first offered). Certain information reflects the
financial performance of a single Retail A Share or Retail B Share. The total
returns in the tables represent the rate that an investor would have earned (or
lost) on an investment in Retail A Shares and Retail B Shares of each Fund,
assuming all dividends and distributions were reinvested. This information has
been audited by PricewaterhouseCoopers LLP, independent accountants, whose
report, along with the Funds' financial statements, are included in the Funds'
Annual Report and are incorporated by reference into the SAI. The Annual
Report and SAI are available free of charge upon request. The Intermediate
Government Income Fund did not sell Retail B Shares during the periods covered
by the tables.
GALAXY SHORT-TERM BOND FUND
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
FOR THE YEAR ENDING OCTOBER 31,
-----------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------------ ------------------ -------------------- -------- --------
Retail A Retail B Retail A Retail B Retail A Retail B Retail A Retail A
Shares Shares Shares Shares Shares Shares(1) Shares Shares
- ------------------------------------ ------------------ ------------------ -------------------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $10.01 $10.01 $9.99 $9.99 $10.06 $10.09 $9.73 $10.30
- ------------------------------------ ------------------ ------------------ -------------------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(2) 0.51 0.45 0.53 0.46 0.52 0.31 0.55 0.44
--------------------------------- ------------------ ------------------ -------------------- -------- --------
Net realized and unrealized
gain (loss) on investments 0.11 0.11 0.02 0.03 (0.07) (0.10) 0.33 (0.51)
- ------------------------------------ ------------------ ------------------ -------------------- -------- --------
Total from investment operations 0.62 0.56 0.55 0.49 0.45 0.21 0.88 (0.07)
LESS DIVIDENDS:
Dividends from net investment
income (0.53) (0.47) (0.53) (0.47) (0.52) (0.31) (0.55) (0.44)
--------------------------------- ------------------ ------------------ -------------------- -------- --------
Dividends from net realized
capital gains - - - - - - - -
--------------------------------- ------------------ ------------------ -------------------- -------- --------
Dividends in excess of
net realized capital gains - - - - - - - (0.06)
- ------------------------------------ ------------------ ------------------ -------------------- -------- --------
Total dividends (0.53) (0.47) (0.53) (0.47) (0.52) (0.31) (0.55) (0.50)
Net increase (decrease) in net
asset value 0.09 0.09 0.02 0.02 (0.07) (0.10) 0.33 (0.57)
- ------------------------------------ ------------------ ------------------ -------------------- -------- --------
Net asset value, end of period $10.10 $10.10 $10.01 $10.01 $9.99 $9.99 $10.06 $9.73
- ------------------------------------ ------------------ ------------------ -------------------- -------- --------
- ------------------------------------ ------------------ ------------------ -------------------- -------- --------
Total return(3) 6.42% 5.73% 5.64% 4.99% 4.63% 2.12%(4) 9.28% (0.68)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $29,067 $1,087 $27,961 $905 $33,388 $260 $31,542 $34,061
--------------------------------- ------------------ ------------------ -------------------- -------- --------
RATIOS TO AVERAGE NET ASSETS:
Net investment income
including reimbursement/waiver 5.07% 4.40% 5.29% 4.56% 5.22% 4.73%(5) 5.54% 4.43%
--------------------------------- ------------------ ------------------ -------------------- -------- --------
Operating expenses including
reimbursement/waiver 1.11% 1.78% 1.00% 1.75% 1.11% 1.77%(5) 0.99% 0.93%
--------------------------------- ------------------ ------------------ -------------------- -------- --------
Operating expenses excluding
reimbursement/waiver 1.31% 1.99% 1.21% 2.01% 1.35% 1.98%(5) 1.32% 1.14%
--------------------------------- ------------------ ------------------ -------------------- -------- --------
Portfolio turnover rate 133% 133% 173% 173% 214% 214% 289% 233%
</TABLE>
(1) The Fund began offering Retail B Shares on March 4, 1996.
(2) Net investment income per share before reimbursement/waiver of fees
by the Adviser and/or the Fund's administrator for Retail A Shares for the
years ended October 31, 1998, 1997, 1996, 1995 and 1994 was $0.49, $0.51,
$0.50, $0.52 and $0.42, respectively. Net investment income per share
before reimbursement/waiver of fees by the Adviser and/or the Fund's
administrator for Retail B Shares for the years ended October 31, 1998 and
1997 and for the period ended October 31, 1996 was $0.42, $0.44 and $0.29,
respectively.
(3) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares.
(4) Not annualized.
(5) Annualized.
GALAXY TAXABLE BOND FUNDS 27
<PAGE>
GALAXY INTERMEDIATE GOVERNMENT INCOME FUND
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
FOR THE YEAR ENDING OCTOBER 31,
--------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
Retail A Retail A Retail A Retail A Retail A
Shares Shares Shares Shares Shares
- ------------------------------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $10.18 $10.06 $10.28 $9.68 $10.72
- ------------------------------------ -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(1) 0.57 0.59 0.57 0.61 0.57
--------------------------------- -------- -------- -------- -------- --------
Net realized and unrealized
gain (loss) on investments 0.34 0.12 (0.22) 0.60 (1.03)
- ------------------------------------ -------- -------- -------- -------- --------
Total from investment operations 0.91 0.71 0.35 1.21 (0.46)
LESS DIVIDENDS:
Dividends from net investment
income (0.59) (0.59) (0.57) (0.61) (0.56)
--------------------------------- -------- -------- -------- -------- --------
Dividends in excess of net
investment income - - - - (0.01)
--------------------------------- -------- -------- -------- -------- --------
Dividends from net realized
capital gains - - - - -
--------------------------------- -------- -------- -------- -------- --------
Dividends in excess of
net realized capital gains - - - - (0.01)
- ------------------------------------ -------- -------- -------- -------- --------
Total dividends (0.59) (0.59) (0.57) (0.61) (0.58)
Net increase (decrease) in net
asset value 0.32 0.12 (0.22) 0.60 (1.04)
- ------------------------------------ -------- -------- -------- -------- --------
Net asset value, end of period $10.50 $10.18 $10.06 $10.28 $9.68
- ------------------------------------ -------- -------- -------- -------- --------
- ------------------------------------ -------- -------- -------- -------- --------
Total return(2) 9.22% 7.33% 3.58% 12.85% (4.42)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $66,865 $65,626 $79,741 $79,558 $94,669
--------------------------------- -------- -------- -------- -------- --------
RATIOS TO AVERAGE NET ASSETS:
Net investment income
including reimbursement/waiver 5.49% 5.90% 5.69% 6.10% 5.58%
--------------------------------- -------- -------- -------- -------- --------
Operating expenses including
reimbursement/waiver 1.01% 1.02% 1.04% 1.02% 0.78%
--------------------------------- -------- -------- -------- -------- --------
Operating expenses excluding
reimbursement/waiver 1.21% 1.22% 1.24% 1.26% 0.99%
--------------------------------- -------- -------- -------- -------- --------
Portfolio turnover rate 210% 128% 235% 145% 124%
</TABLE>
(1) Net investment income per share before reimbursement/waiver of fees by
the Adviser and/or the Fund's administrator for Retail A Shares for the
years ended October 31, 1998, 1997, 1996, 1995 and 1994 was $0.55, $0.57,
$0.55, $0.58 and $0.54, respectively.
(2) Calculation does not include the effect of any sales charge for Retail A
Shares.
28 GALAXY TAXABLE BOND FUNDS
<PAGE>
GALAXY HIGH QUALITY BOND FUND
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
FOR THE YEAR ENDING OCTOBER 31,
-----------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------------ ------------------ -------------------- -------- --------
Retail A Retail B Retail A Retail B Retail A Retail B Retail A Retail A
Shares Shares Shares Shares Shares Shares(1) Shares Shares
- ------------------------------------ ------------------ ------------------ -------------------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $10.70 $10.70 $10.47 $10.47 $10.63 $10.72 $9.54 $11.37
- ------------------------------------ ------------------ ------------------ -------------------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(2) 0.58 0.51 0.60 0.53 0.59 0.36 0.62 0.64
--------------------------------- ------------------ ------------------ -------------------- -------- --------
Net realized and unrealized
gain (loss) on investments 0.50 0.51 0.23 0.24 (0.16) (0.25) 1.09 (1.56)
- ------------------------------------ ------------------ ------------------ -------------------- -------- --------
Total from investment operations 1.08 1.02 0.83 0.77 0.43 0.11 1.71 (0.92)
LESS DIVIDENDS:
Dividends from net investment
income (0.58) (0.52) (0.60) (0.54) (0.59) (0.36) (0.62) (0.64)
--------------------------------- ------------------ ------------------ -------------------- -------- --------
Dividends from net realized
capital gains - - - - - - - -
--------------------------------- ------------------ ------------------ -------------------- -------- --------
Dividends in excess of
net realized capital gains - - - - - - - (0.27)
- ------------------------------------ ------------------ ------------------ -------------------- -------- --------
Total dividends (0.58) (0.52) (0.60) (0.54) (0.59) (0.36) (0.62) (0.91)
Net increase (decrease) in net
asset value 0.50 0.50 0.23 0.23 (0.16) (0.25) 1.09 (1.83)
- ------------------------------------ ------------------ ------------------ -------------------- -------- --------
Net asset value, end of period $11.20 $11.20 $10.70 $10.70 $10.47 $10.47 $10.63 $9.54
- ------------------------------------ ------------------ ------------------ -------------------- -------- --------
- ------------------------------------ ------------------ ------------------ -------------------- -------- --------
Total return(3) 10.35% 9.73% 8.22% 7.59% 4.24% 1.14%(4) 18.46% (8.41)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $45,879 $5,420 $27,950 $1,998 $30,984 $646 $30,093 $26,654
--------------------------------- ------------------ ------------------ -------------------- -------- --------
RATIOS TO AVERAGE NET ASSETS:
Net investment income
including reimbursement/waiver 5.30% 4.69% 5.73% 5.07% 5.66% 5.34%(5) 6.16% 6.25%
--------------------------------- ------------------ ------------------ -------------------- -------- --------
Operating expenses including
reimbursement/waiver 1.00% 1.61% 1.01% 1.69% 1.07% 1.60%(5) 1.02% 0.81%
--------------------------------- ------------------ ------------------ -------------------- -------- --------
Operating expenses excluding
reimbursement/waiver 1.20% 1.81% 1.21% 1.95% 1.28% 1.81%(5) 1.26% 1.02%
--------------------------------- ------------------ ------------------ -------------------- -------- --------
Portfolio turnover rate 253% 253% 182% 182% 163% 163% 110% 108%
</TABLE>
(1) The Fund began offering Retail B Shares on March 4, 1996.
(2) Net investment income per share before reimbursement/waiver of fees by
the Adviser and/or the Fund's administrator for Retail A Shares for the
years ended October 31, 1998, 1997, 1996, 1995 and 1994 was $0.56, $0.58,
$0.57, $0.59 and $0.62, respectively. Net investment income per share
before reimbursement/waiver of fees by the Adviser and/or the Fund's
administrator for Retail B Shares for the years ended October 31, 1998,
1997 and for the period ended October 31, 1996 was $0.49, $0.51 and $0.34,
respectively.
(3) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares.
(4) Not annualized.
(5) Annualized.
GALAXY TAXABLE BOND FUNDS 29
<PAGE>
WHERE TO FIND MORE INFORMATION
You'll find more information about the Funds in the following documents:
ANNUAL AND SEMI-ANNUAL REPORTS
Galaxy's annual and semi-annual reports contain more information about each
Fund and a discussion about the market conditions and investment strategies
that had a significant effect on each Fund's performance during the last
fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains detailed information about the Funds and their policies. By
law, it's incorporated by reference into (considered to be part of) this
prospectus.
You can get a free copy of these documents, request other information about
the Funds and make shareholder inquiries by calling Galaxy at
1-877-BUY-GALAXY (1-877-289-4252) or by writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
If you buy your shares through a financial institution, you may contact your
institution for more information.
You can write to the Securities and Exchange Commission (SEC) Public Reference
Section and ask them to mail you information about the Funds, including the SAI.
They'll charge you a fee for this service. You can also visit the SEC Public
Reference Room and copy the documents while you're there. For information about
the operation of the Public Reference Room, call the SEC.
Public Reference Section of the SEC
Washington, DC 20549-6009
1-800-SEC-0330.
Reports and other information about the Funds are also available on the SEC's
website at http://www.sec.gov.
Galaxy's Investment Company Act File No. is 811-4636.
PROGALBND 3/1/99
<PAGE>
[GRAPHIC]
GALAXY TAXABLE BOND FUNDS
THE GALAXY FUND
PROSPECTUS
February 28, 1999
Galaxy Short-Term Bond Fund
Galaxy Intermediate
Government Income Fund
Galaxy High Quality Bond Fund
Galaxy Corporate Bond Fund
TRUST SHARES
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved any shares of these Funds or determined if this
prospectus is accurate or complete. Anyone who tells you otherwise is
committing a crime.
[LOGO]
<PAGE>
CONTENTS
1 RISK/RETURN SUMMARY
1 Introduction
2 Galaxy Short-Term Bond Fund
5 Galaxy Intermediate
Government Income Fund
8 Galaxy High Quality Bond Fund
11 Galaxy Corporate Bond Fund
14 Additional information about risk
15 Investor guidelines
16 FUND MANAGEMENT
17 HOW TO INVEST IN THE FUNDS
17 Buying and selling shares
18 HOW TO BUY SHARES
19 HOW TO SELL SHARES
20 OTHER TRANSACTION POLICIES
21 DIVIDENDS, DISTRIBUTIONS AND TAXES
22 HOW TO REACH GALAXY
23 FINANCIAL HIGHLIGHTS
<PAGE>
RISK/RETURN SUMMARY
INTRODUCTION
THIS PROSPECTUS describes the Galaxy Taxable Bond Funds. Each Fund invests
primarily in debt obligations, such as bonds, notes and commercial paper.
On the following pages, you'll find important information about each Fund,
including:
- - The Fund's Investment objective (sometimes called the Fund's goal) and the
main investment strategies used by the Fund's investment adviser in trying
to achieve that objective
- - The main risks associated with an investment in the Fund
- - The Fund's past performance measured on both a year-by-year and long-term
basis
- - The fees and expenses that you will pay as an investor in the Fund.
WHICH FUND IS RIGHT FOR YOU?
Not all mutual funds are for everyone. Your investment goals and tolerance for
risk will determine which fund is right for you. On page 15, you'll find a
table that provides a general guide to help you decide which of the Galaxy
Taxable Bond Funds is best suited to you.
THE FUNDS' INVESTMENT ADVISER
Fleet Investment Advisors Inc., which is referred to in this prospectus as
the ADVISER, is the investment adviser for all of these Funds. The Adviser,
an indirect wholly-owned subsidiary of Fleet Financial Group, Inc., was
established in 1984 and has its main office at 75 State Street, Boston,
Massachusetts 02109. The Adviser also provides investment management and
advisory services to individual and institutional clients and manages the
Other Galaxy investment portfolios. As of December 31, 1998, the Adviser
managed over $64 billion in assets.
- --------------------------------------------------------------------------------
AN INVESTMENT IN THE FUNDS ISN'T A FLEET BANK DEPOSIT AND IT ISN'T INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. YOU COULD LOSE MONEY BY INVESTING IN THE FUNDS.
GALAXY TAXABLE BOND FUNDS 1
<PAGE>
GALAXY SHORT-TERM BOND FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks a high level of current income consistent with preservation
of capital.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests primarily in debt obligations of U.S. and foreign corporations,
including bonds and notes, and in debt obligations issued or guaranteed by the
U.S. Government and its agencies or instrumentalities or by foreign governments
or their political subdivisions and instrumentalities. It also invests in
asset-backed and mortgage-backed securities and in money market instruments,
such as commercial paper and the obligations of U.S. and foreign banks. The
Fund normally invests at least 65% of its total assets in bonds and
debentures.
In selecting portfolio securities for the Fund, the Adviser monitors and
evaluates economic trends. It establishes duration targets, ranges of
interest payments on bonds of various maturities and determines the
appropriate allocation of the Fund's assets among various market sectors.
Nearly all Fund investments will be of investment grade quality. These are
securities which have one of the top four ratings assigned by Standard &
Poor's Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or
are unrated securities determined by the Adviser to be of comparable quality.
Under normal market conditions, the Fund will invest at least 65% of its
total assets in securities that have one of the top three ratings assigned by
S&P or Moody's, or unrated securities determined by the Adviser to be of
comparable quality. Occasionally, the rating of a security held by the Fund
may be downgraded to below investment grade. If that happens, the Fund
dosen't have to sell the security unless the Adviser determines that under
the circumstances the security is no longer an appropriate investment for the
Fund.
The Fund's average weighted maturity will generally be less than three years.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the
Adviser believes that holding the security is no longer consistent with the
Fund's investment objective.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in
investment markets. These can occur within or outside the U.S. or worldwide,
and may affect only particular companies or industries.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities generally tend to move
in the opposite direction to interest rates. When rates are rising, the
prices of debt securities tend to fall. When rates are falling, the prices
of debt securities tend to rise. Generally, the longer the time until
maturity, the more sensitive the price of a debt security is to interest
rate changes.
- - CREDIT RISK - The value of debt securities also depends on the ability of
issuers to make principal and interest payments. If an issuer can't meet
its payment obligations or if its credit rating is lowered, the value of
its edbt securities may fall. Debt securities which have the lowest of
the top four ratings assigned by S&P or Moody's have
[Sidenote:]
PRESERVATION OF CAPITAL
Preservation of capital means protecting the amount of money you invest in a
fund. If a fund seeks to preserve capital, it will try to maintain a relatively
stable share price so your investment is protected.
DEBT OBLIGATION
When a fund buys a debt obligation such as a bond, it is in effect lending money
to the company, government or other entity that issued the bond. In return, the
issuer has an obligation to make regular interest payments and to repay the
original amount of the loan on a given date, known as the maturity date. A bond
MATURES when it reaches its maturity date. Bonds usually have fixed interest
rates, although some have rates that fluctuate based on market conditions and
other factors.
2 GALAXY TAXABLE BOND FUNDS
<PAGE>
GALAXY SHORT-TERM BOND FUND
speculative characteristics. Changes in the economy are more likely to
affect the ability of issuers of these securities to make payments of
principal and interest than is the case with higher-rated securities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
debt securities held by the Fund, particularly asset-backed and
mortgage-backed securities, to be paid off much sooner or later than
expected, which could adversely affect the Fund's value.
- - FOREIGN INVESTMENTS - Foreign investments may be riskier than U.S.
investments because of factors such as foreign government restrictions,
changes in currency exchange rates, incomplete financial information about
the issuers of securities, and political or economic instability. Foreign
securities may be more volatile and less liquid than U.S. securities.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance
the Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
- - FREQUENT TRADING - The Fund may trade its investments frequently in trying
to achieve its investment goal. This usually increases the chance that the
Fund will pay investors short-term capital gains. These gains are taxable
at higher rates than long-term capital gains. Frequent trading could also
mean higher brokerage commissions and other transaction costs, which could
reduce the Fund's returns.
- --------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past. Both
assume that all dividends and distributions are reinvested in the Fund. How the
Fund has performed in the past doesn't necessarily show how it will perform in
the future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares has varied from year to
year, thereby giving some indication of the risk of investing in the Fund.
[CHART]
BEST QUARTER
4.14% for the quarter ending September 30, 1992
WORST QUARTER
- -0.72% for the quarter ending March 31, 1994
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
5.81% 6.41% -0.33% 11.26% 3.65% 5.82% 6.34%
</TABLE>
[Sidenote:]
AVERAGE WEIGHTED MATURITY
Average weighted maturity gives you the average time until all debt obligations
in a fund come due or MATURE. It is calculated by averaging the time to maturity
of all debt obligations held by a fund with each maturity "weighted" according
to the percentage of assets it represents.
GALAXY TAXABLE BOND FUNDS 3
<PAGE>
GALAXY SHORT-TERM BOND FUND
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1998, as compared to a broad-based market index.
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS INCEPTION
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Trust Shares 6.34% 5.28% 5.52% (12/30/91)
- ------------------------------------------------------------------------------
Lehman Brothers
One to Three Year
Government Bond Index 6.98% 5.96% 5.92% (since 12/31/91)
- ------------------------------------------------------------------------------
</TABLE>
For current yield information, please call 1-877-BUY-GALAXY (1-877-289-4252).
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy
and hold shares of the Fund.
ANNUAL FUND OPERATING EXPENSES (FEES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT DISTRIBUTION OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75%(1) None 0.32% 1.07%(1)
- ----------------------------------------------------------------------------
</TABLE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be 0.55%. Total Fund operating expenses after this waiver
are expected to be 0.87%. This fee waiver may be revised or discontinued
at any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - The Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $109 $340 $590 $1,306
- --------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The Lehman Brothers One to Three Year Government Bond Index is an
unmanaged index which tracks the performance of short-term U.S. Government
bonds.
PORTFOLIO MANAGER
The Fund's portfolio manager is Perry Vieth, CFA, a Senior Vice President of
the Adviser. He's primarily responsible for the day-to-day management of the
Fund's investment portfolio. Mr. Vieth's investment experience dates from
1986. He joined the Adviser in 1993 and served as a Vice President until
February 1999. Prior to joining the Adviser, he was associated with Shawmut
Investment Advisors and with Fuji Securities Inc. He has managed the Fund since
March 1996.
4 GALAXY TAXABLE BOND FUNDS
<PAGE>
GALAXY INTERMEDIATE GOVERNMENT INCOME FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks the highest level of current income consistent with prudent risk
of capital.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its total assets in debt
obligations issued or guaranteed by the U.S. Government or its agencies and
instrumentalities. It also invests in debt obligations of U.S. corporations,
asset-backed and mortgage-backed securities and money market instruments,
such as commercial paper and obligations of U.S. banks and U.S. branches of
foreign banks.
In selecting portfolio securities for the Fund, the Adviser monitors and
evaluates economic trends. It establishes duration targets, ranges of interest
rates on bonds of various maturities and determines the appropriate allocation
of the Fund's investments among various market sectors.
Nearly all Fund investments will be of investment grade quality and will have
one of the top three ratings assigned by Standard & Poor's Ratings
Group (S&P) or Moody's Investors Service, Inc. (Moody's), or will be unrated
securities determined by the Adviser to be of comparable quality.
Occasionally, the rating of a security held by the Fund may be downgraded to
below minimun required rating. If that happens, the Fund doesn't have to
sell the security unless the Adviser determines that under the circumstances
the security is no longer an appropriate investment for the Fund.
The Fund's average weighted maturity will generally be between three to ten
years.
The Fund will sell a portfolio security when, as a result of changes
in the economy or the performance of the security or other circumstances, the
Adviser believes that holding the security is no longer consistent with the
Fund's investment objective.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets. These can occur within or outside the U.S. or worldwide, and may affect
only particular companies or industries.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities generally tend to move
in the opposite direction to interest rates. When rates are rising, the
prices of debt securities tend to fall. When rates are falling, the prices
of debt securities tend to rise. Generally, the longer the time until
maturity, the more sensitive the price of a debt security is to interest
rate changes.
- - CREDIT RISK - The value of debt securities also depends on the ability of
issuers to make principal and interest payments. If an issuer can't meet
its payment obligations or if its credit rating is lowered, the value of
its debt securities may fall.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
debt securities held by the Fund, particularly asset-backed and
mortgage-backed securities, to be paid off much sooner or later than
expected, which could adversely affect the Fund's value.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance
the Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
- - FREQUENT TRADING - The Fund may trade its investments frequently in trying
to achieve its investment goal. This usually increases the chance that the
Fund will pay investors short-term capital gains. These gains are taxable
at higher rates than long-term capital gains. Frequent trading could also
mean higher brokerage commissions and other transaction costs, which could
reduce the Fund's returns.
[Sidenote:]
U.S. GOVERNMENT OBLIGATIONS
U.S. Government obligations are debt obligations issued or guaranteed by the
U.S. Government or one of its agencies or instrumentalities. U.S. Government
obligations generally have less credit risk than other debt obligations.
GALAXY TAXABLE BOND FUNDS 5
<PAGE>
GALAXY INTERMEDIATE GOVERNMENT INCOME FUND
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past. Both
assume that all dividends and distributions are reinvested in the Fund. How the
Fund has performed in the past doesn't necessarily show how it will perform in
the future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares has varied from year to
year, thereby giving some indication of the risk of investing in the Fund.
[CHART]
BEST QUARTER
8.56% for the quarter ending June 30, 1989
WORST QUARTER
- -2.90% for the quarter ending March 31, 1994
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
11.54% 5.87% 15.77% 7.11% 5.58% -3.70% 16.01% 2.05% 8.12% 8.62%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1998 as compared to broad-based market indices.
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS 10 YEARS INCEPTION
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 8.62% 6.01% 7.55% 7.35% (9/1/88)
- --------------------------------------------------------------------------------
Lehman Brothers
Intermediate Government/
Corporate Bond Index 8.44% 6.60% 8.52% 8.47% (since 9/1/88)
- --------------------------------------------------------------------------------
Lehman Brothers
Aggregate Bond Index 8.69% 7.27% 9.26% 9.27% (since 9/1/88)
- --------------------------------------------------------------------------------
</TABLE>
For current yield information, please call 1-877-BUY-GALAXY (1-877-289-4252).
[Sidenote:]
The Lehman Brothers Intermediate Government/Corporate Bond Index is an
unmanaged Index which tracks the performance of intermediate-term U.S.
Government and corporate bonds. The Lehman Brothers Aggregate Bond Index is
an unmanaged index made up of the Lehman Brothers Government/Corporate Bond
Index, its Mortgage Backed Securities Index and its Asset Backed Securities
Index.
6 GALAXY TAXABLE BOND FUNDS
<PAGE>
GALAXY INTERMEDIATE GOVERNMENT INCOME FUND
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
ANNUAL FUND OPERATING EXPENSES (FEES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT DISTRIBUTION OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75%(1) None 0.21% 0.96%(1)
- --------------------------------------------------------------------------------
</TABLE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be 0.55%. Total Fund operating expenses after this waiver
are expected to be 0.76%. This fee waiver may be revised or discontinued at
any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $98 $306 $531 $1,178
- --------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Marie M. Schofield, CFA, a Senior Vice President
of the Adviser. She's primarily responsible for the day-to-day management of
the Fund's investment portfolio. Ms. Schofield, who has over 20 years of
investment experience, has been with the Adviser since 1990 and served as a
Vice President and Manager of Fixed Income Investments until February 1999.
She has managed the Fund since December 1996.
GALAXY TAXABLE BOND FUNDS 7
<PAGE>
GALAXY HIGH QUALITY BOND FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks a high level of current income consistent with prudent risk
of capital.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests primarily in obligations issued or guaranteed by the U.S.
Government, its agencies and instrumentalities, as well as in corporate debt
obligations such as notes and bonds. The Fund also invests in asset-backed and
mortgage-backed securities and in money market instruments, such as commercial
paper and bank obligations.
In selecting portfolio securities for the Fund, the Adviser monitors and
evaluates economic trends. It establishes duration targets, ranges of interest
rates on bonds of various maturities and determines the appropriate allocation
of the Fund's investments among various market sectors.
Nearly all Fund investments will be of investment grade quality. These are
securities which have one of the top four ratings assigned by Standard &
Poor's Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or
are unrated securities determined by the Adviser to be of comparable quality.
Under normal market conditions, the Fund will invest at least 65% of its
total assets in high quality securities that have one of the top two ratings
assigned by S&P or Moody's, or unrated securities determined by the Adviser
to be of comparable quality. High quality securities tend to pay less income
than lower-rated securities. Occasionally, the rating of a security held by
the Fund may be downgraded to below investment grade. If that happens, the
Fund doesn't have to sell the security unless the Adviser determines that
under the circumstances the security is no longer an appropriate investment
for the Fund.
The Fund's average weighted maturity will vary from time to time depending on
current market and economic conditions and the Adviser's assessment of probable
changes in interest rates.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the
Adviser believes that holding the security is no longer consistent with the
Fund's investment objective.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets. These can occur within or outside the U.S. or worldwide, and may affect
only particular companies or industries.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities generally tend to move
in the opposite direction to interest rates. When rates are rising, the
prices of debt securities tend to fall. When rates are falling, the prices
of debt securities tend to rise. Generally, the longer the time until
maturity, the more sensitive the price of a debt security is to interest
rate changes.
- - CREDIT RISK - The value of debt securities also depends on the ability of
issuers to make principal and interest payments. If an issuer can't meet
its payment obligations or
8 GALAXY TAXABLE BOND FUNDS
<PAGE>
GALAXY HIGH QUALITY BOND FUND
if its credit rating is lowered, the value of its debt securities may fall.
Debt securities which have the lowest of the top four ratings assigned by
S&P or Moody's have speculative characteristics. Changes in the economy
are more likely to affect the ability of issuers of these securities to
make payments of principal and interest than is the case with higher-
rated securities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
debt securities held by the Fund, particularly asset-backed and
mortgage-backed securities, to be paid off much sooner or later than
expected, which could adversely affect the Fund's value.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance
the Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
- - FREQUENT TRADING - The Fund may trade its investments frequently in
trying to achieve its investment goal. This usually increases the chance
that the Fund will pay investors short-term capital gains. These gains are
taxable at higher rates than long-term capital gains. Frequent trading
could also mean higher brokerage commissions and other transaction costs,
which could reduce the Fund's returns.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past. Both
assume that all dividends and distributions are reinvested in the Fund. How the
Fund has performed in the past doesn't necessarily show how it will perform in
the future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares has varied from year to
year, thereby giving some indication of the risk of investing in the Fund.
[CHART]
BEST QUARTER
7.59% for the quarter ending June 30, 1995
WORST QUARTER
(3.85)% for the quarter ending March 31, 1994
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C>
15.12% 6.77% 12.81% (6.43)% 21.41% 1.59% 9.23% 9.42%
</TABLE>
GALAXY TAXABLE BOND FUNDS 9
<PAGE>
GALAXY HIGH QUALITY BOND FUND
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1998, as compared to a broad-based market index.
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS INCEPTION
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Trust Shares 9.42% 6.64% 8.43% (12/14/90)
- ------------------------------------------------------------------------------
Lehman Brothers
Intermediate
Government/Corporate
Bond Index 8.44% 6.60% 8.02% (since 11/30/90)
- ------------------------------------------------------------------------------
</TABLE>
For current yield information, please call 1-877-BUY-GALAXY (1-877-289-4252).
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you only pay when you buy and
hold shares of the Fund.
ANNUAL FUND OPERATING EXPENSES (FEES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT DISTRIBUTION OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75%(1) None 0.35% 1.10%(1)
- --------------------------------------------------------------------------------
</TABLE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be 0.55%. Total Fund operating expenses after this waiver
are expected to be 0.90%. This fee waiver may be revised or discontinued at
any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust shares $112 $350 $606 $1,340
- -------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The Lehman Brothers Intermediate Government/Corporate Bond Index is an
unmanaged index which tracks the performance of intermediate-term U.S.
Government and corporate bonds.
PORTFOLIO MANAGER
The Fund's portfolio manager is Marie M. Schofield, CFA, a Senior Vice
President of the Adviser. She's primarily responsible for the day-to-day
management of the Fund's investment portfolio. Ms. Schofield, who has over 20
years of investment experience, has been with the Adviser since 1990 and
served as a Vice President and Manager of Fixed Income Investments until
February 1999. She has managed the Fund since December 1996.
10 GALAXY TAXABLE BOND FUNDS
<PAGE>
GALAXY CORPORATE BOND FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks a high level of current income.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its total assets in corporate debt
obligations. These include obligations that are issued by U.S. and foreign
business corporations and obligations issued by agencies, instrumentalities
or authorities that are organized as corporations by the U.S., by states or
political subdivisions of the U.S., or by foreign governments or political
subdivisions. The Fund also invests in obligations issued or guaranteed by
U.S. or foreign governments, their agencies or instrumentalities,
asset-backed and mortgage-backed securities and money market instruments,
such as commercial paper and obligations of U.S. and foreign banks.
In selecting portfolio securities for the Fund, the adviser monitors and
evaluates economic trends. It establishes duration targets, ranges of interest
payments on bonds of various maturities and determines the appropriate
allocation of the Fund's assets among various market sectors.
Substantially all of the Fund's investments will be of investment grade quality.
These are securities which have one of the top four ratings assigned by Standard
& Poor's Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or
are unrated securities determined by the adviser to be of comparable quality.
Occasionally, the rating of a security held by the Fund may be downgraded to
below investment grade. If that happens, the Fund doesn't have to sell the
security unless the Adviser determines that under the circumstances the
security is no longer an appropriate investment for the Fund.
The Fund's average weighted maturity will generally be three to ten years.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the
Adviser believes that holding the security is no longer consistent with the
Fund's investment objective.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets. These can occur within or outside the U.S. or worldwide, and may affect
only particular companies or industries.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt Securities generally tend to move
in the opposite direction to interest rates. When rates are rising, the
prices of debt securities tend to fall. When rates are falling, the prices
of debt securities tend to rise. Generally, the longer the time until
maturity, the more sensitive the price of a debt security is to interest
rate changes.
- - CREDIT RISK - The value of debt securities also depends on the ability of
issuers to make principal and interest payments. If an issuer can't meet
its payment obligations or if its credit rating is lowered, the value of
its debt securities may fall. Debt securities which have the lowest of
the top four ratings assigned by S&P or Moody's have speculative
characteristics. Changes in the economy are more likely to affect the
ability of issuers of these securities to make
GALAXY TAXABLE BOND FUNDS 11
<PAGE>
GALAXY CORPORATE BOND FUND
payments of principal and interest than is the case with higher-rated
securities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
debt securities held by the Fund, particularly asset-backed and
mortgage-backed securities, to be paid off much sooner or later than
expected, which could adversely affect the Fund's value.
- - FOREIGN INVESTMENTS - Foreign investments may be riskier than U.S.
investments because of factors such as foreign government restrictions,
changes in currency exchange rates, incomplete financial information about
the issuers of securities, and political or economic instability. Foreign
securities may be more volatile and less liquid than U.S. securities.
- - SELECTION OF INVESTMENTS - The adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance
the Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
- - FREQUENT TRADING - The Fund may trade its investments frequently in trying
to achieve its investment goal. This usually increases the chance that the
Fund will pay investors short-term capital gains. These gains are taxable
at higher rates than long-term capital gains. Frequent trading could also
mean higher brokerage commissions and other transaction costs, which could
reduce the Fund's returns.
- -------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past. Both
assume that all dividends and distributions are reinvested in the Fund. How the
Fund has performed in the past doesn't necessarily show how it will perform in
the future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares has varied from year to
year, thereby giving some indication of the risk of investing in the Fund.
[CHART]
BEST QUARTER
5.50% for the quarter ending June 30, 1995
WORST QUARTER
- -1.50% for the quarter ending March 31, 1996
<TABLE>
<CAPTION>
1995 1996 1997 1998
<S> <C> <C> <C>
15.91% 3.10% 8.13% 8.18%
</TABLE>
For current yield information, please call 1-877-BUY-GALAXY (1-877-289-4252).
12 GALAXY TAXABLE BOND FUNDS
<PAGE>
GALAXY CORPORATE BOND FUND
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1998, as compared to a broad-based market index.
<TABLE>
<CAPTION>
SINCE
1 YEAR INCEPTION
- --------------------------------------------------------------------------------
<S> <C> <C>
Trust Shares 8.18% 8.79% (12/12/94)
- --------------------------------------------------------------------------------
Lehman Brothers Intermediate
Government/Corporate
Bond Index 8.44% 8.76% (since 11/30/94)
- --------------------------------------------------------------------------------
</TABLE>
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
ANNUAL FUND OPERATING EXPENSES (FEES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT DISTRIBUTION OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75%(1) None 0.33% 1.08%(1)
- --------------------------------------------------------------------------------
</TABLE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be 0.55%. Total Fund operating expenses after this waiver
are expected to be 0.88%. This fee waiver may be revised or discontinued at
any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $110 $343 $595 $1,317
- --------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The Lehman Brothers Intermediate Government/Corporate Bond Index is an unmanaged
index which tracks the performance of intermediate-term U.S. Government and
corporate bonds.
PORTFOLIO MANAGER
The Fund's portfolio manager is David Lindsay, CFA, a Senior Vice President
of the Adviser since 1992. He's primarily responsible for the day-to-day
management of the Fund's investment portfolio. Mr. Lindsay has managed the
Fund since it began operations in 1994. He has been with the Adviser and its
predecessors since 1986.
GALAXY TAXABLE BOND FUNDS 13
<PAGE>
ADDITIONAL INFORMATION ABOUT RISK
The main risks associated with an investment in each of the Galaxy Taxable Bond
Funds have been described above. The following supplements that discussion.
TEMPORARY DEFENSIVE POSITIONS
Under unusual market conditions, each Fund may hold uninvested cash (which will
not earn any income) and invest without limit in money market instruments,
including short-term U.S. Government securities. This strategy could prevent a
Fund from achieving its investment objective.
OTHER TYPES OF INVESTMENTS
This prospectus describes each Fund's principal investment strategies and the
particular types of securities in which each Fund mainly invests. Each Fund
may, from time to time, pursue other investment strategies and make other
types of investments in support of its overall investment goal. These
supplemental investment strategies - and the risks involved - are described
in detail in the Statement of Additional Information (SAI) which is referred
to on the back cover of this prospectus.
YEAR 2000 RISKS
As with other mutual funds, financial and business organizations and
individuals around the world, the Funds could be adversely affected if the
computer systems used by the Adviser and the Funds' other service providers
don't properly process and calculate date-related information and data from
and after January 1, 2000. This is commonly known as the "Year 2000" or "Y2K"
problem. The Adviser is taking steps to address the Y2K problem with respect
to the computer systems that it uses and to obtain assurances that comparable
steps are being taken by the Funds' other major service providers. At this
time, however, there can be no assurance that these steps will be sufficient
to avoid any adverse impact on the Funds. The Y2K problem could have a
negative impact on the issuers of securities in which the Funds invest, which
could hurt the Funds' investments.
14 GALAXY TAXABLE BOND FUNDS
<PAGE>
INVESTOR GUIDELINES
The table below provides information as to which type of investor might want to
invest in each of the Galaxy Taxable Bond Funds. It's meant as a general guide
only. Consult your financial professional to help you decide which Fund is right
for you.
GALAXY FUND MAY BE BEST SUITED FOR INVESTORS WHO...
- --------------------------------------------------------------------------------
GALAXY SHORT-TERM BOND FUND - want current income greater than that
normally provided by a money market fund
- want less change in the value of their
investment than normally associated with
long-term funds
- --------------------------------------------------------------------------------
GALAXY INTERMEDIATE - want current income
GOVERNMENT INCOME FUND
- want the extra margin of safety
associated with U.S. Government
securities
- can accept fluctuations in price and
yield
- --------------------------------------------------------------------------------
GALAXY HIGH QUALITY BOND FUND - want current income
- want the added safety associated with
bonds with lower credit risk than other
debt securities
- can accept fluctuations in price and
yield
- --------------------------------------------------------------------------------
GALAXY CORPORATE BOND FUND - want current income from corporate debt
securities
- can accept fluctuations in price and
yield.
- --------------------------------------------------------------------------------
GALAXY TAXABLE BOND FUNDS 15
<PAGE>
FUND MANAGEMENT
ADVISER
The Adviser, subject to the general supervision of Galaxy's Board of Trustees,
manages each Fund in accordance with its investment objective and policies,
makes decisions with respect to and places orders for all purchases and sales of
portfolio securities, and maintains related records.
ALLOCATION OF ORDERS FOR PORTFOLIO SECURITIES
The Adviser may allocate orders for the purchase and sale of portfolio
securities to certain financial institutions, including those that are
affiliated with the Adviser or that have sold shares of the Funds, to the
extent permitted by law or by order of the Securities and Exchange
Commission. The Adviser will allocate orders to such institutions only if it
believes that the quality of the transaction and the commission are
comparable to what they would be with other qualified brokerage firms.
MANAGEMENT FEES
The management fees paid to the Adviser by the Funds during the last fiscal year
are set forth below.
<TABLE>
<CAPTION>
MANAGEMENT FEE
FUND AS A % OF AVERAGE NET ASSETS
- ----------------------------------------------------------------
<S> <C>
Short-Term Bond Fund 0.55%
- ----------------------------------------------------------------
Intermediate Government
Income Fund 0.55%
- ----------------------------------------------------------------
High Quality Bond Fund 0.55%
- ----------------------------------------------------------------
Corporate Bond Fund 0.55%
- ----------------------------------------------------------------
</TABLE>
SUB-ACCOUNT SERVICES
Affiliates of the Adviser and certain other parties may receive fees from
Galaxy's transfer agent for providing certain sub-accounting and administrative
services to participant sub-accounts with respect to Trust Shares of the Funds
held by defined contribution plans. The transfer agency fees payable by Trust
Shares of the Funds have been increased by an amount equal to these fees, so
that the holders of Trust Shares indirectly bear these fees.
16 GALAXY TAXABLE BOND FUNDS
<PAGE>
HOW TO INVEST IN THE FUNDS
BUYING AND SELLING SHARES
Trust Shares of the Funds are available for purchase by the following types of
investors:
- - investors maintaining a qualified account at a bank or trust institution,
including subsidiaries of Fleet Financial Group, Inc.
- - participants in employer-sponsored defined contribution plans.
Qualified accounts include discretionary investment management accounts,
custodial accounts, agency accounts and different types of tax-advantaged
accounts. Your institution can provide more information about which types of
accounts are eligible.
In addition to the above types of investors, Trust Shares of the Corporate Bond
Fund are also available for purchase by:
- - customers of financial institutions, such as banks, savings and loan
associations and broker-dealers, including financial institutions
affiliated with the Adviser
- - investors purchasing shares directly from Galaxy's distributor.
You can buy and sell Trust Shares of the Funds on any business day. For
customers of financial institutions (including customers maintaining qualified
accounts) and participants in employer-sponsored plans, a business day is any
day that Galaxy's distributor, Galaxy's custodian and your institution or
employer-sponsored plan are open for business. For investors purchasing shares
directly from Galaxy's distributor, a business day is any day that Galaxy's
distributor, Galaxy's custodian and Galaxy's transfer agent are open for
business.
The price at which you buy shares is the net asset value (NAV) per share next
determined after your order is accepted. The price at which you sell shares is
the NAV per share next determined after receipt of your order. NAV is determined
on each day the New York Stock Exchange is open for trading at the close of
regular trading that day (usually 4:00 p.m. Eastern time). The New York Stock
Exchange is generally open for trading every Monday through Friday, except
for national holidays.
If market prices are readily available for securities owned by the Fund,
they're valued at those prices. If market prices are not readily available
for some securities, they are valued at fair value under the supervision of
Galaxy's Board of Trustees.
Sometimes, the price of a security trading on a foreign stock exchange may be
affected by events that happen after that exchange closes. If this happens, the
fair value of the security may be determined using other factors and may not
reflect the security's last quoted price. In addition, foreign securities may
trade on days when shares of the Funds are not priced. As a result, the net
asset value per share of a Fund holding these securities may change on days when
you won't be able to buy or sell Fund shares.
[Sidenote:]
NET ASSET VALUE
The price you pay for your shares is based on the net asset value per share
(NAV). It's the value of a Fund's assets attributable to Trust Shares, minus the
value of the Fund's liabilities attributable to Trust Shares, divided by the
number of Trust Shares held by investors.
GALAXY TAXABLE BOND FUNDS 17
<PAGE>
HOW TO BUY SHARES
If you are a customer of a financial institution (including a customer who
maintains a qualified account) or a participant in an employer-sponsored plan,
you can buy Trust Shares by following the procedures established by your
financial institution or your employer-sponsored plan. Your financial
institution or plan administrator is responsible for sending your order and
payment to Galaxy's distributor and wiring payments to Galaxy's custodian. The
institution or employer-sponsored plan holds the shares in your name and
receives all confirmations of purchases and sales.
You can also buy Trust Shares of the Corporate Bond Fund directly from Galaxy's
distributor in any of the following ways:
BUYING BY MAIL
Complete an account application and mail it, together with a check payable to
the Galaxy Corporate Bond Fund, to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
To make additional investments, send your check to the address above along with
one of the following:
- - the detachable form that's included with your Galaxy statement or your
confirmation of a prior transaction
- - a letter stating the amount of your investment, the name of the Fund and
your account number.
If your check is returned because of insufficient funds, Galaxy will cancel
your order.
BUYING BY WIRE
To make an initial or additional investment by wire, send U.S. funds through the
Federal Reserve System to Fleet National Bank as agent for Galaxy's distributor.
You should wire money and registration instructions to:
Fleet National Bank
75 State Street
Boston, MA 02109
ABA #0110-0013-8
DDA #79673-5702
Ref: The Galaxy Fund
(Account number)
(Account registration)
Before making an initial investment by wire, you must complete an account
application and send it to The Galaxy Fund, P.O. Box 6520, Providence, RI
02940-6520. Your order will not be effective until the completed account
application is received by Galaxy. Call Galaxy's distributor at
1-877-BUY-GALAXY (1-877-289-4252) for an account application.
Your financial institution may charge you a fee for sending funds by wire.
[Sidenote:]
INVESTMENT MINIMUMS
Galaxy does not have any minimum investment requirements for initial
or additional investments in Trust Shares but financial institutions and
employer-sponsored plans may do so. They may also require you to maintain a
minimum account balance.
18 GALAXY TAXABLE BOND FUNDS
<PAGE>
HOW TO SELL SHARES
If you are a customer of a financial institution (including a customer who
maintains a qualified account) or a participant in an employer-sponsored plan,
you can sell Trust Shares by following the procedures established by your
financial institution or your employer-sponsored plan. Your financial
institution or plan administrator is responsible for sending your order to
Galaxy's distributor and for crediting your account with the proceeds. Galaxy
doesn't charge for wiring the proceeds, but your financial institution or
employer-sponsored plan may do so. Contact your financial institution or plan
administrator for more information.
You can also sell Trust Shares of the Corporate Bond Fund directly through
Galaxy's distributor in any of the following ways:
SELLING BY MAIL
Send your request in writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
You must include the following:
- - The name of the Fund
- - The number of shares or the dollar amount you want to sell
- - Your account number
- - Your Social Security number or tax identification number
- - The signatures of each registered owner of the account (the signatures must
match the names on the account registration).
Additional documents may be required for certain types of shareholders, such as
corporations, partnerships, executors, trustees, administrators or guardians.
Your signature must be guaranteed by a bank that's a member of the FDIC, a trust
company, a member firm of a national securities exchange or any other eligible
institution. A notarized signature is not sufficient.
SELLING BY PHONE
You can sell shares by calling Galaxy's distributor at 1-877-BUY-GALAXY
(1-877-289-4252) unless you tell Galaxy on the account application or in
writing that you don't want this privilege. If you have difficulty getting
through to Galaxy because of unusual market conditions, consider selling
your shares by mail or wire.
[Sidenote:]
SIGNATURE GUARANTEES
When selling your shares either by mail or by phone, you must have your
signature guaranteed if:
- - you're selling shares worth more than $50,000
- - you want Galaxy to send your money to an address other than the address on
your account, unless your assets are transferred to a successor custodian
- - you want Galaxy to send your money to the address on your account that's
changed within the last 30 days, or
- - you want Galaxy to make the check payable to someone else.
GALAXY TAXABLE BOND FUNDS 19
<PAGE>
SELLING BY WIRE
Notify Galaxy's distributor by phone or wire that you wish to sell shares and
have the sale proceeds wired to your account at any financial institution in the
U.S. To be eligible to use this privilege, you must complete the appropriate
section on the account application or notify Galaxy in writing (with a signature
guarantee). Your sale proceeds must be more than $1,000.
The sale proceeds must be paid to the same bank and account you named on your
application or in your written instructions.
OTHER TRANSACTION POLICIES
If you purchased your shares through a financial institution or
employer-sponsored plan and Galaxy doesn't receive full payment for your order
to buy shares by 4:00 p.m. on the next business day, Galaxy won't accept your
order. Galaxy will advise your institution or plan administrator if this
happens.
If you purchased shares directly from Galaxy's distributor and Galaxy doesn't
receive full payment for your order to buy shares within three business days of
the order date, Galaxy won't accept your order. Galaxy will advise you if this
happens and return any payment it may eventually receive.
Galaxy may refuse any order to buy shares. Galaxy doesn't issue a certificate
when you buy shares but it does keep a record of shares issued to investors.
Galaxy may refuse your order to sell shares by wire or telephone if it
believes it is advisable to do so. Galaxy may change or cancel the procedures
for selling or exchanging shares by wire or telephone at any time without
notice.
If you purchased your shares directly from Galaxy's distributor and you sell
your shares by telephone, you may be responsible for any fraudulent telephone
orders as long as Galaxy has taken reasonable precautions to verify your
identity, such as requesting information about the way in which your account
is registered or about recent transactions on your account.
If you sell your shares through a financial institution or employer-sponsored
plan, sales proceeds are normally wired to your institution or plan
administrator on the next business day. If you sell your shares directly through
Galaxy's distributor, sales proceeds are normally sent to you within three
business days. In each case, Galaxy reserves the right to send sales proceeds
within seven days if sending proceeds earlier could adversely affect a
Fund.
Galaxy may ask for any information it might reasonably need to make sure that
you've authorized a sale of shares.
Galaxy may close any account after 60 days' written notice if the value of the
account drops below $250 as a result of selling shares.
20 GALAXY TAXABLE BOND FUNDS
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Each Fund declares any dividends from net investment income daily and pays
them monthly. Each Fund pays any net capital gains at least once a year. It's
expected that the Funds' annual distributions will normally -- but not always
- --consist primarily of ordinary income rather than capital gains. Dividends
and distributions are paid in cash unless you tell your financial institution
or plan administrator in writing or, if you purchased your shares directly
from Galaxy's distributor, you indicate in the account application or in a
letter to Galaxy that you want to have dividends and distributions reinvested
in additional shares.
FEDERAL TAXES
Each Fund contemplates declaring as dividends each year all or substantially all
of its taxable income, including its net capital gain (the excess of long-term
capital gain over short-term capital loss). You will be subject to income tax on
these distributions regardless of whether they are paid in cash or reinvested in
additional shares. Distributions attributable to the net capital gain of a Fund
will be taxable to you as long-term capital gain, regardless of how long you
have held your shares. Other Fund distributions will generally be taxable as
ordinary income. You will be notified annually of the tax status of
distributions to you.
You should note that if you purchase shares just prior to a capital gain
distribution, the purchase price will reflect the amount of the upcoming
distribution, but you will be taxed on the entire amount of the distribution
received, even though, as an economic matter, the distribution simply
constitutes a return of capital. This is known as "buying into a dividend."
You will recognize taxable gain or loss on a sale or redemption of your
shares based, on the difference between your tax basis in the shares and the
amount you receive for them. (To aid in computing your tax basis, you
generally should retain your account statements for the periods during which
you held shares.) Any loss realized on shares held for six months or less
will be treated as a long-term capital loss to the extent of any capital gain
dividends that were received on the shares.
The one major exception to these tax principles is that distributions on, and
sales, exchanges and redemptions of, shares held in an IRA (or other
tax-qualified plan) will not be currently taxable.
The foregoing is only a summary of certain tax considerations under current law,
which may be subject to change in the future. You should consult your tax
adviser for further information regarding federal, state, local and/or foreign
tax consequences relevant to your specific situation.
STATE AND LOCAL TAXES
Shareholders may also be subject to state and local taxes on distributions and
redemptions. State income taxes may not apply however to the portions of each
Fund's distributions, if any, that are attributable to interest on
U.S. Government securities or on securities of a particular state. Shareholders
should consult their tax advisers regarding the tax status of distributions in
their state and locality.
GALAXY TAXABLE BOND FUNDS 21
<PAGE>
HOW TO REACH GALAXY
If you purchased your shares directly from Galaxy's distributor, you can reach
Galaxy in any of the following ways:
GALAXY SHAREHOLDER SERVICES
Call Galaxy's distributor at 1-877-BUY-GALAXY (1-877-289-4252), Monday through
Friday, 8 a.m. to 6 p.m. (Eastern time) for help from a Galaxy representative.
INVESTCONNECT
InvestConnect is Galaxy's Shareholder Voice Response System. Call
1-877-BUY-GALAXY (1-877-289-4252) from any touch-tone phone for automated access
to account information and current Fund prices and performance, or to place
orders to sell or exchange shares. It's available 24 hours a day, seven days
a week.
If you live outside the United States, you can contact Galaxy by calling
1-508-871-4121.
THE INTERNET
Please visit Galaxy's website at: www.galaxyfunds.com
[Sidenote:]
Galaxy also offers a TDD service for the hearing impaired. Just call
1-800-696-6515, 24 hours a day, seven days a week.
22 GALAXY TAXABLE BOND FUNDS
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables shown below will help you understand the
financial performance for the Funds' Trust Shares for the past five years (or
the period since a particular Fund began operations). Certain information
reflects the financial performance of a single Trust Share. The total returns in
the tables represent the rate that an investor would have earned (or lost) on an
investment in Trust Shares of each Fund, assuming all dividends and
distributions were reinvested. This information has been audited by
PricewaterhouseCoopers LLP, independent accountants, whose report, along with
the Funds' financial statements, are included in the Funds' Annual Report and
are incorporated by reference into the SAI. The Annual Report and SAI are
available free of charge upon request.
<TABLE>
<CAPTION>
GALAXY SHORT-TERM BOND FUND
(For a share outstanding throughout each period)
FOR THE YEAR ENDING OCTOBER 31,
--------------------------------------------------------
1998 1997 1996 1995 1994
--------------------------------------------------------
Trust Shares
- --------------------------------------------------------------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.01 $9.99 $10.06 $9.73 $10.30
- --------------------------------------------------------------- -------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(1) 0.54 0.54 0.55 0.57 0.44
------------------------------------------------------------ -------- ------- ------- ------- -------
Net realized and unrealized
gain (loss) on investments 0.11 0.02 (0.07) 0.33 (0.51)
------------------------------------------------------------ -------- ------- ------- ------- -------
Total from investment operations 0.65 0.56 0.48 0.90 (0.07)
LESS DIVIDENDS:
Dividends from net investment income (0.56) (0.54) (0.55) (0.57) (0.44)
------------------------------------------------------------ -------- ------- ------- ------- -------
Dividends from net realized capital gains - - - - -
- --------------------------------------------------------------- -------- ------- ------- ------- -------
Dividends in excess of
net realized capital gains - - - - (0.06)
- --------------------------------------------------------------- -------- ------- ------- ------- -------
Total dividends (0.56) (0.54) (0.55) (0.57) (0.50)
- --------------------------------------------------------------- -------- ------- ------- ------- -------
Net increase (decrease) in net asset value 0.09 0.02 (0.07) 0.33 (0.57)
- --------------------------------------------------------------- -------- ------- ------- ------- -------
Net asset value, end of period $10.10 $10.01 $9.99 $10.06 $9.73
- --------------------------------------------------------------- -------- ------- ------- ------- -------
- --------------------------------------------------------------- -------- ------- ------- ------- -------
Total return 6.68% 5.77% 4.91% 9.55% (0.66)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $38,071 $49,837 $58,227 $35,088 $39,843
------------------------------------------------------------ -------- ------- ------- ------- -------
RATIOS TO AVERAGE NET ASSETS:
Net investment income
including reimbursement/waiver 5.33% 5.43% 5.49% 5.79% 4.45%
------------------------------------------------------------ -------- ------- ------- ------- -------
Operating expenses including
reimbursement/waiver 0.85% 0.86% 0.84% 0.74% 0.91%
------------------------------------------------------------ -------- ------- ------- ------- -------
Operating expenses excluding
reimbursement/waiver 1.05% 1.07% 1.08% 1.02% 1.11%
------------------------------------------------------------ -------- ------- ------- ------- -------
Portfolio turnover rate 133% 173% 214% 289% 233%
</TABLE>
(1) Net investment income per share for Trust Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for the years ended October 31, 1998, 1997, 1996, 1995 and 1994 was $0.52,
$0.52, $0.53, $0.54 and $0.42, respectively.
GALAXY TAXABLE BOND FUNDS 23
<PAGE>
<TABLE>
<CAPTION>
GALAXY INTERMEDIATE GOVERNMENT INCOME FUND
(For a share outstanding throughout each period)
FOR THE YEAR ENDING OCTOBER 31,
---------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
Trust Shares
- --------------------------------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.18 $10.06 $10.28 $9.68 $10.72
- --------------------------------------------------------------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(1) 0.59 0.62 0.60 0.64 0.57
------------------------------------------------------------ --------- --------- --------- --------- ---------
Net realized and unrealized
gain (loss) on investments 0.35 0.12 (0.22) 0.60 (1.03)
------------------------------------------------------------ --------- --------- --------- --------- ---------
Total from investment operations 0.94 0.74 0.38 1.24 (0.46)
LESS DIVIDENDS:
Dividends from net investment income (0.62) (0.62) (0.60) (0.64) (0.56)
------------------------------------------------------------ --------- --------- --------- --------- ---------
Dividends in excess of
investment income - - - - (0.01)
------------------------------------------------------------ --------- --------- --------- --------- ---------
Dividends from net realized capital gains - - - - -
------------------------------------------------------------ --------- --------- --------- --------- ---------
Dividends in excess of
net realized capital gains - - - - (0.01)
- --------------------------------------------------------------- --------- --------- --------- --------- ---------
Total dividends (0.62) (0.62) (0.60) (0.64) (0.58)
- --------------------------------------------------------------- --------- --------- --------- --------- ---------
Net increase (decrease) in net asset value 0.32 0.12 (0.22) 0.60 (1.04)
- --------------------------------------------------------------- --------- --------- --------- --------- ---------
Net asset value, end of period $10.50 $10.18 $10.06 $10.28 $9.68
- --------------------------------------------------------------- --------- --------- --------- --------- ---------
- --------------------------------------------------------------- --------- --------- --------- --------- ---------
Total return 9.52% 7.63% 3.88% 13.18% (4.39)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $239,763 $209,215 $213,750 $186,037 $212,144
------------------------------------------------------------ --------- --------- --------- --------- ---------
RATIOS TO AVERAGE NET ASSETS:
Net investment income
including reimbursement/waiver 5.77% 6.19% 5.98% 6.39% 5.61%
------------------------------------------------------------ --------- --------- --------- --------- ---------
Operating expenses including
reimbursement/waiver 0.73% 0.74% 0.75% 0.73% 0.75%
------------------------------------------------------------ --------- --------- --------- --------- ---------
Operating expenses excluding
reimbursement/waiver 0.93% 0.94% 0.95% 0.94% 0.95%
------------------------------------------------------------ --------- --------- --------- --------- ---------
Portfolio turnover rate 210% 128% 235% 145% 124%
</TABLE>
(1) Net investment income per share for Trust Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for the years ended October 31, 1998, 1997, 1996, 1995 and 1994 was $0.57,
$0.60, $0.58, $0.62 and $0.54, respectively.
24 GALAXY TAXABLE BOND FUNDS
<PAGE>
<TABLE>
<CAPTION>
GALAXY HIGH QUALITY BOND FUND
(For a share outstanding throughout each period)
FOR THE YEAR ENDING OCTOBER 31,
---------------------------------------------------------
1998 1997 1996 1995 1994
---------------------------------------------------------
Trust Shares
- --------------------------------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.70 $10.47 $10.63 $9.54 $11.37
- --------------------------------------------------------------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(1) 0.59 0.61 0.62 0.64 0.65
------------------------------------------------------------ --------- --------- --------- --------- ---------
Net realized and unrealized
gain (loss) on investments 0.50 0.23 (0.16) 1.09 (1.56)
------------------------------------------------------------ --------- --------- --------- --------- ---------
Total from investment operations 1.09 0.84 0.46 1.73 (0.91)
LESS DIVIDENDS:
Dividends from net investment income (0.59) (0.61) (0.62) (0.64) (0.65)
------------------------------------------------------------ --------- --------- --------- --------- ---------
Dividends from net realized capital gains - - - - -
- --------------------------------------------------------------- --------- --------- --------- --------- ---------
Dividends in excess of net realized capital gains - - - - (0.27)
- --------------------------------------------------------------- --------- --------- --------- --------- ---------
Total dividends (0.59) (0.61) (0.62) (0.64) (0.92)
Net increase (decrease) in net asset value 0.50 0.23 (0.16) 1.09 (1.83)
- --------------------------------------------------------------- --------- --------- --------- --------- ---------
Net asset value, end of period $11.20 $10.70 $10.47 $10.63 $9.54
- --------------------------------------------------------------- --------- --------- --------- --------- ---------
- --------------------------------------------------------------- --------- --------- --------- --------- ---------
Total return 10.50% 8.36% 4.46% 18.66% (8.39)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $217,143 $182,398 $149,075 $134,631 $118,776
------------------------------------------------------------ --------- --------- --------- --------- ---------
RATIOS TO AVERAGE NET ASSETS:
Net investment income
including reimbursement/waiver 5.43% 5.88% 5.88% 6.33% 6.28%
------------------------------------------------------------ --------- --------- --------- --------- ---------
Operating expenses including
reimbursement/waiver 0.87% 0.87% 0.85% 0.85% 0.78%
------------------------------------------------------------ --------- --------- --------- --------- ---------
Operating expenses excluding
reimbursement/waiver 1.07% 1.09% 1.06% 1.07% 0.98%
------------------------------------------------------------ --------- --------- --------- --------- ---------
Portfolio turnover rate 253% 182% 163% 110% 108%
</TABLE>
(1) Net investment income per share for Trust Shares before
reimbursement/waiver of fees by the adviser and/or the Fund's administrator
for the years ended October 31, 1998, 1997, 1996, 1995 and 1994 was $0.56,
$0.59, $0.60, $0.62 and $0.63, respectively.
GALAXY TAXABLE BOND FUNDS 25
<PAGE>
<TABLE>
<CAPTION>
GALAXY CORPORATE BOND FUND
(For a share outstanding throughout each period)
PERIOD ENDED
FOR THE YEAR ENDING OCTOBER 31, OCTOBER 31,
-------------------------------- ------------
1998 1997 1996 1995(1)
-------- -------- -------- --------
Trust Shares
- --------------------------------------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $10.63 $10.53 $10.74 $10.00
- --------------------------------------------------------------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(2) 0.62 0.66 0.64 0.61
------------------------------------------------------------ -------- -------- -------- --------
Net realized and unrealized
gain (loss) on investments 0.30 0.11 (0.13) 0.74
------------------------------------------------------------ -------- -------- -------- --------
Total from investment operations 0.92 0.77 0.51 1.35
LESS DIVIDENDS:
Dividends from net investment income (0.65) (0.66) (0.64) (0.61)
------------------------------------------------------------ -------- -------- -------- --------
Dividends from net realized capital gains - (0.01) (0.08) -
- --------------------------------------------------------------- -------- -------- -------- --------
Total dividends (0.65) (0.67) (0.72) (0.61)
- --------------------------------------------------------------- -------- -------- -------- --------
Net increase (decrease) in net asset value 0.27 0.10 (0.21) 0.74
- --------------------------------------------------------------- -------- -------- -------- --------
Net asset value, end of period $10.90 $10.63 $10.53 $10.74
- --------------------------------------------------------------- -------- -------- -------- --------
- --------------------------------------------------------------- -------- -------- -------- --------
Total return 8.96% 7.56% 5.00% 13.85%(3)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $83,565 $91,728 $107,728 $37,391
------------------------------------------------------------ -------- -------- -------- --------
RATIOS TO AVERAGE NET ASSETS:
Net investment income
including reimbursement/waiver 5.80% 6.27% 6.13% 6.61%(4)
------------------------------------------------------------ -------- -------- -------- --------
Operating expenses including
reimbursement/waiver 0.82% 0.80% 0.85% 1.06%(4)
------------------------------------------------------------ -------- -------- -------- --------
Operating expenses excluding
reimbursement/waiver 1.02% 1.00% 1.05% 1.26%(4)
------------------------------------------------------------ -------- -------- -------- --------
Portfolio turnover rate 155% 37% 84% 41%(3)
</TABLE>
(1) The Fund commenced operations on December 30, 1994.
(2) Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for the fiscal years ended October
31, 1998, 1997 and 1996 and for the period ended October 31, 1995 was
$0.60, $0.64, $0.62, and $0.57, respectively.
(3) Not annualized.
(4) Annualized.
26 GALAXY TAXABLE BOND FUNDS
<PAGE>
WHERE TO FIND MORE INFORMATION
You'll find more information about the Funds in the following documents:
ANNUAL AND SEMI-ANNUAL REPORTS
Galaxy's annual and semi-annual reports contain more information about each Fund
and a discussion about the market conditions and investment strategies that had
a significant effect on each Fund's performance during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains detailed information about the Funds and their policies. By
law, it's incorporated by reference into (considered to be part of) this
prospectus.
You can get a free copy of these documents, request other information about the
Funds and make shareholder inquiries by calling Galaxy at 1-877-BUY-GALAXY
(1-877-289-4252) or writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
If you buy your shares through a financial institution, you may contact your
institution for more information.
You can write to the Securities and Exchange Commission (SEC) Public Reference
Section and ask them to mail you information about the Funds, including the SAI.
They'll charge you a fee for this service. You can also visit the SEC Public
Reference Room and copy the documents while you're there. For information about
the operation of the Public Reference Room, call the SEC.
Public Reference Section of the SEC
Washington, DC 20549-6009
1-800-SEC-0330.
Reports and other information about the Funds are also available on the SEC's
website at http://www.sec.gov.
Galaxy's Investment Company Act File
No. is 811-4636.
PROTRBND 15039 3/1/99 PKG-50
<PAGE>
[GRAPHIC]
GALAXY TAX-EXEMPT BOND FUNDS
THE GALAXY FUND
PROSPECTUS
February 28, 1999
Galaxy Tax-Exempt Bond Fund
Galaxy New Jersey Municipal Bond Fund
Galaxy New York Municipal Bond Fund
Galaxy Connecticut Municipal Bond Fund
Galaxy Massachusetts Municipal Bond Fund
Galaxy Rhode Island Municipal Bond Fund
RETAIL A SHARES AND RETAIL B SHARES
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved any shares of these Funds or determined if this
prospectus is accurate or complete. Anyone who tells you otherwise is
committing a crime.
[LOGO]
<PAGE>
CONTENTS
1 RISK/RETURN SUMMARY
1 Introduction
2 Galaxy Tax-Exempt Bond Fund
5 Galaxy New Jersey Municipal Bond Fund
8 Galaxy New York Municipal Bond Fund
11 Galaxy Connecticut Municipal Bond Fund
14 Galaxy Massachusetts Municipal Bond Fund
17 Galaxy Rhode Island Municipal Bond Fund
20 Additional information about risk
21 FUND MANAGEMENT
22 HOW TO INVEST IN THE FUNDS
22 How sales charges work
24 Buying, selling and exchanging shares
24 HOW TO BUY SHARES
25 HOW TO SELL SHARES
26 HOW TO EXCHANGE SHARES
27 OTHER TRANSACTION POLICIES
28 DIVIDENDS, DISTRIBUTIONS AND TAXES
29 GALAXY INVESTOR PROGRAMS
30 HOW TO REACH GALAXY
31 FINANCIAL HIGHLIGHTS
<PAGE>
RISK/RETURN SUMMARY
INTRODUCTION
THIS PROSPECTUS describes the Galaxy Tax-Exempt Bond Funds. The Funds invest
primarily in municipal securities, which are debt obligations of state and local
governments and other political or public bodies or agencies. The interest paid
on municipal securities is generally exempt from federal income tax and, in some
cases, from state and local income tax.
On the following pages, you'll find important information about each of the
Galaxy Tax-Exempt Bond Funds, including:
- - The Fund's investment objective (sometimes called the Fund's goal) and the
main investment strategies used by the Fund's investment adviser in trying
to achieve that objective
- - The main risks associated with an investment in the Fund
- - The Fund's past performance measured on both a year-by-year and long-term
basis
- - The fees and expenses that you will pay as an investor in the Fund.
WHICH FUND IS RIGHT FOR YOU?
The Funds are designed for investors who are looking for income that's free of
federal income tax and who can accept fluctuations in price and yield. A Fund
that specializes in a particular state is best suited to residents of that state
who are also looking for income that is free of the state's income tax.
TAX-EXEMPT FUNDS ARE NOT APPROPRIATE INVESTMENTS FOR TAX-DEFERRED RETIREMENT
ACCOUNTS, SUCH AS IRAS, BECAUSE THEIR RETURNS BEFORE TAXES ARE GENERALLY LOWER
THAN THOSE OF TAXABLE FUNDS.
THE FUNDS' INVESTMENT ADVISER
Fleet Investment Advisors Inc., which is referred to in this prospectus as
THE ADVISER, is the investment adviser for all of these Funds. The Adviser,
an indirect wholly-owned subsidiary of Fleet Financial Group, Inc., was
established in 1984 and has its main office at 75 State Street, Boston,
Massachusetts 02109. The Adviser also provides investment management and
advisory services to individual and institutional clients and manages the
other Galaxy investment portfolios. As of December 31, 1998, the Adviser
managed over $64 billion in assets.
- --------------------------------------------------------------------------------
AN INVESTMENT IN THE FUNDS ISN'T A FLEET BANK DEPOSIT AND IT ISN'T INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. YOU COULD LOSE MONEY BY INVESTING IN THE FUNDS.
[Sidenote:]
TAX-EQUIVALENT YIELD
One way to understand the tax advantages of a tax-exempt fund is to compare
its after-tax return to that of a taxable investment. For example, suppose a
taxable fund pays a return of 10%. If you're in the 36% federal income tax
bracket, the fund's return after taxes is 6.4%. When a tax-exempt fund pays a
return of 10%, you don't pay tax. So if you're in the 36% tax bracket, that's
the equivalent of earning about 15.6% on a taxable fund. If you're in a low
tax bracket, however, it may not be helpful to invest in a tax-exempt fund if
you can achieve a higher after-tax return from a taxable investment.
GALAXY TAX-EXEMPT BOND FUNDS 1
<PAGE>
GALAXY TAX-EXEMPT BOND FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks to provide shareholders with as high a level of current interest
income free of federal income tax as is consistent with preservation of capital.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities that pay interest which is exempt from regular federal income tax,
primarily bonds (normally 65% of total assets). Under normal conditions, the
Fund will invest no more than 20% of its total assets in taxable obligations,
such as U.S. Government obligations, money market instruments and repurchase
agreements.
Municipal securities purchased by the Fund may include general obligation
securities, revenue securities and private activity bonds. The interest on
private activity bonds may be subject to the federal alternative minimum tax.
Investments in private activity bonds will not be treated as investments in
municipal securities for purposes of the 80% requirement stated above.
Nearly all of the Fund's investments will be of investment grade quality.
These are securities which have one of the top four ratings assigned by
Standard & Poor's Ratings Group (S&P) or Moody's Investors Service, Inc.
(Moody's), or are unrated securities determined by the Adviser to be of
comparable quality. Under normal market conditions, the Fund will invest at
least 65% of its total assets in securities that have one of the top three
ratings assigned by S&P or Moody's or unrated securities determined by the
Adviser to be of comparable quality. Occasionally, the rating of a security
held by the Fund may be downgraded to below investment grade. If that
happens, the Fund doesn't have to sell the security unless the Adviser
determines that under the circumstances the security is no longer an
appropriate investment for the Fund.
The Fund's average weighted maturity will vary from time to time depending on
current economic and market conditions and the Adviser's assessment of probable
changes in interest rates.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities, including municipal
securities, tend to move in the opposite direction to interest rates. When
rates are rising, the prices of debt securities tend to fall. When rates
are falling, the prices of debt securities tend to rise. Generally, the
longer the time until maturity, the more sensitive the price of a debt
security is to interest rate changes.
- - CREDIT RISK - The value of debt securities, including municipal
securities, also depends on the ability of issuers to make principal and
interest payments. If an issuer can't meet its payment obligations or if
its credit rating is lowered, the value of its debt securities will
fall. Debt securities which have the lowest of the top four ratings
assigned by S&P or Moody's have speculative characteristics. Changes in
the economy are more likely to affect the ability of issuers of these
securities to make payments of principal and interest than is the case
with higher-rated securities. The ability of a state or local government
issuer to make payments can be affected by many factors, including
economic conditions, the flow of tax revenues and changes in the level
of federal, state or local aid. Some municipal obligations are payable
only from limited revenue sources or by private entities.
[Sidenote:]
MUNICIPAL SECURITIES
State and local governments issue municipal securities to raise money to
finance public works, to repay outstanding obligations, to raise funds for
general operating expenses and to make loans to other public institutions.
Some municipal securities, known as private activity bonds, are backed by
private entities and are used to finance various non-public projects.
Municipal securities, which can be issued as bonds, notes or commercial
paper, usually have fixed interest rates, although some have interest rates
that change from time to time.
TYPES OF MUNICIPAL SECURITIES
GENERAL OBLIGATION securities are secured by the issuer's full faith, credit and
taxing power. REVENUE OBLIGATION securities are usually payable only from
revenues derived from specific facilities or revenue sources. PRIVATE ACTIVITY
BONDS are usually revenue obligations since they are typically payable by the
private user of the facilities financed by the bonds.
2 GALAXY TAX-EXEMPT BOND FUNDS
<PAGE>
GALAXY TAX-EXEMPT BOND FUND
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
municipal securities held by the Fund to be paid off much sooner or later
than expected, which could adversely affect the Fund's value.
- - SELECTION OF INVESTMENTS--The Adviser evaluates the risks and rewards
presented by all securities purchased by each Fund and how they advance
the Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
- --------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past.
Both assume that all dividends and distributions are reinvested in the Fund. How
the Fund has performed in the past doesn't necessarily show how it will perform
in the future.
YEAR-BY-YEAR TOTAL RETURNS -- CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares has varied from year
to year, thereby giving some indication of the risk of investing in the Fund.
The returns for Retail B Shares were different than the figures shown because
each class of shares has different expenses. The figures don't include any sales
charges that investors pay when buying or selling shares of the Fund. If sales
charges were included, the returns would be lower.
[CHART]
BEST QUARTER
6.56% for the quarter ending March 31, 1995
WORST QUARTER
- -5.39% for the quarter ending March 31, 1994
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
9.25% 11.95% -5.37% 15.79% 3.31% 8.72% 5.73%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1998, as
compared to a broad-based market index. The returns for Retail A Shares of
the Fund for periods prior to December 1, 1995 have been restated to include
the effect of the maximum 3.75% front-end sales charge which went into effect
on that date.
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS INCEPTION
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares 1.80% 4.61% 6.28% (12/30/91)
- --------------------------------------------------------------------------------
Retail B Shares 0.08% - 4.42% (3/4/96)
- --------------------------------------------------------------------------------
Lehman Brothers
Municipal Bond Index 6.48% 6.22% 7.44% (since 12/31/91)
7.04% (since 2/29/96)
- --------------------------------------------------------------------------------
</TABLE>
For current yield information, please call 1-877-BUY-GALAXY (1-877-289-4252).
[Sidenote:]
AVERAGE WEIGHTED MATURITY
Average weighted maturity gives you the average time until all debt securities
in a fund come due or mature. It is calculated by averaging the time to maturity
of all debt securities held by a fund with each maturity "weighted" according to
the percentage of assets it represents.
The Lehman Brothers Municipal Bond Index is an unmanaged index which tracks the
performance of municipal bonds.
GALAXY TAX-EXEMPT BOND FUNDS 3
<PAGE>
GALAXY TAX-EXEMPT BOND FUND
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES YOU PAY DIRECTLY)
<TABLE>
<CAPTION>
MAXIMUM SALES CHARGE (LOAD) MAXIMUM DEFERRED SALES CHARGE
ON PURCHASES SHOWN (LOAD) SHOWN AS A % OF THE OFFERING
AS A % OF THE OFFERING PRICE PRICE OR SALE PRICE, WHICHEVER IS LESS
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
- --------------------------------------------------------------------------------------------------------------------
Retail B Shares None 5.00%(3)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
ANNUAL FUND OPERATING EXPENSES (FEES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
DISTRIBUTION TOTAL FUND
MANAGEMENT AND SERVICE OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.75%(4) None 0.44% 1.19%(4)
- --------------------------------------------------------------------------------
Retail B Shares 0.75%(4) 0.80% 0.26% 1.81%(4)
- --------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds -
How sales charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the Funds
- How sales charges work."
(3) This amount applies if you sell your shares in the first year after
purchase and gradually declines to 1% in the sixth year after purchase.
After six years, your Retail B Shares will automatically convert to Retail
A Shares. See "How to invest in the Funds - How sales charges work."
(4) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be 0.55%. Total Fund operating expenses after this waiver
are expected to be 0.99% for Retail A Shares and 1.61% for Retail B Shares.
This fee waiver may be revised or discontinued at any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your Retail B Shares convert to Retail A Shares after six years
- - the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $492 $739 $1,005 $1,764
- --------------------------------------------------------------------------------
Retail B Shares $684 $869 $1,180 $1,808
- --------------------------------------------------------------------------------
If you hold Retail B Shares, you would pay the following expenses if you didn't
sell your shares:
Retail B Shares $184 $569 $980 $1,808
- --------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Adviser's Tax-Exempt Investment Policy Committee is responsible for the
day-to-day management of the Fund's investment portfolio.
4 GALAXY TAX-EXEMPT BOND FUNDS
<PAGE>
GALAXY NEW JERSEY MUNICIPAL BOND FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current interest income exempt from federal
income tax and, to the extent possible, from New Jersey personal income tax, as
is consistent with relative stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES The Fund normally invests at least 80%
of its total assets in municipal securities that pay interest which is exempt
from regular federal income tax, and at least 65% of its total assets in New
Jersey municipal securities, which are securities issued by the State of New
Jersey and other government issuers and that pay interest which is exempt
from both federal income tax and New Jersey personal income tax. Under normal
conditions, the Fund will invest no more than 20% of its total assets in
taxable obligations, such as U.S. Government obligations, money market
instruments and repurchase agreements.
Municipal securities purchased by the Fund may include general obligation
securities, revenue securities and private activity bonds. The interest on
private activity bonds may be subject to the federal alternative minimum tax.
Investments in private activity bonds will not be treated as investments in
municipal securities for purposes of the 80% requirement stated above.
Nearly all of the Fund's investments will be of investment grade quality.
These are securities which have one of the top four ratings assigned by
Standard & Poor's Ratings Group (S&P) or Moody's Investors Service, Inc.
(Moody's), or are unrated securities determined by the Adviser to be of
comparable quality. Under normal market conditions, the Fund will invest at
least 65% of its total assets in securities that have one of the top three
ratings assigned by S&P or Moody's or unrated securities determined by the
Adviser to be of comparable quality. Occasionally, the rating of a security
held by the Fund may be downgraded to below investment grade. If that
happens, the Fund doesn't have to sell the security unless the Adviser
determines that under the circumstances the security is no longer an
appropriate investment for the Fund.
The Fund's average weighted maturity will vary from time to time depending on
current economic and market conditions and the Adviser's assessment of probable
changes in interest rates.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and by swings in
investment markets.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities, including municipal
securities, tend to move in the opposite direction to interest rates. When
rates are rising, the prices of debt securities tend to fall. When rates
are falling, the prices of debt securities tend to rise. Generally, the
longer the time until maturity, the more sensitive the price of a debt
security is to interest rate changes.
- - CREDIT RISK - The value of debt securities, including municipal securities,
also depends on the ability of issuers to make principal and interest
payments. If an issuer can't meet its payment obligations or if its credit
rating is lowered, the value of its debt securities will fall. Debt
securities which have the lowest of the top four ratings assigned by S&P
or Moody's have speculative characteristics. Changes in the economy are
more likely to affect the ability of issuers of these securities to make
payments of principal and interest than is the case with higher-rated
securities. The ability of a state or local government issuer to make
payments can be affected by many
[Sidenote:]
AVERAGE WEIGHTED MATURITY
Average weighted maturity gives you the average time until all debt securities
in a fund come due or mature. It is calculated by averaging the time to maturity
of all debt securities held by a fund with each maturity "weighted" according to
the percentage of assets it represents.
GALAXY TAX-EXEMPT BOND FUNDS 5
<PAGE>
GALAXY NEW JERSEY MUNICIPAL BOND FUND
factors, including economic conditions,
the flow of tax revenues and changes in the level of federal, state or
local aid. Some municipal obligations are payable only from limited revenue
sources or by private entities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
municipal securities held by the Fund to be paid off much sooner or later
than expected, which could adversely affect the Fund's value.
- - LACK OF DIVERSIFICATION - The Fund is not diversified, which means that it
can invest a large percentage of its assets in a small number of issuers.
As a result, a change in the value of any one investment held by the Fund
may affect the overall value of the Fund more than it would affect a
diversified fund which holds more investments.
- - SINGLE STATE RISK - Because the Fund invests primarily in New Jersey
municipal securities, it is likely to be especially susceptible to
economic, political and regulatory events that affect New Jersey.
Other considerations affecting the Fund's investments in New Jersey
municipal securities are summarized in the Statement of Additional
Information.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance
the Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
- -------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
The Fund began operations in March of 1998 and has a performance record of
less than a full calendar year. For current yield information, call
1-877-BUY-GALAXY (1-877-289-4252).
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES YOU PAY DIRECTLY)
<TABLE>
<CAPTION>
MAXIMUM SALES CHARGE (LOAD) MAXIMUM DEFERRED SALES CHARGE
ON PURCHASES SHOWN (LOAD) SHOWN AS A % OF THE OFFERING
AS A % OF THE OFFERING PRICE PRICE OR SALE PRICE, WHICHEVER IS LESS
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
ANNUAL FUND OPERATING EXPENSES (FEES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT DISTRIBUTION OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.75%(3) None 1.88%* 2.63%(3)
- --------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds -
How sales charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the Funds
- How sales charges work."
(3) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be 0.25%. The Fund's administrator is waiving a portion of
the administration fees and reimbursing certain expenses so that Other
expenses are expected to be 0.86%. Total Fund operating expenses after
these waivers and reimbursements are expected to be 1.11%. These fee
waivers and expense reimbursements may be revised or discontinued at any
time.
[Sidenote:]
PORTFOLIO MANAGER
The Adviser's Tax-Exempt Investment Policy Committee is responsible for the
day-to-day management of the Fund's investment portfolio.
6 GALAXY TAX-EXEMPT BOND FUNDS
<PAGE>
GALAXY NEW JERSEY MUNICIPAL BOND FUND
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $631 $1,162 $1,718 $3,228
- --------------------------------------------------------------------------------
</TABLE>
GALAXY TAX-EXEMPT BOND FUNDS 7
<PAGE>
GALAXY NEW YORK MUNICIPAL BOND FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current interest income exempt from federal
income tax and, to the extent possible, from New York State and New York City
personal income tax, as is consistent with relative stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities that pay interest which is exempt from regular federal income tax,
and at least 65% of its total assets in New York municipal securities, which
are securities issued by the State of New York and other government issuers
and that pay interest which is exempt from federal income tax and New York
State and New York City personal income tax. Under normal conditions, the
Fund will invest no more than 20% of its total assets in taxable obligations,
such as U.S. Government obligations, money market instruments and repurchase
agreements.
Municipal securities purchased by the Fund may include general obligation
securities and private activity bonds. The interest on private activity bonds
may be subject to the federal alternative minimum tax. Investments in
private activity bonds will not be treated as investments in municipal
securities for purposes of the 80% requirement stated above.
Nearly all of the Fund's investments will be of investment grade quality.
These are securities which have one of the top four ratings assigned by
Standard & Poor's Ratings Group (S&P) or Moody's Investors Service, Inc.
(Moody's), or are unrated securities determined by the Adviser to be of
comparable quality. Under normal market conditions, the Fund will invest at
least 65% of its total assets in securities that have one of the top three
ratings assigned by S&P or Moody's or unrated securities determined by the
Adviser to be of comparable quality. Occasionally, the rating of a security
held by the Fund may be downgraded to below investment grade. If that
happens, the Fund doesn't have to sell the security unless the Adviser
determines that under the circumstances the security is no longer an
appropriate investment for the Fund.
The Fund's average weighted maturity will vary from time to time depending on
current economic and market conditions and the Adviser's assessment of probable
changes in interest rates.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities, including municipal
securities, tend to move in the opposite direction to interest rates. When
rates are rising, the prices of debt securities tend to fall. When rates
are falling, the prices of debt securities tend to rise. Generally, the
longer the time until maturity, the more sensitive the price of a debt
security is to interest rate changes.
- - CREDIT RISK - The value of debt securities, including municipal securities,
also depends on the ability of issuers to make principal and interest
payments. If an issuer can't meet its payment obligations or if its credit
rating is lowered, the value of its debt securities will fall. Debt
securities which have the lowest of the top four ratings assigned by S&P or
Moody's have speculative characteristics. Changes in the economy are more
likely to affect the ability of issuers of these securities to make
payments of principal and interest than is the case with higher-rated
securities. The ability of a state or local government issuer to make
payments can be affected by many factors, including economic conditions,
the flow of tax revenues and changes in the level of federal, state or
local aid. Some municipal obligations are payable only from limited revenue
sources or by private entities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
municipal securities held by the Fund to be paid off
[Sidenote:]
AVERAGE WEIGHTED MATURITY
Average weighted maturity gives you the average time until all debt securities
in a fund come due or mature. It is calculated by averaging the time to maturity
of all debt securities held by a fund with each maturity "weighted" according to
the percentage of assets it represents.
8 GALAXY TAX-EXEMPT BOND FUNDS
<PAGE>
GALAXY NEW YORK MUNICIPAL BOND FUND
much sooner or later than expected, which could adversely affect the
Fund's value.
- - LACK OF DIVERSIFICATION - The Fund is not diversified, which means that it
can invest a large percentage of its assets in a small number of issuers.
As a result, a change in the value of any one investment held by the Fund
may affect the overall value of the Fund more than it would affect a
diversified fund which holds more investments.
- - SINGLE STATE RISK - Because the Fund invests primarily in New York
municipal securities, the Fund's ability to achieve its investment
objective is dependent upon the ability of the issuers of New York
municipal securities to meet their continuing obligations for the
payment of principal and interest. New York State and New York City face
long-term economic problems that could seriously affect their ability and
that of other issuers of New York municipal securities to meet their
financial obligations. Other considerations affecting the Fund's
investments in New York municipal securities are summarized in the
Statement of Additional Information.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance
the Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
- --------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past.
Both assume that all dividends and distributions are reinvested in the Fund. How
the Fund has performed in the past doesn't necessarily show how it will perform
in the future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares has varied from year
to year, thereby giving some indication of the risk of investing in the Fund.
The figures don't include any sales charges that investors pay when buying or
selling shares of the Fund. If sales charges were included, the returns would be
lower.
BEST QUARTER
7.39% for the quarter ending March 31,1995
WORST QUARTER
- -6.55% for the quarter ending March 31, 1994
[CHART]
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
8.29% 12.30% -7.26% 16.85% 3.38% 8.66% 5.96%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1998, as
compared to a broad-based market index. The returns for Retail A Shares of
the Fund for periods prior to December 1, 1995 have been restated to include
the effect of the maximum 3.75% front-end sales charge which went into effect
on that date.
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS INCEPTION
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A shares 1.97% 4.42% 6.06% (12/31/91)
- ---------------------------------------------------------------------------------------------
Lehman Brothers Municipal Bond Index 6.48% 6.22% 7.44% (since 12/31/91)
- ---------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The Lehman Brothers Municipal Bond Index is an unmanaged index which tracks the
performance of municipal bonds.
GALAXY TAX-EXEMPT BOND FUNDS 9
<PAGE>
GALAXY NEW YORK MUNICIPAL BOND FUND
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES YOU PAY DIRECTLY)
<TABLE>
<CAPTION>
MAXIMUM SALES CHARGE (LOAD) MAXIMUM DEFERRED SALES CHARGE
ON PURCHASES SHOWN (LOAD) SHOWN AS A % OF THE OFFERING
AS A % OF THE OFFERING PRICE PRICE OR SALE PRICE, WHICHEVER IS LESS
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
ANNUAL FUND OPERATING EXPENSES (FEES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT DISTRIBUTION OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.75%(3) None 0.40% 1.15%(3)
- --------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds -
How sales charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the Funds
- How sales charges work."
(3) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be 0.55%. Total Fund operating expenses after this waiver
are expected to be 0.95%. This fee waiver may be revised or discontinued at
any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $488 $727 $984 $1,720
- --------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Adviser's Tax-Exempt Investment Policy Committee is responsible for the
day-to-day management of the Fund's investment portfolio.
10 GALAXY TAX-EXEMPT BOND FUNDS
<PAGE>
GALAXY CONNECTICUT MUNICIPAL BOND FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current interest income exempt from federal
income tax and, to the extent possible, from Connecticut personal income tax, as
is consistent with relative stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities that pay interest which is exempt from regular federal income tax,
and at least 65% of its total assets in Connecticut municipal securities,
which are securities issued by the State of Connecticut and other government
issuers and that pay interest which is exempt from both federal income tax
and Connecticut personal income tax. Under normal conditions, the Fund will
invest no more than 20% of its total assets in taxable obligations, such as
U.S. Government obligations, money market instruments and repurchase
agreements.
Municipal securities purchased by the Fund may include general obligation
securities, revenue securities and private activity bonds. The interest on
private activity bonds may be subject to the federal alternative minimum tax.
Investments in private activity bonds will not be treated as investments in
municipal securities for purposes of the 80% requirement stated above.
Nearly all of the Fund's investments will be of investment grade quality.
These are securities which have one of the top four ratings assigned by
Standard & Poor's Ratings Group (S&P) or Moody's Investors Service, Inc.
(Moody's), or are unrated securities determined by the Adviser to be of
comparable quality. Under normal market conditions, the Fund will invest at
least 65% of its total assets in securities that have one of the top three
ratings assigned by S&P or Moody's or unrated securities determined by the
Adviser to be of comparable quality. Occasionally, the rating of a security
held by the Fund may be downgraded to below investment grade. If that
happens, the Fund doesn't have to sell the security unless the Adviser
determines that under the circumstances the security is no longer an
appropriate investment for the Fund.
The Fund's average weighted maturity will vary from time to time depending on
current market conditions and the Adviser's assessment of probable changes in
interest rates.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities, including municipal
securities, tend to move in the opposite direction to interest rates. When
rates are rising, the prices of debt securities tend to fall. When rates
are falling, the prices of debt securities tend to rise. Generally, the
longer the time until maturity, the more sensitive the price of a debt
security is to interest rate changes.
- - CREDIT RISK - The value of debt securities, including municipal securities,
also depends on the ability of issuers to make principal and interest
payments. If an issuer can't meet its payment obligations or if its credit
rating is lowered, the value of its debt securities will fall. Debt
securities which have the lowest of the top four ratings assigned by S&P
or Moody's have speculative characteristics. Changes in the economy are
more likely to affect the ability of issuers of these securities to make
payments of principal and interest than is the case with higher-rated
securities. The ability of a state or local government issuer to make
payments can be affected by many factors, including economic conditions,
the flow of tax revenues and changes in the level of federal, state or
local aid. Some municipal obligations are payable only from
[Sidenote:]
AVERAGE WEIGHTED MATURITY
Average weighted maturity gives you the average time until all debt securities
in a fund come due or mature. It is calculated by averaging the time to maturity
of all debt securities held by a fund with each maturity "weighted" according to
the percentage of assets it represents.
GALAXY TAX-EXEMPT BOND FUNDS 11
<PAGE>
GALAXY CONNECTICUT MUNICIPAL BOND FUND
limited revenue sources or by private entities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
municipal securities held by the Fund to be paid off much sooner or later
than expected, which could adversely affect the Fund's value.
- - LACK OF DIVERSIFICATION - The Fund is not diversified, which means that it
can invest a large percentage of its assets in a small number of issuers.
As a result, a change in the value of any one investment held by the Fund
may affect the overall value of the Fund more than it would affect a
diversified fund which holds more investments.
- - SINGLE STATE RISK - Because the Fund invests primarily in Connecticut
municipal securities, it is likely to be especially susceptible to
economic, political and regulatory events that affect Connecticut.
Other considerations affecting the Fund's investments in Connecticut
municipal securities are summarized in the Statement of Additional
Information.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance
the Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
- --------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past.
Both assume that all dividends and distributions are reinvested in the Fund. How
the Fund has performed in the past doesn't necessarily show how it will perform
in the future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares has varied from year
to year, thereby giving some indication of the risk of investing in the Fund.
The figures don't include any sales charges that investors pay when buying or
selling shares of the Fund. If sales charges were included, the returns would be
lower.
BEST QUARTER
7.99% for the quarter ending March 31, 1995
WORST QUARTER
- -7.01% for the quarter ending March 31, 1994
[CHART]
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C>
- -8.07% 18.02% 3.35% 8.61% 5.84%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1998, as
compared to a broad-based market index. The returns for Retail A Shares of
the Fund for periods prior to December 1, 1995 have been restated to include
the effect of the maximum 3.75% front-end sales charge which went into effect
on that date.
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS INCEPTION
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares 1.90% 4.42% 5.06% (3/16/93)
- ---------------------------------------------------------------------------------------------
Lehman Brothers Municipal Bond Index 6.48% 6.22% 6.86% (since 3/31/93)
- ---------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The Lehman Brothers Municipal Bond Index is an unmanaged index which tracks the
performance of municipal bonds.
12 GALAXY TAX-EXEMPT BOND FUNDS
<PAGE>
GALAXY CONNECTICUT MUNICIPAL BOND FUND
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES YOU PAY DIRECTLY)
<TABLE>
<CAPTION>
MAXIMUM SALES CHARGE (LOAD) MAXIMUM DEFERRED SALES CHARGE
ON PURCHASES SHOWN (LOAD) SHOWN AS A % OF THE OFFERING
AS A % OF THE OFFERING PRICE PRICE OR SALE PRICE, WHICHEVER IS LESS
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
ANNUAL FUND OPERATING EXPENSES (FEES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT DISTRIBUTION OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.75%(3) None 0.54% 1.29%(3)
- --------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds -
How sales charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the Funds
- How sales charges work."
(3) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be 0.40%. Total Fund operating expenses after this waiver
are expected to be 0.94%. This fee waiver may be revised or discontinued
at any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $501 $769 $1,056 $1,873
- --------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Adviser's Tax-Exempt Investment Policy Committee is responsible for the
day-to-day management of the Fund's investment portfolio.
GALAXY TAX-EXEMPT BOND FUNDS 13
<PAGE>
GALAXY MASSACHUSETTS MUNICIPAL BOND FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current interest income exempt from federal
income tax and, to the extent possible, from Massachusetts personal income tax,
as is consistent with relative stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities that pay interest which is exempt from regular federal income tax,
and at least 65% of its total assets in Massachusetts municipal securities,
which are securities issued by the Commonwealth of Massachusetts and other
government issuers and that pay interest which is exempt from both federal
income tax and Massachusetts personal income tax. Under normal conditions,
the Fund will invest no more than 20% of its total assets in taxable
obligations, such as U.S. Government obligations, money market instruments
and repurchase agreements.
Municipal securities purchased by the Fund may include general obligation
securities, revenue securities and private activity bonds. The interest on
private activity bonds may be subject to the federal alternative minimum tax.
Investments in private activity bonds will not be treated as investments in
municipal securities for purposes of the 80% requirement stated above.
Nearly all of the Fund's investments will be of investment grade quality.
These are securities which have one of the top four ratings assigned by
Standard & Poor's Ratings Group (S&P) or Moody's Investors Service, Inc.
(Moody's), or are unrated securities determined by the Adviser to be of
comparable quality. Under normal market conditions, the Fund will invest at
least 65% of its total assets in securities that have one of the top three
ratings assigned by S&P or Moody's, or in unrated securities determined by
the Adviser to be of comparable quality. Occasionally, the rating of a
security held by the Fund may be downgraded to below investment grade. If
that happens, the Fund doesn't have to sell the security unless the Adviser
determines that under the circumstances the security is no longer an
appropriate investment for the Fund.
The Fund's average weighted maturity will vary from time to time depending on
current economic and market conditions and the Adviser's assessment of probable
changes in interest rates.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities, including municipal
securities, tend to move in the opposite direction to interest rates. When
rates are rising, the prices of debt securities tend to fall. When rates
are falling, the prices of debt securities tend to rise. Generally, the
longer the time until maturity, the more sensitive the price of a debt
security is to interest rate changes.
- - CREDIT RISK - The value of debt securities, including municipal securities,
also depends on the ability of issuers to make principal and interest
payments. If an issuer can't meet its payment obligations or if its credit
rating is lowered, the value of its debt securities will fall. Debt
securities which have the lowest of the top four ratings assigned by S&P or
Moody's have speculative characteristics. Changes in the economy are more
likely to affect the ability of issuers of these securities to make
payments of principal and interest than is
[Sidenote:]
AVERAGE WEIGHTED MATURITY
Average weighted maturity gives you the average time until all debt securities
in a fund come due or mature. It is calculated by averaging the time to maturity
of all debt securities held by a fund with each maturity "weighted" according to
the percentage of assets it represents.
14 GALAXY TAX-EXEMPT BOND FUNDS
<PAGE>
GALAXY MASSACHUSETTS MUNICIPAL BOND FUND
the case with higher-rated securities. The ability of a state or local
government issuer to make payments can be affected by many factors,
including economic conditions, the flow of tax revenues and changes in the
level of federal, state or local aid. Some municipal obligations are
payable only from limited revenue sources or by private entities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
municipal securities held by the Fund to be paid off much sooner or later
than expected, which could adversely affect the Fund's value.
- - LACK OF DIVERSIFICATION - The Fund is not diversified, which means that it
can invest a large percentage of its assets in a small number of issuers.
As a result, a change in the value of any one investment held by the Fund
may affect the overall value of the Fund more than it would affect a
diversified fund which holds more investments.
- - SINGLE STATE RISK - Because the Fund invests primarily in Massachusetts
municipal securities, it is likely to be especially susceptible to
economic, political and regulatory events that affect Massachusetts.
Other considerations affecting the Fund's investments in Massachusetts
municipal securities are summarized in the Statement of Additional
Information.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance
the Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
- --------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past.
Both assume that all dividends and distributions are reinvested in the Fund. How
the Fund has performed in the past doesn't necessarily show how it will perform
in the future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares has varied from year
to year, thereby giving some indication of the risk of investing in the Fund.
The figures don't include any sales charges that investors pay when buying or
selling shares of the Fund. If sales charges were included, the returns would be
lower than shown.
BEST QUARTER
7.49% for the quarter ending March 31, 1995
WORST QUARTER
- -7.14% for the quarter ending March 31, 1994.
[CHART]
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C>
- -7.71% 17.15% 3.04% 8.95% 5.63%
</TABLE>
GALAXY TAX-EXEMPT BOND FUNDS 15
<PAGE>
GALAXY MASSACHUSETTS MUNICIPAL BOND FUND
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1998, as
compared to a broad-based market index. The returns for Retail A Shares of
the Fund for periods prior to December 1, 1995 have been restated to include
the effect of the maximum 3.75% front-end sales charge which went into effect on
that date.
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS INCEPTION
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares 1.62% 4.30% 4.87% (3/12/93)
- ---------------------------------------------------------------------------------------------
Lehman Brothers Municipal Bond Index 6.48% 6.22% 6.55% (since 2/28/93)
- ---------------------------------------------------------------------------------------------
</TABLE>
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES YOU PAY DIRECTLY)
<TABLE>
<CAPTION>
MAXIMUM SALES CHARGE (LOAD) MAXIMUM DEFERRED SALES CHARGE
ON PURCHASES SHOWN (LOAD) SHOWN AS A % OF THE OFFERING
AS A % OF THE OFFERING PRICE PRICE OR SALE PRICE, WHICHEVER IS LESS
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
ANNUAL FUND OPERATING EXPENSES (FEES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT DISTRIBUTION OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.75%(3) None 0.47% 1.22%(3)
- --------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds -
How sales charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the Funds
- How sales charges work."
(3) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be 0.45%. Total Fund operating expenses after this waiver
are expected to be 0.92%. This fee waiver may be revised or discontinued at
any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $495 $748 $1,020 $1,797
- --------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The Lehman Brothers Municipal Bond Index is an unmanaged index which tracks the
performance of municipal bonds.
PORTFOLIO MANAGER
The Adviser's Tax-Exempt Investment Policy Committee is responsible for the
day-to-day management of the Fund's investment portfolio.
16 GALAXY TAX-EXEMPT BOND FUNDS
<PAGE>
GALAXY RHODE ISLAND MUNICIPAL BOND FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current interest income exempt from federal
income tax and, to the extent possible, from Rhode Island personal income tax,
as is consistent with relative stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities that pay interest which is exempt from regular federal income tax,
and at least 65% of its total assets in Rhode Island municipal securities,
which are securities issued by the State of Rhode Island and other government
issuers and that pay interest which is exempt from both federal income tax
and Rhode Island personal income tax. Under normal conditions, the Fund will
invest no more than 20% of its total assets in taxable obligations, such as
U.S. Government obligations, money market instruments and repurchase
agreements.
Municipal securities purchased by the Fund may include general obligation
securities, revenue securities and private activity bonds. The interest on
private activity bonds may be subject to the federal alternative minimum tax.
Investments in private activity bonds will not be treated as investments in
municipal securities for purposes of the 80% requirement stated above.
Nearly all of the Fund's investments will be of investment grade quality. These
are securities which have one of the top four ratings assigned by Standard &
Poor's Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or
are unrated securities determined by the Adviser to be of comparable quality.
Under normal market conditions, the Fund will invest at least 65% of its
total assets in securities that have one of the top three ratings assigned by
S&P or Moody's, or unrated securities determined by the Adviser to be of
comparable quality. Occasionally, the rating of a security held by the Fund may
be downgraded to below investment grade. If that happens, the Fund doesn't have
to sell the security unless the Adviser determines that under the circumstances
the security is no longer an appropriate investment for the Fund.
The Fund's average weighted maturity will vary from time to time depending on
economic and market conditions and the Adviser's assessment of probable changes
in interest rates.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities, including municipal
securities, tend to move in the opposite direction to interest rates. When
rates are rising, the prices of debt securities tend to fall. When rates
are falling, the prices of debt securities tend to rise. Generally, the
longer the time until maturity, the more sensitive the price of a debt
security is to interest rate changes.
- - CREDIT RISK - The value of debt securities, including municipal securities,
also depends on the ability of issuers to make principal and interest
payments. If an issuer can't meet its payment obligations or if its credit
rating is lowered, the value of its debt securities will fall. Debt
securities which have the lowest of the top four ratings assigned by S&P or
Moody's have speculative characteristics. Changes in the economy are more
likely to affect the ability of issuers of these securities to make
payments of principal and interest than is the case with higher-rated
securities. The
[Sidenote:]
AVERAGE WEIGHTED MATURITY
Average weighted maturity gives you the average time until all debt securities
in a fund come due or mature. It is calculated by averaging the time to maturity
of all debt securities held by a fund with each maturity "weighted" according to
the percentage of assets it represents.
GALAXY TAX-EXEMPT BOND FUNDS 17
<PAGE>
GALAXY RHODE ISLAND MUNICIPAL BOND FUND
ability of a state or local government issuer to make payments can be
affected by many factors, including economic conditions, the flow of tax
revenues and changes in the level of federal, state or local aid. Some
municipal obligations are payable only from limited revenue sources or by
private entities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
municipal securities held by the Fund to be paid off much sooner or later
than expected, which could adversely affect the Fund's value.
- - LACK OF DIVERSIFICATION - The Fund is not diversified, which means that it
can invest a large percentage of its assets in a small number of issuers.
As a result, a change in the value of any one investment held by the Fund
may affect the overall value of the Fund more than it would affect a
diversified fund which holds more investments.
- - SINGLE STATE RISK - Because the Fund invests primarily in Rhode Island
municipal securities, it is likely to be especially susceptible to
economic, political and regulatory events that affect Rhode Island.
Other considerations affecting the Fund's investments in Rhode Island
municipal securities are summarized in the Statement of Additional
Information.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance
the Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
- --------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past.
Both assume that all dividends and distributions are reinvested in the Fund. How
the Fund has performed in the past doesn't necessarily show how it will perform
in the future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares has varied from year
to year, thereby giving some indication of the risk of investing in the Fund.
The figures don't include any sales charges that investors pay when buying or
selling shares of the Fund. If sales charges were included, the returns would be
lower.
BEST QUARTER
4.90% for the quarter ending March 31, 1995
WORST QUARTER
- -1.6% for the quarter ending March 31, 1996
[CHART]
<TABLE>
<CAPTION>
1995 1996 1997 1998
<S> <C> <C> <C>
14.32% 3.63% 8.54% 5.87%
</TABLE>
18 GALAXY TAX-EXEMPT BOND FUNDS
<PAGE>
GALAXY RHODE ISLAND MUNICIPAL BOND FUND
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1998, as
compared to a broad-based market index. The returns for Retail A Shares of
the Fund for periods prior to December 1, 1995 have been restated to include
the effect of the maximum 3.75% front-end sales charge which went into effect
on that date.
<TABLE>
<CAPTION>
SINCE
1 YEAR INCEPTION
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 1.90% 6.96% (12/20/94)
- ---------------------------------------------------------------------------------------------
Lehman Brothers Municipal Bond Index 6.48% 9.28% (since 12/31/94)
- ---------------------------------------------------------------------------------------------
</TABLE>
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES YOU PAY DIRECTLY)
<TABLE>
<CAPTION>
MAXIMUM SALES CHARGE (LOAD) MAXIMUM DEFERRED SALES CHARGE
ON PURCHASES SHOWN (LOAD) SHOWN AS A % OF THE OFFERING
AS A % OF THE OFFERING PRICE PRICE OR SALE PRICE, WHICHEVER IS LESS
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
ANNUAL FUND OPERATING EXPENSES (FEES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT DISTRIBUTION OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.75%(3) None 0.50% 1.25%(3)
- --------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds -
How sales charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the Funds
- How sales charges work."
(3) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be 0.45%. Total Fund operating expenses after this waiver
are expected to be 0.95%. This fee waiver may be revised or discontinued at
any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $498 $757 $1,036 $1,830
- --------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The Lehman Brothers Municipal Bond Index is an unmanaged index which tracks the
performance of municipal bonds.
PORTFOLIO MANAGER
The Adviser's Tax-Exempt Investment Policy Committee is responsible for the
day-to-day management of the Fund's investment portfolio.
GALAXY TAX-EXEMPT BOND FUNDS 19
<PAGE>
ADDITIONAL INFORMATION ABOUT RISK
The main risks associated with an investment in each of the Galaxy Tax-Exempt
Bond Funds have been described above. The following supplements that discussion.
TEMPORARY DEFENSIVE POSITIONS
Each Fund may temporarily hold up to 100% of its total assets in investments
that are not part of its main investment strategy to try to avoid losses
during unfavorable market conditions. These investments may include cash
(which will not earn any income) and taxable investments, such as money
market instruments and debt securities issued or guaranteed by the U.S.
Government or its agencies, in excess of 20% of its total assets. This
strategy could prevent a Fund from achieving its investment objective.
OTHER TYPES OF INVESTMENTS
This prospectus describes each Fund's main investment strategies and the
particular types of securities in which each Fund mainly invests. Each Fund
may, from time to time, pursue other investment strategies and make other types
of investments in support of its overall investment goal. These supplemental
investment strategies - and the risks involved - are described in detail in the
Statement of Additional Information (SAI) which is referred to on the back cover
of this prospectus.
YEAR 2000 RISKS
As with other mutual funds, financial and business organizations and
individuals around the world, the Funds could be adversely affected if the
computer systems used by the Adviser and the Funds' other service providers
don't properly process and calculate date-related information and data from
and after January 1, 2000. This is commonly known as the "Year 2000" or "Y2K"
problem. The Adviser is taking steps to address the Y2K problem with respect
to the computer systems that it uses and to obtain assurances that comparable
steps are being taken by the Funds' other major service providers. At this
time, however, there can be no assurance that these steps will be sufficient
to avoid any adverse impact on the Funds. The Y2K problem could have a
negative impact on the issuers of securities in which the Funds invest, which
could hurt the Funds' investment returns.
20 GALAXY TAX-EXEMPT BOND FUNDS
<PAGE>
FUND MANAGEMENT
ADVISER
The Adviser, subject to the general supervision of Galaxy's Board of Trustees,
manages each Fund in accordance with its investment objective and policies,
makes decisions with respect to and places orders for all purchases and sales of
portfolio securities, and maintains related records.
ALLOCATION OF ORDERS FOR PORTFOLIO SECURITIES
The Adviser may allocate orders for the purchase and sale of portfolio
securities to certain financial institutions, including those that are
affiliated with the Adviser or that have sold shares of the Funds, to the
extent permitted by law or by order of the Securities and Exchange
Commission. The Adviser will allocate orders to such institutions only if it
believes that the quality of the transaction and the commission are
comparable to what they would be with other qualified brokerage firms.
MANAGEMENT FEES
The management fees paid to the Adviser by the Funds during the last fiscal year
are shown in the chart. The New Jersey Municipal Bond Fund began operations
during the last fiscal year and the fee shown is that which is currently in
effect.
<TABLE>
<CAPTION>
MANAGEMENT FEE
FUND AS A % OF AVERAGE NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Tax-Exempt Bond 0.55%
- --------------------------------------------------------------------------------
New Jersey Municipal Bond 0.25%
- --------------------------------------------------------------------------------
New York Municipal Bond 0.55%
- --------------------------------------------------------------------------------
Connecticut Municipal Bond 0.32%
- --------------------------------------------------------------------------------
Massachusetts Municipal Bond 0.32%
- --------------------------------------------------------------------------------
Rhode Island Municipal Bond 0.32%
- --------------------------------------------------------------------------------
</TABLE>
GALAXY TAX-EXEMPT BOND FUNDS 21
<PAGE>
HOW TO INVEST IN THE FUNDS
All of the Funds offer Retail A Shares. The Tax-Exempt Bond Fund also offers
Retail B Shares.
HOW SALES CHARGES WORK
You will normally pay a sales charge to invest in the Funds. If you buy Retail A
Shares of a Fund, you'll usually pay a sales charge (sometimes called a
front-end load) at the time you buy your shares. If you buy Retail B Shares of
the Tax-Exempt Bond Fund, you may have to pay a contingent deferred sales charge
(sometimes called a back-end load or CDSC) when you sell your shares. This
section explains these two options.
RETAIL A SHARES
The table below shows the sales charge you'll pay if you buy Retail A Shares of
the Funds. The offering price is the NAV of the shares purchased, plus any
applicable sales charge.
<TABLE>
<CAPTION>
TOTAL SALES CHARGE
----------------------------------------
AS A % OF AS A % OF
AMOUNT OF THE OFFERING PRICE OF YOUR
YOUR INVESTMENT PER SHARE INVESTMENT
- -----------------------------------------------------------------------------
<S> <C> <C>
Less than $50,000 3.75% 3.90%
- -----------------------------------------------------------------------------
$50,000 but less
than $100,000 3.50% 3.63%
- ------------------------------------------------------------------------------
$100,000 but less
than $250,000 3.00% 3.09%
- -----------------------------------------------------------------------------
$250,000 but less
than $500,000 2.50% 2.56%
- -----------------------------------------------------------------------------
$500,000 and over 0.00%(1) 0.00%(1)
- -----------------------------------------------------------------------------
</TABLE>
(1) There is no front-end sales charge on investments in Retail A Shares of
$500,000 or more. However, if you sell the shares within one year after
buying them, you'll pay a CDSC of 1% of the offering price or 1% of the net
asset value of your shares, whichever is less, unless the shares were sold
because of the death or disability of the shareholder.
Galaxy's distributor may from time to time implement programs under which a
broker-dealer's sales force may be eligible to win nominal awards for certain
sales efforts. If any such program is made available to any broker-dealer, it
will be made available to all broker-dealers on the same terms. Payments made
under such programs are made by Galaxy's distributor out of its own assets and
not out of the assets of the Funds. These programs will not change the price of
Retail A Shares or the amount that the Funds will receive from such sales.
Certain affiliates of the Adviser may, at their own expense, provide
additional compensation to affiliated broker-dealers whose customers purchase
significant amounts of Retail A Shares of one or more Funds and to
unaffiliated broker-dealers whose customers purchase Retail A Shares of one
or more of the Funds. Such compensation will not represent an additional
expense to the Funds or their shareholders, since it will be paid from the
assets of the the Adviser's affiliates.
There's no sales charge when you buy Retail A Shares if:
- - You buy shares by reinvesting your dividends and distributions.
- - You buy shares with money from another Galaxy Fund on which you've already
paid a sales charge (as long as you buy the new shares within 90 days after
selling your other shares).
- - You're an investment professional who places trades for your clients and
charges them a fee.
- - You buy shares under an all-inclusive fee program (sometimes called a "wrap
fee program") offered by a broker-dealer or other financial institution.
[Sidenote:]
NET ASSET VALUE
The price you pay for your shares is based on the net asset value per share
(NAV). It's the value of a Fund's assets attributable to Retail A Shares or
Retail B Shares, minus the value of the Fund's liabilities attributable to
Retail A Shares or Retail B Shares, divided by the number of Retail A Shares or
Retail B Shares held by investors.
22 GALAXY TAX-EXEMPT BOND FUNDS
<PAGE>
- - You were a Galaxy shareholder before December 1, 1995.
- - You previously paid a sales charge for the shares of another mutual fund
company (as long as you buy the Galaxy shares within 60 days of selling
your other shares).
RETAIL B SHARES
If you buy Retail B Shares of the Tax-Exempt Bond Fund, you won't pay a CDSC
unless you sell your shares within six years of buying them. The following table
shows the schedule of CDSC charges:
<TABLE>
<CAPTION>
IF YOU SELL YOU'LL PAY A
ALL YOUR SHARES CDSC OF
- --------------------------------------------------------------------------------
<S> <C>
during the first year 5.00%
- --------------------------------------------------------------------------------
during the second year 4.00%
- --------------------------------------------------------------------------------
during the third year 3.00%
- --------------------------------------------------------------------------------
during the fourth year 3.00%
- --------------------------------------------------------------------------------
during the fifth year 2.00%
- --------------------------------------------------------------------------------
during the sixth year 1.00%
- --------------------------------------------------------------------------------
after the sixth year None
- --------------------------------------------------------------------------------
</TABLE>
For purposes of calculating the CDSC, all purchases made during a calendar
month are considered to be made on the first day of that month. The CDSC is
based on the value of the Retail B Shares on the date that they are sold or
the original cost of the shares, whichever is lower. To keep your CDSC as low
as possible each time you sell shares, Galaxy will first sell any shares in
your account that are not subject to a CDSC. If there are not enough of
these, Galaxy will sell those shares that have the lowest CDSC. There is no
CDSC on Retail B Shares that you acquire by reinvesting your dividends and
distributions. In addition, there's no CDSC when Retail B Shares are sold
because of the death or disability of a shareholder and in certain other
circumstances such as exchanges. Ask your investment professional or Galaxy's
distributor, or consult the SAI, for other instances in which the CDSC is
waived. To contact Galaxy's distributor, call 1-877-BUY-GALAXY
(1-877-289-4252).
DISTRIBUTION AND SHAREHOLDER SERVICE FEES
Retail A Shares of the Funds can pay shareholder service fees at an annual
rate of up to 0.50% of each Fund's Retail A Share assets. The Fund does not
intend to pay more than 0.15% in shareholder service fees with respect to
Retail A Shares during the current fiscal year.
Retail B Shares of the Tax-Exempt Bond Fund pay distribution and shareholder
service (12b-1) fees at an annual rate of up to 1.15% of the Fund's Retail B
Share assets. The Fund does not intend to pay more than 0.80% in
distribution and shareholder service (12b-1) fees during the current fiscal
year. Galaxy has adopted a plan under Rule 12b-1 that allows the Tax-Exempt
Bond Fund to pay fees from its Retail B Share assets for selling and
distributing Retail B Shares and for services provided to shareholders.
Because 12b-1 fees are paid on an ongoing basis, over time they increase the
cost of your investment and may cost more than paying other sales charges.
CONVERTING RETAIL B SHARES TO RETAIL A SHARES
Six years after you buy Retail B Shares of the Tax-Exempt Bond Fund, they will
automatically convert to Retail A Shares of the Fund. This allows you to benefit
from the lower annual expenses of Retail A Shares.
CHOOSING BETWEEN RETAIL A SHARES AND RETAIL B SHARES
In deciding whether to buy Retail A Shares or Retail B Shares of the Tax-Exempt
Bond Fund, you should consider how long you
[Sidenote:]
Ask your investment professional or Galaxy's distributor, or consult the SAI,
for other instances in which the sales load on Retail A Shares is waived.
When you buy your shares, you must tell your investment professional or
Galaxy's distributor that you qualify for a sales load waiver. To contact
Galaxy's distributor call 1-877-BUY-GALAXY (1-877-289-4252).
GALAXY TAX-EXEMPT BOND FUNDS 23
<PAGE>
plan to hold the shares. Over time, the higher fees on Retail B Shares may equal
or exceed the initial sales charge and fees for Retail A Shares. Retail A Shares
may be a better choice if you qualify to have the sales charge reduced or
eliminated or if you plan to sell your shares within one or two years. Consult
your financial professional for help in choosing the appropriate share class.
BUYING, SELLING AND EXCHANGING SHARES
You can buy and sell Retail A Shares and Retail B Shares of the Funds on any
day that the Funds are open for business, which is any day that the New York
Stock Exchange is open. The New York Stock Exchange is generally open for
trading every Monday through Friday, except for national holidays.
Retail A Shares and Retail B Shares have different prices. The price at which
you buy shares is the NAV next determined after your order is accepted, plus
any applicable sales charge. The price at which you sell shares is the NAV
next determined after receipt of your order in proper form as described
below, less any applicable CDSC in the case of Retail B Shares of the
Tax-Exempt Bond Fund. NAV is determined on each day the New York Stock
Exchange is open for trading at the close of regular trading that day
(usually 4:00 p.m. Eastern time). If market prices are readily available for
securities owned by the Fund, they're valued at those prices. If market
prices are not readily available for some securities, they are valued at fair
value under the supervision of Galaxy's Board of Trustees.
HOW TO BUY SHARES
You can buy shares through your financial institution or directly from Galaxy's
distributor by calling 1-877-BUY-GALAXY (1-877-289-4252). A broker or agent who
places orders on your behalf may charge you a separate fee for their services.
BUYING BY MAIL
Complete an account application and mail it, together with a check payable to
each Fund in which you want to invest, to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
To make additional investments, send your check to the address above along with
one of the following:
- - the detachable form that's included with your Galaxy statement or your
confirmation of a prior transaction
- - a letter stating the amount of your investment, the name of the Fund you
want to invest in, and your account number.
If your check is returned because of insufficient funds, Galaxy will cancel your
order.
[Sidenote:]
MINIMUM INVESTMENT AMOUNTS
The minimum initial investment to open a Fund account is:
- - $2,500 for regular accounts
- - $100 for college savings accounts.
There is generally no minimum initial investment if you partcipate in the
Automatic Investment Program. You generally can make additional investments for
as little as $100. See GALAXY INVESTOR PROGRAMS below for information on other
minimums for initial and additional investments.
Usually, you must keep at least $250 in your account. If your account falls
below $250 because you sell or exchange shares, Galaxy may redeem your shares
and close your account. Galaxy will give you 60 days' notice in writing before
closing your account.
24 GALAXY TAX-EXEMPT BOND FUNDS
<PAGE>
BUYING BY WIRE
To make an initial or additional investment by wire, send U.S. funds through the
Federal Reserve System to Fleet National Bank as agent for Galaxy's distributor.
You should wire money and registration instructions to:
Fleet National Bank
75 State Street
Boston, MA 02109
ABA #0110-0013-8, DDA #79673-5702
Ref: The Galaxy Fund (Account number)
(Account registration)
Before making an initial investment by wire, you must complete an account
application and send it to The Galaxy Fund, P.O. Box 6520, Providence, RI
02940-6520. Your order will not be effected until the completed account
application is received by Galaxy. Call Galaxy's distributor at
1-877-BUY-GALAXY (1-877-289-4252) for an account application.
Your financial institution may charge you a fee for sending funds by wire.
CUSTOMERS OF FINANCIAL INSTITUTIONS
If you are a customer of a financial institution such as a bank, savings and
loan association or broker-dealer, including a financial institution affiliated
with the Adviser, you should place your order through your financial
institution. Your financial institution is responsible for sending your order to
Galaxy's distributor and wiring the money to Galaxy's custodian. For details,
please contact your financial institution.
DISCOUNT PLANS
You may have the sales charges on purchases of Retail A Shares reduced or waived
completely through the discount plans described below:
- - RIGHTS OF ACCUMULATION - You can add the value of the Retail A Shares that
you already own in any Galaxy Fund that charges a sales load to your next
investment in Retail A Shares for purposes of calculating the sales charge.
- - LETTER OF INTENT - You can purchase Retail A Shares of any Galaxy Fund that
charges a sales load over a 13-month period and receive the same sales
charge as if all of the shares had been purchased at the same time. To
participate, complete the Letter of Intent section on the account
application.
- - REINVESTMENT PRIVILEGE - You can reinvest some or all of the money that you
receive when you sell Retail A Shares of the Funds in Retail A Shares of
any Galaxy Fund within 90 days without paying a sales charge.
- - GROUP SALES - If you belong to a qualified group with 50,000 or more
members, you can buy Retail A Shares at a reduced sales charge, based on
the number of qualified group members.
HOW TO SELL SHARES
You can sell your shares in several ways: by mail, by telephone, by wire, or
through your financial institution.
[Sidenote:]
You must tell your investment professional or Galaxy's distributor when you buy
your shares that you want to take advantage of any of these discount plans. See
the SAI for additional requirements that may apply. To contact Galaxy's
distributor, calll 1-877-BUY-GALAXY (1-877-289-4252).
GALAXY TAX-EXEMPT BOND FUNDS 25
<PAGE>
SELLING BY MAIL
Send your request in writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
You must include the following:
- - The name of the Fund
- - The number of shares or the dollar amount you want to sell
- - Your account number
- - Your Social Security number or tax identification number
- - The signatures of each registered owner of the account (the signatures must
match the names on the account registration).
Additional documents may be required for certain types of shareholders, such as
corporations, partnerships, executors, trustees, administrators or guardians.
SELLING BY PHONE
You can sell shares by calling Galaxy's distributor at 1-877-BUY-GALAXY
(1-877-289-4252) unless you tell Galaxy on the account application or in
writing that you don't want this privilege. If you have difficulty getting
through to Galaxy because of unusual market conditions, consider selling your
shares by mail or wire.
SELLING BY WIRE
Notify Galaxy's distributor by phone or wire that you wish to sell shares and
have the sale proceeds wired to your account at any financial institution in the
U.S. To be eligible to use this privilege, you must complete the appropriate
section on the account application or notify Galaxy in writing (with a signature
guarantee). Your sale proceeds must be more than $1,000.
The sale proceeds must be paid to the same bank and account you named on your
application or in your written instructions.
CUSTOMERS OF FINANCIAL INSTITUTIONS
Please contact your financial institution for information on how to sell your
shares. The financial institution is responsible for sending your order to
Galaxy's distributor and for crediting your account with the proceeds. Galaxy
doesn't charge a fee for wiring sale proceeds to your financial institution, but
your financial institution may charge you a fee.
HOW TO EXCHANGE SHARES
You may exchange Retail A Shares of a Fund having a value of at least $100 for
Retail A Shares of any other Galaxy Fund or for shares of any other Fund that's
managed by the Adviser or any of its affiliates in which you have an existing
account. You won't pay a sales charge for exchanging your Retail A Shares.
[Sidenote:]
SIGNATURE GUARANTEES
When selling your shares by mail or by phone, you must have your signature
guaranteed if:
- - you're selling shares worth more than $50,000
- - you want Galaxy to send your money to an address other than the address on
your account, unless your assets are transferred to a successor custodian
- - you want Galaxy to send your money to the address on your account that's
changed within the last 30 days, or
- - you want Galaxy to make the check payable to someone else.
Your signature must be guaranteed by a bank that's a member of the FDIC, a trust
company, a member firm of a national securities exchange or any other eligible
institution. A notarized signature is not sufficient.
26 GALAXY TAX-EXEMPT BOND FUNDS
<PAGE>
You may exchange Retail B Shares of the Tax-Exempt Bond Fund for Retail B Shares
of any other Galaxy Fund. You won't pay a CDSC when you exchange your Retail B
Shares. However, when you sell the Retail B Shares you acquired in the exchange,
you'll pay a contingent deferred sales charge based on the date you bought the
Retail B Shares which you exchanged.
TO EXCHANGE SHARES:
- - call Galaxy's distributor or use the InvestConnect voice response line at
1-877-BUY-GALAXY (1-877-289-4252)
- - send your request in writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
- - ask your financial institution.
Galaxy doesn't charge any fee for making exchanges but your financial
institution might do so. You are generally limited to three exchanges per
year. Galaxy may change or cancel the exchange privilege with 60 days'
advance written notice to shareholders.
OTHER TRANSACTION POLICIES
If Galaxy doesn't receive full payment for your order to buy shares within three
business days of the order date, Galaxy won't accept your order. Galaxy will
advise you if this happens and return any payment it may eventually receive. You
can only invest in shares of the Funds that are legally available in your state.
Galaxy may refuse any order to buy shares. Galaxy doesn't issue a certificate
when you buy shares but it does keep a record of shares issued to investors.
Galaxy may refuse your order to sell or exchange shares by wire or telephone
if it believes it is advisable to do so. Galaxy or its distributor may change
or cancel the procedures for selling or exchanging shares by wire or
telephone at any time without notice.
If you sell or exchange shares by telephone, you may be responsible for any
fraudulent telephone orders as long as Galaxy has taken reasonable
precautions to verify your identity, such as requesting information about the
way in which your account is registered or about recent transactions in your
account.
Galaxy normally pays you cash when you sell your shares, but it has the right to
deliver securities owned by a Fund instead of cash. When you sell these
securities, you'll pay brokerage charges.
Sales proceeds are normally sent to you within three business days but Galaxy
reserves the right to send sales proceeds within seven days if sending
proceeds earlier could adversely affect a Fund.
If any shares that you're selling are part of an investment you've paid for with
a personal check, Galaxy will delay sending your sales proceeds until the check
clears, which can take up to 15 days from the purchase date.
Galaxy reserves the right to vary or waive any minimum investment requirement.
GALAXY TAX-EXEMPT BOND FUNDS 27
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
The Funds generally declare dividends from net investment income daily and pay
them monthly. They normally distribute net capital gains annually. It's expected
that the Funds' annual distributions will be mainly income dividends. Dividends
and distributions are paid in cash unless you indicate in the account
application or in a letter to Galaxy that you want to have dividends and
distributions reinvested in additional shares.
FEDERAL TAXES
It is expected that the Funds will distribute dividends derived from interest
earned on exempt securities, and these "exempt-interest dividends" will be
exempt income for shareholders for federal income tax purposes. However,
distributions, if any, derived from net capital gains of each Fund will
generally be taxable to you as capital gains. Dividends, if any, derived from
short-term capital gain or taxable interest income will be taxable to you as
ordinary income. You will be notified annually of the tax status of
distributions to you.
You should note that if you purchase shares just prior to a capital gain
distribution, the purchase price will reflect the amount of the upcoming
distribution, but you will be taxed on the entire amount of the distribution
received, even though, as an economic matter, the distribution simply
constitutes a return of capital. This is known as "buying into a dividend."
You will recognize taxable gain or loss on a sale, exchange or redemption of
your shares, including an exchange for shares of another Fund, based on the
difference between your tax basis in the shares and the amount you receive for
them. (To aid in computing your tax basis, you generally should retain your
account statements for the periods during which you held shares.) Any loss
realized on shares held for six months or less will be treated as a long-term
capital loss to the extent of any capital gain dividends that were received on
the shares. If you receive an exempt-interest dividend with respect to any share
and the share is held by you for six months or less, any loss on the sale or
exchange of the share will be disallowed to the extent of such dividend amount.
Interest on indebtedness incurred by a shareholder to purchase or carry shares
of a Fund generally will not be deductible for federal income tax purposes.
You should note that a portion of the exempt-interest dividends paid by each
Fund may constitute an item of tax preference for purposes of determining
federal alternative minimum tax liability. Exempt-interest dividends will also
be considered along with other adjusted gross income in determining whether any
Social Security or railroad retirement payments received by you are subject to
federal income taxes.
STATE AND LOCAL TAXES
Dividends paid by the Tax-Exempt Bond Fund that are attributable to interest
earned by the Fund may be taxable to shareholders under state or local law.
Each state-specific Fund intends to comply with certain state and/or local
tax requirements so that its income and dividends will be exempt from the
applicable state and/or local taxes described above in the description for
such Fund. Dividends, if any, derived from interest on securities other than
the state-specific municipal securities in which each Fund primarily invests
will be subject to the particular state's taxes. In addition, with respect
to the Connecticut Municipal Bond Fund, dividends, if any, derived from
long-term capital gains on securities other than Connecticut municipal
securities of issuers in Connecticut, or from any short-term capital gains,
will be subject to the Connecticut state income tax on individuals, trusts
and estates.
MISCELLANEOUS
The foregoing is only a summary of certain tax considerations under current
law, which may be subject to change in the future. You should consult your
tax adviser for further information regarding federal, state and/or local tax
consequences relevant to your specific situation.
28 GALAXY TAX-EXEMPT BOND FUNDS
<PAGE>
GALAXY INVESTOR PROGRAMS
It's also easy to buy or sell shares of the Funds by using one of the programs
described below. Just tell Galaxy the amount and how frequently you want to buy
or sell shares and Galaxy does the rest. For further information on any of these
programs, call Galaxy's distributor at 1-877-BUY-GALAXY (1-877-289-4252) or your
financial institution.
AUTOMATIC INVESTMENT PROGRAM
You can make automatic investments from your bank account every month or every
quarter. You can choose to make your investment on any day of the month or
quarter. The minimum investment is $50 a month or $150 a quarter.
PAYROLL DEDUCTION PROGRAM
You can make regular investments from your paycheck. The minimum investment is
$25 per pay period. Send a completed Galaxy Payroll Deduction Application to
your employer's payroll department. They'll arrange to have your investment
deducted from your paycheck.
COLLEGE INVESTMENT PROGRAM
The minimum for initial and additional investments through the College
Investment Program is $100 unless you participate in the Automatic Investment
Program, in which case the minimum for initial and additional investments is
$50.
DIRECT DEPOSIT PROGRAM
This program lets you deposit your social security payments in your Fund account
automatically. There's no minimum deposit. You can cancel the program by
notifying the Social Security Administration in writing.
SYSTEMATIC WITHDRAWAL PLAN
You can make regular withdrawals from your investment account every month, every
quarter, every six months or once a year. You need a minimum account balance of
$10,000 to participate in the plan. No CDSC will be charged on withdrawals of
Retail B Shares of the Tax-Exempt Bond Fund made through the plan that don't
annually exceed 12% of your account's value.
You may cancel your participation in any of these programs, other than the
Direct Deposit Program, by writing to Galaxy at:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
Please allow at least five days for the cancellation to be processed.
GALAXY TAX-EXEMPT BOND FUNDS 29
<PAGE>
HOW TO REACH GALAXY
THROUGH YOUR FINANCIAL INSTITUTION
Your financial institution can help you buy, sell or exchange shares and can
answer questions about your account.
GALAXY SHAREHOLDER SERVICES
Call Galaxy's distributor at 1-877-BUY-GALAXY (1-877-289-4252), Monday through
Friday, 8 a.m. to 6 p.m. (Eastern time) for help from a Galaxy representative.
INVESTCONNECT
InvestConnect is Galaxy's Shareholder Voice Response System. Call
1-877-BUY-GALAXY (1-877-289-4252) from any touch-tone phone for automated access
to account information and current Fund prices and performance, or to place
orders to sell or exchange shares. It's available 24 hours a day, seven days a
week.
If you live outside the United States, you can contact Galaxy by calling
1-508-871-4121.
THE INTERNET
Please visit Galaxy's website at: www.galaxyfunds.com
[Sidenote:]
Galaxy also offers a TDD service for the hearing impaired. Just call
1-800-696-6515, 24 hours a day, seven days a week.
30 GALAXY TAX-EXEMPT BOND FUNDS
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables shown below will help you understand the
financial performance for the Funds' Retail A Shares and Retail B Shares for
the past five years (or the period since a particular Fund began operations
or a particular class of shares was first offered). Certain information
reflects the financial performance of a single Retail A Share or Retail B
Share. The total returns in the tables represent the rate that an investor
would have earned (or lost) on an investment in Retail A Shares and/or Retail
B Shares of each Fund, assuming all dividends and distributions were
reinvested. This information has been audited by PricewaterhouseCoopers LLP,
independent accountants, whose report, along with the Funds' financial
statements, are included in the Funds' Annual Report and are incorporated by
reference into the SAI. The Annual Report and the SAI are available free of
charge upon request.
GALAXY TAX-EXEMPT BOND FUND
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
FOR THE YEAR ENDING OCTOBER 31,
-----------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------------ ------------------ -------------------- -------- --------
Retail A Retail B Retail A Retail B Retail A Retail B Retail A Retail A
Shares Shares Shares Shares Shares Shares(1) Shares Shares
- ------------------------------------ ------------------ ------------------ -------------------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $11.06 $11.06 $10.78 $10.78 $10.78 $10.94 $9.99 $11.12
- ------------------------------------ ------------------ ------------------ -------------------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(2) 0.48 0.42 0.50 0.43 0.50 0.27 0.52 0.53
--------------------------------- ------------------ ------------------ -------------------- -------- --------
Net realized and unrealized
gain (loss) on investments 0.34 0.33 0.29 0.29 - (0.16) 0.79 (1.04)
- ------------------------------------ ------------------ ------------------ -------------------- -------- --------
Total from investment operations 0.82 0.75 0.79 0.72 0.50 0.11 1.31 (0.51)
LESS DIVIDENDS:
Dividends from net investment
income (0.49) (0.42) (0.50) (0.43) (0.50) (0.27) (0.52) (0.53)
--------------------------------- ------------------ ------------------ -------------------- -------- --------
Dividends from net realized
capital gains (0.09) (0.09) (0.01) (0.01) - - - -
--------------------------------- ------------------ ------------------ -------------------- -------- --------
Dividends in excess of net
realized capital gains - - - - - - - (0.09)
- ------------------------------------ ------------------ ------------------ -------------------- -------- --------
Total dividends (0.58) (0.51) (0.51) (0.44) (0.50) (0.27) (0.52) (0.62)
Net increase (decrease) in net
asset value 0.24 0.24 0.28 0.28 - (0.16) 0.79 (1.13)
- ------------------------------------ ------------------ ------------------ -------------------- -------- --------
Net asset value, end of period $11.30 $11.30 $11.06 $11.06 $10.78 $10.78 $10.78 $9.99
- ------------------------------------ ------------------ ------------------ -------------------- -------- --------
- ------------------------------------ ------------------ ------------------ -------------------- -------- --------
Total return(3) 7.60% 6.95% 7.49% 6.83% 4.77% 1.08%(4) 13.40% (4.75)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $24,764 $2,715 $25,465 $1,690 $28,339 $787 $31,609 $35,911
--------------------------------- ------------------ ------------------ -------------------- -------- --------
RATIOS TO AVERAGE NET ASSETS:
Net investment income
including reimbursement/waiver 4.32% 3.71% 4.60% 3.95% 4.68% 4.08%(5) 4.99% 5.01%
--------------------------------- ------------------ ------------------ -------------------- -------- --------
Operating expenses including
reimbursement/waiver 0.94% 1.55% 0.95% 1.60% 0.93% 1.57%(5) 0.91% 0.80%
--------------------------------- ------------------ ------------------ -------------------- -------- --------
Operating expenses excluding
reimbursement/waiver 1.15% 1.76% 1.18% 1.83% 1.18% 1.77%(5) 1.24% 1.03%
--------------------------------- ------------------ ------------------ -------------------- -------- --------
Portfolio turnover rate 59% 59% 78% 78% 15% 15% 11% 17%
</TABLE>
(1) The Fund began offering Retail B Shares on March 4, 1996.
(2) Net investment income per share before reimbursement/waiver of fees by
the Adviser and/or the Fund's administrator for Retail A Shares for the
years ended October 31, 1998, 1997, 1996, 1995 and 1994 was $0.46, $0.47,
$0.48, $0.48 and $0.50, respectively. Net investment income per share
before reimbursement/waiver of fees by the Adviser and/or the Fund's
administrator for Retail B Shares for the years ended October 31, 1998 and
1997 and the period ended October 31, 1996 was $0.40, $0.40 and $0.25,
respectively.
(3) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares.
(4) Not annualized.
(5) Annualized.
GALAXY TAX-EXEMPT BOND FUNDS 31
<PAGE>
GALAXY NEW JERSEY MUNICIPAL BOND FUND
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
PERIOD ENDING
OCTOBER 31,
1998(1)
----------
Retail A
Shares
- ------------------------------------------------------------- ----------
<S> <C>
Net asset value, beginning of period $10.00
- ------------------------------------------------------------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(2) 0.20
---------------------------------------------------------- ----------
Net realized and unrealized gain on investments 0.24
- ------------------------------------------------------------- ----------
Total from investment operations 0.44
LESS DIVIDENDS:
Dividends from net investment income (0.20)
---------------------------------------------------------- ----------
Dividends from net realized capital gains -
- ------------------------------------------------------------- ----------
Total dividends (0.20)
Net increase in net asset value 0.24
- ------------------------------------------------------------- ----------
Net asset value, end of period $10.24
- ------------------------------------------------------------- ----------
- ------------------------------------------------------------- ----------
Total return(3) 4.34%(4)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $815
---------------------------------------------------------- ----------
RATIOS TO AVERAGE NET ASSETS:
Net investment income including reimbursement/waiver 3.62%(5)
---------------------------------------------------------- ----------
Operating expenses including reimbursement/waiver 1.09%(5)
---------------------------------------------------------- ----------
Operating expenses excluding reimbursement/waiver 3.65%(5)
---------------------------------------------------------- ----------
Portfolio turnover rate 53%(4)
</TABLE>
(1) The Fund commenced operations on April 3, 1998.
(2) Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for Retail A Shares for the period
ended October 31, 1998 was $0.06.
(3) Calculation does not include the effect of any sales charge for Retail A
Shares.
(4) Not annualized.
(5) Annualized.
32 GALAXY TAX-EXEMPT BOND FUNDS
<PAGE>
GALAXY NEW YORK MUNICIPAL BOND FUND
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
FOR THE YEAR ENDING OCTOBER 31,
--------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Retail A Retail A Retail A Retail A Retail A
Shares Shares Shares Shares Shares
- ------------------------------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $11.09 $10.75 $10.78 $9.89 $11.04
- ------------------------------------ -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(1) 0.48 0.49 0.48 0.49 0.49
--------------------------------- -------- -------- -------- -------- --------
Net realized and unrealized
gain (loss) on investments 0.35 0.34 (0.03) 0.89 (1.15)
- ------------------------------------ -------- -------- -------- -------- --------
Total from investment operations 0.83 0.83 0.45 1.38 (0.66)
LESS DIVIDENDS:
Dividends from net investment
income (0.48) (0.49) (0.48) (0.49) (0.49)
--------------------------------- -------- -------- -------- -------- --------
Dividends from net realized
capital gains - - - - -
- ------------------------------------ -------- -------- -------- -------- --------
Total dividends (0.48) (0.49) (0.48) (0.49) (0.49)
Net increase (decrease) in net
asset value 0.35 0.34 (0.03) 0.89 (1.15)
- ------------------------------------ -------- -------- -------- -------- --------
Net asset value, end of period $11.44 $11.09 $10.75 $10.78 $9.89
- ------------------------------------ -------- -------- -------- -------- --------
- ------------------------------------ -------- -------- -------- -------- --------
Total return(2) 7.65% 7.93% 4.31% 14.03% (6.14)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $48,218 $38,434 $40,154 $42,870 $42,451
--------------------------------- -------- -------- -------- -------- --------
RATIOS TO AVERAGE NET ASSETS:
Net investment income
including reimbursement/waiver 4.27% 4.52% 4.50% 4.73% 4.64%
--------------------------------- -------- -------- -------- -------- --------
Operating expenses including
reimbursement/waiver 0.87% 0.94% 0.95% 0.92% 0.87%
--------------------------------- -------- -------- -------- -------- --------
Operating expenses excluding
reimbursement/waiver 1.20% 1.26% 1.35% 1.31% 1.10%
--------------------------------- -------- -------- -------- -------- --------
Portfolio turnover rate 27% 61% 12% 5% 18%
</TABLE>
(1) Net investment income per share for Retail A Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for the years ended October 31, 1998, 1997, 1996, 1995 and 1994 was $0.45,
$0.45, $0.44, $0.44 and $0.46, respectively.
(2) Calculation does not include the effect of any sales charge for Retail A
Shares.
GALAXY TAX-EXEMPT BOND FUNDS 33
<PAGE>
GALAXY CONNECTICUT MUNICIPAL BOND FUND
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
FOR THE YEAR ENDING OCTOBER 31,
--------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Retail A Retail A Retail A Retail A Retail A
Shares Shares Shares Shares Shares
- ------------------------------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $10.47 $10.14 $10.13 $9.22 $10.32
- ------------------------------------ -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(1) 0.43 0.45 0.42 0.44 0.46
--------------------------------- -------- -------- -------- -------- --------
Net realized and unrealized
gain (loss) on investments 0.35 0.33 0.01 0.91 (1.10)
--------------------------------- -------- -------- -------- -------- --------
Total from investment operations 0.78 0.78 0.43 1.35 (0.64)
LESS DIVIDENDS:
Dividends from net investment
income (0.43) (0.45) (0.42) (0.44) (0.46)
--------------------------------- -------- -------- -------- -------- --------
Dividends from net realized
capital gains - - - - -
- ------------------------------------ -------- -------- -------- -------- --------
Total dividends (0.43) (0.45) (0.42) (0.44) (0.46)
Net increase (decrease) in net
asset value 0.35 0.33 0.01 0.91 (1.10)
- ------------------------------------ -------- -------- -------- -------- --------
Net asset value, end of period $10.82 $10.47 $10.14 $10.13 $9.22
- ------------------------------------ -------- -------- -------- -------- --------
- ------------------------------------ -------- -------- -------- -------- --------
Total return(2) 7.58% 7.86% 4.32% 14.94% (6.39)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $24,856 $23,355 $23,244 $18,066 $18,229
--------------------------------- -------- -------- -------- -------- --------
RATIOS TO AVERAGE NET ASSETS:
Net investment income
including reimbursement/waiver 4.02% 4.30% 4.13% 4.53% 4.66%
--------------------------------- -------- -------- -------- -------- --------
Operating expenses including
reimbursement/waiver 0.88% 0.70% 0.70% 0.68% 0.25%
--------------------------------- -------- -------- -------- -------- --------
Operating expenses excluding
reimbursement/waiver 1.31% 1.31% 1.38% 1.48% 1.42%
--------------------------------- -------- -------- -------- -------- --------
Portfolio turnover rate 46% 42% 3% 7% 4%
</TABLE>
(1) Net investment income per share for Retail A Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for the years ended October 31, 1998, 1997, 1996, 1995 and 1994 was $0.38,
$0.38, $0.35, $0.37 and $0.34, respectively.
(2) Calculation does not include the effect of any sales charge for Retail A
Shares.
34 GALAXY TAX-EXEMPT BOND FUNDS
<PAGE>
GALAXY MASSACHUSETTS MUNICIPAL BOND FUND
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
FOR THE YEAR ENDING OCTOBER 31,
--------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Retail A Retail A Retail A Retail A Retail A
Shares Shares Shares Shares Shares
- ------------------------------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.25 $9.94 $9.98 $9.12 $10.24
- ------------------------------------ -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(1) 0.46 0.45 0.43 0.44 0.47
--------------------------------- -------- -------- -------- -------- --------
Net realized and unrealized
gain (loss) on investments 0.27 0.32 (0.04) 0.86 (1.12)
- ------------------------------------ -------- -------- -------- -------- --------
Total from investment operations 0.73 0.77 0.39 1.30 (0.65)
LESS DIVIDENDS:
Dividends from net investment
income (0.45) (0.46) (0.43) (0.44) (0.47)
--------------------------------- -------- -------- -------- -------- --------
Dividends from net realized
capital gains - - - - -
- ------------------------------------ -------- -------- -------- -------- --------
Total dividends (0.45) (0.46) (0.43) (0.44) (0.47)
Net increase (decrease) in net
asset value 0.28 0.31 (0.04) 0.86 (1.12)
- ------------------------------------ -------- -------- -------- -------- --------
Net asset value, end of period $10.53 $10.25 $9.94 $9.98 $9.12
- ------------------------------------ -------- -------- -------- -------- --------
- ------------------------------------ -------- -------- -------- -------- --------
Total return(2) 7.22% 7.92% 4.05% 14.52% (6.46)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $44,189 $33,318 $26,275 $16,113 $15,966
--------------------------------- -------- -------- -------- -------- --------
RATIOS TO AVERAGE NET ASSETS:
Net investment income including
reimbursement/waiver 4.30% 4.38% 4.42% 4.56% 4.89%
--------------------------------- -------- -------- -------- -------- --------
Operating expenses including
reimbursement/waiver 0.78% 0.63% 0.66% 0.70% 0.33%
--------------------------------- -------- -------- -------- -------- --------
Operating expenses excluding
reimbursement/waiver 1.21% 1.20% 1.32% 1.58% 1.43%
--------------------------------- -------- -------- -------- -------- --------
Portfolio turnover rate 44% 48% 16% 19% 11%
</TABLE>
(1) Net investment income per share for Retail A Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for the years ended October 31, 1998, 1997, 1996, 1995 and 1994 was $0.41,
$0.39, $0.37, $0.36 and $0.37, respectively.
(2) Calculation does not include the effect of any sales charge for Retail A
Shares.
GALAXY TAX-EXEMPT BOND FUNDS 35
<PAGE>
GALAXY RHODE ISLAND MUNICIPAL BOND FUND
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
FOR THE PERIOD
ENDING
FOR THE YEAR ENDING OCTOBER 31, OCTOBER 31,
--------------------------------
1998 1997 1996 1995(1)
-------- -------- -------- --------
Retail A Retail A Retail A Retail A
Shares Shares Shares Shares
- ------------------------------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $10.91 $10.65 $10.67 $10.00
- ------------------------------------ -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(2) 0.50 0.48 0.51 0.44
--------------------------------- -------- -------- -------- --------
Net realized and unrealized
gain on investments 0.29 0.32 0.03 0.67
- ------------------------------------ -------- -------- -------- --------
Total from investment operations 0.79 0.80 0.54 1.11
LESS DIVIDENDS:
Dividends from net investment
income (0.50) (0.50) (0.51) (0.44)
--------------------------------- -------- -------- -------- --------
Dividends from net realized
capital gains (0.02) (0.04) (0.05) -
- ------------------------------------ -------- -------- -------- --------
Total dividends (0.52) (0.54) (0.56) (0.44)
Net increase (decrease) in net
asset value 0.27 0.26 (0.02) 0.67
- ------------------------------------ -------- -------- -------- --------
Net asset value, end of period $11.18 $10.91 $10.65 $10.67
- ------------------------------------ -------- -------- -------- --------
- ------------------------------------ -------- -------- -------- --------
Total return(3) 7.35% 7.78% 5.22% 11.29%(4)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $20,210 $17,134 $14,900 $10,850
--------------------------------- -------- -------- -------- --------
RATIOS TO AVERAGE NET ASSETS:
Net investment income
including reimbursement/waiver 4.52% 4.50% 4.78% 5.13%(5)
--------------------------------- -------- -------- -------- --------
Operating expenses including
reimbursement/waiver 0.81% 0.83% 0.77% 0.40%(5)
--------------------------------- -------- -------- -------- --------
Operating expenses excluding
reimbursement/waiver 1.23% 1.34% 1.34% 2.25%(5)
--------------------------------- -------- -------- -------- --------
Portfolio turnover rate 41% 19% 13% 34%(4)
</TABLE>
(1) The Fund commenced operations on December 20, 1994.
(2) Net investment income per share for Retail A Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for the years ended October 31, 1998, 1997 and 1996 and for the period
ended October 31, 1995 was $0.45, $0.43, $0.45 and $0.28, respectively.
(3) Calculation does not include the effect of any sales charge for Retail A
Shares.
(4) Not annualized.
(5) Annualized.
36 GALAXY TAX-EXEMPT BOND FUNDS
<PAGE>
WHERE TO FIND MORE INFORMATION
You'll find more information about the Funds in the following documents:
ANNUAL AND SEMI-ANNUAL REPORTS
Galaxy's annual and semi-annual reports contain more information about each
Fund and a discussion about the market conditions and investment strategies
that had a significant effect on each Fund's performance during the last
fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains detailed information about the Funds and their policies. By
law, it's incorporated by reference into (considered to be part of) this
prospectus.
You can get a free copy of these documents, request other information about
the Funds and make shareholder inquiries by calling Galaxy at
1-877-BUY-GALAXY (1-877-289-4252) or by writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
If you buy your shares through a financial institution, you may contact your
institution for more information.
You can write to the Securities and Exchange Commission (SEC) Public
Reference Section and ask them to mail you information about the Funds,
including the SAI. They'll charge you a fee for this service. You can also
visit the SEC Public Reference Room and copy the documents while you're
there. For information about the operation of the Public Reference Room, call
the SEC.
Public Reference Section of the SEC
Washington, DC 20549-6009
1-800-SEC-0330.
Reports and other information about the Funds are also available on the SEC's
website at http://www.sec.gov.
Galaxy's Investment Company Act File No. is 811-4636.
<PAGE>
[GRAPHIC]
GALAXY TAX-EXEMPT BOND FUNDS
THE GALAXY FUND
PROSPECTUS
February 28, 1999
Galaxy Tax-Exempt
Bond Fund
Galaxy New Jersey
Municipal Bond Fund
Galaxy New York
Municipal Bond Fund
Galaxy Connecticut
Municipal Bond Fund
Galaxy Massachusetts
Municipal Bond Fund
Galaxy Rhode Island
Municipal Bond Fund
TRUST SHARES
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved any shares of these Funds or determined if this
prospectus is accurate or complete. Anyone who tells you otherwise is
committing a crime.
[LOGO]
<PAGE>
CONTENTS
<TABLE>
<C> <S>
1 RISK/RETURN SUMMARY
1 Introduction
2 Galaxy Tax-Exempt Bond Fund
5 Galaxy New Jersey Municipal Bond Fund
8 Galaxy New York Municipal Bond Fund
11 Galaxy Connecticut Municipal Bond Fund
14 Galaxy Massachusetts Municipal Bond Fund
17 Galaxy Rhode Island Municipal Bond Fund
21 Additional information about risk
22 FUND MANAGEMENT
23 HOW TO INVEST IN THE FUNDS
23 Buying and selling shares
23 HOW TO BUY SHARES
23 HOW TO SELL SHARES
23 OTHER TRANSACTION POLICIES
24 DIVIDENDS, DISTRIBUTIONS AND TAXES
26 FINANCIAL HIGHLIGHTS
</TABLE>
<PAGE>
RISK/RETURN SUMMARY
Introduction
THIS PROSPECTUS describes the Galaxy Tax-Exempt Bond Funds. The Funds invest
primarily in municipal securities, which are debt obligations of state and local
governments and other political or public bodies or agencies. The interest paid
on municipal securities is generally exempt from federal income tax and, in some
cases, from state and local income tax.
On the following pages, you'll find important information about each of the
Galaxy Tax-Exempt Bond Funds, including:
- - The Fund's investment objective (sometimes called the Fund's goal) and the
main investment strategies used by the Fund's investment adviser in trying
to achieve that objective
- - The main risks associated with an investment in the Fund
- - The Fund's past performance measured on both a year-by-year and long-term
basis
- - The fees and expenses that you will pay as an investor in the Fund.
WHICH FUND IS RIGHT FOR YOU?
The Funds are designed for investors who are looking for income that's free of
federal income tax and who can accept fluctuations in price and yield. A Fund
that specializes in a particular state is best suited to residents of that state
who are also looking for income that is free of the state's income tax.
TAX-EXEMPT FUNDS ARE NOT APPROPRIATE INVESTMENTS FOR TAX-DEFERRED RETIREMENT
ACCOUNTS, SUCH AS IRAS, BECAUSE THEIR RETURNS BEFORE TAXES ARE GENERALLY
LOWER THAN THOSE OF TAXABLE FUNDS.
THE FUNDS' INVESTMENT ADVISER
Fleet Investment Advisors Inc., which is referred to in this prospectus as
THE ADVISER, is the investment adviser for all of these Funds. The Adviser,
as indirect wholly-owned subsidiary of Fleet Financial Group, Inc., was
established in 1984 and has its main office at 75 State Street, Boston,
Massachusetts 02109. The Adviser also provides investment management and
advisory services to individual and institutional clients and manages the
other Galaxy investment portfolios. As of December 31, 1998, the Adviser
managed over $64 billion in assets.
- --------------------------------------------------------------------------------
AN INVESTMENT IN THE FUNDS ISN'T A FLEET BANK DEPOSIT AND IT ISN'T INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY. YOU COULD LOSE MONEY BY INVESTING IN THE FUNDS.
[Sidenote:]
TAX-EQUIVALENT YIELD
One way to understand the tax advantages of a tax-exempt fund is to compare
its after-tax return to that of a taxable investment. For example, suppose a
taxable fund pays a return of 10%. If you're in the 36% federal income tax
bracket, the fund's return after taxes is 6.4%. When a tax-exempt fund pays a
return of 10%, you don't pay tax. So if you're in the 36% tax bracket, that's
the equivalent of earning about 15.6% on a taxable fund. If you're in a low
tax bracket, however, it may not be helpful to invest in a tax-exempt fund if
you can achieve a higher after-tax return from a taxable investment.
GALAXY TAX-EXEMPT BOND FUNDS 1
<PAGE>
GALAXY TAX-EXEMPT BOND FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks to provide shareholders with as high a level of current interest
income free of federal income tax as is consistent with preservation of capital.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities that pay interest which is exempt from regular federal income tax,
primarily bonds (normally 65% of total assets). Under normal conditions, the
Fund will invest no more than 20% of its total assets in taxable obligations,
such as U.S. Government obligations, money market instruments and repurchase
agreements.
Municipal securities purchased by the Fund may include general obligation
securities, revenue securities and private activity bonds. The interest on
private activity bonds may be subject to the federal alternative minimum tax.
Investments in private activity bonds will not be treated as investments in
municipal securities for purposes of the 80% requirement stated above.
Nearly all of the Fund's investments will be of investment grade quality.
These are securities which have one of the top four ratings assigned by
Standard & Poor's Ratings Group (S&P) or Moody's Investors Service, Inc.
(Moody's), or are unrated securities determined by the Adviser to be of
comparable quality. Under normal market conditions, the Fund will invest at
least 65% of its total assets in securities that have one of the top three
ratings assigned by S&P or Moody's, or unrated securities determined by the
Adviser to be of comparable quality. Occasionally, the rating of a security
held by the Fund may be downgraded to below investment grade. If that
happens, the Fund doesn't have to sell the security, unless the Adviser
determines that under the circumstances the security is no longer an
appropriate investment for the Fund.
The Fund's average weighted maturity will vary from time to time depending on
current economic and market conditions and the Adviser's assessment of probable
changes in interest rates.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the
Adviser believes that holding the security is no longer consistent with the
Fund's investment objective.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities, including municipal
securities, tend to move in the opposite direction to interest rates. When
rates are rising, the prices of debt securities tend to fall. When rates
are falling, the prices of debt securities tend to rise. Generally, the
longer the time until maturity, the more sensitive the price of a debt
security is to interest rate changes.
- - CREDIT RISK - The value of debt securities, including municipal securities,
also depends on the ability of issuers to make principal and interest
payments. If an issuer can't meet its payment obligations or if its credit
rating is lowered, the value of its debt securities will fall. Debt
securities which have the lowest of the top four ratings assigned by S&P or
Moody's have speculative characteristics. Changes in the economy are more
likely to affect the ability of issuers of these securities to make
payments of principal and interest than is the case with higher-rated
securities. The ability of a state or local government issuer to make
payments can be affected by many factors, including economic conditions,
the
[Sidenote:]
MUNICIPAL SECURITIES
State and local governments issue municipal securities to raise money to finance
public works, to repay outstanding obligations, to raise funds for general
operating expenses and to make loans to other public institutions. Some
municipal securities, known as private activity bonds, are backed by private
entities and are used to finance various non-public projects. Municipal
securities, which can be issued as bonds, notes or commercial paper, usually
have fixed interest rates, although some have interest rates that change from
time to time.
TYPES OF MUNICIPAL SECURITIES
GENERAL OBLIGATION securities are secured by the issuer's full faith, credit
and taxing power. REVENUE OBLIGATION securities are usually payable only from
revenues derived from specific facilities or revenue sources. PRIVATE
ACTIVITY BONDS are usually revenue obligations since they are typically
payable by the private user of the facilities financed by the bonds.
2 GALAXY TAX-EXEMPT BOND FUNDS
<PAGE>
GALAXY TAX-EXEMPT BOND FUND
flow of tax revenues and changes in the level of federal, state or local aid.
Some municipal obligations are payable only from limited revenue sources or by
private entities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
municipal securities held by the Fund to be paid off much sooner or later
than expected, which could adversely affect the Fund's value.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
- --------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past. Both
assume that all dividends and distributions are reinvested in the Fund. How the
Fund has performed in the past doesn't necessarily show how it will perform in
the future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares has varied from year to
year, thereby giving some indication of the risk of investing in the Fund.
[CHART]
BEST QUARTER
6.59% for the quarter ending March 31, 1995
WORST QUARTER
- -5.39% for the quarter ending March 31, 1994
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
9.25% 11.95% -5.35% 16.04% 3.57% 8.99% 5.96%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1998, as compared to a broad-based market index.
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS INCEPTION
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Trust Shares 5.96% 5.61% 7.01% (12/30/91)
- --------------------------------------------------------------------------------
Lehman Brothers
Municipal Bond
Index 6.48% 6.22% 7.44% (since 12/31/91)
- --------------------------------------------------------------------------------
</TABLE>
For current yield information, please call 1-877-BUY-GALAXY (1-877-289-4252).
[Sidenote:]
AVERAGE WEIGHTED MATURITY
Average weighted maturity gives you the average time until all debt securities
in a fund come due or MATURE. It is calculated by averaging the time to maturity
of all debt securities held by a fund with each maturity "weighted" according to
the percentage of assets it represents.
The Lehman Brothers Municipal Bond Index is an unmanaged index which tracks
the performance of municipal bonds.
GALAXY TAX-EXEMPT BOND FUNDS 3
<PAGE>
GALAXY TAX-EXEMPT BOND FUND
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
ANNUAL FUND OPERATING EXPENSES (FEES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT DISTRIBUTION OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares .75%(1) None 0.21% .96%(1)
- --------------------------------------------------------------------------------
</TABLE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be 0.55%. Total fund operating expenses after this waiver
are expected to be 0.76%. This fee waiver may be revised or discontinued at
any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $98 $306 $531 $1,178
- --------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
THE PORTFOLIO MANAGER
The Adviser's Tax-Exempt Investment Policy Committee is responsible for the
day-to-day management of the Fund's investment portfolio.
4 GALAXY TAX-EXEMPT BOND FUNDS
<PAGE>
GALAXY NEW JERSEY MUNICIPAL BOND FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current interest income exempt from federal
income tax and, to the extent possible, from New Jersey personal income tax, as
is consistent with relative stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities that pay interest which is exempt from regular federal income tax,
and at least 65% of its total assets in New Jersey municipal securities,
which are securities issued by the State of New Jersey and other government
issuers and that pay interest which is exempt from both federal income tax
and New Jersey personal income tax. Under normal conditions, the Fund will
invest no more than 20% of its total assets in taxable obligations, such as
U.S. Government obligations, money market instruments and repurchase
agreements.
Municipal securities purchased by the Fund may include general obligation
securities, revenue securities and private activity bonds. The interest on
private activity bonds may be subject to the federal alternative minimum tax.
Investments in private activity bonds will not be treated as investments in
municipal securities for purposes of the 80% requirement stated above.
Nearly all of the Fund's investments will be of investment grade quality.
These are securities which have one of the top four ratings assigned by
Standard & Poor's Ratings Group (S&P) or Moody's Investors Service, Inc.
(Moody's), or are unrated securities determined by the Adviser to be of
comparable quality. Under normal market conditions, the Fund will invest at
least 65% of its total assets in securities that have one of the top three
ratings assigned by S&P or Moody's or unrated securities determined by the
Adviser to be of comparable quality. Occasionally, the rating of a security
held by the Fund may be downgraded below investment grade. If that happens,
the Fund doesn't have to sell the security, unless the Adviser determines
that under the circumstances the security is no longer an appropriate
investment for the Fund.
The Fund's average weighted maturity will vary from time to time depending on
current economic and market conditions and the Adviser's assessment of probable
changes in interest rates.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the
Adviser believes that holding the security is no longer consistent with the
Fund's investment objective.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and by swings in
investment markets.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities, including municipal
securities, tend to move in the opposite direction to interest rates. When
rates are rising, the prices of debt securities tend to fall. When rates
are falling, the prices of debt securities tend to rise. Generally, the
longer the time until maturity, the more sensitive the price of a debt
security is to interest rate changes.
- - CREDIT RISK - The value of debt securities, including municipal securities,
also depends on the ability of issuers to make principal and interest
payments. If an issuer can't
[Sidenote:]
AVERAGE WEIGHTED MATURITY
Average weighted maturity gives you the average time until all debt securities
in a fund come due or MATURE. It is calculated by averaging the time to maturity
of all debt securities held by a fund with each maturity "weighted" according to
the percentage of assets it represents.
GALAXY TAX-EXEMPT BOND FUNDS 5
<PAGE>
GALAXY NEW JERSEY MUNICIPAL BOND FUND
meet its payment obligations or if its credit rating is lowered, the
value of its debt securities will fall. Debt securities which have the
lowest of the top four ratings assigned by S&P or Moody's have
speculative characteristics. Changes in the economy are more likely to
affect the ability of issuers of these securities to make payments of
principal and interest than is the case with higher-rated securities.
The ability of a state or local government issuer to make payments can
be affected by many factors, including economic conditions, the flow of
tax revenues and changes in the level of federal, state or local aid.
Some municipal obligations are payable only from limited revenue
sources or by private entities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
municipal securities held by the Fund to be paid off much sooner or later
than expected, which could adversely affect the Fund's value.
- - LACK OF DIVERSIFICATION - The Fund is not diversified, which means that it
can invest a large percentage of its assets in a small number of issuers.
As a result, a change in the value of any one investment held by the Fund
may affect the overall value of the Fund more than it would affect a
diversified fund which holds more investments.
- - SINGLE STATE RISK - Because the Fund invests primarily in New Jersey
municipal securities, it is likely to be especially susceptible to
economic, political and regulatory events that affect New Jersey. Other
considerations affecting the Fund's investments in New Jersey municipal
securities are summarized in the Statement of Additional Information.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance
the Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
- --------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
The Fund began operations in April of 1998 and has a performance record of
less than one full calendar year. For current yield information, call
1-877-BUY-GALAXY (1-877-289-4252).
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
ANNUAL FUND OPERATING EXPENSES (FEES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT DISTRIBUTION OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75%(1) None 1.28%(1) 2.03%(1)
- --------------------------------------------------------------------------------
</TABLE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be 0.25%. The Fund's administrator is waiving a portion of
the administration fees and reimbursing certain expenses so that Other
expenses are expected to be 0.67%. Total Fund operating expenses after these
waivers and reimbursements are expected to be 0.92%. These fee waivers and
expense reimbursements may be revised or discontinued at any time.
[Sidenote:]
THE PORTFOLIO MANAGER
The Adviser's Tax-Exempt Investment Policy Committee is responsible for the
day-to-day management of the Fund's investment portfolio.
6 GALAXY TAX-EXEMPT BOND FUNDS
<PAGE>
GALAXY NEW JERSEY MUNICIPAL BOND FUND
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $206 $637 $1,093 $2,358
- --------------------------------------------------------------------------------
</TABLE>
GALAXY TAX-EXEMPT BOND FUNDS 7
<PAGE>
GALAXY NEW YORK MUNICIPAL BOND FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current interest income exempt from federal
income tax and, to the extent possible, from New York State and New York City
personal income tax, as is consistent with relative stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities that pay interest which is exempt from regular federal income tax,
and at least 65% of its total assets in New York municipal securities, which
are securities issued by the State of New York and other government issuers
and that pay interest which is exempt from federal income tax and New York
State and New York City personal income tax. Under normal conditions, the
Fund will invest no more than 20% of its total assets in taxable obligations,
such as U.S. Government obligations, money market instruments and repurchase
agreements.
Municipal securities purchased by the Fund may include general obligation
securities and private activity bonds. The interest on private activity bonds
may be subject to the federal alternative minimum tax. Investments in private
activity bonds will not be treated as investments in municipal securities for
purposes of the 80% requirement stated above.
Nearly all of the Fund's investments will be of investment grade quality.
These are securities which have one of the top four ratings assigned by
Standard & Poor's Ratings Group (S&P) or Moody's Investors Service, Inc.
(Moody's), or are unrated securities determined by the Adviser to be of
comparable quality. Under normal market conditions, the Fund will invest at
least 65% of its total assets in securities that have one of the top three
ratings assigned by S&P or Moody's or unrated securities determined by the
Adviser to be of comparable quality. Occasionally, a security held by the
Fund may be downgraded below investment grade. If that happens, the Fund
doesn't have to sell the security, unless the Adviser determines that under
the circumstances the security is no longer an appropriate investment for the
Fund.
The Fund's average weighted maturity will vary from time to time depending on
current economic and market conditions and the Adviser's assessment of probable
changes in interest rates.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the
Adviser believes that holding the security is no longer consistent with the
Fund's investment objective.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities, including municipal
securities, tend to move in the opposite direction to interest rates. When
rates are rising, the prices of debt securities tend to fall. When rates
are falling, the prices of debt securities tend to rise. Generally, the
longer the time until maturity, the more sensitive the price of a debt
security is to interest rate changes.
- - CREDIT RISK - The value of debt securities, including municipal securities,
also depends on the ability of issuers to make principal and interest
payments. If an issuer can't meet its payment obligations or if its credit
rating is lowered, the value of its debt securities will fall. Debt
securities which have the lowest of the top four ratings assigned by S&P
or Moody's have speculative characteristics. Changes in the economy are
more likely to affect the ability of issuers of these securities to make
payments of principal and interest than is the case with the higher-rated
securities. The ability of a state or local government issuer
[Sidenote:]
AVERAGE WEIGHTED MATURITY
Average weighted maturity gives you the average time until all debt securities
in a fund come due or MATURE. It is calculated by averaging the time to maturity
of all debt securities held by a fund with each maturity "weighted" according to
the percentage of assets it represents.
8 GALAXY TAX-EXEMPT BOND FUNDS
<PAGE>
GALAXY NEW YORK MUNICIPAL BOND FUND
to make payments can be affected by many factors, including economic
conditions, the flow of tax revenues and changes in the level of federal,
state or local aid. Some municipal obligations are payable only from
limited revenue sources or by private entities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
municipal securities held by the Fund to be paid off much sooner or later
than expected, which could adversely affect the Fund's value.
- - LACK OF DIVERSIFICATION - The Fund is not diversified, which means that it
can invest a large percentage of its assets in a small number of issuers.
As a result, a change in the value of any one investment held by the Fund
may affect the overall value of the Fund more than it would affect a
diversified fund which holds more investments.
- - SINGLE STATE RISK - Because the Fund invests primarily in New York
municipal securities, the Fund's ability to achieve its investment
objective is dependent upon the ability of the issuers of New York
municipal securities to meet their continuing obligations for the payment
of principal and interest. New York State and New York City face long-term
economic problems that could seriously affect their ability and that of
other issuers of New York municipal securities to meet their financial
obligations. Other considerations affecting the Fund's investments in New
York municipal securities are summarized in the Statement of Additional
Information.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance
the Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
- --------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past. Both
assume that all dividends and distributions are reinvested in the Fund. How the
Fund has performed in the past doesn't necessarily show how it will perform in
the future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares has varied from year to
year, thereby giving some indication of the risk of investing in the Fund.
[CHART]
BEST QUARTER
7.42% for the quarter ending March 31, 1995
WORST QUARTER
- -6.55% for the quarter ending March 31, 1994
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
8.29% 12.30% -7.26% 17.09% 3.62% 8.89% 6.13%
</TABLE>
GALAXY TAX-EXEMPT BOND FUNDS 9
<PAGE>
GALAXY NEW YORK MUNICIPAL BOND FUND
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1998, as compared to a broad-based market index.
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS INCEPTION
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Trust Shares 6.13% 5.39% 6.77% (12/31/91)
- --------------------------------------------------------------------------------
Lehman Brothers
Municipal Bond
Index 6.48% 6.22% 7.44% (since 12/31/91)
- --------------------------------------------------------------------------------
</TABLE>
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
ANNUAL FUND OPERATING EXPENSES (FEES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT DISTRIBUTION OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75%(1) None 0.23% 0.98%(1)
- --------------------------------------------------------------------------------
</TABLE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be 0.55%. Total Fund operating expenses after this waiver
are expected to be 0.78%. This fee waiver may be revised or discontinued at
any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $100 $312 $542 $1,201
- --------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The Lehman Brothers Municipal Bond Index is an unmanaged index which tracks
the performance of municipal bonds.
THE PORTFOLIO MANAGER
The Adviser's Tax-Exempt Investment Policy Committee is responsible for
the day-to-day management of the Fund's investment portfolio.
10 GALAXY TAX-EXEMPT BOND FUNDS
<PAGE>
GALAXY CONNECTICUT MUNICIPAL BOND FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current interest income exempt from federal
income tax and, to the extent possible, from Connecticut personal income tax, as
is consistent with relative stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities that pay interest which is exempt from regular federal income tax,
and at least 65% of its total assets in Connecticut municipal securities,
which are securities issued by the State of Connecticut and other government
issuers and that pay interest which is exempt from both federal income tax
and Connecticut state income tax on individuals, trusts and estates. Under
normal conditions, the Fund will invest no more than 20% of its total assets
in taxable obligations, such as U.S. Government obligations, money market
instruments and repurchase agreements.
Municipal securities purchased by the Fund may include general obligation
securities, revenue securities and private activity bonds. The interest on
private activity bonds may be subject to the federal alternative minimum tax.
Investments in private activity bonds will not be treated as investments in
municipal securities for purposes of the 80% requirement stated above.
Nearly all of the Fund's investments will be of investment grade quality.
These are securities which have one of the top four ratings assigned by
Standard & Poor's Ratings Group (S&P) or Moody's Investors Service, Inc.
(Moody's), or are unrated securities determined by the Adviser to be of
comparable quality. Under normal market conditions, the Fund will invest at
least 65% of its total assets in securities that have one of the top three
ratings assigned by S&P or Moody's or unrated securities determined by the
Adviser to be of comparable quality. Occasionally, a security held by the
Fund may be downgraded below investment grade. If that happens, the Fund
doesn't have to sell the security, unless the Adviser determines that under
the circumstances the security is no longer an appropriate investment for the
Fund.
The Fund's average weighted maturity will vary from time to time depending on
current market conditions and the Adviser's assessment of probable changes in
interest rates.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the
Adviser believes that holding the security is no longer consistent with the
Fund's investment objective.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities, including municipal
securities, tend to move in the opposite direction to interest rates. When
rates are rising, the prices of debt securities tend to fall. When rates
are falling, the prices of debt securities tend to rise. Generally, the
longer the time until maturity, the more sensitive the price of a debt
security is to interest rate changes.
- - CREDIT RISK - The value of debt securities, including municipal securities,
also depends on the ability of issuers to make principal and interest
payments. If an issuer can't meet its payment obligations or if its credit
rating is lowered, the value of its debt securities will fall. Debt
securities which
[Sidenote:]
AVERAGE WEIGHTED MATURITY
Average weighted maturity gives you the average time until all debt securities
in a fund come due or MATURE. It is calculated by averaging the time to maturity
of all debt securities held by a fund with each maturity "weighted" according to
the percentage of assets it represents.
GALAXY TAX-EXEMPT BOND FUNDS 11
<PAGE>
GALAXY CONNECTICUT MUNICIPAL BOND FUND
have the lowest of the top four ratings assigned by S&P or Moody's have
speculative characteristics. Changes in the economy are more likely to
affect the ability of issuers of these securities to make payments of
principal and interest than is the case with higher-rated securities.
The ability of a state or local government issuer to make payments can
be affected by many factors, including economic conditions, the flow of
tax revenues and changes in the level of federal, state or local aid.
Some municipal obligations are payable only from limited revenue sources
or by private entities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
municipal securities held by the Fund to be paid off much sooner or later
than expected, which could adversely affect the Fund's value.
- - LACK OF DIVERSIFICATION - The Fund is not diversified, which means that it
can invest a large percentage of its assets in a small number of issuers.
As a result, a change in the value of any one investment held by the Fund
may affect the overall value of the Fund more than it would affect a
diversified fund which holds more investments.
- - SINGLE STATE RISK - Because the Fund invests primarily in Connecticut
municipal securities, it is likely to be especially susceptible to
economic, political and regulatory events that affect Connecticut. Other
considerations concerning the Fund's investments in Connecticut municipal
securities are summarized in the Statement of Additional Information.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance
the Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
- --------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past. Both
assume that all dividends and distributions are reinvested in the Fund. How the
Fund has performed in the past doesn't necessarily show how it will perform in
the future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares has varied from year to
year, thereby giving some indication of the risk of investing in the Fund.
[CHART]
BEST QUARTER
8.05% for the quarter ending March 31, 1995
WORST QUARTER
- -7.01% for the quarter ending March 31, 1994
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C>
- -8.01% 18.29% 3.56% 8.81% 6.07%
</TABLE>
12 GALAXY TAX-EXEMPT BOND FUNDS
<PAGE>
GALAXY CONNECTICUT MUNICIPAL BOND FUND
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1998, as compared to a broad-based market index.
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS INCEPTION
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Trust Shares 6.07% 5.40% 5.92% (3/16/93)
- --------------------------------------------------------------------------------
Lehman Brothers
Municipal Bond
Index 6.48% 6.22% 6.86% (since 3/31/93)
- --------------------------------------------------------------------------------
</TABLE>
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
ANNUAL FUND OPERATING EXPENSES (FEES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT DISTRIBUTION OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75%(1) None 0.33% 1.08%(1)
- --------------------------------------------------------------------------------
</TABLE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be 0.40%. Total Fund operating expenses after this waiver
are expected to be 0.73%. This fee waiver may be revised or discontinued at
any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $110 $343 $595 $1,317
- --------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The Lehman Brothers Municipal Bond Index is an unmanaged index which tracks
the performance of municipal bonds.
THE PORTFOLIO MANAGER
The Adviser's Tax-Exempt Investment Policy Committee is responsible for
the day-to-day management of the Fund's investment portfolio.
GALAXY TAX-EXEMPT BOND FUNDS 13
<PAGE>
GALAXY MASSACHUSETTS MUNICIPAL BOND FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current interest income exempt from federal
income tax and, to the extent possible, from Massachusetts personal income tax,
as is consistent with relative stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities that pay interest which is exempt from regular federal income tax,
and at least 65% of its total assets in Massachusetts municipal securities,
which are securities issued by the Commonwealth of Massachusetts and other
government issuers and that pay interest which is exempt from both federal
income tax and Massachusetts personal income tax. Under normal conditions,
the Fund will invest no more than 20% of its total assets in taxable
obligations, such as U.S. Government obligations, money market instruments
and repurchase agreements.
Municipal securities purchased by the Fund may include general obligation
securities, revenue securities and private activity bonds. The interest on
private activity bonds may be subject to the federal alternative minimum tax.
Investments in private activity bonds will not be treated as investments in
municipal securities for purposes of the 80% requirement stated above.
Nearly all of the Fund's investments will be of investment grade quality.
These are securities which have one of the top four ratings assigned by
Standard & Poor's Ratings Group (S&P) or Moody's Investors Service, Inc.
(Moody's), or are unrated securities determined by the Adviser to be of
comparable quality. Under normal market conditions, the Fund will invest at
least 65% of its total assets in securities that have one of the top three
ratings assigned by S&P or Moody's or unrated securities determined by the
Adviser to be of comparable quality. Occasionally, a security held by the
Fund may be downgraded below investment grade. If that happens, the Fund
doesn't have to sell the security, unless the Adviser determines that under
the circumstances the security is no longer an appropriate investment for the
Fund.
The Fund's average weighted maturity will vary from time to time depending on
current economic and market conditions and the Adviser's assessment of probable
changes in interest rates.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the
Adviser believes that holding the security is no longer consistent with the
Fund's investment objective.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities, including municipal
securities, tend to move in the opposite direction to interest rates. When
rates are rising, the prices of debt securities tend to fall. When rates
are falling, the prices of debt securities tend to rise. Generally, the
longer the time until maturity, the more sensitive the price of a debt
security is to interest rate changes.
- - CREDIT RISK - The value of debt securities, including municipal securities,
also depends on the ability of issuers to make principal and interest
payments. If an issuer can't meet its payment obligations or if its credit
rating is lowered, the value of its debt securities will fall. Debt
securities which have the lowest of the top four ratings
[Sidenote:]
AVERAGE WEIGHTED MATURITY
Average weighted maturity gives you the average time until all debt securities
in a fund come due or MATURE. It is calculated by averaging the time to maturity
of all debt securities held by a fund with each maturity "weighted" according to
the percentage of assets it represents.
14 GALAXY TAX-EXEMPT BOND FUNDS
<PAGE>
GALAXY MASSACHUSETTS MUNICIPAL BOND FUND
assigned by S&P or Moody's have speculative characteristics. Changes in
the economy are more likely to affect the ability of issuers of these
securities to make payments of principal and interest than is the case
with higher-rated securities. The ability of a state or local government
issuer to make payments can be affected by many factors, including
economic conditions, the flow of tax revenues and changes in the level
of federal, state or local aid. Some municipal obligations are payable
only from limited revenue sources or by private entities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
municipal securities held by the Fund to be paid off much sooner or later
than expected, which could adversely affect the Fund's value.
- - LACK OF DIVERSIFICATION - The Fund is not diversified, which means that it
can invest a large percentage of its assets in a small number of issuers.
As a result, a change in the value of any one investment held by the Fund
may affect the overall value of the Fund more than it would affect a
diversified fund which holds more investments.
- - SINGLE STATE RISK - Because the Fund invests primarily in Massachusetts
municipal securities, it is likely to be especially susceptible to
economic, political and regulatory events that affect Massachusetts.
Other considerations concerning the Fund's investments in Massachusetts
municipal securities are summarized in the Statement of Additional
Information.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance
the Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
- --------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past. Both
assume that all dividends and distributions are reinvested in the Fund. How the
Fund has performed in the past doesn't necessarily show how it will perform in
the future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares has varied from year to
year, thereby giving some indication of the risk of investing in the Fund.
[CHART]
BEST QUARTER
7.52% for the quarter ending March 31, 1995
WORST QUARTER
- -7.14% for the quarter ending March 31, 1994
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C>
- -7.71% 17.40% 3.26% 9.09% 5.83%
</TABLE>
GALAXY TAX-EXEMPT BOND FUNDS 15
<PAGE>
GALAXY MASSACHUSETTS MUNICIPAL BOND FUND
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1998, as compared to a broad-based market index.
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS INCEPTION
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Trust Shares 5.83% 5.25% 5.69% (3/12/93)
- --------------------------------------------------------------------------------
Lehman Brothers
Municipal Bond
Index 6.48% 6.22% 6.55% (since 2/28/93)
- --------------------------------------------------------------------------------
</TABLE>
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you pay when you buy and hold
shares of the Fund.
ANNUAL FUND OPERATING EXPENSES (FEES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT DISTRIBUTION OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75%(1) None 0.28% 1.03%(1)
- --------------------------------------------------------------------------------
</TABLE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be 0.45%. Total Fund operating expenses after this waiver
are expected to be 0.73%. This fee waiver may be revised or discontinued at
any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $105 $328 $569 $1,259
- --------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The Lehman Brothers Municipal Bond Index is an unmanaged index which tracks
the performance of municipal bonds.
THE PORTFOLIO MANAGER
The Adviser's Tax-Exempt Investment Policy Committee is responsible for
the day-to-day management of the Fund's investment portfolio.
16 GALAXY TAX-EXEMPT BOND FUNDS
<PAGE>
GALAXY RHODE ISLAND MUNICIPAL BOND FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current interest income exempt from federal
income tax and, to the extent possible, from Rhode Island personal income tax,
as is consistent with relative stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities that pay interest which is exempt from regular federal income tax,
and at least 65% of its total assets in Rhode Island municipal securities,
which are securities issued by the State of Rhode Island and other government
issuers and that pay interest which is exempt from both federal income tax
and Rhode Island personal income tax. Under normal conditions, the Fund will
invest no more than 20% of its total assets in taxable obligations, such as
U.S. Government obligations, money market instruments and repurchase
agreements.
Municipal securities purchased by the Fund may include general obligation
securities, revenue securities and private activity bonds. The interest on
private activity bonds may be subject to the federal alternative minimum tax.
Investments in private activity bonds will not be treated as investments in
municipal securities for purposes of the 80% requirement stated above.
Nearly all of the Fund's investments will be of investment grade quality.
These are securities which have one of the top four ratings assigned by
Standard & Poor's Ratings Group (S&P) or Moody's Investors Service, Inc.
(Moody's), or are unrated securities as determined by the Adviser to be of
comparable quality. Under normal market conditions, the Fund will invest at
least 65% of its total assets in securities that have one of the top three
ratings assigned by S&P or Moody's or unrated securities determined by the
Adviser to be of comparable quality. Occasionally, a security held by the
Fund may be downgraded below investment grade. If that happens, the Fund
doesn't have to sell the security, unless the Adviser determines that under
the circumstances the security is no longer an appropriate investment for the
Fund.
The Fund's average weighted maturity will vary from time to time depending on
economic and market conditions and the Adviser's assessment of probable changes
in interest rates.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the
Adviser believes that holding the security is no longer consistent with the
Fund's investment objective.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities, including municipal
securities, tend to move in the opposite direction to interest rates. When
rates are rising, the prices of debt securities tend to fall. When rates
are falling, the prices of debt securities tend to rise. Generally, the
longer the time until maturity, the more sensitive the price of a debt
security is to interest rate changes.
- - CREDIT RISK - The value of debt securities, including municipal securities,
also depends on the ability of issuers to make principal and interest
payments. If an issuer can't meet its payment obligations or if its credit
rating is lowered, the value of its debt securities will fall. Debt
securities which have the lowest of the top four ratings
[Sidenote:]
AVERAGE WEIGHTED MATURITY
Average weighted maturity gives you the average time until all debt securities
in a fund come due or MATURE. It is calculated by averaging the time to maturity
of all debt securities held by a fund with each maturity "weighted" according to
the percentage of assets it represents.
GALAXY TAX-EXEMPT BOND FUNDS 17
<PAGE>
GALAXY RHODE ISLAND MUNICIPAL BOND FUND
assigned by S&P or Moody's have speculative characteristics. Changes in the
economy are more likely to affect the ability of issuers of these securities
to make payments of these of principal and interest than is the case with
higher-rated securities. The ability of a state or local government issuer to
make payments can be affected by many factors, including economic conditions,
the flow of tax revenues and changes in the level of federal, state or local
aid. Some municipal obligations are payable only from limited revenue sources
or by private entities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
municipal securities held by the Fund to be paid off much sooner or later
than expected, which could adversely affect the Fund's value.
- - LACK OF DIVERSIFICATION - The Fund is not diversified, which means that it
can invest a large percentage of its assets in a small number of issuers.
As a result, a change in the value of any one investment held by the Fund
may affect the overall value of the Fund more than it would affect a
diversified fund which holds more investments.
- - SINGLE STATE RISK - Because the Fund invests primarily in Rhode Island
municipal securities, it is likely to be especially susceptible to
economic, political and regulatory events that affect Rhode Island.
Other considerations concerning the Fund's investments in Rhode Island
municipal securities are summarized in the Statement of Additional
Information.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance
the Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
- --------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past.
Both assume that all dividends and distributions are reinvested in the Fund. How
the Fund has performed in the past doesn't necessarily show how it will perform
in the future.
As of the date of this prospectus, the Fund had not offered Trust Shares to
investors. The returns below represent the returns for Retail A Shares of the
Fund which are offered in a separate prospectus. Retail A Shares and Trust
Shares of the Fund have returns that are substantially the same because they
represent interests in the same portfolio securities and differ only to the
extent that they bear separate expenses. Unlike Trust Shares, Retail A Shares of
the Fund are also subject to a front-end sales charge on purchases and, in
certain cases, to a contingent deferred sales charge at the time shares are
sold.
18 GALAXY TAX-EXEMPT BOND FUNDS
<PAGE>
GALAXY RHODE ISLAND MUNICIPAL BOND FUND
YEAR-BY-YEAR RETURNS
The bar chart shows how the performance of Retail A Shares has varied from year
to year, thereby giving some indication of the risk of investing in the Fund.
The figures don't include any sales charges that investors pay when buying or
selling Retail A Shares of the Fund. If sales charges were included, the returns
would be lower.
[CHART]
BEST QUARTER
4.90% for the quarter ending March 31, 1995
WORST QUARTER
- -1.69% for the quarter ending March 31, 1996
<TABLE>
<CAPTION>
1995 1996 1997 1998
<S> <C> <C> <C>
14.32% 3.63% 8.54% 5.87%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1998, as
compared to a broad-based index.
<TABLE>
<CAPTION>
SINCE
1 YEAR INCEPTION
- --------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 1.90% 6.96% (12/20/94)
- --------------------------------------------------------------------------------
Lehman Brothers
Municipal Bond
Index 6.48% 9.28% (since 12/31/94)
- --------------------------------------------------------------------------------
</TABLE>
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
ANNUAL FUND OPERATING EXPENSES (FEES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT DISTRIBUTION OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75%(1) None 0.50% 1.25%(1)
- --------------------------------------------------------------------------------
</TABLE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be 0.45%. Total Fund operating expenses after this waiver
are expected to be 0.95%. This fee waiver may be revised or discontinued at
any time.
[Sidenote:]
The Lehman Brothers Municipal Bond Index is an unmanaged index which tracks
the performance of municipal bonds.
THE PORTFOLIO MANAGER
The Adviser's Tax-Exempt Investment Policy Committee is responsible for
the day-to-day management of the Fund's investment portfolio.
GALAXY TAX-EXEMPT BOND FUNDS 19
<PAGE>
GALAXY RHODE ISLAND MUNICIPAL BOND FUND
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $127 $397 $686 $1,511
- --------------------------------------------------------------------------------
</TABLE>
20 GALAXY TAX-EXEMPT BOND FUNDS
<PAGE>
ADDITIONAL INFORMATION ABOUT RISK
The main risks associated with an investment in each of the Galaxy Tax-Exempt
Bond Funds have been described above. The following supplements that discussion.
TEMPORARY DEFENSIVE POSITIONS
Each Fund may temporarily hold up to 100% of its total assets in investments
that are not part of its main investment strategy to try to avoid losses
during unfavorable market conditions. These investments may include cash
(which will not earn any income) and taxable investments, such as money
market instruments and debt securities issued or guaranteed by the U.S.
Government or its agencies, in excess of 20% of its total assets. This
strategy could prevent a Fund from achieving its investment objective.
OTHER TYPES OF INVESTMENTS
This prospectus describes each Fund's main investment strategies and the
particular types of securities in which each Fund mainly invests. Each Fund
may, from time to time, pursue other investment strategies and make other types
of investments in support of its overall investment goal. These supplemental
investment strategies - and the risks involved - are described in detail in the
Statement of Additional Information (SAI) which is referred to on the back cover
of this prospectus.
YEAR 2000 RISKS
As with other mutual funds, financial and business organizations and individuals
around the world, the Funds could be adversely affected if the computer systems
used by the Adviser and the Funds' other service providers don't properly
process and calculate date-related information and data from and after January
1, 2000. This is commonly known as the "Year 2000" or "Y2K" problem. The Adviser
is taking steps to address the Y2K problem with respect to the computer systems
that it uses and to obtain assurances that comparable steps are being taken by
the Funds' other major service providers. At this time, however, there can be no
assurance that these steps will be sufficient to avoid any adverse impact on the
Funds. The Y2K problem could have a negative impact on the issuers of
securities in which the Funds invest, which could hurt the Funds' investment
returns.
GALAXY TAX-EXEMPT BOND FUNDS 21
<PAGE>
FUND MANAGEMENT
ADVISER
The Adviser, subject to the general supervision of Galaxy's Board of Trustees,
manages each Fund in accordance with its investment objective and policies,
makes decisions with respect to, and places orders for, all purchases and sales
of its portfolio securities, and maintains related records.
ALLOCATION OF ORDERS FOR PORTFOLIO SECURITIES
The Adviser may allocate orders for the purchase and sale of portfolio
securities to certain financial institutions, including those that are
affiliated with the Adviser or that have sold shares of the Funds, to the
extent permitted by law or by order of the Securities and Exchange
Commission. The Adviser will allocate orders to such institutions only if it
believes that the quality of the transaction and the commission are
comparable to what they would be with other qualified brokerage firms.
MANAGEMENT FEES
The management fees paid to the Adviser by the Funds during the last fiscal year
are shown here. The New Jersey Municipal Bond Fund began operations during the
last fiscal year and the fee shown is that which is currently in effect.
<TABLE>
<CAPTION>
MANAGEMENT FEE
FUND AS A % OF AVERAGE NET ASSETS
- ----------------------------------------------------------------
<S> <C>
Tax-Exempt Bond 0.55%
- ----------------------------------------------------------------
New Jersey Municipal Bond 0.25%
- ----------------------------------------------------------------
New York Municipal Bond 0.55%
- ----------------------------------------------------------------
Connecticut Municipal Bond 0.32%
- ----------------------------------------------------------------
Massachusetts Municipal Bond 0.32%
- ----------------------------------------------------------------
Rhode Island Municipal Bond 0.32%
- ----------------------------------------------------------------
</TABLE>
22 GALAXY TAX-EXEMPT BOND FUNDS
<PAGE>
HOW TO INVEST IN THE FUNDS
BUYING AND SELLING SHARES
Trust Shares of the Funds are available for purchase by investors maintaining a
qualified account at a bank or trust institution, including subsidiaries of
Fleet Financial Group, Inc. Qualified accounts include discretionary investment
management accounts, custodial accounts and agency accounts. Your institution
can provide more information about which types of accounts are eligible.
You can buy and sell Trust Shares of the Funds on any business day. A business
day is any day that Galaxy's distributor, Galaxy's custodian and your
institution are open for business.
The price at which you buy shares is the net asset value (NAV) per share next
determined after your order is accepted. The price at which you sell shares
is the NAV per share next determined after receipt of your order. NAV is
determined on each day the New York Stock Exchange is open for trading at the
close of regular trading that day (usually 4:00 p.m. Eastern time). The New
York Stock Exchange is generally open for trading every Monday through
Friday, except for national holidays.
If market prices are readily available for securities owned by the Fund,
they're valued at those prices. If market prices are not readily available
for some securities, they are valued at fair value under the supervision of
Galaxy's Board of Trustees.
HOW TO BUY SHARES
You can buy Trust Shares by following the procedures established by your
financial institution. Your financial institution is responsible for sending
your order to Galaxy's distributor and wiring payment to Galaxy's custodian. The
institution holds the shares in your name and receives all confirmations of
purchases and sales.
HOW TO SELL SHARES
You can sell Trust Shares by following the procedures established by your
financial institution. Your financial institution is responsible for sending
your order to Galaxy's distributor and for crediting your account with the
proceeds. Galaxy doesn't charge for wiring the proceeds, but your financial
institution may do so. Contact your financial institution for more information.
OTHER TRANSACTION POLICIES
If Galaxy doesn't receive full payment for your order to buy shares by 4:00 p.m.
on the next business day, Galaxy won't accept your order. Galaxy will advise
your institution if this happens.
Galaxy may refuse any order to buy shares. Galaxy doesn't issue a certificate
when you buy shares but it does keep a record of shares issued to investors.
Sales proceeds are normally wired to your institution on the next business day
but Galaxy reserves the right to send sales proceeds within seven days if
sending proceeds earlier could adversely affect a Fund.
Galaxy may ask for any information it might reasonably need to make sure that
you've authorized a sale of shares.
Galaxy may close any account after 60 days' written notice if the value of the
account drops below $250 as a result of selling shares.
[Sidenote:]
NET ASSET VALUE
The price you pay for your shares is based on the net asset value per share
(NAV). It's the value of a Fund's assets attributable to Trust Shares, minus the
value of the Fund's liabilities attributable to Trust Shares, divided by the
number of Trust Shares held by investors.
INVESTMENT MINIMUMS
Galaxy does not have any minimum investment requirements for initial or
additional investments in Trust Shares but financial institutions may do so.
They may also require you to maintain a minimum account balance.
GALAXY TAX-EXEMPT BOND FUNDS 23
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
The Funds generally declare dividends from net investment income daily and pay
them monthly. They normally distribute net capital gains annually. It's expected
that the Funds' annual distributions will be mainly income dividends. Dividends
and distributions are paid in cash unless you indicate in the account
application or in a letter to Galaxy that you want to have dividends and
distributions reinvested in additional shares.
FEDERAL TAXES
It is expected that the Funds will distribute dividends derived from interest
earned on exempt securities, and these "exempt-interest dividends" will be
exempt income for shareholders for federal income tax purposes. However,
distributions, if any, derived from net capital gains of each Fund will
generally be taxable to you as capital gains. Dividends, if any, derived from
short-term capital gains or taxable interest income will be taxable to you as
ordinary income. You will be notified annually of the tax status of
distributions to you.
You should note that if you purchase shares just prior to a capital gain
distribution, the purchase price will reflect the amount of the upcoming
distribution, but you will be taxed on the entire amount of the distribution
received, even though, as an economic matter, the distribution simply
constitutes a return of capital. This is known as "buying into a dividend."
You will recognize taxable gain or loss on a sale or redemption of your
shares, based on the difference between your tax basis in the shares and the
amount you receive for them. (To aid in computing your tax basis, you
generally should retain your account statements for the periods during which
you held shares.) Any loss realized on shares held for six months or less
will be treated as a long-term capital loss to the extent of any capital gain
dividends that were received on the shares. If you receive an exempt-interest
dividend with respect to any share and the share is held by you for six
months or less, any loss on the sale or exchange of the share will be
disallowed to the extent of such dividend amount.
Interest on indebtedness incurred by a shareholder to purchase or carry shares
of a Fund generally will not be deductible for federal income tax purposes.
You should note that a portion of the exempt-interest dividends paid by each
Fund may constitute an item of tax preference for purposes of determining
federal alternative minimum tax liability. Exempt-interest dividends will also
be considered along with other adjusted gross income in determining whether any
Social Security or railroad retirement payments received by you are subject to
federal income taxes.
24 GALAXY TAX-EXEMPT BOND FUNDS
<PAGE>
STATE AND LOCAL TAXES
Dividends paid by the Tax-Exempt Bond Fund that are attributable to interest
earned by the Fund may be taxable to shareholders under state or local law.
Each state-specific Fund intends to comply with certain state and/or local
tax requirements so that its income and dividends will be exempt from the
applicable state and/or local taxes described above in the description for
such Fund. Dividends, if any, derived from interest on securities other than
the state-specific municipal securities in which each Fund primarily invests
will be subject to the particular state's taxes. In addition, with respect to
the Connecticut Municipal Bond Fund, dividends, if any, derived from
long-term capital gains on securities other than Connecticut municipal
securities of issuers in Connecticut or from any short-term capital gains,
will be subject to the Connecticut state income tax on individuals, trusts
and estates.
MISCELLANEOUS
The foregoing is only a summary of certain tax considerations under current law,
which may be subject to change in the future. You should consult your tax
adviser for further information regarding federal, state and/or local tax
consequences relevant to your specific situation.
GALAXY TAX-EXEMPT BOND FUNDS 25
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables shown below will help you understand the
financial performance for the Funds' Trust Shares for the past five years (or
the period since a particular Fund began operations). As of the date of this
Prospectus, Trust Shares of the Rhode Island Municipal Bond Fund had not been
offered to investors. The financial highlights table shown below with respect to
the Rhode Island Municipal Bond Fund reflects the financial performance of the
Fund's Retail A Shares and is intended to provide you with a long-term
perspective as to the Fund's financial history. Certain information in the
financial highlights tables reflects the financial performance of a single Trust
Share or, in the case of the Rhode Island Municipal Bond Fund, a single Retail A
Share. The total returns in the tables represent the rate that an investor would
have earned (or lost) on an investment in Trust Shares (Retail A Shares in the
case of the Rhode Island Municipal Bond Fund) of each Fund, assuming all
dividends and distributions were reinvested. This information has been audited
by PricewaterhouseCoopers LLP, independent accountants, whose reports, along
with the Funds' financial statements, are included in the Funds' Annual Report
and are incorporated by reference into the SAI. The Annual Report and SAI are
available free of charge upon request.
<TABLE>
<CAPTION>
GALAXY TAX-EXEMPT BOND FUND
(For a share outstanding throughout each period)
FOR THE YEAR ENDING OCTOBER 31,
------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
Trust Shares
- -------------------------------------------------------------------- -------- -------- -------- -------- --------
- -------------------------------------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $11.06 $10.78 $10.78 $9.99 $11.12
- -------------------------------------------------------------------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(1) 0.50 0.53 0.53 0.54 0.53
- -------------------------------------------------------------------- -------- -------- -------- -------- --------
Net realized and unrealized
gain (loss) on investments 0.34 0.29 - 0.79 (1.04)
----------------------------------------------------------------- -------- -------- -------- -------- --------
Total from investment operations 0.84 0.82 0.53 1.33 (0.51)
LESS DIVIDENDS:
Dividends from net investment income (0.51) (0.53) (0.53) (0.54) (0.53)
----------------------------------------------------------------- -------- -------- -------- -------- --------
Dividends from net realized capital gains (0.09) (0.01) - - -
- -------------------------------------------------------------------- -------- -------- -------- -------- --------
Dividends in excess of net realized capital gains - - - - (0.09)
- -------------------------------------------------------------------- -------- -------- -------- -------- --------
Total dividends (0.60) (0.54) (0.53) (0.54) (0.62)
Net increase (decrease) in net asset value 0.24 0.28 - 0.79 (1.13)
- -------------------------------------------------------------------- -------- -------- -------- -------- --------
Net asset value, end of period $11.30 $11.06 $10.78 $10.78 $9.99
- -------------------------------------------------------------------- -------- -------- -------- -------- --------
- -------------------------------------------------------------------- -------- -------- -------- -------- --------
Total return 7.85% 7.75% 5.03% 13.62% (4.75)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $135,664 $122,218 $103,163 $91,740 $91,647
----------------------------------------------------------------- -------- -------- -------- -------- --------
RATIOS TO AVERAGE NET ASSETS:
Net investment income
including reimbursement/waiver 4.55% 4.85% 4.91% 5.18% 5.01%
----------------------------------------------------------------- -------- -------- -------- -------- --------
Operating expenses including
reimbursement/waiver 0.71% 0.70% 0.70% 0.72% 0.78%
----------------------------------------------------------------- -------- -------- -------- -------- --------
Operating expenses excluding
reimbursement/waiver 0.92% 0.96% 0.95% 0.97% 1.00%
----------------------------------------------------------------- -------- -------- -------- -------- --------
Portfolio turnover rate 59% 78% 15% 11% 17%
</TABLE>
(1) Net investment income per share for Trust Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's
administrator for the years ended October 31, 1998, 1997, 1996,
1995 and 1994 was $0.48, $0.51, $0.51, $0.51 and $0.50, respectively.
26 GALAXY TAX-EXEMPT BOND FUNDS
<PAGE>
<TABLE>
<CAPTION>
GALAXY NEW JERSEY MUNICIPAL BOND FUND
(For a share outstanding throughout the period)
PERIOD ENDED
OCTOBER 31, 1998(1)
-------------------
Trust Shares
- ----------------------------------------------------- -------------------
- ----------------------------------------------------- -------------------
<S> <C>
Net asset value, beginning of period $10.00
- ----------------------------------------------------- -------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(2) 0.21
-------------------------------------------------- -------------------
Net realized and unrealized
gain on investments 0.24
-------------------------------------------------- -------------------
Total from investment operations 0.45
LESS DIVIDENDS:
Dividends from net investment income (0.21)
-------------------------------------------------- -------------------
Dividends from net realized capital gains -
- ----------------------------------------------------- -------------------
Total dividends (0.21)
Net increase in net asset value 0.24
- ----------------------------------------------------- -------------------
Net asset value, end of period $10.24
- ----------------------------------------------------- -------------------
- ----------------------------------------------------- -------------------
Total return 4.48%(3)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $7,701
-------------------------------------------------- -------------------
RATIOS TO AVERAGE NET ASSETS:
Net investment income
including reimbursement/waiver 3.79%(4)
-------------------------------------------------- -------------------
Operating expenses including
reimbursement/waiver 0.92%(4)
-------------------------------------------------- -------------------
Operating expenses excluding
reimbursement/waiver 2.07%(4)
-------------------------------------------------- -------------------
Portfolio turnover rate 53%(3)
</TABLE>
(1) The Fund commenced operations on April 3, 1998.
(2) Net investment income per share before reimbursement/waiver of fees by
the Adviser and the Fund's administrator for Trust Shares for the period
ended October 31, 1998 was $0.15.
(3) Not annualized.
(4) Annualized.
GALAXY TAX-EXEMPT BOND FUNDS 27
<PAGE>
<TABLE>
<CAPTION>
GALAXY NEW YORK MUNICIPAL BOND FUND
(For a share outstanding throughout each period)
FOR THE YEAR ENDING OCTOBER 31,
------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
Trust Shares
- -------------------------------------------------------------------- -------- -------- -------- -------- --------
- -------------------------------------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $11.09 $10.75 $10.78 $9.89 $11.04
- -------------------------------------------------------------------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(1) 0.50 0.52 0.51 0.51 0.49
--------------------------------------------------------------- -------- -------- -------- -------- --------
Net realized and unrealized
gain (loss) on investments 0.35 0.34 (0.03) 0.89 (1.15)
--------------------------------------------------------------- -------- -------- -------- -------- --------
Total from investment operations 0.85 0.86 0.48 1.40 (0.66)
LESS DIVIDENDS:
Dividends from net investment income (0.50) (0.52) (0.51) (0.51) (0.49)
--------------------------------------------------------------- -------- -------- -------- -------- --------
Dividends from net realized capital gains - - - - -
- -------------------------------------------------------------------- -------- -------- -------- -------- --------
Total dividends (0.50) (0.52) (0.51) (0.51) (0.49)
- -------------------------------------------------------------------- -------- -------- -------- -------- --------
Net increase (decrease) in net asset value 0.35 0.34 (0.03) 0.89 (1.15)
- -------------------------------------------------------------------- -------- -------- -------- -------- --------
Net asset value, end of period $11.44 $11.09 $10.75 $10.78 $9.89
- -------------------------------------------------------------------- -------- -------- -------- -------- --------
- -------------------------------------------------------------------- -------- -------- -------- -------- --------
Total return 7.82% 8.17% 4.55% 14.23% (6.14)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $34,801 $27,562 $23,762 $23,077 $24,209
--------------------------------------------------------------- -------- -------- -------- -------- --------
RATIOS TO AVERAGE NET ASSETS:
Net investment income
including reimbursement/waiver 4.42% 4.75% 4.75% 4.91% 4.64%
--------------------------------------------------------------- -------- -------- -------- -------- --------
Operating expenses including
reimbursement/waiver 0.72% 0.71% 0.70% 0.74% 0.87%
--------------------------------------------------------------- -------- -------- -------- -------- --------
Operating expenses excluding
reimbursement/waiver 0.99% 1.02% 1.10% 1.07% 1.08%
--------------------------------------------------------------- -------- -------- -------- -------- --------
Portfolio turnover rate 27% 61% 12% 5% 18%
</TABLE>
(1) Net investment income per share for Trust Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's
administrator for the years ended October 31, 1998, 1997,
1996, 1995 and 1994 was $0.47, $0.49, $0.47, $0.48 and
$0.47, respectively.
28 GALAXY TAX-EXEMPT BOND FUNDS
<PAGE>
<TABLE>
<CAPTION>
GALAXY CONNECTICUT MUNICIPAL BOND FUND
(For a share outstanding throughout each period)
FOR THE YEAR ENDING OCTOBER 31,
------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
Trust Shares
- -------------------------------------------------------------------- -------- -------- -------- -------- --------
- -------------------------------------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.47 $10.14 $10.13 $9.22 $10.32
- -------------------------------------------------------------------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(1) 0.45 0.47 0.44 0.46 0.46
--------------------------------------------------------------- -------- -------- -------- -------- --------
Net realized and unrealized
gain (loss) on investments 0.35 0.33 0.01 0.91 (1.10)
--------------------------------------------------------------- -------- -------- -------- -------- --------
Total from investment operations 0.80 0.80 0.45 1.37 (0.64)
LESS DIVIDENDS:
Dividends from net investment income (0.45) (0.47) (0.44) (0.46) (0.46)
--------------------------------------------------------------- -------- -------- -------- -------- --------
Dividends from net realized capital gains - - - - -
--------------------------------------------------------------- -------- -------- -------- -------- --------
Total dividends (0.45) (0.47) (0.44) (0.46) (0.46)
- -------------------------------------------------------------------- -------- -------- -------- -------- --------
Net increase (decrease) in net asset value 0.35 0.33 0.01 0.91 (1.10)
- -------------------------------------------------------------------- -------- -------- -------- -------- --------
Net asset value, end of period $10.82 $10.47 $10.14 $10.13 $9.22
- -------------------------------------------------------------------- -------- -------- -------- -------- --------
- -------------------------------------------------------------------- -------- -------- -------- -------- --------
Total return 7.81% 8.06% 4.54% 15.21% (6.37)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $13,913 $9,866 $6,348 $4,083 $4,419
--------------------------------------------------------------- -------- -------- -------- -------- --------
RATIOS TO AVERAGE NET ASSETS:
Net investment income
including reimbursement/waiver 4.24% 4.51% 4.34% 4.76% 4.66%
--------------------------------------------------------------- -------- -------- -------- -------- --------
Operating expenses including
reimbursement/waiver 0.67% 0.49% 0.49% 0.45% 0.23%
--------------------------------------------------------------- -------- -------- -------- -------- --------
Operating expenses excluding
reimbursement/waiver 1.10% 1.10% 1.17% 1.24% 1.41%
--------------------------------------------------------------- -------- -------- -------- -------- --------
Portfolio turnover rate 46% 42% 3% 7% 4%
</TABLE>
(1) Net investment income per share for Trust Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's
administrator for the years ended October 31, 1998, 1997, 1996, 1995
and 1994 was $0.40, $0.41, $0.37, $0.38 and $0.35, respectively.
GALAXY TAX-EXEMPT BOND FUNDS 29
<PAGE>
<TABLE>
<CAPTION>
GALAXY MASSACHUSETTS MUNICIPAL BOND FUND
(For a share outstanding throughout each period)
FOR THE YEAR ENDING OCTOBER 31,
------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
Trust Shares
- -------------------------------------------------------------------- -------- -------- -------- -------- --------
- -------------------------------------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.25 $9.94 $9.98 $9.12 $10.24
- -------------------------------------------------------------------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(1) 0.47 0.46 0.46 0.45 0.48
------------------------------------------------------------------ -------- -------- -------- -------- --------
Net realized and unrealized
gain (loss) on investments 0.27 0.32 -0.04 0.86 (1.12)
------------------------------------------------------------------ -------- -------- -------- -------- --------
Total from investment operations 0.74 0.78 0.42 1.31 (0.64)
LESS DIVIDENDS:
Dividends from net investment income (0.46) (0.47) (0.46) (0.45) (0.48)
------------------------------------------------------------------ -------- -------- -------- -------- --------
Dividends from net realized capital gains - - - - -
- -------------------------------------------------------------------- -------- -------- -------- -------- --------
Total dividends (0.46) (0.47) (0.46) (0.45) (0.48)
- -------------------------------------------------------------------- -------- -------- -------- -------- --------
Net increase (decrease) in net asset value 0.28 0.31 (0.04) 0.86 (1.12)
- -------------------------------------------------------------------- -------- -------- -------- -------- --------
Net asset value, end of period $10.53 $10.25 $9.94 $9.98 $9.12
- -------------------------------------------------------------------- -------- -------- -------- -------- --------
- -------------------------------------------------------------------- -------- -------- -------- -------- --------
Total return 7.42% 8.06% 4.27% 14.72% (6.46)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $23,371 $13,986 $11,047 $7,607 $5,617
------------------------------------------------------------------ -------- -------- -------- -------- --------
RATIOS TO AVERAGE NET ASSETS:
Net investment income
including reimbursement/waiver 4.49% 4.57% 4.60% 4.73% 4.89%
------------------------------------------------------------------ -------- -------- -------- -------- --------
Operating expenses including
reimbursement/waiver 0.60% 0.44% 0.48% 0.52% 0.33%
------------------------------------------------------------------ -------- -------- -------- -------- --------
Operating expenses excluding
reimbursement/waiver 1.03% 1.01% 1.14% 1.31% 1.41%
------------------------------------------------------------------ -------- -------- -------- -------- --------
Portfolio turnover rate 44% 48% 16% 19% 11%
</TABLE>
(1) Net investment income per share for Trust Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's
administrator for the years ended October 31, 1998, 1997, 1996,
1995 and 1994 was $0.42, $0.40, $0.40, $0.38 and $0.38, respectively.
30 GALAXY TAX-EXEMPT BOND FUNDS
<PAGE>
<TABLE>
<CAPTION>
GALAXY RHODE ISLAND MUNICIPAL BOND FUND
(For a share outstanding throughout each period) PERIOD ENDED
FOR THE YEAR ENDING OCTOBER 31, OCTOBER 31(1),
------------------------------- --------------
1998 1997 1996 1995
-------- -------- -------- --------
Retail A Shares
- -------------------------------------------------------------------- -------- -------- -------- --------
- -------------------------------------------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $10.91 $10.65 $10.67 $10.00
- -------------------------------------------------------------------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(2) 0.50 0.48 0.51 0.44
------------------------------------------------------------------ -------- -------- -------- --------
Net realized and unrealized
gain on investments 0.29 0.32 0.03 0.67
------------------------------------------------------------------ -------- -------- -------- --------
Total from investment operations 0.79 0.80 0.54 1.11
LESS DIVIDENDS:
Dividends from net investment income (0.50) (0.50) (0.51) (0.44)
------------------------------------------------------------------ -------- -------- -------- --------
Dividends from net realized capital gains (0.02) (0.04) (0.05) -
- -------------------------------------------------------------------- -------- -------- -------- --------
Total dividends (0.52) (0.54) (0.56) (0.44)
- -------------------------------------------------------------------- -------- -------- -------- --------
Net increase (decrease) in net asset value 0.27 0.26 (0.02) 0.67
- -------------------------------------------------------------------- -------- -------- -------- --------
Net asset value, end of period $11.18 $10.91 $10.65 $10.67
- -------------------------------------------------------------------- -------- -------- -------- --------
- -------------------------------------------------------------------- -------- -------- -------- --------
Total return(3) 7.35% 7.78% 5.22% 11.29%(4)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $20,210 $17,134 $14,900 $10,850
------------------------------------------------------------------ -------- -------- -------- --------
RATIOS TO AVERAGE NET ASSETS:
Net investment income
including reimbursement/waiver 4.52% 4.50% 4.78% 5.13%(5)
------------------------------------------------------------------ -------- -------- -------- --------
Operating expenses including
reimbursement/waiver 0.81% 0.83% 0.77% 0.40%(5)
------------------------------------------------------------------ -------- -------- -------- --------
Operating expenses excluding
reimbursement/waiver 1.23% 1.34% 1.34% 2.25%(5)
------------------------------------------------------------------ -------- -------- -------- --------
Portfolio turnover rate 41% 19% 13% 34%(4)
</TABLE>
(1) The Fund commenced operations on December 20, 1994.
(2) Net investment income per share before reimbursement/waiver of fees by the
adviser and/or the Fund's administrator for the fiscal years ended
October 31, 1998, 1997 and 1996 and for the period ended October 31, 1995
was $0.45, $0.43, $0.45, and $0.28, respectively.
(3) Calculation does not include the effect of any sales charge for Retail A
Shares.
(4) Not annualized.
(5) Annualized.
GALAXY TAX-EXEMPT BOND FUNDS 31
<PAGE>
WHERE TO FIND MORE INFORMATION
You'll find more information about the Funds in the following documents:
ANNUAL AND SEMI-ANNUAL REPORTS
Galaxy's annual and semi-annual reports contain more information about each Fund
and a discussion about the market conditions and investment strategies that had
a significant effect on each Fund's performance during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains detailed information about the Funds and their policies. By
law, it's incorporated by reference into (considered to be part of) this
prospectus.
You can get a free copy of these documents, request other information about the
Funds and make shareholder inquiries by calling Galaxy at 1-877-BUY-GALAXY
(1-877-289-4252) or writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
If you buy your shares through a financial institution, you may contact your
institution for more information.
You can write to the Securities and Exchange Commission (SEC) Public Reference
Section and ask them to mail you information about the Funds, including the SAI.
They'll charge you a fee for this service. You can also visit the SEC Public
Reference Room and copy the documents while you're there. For information about
the operation of the Public Reference Room, call the SEC.
Public Reference Section of the SEC
Washington, DC 20549-6009
1-800-SEC-0330.
Reports and other information about the Funds are also available on the SEC's
website at http://www.sec.gov.
Galaxy's Investment Company Act File No. is 811-4636.
PROTRTXBND 15040 3/1/99 PKG-50
<PAGE>
[GRAPHIC]
GALAXY MONEY MARKET FUNDS
THE GALAXY FUND
PROSPECTUS
February 28, 1999
Galaxy Money Market Fund
Galaxy Government Fund
Galaxy U.S. Treasury Fund
Galaxy Tax-Exempt Fund
Galaxy Connecticut Municipal
Money Market Fund
Galaxy Massachusetts
Municipal Money Market Fund
RETAIL A SHARES AND RETAIL B SHARES
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved any shares of these Funds or determined if this
prospectus is accurate or complete. Anyone who tells you otherwise is
committing a crime.
[LOGO]
<PAGE>
CONTENTS
1 RISK/RETURN SUMMARY
1 Introduction
2 Galaxy Money Market Fund
5 Galaxy Government Fund
7 Galaxy U.S. Treasury Fund
9 Galaxy Tax-Exempt Fund
11 Galaxy Connecticut Municipal Money Market Fund
15 Galaxy Massachusetts Municipal Money Market Fund
18 Additional information about risk
19 Investor guidelines
20 FUND MANAGEMENT
21 HOW TO INVEST IN THE FUNDS
21 About sales charges
22 Buying, selling and exchanging shares
22 HOW TO BUY SHARES
23 HOW TO SELL SHARES
24 HOW TO EXCHANGE SHARES
25 OTHER TRANSACTION POLICIES
26 DIVIDENDS, DISTRIBUTIONS AND TAXES
28 GALAXY INVESTOR PROGRAMS
28 Retirement plans
28 Other programs
29 HOW TO REACH GALAXY
30 FINANCIAL HIGHLIGHTS
<PAGE>
RISK/RETURN SUMMARY
INTRODUCTION
THIS PROSPECTUS describes the Galaxy Money Market Funds. The Funds invest
primarily in short-term debt obligations, commonly known as money market
instruments, that are determined by the Funds' investment adviser to carry
very little risk. Money market instruments purchased by the Funds must meet
strict requirements as to investment quality, maturity and diversification.
The Funds don't invest in securities with remaining maturities of more than
397 days (subject to certain exceptions) and the average maturity of all
securities held by a particular Fund must be 90 days or less. Each Fund tries
to maintain its share price at $1.00 to protect your investment from loss.
On the following pages, you'll find important information about each Galaxy
Money Market Fund including:
- - The Fund's investment objective (sometimes called the Fund's goal) and the
main investment strategies used by the Fund's investment adviser in trying
to achieve that objective.
- - The main risks associated with an investment in the Fund.
- - The Fund's past performance measured on both a year-by-year and long-term
basis.
- - The fees and expenses that you will pay as an investor in the Fund.
WHICH FUND IS RIGHT FOR YOU?
Not all mutual funds are right for all investors. Your investment goals and
tolerance for risk will determine which fund is right for you. On page 19,
you'll find a table which sets forth general guidelines to help you decide
which of the Galaxy Money Market Funds is best suited to you.
THE FUNDS' INVESTMENT ADVISER
Fleet Investment Advisors Inc., which is referred to in this prospectus as
the Adviser, is the investment adviser for all of these Funds. The Adviser,
an indirect wholly-owned subsidiary of Fleet Financial Group, Inc., was
established in 1984 and has its main office at 75 State Street, Boston,
Massachusetts 02109. The Adviser also provides investment management and
advisory services to individual and institutional clients and manages the
other Galaxy investment portfolios. As of December 31, 1998, the Adviser
managed over $64 billion in assets.
- --------------------------------------------------------------------------------
AN INVESTMENT IN THE FUNDS ISN'T A FLEET BANK DEPOSIT AND IT ISN'T INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. ALTHOUGH THE FUNDS SEEK TO PRESERVE THE VALUE OF YOUR INVESTMENT AT
$1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUNDS.
[Sidenote:]
MATURITY
The maturity of a security is the date when the issuer must repay the security's
entire principal amount to an investor, such as a Fund.
TAX-EQUIVALENT YIELD
One way to understand the tax advantages of a tax-exempt fund is to compare
its after-tax return to that of a taxable investment. For example, suppose a
taxable fund pays a return of 10%. If you're in the 36% federal income tax
bracket, the fund's return after taxes is 6.4%. When a tax-exempt fund pays
a return of 10%, you don't pay tax. So if you're in the 36% tax bracket
that's the equivalent of earning about 15.6% on a taxable fund. If you're in
a low tax bracket, however, it may not be helpful to invest in a tax-exempt
fund if you can achieve a higher after-tax return from a taxable investment.
GALAXY MONEY MARKET FUNDS 1
<PAGE>
GALAXY MONEY MARKET FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current income as is consistent with liquidity
and stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests in a diversified portfolio of money market instruments,
including commercial paper, notes and bonds issued by U.S. corporations,
obligations issued by the U.S. Government and its agencies and
instrumentalities, and obligations issued by U.S. and foreign banks, such as
certificates of deposit. The Fund also invests in repurchase agreements backed
by U.S. Government obligations.
The Fund will only buy a security if it has the highest short-term rating from
at least two nationally recognized statistical rating organizations, or one such
rating if only one organization has rated the security. If the security is not
rated, it must be determined by the Adviser to be of comparable credit quality.
THE MAIN RISKS OF INVESTING IN THE FUND
While money market funds are considered to be among the safest of all
investments, they are not risk free. Here are the main risks associated with an
investment in the Fund:
- - INTEREST RATE RISK-- The yield paid by the Fund will vary with changes in
short-term interest rates.
- - CREDIT RISK-- Although credit risk is very low because the Fund only
invests in high quality obligations, if an issuer fails to pay interest or
repay principal, the value of your investment could decline.
- - REPURCHASE AGREEMENTS-- Repurchase agreements carry the risk that the
other party may not fulfill its obligations under the agreement. This
could cause the value of your investment to decline.
- - SHARE PRICE-- There's no guarantee the Fund will be able to preserve the
value of your investment at $1.00 per share.
- - SELECTION OF INVESTMENTS-- The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
- --------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
The bar chart and table on the following page show how the Fund has performed
in the past. Both assume that all dividends and distributions are reinvested
in the Fund. How the Fund has performed in the past doesn't necessarily show
how it will perform in the future.
[Sidenote:]
REPURCHASE AGREEMENTS
Repurchase agreements are transactions in which a fund buys securities from a
seller (usually a bank or broker-dealer) who agrees to buy them back from the
fund on a certain date and at a certain price.
2 GALAXY MONEY MARKET FUNDS
<PAGE>
GALAXY MONEY MARKET FUND
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares of the Fund has
varied from year to year, thereby giving some indication of the risk of
investing in the Fund. The returns for Retail B Shares of the Fund were
different than the figures shown because each class of shares has different
expenses. The figures don't include any sales charges that investors may pay
when selling Retail B Shares of the Money Market Fund.
[CHART]
BEST QUARTER
2.34% for the quarter ending June 30, 1989
WORST QUARTER
0.65% for the quarter ending September 30, 1993
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
9.10% 8.01% 6.13% 3.54% 2.73% 3.68% 5.29% 4.73% 4.99% 4.96%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1998, after taking into account any sales charges.
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS 10 YEARS INCEPTION
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 4.96% 4.73% 5.30% 5.57% (11/17/86)
- --------------------------------------------------------------------------------
Retail B Shares -0.75% - - 2.06% (3/6/97)
- --------------------------------------------------------------------------------
</TABLE>
To obtain the Fund's current 7-day yield, please call 1-877-BUY-GALAXY
(1-877-289-4252).
FEES AND EXPENSES OF THE FUND
The Fund offers both Retail A Shares and Retail B Shares. There are no sales
charges (sometimes called front-end loads) when you buy Retail A Shares or
Retail B Shares of the Funds. However, if you buy Retail B Shares of the Fund,
you may have to pay a contingent deferred sales charge (sometimes called a
back-end load or CDSC) when you sell your shares.
GALAXY MONEY MARKET FUNDS 3
<PAGE>
GALAXY MONEY MARKET FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES YOU PAY DIRECTLY)
<TABLE>
<CAPTION>
MAXIMUM SALES CHARGE (LOAD) MAXIMUM DEFERRED SALES CHARGE
ON PURCHASES SHOWN (LOAD) SHOWN AS A % OF THE OFFERING
AS A % OF THE OFFERING PRICE PRICE OR SALE PRICE, WHICHEVER IS LESS
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares None None
- --------------------------------------------------------------------------------------------------
Retail B Shares None 5.00%(1)
- --------------------------------------------------------------------------------------------------
</TABLE>
ANNUAL FUND OPERATING EXPENSES (FEES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
DISTRIBUTION TOTAL FUND
MANAGEMENT AND SERVICE OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.40%(2) None 0.35% 0.75%(2)
- --------------------------------------------------------------------------------
Retail B Shares 0.40%(2) 0.75% 0.24% 1.39%(2)
- --------------------------------------------------------------------------------
</TABLE>
(1) This amount applies if you sell your shares in the first year after purchase
and gradually declines to 1% in the sixth year after purchase. After six
years, your Retail B Shares will automatically convert to Retail A Shares.
See "How to invest in the Funds - About sales charges."
(2) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be 0.36%. Total Fund operating expenses after this waiver
are expected to be 0.71% for Retail A Shares and 1.35% for Retail B Shares.
This fee waiver may be revised or discontinued at any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your Retail B Shares convert to Retail A Shares after six years
- - the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $77 $240 $417 $930
- --------------------------------------------------------------------------------
Retail B Shares $642 $740 $961 $1,328
- --------------------------------------------------------------------------------
If you hold Retail B Shares, you would pay the following expenses if you didn't
sell your shares:
Retail B Shares $142 $440 $761 $1,328
- --------------------------------------------------------------------------------
</TABLE>
4 GALAXY MONEY MARKET FUNDS
<PAGE>
GALAXY GOVERNMENT FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current income as is consistent with liquidity
and stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests primarily in U.S. Government obligations, including U.S.
Treasury obligations and obligations of U.S. Government agencies and
instrumentalities. The Fund also invests in repurchase agreements backed by
these obligations.
THE MAIN RISKS OF INVESTING IN THE FUND
While money market funds are considered to be among the safest of all
investments, they are not risk free. Here are the main risks associated with an
investment in the Fund:
- - INTEREST RATE RISK-- The yield paid by the Fund will vary with changes in
short-term interest rates.
- - CREDIT RISK-- Although U.S. Government securities have historically
involved little credit risk, if an issuer fails to pay interest or repay
principal, the value of your investment could decline.
- - REPURCHASE AGREEMENTS-- Repurchase agreements carry the risk that the
other party may not fulfill its obligations under the agreement. This
could cause the value of your investment to decline.
- - SHARE PRICE-- There's no guarantee the Fund will be able to preserve the
value of your investment at $1.00 per share.
- - SELECTION OF INVESTMENTS-- The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
- --------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past. Both
assume that all dividends and distributions are reinvested in the Fund. How the
Fund has performed in the past doesn't necessarily show how it will perform in
the future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares of the Fund has
varied from year to year, thereby giving some indication of the risk of
investing in the Fund.
[CHART]
BEST QUARTER
2.31% for the quarter ending June 30, 1989
WORST QUARTER
0.68% for the quarter ending June 30, 1993
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8.90% 7.96% 6.23% 3.45% 2.88% 3.73% 5.25% 4.67% 4.89% 4.85%
</TABLE>
[Sidenote:]
U.S. GOVERNMENT OBLIGATIONS
U.S. Government obligations are debt obligations issued or guaranteed by the
U.S. Government or one of its agencies or instrumentalities. U.S. Government
obligations generally have less credit risk than other debt obligations.
GALAXY MONEY MARKET FUNDS 5
<PAGE>
GALAXY GOVERNMENT FUND
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1998.
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS 10 YEARS INCEPTION
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 4.85% 4.68% 5.27% 5.53% (11/17/86)
- --------------------------------------------------------------------------------
</TABLE>
To obtain the Fund's current 7-day yield, please call 1-877-BUY-GALAXY
(1-877-289-4252).
FEES AND EXPENSES OF THE FUND
There are no sales charges when you buy or sell Retail A Shares of the Fund. The
following table shows the fees and expenses you pay when you buy and hold shares
of the Fund.
ANNUAL FUND OPERATING EXPENSES (FEES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT DISTRIBUTION OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0 .40%(1) None 0.33% 0.73%(1)
- --------------------------------------------------------------------------------
</TABLE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be 0.39%. Total Fund operating expenses after this waiver
are expected to be 0.72%. This fee waiver may be revised or discontinued
at any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $75 $233 $406 $906
- --------------------------------------------------------------------------------
</TABLE>
6 GALAXY MONEY MARKET FUNDS
<PAGE>
GALAXY U.S. TREASURY FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks current income with liquidity and stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests primarily in securities issued or guaranteed by the U.S.
Treasury and certain U.S. Government agencies and instrumentalities that provide
income that is generally not subject to state income tax.
THE MAIN RISKS OF INVESTING IN THE FUND
While money market funds are considered to be among the safest of all
investments, they are not risk free. Here are the main risks associated with an
investment in the Fund:
- - INTEREST RATE RISK-- The yield paid by the Fund will vary with changes in
short-term interest rates.
- - CREDIT RISK-- Although U.S. Government securities, particularly U.S.
Treasury securities, have historically involved little credit risk, if an
issuer fails to pay interest or repay principal, the value of your
investment could decline.
- - SHARE PRICE-- There's no guarantee the Fund will be able to preserve the
value of your investment at $1.00 per share.
- - SELECTION OF INVESTMENTS-- The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
- --------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past. Both
assume that all dividends and distributions are reinvested in the Fund. How the
Fund has performed in the past doesn't necessarily show how it will perform in
the future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares of the Fund has
varied from year to year, thereby giving some indication of the risk of
investing in the Fund.
[CHART]
BEST QUARTER
1.28% for the quarter ending June 30, 1995
WORST QUARTER
0.65% for the quarter ending June 30, 1993
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
3.39% 2.74% 3.58% 5.05% 4.59% 4.70% 4.63%
</TABLE>
[Sidenote:]
U.S. TREASURY OBLIGATIONS
U.S. Treasury obligations are among the safest of all investments because they
are backed by the "full faith and credit" of the U.S. Government.
GALAXY MONEY MARKET FUNDS 7
<PAGE>
GALAXY U.S. TREASURY FUND
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1998.
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS INCEPTION
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares 4.63% 4.51% 4.28% (1/22/91)
- --------------------------------------------------------------------------------
</TABLE>
To obtain the Fund's current 7-day yield, please call 1-877-BUY-GALAXY
(1-877-289-4252).
FEES AND EXPENSES OF THE FUND
There are no sales charges when you buy or sell Retail A Shares of the Fund. The
following table shows the fees and expenses you pay when you buy and hold shares
of the Fund.
ANNUAL FUND OPERATING EXPENSES (FEES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT DISTRIBUTION OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.39% None 0.30% 0.69%
- --------------------------------------------------------------------------------
</TABLE>
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $70 $221 $384 $859
- --------------------------------------------------------------------------------
</TABLE>
8 GALAXY MONEY MARKET FUNDS
<PAGE>
GALAXY TAX-EXEMPT FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current interest income exempt from federal
income tax as is consistent with stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities, which are securities issued by state and local governments and
other political or public bodies or agencies and that pay interest which is
exempt from regular federal income tax. Under normal conditions, the Fund
will invest no more than 20% of its total assets in taxable obligations, such
as U.S. Government obligations, money market instruments and repurchase
agreements.
Municipal securities purchased by the Fund may include general obligation
securities, revenue securities and private activity bonds. The interest on
private activity bonds may be subject to the federal alternative minimum tax.
Investments in private activity bonds will not be treated as investments in
municipal securities for purposes of the 80% requirement stated above.
The Fund will only buy a security if it has one of the two highest short-term
ratings from at least two nationally recognized statistical rating
organizations, or one such rating if only one organization has rated the
security. If the security is not rated, it must be determined by the Adviser to
be of comparable credit quality.
THE MAIN RISKS OF INVESTING IN THE FUND
While money market funds are considered to be among the safest of all
investments, they are not risk free. Here are the main risks associated with an
investment in the Fund:
- - INTEREST RATE RISK-- The yield paid by the Fund will vary with changes in
short-term interest rates.
- - CREDIT RISK-- Although credit risk is very low because the Fund only
invests in high quality obligations, if an issuer fails to pay interest
or repay principal, the value of your investment could decline. The
ability of a state or local government issuer to make payments can be
affected by many factors, including economic conditions, the flow of tax
revenues and changes in the level of federal, state or local aid.
- - SHARE PRICE-- There's no guarantee the Fund will be able to preserve the
value of your investment at $1.00 per share.
- - SELECTION OF INVESTMENTS-- The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
- --------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
The bar chart and table on the following page show how the Fund has performed
in the past. Both assume that all dividends and distributions are reinvested
in the Fund. How the Fund has performed in the past doesn't necessarily show
how it will perform in the future.
[Sidenote:]
MUNICIPAL SECURITIES
State and local governments issue municipal securities to raise money to finance
public works, to repay outstanding obligations, to raise funds for general
operating expenses and to make loans to other public institutions. Some
municipal securities, known as private activity bonds, are issued to finance
projects for private companies. Municipal securities, which can be issued as
bonds, notes or commercial paper, usually have fixed interest rates, although
some have interest rates that change from time to time.
TYPES OF MUNICIPAL SECURITIES
GENERAL OBLIGATION securities are secured by the isssuer's full faith, credit
and taxing power. REVENUE OBLIGATION securities are usually payable only
from revenues derived from specific facilities or revenue sources. PRIVATE
ACTIVITY BONDS are usually revenue obligations since they are typically
payable by the private user of the facilities financed by the bonds.
GALAXY MONEY MARKET FUNDS 9
<PAGE>
GALAXY TAX-EXEMPT FUND
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares of the Fund has
varied from year to year, thereby giving some indication of the risk of
investing in the Fund.
[CHART]
BEST QUARTER
1.55% for the quarter ending June 30, 1989
WORST QUARTER
0.45% for the quarter ending September 30, 1993
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5.94% 5.52% 4.18% 2.46% 2.01% 2.27% 3.19% 2.78% 2.99% 2.81%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1998.
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS 10 YEARS INCEPTION
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 2.81% 2.81% 3.41% 3.51% (6/23/88)
- --------------------------------------------------------------------------------
</TABLE>
To obtain the Fund's current 7-day yield, please call 1-877-BUY-GALAXY
(1-877-289-4252).
FEES AND EXPENSES OF THE FUND
There are no sales charges when you buy or sell Retail A Shares of the Fund. The
following table shows the fees and expenses you pay when you buy and hold shares
of the Fund.
ANNUAL FUND OPERATING EXPENSES (FEES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT DISTRIBUTION OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.40% None 0.28% 0.68%
- --------------------------------------------------------------------------------
</TABLE>
10 GALAXY MONEY MARKET FUNDS
<PAGE>
GALAXY TAX-EXEMPT FUND
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $69 $218 $379 $847
- --------------------------------------------------------------------------------
</TABLE>
GALAXY MONEY MARKET FUNDS 11
<PAGE>
GALAXY CONNECTICUT MUNICIPAL MONEY MARKET FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks to provide current income exempt from federal regular income tax
and the Connecticut state income tax on individuals, trusts and estates,
consistent with relative stability of principal and liquidity.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities that pay interest which is exempt from federal regular income tax,
and at least 65% of its total assets in Connecticut municipal securities, which
are securities issued by or on behalf of the State of Connecticut and other
government issuers and that pay interest which is exempt from both federal
regular income tax and the Connecticut state income tax on individuals, trusts
and estates. Under normal conditions, the Fund will invest no more than 20% of
its total assets in taxable obligations, such as U.S. Government obligations,
money market instruments and repurchase agreements.
Municipal securities purchased by the Fund may include general obligation
securities, revenue securities and private activity bonds. The interest on
private activity bonds may be subject to the federal alternative minimum tax.
Investments in private activity bonds will not be treated as investments in
municipal securities for purposes of the 80% requirement stated above.
The Fund will only buy a security if it has one of the two highest short-term
ratings from at least two nationally recognized statistical rating
organizations, or one such rating if only one organization has rated the
security. If the security is not rated, it must be determined by the Adviser to
be of comparable credit quality.
THE MAIN RISKS OF INVESTING IN THE FUND
While money market funds are considered to be among the safest of all
investments, they are not risk free. Here are the main risks associated with an
investment in the Fund:
- - INTEREST RATE RISK-- The yield paid by the Fund will vary with changes in
short-term interest rates.
- - CREDIT RISK-- Although credit risk is very low because the Fund only
invests in high quality obligations, if an issuer fails to pay interest or
repay principal, the value of your investment could decline. The ability of
a state or local government issuer to make payments can be affected by many
factors, including economic conditions, the flow of tax revenues and
changes in the level of federal, state or local aid.
- - LACK OF DIVERSIFICATION-- The Fund is not diversified, which means that it
can invest a large percentage of its assets in a small number of issuers.
As a result, a change in the value of any one investment held by the Fund
may affect the overall value of the Fund more than it would affect a
diversified fund which holds more investments.
- - SINGLE STATE RISK-- Since the Fund invests primarily in Connecticut
municipal securities, it is likely to be especially susceptible to
economic, political and regulatory events that affect Connecticut.
- - SHARE PRICE-- There's no guarantee the Fund will be able to preserve the
value of your investment at $1.00 per share.
- - SELECTION OF INVESTMENTS-- The Adviser evaluates the risks and rewards
presented by all securities purchased by each Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
12 GALAXY MONEY MARKET FUNDS
<PAGE>
GALAXY CONNECTICUT MUNICIPAL MONEY MARKET FUND
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past. Both
assume that all dividends and distributions are reinvested in the Fund. How the
Fund has performed in the past doesn't necessarily show how it will perform in
the future. The Fund offers only one class of shares which are referred to in
this prospectus as Retail A Shares.
The Fund began operations on October 4, 1993 as a separate portfolio (the
Predecessor Fund) of The Shawmut Funds. On December 4, 1995, the Predecessor
Fund was reorganized as a new portfolio of Galaxy. Prior to the reorganization,
the Predecessor Fund offered and sold two classes of shares, Investment Shares
and Trust Shares. In connection with the reorganization, shareholders of the
Predecessor Fund exchanged their Investment Shares and Trust Shares for Retail A
Shares of the Fund. The returns for periods prior to December 4, 1995 are for
Investment Shares of the Predecessor Fund.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of the Fund has varied from year to
year, thereby giving some indication of the risk of investing in the Fund.
[CHART]
BEST QUARTER
0.78% for the quarter ending June 30, 1995
WORST QUARTER
0.36% for the quarter ending March 31, 1994
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C>
1.99% 2.97% 2.78% 2.98% 2.77%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1998, after taking into account any sales charges on Investment
Shares of the Predecessor Fund.
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS INCEPTION
- -------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares 2.77% 2.70% 2.66% (10/4/93)
- -------------------------------------------------------------------
</TABLE>
To obtain the Fund's current 7-day yield, please call 1-877-BUY-GALAXY
(1-877-289-4252).
GALAXY MONEY MARKET FUNDS 13
<PAGE>
GALAXY CONNECTICUT MUNICIPAL MONEY MARKET FUND
FEES AND EXPENSES OF THE FUND
There are no sales charges when you buy or sell Retail A Shares of the Fund. The
following table shows the fees and expenses you pay when you buy and hold shares
of the Fund.
ANNUAL FUND OPERATING EXPENSES (FEES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT DISTRIBUTION OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.40%(1) None 0.26% 0.66%(1)
- --------------------------------------------------------------------------------
</TABLE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be 0.36%. Total Fund operating expenses after this waiver
are expected to be 0.62%. This fee waiver may be revised or discontinued
at any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $67 $211 $368 $822
- --------------------------------------------------------------------------------
</TABLE>
14 GALAXY MONEY MARKET FUNDS
<PAGE>
GALAXY MASSACHUSETTS MUNICIPAL MONEY MARKET FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks to provide current income exempt from federal regular income tax
and the income taxes imposed by the Commonwealth of Massachusetts, consistent
with relative stability of principal and liquidity.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities that pay interest which is exempt from federal regular income tax,
and at least 65% of its total assets in Massachusetts municipal securities,
which are securities issued by or on behalf of the Commonwealth of
Massachusetts and other government issuers and that pay interest which is
exempt from both federal regular income tax and Massachusetts personal income
tax. Under normal conditions, the Fund will invest no more than 20% of its
total assets in taxable obligations, such as U.S. Government obligations,
money market instruments and commercial paper.
Municipal securities purchased by the Fund may include general obligation
securities, revenue securities and private activity bonds. The interest on
private activity bonds may be subject to the federal alternative minimum tax.
Investments in private activity bonds will not be treated as investments in
municipal securities for purposes of the 80% requirement stated above.
The Fund will only buy a security if it has one of the two highest short-term
ratings from at least two nationally recognized statistical rating
organizations, or one such rating if only one organization has rated the
security. If the security is not rated, it must be determined by the Adviser to
be of comparable credit quality.
THE MAIN RISKS OF INVESTING IN THE FUND
While money market funds are considered to be among the safest of all
investments, they are not risk free. Here are the main risks associated with an
investment in the Fund:
- - INTEREST RATE RISK-- The yield paid by the Fund will vary with changes in
short-term interest rates.
- - CREDIT RISK-- Although credit risk is very low because the Fund only
invests in high quality obligations, if an issuer fails to pay interest or
repay principal, the value of your investment could decline. The ability of
a state or local government issuer to make payments can be affected by many
factors, including economic conditions, the flow of tax revenues and
changes in the level of federal, state or local aid.
- - LACK OF DIVERSIFICATION-- The Fund is not diversified, which means that it
can invest a large percentage of its assets in a small number of issuers.
As a result, a change in the value of any one investment held by the Fund
may affect the overall value of the Fund more than it would affect a
diversified fund which holds more investments.
- - SINGLE STATE RISK-- Since the Fund invests primarily in Massachusetts
municipal securities, it is likely to be especially susceptible to
economic, political and regulatory events that affect Massachusetts.
- - SHARE PRICE-- There's no guarantee the Fund will be able to preserve the
value of your investment at $1.00 per share.
- - SELECTION OF INVESTMENTS-- The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
GALAXY MONEY MARKET FUNDS 15
<PAGE>
GALAXY MASSACHUSETTS MUNICIPAL MONEY MARKET FUND
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past. Both
assume that all dividends and distributions are reinvested in the Fund. How the
Fund has performed in the past doesn't necessarily show how it will perform in
the future. The Fund offers only one class of shares which are referred to in
this prospectus as Retail A Shares.
The Fund began operations on October 5, 1993 as a separate portfolio (the
Predecessor Fund) of The Shawmut Funds. On December 4, 1995, the Predecessor
Fund was reorganized as a new portfolio of Galaxy. Prior to the
reorganization, the Predecessor Fund offered and sold a single class of
shares. In connection with the reorganization, shareholders of the
Predecessor Fund exchanged their shares for Retail A Shares of the Fund. The
return for periods prior to December 4, 1995 are for shares of the
Predecessor Fund.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEAR
The bar chart shows how the performance of the Fund has varied from year to
year, thereby giving some indication of the risk of investing in the Fund.
[GRAPH]
BEST QUARTER
0.86% for the quarter ending June 30, 1995
WORST QUARTER
0.39% for the quarter ending March 31, 1994
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C>
2.15% 3.23% 2.78% 2.96% 2.79%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1998.
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS INCEPTION
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares 2.79% 2.78% 2.74% (10/05/93)
- -------------------------------------------------------------------------------
To obtain the Fund's current 7-day yield, please call 1-877-BUY-GALAXY (1-877-289-4252).
</TABLE>
16 GALAXY MONEY MARKET FUNDS
<PAGE>
GALAXY MASSACHUSETTS MUNICIPAL MONEY MARKET FUND
FEES AND EXPENSES OF THE FUND
There are no sales charges when you buy or sell Retail A Shares of the Fund. The
following table shows the fees and expenses you pay when you buy and hold shares
of the Fund.
ANNUAL FUND OPERATING EXPENSES (FEES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT DISTRIBUTION OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.40%(1) None 0.27% 0.67%(1)
- --------------------------------------------------------------------------------
</TABLE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be 0.35%. Total Fund operating expenses after this waiver
are expected to be 0.62%. This fee waiver may be revised or discontinued
at any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $68 $214 $373 $835
- --------------------------------------------------------------------------------
</TABLE>
GALAXY MONEY MARKET FUNDS 17
<PAGE>
ADDITIONAL INFORMATION ABOUT RISK
The main risks associated with an investment in each of the Galaxy Money Market
Funds have been described above. The following supplements that discussion.
- - TEMPORARY DEFENSIVE POSITIONS: Each Fund may temporarily hold up to
100% of its total assets in investments that aren't part of its main
investment strategy during unfavorable market conditions. These
investments may include cash (which will not earn any income) and, in
the case of the Tax-Exempt Fund, Connecticut Municipal Money Market Fund
and Massachusetts Municipal Money Market Fund, short-term taxable
investments, such as money market instruments and debt securities issued
or guaranteed by the U.S. Government or its agencies, in excess of 20% of
each Fund's assets. This strategy could prevent a Fund from achieving its
investment objective.
- - OTHER TYPES OF INVESTMENTS: This prospectus describes each Fund's
main investment strategies and the particular types of securities in
which each Fund mainly invests. Each Fund may, from time to time,
pursue other investment strategies and make other types of investments in
support of its overall investment goal. These supplemental investment
strategies - and the risks involved - are described in detail in the
Statement of Additional Information (SAI) which is referred to on the back
cover of this prospectus.
- - YEAR 2000 RISKS: As with other mutual funds, financial and business
organizations and individuals around the world, the Funds could be
adversely affected if the computer systems used by the Adviser and the
Funds' other service providers don't properly process and calculate
date-related information and data from and after January 1, 2000. This is
commonly known as the "Year 2000" or "Y2K" problem. The Adviser is taking
steps to address the Y2K problem with respect to the computer systems that
it uses and to obtain assurances that comparable steps are being taken by
the Funds' other major service providers. At this time, however, there can
be no assurance that these steps will be sufficient to avoid any adverse
impact on the Funds. The Y2K problem could have a negative impact on the
issuers of securities in which the Funds invest, which could hurt the
Funds' investment returns.
18 GALAXY MONEY MARKET FUNDS
<PAGE>
INVESTOR GUIDELINES
The table below provides information as to which type of investor might want to
invest in each of the Galaxy Money Market Funds. It's meant as a general guide
only. TAX-EXEMPT FUNDS ARE GENERALLY NOT APPROPRIATE INVESTMENTS FOR
TAX-DEFERRED RETIREMENT ACCOUNTS, SUCH AS IRAS, BECAUSE THEIR RETURNS BEFORE
TAXES ARE GENERALLY LOWER THAN THOSE OF TAXABLE FUNDS. Consult your investment
professional for help in deciding which Fund is right for you.
GALAXY FUND FOR INVESTORS WHO WANT...
- --------------------------------------------------------------------------------
GALAXY MONEY MARKET FUND a flexible and convenient way to
manage cash while earning money
market returns
- --------------------------------------------------------------------------------
GALAXY GOVERNMENT FUND a way to earn money market returns
with the extra margin of safety
associated with U.S. Government
obligations
- --------------------------------------------------------------------------------
GALAXY U.S. TREASURY FUND a way to earn money market returns
from U.S. Treasury obligations that
are generally free from state and
local taxes
- --------------------------------------------------------------------------------
GALAXY TAX-EXEMPT FUND a way to earn money market returns
that are free from federal income
tax
- --------------------------------------------------------------------------------
GALAXY CONNECTICUT MUNICIPAL a way to earn money market returns
MONEY MARKET FUND that are free from both regular
federal income tax and the
Connecticut state income tax on
individuals, trusts and estates
- --------------------------------------------------------------------------------
GALAXY MASSACHUSETTS MUNICIPAL a way to earn money market returns
MONEY MARKET FUND that are free from both regular
federal income tax and
Massachusetts personal income tax.
GALAXY MONEY MARKET FUNDS 19
<PAGE>
FUND MANAGEMENT
ADVISER
The Adviser, subject to the general supervision of Galaxy's Board of Trustees,
manages each Fund in accordance with its investment objective and policies,
makes decisions with respect to and places orders for, all purchases and sales
of portfolio securities, and maintains related records.
ALLOCATION OF ORDERS FOR PORTFOLIO SECURITIES
The Adviser may allocate orders for the purchase and sale of portfolio
securities to certain financial institutions, including those that are
affiliated with the Adviser or that have sold shares of the Funds, to the
extent permitted by law or by order of the Securities and Exchange
Commission. The Adviser will allocate orders to such institutions only if it
believes that the quality of the transaction and the commission are
comparable to what they would be with other qualified brokerage firms.
MANAGEMENT FEES
The management fees paid to the Adviser by the Funds during the last fiscal year
are set forth below.
<TABLE>
<CAPTION>
MANAGEMENT FEE
FUND AS A % OF AVERAGE NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Money Market 0.36%
- --------------------------------------------------------------------------------
Government 0.38%
- --------------------------------------------------------------------------------
U.S. Treasury 0.39%
- --------------------------------------------------------------------------------
Tax-Exempt 0.40%
- --------------------------------------------------------------------------------
Connecticut Municipal Money Market 0.40%
- --------------------------------------------------------------------------------
Massachusetts Municipal Money Market 0.40%
- --------------------------------------------------------------------------------
</TABLE>
20 GALAXY MONEY MARKET FUNDS
<PAGE>
HOW TO INVEST IN THE FUNDS
All of the Funds offer Retail A Shares. The Money Market Fund also offers Retail
B Shares.
ABOUT SALES CHARGES
There are no sales charges (sometimes called front-end loads) when you buy
either Retail A Shares or Retail B Shares of a Fund. If you buy Retail B Shares
of the Money Market Fund, you may have to pay a contingent deferred sales charge
(sometimes called a back-end load or CDSC) if you sell your shares within six
years of buying them. The following table shows the schedule of CDSC charges:
<TABLE>
<CAPTION>
IF YOU SELL YOU'LL PAY A
YOUR SHARES CDSC OF
- --------------------------------------------------------------
<S> <C>
during the first year 5.00%
- --------------------------------------------------------------
during the second year 4.00%
- --------------------------------------------------------------
during the third year 3.00%
- --------------------------------------------------------------
during the fourth year 3.00%
- --------------------------------------------------------------
during the fifth year 2.00%
- --------------------------------------------------------------
during the sixth year 1.00%
- --------------------------------------------------------------
after the sixth year None
- --------------------------------------------------------------
</TABLE>
For purposes of calculating the CDSC, all purchases made during a calendar
month are considered to be made on the first day of that month. The CDSC is
based on the value of the Retail B Shares on the date that they are sold or
the original cost of the shares, whichever is lower. To keep your CDSC as low
as possible each time you sell shares, Galaxy will first sell any shares in
your account that are not subject to a CDSC. If there are not enough of
these, Galaxy will sell those shares that have the lowest CDSC. There is no
CDSC on Retail B Shares that you acquire by reinvesting your dividends and
distributions.
There's no CDSC when Retail B Shares of the Money Market Fund are sold because
of the death or disability of a shareholder and in certain other circumstances
such as exchanges. Ask your investment professional or Galaxy's distributor, or
consult the SAI, for other instances in which the CDSC is waived. To contact
Galaxy's distributor, call 1-877-BUY-GALAXY (1-877-289-4252).
DISTRIBUTION AND SHAREHOLDER SERVICE FEES
Retail A Shares of the Funds can pay shareholder service fees at an annual
rate of up to 0.50% of each Fund's Retail A Share assets. The Funds do not
intend to pay more than 0.10% in shareholder service fees with respect to
Retail A Shares during the current fiscal year.
Retail B Shares of the Money Market Fund can pay distribution and shareholder
service (12b-1) fees at an annual rate of up to 1.15% of the Fund's Retail B
Share assets. The Funds do not intend to pay more than 0.75% in distribution
and shareholder service (12b-1) fees during the current fiscal year. Galaxy
has adopted a plan under Rule 12b-1 that allows the Money Market Fund to pay
fees from its Retail B Share assets for selling and distributing Retail B
Shares and for providing services to shareholders. Because 12b-1 fees are
paid on an ongoing basis, over time they increase the cost of your investment
and may cost more than paying other sales charges.
CONVERTING RETAIL B SHARES TO RETAIL A SHARES
Six years after you buy Retail B Shares of the Money Market Fund, they will
automatically convert to Retail A Shares of the Fund. This allows you to benefit
from the lower annual expenses of Retail A Shares.
[Sidenote:]
Retail B Shares of the Money Market Fund have higher operating expenses than
Retail A Shares of the Fund and may not be appropriate for investors who do not
plan to exchange their Retail B Shares for Retail B Shares of another Galaxy
Fund.
NET ASSET VALUE
The price you pay for your shares is based on the net asset value per share
(NAV). It's the value of a Fund's assets attributable to Retail A Shares or
Retail B Shares, minus the value of the Fund's liabilities attributable to
Retail A Shares or Retail B Shares, divided by the number of Retail A Shares or
Retail B Shares held by investors.
GALAXY MONEY MARKET FUNDS 21
<PAGE>
BUYING, SELLING AND EXCHANGING SHARES
If your order to buy shares is received and accepted by Galaxy's distributor
by 11:00 a.m. (Eastern time) on a business day, the price you pay will be the
net asset value (NAV) per share next determined (and you'll receive that
day's dividend) if Galaxy's custodian receives the purchase price in
immediately available funds by 11:00 a.m. that day. If your order to purchase
shares is received and accepted by Galaxy's distributor after 11:00 a.m.
(Eastern time) but before 4:00 p.m. (Eastern time) on a business day, the
price you pay will be the NAV next determined (and you'll begin receiving
dividends the next day) if Galaxy's custodian receives the purchase price in
immediately available funds by 4:00 p.m. on the day of your order. The price
at which you sell shares is the NAV next determined after receipt of your
order in proper form as described below, less any applicable CDSC in the case
of Retail B Shares of the Money Market Fund. NAV is determined on each day
the New York Stock Exchange is open for trading as of 11:00 a.m. (Eastern
time) and at the close of regular trading (usually 4:00 p.m. Eastern time).
The New York Stock Exchange is generally open for trading every Monday
through Friday, except for national holidays. The Funds' assets are valued at
amortized cost, which is approximately equal to market value.
HOW TO BUY SHARES
You can buy shares through your financial institution or directly from Galaxy's
distributor by calling 1-877-BUY-GALAXY (1-877-289-4252). A broker or agent who
places orders on your behalf may charge you a separate fee for their services.
BUYING BY MAIL
Complete an account application and mail it, together with a check payable to
each Fund in which you want to invest, to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
To make additional investments, send your check to the address above along with
one of the following:
- - the detachable slip that's included with your Galaxy statement or your
confirmation of a prior transaction
- - a letter stating the amount of your investment, the name of the Fund you
want to invest in, and your account number.
If your check is returned because of insufficient funds, we'll cancel your
order.
[Sidenote:]
MINIMUM INVESTMENT AMOUNTS
The minimum initial investment to open a Fund account is:
- - $2,500 for regular accounts
- - $500 for retirement plan accounts such as IRA, SEP and Keogh Plan accounts
- - $100 for college savings accounts, including Education IRA accounts.
There is generally no minimum initial investment if you participate in the
Automatic Investment Program or in a salary reduction retirement plan such as a
SIMPLE IRA or 401(k). You generally can make additional investments for as
little as $100. See GALAXY INVESTOR PROGRAMS below for information on other
minimums for initial and additional investments.
Usually, you must keep at least $250 in your account other than retirement plan
accounts. If your account falls below $250 because you sell or exchange shares,
Galaxy may redeem your shares and close your account. Galaxy will give you 60
days' notice in writing before closing your account.
22 GALAXY MONEY MARKET FUNDS
<PAGE>
BUYING BY WIRE
To make an initial or additional investment by wire, send U.S. funds through the
Federal Reserve System to Fleet National Bank as agent for Galaxy's distributor.
You should wire money and registration instructions to:
Fleet National Bank
75 State Street
Boston, MA 02109
ABA #0110-0013-8
DDA #79673-5702
Ref: The Galaxy Fund
(Account number)
(Account registration)
Before making an initial investment by wire, you must complete an account
application and send it to The Galaxy Fund, P.O. Box 6520, Providence, RI
02940-6520. Your order will not be effected until the completed account
appplication is received by Galaxy. Call Galaxy's distributor at
1-877-BUY-GALAXY (1-877-289-4252) for an account application.
Your financial institution may charge you a fee for sending funds by wire.
CUSTOMERS OF FINANCIAL INSTITUTIONS
If you are a customer of a financial institution such as a bank, savings and
loan association or broker-dealer, including a financial institution affiliated
with the Adviser, you should place your order through your financial
institution. Your financial institution is responsible for sending your order to
Galaxy's distributor and wiring the money to Galaxy's custodian. For details,
please contact your financial institution.
HOW TO SELL SHARES
You can sell your shares in several ways: by mail, by telephone, by wire, or
through your financial institution.
SELLING BY MAIL
Send your request in writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520.
You must include the following:
- - The name of the Fund
- - The number of shares or the dollar amount you want to sell
- - Your account number
- - Your Social Security number or tax identification number
- - The signatures of each registered owner of the account (the signatures must
match the names on the account registration).
Additional documents may be required for certain types of shareholders, such as
corporations, partnerships, executors, trustees, administrators or guardians.
[Sidenote:]
SIGNATURE GUARANTEES
When selling your shares by mail or by phone, you must have your signature
guaranteed if:
- - you're selling shares worth more than $50,000
- - you want Galaxy to send your money to an address other than the address on
your account, unless your money is transferred to a successor custodian
- - you want Galaxy to send your money to the address on your account that's
changed within the last 30 days, or
- - you want Galaxy to make the check payable to someone else.
Your signature must be guaranteed by a bank that's a member of the FDIC, a trust
company, a member firm of a national securities exchange or any other eligible
institution. A notarized signature is not sufficient.
GALAXY MONEY MARKET FUNDS 23
<PAGE>
SELLING BY PHONE
You can sell shares by calling Galaxy's distributor at 1-877-BUY-GALAXY
(1-877-289-4252) unless you tell Galaxy on the account application or in
writing that you don't want this privilege. If you have difficulty getting
through to Galaxy because of unusual market conditions, consider selling
your shares by mail or wire.
SELLING BY WIRE
Notify Galaxy's distributor by phone or wire that you wish to sell shares and
have the sale proceeds wired to your account at any financial institution in the
U.S. To be eligible to use this privilege, you must complete the appropriate
section on the account application or notify Galaxy in writing (with a signature
guarantee). Your sale proceeds must be more than $1,000.
The sale proceeds must be paid to the same bank and account you named on your
application or in your written instructions.
CUSTOMERS OF FINANCIAL INSTITUTIONS
Please contact your financial institution for information on how to sell your
shares. The financial institution is responsible for sending your order to
Galaxy's distributor and for crediting your account with the proceeds. Galaxy
doesn't charge a fee for wiring sale proceeds to your financial institution, but
your financial institution may charge you a fee.
HOW TO EXCHANGE SHARES
You may exchange Retail A Shares of a Fund having a value of at least $100 for
Retail A Shares of any other Galaxy Fund or for shares of any other Fund that's
managed by the Adviser or any of its affiliates in which you have an existing
account. Unless you qualify for a waiver, you'll have to pay a sales charge when
you exchange Retail A Shares of a Fund for Retail A Shares of another Galaxy
Fund that imposes a sales charge on purchases.
You may exchange Retail B Shares of the Money Market Fund for Retail B Shares of
any other Galaxy Fund. You won't pay a contingent deferred sales charge when you
exchange your Retail B Shares. However, when you sell the Retail B Shares you
acquired in the exchange, you'll pay a contingent deferred sales charge based on
the date you bought the Retail B Shares which you exchanged.
TO EXCHANGE SHARES:
- - call Galaxy's distributor or use the InvestConnect voice response line at
1-877-BUY-GALAXY (1-877-289-4252)
- - send your request in writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
- - ask your financial institution.
24 GALAXY MONEY MARKET FUNDS
<PAGE>
Galaxy doesn't charge any fee for making exchanges but your financial
institution might do so. You are generally limited to three exchanges per
year. Galaxy may change or cancel the exchange privilege by giving 60 days'
advance written notice to shareholders.
OTHER TRANSACTION POLICIES
If Galaxy doesn't receive full payment for your order to buy shares within three
business days of the order date, Galaxy won't accept your order. Galaxy will
advise you if this happens and return any payment it may eventually receive. You
can only invest in shares of the Funds that are legally available in your state.
Galaxy may refuse any order to buy shares. Galaxy doesn't issue a certificate
when you buy shares but it does keep a record of shares issued to investors.
Galaxy may refuse your order to sell or exchange shares by wire or telephone
if it believes it is advisable to do so. Galaxy or its distributor may change
or cancel the procedures for selling or exchanging shares by wire or
telephone at any time without notice.
If you sell or exchange shares by telephone, you may be responsible for any
fraudulent telephone orders as long as Galaxy has taken reasonable
precautions to verify your identity, such as requesting information about the
way in which your account is registered or about recent transactions in your
account.
Galaxy normally pays you cash when you sell your shares, but it has the right to
deliver securities owned by a Fund instead of cash. When you sell these
securities, you'll pay brokerage charges.
Sales proceeds are normally sent to you within three business days but Galaxy
reserves the right to send sales proceeds within seven days if sending proceeds
earlier could adversely affect a Fund.
If any shares that you're selling are part of an investment you've paid for with
a personal check, Galaxy will delay sending your sales proceeds until the check
clears, which can take up to 15 days from the purchase date.
Galaxy reserves the right to vary or waive any minimum investment requirement.
GALAXY MONEY MARKET FUNDS 25
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Fund declares dividends from net investment income daily and pays them
within five business days after the end of each month. Although the Funds do not
expect to realize net long-term capital gains, any capital gains realized will
be distributed at least annually. Dividends and distributions are paid in cash
unless you indicate in the account application or in a letter to Galaxy that you
want to have dividends and distributions reinvested in additional shares.
MONEY MARKET, GOVERNMENT AND U.S. TREASURY FUNDS
Distributions by these Funds will generally be taxable to shareholders. Each of
these Funds expects that all, or substantially all, of its distributions will
consist of ordinary income. You will be subject to income tax on these
distributions regardless of whether they are paid in cash or reinvested in
additional shares. The one major exception to these tax principles is that
distributions on shares held in an IRA (or other tax-qualified plan) will not be
currently taxable.
TAX-EXEMPT, CONNECTICUT MUNICIPAL MONEY MARKET AND MASSACHUSETTS MUNICIPAL MONEY
MARKET FUNDS
Distributions by these Funds will generally consist of dividends derived from
interest earned on exempt securities, and these "exempt-interest dividends" will
be exempt income for shareholders for federal income tax purposes. It is
possible, depending upon a Fund's investments, that a portion of the Fund's
distributions could be taxable to shareholders as ordinary income or capital
gains, but none of these Funds expects that this will be the case.
Interest on indebtedness incurred by a shareholder to purchase or carry shares
of these Funds generally will not be deductible for federal income tax purposes.
You should note that a portion of the exempt-interest dividends paid by one or
more of these Funds may constitute an item of tax preference for purposes of
determining federal alternative minimum tax liability. Exempt-interest
dividends will also be considered along with other adjusted gross income in
determining whether any Social Security or railroad retirement payments received
by you are subject to federal income taxes.
CONNECTICUT MUNICIPAL MONEY MARKET FUND
This Fund intends to comply with certain state tax requirements so that its
income and dividends will be exempt from the Connecticut state income tax on
individuals, trust and estates ("CSIT"). Dividends, if any, derived from
interest on securities other than Connecticut municipal securities, from
long-term capital gains on securities other than Connecticut Municipal
securities of issuers in Connecticut, or from any short-term capital gains,
will be subject to the CSIT.
26 GALAXY MONEY MARKET FUNDS
<PAGE>
MASSACHUSETTS MUNICIPAL MONEY MARKET FUND
This Fund intends to comply with certain state tax requirements so that its
income and dividends will be exempt from the Massachusetts personal income tax.
Dividends, if any, derived from interest on long-term capital gains, on
securities other than Massachusetts municipal securities, or from any short-term
capital gains, will be subject to Massachusetts personal income tax.
ALL FUNDS
Taxable dividends paid in January may be taxable as if they had been paid the
previous December. Each year you'll receive in the mail federal tax information
on distributions paid by the Funds.
OTHER STATE AND LOCAL TAX MATTERS
Generally, shareholders may also be subject to state and local taxes on
distributions and redemptions. State income taxes may not apply however to the
portions of each Fund's distributions, if any, that are attributable to interest
on U.S. Government securities or on securities of the particular state.
GALAXY MONEY MARKET FUNDS 27
<PAGE>
GALAXY INVESTOR PROGRAMS
RETIREMENT PLANS
Retail A Shares and Retail B Shares of the Funds are available for purchase in
connection with any of the following retirement plans:
- - Individual Retirement Arrangements (IRAs), including Traditional, Roth,
Rollover and Education IRAs.
- - Simplified Employee Pension Plans (SEPs).
- - Keogh money purchase and profit sharing plans.
- - Salary reduction retirement plans set up by employers for their employees,
which are qualified under Section 401(k) and 403(b) of the Internal Revenue
Code.
- - SIMPLE IRA plans which are qualified under Section 408(p) of the
Internal Revenue Code.
For information about eligibility requirements and other matters concerning
these plans and to obtain an application, call Galaxy's distributor at
1-877-BUY-GALAXY (1-877-289-4252).
OTHER PROGRAMS
It's also easy to buy or sell shares of the Funds by using one of the programs
described below. Just tell Galaxy the amount and how frequently you want to buy
or sell shares and Galaxy does the rest. For further information on any of these
programs, call Galaxy's distributor at 1-877-BUY-GALAXY (1-877-289-4252) or your
financial institution.
AUTOMATIC INVESTMENT PROGRAM
You can make automatic investments from your bank account every month or every
quarter. You can choose to make your investment on any day of the month or
quarter. The minimum investment is $50 a month or $150 a quarter except for
Education IRAs, in which case the minimum investment is $40 a month or $125 a
quarter.
PAYROLL DEDUCTION PROGRAM
You can make regular investments from your paycheck. The minimum investment is
$25 per pay period. Send a completed Galaxy Payroll Deduction Application to
your employer's payroll department. They'll arrange to have your investment
deducted from your paycheck.
COLLEGE INVESTMENT PROGRAM
The minimum for initial and additional investments through the College
Investment Program is $100 unless you participate in the Automatic Investment
Program, in which case the minimum for initial and additional investments is
$50. You can also save for college by opening an Education IRA account. The
minimum for initial and additional investments in an Education IRA is $100
unless you participate in the Automatic Investment Program, in which case the
minimum for initial and additional investments is $40.
CHECKWRITING
You can sign up for Galaxy's checkwriting privilege by completing the signature
card that accompanies the account application or by writing or calling Galaxy's
distributor at 1-877-BUY-GALAXY (1-877-289-4252) to obtain a signature card.
There is no limit on the number of checks you can write each month, although
each check must be in an
28 GALAXY MONEY MARKET FUNDS
<PAGE>
HOW TO REACH GALAXY
amount of at least $250. Galaxy may impose a fee for use of the checkwriting
privilege. Please note that you can't write a check to close your account.
DIRECT DEPOSIT PROGRAM
This program lets you deposit your social security payments in your Fund account
automatically. There's no minimum deposit. You can cancel the program by
notifying the Social Security Administration in writing.
SYSTEMATIC WITHDRAWAL PLAN
You can make regular withdrawals from your investment account every month, every
quarter, every six months or once a year. You need a minimum account balance of
$10,000 to participate in the plan. No CDSC will be charged on withdrawals of
Retail B Shares of the Money Market Fund made through the plan that don't
annually exceed 12% of your account's value.
You may cancel your participation in any of these programs, other than the
Direct Deposit Program, by writing to Galaxy at:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
Please allow at least five days for the cancellation to be processed.
THROUGH YOUR FINANCIAL INSTITUTION
Your financial institution can help you buy, sell or exchange shares and can
answer questions about your account.
GALAXY SHAREHOLDER SERVICES
Call Galaxy's distributor at 1-877-BUY-GALAXY (1-877-289-4252), Monday through
Friday, 8 a.m. to 6 p.m. (Eastern time) for help from a Galaxy representative.
INVESTCONNECT
InvestConnect is Galaxy's Shareholder Voice Response System. Call
1-877-BUY-GALAXY (1-877-289-4252) from any touch-tone phone for automated access
to account information and current Fund prices and performance, or to place
orders to sell or exchange shares. It's available 24 hours a day, seven days a
week.
If you live outside the United States, you can contact Galaxy by calling
1-508-871-4121.
THE INTERNET
Please visit Galaxy's website at:
www.galaxyfunds.com
[Sidenote:]
Galaxy also offers a TDD service for the hearing impaired. Just call
1-800-696-6515, 24 hours a day, seven days a week.
GALAXY MONEY MARKET FUNDS 29
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables shown below will help you understand the
financial performance for the Funds' Retail A Shares and/or Retail B Shares
for the past five years (or the period since a particular Fund began
operations or a particular class of shares was first offered). Certain
information reflects the financial performance of a single Retail A Share or
Retail B Share. The total returns in the tables represent the rate that an
investor would have earned (or lost) on an investment in Retail A Shares
and/or Retail B Shares of each Fund, assuming all dividends and distributions
were reinvested. This information has been audited by PricewaterhouseCoopers
LLP, independent accountants, whose report, along with the Funds' financial
statements, are included in the Funds' Annual Report and are incorporated by
reference into the SAI. The Annual Report and SAI are available free of
charge upon request.
As discussed above in "Risk/return summary - Connecticut Municipal Money
Market Fund," prior to December 4, 1995, the predecessor to the Connecticut
Municipal Money Market Fund (Predecessor Fund) offered and sold two classes
of shares, Investment Shares and Trust Shares. Investment Shares of the
Predecessor Fund were similar to the Retail A Shares which the Connecticut
Municipal Money Market Fund currently offers. Accordingly, Trust Shares of
the Predecessor Fund have not been included in the financial highlights table
for the Connecticut Municipal Money Market Fund set forth below.
GALAXY MONEY MARKET FUND
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
FOR THE YEAR ENDING OCTOBER 31,
--------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------------------- ------------------------- -------- -------- ---------
Retail A Retail B Retail A Retail B Retail A Retail A
Shares Shares Shares Shares(2) Shares Shares Shares(1)
- ----------------------------------- ------------------------- ------------------------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ----------------------------------- ------------------------- ------------------------- ---------- -------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(3) 0.05 0.04 0.05 0.03 0.05 0.05 0.03
-------------------------------- ------------------------- ------------------------- ---------- -------- ---------
Net realized and unrealized
gain (loss) on investments - - - - - - -
- ----------------------------------- ------------------------- ------------------------- ---------- -------- ---------
Total from investment operations 0.05 0.04 0.05 0.03 0.05 0.05 0.03
LESS DIVIDENDS:
Dividends from net investment
income (0.05) (0.04) (0.05) (0.03) (0.05) (0.05) (0.03)
-------------------------------- ------------------------- ------------------------- ---------- -------- ---------
Dividends from net realized
capital gains - - - - - - -
- ----------------------------------- ------------------------- ------------------------- ---------- -------- ---------
Total dividends (0.05) (0.04) (0.05) (0.03) (0.05) (0.05) (0.03)
Net increase (decrease) in net
asset value - - - - - - -
- ----------------------------------- ------------------------- ------------------------- ---------- -------- ---------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ----------------------------------- ------------------------- ------------------------- ---------- -------- ---------
------------------------- ------------------------- ---------- -------- ---------
Total return(4) 5.04% 4.33% 4.93% 2.66%(5) 4.78% 5.23% 3.35%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's) $2,139,213 $1,607 $1,877,889 $749 $1,159,312 $580,762 $797,399
-------------------------------- ------------------------- ------------------------- ---------- -------- ---------
RATIOS TO AVERAGE NET ASSETS:
Net investment income including
reimbursement/waiver 4.94% 4.26% 4.85% 4.27%(6) 4.67% 5.12% 3.38%
-------------------------------- ------------------------- ------------------------- ---------- -------- ---------
Operating expenses including
reimbursement/waiver 0.67% 1.35% 0.69% 1.38%(6) 0.77% 0.74% 0.64%
-------------------------------- ------------------------- ------------------------- ---------- -------- ---------
Operating expenses excluding
reimbursement/waiver 0.71% 1.39% 0.73% 1.42%(6) 0.80% 0.76% 0.64%
-------------------------------- ------------------------- ------------------------- ---------- -------- ---------
</TABLE>
(1) Prior to November 1, 1994, the Fund offered a single series of shares. As
of such date, the existing series of shares was designated as Retail Shares
(now designated Retail A Shares) and the Fund began issuing a second series
of shares designated as Trust Shares.
(2) The Fund began offering Retail B Shares on March 6, 1997.
(3) Net investment income per share for Retail A Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for the years ended October 31, 1998, 1997, 1996, 1995 and 1994 was $0.05,
$0.05, $0.05, $0.05 and $0.03, respectively. Net investment income per
share for Retail B Shares before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for the year ended October 31, 1998
and the period ended October 31, 1997 was $0.04 and $0.03, respectively.
(4) Calculation does not include the effect of any sales charge for Retail B
Shares. Total return for the year ended October 31, 1994 includes the
effect of the voluntary capital contribution of $1.6 million from the
Adviser in order to partially offset losses realized on the sale of certain
securities held by the Fund. Without this capital contribution, the total
return would have been 3.35%.
(5) Not annualized.
(6) Annualized.
30 GALAXY MONEY MARKET FUNDS
<PAGE>
GALAXY GOVERNMENT FUND
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
FOR THE YEAR ENDING OCTOBER 31,
------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Retail A Retail A Retail A Retail A
Shares Shares Shares Shares Shares(1)
- ----------------------------------------------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00
- ----------------------------------------------- -------- -------- -------- -------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(2) 0.05 0.05 0.05 0.05 0.03
-------------------------------------------- -------- -------- -------- -------- ---------
Net realized and unrealized gain
(loss) on investments - - - - -
- ----------------------------------------------- -------- -------- -------- -------- ---------
Total from investment operations 0.05 0.05 0.05 0.05 0.03
LESS DIVIDENDS:
Dividends from net investment income (0.05) (0.05) (0.05) (0.05) (0.03)
-------------------------------------------- -------- -------- -------- -------- ---------
Dividends from net realized
capital gains - - - - -
- ----------------------------------------------- -------- -------- -------- -------- ---------
Total dividends (0.05) (0.05) (0.05) (0.05) (0.03)
Net increase (decrease) in net
asset value - - - - -
- ----------------------------------------------- -------- -------- -------- -------- ---------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00
- ----------------------------------------------- -------- -------- -------- -------- -------
-------- -------- -------- -------- -------
Total return(3) 4.94% 4.85% 4.72% 5.20% 3.49%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's) $352,799 $350,513 $326,411 $320,795 $759,106
-------------------------------------------- -------- -------- -------- -------- ---------
RATIOS TO AVERAGE NET ASSETS:
Net investment income including
reimbursement/waiver 4.84% 4.74% 4.62% 5.11% 3.36%
-------------------------------------------- -------- -------- -------- -------- ---------
Operating expenses including
reimbursement/waiver 0.70% 0.71% 0.75% 0.73% 0.54%
-------------------------------------------- -------- -------- -------- -------- ---------
Operating expenses excluding
reimbursement/waiver 0.71% 0.72% 0.76% 0.74% 0.54%
-------------------------------------------- -------- -------- -------- -------- ---------
</TABLE>
(1) Prior to November 1, 1994, the Fund offered a single series of shares. As
of such date, the existing series of shares was designated as Retail Shares
(now designated Retail A Shares) and the Fund began issuing a second series
of shares designated as Trust Shares.
(2) Net investment income per share for Retail A Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for the years ended October 31, 1998, 1997, 1996, 1995 and 1994 was $0.05,
$0.05, $0.05, $0.05 and $0.03, respectively.
(3) Total return for the year ended October 31, 1994 includes the effect of the
voluntary capital contribution of $2.3 million from the Adviser in order to
partially offset losses realized on the sale of certain securities held by
the Fund. Without this capital contribution, the total return would have
been 3.49%.
GALAXY MONEY MARKET FUNDS 31
<PAGE>
GALAXY U.S. TREASURY FUND
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
FOR THE YEAR ENDING OCTOBER 31,
------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Retail A Retail A Retail A Retail A
Shares Shares Shares Shares Shares(1)
- --------------------------------------------------------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00
- --------------------------------------------------------- -------- -------- -------- -------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(2) 0.05 0.05 0.05 0.05 0.03
------------------------------------------------------ -------- -------- -------- -------- ---------
Net realized and unrealized gain (loss) on investments - - - - -
- --------------------------------------------------------- -------- -------- -------- -------- ---------
Total from investment operations 0.05 0.05 0.05 0.05 0.03
LESS DIVIDENDS:
Dividends from net investment income (0.05) (0.05) (0.05) (0.05) (0.03)
------------------------------------------------------ -------- -------- -------- -------- ---------
Dividends from net realized
capital gains - - - - -
- --------------------------------------------------------- -------- -------- -------- -------- ---------
Total dividends (0.05) (0.05) (0.05) (0.05) (0.03)
Net increase (decrease) in net
asset value - - - - -
- --------------------------------------------------------- -------- -------- -------- -------- ---------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00
- --------------------------------------------------------- -------- -------- -------- ------- -------
-------- -------- -------- ------- -------
Total return(3) 4.73% 4.67% 4.63% 4.99% 3.30%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $559,053 $585,969 $443,230 $318,621 $466,993
- --------------------------------------------------------- -------- -------- -------- -------- ---------
RATIOS TO AVERAGE NET ASSETS:
Net investment income including reimbursement/waiver 4.63% 4.58% 4.53% 4.90% 3.24%
------------------------------------------------------ -------- -------- -------- -------- ---------
Operating expenses including reimbursement/waiver 0.68% 0.69% 0.69% 0.73% 0.56%
------------------------------------------------------ -------- -------- -------- -------- ---------
Operating expenses excluding reimbursement/waiver 0.68% 0.70% 0.69% 0.73% 0.56%
------------------------------------------------------ -------- -------- -------- -------- ---------
</TABLE>
(1) Prior to November 1, 1994, the Fund offered a single series of shares. As
of such date, the existing series of shares was designated as Retail Shares
(now designated Retail A Shares) and the Fund began issuing a second series
of shares designated as Trust Shares.
(2) Net investment income per share for Retail A Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for the years ended October 31, 1998, 1997, 1996, 1995 and 1994 was $0.05,
$0.05, $0.05, $0.05 and $0.03, respectively.
(3) Total return for the year ended October 31, 1994 includes the effect of the
voluntary capital contribution of $1 million from the Adviser in order to
partially offset losses realized on the sale of certain securities held by
the Fund. Without this capital contribution, the total return would have
been 3.30%.
32 GALAXY MONEY MARKET FUNDS
<PAGE>
GALAXY TAX-EXEMPT FUND
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
FOR THE YEAR ENDING OCTOBER 31,
------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Retail A Retail A Retail A Retail A
Shares Shares Shares Shares Shares(1)
- --------------------------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00
- --------------------------------------------------------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(2) 0.03 0.03 0.03 0.03 0.02
------------------------------------------------------ -------- -------- -------- -------- --------
Net realized and unrealized gain (loss) on investments - - - -
- --------------------------------------------------------- -------- -------- -------- -------- --------
Total from investment operations 0.03 0.03 0.03 0.03 0.02
LESS DIVIDENDS:
Dividends from net investment income (0.03) (0.03) (0.03) (0.03) (0.02)
------------------------------------------------------ -------- -------- -------- -------- --------
Dividends from net realized
capital gains - - - - -
- --------------------------------------------------------- -------- -------- -------- -------- --------
Total dividends (0.03) (0.03) (0.03) (0.03) (0.02)
Net increase (decrease) in net
asset value - - - - -
- --------------------------------------------------------- -------- -------- -------- -------- --------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00
- --------------------------------------------------------- -------- -------- -------- ------- -------
-------- -------- -------- ------- -------
Total return 2.89% 2.95% 2.82% 3.16% 2.24%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $164,340 $151,907 $117,548 $127,056 $271,050
------------------------------------------------------ -------- -------- -------- -------- --------
RATIOS TO AVERAGE NET ASSETS:
Net investment income including reimbursement/waiver 2.85% 2.92% 2.78% 3.12% 2.12%
------------------------------------------------------ -------- -------- -------- -------- --------
Operating expenses including reimbursement/waiver 0.67% 0.68% 0.68% 0.68% 0.58%
------------------------------------------------------ -------- -------- -------- -------- --------
Operating expenses excluding reimbursement/waiver 0.67% 0.69% 0.69% 0.71% 0.58%
------------------------------------------------------ -------- -------- -------- -------- --------
</TABLE>
(1) Prior to November 1, 1994, the Fund offered a single series of shares. As of
such date, the existing series of shares was designated as Retail Shares
(now designated Retail A Shares) and the Fund began issuing a second series
of shares designated as Trust Shares.
(2) Net investment income per share for Retail A Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for the years ended October 31, 1998, 1997, 1996, 1995 and 1994 was $0.03,
$0.03, $0.03, $0.03 and $0.02, respectively.
GALAXY MONEY MARKET FUNDS 33
<PAGE>
GALAXY CONNECTICUT MUNICIPAL MONEY MARKET FUND(1)
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
FOR THE YEAR ENDING OCTOBER 31,
------------------------------------------------------------
1998 1997 1996(1) 1995 1994
- --------------------------------------------------------- ---- ---- ------- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00
- --------------------------------------------------------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(2) 0.03 0.03 0.03 0.03 0.02
------------------------------------------------------ -------- -------- -------- -------- --------
Net realized and unrealized gain (loss) on investments - - - - -
------------------------------------------------------ -------- -------- -------- -------- --------
Total from investment operations 0.03 0.03 0.03 0.03 0.02
LESS DIVIDENDS:
Dividends from net investment income (0.03) (0.03) (0.03) (0.03) (0.02)
------------------------------------------------------ -------- -------- -------- -------- --------
Dividends from net realized capital gains - - - - -
------------------------------------------------------ -------- -------- -------- -------- --------
Total dividends (0.03) (0.03) (0.03) (0.03) (0.02)
Net increase (decrease) in net asset value - - - - -
- --------------------------------------------------------- -------- -------- -------- -------- --------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00
- --------------------------------------------------------- -------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Total return(3) 2.87% 2.94% 2.83% 2.94% 1.83%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $165,186 $137,095 $110,544 $71,472 $80,663
------------------------------------------------------ -------- -------- -------- -------- --------
RATIOS TO AVERAGE NET ASSETS:
Net investment income including reimbursement/waiver 2.83% 2.91% 2.79% 2.88% 1.99%
------------------------------------------------------ -------- -------- -------- -------- --------
Operating expenses including reimbursement/waiver 0.62% 0.60% 0.64% 0.82% 0.78%
------------------------------------------------------ -------- -------- -------- -------- --------
Operating expenses excluding reimbursement/waiver 0.65% 0.65% 0.73% 1.29% 1.50%
------------------------------------------------------ -------- -------- -------- -------- --------
</TABLE>
(1) The Fund commenced operations on October 4, 1993 as a separate investment
portfolio (the "Predecessor Fund") of The Shawmut Funds. On December 4,
1995, the Predecessor Fund was reorganized as a new portfolio of Galaxy with
a single series of shares. Prior to the reorganization, the Predecessor Fund
offered and sold two series of shares, Investment Shares and Trust Shares.
In connection with the reorganization, the shareholders of the Predecessor
Fund exchanged shares of each series for Shares in the Fund.
(2) Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or other parties for the fiscal years ended October 31, 1998,
1997 and 1996 was $0.03, $0.03 and $0.03, respectively. Net investment
income per share before reimbursement/waiver of fees by other parties for
the fiscal years ended October 31, 1995 and 1994 was $0.03 and $0.01,
respectively (unaudited).
(3) Calculation does not include the effect of any sales charge for Investment
Shares of the Predecessor Fund.
34 GALAXY MONEY MARKET FUNDS
<PAGE>
GALAXY MASSACHUSETTS MUNICIPAL MONEY MARKET FUND(1)
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
FOR THE YEAR ENDING OCTOBER 31,
------------------------------------------------------------
1998 1997 1996(1) 1995 1994
---- ---- ------- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00
- --------------------------------------------------------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(2) 0.03 0.03 0.03 0.03 0.02
------------------------------------------------------ -------- -------- -------- -------- --------
Net realized and unrealized gain (loss) on investments - - - - -
- --------------------------------------------------------- -------- -------- -------- -------- --------
Total from investment operations 0.03 0.03 0.03 0.03 0.02
LESS DIVIDENDS:
Dividends from net investment income (0.03) (0.03) (0.03) (0.03) (0.02)
------------------------------------------------------ -------- -------- -------- -------- --------
Dividends from net realized capital gains - - - - -
- --------------------------------------------------------- -------- -------- -------- -------- --------
Total dividends (0.03) (0.03) (0.03) (0.03) (0.02)
Net increase (decrease) in net asset value - - - - -
- --------------------------------------------------------- -------- -------- -------- -------- --------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00
- --------------------------------------------------------- -------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Total return 2.86% 2.92% 2.83% 3.21% 1.99%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $127,922 $80,966 $47,066 $40,326 $31,516
------------------------------------------------------ -------- -------- -------- -------- --------
RATIOS TO AVERAGE NET ASSETS:
Net investment income including reimbursement/waiver 2.81% 2.90% 2.78% 3.16% 2.00%
------------------------------------------------------ -------- -------- -------- -------- --------
Operating expenses including reimbursement/waiver 0.62% 0.61% 0.62% 0.57% 0.53%
------------------------------------------------------ -------- -------- -------- -------- --------
Operating expenses excluding reimbursement/waiver 0.68% 0.69% 0.83% 1.06% 1.21%
------------------------------------------------------ -------- -------- -------- -------- --------
</TABLE>
(1) The Fund commenced operations on October 5, 1993 as a separate investment
portfolio (the "Predecessor Fund") of The Shawmut Funds. On December 4,
1995, the Predecessor Fund was reorganized as a new portfolio of Galaxy.
Prior to the reorganization, the Predecessor Fund offered and sold one
series of shares. In connection with the reorganization, the shareholders
of the Predecessor Fund exchanged shares for Shares in the Fund.
(2) Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or other parties for the fiscal years ended October 31, 1998,
1997 and 1996 was $0.03, $0.03 and $0.03, respectively. Net investment
income per share before reimbursement/waiver of fees by other parties for
the fiscal years ended October 31, 1995 and 1994 was $0.03 and $0.01,
respectively (unaudited).
GALAXY MONEY MARKET FUNDS 35
<PAGE>
WHERE TO FIND MORE INFORMATION
You'll find more information about the Funds in the following documents:
ANNUAL AND SEMI-ANNUAL REPORTS
Galaxy's annual and semi-annual reports contain more information about each Fund
and a discussion about the market conditions and investment strategies that had
a significant effect on each Fund's performance during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains detailed information about the Funds and their policies. By
law, it's incorporated by reference into (considered to be part of) this
prospectus.
You can get a free copy of these documents, request other information about the
Funds and make shareholder inquiries by calling Galaxy at 1-877-BUY-GALAXY
(1-877-289-4252) or by writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
If you buy your shares through a financial institution, you may contact your
institution for more information.
You can write to the Securities and Exchange Commission (SEC) Public Reference
Section and ask them to mail you information about the Funds, including the SAI.
They'll charge you a fee for this service. You can also visit the SEC Public
Reference Room and copy the documents while you're there. For information about
the operation of the Public Reference Room, call the SEC.
Public Reference Section of the SEC
Washington, DC 20549-6009
1-800-SEC-0330.
Reports and other information about the Funds are also available on the SEC's
website at http://www.sec.gov.
Galaxy's Investment Company Act File No. is 811-4636.
PROGALMM 3/1/99
<PAGE>
[GRAPHIC]
GALAXY MONEY MARKET FUNDS
THE GALAXY FUND
PROSPECTUS
February 28, 1999
Galaxy Money Market Fund
Galaxy Government Fund
Galaxy Institutional
Government Money Market Fund
Galaxy U.S. Treasury Fund
Galaxy Tax-Exempt Fund
TRUST SHARES
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved any shares of these Funds or determined if this
prospectus is accurate or complete. Anyone who tells you otherwise is
committing a crime.
[LOGO]
<PAGE>
CONTENTS
<TABLE>
<S> <C>
1 RISK/RETURN SUMMMARY
1 Introduction
2 Galaxy Money Market Fund
5 Galaxy Government Fund
8 Galaxy Institutional
Government Money Market Fund
11 Galaxy U.S. Treasury Fund
14 Galaxy Tax-Exempt Fund
17 Additional information about risk
18 Investor guidelines
19 FUND MANAGEMENT
20 HOW TO INVEST IN THE FUNDS
20 Buying and selling shares
20 HOW TO BUY SHARES
21 HOW TO SELL SHARES
21 OTHER TRANSACTION POLICIES
21 HOW TO EXCHANGE SHARES -
INSTITUTIONAL GOVERNMENT
MONEY MARKET FUND ONLY
22 DIVIDENDS, DISTRIBUTIONS AND TAXES
23 FINANCIAL HIGHLIGHTS
</TABLE>
<PAGE>
RISK/RETURN SUMMMARY
INTRODUCTION
THIS PROSPECTUS describes the Galaxy Money Market Funds. The Funds invest
primarily in short-term debt obligations, commonly known as money market
instruments, that are determined by the Funds' investment adviser to carry
very little risk. Money market instruments purchased by the Funds must meet
strict requirements as to investment quality, maturity and diversification.
The Funds don't invest in securities with remaining maturities of more than
397 days (subject to certain exceptions) and the average maturity of all
securities held by a particular Fund must be 90 days or less. Each Fund tries
to maintain its share price at $1.00 to protect your investment from loss.
On the following pages you'll find important information about each Galaxy
Money Market Fund, including:
- - the Fund's investment objective (sometimes called the Fund's goal) and the
main investment strategies used by the Fund's investment adviser in trying
to achieve that objective.
- - the main risks associated with an investment in the Fund.
- - the Fund's past performance measured on both a year-by-year and long-term
basis.
- - the fees and expenses that you will pay as an investor in the Fund.
WHICH FUND IS RIGHT FOR YOU?
Not all mutual funds are right for all investors. Your investment goals and
tolerance for risk will determine which fund is right for you. On page 18,
you'll find a table which sets forth general guidelines to help you decide
which of the Galaxy Money Market Funds is best suited to you.
THE FUNDS' INVESTMENT ADVISER
Fleet Investment Advisors Inc., which is referred to in this prospectus as THE
ADVISER, is the investment adviser for all of these Funds. The Adviser, an
indirect wholly-owned subsidiary of Fleet Financial Group, Inc., was
established in 1984 and has its main office at 75 State Street, Boston,
Massachusetts 02109. The Adviser also provides investment management and
advisory services to individual and institutional clients and manages the other
Galaxy investment portfolios. As of December 31, 1998, the Adviser managed over
$64 billion in assets.
- --------------------------------------------------------------------------------
AN INVESTMENT IN THE FUNDS ISN'T A FLEET BANK DEPOSIT AND IT ISN'T INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. ALTHOUGH THE FUNDS SEEK TO PRESERVE THE VALUE OF YOUR INVESTMENT AT
$1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUNDS.
[Sidenote:]
MATURITY
The maturity of a security is the date when the issuer must repay the security's
entire principal amount to an investor, such as a Fund.
GALAXY MONEY MARKET FUNDS 1
<PAGE>
GALAXY MONEY MARKET FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current income as is consistent with liquidity
and stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests in a diversified portfolio of money market instruments,
including commercial paper, notes and bonds issued by U.S. corporations,
obligations issued by the U.S. Government and its agencies and
instrumentalities, and obligations issued by U.S. and foreign banks, such as
certificates of deposit. The Fund also invests in repurchase agreements
backed by U.S. Government obligations.
The Fund will only buy a security if it has the highest short-term rating
from at least two nationally recognized statistical rating organizations, or
one such rating if only one organization has rated the security. If the
security is not rated, it must be determined by the Adviser to be of
comparable credit quality.
THE MAIN RISKS OF INVESTING IN THE FUND
While money market funds are considered to be among the safest of all
investments, they are not risk free. Here are the main risks associated with an
investment in the Fund:
- INTEREST RATE RISK - The yield paid by the Fund will vary with changes in
short-term interest rates.
- CREDIT RISK - Although credit risk is very low because the Fund only
invests in high quality obligations, if an issuer fails to pay interest or
repay principal, the value of your investment could decline.
- REPURCHASE AGREEMENTS - Repurchase agreements carry the risk that the other
party may not fulfill its obligations under the agreement. This could cause
the value of your investment to decline.
- SHARE PRICE - There's no guarantee the Fund will be able to preserve the
value of your investment at $1.00 per share.
- SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance
the Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
[Sidenote:]
REPURCHASE AGREEMENTS
Repurchase agreements are transactions in which a fund buys securities from a
seller (usually a bank or broker-dealer) who agrees to buy them back from the
fund on a certain date and at a certain price.
2 GALAXY MONEY MARKET FUNDS
<PAGE>
GALAXY MONEY MARKET FUND
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past. Both
assume that all dividends and distributions are reinvested in the Fund. How the
Fund has performed in the past doesn't necessarily show how it will perform in
the future.
YEAR-BY-YEAR TOTALS RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares of the Fund has varied
from year to year, thereby giving some indication of the risk of investing in
the Fund.
BEST QUARTER
1.39% for the quarter ending June 30, 1995
WORST QUARTER
1.18% for the quarter ending June 30, 1996
[CHART]
<TABLE>
<CAPTION>
1995 1996 1997 1998
<S> <C> <C> <C>
5.50% 4.94% 5.19% 5.14%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1998.
<TABLE>
<CAPTION>
SINCE
1 YEAR INCEPTION
- --------------------------------------------------------------------------------
<S> <C> <C>
Trust Shares 5.14% 5.29% (11/1/94)
- --------------------------------------------------------------------------------
</TABLE>
To obtain the Fund's current 7-day yield, please call 1-877-BUY-GALAXY
(1-877-289-4252).
GALAXY MONEY MARKET FUNDS 3
<PAGE>
GALAXY MONEY MARKET FUND
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
ANNUAL FUND OPERATING EXPENSES (FEES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT DISTRIBUTION OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.40%(1) None 0.17% 0.57%(1)
- -----------------------------------------------------------------------------
</TABLE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be 0.36%. Total Fund operating expenses after this waiver
are expected to be 0.53%. This fee waiver may be revised or discontinued
at any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $58 $183 $318 $714
- ---------------------------------------------------------------------------
</TABLE>
4 GALAXY MONEY MARKET FUNDS
<PAGE>
GALAXY GOVERNMENT FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current income as is consistent with liquidity
and stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests primarily in U.S. Government obligations, including U.S.
Treasury obligations and obligations of U.S. Government agencies and
instrumentalities. The Fund also invests in repurchase agreements backed by
these obligations.
THE MAIN RISKS OF INVESTING IN THE FUND
While money market funds are considered to be among the safest of all
investments, they are not risk free.
Here are the main risks associated with an investment in the Fund:
- - INTEREST RATE RISK - The yield paid by the Fund will vary with changes in
short-term interest rates.
- - CREDIT RISK - Although U.S. Government securities have historically
involved little credit risk, if an issuer fails to pay interest or repay
principal, the value of your investment could decline.
- - REPURCHASE AGREEMENTS - Repurchase agreements carry the risk that the other
party may not fulfill its obligations under the agreement. This could cause
the value of your investment to decline.
- - SHARE PRICE - There's no guarantee the Fund will be able to preserve the
value of your investment at $1.00 per share.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance
the Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
[Sidenote:]
U.S. GOVERNMENT OBLIGATIONS
U.S. Government obligations are debt obligations issued or guaranteed by the
U.S. Government or one of its agencies or instrumentalities. U.S. Government
obligations generally have less credit risk than other debt obligations.
GALAXY MONEY MARKET FUNDS 5
<PAGE>
GALAXY GOVERNMENT FUND
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past. Both
assume that all dividends and distributions are reinvested in the Fund. How the
Fund has performed in the past doesn't necessarily show how it will perform in
the future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares of the Fund has varied
from year to year, thereby giving some indication of the risk of investing in
the Fund.
BEST QUARTER
1.37% for the quarter ending June 30, 1995
WORST QUARTER
1.17% for the quarter ending June 30, 1996
[CHART]
<TABLE>
<CAPTION>
1995 1996 1997 1998
<S> <C> <C> <C>
5.47% 4.89% 5.10% 5.06%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1998.
<TABLE>
<CAPTION>
SINCE
1 YEAR INCEPTION
- -------------------------------------------------------------------
<S> <C> <C>
Trust Shares 5.06% 5.14% (11/1/94)
- -------------------------------------------------------------------
</TABLE>
To obtain the Fund's current 7-day yield, please call 1-877-BUY-GALAXY
(1-877-289-4252).
6 GALAXY MONEY MARKET FUNDS
<PAGE>
GALAXY GOVERNMENT FUND
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
ANNUAL FUND OPERATING EXPENSES (FEES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT DISTRIBUTION OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.40%(1) None 0.15% 0.55%(1)
- -----------------------------------------------------------------------------
</TABLE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be 0.39%. Total Fund operating expenses after this waiver
are expected to be 0.54%. This fee waiver may be revised or discontinued
at any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $56 $176 $307 $689
- --------------------------------------------------------------------------------
</TABLE>
GALAXY MONEY MARKET FUNDS 7
<PAGE>
GALAXY INSTITUTIONAL
GOVERNMENT MONEY MARKET FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks current income with liquidity and stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests primarily in U.S. Government obligations, including U.S.
Treasury obligations and obligations of U.S. Government agencies and
instrumentalities. The Fund also invests in repurchase agreements backed by
these obligations.
THE MAIN RISKS OF INVESTING IN THE FUND
While money market funds are considered to be among the safest of all
investments, they are not risk free. Here are the main risks associated with an
investment in the Fund:
- INTEREST RATE RISK - The yield paid by the Fund will vary with changes in
short-term interest rates.
- CREDIT RISK - Although U.S. Government securities have historically
involved little credit risk, if an issuer fails to pay interest or repay
principal, the value of your investment could decline.
- REPURCHASE AGREEMENTS - Repurchase agreements carry the risk that the other
party may not fulfill its obligations under the agreement. This could cause
the value of your investment to decline.
- SHARE PRICE - There's no guarantee the Fund will be able to preserve the
value of your investment at $1.00 per share.
- SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance
the Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
8 GALAXY MONEY MARKET FUNDS
<PAGE>
GALAXY INSTITUTIONAL GOVERNMENT MONEY MARKET FUND
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past. Both
assume that all dividends and distributions are reinvested in the Fund. How the
Fund has performed in the past doesn't necessarily show how it will perform in
the future. The Fund offers only one class of shares which are referred to in
this prospectus as Trust Shares.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares of the Fund has varied
from year to year, thereby giving some indication of the risk of investing in
the Fund.
BEST QUARTER
1.41% for the quarter ending June 30, 1995
WORST QUARTER
0.74% for the quarter ending March 31, 1994
[CHART]
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C>
3.92% 5.58% 5.06% 5.11% 5.30%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1998.
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS INCEPTION
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Trust Shares 5.30% 4.99% 4.73% (4/15/93)
- ---------------------------------------------------------------------------------
</TABLE>
To obtain the Fund's current 7-day yield, please call 1-877-BUY-GALAXY
(1-877-289-4252).
GALAXY MONEY MARKET FUNDS 9
<PAGE>
GALAXY INSTITUTIONAL GOVERNMENT MONEY MARKET FUND
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
ANNUAL FUND OPERATING EXPENSES (FEES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT DISTRIBUTION OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.20%(1) None 0.15%(1) 0.35%(1)
- -----------------------------------------------------------------------------
</TABLE>
(1)The Adviser is waiving a portion of the Management fees so that such fees
are expected to be 0.09%. The Fund's administrator is waiving a portion of
the administration fees so that Other expenses are expected to be 0.11%.
Total Fund operating expenses after these waivers are expected to be 0.20%.
These fee waivers may be revised or discontinued at any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $36 $113 $197 $443
- --------------------------------------------------------------------------------
</TABLE>
10 GALAXY MONEY MARKET FUNDS
<PAGE>
GALAXY U.S TREASURY FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks current income with liquidity and stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests primarily in securities issued or guaranteed by the U.S.
Treasury and certain U.S. Government agencies and instrumentalities that provide
income that is generally not subject to state income tax.
THE MAIN RISKS OF INVESTING IN THE FUND
While money market funds are considered to be among the safest of all
investments, they are not risk free. Here are the main risks associated with an
investment in the Fund:
- INTEREST RATE RISK - The yield paid by the Fund will vary with changes in
short-term interest rates.
- CREDIT RISK - Although U.S. Government securities, particularly U.S.
Treasury securities, have historically involved little credit risk, if an
issuer fails to pay interest or repay principal, the value of your
investment could decline.
- SHARE PRICE - There's no guarantee the Fund will be able to preserve the
value of your investment at $1.00 per share.
- SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance
the Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
[Sidenote:]
U.S. TREASURY OBLIGATIONS
U.S. Treasury obligations are among the safest of all investments because they
are backed by the "full faith and credit" of the U.S. Government.
GALAXY MONEY MARKET FUNDS 11
<PAGE>
GALAXY U.S TREASURY FUND
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past. Both
assume that all dividends and distributions are reinvested in the Fund. How the
Fund has performed in the past doesn't necessarily show how it will perform in
the future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares of the Fund has varied
from year to year, thereby giving some indication of the risk of investing in
the Fund.
BEST QUARTER
1.32% for the quarter ending June 30, 1995
WORST QUARTER
1.09% for the quarter ending December 31, 1998
[CHART]
<TABLE>
<CAPTION>
1995 1996 1997 1998
<S> <C> <C> <C>
5.23% 4.76% 4.88% 4.80%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1998.
<TABLE>
<CAPTION>
SINCE
1 YEAR INCEPTION
- -------------------------------------------------------------
<S> <C> <C>
Trust Shares 4.80% 5.01% (11/1/94)
- -------------------------------------------------------------
</TABLE>
To obtain the Fund's current 7-day yield, please call 1-877-BUY-GALAXY
(1-877-289-4252).
12 GALAXY MONEY MARKET FUNDS
<PAGE>
GALAXY U.S TREASURY FUND
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
ANNUAL FUND OPERATING EXPENSES (FEES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT DISTRIBUTION OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.39% None 0.14% 0.53%
- ---------------------------------------------------------------------------
</TABLE>
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $54 $170 $296 $665
- --------------------------------------------------------------------------------
</TABLE>
GALAXY MONEY MARKET FUNDS 13
<PAGE>
GALAXY TAX-EXEMPT FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current interest income exempt from federal
income tax as is consistent with stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities, which are securities issued by state and local governments and
other political or public bodies or agencies and that pay interest which is
exempt from regular federal income tax. Under normal conditions, the Fund
will invest no more than 20% of its total assets in taxable obligations, such
as U.S. Government obligations, money market instruments and repurchase
agreements.
Municipal securities purchased by the Fund may include general obligation
securities, revenue securities and private activity bonds. The interest on
private activity bonds may be subject to the federal alternative minimum tax.
Investments in private activity bonds will not be treated as investments in
municipal securities for purposes of the 80% requirement stated above.
The Fund will only buy a security if it has one of the two highest short-term
ratings from at least two nationally recognized statistical rating
organizations, or one such rating if only one organization has rated the
security. If the security is not rated, it must be determined by the Adviser to
be of comparable credit quality.
THE MAIN RISKS OF INVESTING IN THE FUND
While money market funds are considered to be among the safest of all
investments, they are not risk free. Here are the main risks associated with an
investment in the Fund:
- INTEREST RATE RISK - The yield paid by the Fund will vary with changes in
short-term interest rates.
- CREDIT RISK - Although credit risk is very low because the Fund only
invests in high quality obligations, if an issuer fails to pay interest or
repay principal, the value of your investment could decline. The ability of
a state or local government issuer to make payments can be affected by many
factors, including economic conditions, the flow of tax revenues and
changes in the level of federal, state or local aid.
- SHARE PRICE - There's no guarantee the Fund will be able to preserve the
value of your investment at $1.00 per share.
- SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance
the Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
[Sidenote:]
MUNICIPAL SECURITIES
State and local governments issue municipal securities to raise money to finance
public works, to repay outstanding obligations, to raise funds for general
operating expenses and to make loans to other public institutions. Some
municipal securities, known as private activity bonds, are issued to finance
projects for private companies. Municipal securities, which can be issued as
bonds, notes or commercial paper, usually have fixed interest rates, although
some have interest rates that change from time to time.
TYPES OF MUNICIPAL SECURITIES
GENERAL OBLIGATION securities are secured by the issuer's full faith, credit
and taxing power. REVENUE OBLIGATION securities are usually payable only from
revenues derived from specific facilities or revenue sources. PRIVATE
ACTIVITY BONDS are usually revenue obligations since they are typically
payable by the private user of the facilities financed by the bonds.
14 GALAXY MONEY MARKET FUNDS
<PAGE>
GALAXY TAX-EXEMPT FUND
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past. Both
assume that all dividends and distributions are reinvested in the Fund. How the
Fund has performed in the past doesn't necessarily show how it will perform in
the future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares of the Fund has varied
from year to year, thereby giving some indication of the risk of investing in
the Fund.
BEST QUARTER
0.88% for the quarter ending June 30, 1995
WORST QUARTER
0.69% for the quarter ending December 31, 1998
[CHART]
<TABLE>
<CAPTION>
1995 1996 1997 1998
<S> <C> <C> <C>
3.34% 2.92% 3.14% 2.95%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1998.
<TABLE>
<CAPTION>
SINCE
1 YEAR INCEPTION
- --------------------------------------------------------------------------------
<S> <C> <C>
Trust Shares 2.95% 3.15% (11/1/94)
- --------------------------------------------------------------------------------
</TABLE>
To obtain the Fund's current 7-day yield, please call 1-877-BUY-GALAXY
(1-877-289-4252).
GALAXY MONEY MARKET FUNDS 15
<PAGE>
GALAXY TAX-EXEMPT FUND
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
ANNUAL FUND OPERATING EXPENSES (FEES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT DISTRIBUTION OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.40% None 0.14% 0.54%
- --------------------------------------------------------------------------------
</TABLE>
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $55 $173 $302 $677
- --------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
TAX-EQUIVALENT YIELD
One way to understand the tax advantages of a tax-exempt fund is to compare
its after-tax return to that of a taxable investment. For example, suppose a
taxable fund pays a return of 10%. If you're in the 36% federal income tax
bracket, the fund's return after taxes is 6.4%. When a tax-exempt fund pays a
return of 10%, you don't pay tax. So if you're in the 36% tax bracket that's
the equivalent of earning about 15.6% on a taxable fund. If you're in a low
tax bracket, however, it may not be helpful to invest in a tax-exempt fund if
you can achieve a higher after-tax return from a taxable investment.
16 GALAXY MONEY MARKET FUNDS
<PAGE>
ADDITIONAL INFORMATION ABOUT RISK
The main risks associated with an investment in each of the Galaxy Money Market
Funds have been described above. The following supplements that discussion.
TEMPORARY DEFENSIVE POSITIONS
Each Fund may temporarily hold up to 100% of its total assets in investments
that aren't part of its main investment strategy during unfavorable market
conditions. These investments may include cash (which will not earn any
income) and, in the case of the Tax-Exempt Fund, short-term taxable
investments, such as money market instruments and debt securities issued or
guaranteed by the U.S. Government or its agencies, in excess of 20% of the
Fund's assets. This strategy could prevent a Fund from achieving its
investment objective.
OTHER TYPES OF INVESTMENTS
This prospectus describes each Fund's main investment strategies and the
particular types of securities in which each Fund mainly invests. Each Fund
may, from time to time, pursue other investment strategies and make other
types of investments in support of its overall investment goal. These
supplemental investment strategies - and the risks involved - are described
in detail in the Statement of Additional Information (SAI) which is referred
to on the back cover of this prospectus.
YEAR 2000 RISKS
As with other mutual funds, financial and business organizations and
individuals around the world, the Funds could be adversely affected if the
computer systems used by the Adviser and the Funds' other service providers
don't properly process and calculate date-related information and data from
and after January 1, 2000. This is commonly known as the "Year 2000" or "Y2K"
problem. The Adviser is taking steps to address the Y2K problem with respect
to the computer systems that it uses and to obtain assurances that comparable
steps are being taken by the Funds' other major service providers. At this
time, however, there can be no assurance that these steps will be sufficient
to avoid any adverse impact on the Funds. The Y2K problem could have a
negative impact on the issuers of securities in which Funds invest, which
could hurt the Fund's investment returns.
GALAXY MONEY MARKET FUNDS 17
<PAGE>
INVESTOR GUIDELINES
The table below provides information as to which type of investor might want to
invest in each of the Galaxy Money Market Funds. It's meant as a general guide
only. TAX-EXEMPT FUNDS ARE GENERALLY NOT APPROPRIATE INVESTMENTS FOR
TAX-DEFERRED RETIREMENT ACCOUNTS, SUCH AS IRAS, BECAUSE THEIR RETURNS BEFORE
TAXES ARE GENERALLY LOWER THAN THOSE OF TAXABLE FUNDS. Consult your financial
institution or plan administrator for help in deciding which Fund is right for
you.
GALAXY FUND MAY BE BEST SUITED FOR...
- --------------------------------------------------------------------------------
GALAXY MONEY MARKET FUND investors who want a flexible and convenient
way to manage cash while earning money market
returns
- --------------------------------------------------------------------------------
GALAXY GOVERNMENT FUND investors who want a way to earn money market
returns with the extra margin of safety
associated with U.S. Government obligations
- --------------------------------------------------------------------------------
GALAXY INSTITUTIONAL institutional investors who want a way to
GOVERNMENT MONEY MARKET FUND earn money market returns with the extra
margin of safety associated with U.S.
Government obligations
- --------------------------------------------------------------------------------
GALAXY U.S. TREASURY FUND investors who want a way to earn money market
returns from U.S. Treasury obligations that
are generally free from state and local taxes
- --------------------------------------------------------------------------------
GALAXY TAX-EXEMPT FUND investors who want a way to earn money market
returns that are free from federal income
tax.
- --------------------------------------------------------------------------------
18 GALAXY MONEY MARKET FUNDS
<PAGE>
FUND MANAGEMENT
ADVISER
The Adviser, subject to the general supervision of Galaxy's Board of Trustees,
manages each Fund in accordance with its investment objective and policies,
makes decisions with respect to, and places orders for, all purchases and sales
of portfolio securities, and maintains related records.
ALLOCATION OF ORDERS FOR PORTFOLIO SECURITIES
The Advisor may allocate orders for the purchase and sale of portfolio
securities to certain financial institutions, including those that are
affiliated with the Adviser or that have sold shares of the Funds, to the
extent permitted by law or by order of the Securities and Exchange Commission.
The Adviser will allocate orders to such insitutions only if it believes that
the quality of the transaction and the commission are comparable to what they
would be with other qualified brokerage firms.
MANAGEMENT FEES
The management fees paid to the Adviser by the Funds during the last fiscal year
are set forth below.
<TABLE>
<CAPTION>
MANAGEMENT FEE
FUND AS A % OF AVERAGE NET ASSETS
- --------------------------------------------------------------
<S> <C>
Money Market 0.36%
- --------------------------------------------------------------
Government 0.38%
- --------------------------------------------------------------
Institutional Government Money Market 0.10%
- --------------------------------------------------------------
U.S. Treasury 0.39%
- --------------------------------------------------------------
Tax-Exempt 0.40%
- --------------------------------------------------------------
</TABLE>
SUB-ACCOUNT SERVICES
Affiliates of the Adviser and certain other parties may receive fees from
Galaxy's transfer agent for providing certain sub-accounting and administrative
services to participant sub-accounts with respect to Trust Shares of the Funds
(other than the Tax-Exempt Fund) held by defined contribution plans. The
transfer agency fees payable by Trust Shares of the Funds have been increased by
an amount equal to these fees, so that the holders of Trust Shares indirectly
bear these fees.
GALAXY MONEY MARKET FUNDS 19
<PAGE>
HOW TO INVEST IN THE FUNDS
BUYING AND SELLING SHARES
Trust Shares of the Funds (other than the Institutional Government Money Market
Fund) are available for purchase by the following types of investors:
- - investors maintaining a qualified account at a bank or trust institution,
including subsidiaries of Fleet Financial Group, Inc.
- - participants in employer-sponsored defined contribution plans.
Qualified accounts include discretionary investment management accounts,
custodial accounts, agency accounts and different types of tax-advantaged
accounts. Your institution can provide more information about which types of
accounts are eligible.
Trust Shares of the Institutional Government Money Market Fund are available for
purchase by financial institutions, such as banks, savings and loan associations
and broker-dealers, including financial institutions affiliated with the
Adviser, that are purchasing shares of the Fund on behalf of their customers.
You can buy and sell Trust Shares of the Funds on any business day. A
business day is any day that Galaxy's distributor, Galaxy's custodian and
your institution or employer-sponsored plan are open for business.
If your order to buy shares is received and accepted by Galaxy's distributor
by 11:00 a.m. (Eastern time) on a business day, the price you pay will be the
net asset value (NAV) per share next determined (and you'll receive that
day's dividend) if Galaxy's custodian receives the purchase price in
immediately available funds by 11:00 a.m. that day. If your order to purchase
shares is received and accepted by Galaxy's distributor after 11:00 a.m.
(Eastern time) but before 4:00 p.m. (Eastern time) on a business day, the
price you pay will be the NAV next determined (and you'll begin receiving
dividends the next day) if Galaxy's custodian receives the purchase price in
immediately available funds by 4:00 p.m. on the day of your order. The price
at which you sell shares is the NAV per share next determined after receipt
of your order. NAV is determined on each day the New York Stock Exchange is
open for trading as of 11:00 a.m. (Eastern time) and at the close of regular
trading that day (usually 4:00 p.m. Eastern time). The New York Stock
Exchange is generally open for trading every Monday through Friday, except on
national holidays.
The Funds' assets are valued at amortized cost, which is approximately equal
to market value.
HOW TO BUY SHARES
You can buy Trust Shares by following the procedures established by your
financial institution or your employer-sponsored plan. Your financial
institution or plan administrator is responsible for sending your order to
Galaxy's distributor and wiring payment to Galaxy's custodian. The
institution or employer-sponsored plan holds the shares in
[Sidenote:]
NET ASSET VALUE
The price you pay for your shares is based on the net asset value per share
(NAV). It's the value of a fund's assets attributable to Trust Shares, minus the
value of the fund's liabilities attributable to Trust Shares, divided by the
number of Trust Shares held by investors.
[Sidenote:]
INVESTMENT MINIMUMS
Except for the Institutional Government Money Market Fund, Galaxy does not have
any minimum investment requirements for initial or additional investments in
Trust Shares but financial institutions and employer-sponsored plans may do so.
They may also require you to maintain a minimum account balance.
The minimum initial aggregate investment by a financial institution purchasing
shares of the Institutional Government Money Market Fund on behalf of its
customers is $2,000,000. There is no minimum investment requirement for
additional purchases.
20 GALAXY MONEY MARKET FUNDS
<PAGE>
your name and receives all confirmations of purchases and sales.
HOW TO SELL SHARES
You can sell Trust Shares by following the procedures established by your
financial institution or your employer-sponsored plan. Your financial
institution or plan administrator is responsible for sending your order to
Galaxy's distributor and for crediting your account with the proceeds. Galaxy
doesn't charge for wiring the proceeds, but your financial institution or
employer-sponsored plan may do so. Contact your financial institution or plan
administrator for more information.
OTHER TRANSACTION POLICIES
Galaxy may refuse any order to buy shares. Galaxy doesn't issue a certificate
when you buy shares but it does keep a record of shares issued to investors.
Sales proceeds are normally wired to your institution or plan administrator on
the next business day but Galaxy reserves the right to send sales proceeds
within seven days if sending proceeds earlier could adversely affect a Fund.
Galaxy may ask for any information it might reasonably need to make sure that
you've authorized a sale of shares.
With respect to the Institutional Government Money Market Fund, Galaxy requires
that a financial institution maintain an average account balance of $2,000,000.
If the balance in the account falls below $2,000,000, Galaxy may require the
financial institution to sell all shares in the account. With respect to the
other Funds, Galaxy may close any account after 60 days' written notice if the
value of the account drops below $250 as a result of selling shares.
HOW TO EXCHANGE SHARES - INSTITUTIONAL GOVERNMENT MONEY MARKET FUND ONLY
If you are a customer of a financial institution, you may exchange Trust Shares
of the Institutional Government Money Market Fund having a value of at least
$100 for Retail A Shares of any other Galaxy Fund or for shares of any other
Fund that's managed by the Adviser or any of its affiliates in which you have an
existing account. Unless you qualify for a waiver, you'll have to pay a sales
charge when you exchange your Trust Shares of the Institutional Government Money
Market Fund for Retail A Shares of another Galaxy Fund that imposes a sales
charge on purchases.
TO EXCHANGE SHARES:
- - call Galaxy's distributor or use the InvestConnect voice response line at
1-877-BUY-GALAXY (1-877-289-4252)
- - send your request in writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI
02940-6520
- - ask your financial institution.
Galaxy doesn't charge any fee for making exchanges but your financial
institution might do so. You are generally limited to three exchanges per year.
Galaxy may refuse any exchange request and may change or cancel the exchange
privilege by giving 60 days' advance written notice to shareholders.
GALAXY MONEY MARKET FUNDS 21
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Fund declares dividends from net investment income daily and pays them
within five business days after the end of each month. Although the Funds do not
expect to realize net long-term capital gains, any capital gains realized will
be distributed at least annually. Dividends and distributions are paid in cash
unless you indicate in the account application or in a letter to Galaxy that you
want to have dividends and distributions reinvested in additional shares.
MONEY MARKET, GOVERNMENT, INSTITUTIONAL GOVERNMENT MONEY MARKET AND U.S.
TREASURY FUNDS
Distributions by these Funds will generally be taxable to shareholders. Each of
these Funds expects that all, or substantially all, of its distributions will
consist of ordinary income. You will be subject to income tax on these
distributions regardless of whether they are paid in cash or reinvested in
additional shares. The one major exception to these tax principles is that
distributions on shares held in an IRA (or other tax-qualified plan) will not be
currently taxable.
TAX-EXEMPT FUND
Distributions by this Fund will generally consist of dividends derived from
interest earned on exempt securities, and these "exempt-interest dividends" will
be exempt income for shareholders for federal income tax purposes. It is
possible, depending upon the Fund's investments, that a portion of the Fund's
distributions could be taxable to shareholders as ordinary income or capital
gains, but the Fund does not expect that this will be the case.
Interest on indebtedness incurred by a shareholder to purchase or carry shares
of this Fund generally will not be deductible for federal income tax purposes.
You should note that a portion of the exempt-interest dividends paid by this
Fund may constitute an item of tax preference for purposes of determining
federal alternative minimum tax liability. Exempt-interest dividends will also
be considered along with other adjusted gross income in determining whether any
Social Security or railroad retirement payments received by you are subject to
federal income taxes.
ALL FUNDS
Taxable dividends paid in January may be taxable as if they had been paid the
previous December. Each year you'll receive in the mail federal tax information
on distributions paid by the Funds.
STATE AND LOCAL TAXES
Generally, shareholders may also be subject to state and local taxes on
distributions and redemptions. State income taxes may not apply however to the
portions of each Fund's distributions, if any, that are attributable to interest
on U.S. Government securities.
22 GALAXY MONEY MARKET FUNDS
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables shown below will help you understand the
financial performance for the Funds' Trust Shares for the past five years (or
the period since Trust Shares were first offered). Certain information reflects
the financial performance of a single Trust Share. The total returns in the
tables represent the rate that an investor would have earned (or lost) on an
investment in Trust Shares of each Fund, assuming all dividends and
distributions were reinvested. This information has been audited by
PricewaterhouseCoopers LLP, independent accountants, whose report, along with
the Funds' financial statements, are included in the Funds' Annual Report and
are incorporated by reference into the SAI. The Annual report and SAI are
available free of charge upon request.
<TABLE>
<CAPTION>
GALAXY MONEY MARKET FUND
(For a share outstanding throughout each period)
FOR THE YEAR ENDING OCTOBER 31,
----------------------------------------------
1998 1997 1996 1995(1)
----------------------------------------------
Trust Shares
- -------------------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00
- -------------------------------------------------------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(2) 0.05 0.05 0.05 0.05
----------------------------------------------------- ---------- ---------- ---------- ----------
Net realized and unrealized
gain (loss) on investments - - - -
----------------------------------------------------- ---------- ---------- ---------- ----------
Total from investment operations 0.05 0.05 0.05 0.05
LESS DIVIDENDS:
Dividends from net investment income (0.05) (0.05) (0.05) (0.05)
----------------------------------------------------- ---------- ---------- ---------- ----------
Dividends from net realized capital gains - - - -
- -------------------------------------------------------- ---------- ---------- ---------- ----------
Total dividends (0.05) (0.05) (0.05) (0.05)
- -------------------------------------------------------- ---------- ---------- ---------- ----------
Net increase (decrease) in net asset value - - - -
- -------------------------------------------------------- ---------- ---------- ---------- ----------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00
- -------------------------------------------------------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Total return 5.23% 5.13% 5.00% 5.43%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $1,262,900 $1,138,185 $924,222 $334,054
----------------------------------------------------- ---------- ---------- ---------- ----------
RATIOS TO AVERAGE NET ASSETS:
Net investment income
including reimbursement/waiver 5.12% 5.04% 4.89% 5.30%
----------------------------------------------------- ---------- ---------- ---------- ----------
Operating expenses including
reimbursement/waiver 0.49% 0.50% 0.55% 0.55%
----------------------------------------------------- ---------- ---------- ---------- ----------
Operating expenses excluding
reimbursement/waiver 0.53% 0.54% 0.58% 0.56%
----------------------------------------------------- ---------- ---------- ---------- ----------
</TABLE>
(1) Prior to November 1, 1994, the Fund offered a single class of shares. As of
such date, the existing class of shares was designated as Retail Shares
(now designated Retail A Shares) and the Fund began issuing a second class
of shares designated as Trust Shares.
(2) Net investment income per share for Trust Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for the years ended October 31, 1998, 1997, 1996 and 1995 was $0.05, $0.05,
$0.05 and $0.05, respectively.
GALAXY MONEY MARKET FUNDS 23
<PAGE>
<TABLE>
<CAPTION>
GALAXY GOVERNMENT FUND
(For a share outstanding throughout each period)
FOR THE YEAR ENDING OCTOBER 31,
----------------------------------------------
1998 1997 1996 1995(1)
----------------------------------------------
Trust Shares
- -------------------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00
- -------------------------------------------------------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(2) 0.05 0.05 0.05 0.05
----------------------------------------------------- ---------- ---------- ---------- ----------
Net realized and unrealized
gain (loss) on investments - - - -
----------------------------------------------------- ---------- ---------- ---------- ----------
Total from investment operations 0.05 0.05 0.05 0.05
LESS DIVIDENDS:
Dividends from net investment income (0.05) (0.05) (0.05) (0.05)
----------------------------------------------------- ---------- ---------- ---------- ----------
Dividends from net realized capital gains - - - -
- -------------------------------------------------------- ---------- ---------- ---------- ----------
Total dividends (0.05) (0.05) (0.05) (0.05)
- -------------------------------------------------------- ---------- ---------- ---------- ----------
Net increase (decrease) in net asset value - - - -
- -------------------------------------------------------- ---------- ---------- ---------- ----------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00
- -------------------------------------------------------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Total return 5.15% 5.06% 4.95% 5.39%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $722,476 $630,859 $733,759 $678,679
----------------------------------------------------- ---------- ---------- ---------- ----------
RATIOS TO AVERAGE NET ASSETS:
Net investment income
including reimbursement/waiver 5.03% 4.94% 4.85% 5.27%
----------------------------------------------------- ---------- ---------- ---------- ----------
Operating expenses including
reimbursement/waiver 0.51% 0.51% 0.52% 0.53%
----------------------------------------------------- ---------- ---------- ---------- ----------
Operating expenses excluding
reimbursement/waiver 0.52% 0.52% 0.53% 0.54%
----------------------------------------------------- ---------- ---------- ---------- ----------
</TABLE>
(1) Prior to November 1, 1994, the Fund offered a single class of shares. As of
such date, the existing class of shares was designated as Retail Shares
(now designated Retail A Shares) and the Fund began issuing a second class
of shares designated as Trust Shares.
(2) Net investment income per share for Trust Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for the years ended October 31, 1998, 1997, 1996 and 1995 was $0.05, $0.05,
$0.05 and $0.05, respectively.
24 GALAXY MONEY MARKET FUNDS
<PAGE>
<TABLE>
<CAPTION>
GALAXY INSTITUTIONAL
GOVERNMENT MONEY MARKET FUND(1)
(For a share outstanding throughout each period)
FOR THE YEAR ENDING OCTOBER 31,
----------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
Trust Shares
- -------------------------------------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00
- -------------------------------------------------------- ---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(2) 0.05 0.05 0.05 0.05 0.04
----------------------------------------------------- ---------- ---------- ---------- ---------- ----------
Net realized and unrealized
gain (loss) on investments - - - - -
----------------------------------------------------- ---------- ---------- ---------- ---------- ----------
Total from investment operations 0.05 0.05 0.05 0.05 0.04
LESS DIVIDENDS:
Dividends from net investment income (0.05) (0.05) (0.05) (0.05) (0.04)
----------------------------------------------------- ---------- ---------- ---------- ---------- ----------
Dividends from net realized capital gains - - - - -
- -------------------------------------------------------- ---------- ---------- ---------- ---------- ----------
Total dividends (0.05) (0.05) (0.05) (0.05) (0.04)
- -------------------------------------------------------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease) in net asset value - - - - -
- -------------------------------------------------------- ---------- ---------- ---------- ---------- ----------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00
- -------------------------------------------------------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total return 5.32% 5.09% 5.12% 5.53% 3.56%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $200,319 $175,141 $500,927 $506,692 $326,225
----------------------------------------------------- ---------- ---------- ---------- ---------- ----------
RATIOS TO AVERAGE NET ASSETS:
Net investment income
including reimbursement/waiver 5.17% 4.94% 5.00% 5.38% 3.63%
----------------------------------------------------- ---------- ---------- ---------- ---------- ----------
Operating expenses including
reimbursement/waiver 0.20% 0.19% 0.19% 0.17% 0.17%
----------------------------------------------------- ---------- ---------- ---------- ---------- ----------
Operating expenses excluding
reimbursement/waiver 0.36% 0.33% 0.33% 0.33% 0.39%
----------------------------------------------------- ---------- ---------- ---------- ---------- ----------
</TABLE>
(1) The Fund was formerly known as the Institutional Treasury Money Market
Fund.
(2) Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for the years ended October
31, 1998, 1997, 1996, 1995 and 1994 was $0.05, $0.05, $0.05, $0.05 and
$0.04, respectively.
GALAXY MONEY MARKET FUNDS 25
<PAGE>
<TABLE>
<CAPTION>
GALAXY U.S. TREASURY FUND
(For a share outstanding throughout each period)
FOR THE YEAR ENDING OCTOBER 31,
----------------------------------------------
1998 1997 1996 1995(1)
----------------------------------------------
Trust Shares
- -------------------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00
- -------------------------------------------------------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(2) 0.05 0.05 0.05 0.05
----------------------------------------------------- ---------- ---------- ---------- ----------
Net realized and unrealized
gain (loss) on investments - - - -
----------------------------------------------------- ---------- ---------- ---------- ----------
Total from investment operations 0.05 0.05 0.05 0.05
LESS DIVIDENDS:
Dividends from net investment income (0.05) (0.05) (0.05) (0.05)
----------------------------------------------------- ---------- ---------- ---------- ----------
Dividends from net realized capital gains - - - -
- -------------------------------------------------------- ---------- ---------- ---------- ----------
Total dividends (0.05) (0.05) (0.05) (0.05)
- -------------------------------------------------------- ---------- ---------- ---------- ----------
Net increase (decrease) in net asset value - - - -
- -------------------------------------------------------- ---------- ---------- ---------- ----------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00
- -------------------------------------------------------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Total return 4.90% 4.85% 4.80% 5.18%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $429,645 $393,175 $354,331 $271,036
----------------------------------------------------- ---------- ---------- ---------- ----------
RATIOS TO AVERAGE NET ASSETS:
Net investment income
including reimbursement/waiver 4.80% 4.75% 4.69% 5.06%
----------------------------------------------------- ---------- ---------- ---------- ----------
Operating expenses including
reimbursement/waiver 0.51% 0.52% 0.53% 0.55%
----------------------------------------------------- ---------- ---------- ---------- ----------
Operating expenses excluding
reimbursement/waiver 0.51% 0.53% 0.53% 0.55%
----------------------------------------------------- ---------- ---------- ---------- ----------
</TABLE>
(1) Prior to November 1, 1994, the Fund offered a single class of shares. As of
such date, the existing class of shares was designated as Retail Shares
(now designated Retail A Shares) and the Fund began issuing a second class
of shares designated as Trust Shares.
(2) Net investment income per share for Trust Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for the years ended October 31, 1998, 1997, 1996 and 1995 was $0.05, $0.05,
$0.05 and $0.05, respectively.
26 GALAXY MONEY MARKET FUNDS
<PAGE>
<TABLE>
<CAPTION>
GALAXY TAX-EXEMPT FUND
(For a share outstanding throughout each period)
FOR THE YEAR ENDING OCTOBER 31,
----------------------------------------------
1998 1997 1996 1995(1)
----------------------------------------------
Trust Shares
- -------------------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00
- -------------------------------------------------------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(2) 0.03 0.03 0.03 0.03
----------------------------------------------------- ---------- ---------- ---------- ----------
Net realized and unrealized
gain (loss) on investments - - - -
----------------------------------------------------- ---------- ---------- ---------- ----------
Total from investment operations 0.03 0.03 0.03 0.03
LESS DIVIDENDS:
Dividends from net investment income (0.03) (0.03) (0.03) (0.03)
----------------------------------------------------- ---------- ---------- ---------- ----------
Dividends from net realized capital gains - - - -
- -------------------------------------------------------- ---------- ---------- ---------- ----------
Total dividends (0.03) (0.03) (0.03) (0.03)
- -------------------------------------------------------- ---------- ---------- ---------- ----------
Net increase (decrease) in net asset value - - - -
- -------------------------------------------------------- ---------- ---------- ---------- ----------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00
- -------------------------------------------------------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Total return 3.03% 3.10% 2.97% 3.29%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $227,176 $169,316 $184,307 $180,706
----------------------------------------------------- ---------- ---------- ---------- ----------
RATIOS TO AVERAGE NET ASSETS:
Net investment income
including reimbursement/waiver 2.99% 3.05% 2.92% 3.24%
----------------------------------------------------- ---------- ---------- ---------- ----------
Operating expenses including
reimbursement/waiver 0.53% 0.53% 0.54% 0.55%
----------------------------------------------------- ---------- ---------- ---------- ----------
Operating expenses excluding
reimbursement/waiver 0.53% 0.53% 0.54% 0.56%
----------------------------------------------------- ---------- ---------- ---------- ----------
</TABLE>
(1) Prior to November 1, 1994, the Fund offered a single class of shares. As of
such date, the existing class of shares was designated as Retail Shares
(now designated Retail A Shares) and the Fund began issuing a second class
of shares designated as Trust Shares.
(2) Net investment income per share for Trust Shares before reimbursement/waiver
of fees by the Adviser and/or the Fund's administrator for the years ended
October 31, 1998, 1997, 1996 and 1995 was $0.03, $0.03, $0.03 and $0.03,
respectively.
GALAXY MONEY MARKET FUNDS 27
<PAGE>
WHERE TO FIND MORE INFORMATION
You'll find more information about the Funds in the following documents:
ANNUAL AND SEMI-ANNUAL REPORTS
Galaxy's annual and semi-annual reports contain more information about each Fund
and a discussion about the market conditions and investment strategies that had
a significant effect on each Fund's performance during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains detailed information about the Funds and their policies. By
law, it's incorporated by reference into (considered to be part of) this
prospectus.
You can get a free copy of these documents, request other information about the
Funds and make shareholder inquiries by calling Galaxy at 1-877-BUY-GALAXY
(1-877-289-4252) or writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
If you buy your shares through a financial institution, you may contact your
institution for more information.
You can write to the Securities and Exchange Commission (SEC) Public Reference
Section and ask them to mail you information about the Funds, including the SAI.
They'll charge you a fee for this service. You can also visit the SEC Public
Reference Room and copy the documents while you're there. For information about
the operation of the Public Reference Room, call the SEC.
Public Reference Section of the SEC
Washington, DC 20549-6009
1-800-SEC-0330.
Reports and other information about the Funds are also available on the SEC's
website at http://www.sec.gov.
Galaxy's Investment Company Act File No. is
811-4636.
PROTRMM 15041 3/1/99 PKG-50
<PAGE>
THE GALAXY FUND
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 28, 1999
GALAXY ASSET ALLOCATION FUND
GALAXY EQUITY INCOME FUND
GALAXY GROWTH AND INCOME FUND
GALAXY STRATEGIC EQUITY FUND
GALAXY EQUITY VALUE FUND
GALAXY EQUITY GROWTH FUND
GALAXY INTERNATIONAL EQUITY FUND
GALAXY SMALL CAP VALUE FUND
GALAXY SMALL COMPANY EQUITY FUND
RETAIL A SHARES, RETAIL B SHARES AND TRUST SHARES
This Statement of Additional Information is not a prospectus. The
prospectuses for the Funds as listed below, as they may be supplemented or
revised from time to time (the "Prospectuses"), as well as the Funds' Annual
Report to Shareholders dated October 31, 1998 (the "Annual Report"), may be
obtained, without charge, by writing:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
or by calling 1-877-BUY-GALAXY (1-877-289-4252)
CURRENT PROSPECTUSES
- - Prospectus for Retail A Shares and Retail B Shares of the Funds dated
February 28, 1999
- - Prospectus for Trust Shares of the Funds dated February 28, 1999
The financial statements included in the Annual Report and the report
thereon of PricewaterhouseCoopers LLP, The Galaxy Funds' independent
accountants, are incorporated by reference into this Statement of Additional
Information.
<PAGE>
TABLE OF CONTENTS
Page
GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
DESCRIPTION OF GALAXY AND ITS SHARES . . . . . . . . . . . . . . . . . . . . 1
INVESTMENT STRATEGIES, POLICIES AND RISKS. . . . . . . . . . . . . . . . . . 4
Asset Allocation Fund . . . . . . . . . . . . . . . . . . . . . . . . . 5
Equity Income Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Growth and Income Fund. . . . . . . . . . . . . . . . . . . . . . . . . 5
Strategic Equity Fund . . . . . . . . . . . . . . . . . . . . . . . . . 6
Equity Value Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Equity Growth Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
International Equity Fund . . . . . . . . . . . . . . . . . . . . . . . 7
Small Cap Value Fund. . . . . . . . . . . . . . . . . . . . . . . . . . 9
Small Company Equity Fund . . . . . . . . . . . . . . . . . . . . . . . 9
Special Risk Considerations . . . . . . . . . . . . . . . . . . . . . .10
Foreign Securities. . . . . . . . . . . . . . . . . . . . . . . . . . .10
European Currency Unification . . . . . . . . . . . . . . . . . . . . .10
Other Investment Policies and Risk Considerations . . . . . . . . . . .11
Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
U.S. Government Obligations and Money Market Instruments. . . . . . . .11
Variable and Floating Rate Obligations. . . . . . . . . . . . . . . . .13
Repurchase and Reverse Repurchase Agreements. . . . . . . . . . . . . .14
Securities Lending. . . . . . . . . . . . . . . . . . . . . . . . . . .15
Investment Company Securities . . . . . . . . . . . . . . . . . . . . .15
REITs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Derivative Securities . . . . . . . . . . . . . . . . . . . . . . . . .16
American, European and Global Depository Receipts . . . . . . . . . . .25
Asset-Backed Securities -- Asset Allocation Fund. . . . . . . . . . . .26
Mortgage-Backed Securities -- Asset Allocation Fund . . . . . . . . . .27
Mortgage Dollar Rolls -- Asset Allocation Fund. . . . . . . . . . . . .27
Convertible Securities. . . . . . . . . . . . . . . . . . . . . . . . .28
When-Issued and Delayed Settlement Transactions - Growth and Income,
Strategic Equity, International Equity and Small Cap Value Funds .29
Restricted and Illiquid Securities. . . . . . . . . . . . . . . . . . .30
Portfolio Securities Generally. . . . . . . . . . . . . . . . . . . . .31
Portfolio Turnover. . . . . . . . . . . . . . . . . . . . . . . . . . .31
INVESTMENT LIMITATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . .31
VALUATION OF PORTFOLIO SECURITIES. . . . . . . . . . . . . . . . . . . . . .38
Valuation of the Asset Allocation, Equity Income, Growth and Income, . .
Strategic Equity, Equity Value, Equity Growth, Small Cap Value and
Small Company Equity Funds . . . . . . . . . . . . . . . . . . . .38
Valuation of the International Equity Fund. . . . . . . . . . . . . . .38
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION . . . . . . . . . . . . . . .39
Purchases of Retail A Shares and Retail B Shares. . . . . . . . . . . .39
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
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<PAGE>
Customers of Institutions . . . . . . . . . . . . . . . . . . . . . . .40
Other Purchase Information. . . . . . . . . . . . . . . . . . . . . . .40
Applicable Sales Charge -- Retail A Shares. . . . . . . . . . . . . . .40
Computation of Offering Price - Retail A Shares . . . . . . . . . . . .42
Quantity Discounts. . . . . . . . . . . . . . . . . . . . . . . . . . .44
Applicable Sales Charge - Retail B Shares . . . . . . . . . . . . . . .46
Characteristics of Retail A Shares and Retail B Shares. . . . . . . . .47
Factors to Consider When Selecting Retail A Shares or Retail B Shares .48
Purchases of Trust Shares . . . . . . . . . . . . . . . . . . . . . . .49
Redemption of Retail A Shares, Retail B Shares and Trust Shares . . . .50
INVESTOR PROGRAMS-RETAIL A SHARES AND RETAIL B SHARES. . . . . . . . . . . .50
Exchange Privilege. . . . . . . . . . . . . . . . . . . . . . . . . . .50
Retirement Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . .51
Automatic Investment Program and Systematic Withdrawal Plan . . . . . .52
Payroll Deduction Program . . . . . . . . . . . . . . . . . . . . . . .53
College Investment Program. . . . . . . . . . . . . . . . . . . . . . .53
Direct Deposit Program. . . . . . . . . . . . . . . . . . . . . . . . .53
TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53
Taxation of Certain Financial Instruments . . . . . . . . . . . . . . .54
TRUSTEES AND OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . . .54
Shareholder and Trustee Liability . . . . . . . . . . . . . . . . . . .58
INVESTMENT ADVISER AND SUB-ADVISER . . . . . . . . . . . . . . . . . . . . .59
Authority to Act as Investment Adviser. . . . . . . . . . . . . . . . .62
ADMINISTRATOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62
CUSTODIAN AND TRANSFER AGENT . . . . . . . . . . . . . . . . . . . . . . . .64
EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .66
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . .66
SHAREHOLDER SERVICES PLAN. . . . . . . . . . . . . . . . . . . . . . . . . .68
DISTRIBUTION AND SERVICES PLAN . . . . . . . . . . . . . . . . . . . . . . .70
DISTRIBUTOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72
AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .75
COUNSEL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .75
PERFORMANCE AND YIELD INFORMATION. . . . . . . . . . . . . . . . . . . . . .75
Performance Reporting . . . . . . . . . . . . . . . . . . . . . . . . .79
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .80
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . .81
APPENDIX A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
APPENDIX B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
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<PAGE>
GENERAL INFORMATION
This Statement of Additional Information should be read in conjunction with
a current Prospectus. This Statement of Additional Information relates to the
Prospectuses for Trust Shares, Retail A Shares and Retail B Shares of the nine
Funds listed on the cover page. Each Fund also offers A Prime Shares and B
Prime Shares, which are described in a separate statement of additional
information and related prospectus. This Statement of Additional Information is
incorporated by reference in its entirety into the Prospectuses. No investment
in shares of the Funds should be made without reading a Prospectus.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUNDS ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL VARY AS A RESULT OF MARKET CONDITIONS OR OTHER FACTORS SO THAT SHARES
OF THE FUNDS, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
THE PRINCIPAL AMOUNT INVESTED.
DESCRIPTION OF GALAXY AND ITS SHARES
The Galaxy Fund ("Galaxy") is an open-end management investment company
currently offering shares of beneficial interest in twenty-nine investment
portfolios: Money Market Fund, Government Fund, U.S. Treasury Fund, Tax-Exempt
Fund, Connecticut Municipal Money Market Fund, Massachusetts Municipal Money
Market Fund, Institutional Government Money Market Fund, Prime Reserves,
Government Reserves, Tax-Exempt Reserves, Equity Value Fund, Equity Growth Fund,
Equity Income Fund, International Equity Fund, Small Company Equity Fund, Asset
Allocation Fund, Small Cap Value Fund, Growth and Income Fund, Strategic Equity
Fund, Short-Term Bond Fund, Intermediate Government Income Fund, High Quality
Bond Fund, Corporate Bond Fund, Tax-Exempt Bond Fund, New Jersey Municipal Bond
Fund, New York Municipal Bond Fund, Connecticut Municipal Bond Fund,
Massachusetts Municipal Bond Fund and Rhode Island Municipal Bond Fund. Galaxy
is also authorized to issue shares of beneficial interest in an additional
investment portfolio, the MidCap Equity Fund. As of the date of this Statement
of Additional Information, however, the MidCap Equity Fund had not commenced
investment operations.
The Growth and Income and Small Cap Value Funds commenced operations on
December 14, 1992 as separate investment portfolios (the "Predecessor Growth and
Income Fund" and "Predecessor Small Cap Value Fund," respectively, and
collectively, the "Predecessor Funds") of The Shawmut Funds, which was organized
as a Massachusetts business trust. On December 4, 1995, the Predecessor Funds
were reorganized as new portfolios of Galaxy. Prior to the reorganization, the
Predecessor Funds offered and sold shares of beneficial interest that were
similar to Galaxy's Trust Shares and Retail A Shares.
<PAGE>
Galaxy was organized as a Massachusetts business trust on March 31, 1986.
Galaxy's Declaration of Trust authorizes the Board of Trustees to classify or
reclassify any unissued shares into one or more classes or series of shares by
setting or changing in any one or more respects their respective preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption. Pursuant to
such authority, the Board of Trustees has authorized the issuance of an
unlimited number of shares in each of the series in the Funds as follows: Class
C shares (Trust Shares), Class C - Special Series 1 shares (Retail A Shares),
Class C - Special Series 2 shares (Retail B Shares), Class C - Special Series 3
shares (A Prime Shares) and Class C - Special Series 4 shares (B Prime Shares),
each series representing interests in the Equity Value Fund; Class G - Series 1
shares (Trust Shares), Class G - Series 2 shares (Retail A Shares), Class G -
Series 3 shares (Retail B Shares), Class G - Series 4 shares (A Prime Shares)
and Class G - Series 5 shares (B Prime Shares), each series representing
interests in the International Equity Fund; Class H - Series 1 shares (Trust
Shares), Class H - Series 2 shares (Retail A Shares), Class H - Series 3 shares
(Retail B Shares), Class H - Series 4 shares (A Prime Shares) and Class H -
Series 5 shares (B Prime Shares), each series representing interests in the
Equity Growth Fund; Class I - Series 1 shares (Trust Shares), Class I- Series 2
shares (Retail A Shares), Class I - Series 3 shares (Retail B Shares), Class I -
Series 4 shares (A Prime Shares) and Class I - Series 5 shares (B Prime Shares),
each series representing interests in the Equity Income Fund; Class K - Series 1
shares (Trust Shares), Class K - Series 2 shares (Retail A Shares), Class K -
Series 3 shares (Retail B Shares), Class K - Series 4 shares (A Prime Shares)
and Class K - Series 5 shares (B Prime Shares), each series representing
interests in the Small Company Equity Fund; Class N - Series 1 shares (Trust
Shares), Class N - Series 2 shares (Retail A Shares), Class N - Series 3 shares
(Retail B Shares), Class N - Series 4 shares (A Prime Shares) and Class N -
Series 5 shares (B Prime Shares), each series representing interests in the
Asset Allocation Fund; Class U - Series 1 shares (Trust Shares), Class U -
Series 2 shares (Retail A Shares), Class U - Series 3 shares (Retail B Shares),
Class U - Series 4 shares (A Prime Shares) and Class U - Series 5 shares (B
Prime Shares), each series representing interests in the Growth and Income Fund;
Class X - Series 1 shares (Trust Shares), Class X - Series 2 shares (Retail A
Shares), Class X - Series 3 shares (Retail B Shares), Class X - Series 4 shares
(A Prime Shares) and Class X - Series 5 shares (B Prime Shares), each series
representing interests in the Small Cap Value Fund; and Class AA - Series 1
shares (Trust Shares), Class AA - Series 2 shares (Retail A Shares), Class AA -
Series 3 shares (Retail B Shares), Class AA - Series 4 shares (A Prime Shares)
and Class AA - Series 5 shares (B Prime Shares), each series representing
interests in the Strategic Equity Fund. Each Fund is classified as a
diversified company under the Investment Company Act of 1940, as amended (the
"1940 Act").
Each share of Galaxy (irrespective of series designation) has a par value
of $.001 per share, represents an equal proportionate interest in the related
investment portfolio with other shares of the same class (irrespective of series
designation), and is entitled to such dividends and distributions out of the
income earned on the assets belonging to such investment portfolio as are
declared in the discretion of Galaxy's Board of Trustees.
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<PAGE>
Shares have no preemptive rights and only such conversion or exchange
rights as the Board of Trustees may grant in its discretion. When issued for
payment as described in the Prospectuses, shares will be fully paid and
non-assessable. Each series of shares (i.e., Retail A Shares, Retail B Shares,
Trust Shares, A Prime Shares and B Prime Shares) bear pro rata the same expenses
and are entitled equally to a Fund's dividends and distributions except as
follows. Each series will bear the expenses of any distribution and/or
shareholder servicing plans applicable to such series. For example, as
described below, holders of Retail A Shares will bear the expenses of the
Shareholder Services Plan for Retail A Shares and Trust Shares (which is
currently applicable only to Retail A Shares) and holders of Retail B Shares
will bear the expenses of the Distribution and Services Plan for Retail B
Shares. In addition, each series may incur differing transfer agency fees and
may have differing sales charges. Standardized yield and total return
quotations are computed separately for each series of shares. The differences
in expenses paid by the respective series will affect their performance. See
"Shareholder Services Plan" and "Distribution and Services Plan" below.
In the event of a liquidation or dissolution of Galaxy or an individual
Fund, shareholders of a particular Fund would be entitled to receive the assets
available for distribution belonging to such Fund, and a proportionate
distribution, based upon the relative asset values of Galaxy's respective Funds,
of any general assets of Galaxy not belonging to any particular Fund, which are
available for distribution. Shareholders of a Fund are entitled to participate
in the net distributable assets of the particular Fund involved in liquidation
based on the number of shares of the Fund that are held by each shareholder,
except that each series of a Fund would be solely responsible for the Fund's
payments under any distribution and/or shareholder servicing plan applicable to
such series.
Holders of all outstanding shares of a particular Fund will vote together
in the aggregate and not by series on all matters, except that only shares of a
particular series of a Fund will be entitled to vote on matters submitted to a
vote of shareholders pertaining to any distribution and/or shareholder servicing
plan for such series (e.g., only Retail A Shares and Trust Shares of a Fund will
be entitled to vote on matters submitted to a vote of shareholders pertaining to
Galaxy's Shareholder Services Plan for Retail A and Trust Shares and only Retail
B Shares of a Fund will be entitled to vote on matters submitted to a vote of
shareholders pertaining to Galaxy's Distribution and Services Plan for Retail B
Shares). Further, shareholders of all of the Funds, as well as those of any
other investment portfolio now or hereafter offered by Galaxy, will vote
together in the aggregate and not separately on a Fund-by-Fund basis, except as
otherwise required by law or when permitted by the Board of Trustees. Rule
18f-2 under the 1940 Act provides that any matter required to be submitted to
the holders of the outstanding voting securities of an investment company such
as Galaxy shall not be deemed to have been effectively acted upon unless
approved by the holders of a majority of the outstanding shares of each Fund
affected by the matter. A particular Fund is deemed to be affected by a matter
unless it is clear that the interests of each Fund in the matter are
substantially identical or that the matter does not affect any interest of the
Fund. Under the Rule, the approval of an investment advisory agreement or any
change in an investment objective or a fundamental investment policy would be
effectively acted upon with respect to a Fund only if approved by a majority of
the outstanding shares of such Fund (irrespective of series designation).
However, the Rule also
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<PAGE>
provides that the ratification of the appointment of independent public
accountants, the approval of principal underwriting contracts, and the election
of trustees may be effectively acted upon by shareholders of Galaxy voting
without regard to class or series.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and will vote in
the aggregate and not by class or series, except as otherwise expressly required
by law or when the Board of Trustees determines that the matter to be voted on
affects only the interests of shareholders of a particular class or series.
Voting rights are not cumulative and, accordingly, the holders of more than 50%
in the aggregate of Galaxy's outstanding shares may elect all of the trustees,
irrespective of the votes of other shareholders.
Galaxy is not required under Massachusetts law to hold annual shareholder
meetings and intends to do so only if required by the 1940 Act. Shareholders
have the right to remove Trustees. Galaxy's Declaration of Trust provides that
a meeting of shareholders shall be called by the Board of Trustees upon a
written request of shareholders owning at least 10% of the outstanding shares of
Galaxy entitled to vote.
Galaxy's Declaration of Trust authorizes the Board of Trustees, without
shareholder approval (unless otherwise required by applicable law), to (a) sell
and convey the assets of a Fund to another management investment company for
consideration which may include securities issued by the purchaser and, in
connection therewith, to cause all outstanding shares of the Fund involved to be
redeemed at a price which is equal to their net asset value and which may be
paid in cash or by distribution of the securities or other consideration
received from the sale and conveyance; (b) sell and convert a Fund's assets into
money and, in connection therewith, to cause all outstanding shares of the Fund
involved to be redeemed at their net asset value; or (c) combine the assets
belonging to a Fund with the assets belonging to another Fund of Galaxy and, in
connection therewith, to cause all outstanding shares of any Fund to be redeemed
at their net asset value or converted into shares of another class of Galaxy's
shares at the net asset value. In the event that shares are redeemed in cash at
their net asset value, a shareholder may receive in payment for such shares, due
to changes in the market prices of the Fund's portfolio securities, an amount
that is more or less than the original investment. The exercise of such
authority by the Board of Trustees will be subject to the provisions of the 1940
Act, and the Board of Trustees will not take any action described in this
paragraph unless the proposed action has been disclosed in writing to the Fund's
shareholders at least 30 days prior thereto.
INVESTMENT STRATEGIES, POLICIES AND RISKS
Fleet Investment Advisors Inc. ("Fleet"), the Funds' investment adviser,
and, with respect to the International Equity Fund, Oechsle International
Advisors, LLC ("Oechsle"), the Fund's sub-adviser, will use their best efforts
to achieve each Fund's investment objective, although such achievement cannot be
assured. The investment objective of a Fund as described in its Prospectuses
may not be changed without the approval of the holders of a majority of its
outstanding shares (as defined under "Miscellaneous"). Except as noted below
under
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<PAGE>
"Investment Limitations," a Fund's investment policies may be changed without
shareholder approval. An investor should not consider an investment in the
Funds to be a complete investment program. The following investment strategies,
policies and risks supplement those set forth in the Funds' Prospectuses.
ASSET ALLOCATION FUND
The Asset Allocation Fund may invest up to 20% of its total assets in
foreign securities. Such foreign investments may be made directly, by
purchasing securities issued or guaranteed by foreign corporations, banks or
governments (or their political subdivisions or instrumentalities) or by
supranational banks or other organizations, or indirectly, by purchasing
American Depository Receipts ("ADRs") and European Depository Receipts ("EDRs").
Examples of supranational banks include the International Bank for
Reconstruction and Development ("World Bank"), the Asian Development Bank and
the InterAmerican Development Bank. Obligations of supranational banks may be
supported by appropriated but unpaid commitments of their member countries and
there is no assurance that those commitments will be undertaken or met in the
future. See "Special Risk Considerations -- Foreign Securities" and "Other
Investment Policies and Risk Considerations -- American, European and Global
Depository Receipts" below. The Fund may also invest in dollar-denominated high
quality debt obligations of U.S. corporations issued outside the United States.
The Fund may purchase put options and call options and write covered call
options, purchase asset-backed securities and mortgage-backed securities and
enter into foreign currency exchange transactions.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Asset Allocation
Fund.
EQUITY INCOME FUND
In addition to common stocks, the Equity Income Fund may also invest in
securities convertible into common stock that offer income potential. See
"Other Investment Policies and Risk Considerations - Convertible Securities"
below. The Fund may invest up to 20% of its total assets in foreign securities,
either directly or indirectly through the purchase of ADRs and EDRs. In
addition, the Fund may invest in securities issued by foreign branches of U.S.
banks and foreign banks. See "Special Risk Considerations -- Foreign
Securities" and "Other Investment Policies and Risk Considerations -- American,
European and Global Depository Receipts" below. The Fund may also purchase put
options and call options and write covered call options. See "Other Investment
Policies and Risk Considerations -- Derivative Securities" below.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Equity Income Fund.
GROWTH AND INCOME FUND
Under normal market conditions, the Growth and Income Fund will invest at
least 65% of its total assets in common stocks, preferred stocks, common stock
warrants and securities
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<PAGE>
convertible into common stock. The Fund may purchase convertible securities,
including convertible preferred stock, convertible bonds or debentures, units
consisting of "usable" bonds and warrants or a combination of the features of
several of these securities. See "Other Investment Policies and Risk
Considerations -- Convertible Securities" below. The Fund may also buy and sell
options and futures contracts and utilize stock index futures contracts,
options, swap agreements, indexed securities, and options on futures contracts.
See "Other Investment Policies and Risk Considerations -- Derivative Securities"
below.
The Fund may invest up to 20% of its total assets in securities of foreign
issuers which are freely traded on United States securities exchanges or in the
over-the-counter market in the form of ADRs, EDRs and Global Depository Receipts
("GDRs"). Securities of a foreign issuer may present greater risks in the form
of nationalization, confiscation, domestic marketability, or other national or
international restrictions. As a matter of practice, the Fund will not invest
in the securities of foreign issuers if any such risk appears to Fleet to be
substantial. See "Special Risk Considerations -- Foreign Securities" and "Other
Investment Policies and Risk Considerations -- American, European and Global
Depository Receipts" below.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Growth and Income
Fund.
STRATEGIC EQUITY FUND
Under normal market and economic conditions, the Strategic Equity Fund will
invest at least 65% of its total assets in equity securities, including common
stocks, preferred stocks, securities convertible into common stock, rights and
warrants. The Fund may invest up to 20% of its total assets in foreign
securities, either directly or indirectly through ADRs, EDRs and GDRs. See
"Special Risk Considerations -- Foreign Securities" and "Other Investment
Policies and Risk Considerations -- American, European and Global Depository
Receipts" below. The Fund may also buy and sell options and futures contracts
and utilize stock index futures contracts, options, swap agreements, indexed
securities and options on futures contracts. See "Other Investment Policies and
Risk Considerations -- Derivative Securities" below.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Strategic Equity
Fund.
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<PAGE>
EQUITY VALUE FUND
Under normal market and economic conditions, the Equity Value Fund invests
at least 75% of its total assets in common stock, preferred stock (including
convertible preferred stock) and debt securities convertible into common stock
that Fleet believes to be undervalued. Debt securities convertible into common
stock are purchased primarily during periods of relative market instability and
are acquired principally for income with the potential for appreciation being a
secondary consideration. See "Other Investment Policies and Risk
Considerations - Convertible Securities" below.
The Fund may also invest up to 20% of its total assets in foreign
securities, either directly or indirectly through ADRs and EDRs. In addition,
the Fund may invest in securities issued by foreign branches of U.S. banks and
foreign banks. See "Special Risk Considerations -- Foreign Securities" and
"Other Investment Policies and Risk Considerations -- American, European and
Global Depository Receipts" below. The Fund may also write covered call
options. See "Other Investment Policies and Risk Considerations -- Derivative
Securities" below.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Equity Value Fund.
EQUITY GROWTH FUND
Convertible securities purchased by the Equity Growth Fund may include both
debt securities and preferred stock. By investing in convertible securities,
the Fund will seek the opportunity, through the conversion feature, to
participate in the capital appreciation of the common stock into which the
securities are convertible. See "Other Investment Policies and Risk
Considerations -- Convertible Securities" below. The Fund may also invest in
common stock warrants.
The Fund may invest up to 20% of its total assets in foreign securities,
either directly or indirectly through the purchase of ADRs and EDRs. In
addition, the Fund may invest in securities issued by foreign branches of U.S.
banks and foreign banks. See "Special Risk Considerations -- Foreign
Securities" and "Other Investment Policies and Risk Considerations -- American,
European and Global Depository Receipts" below. The Fund may also purchase put
options and call options and write covered call options. See "Other Investment
Policies and Risk Considerations -- Derivative Securities" below.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Equity Growth Fund.
INTERNATIONAL EQUITY FUND
The International Equity Fund invests at least 75% of its total assets in
equity securities of foreign issuers. The Fund may invest in securities of
issuers located in a variety of different foreign regions and countries,
including, but not limited to, Australia, Austria, Belgium, Brazil,
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<PAGE>
Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy,
Japan, Luxembourg, Malaysia, Mexico, the Netherlands, New Zealand, Norway,
Portugal, Singapore, Spain, Sweden, Switzerland, Thailand and the United
Kingdom.
The Fund invests in common stock and may invest in other securities with
equity characteristics, consisting of trust or limited partnership interests,
preferred stock, rights and warrants. The Fund may also invest in convertible
securities, consisting of debt securities or preferred stock that may be
converted into common stock or that carry the right to purchase common stock.
See "Other Investment Policies and Risk Considerations -- Convertible
Securities" below. The Fund invests in securities listed on foreign or domestic
securities exchanges and securities traded in foreign or domestic
over-the-counter markets, and may invest in unlisted securities.
Securities issued in certain countries are currently accessible to the Fund
only through investment in other investment companies that are specifically
authorized to invest in such securities. The limitations on the Fund's
investment in other investment companies are described below under "Other
Investment Policies and Risk Considerations -- Investment Company Securities."
In addition to temporary defensive periods as described in the
Prospectuses, when the Fund experiences large cash inflows from the issuance of
new shares or the sale of portfolio securities, and desirable equity securities
that are consistent with the Fund's investment objective are unavailable in
sufficient quantities, the Fund may hold short-term investments for a limited
time pending availability of suitable equity securities.
Subject to applicable securities regulations, the Fund may, for the purpose
of hedging its portfolio, purchase and write covered call options on specific
portfolio securities and may purchase and write put and call options on foreign
stock indexes listed on foreign and domestic stock exchanges. In addition, the
Fund may invest up to 100% of its total assets in securities of foreign issuers
in the form of ADRs, EDRs or GDRs as described under "Other Investment Policies
and Risk Considerations-American, European and Global Depository Receipts."
Furthermore, the Fund may purchase and sell securities on a when-issued basis.
See "Other Investment Policies and Risk Considerations" below regarding
additional investment policies of the International Equity Fund.
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<PAGE>
SMALL CAP VALUE FUND
In addition to common stocks, the Small Cap Value Fund may purchase
convertible securities, including convertible preferred stock, convertible bonds
or debentures, units consisting of "usable" bonds and warrants or a combination
of the features of several of these securities. See "Other Investment Policies
and Risk Considerations -- Convertible Securities" below. The Fund may also buy
and sell options and futures contracts and utilize stock index futures
contracts, options, swap agreements, indexed securities, and options on futures
contracts. See "Other Investment Policies and Risk Considerations -- Derivative
Securities" below.
The Fund may invest up to 20% of its total assets in securities of foreign
issuers which are freely traded on United States securities exchanges or in the
over-the-counter market in the form of ADRs, EDRs and GDRs. Securities of a
foreign issuer may present greater risks in the form of nationalization,
confiscation, domestic marketability, or other national or international
restrictions. As a matter of practice, the Fund will not invest in the
securities of a foreign issuer if any such risk appears to Fleet to be
substantial. See "Special Risk Considerations -- Foreign Securities" and "Other
Investment Policies and Risk Considerations -- American, European and Global
Depository Receipts" below.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Small Cap Value
Fund.
SMALL COMPANY EQUITY FUND
In addition to common stocks, the Small Company Equity Fund may invest in
preferred stock, securities convertible into common stock, rights and warrants.
Under normal market and economic conditions, at least 65% of the Fund's total
assets will be invested in the equity securities of companies that have market
capitalizations of $1.5 billion or less. The Fund may invest up to 20% of its
total assets in foreign securities, either directly or indirectly through ADRs
and EDRs. See "Special Risk Considerations -- Foreign Securities" and "Other
Investment Policies and Risk Considerations -- American, European and Global
Depository Receipts" below.
The Fund may purchase put options and call options and write covered call
options as a hedge against changes resulting from market conditions and in the
value of the securities held in the Fund or which it intends to purchase and
where the transactions are economically appropriate for the reduction of risks
inherent in the ongoing management of the Fund. See "Other Investment Policies
and Risk Considerations -- Derivative Securities" below.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Small Company Equity
Fund.
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SPECIAL RISK CONSIDERATIONS
FOREIGN SECURITIES
Investments in foreign securities may involve higher costs than investments
in U.S. securities, including higher transaction costs, as well as the
imposition of additional taxes by foreign governments. In addition, foreign
investments may include additional risks associated with currency exchange
rates, less complete financial information about the issuers, less market
liquidity, and political instability. Future political and economic
developments, the possible imposition of withholding taxes on interest income,
the possible seizure or nationalization of foreign holdings, the possible
establishment of exchange controls, or the adoption of other governmental
restrictions, might adversely affect the payment of dividends or principal and
interest on foreign obligations.
Although each of the Funds may invest in securities denominated in foreign
currencies, each Fund values its securities and other assets in U.S. dollars.
As a result, the net asset value of a Fund's shares may fluctuate with U.S.
dollar exchange rates as well as with price changes of the Fund's securities in
the various local markets and currencies. Thus, an increase in the value of the
U.S. dollar compared to the currencies in which a Fund makes its investments
could reduce the effect of increases and magnify the effect of decreases in the
price of a Fund's securities in their local markets. Conversely, a decrease in
the value of the U.S. dollar will have the opposite effect of magnifying the
effect of increases and reducing the effect of decreases in the prices of a
Fund's securities in their local markets. In addition to favorable and
unfavorable currency exchange rate developments, the Funds are subject to the
possible imposition of exchange control regulations or freezes on convertibility
of currency.
Certain of the risks associated with investments in foreign securities are
heightened with respect to investments in countries with emerging economies or
emerging securities markets. The risks of expropriation, nationalization and
social, political and economic instability are greater in those countries than
in more developed capital markets.
EUROPEAN CURRENCY UNIFICATION
Many European countries have adopted a single European currency, the euro.
On January 1, 1999, the euro became legal tender for all countries participating
in the Economic and Monetary Union ("EMU"). A new European Central Bank has
been created to manage the monetary policy of the new unified region. On the
same date, the exchange rates were irrevocably fixed between the EMU member
countries. National currencies will continue to circulate until they are
replaced by euro coins and bank notes by the middle of 2002.
This change is likely to significantly impact the European capital markets
in which the International Equity Fund invests and may result in the Fund facing
additional risks in pursuing its investment objective. These risks, which
include, but are not limited to, uncertainty as to the proper tax treatment of
the currency conversion, volatility of currency exchange rates as a result of
the conversion, uncertainty as to capital market reaction, conversion costs that
may affect
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issuer profitability and creditworthiness, and lack of participation by some
European countries, may increase the volatility of the Fund's net asset value
per share.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in the Prospectuses and this Statement of
Additional Information are among those which one or more of the Funds have the
power to utilize. Some may be employed on a regular basis; others may not be
used at all. Accordingly, reference to any particular method or technique
carries no implication that it will be utilized or, if it is, that it will be
successful.
RATINGS
All debt obligations, including convertible bonds, purchased by the Asset
Allocation, Equity Income, Strategic Equity, Equity Value, Equity Growth and
Small Company Equity Funds are rated investment grade by Moody's Investors
Service, Inc. ("Moody's") ("Aaa," "Aa," "A" and "Baa") or Standard & Poor's
Ratings Group ("S&P") ("AAA," "AA," "A" and "BBB"), or, if not rated, are
determined to be of comparable quality by Fleet. Debt securities rated "Baa" by
Moody's or "BBB" by S&P are generally considered to be investment grade
securities although they have speculative characteristics and changes in
economic conditions or circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case for higher
rated debt obligations.
The International Equity Fund may only purchase debt securities rated "A"
or higher by Moody's or S&P, or if unrated, determined by Fleet or Oechsle to be
of comparable quality. Issuers of commercial paper, bank obligations or
repurchase agreements in which the International Equity Fund invests must have,
at the time of investment, outstanding debt rated A or higher by Moody's or S&P,
or, if they are not rated, the instrument purchased must be determined to be of
comparable quality.
The Growth and Income and Small Cap Value Funds may purchase convertible
bonds rated "Ba" or higher by Moody's or "BB" or higher by S&P or Fitch IBCA,
Inc. ("Fitch IBCA"), at the time of investment. See "Other Investment Policies
and Risk Considerations -- Convertible Securities" below for a discussion of the
risks of investing in convertible bonds rated either "Ba" or "BB." Short-term
money market instruments purchased by the Growth and Income and Small Cap Value
Funds must be rated in one of the top two rating categories by a nationally
recognized statistical rating agency, such as Moody's, S&P or Fitch IBCA.
U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS
Each Fund may, in accordance with its investment policies, invest from time
to time in obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities and in other "money market" instruments, including bank
obligations and commercial paper.
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Examples of the types of obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities (hereinafter, "U.S. Government
obligations") that may be held by the Funds include, without limitation, direct
obligations of the U.S. Treasury, and securities issued or guaranteed by the
Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, Federal
Housing Administration, Farmers Home Administration, Export-Import Bank of the
United States, Small Business Administration, Government National Mortgage
Association, Federal National Mortgage Association, General Services
Administration, Central Bank for Cooperatives, Federal Home Loan Mortgage
Corporation, Federal Intermediate Credit Banks, Resolution Trust Corporation and
Maritime Administration.
U.S. Treasury securities differ only in their interest rates, maturities
and time of issuance: Treasury Bills have initial maturities of one year or
less; Treasury Notes have initial maturities of one to ten years; and Treasury
Bonds generally have initial maturities of more than ten years. Obligations of
certain agencies and instrumentalities of the U.S. Government, such as those of
the Government National Mortgage Association, are supported by the full faith
and credit of the U.S. Treasury; others, such as those of the Federal Home Loan
Banks, are supported by the right of the issuer to borrow from the Treasury;
others, such as those of the Federal National Mortgage Association, are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; still others, such as those of the Federal Home Loan
Mortgage Corporation, are supported only by the credit of the instrumentality.
No assurance can be given that the U.S. Government would provide financial
support to U.S. Government-sponsored instrumentalities if it is not obligated to
do so by law. Some of these instruments may be variable or floating rate
instruments.
Bank obligations include bankers' acceptances, negotiable certificates of
deposit and non-negotiable time deposits issued for a definite period of time
and earning a specified return by a U.S. bank which is a member of the Federal
Reserve System or is insured by the Federal Deposit Insurance Corporation
("FDIC"), or by a savings and loan association or savings bank which is insured
by the FDIC. With respect to each Fund other than the Growth and Income and
Small Cap Value Funds, bank obligations also include U.S. dollar-denominated
obligations of foreign branches of U.S. banks or of U.S. branches of foreign
banks, all of the same type as domestic bank obligations. Investments in bank
obligations are limited to the obligations of financial institutions having more
than $1 billion in total assets at the time of purchase. Time deposits with a
maturity longer than seven days or that do not provide for payment within seven
days after notice will be limited to 10% (15% with respect to the Strategic
Equity Fund, Growth and Income Fund and Small Cap Value Fund) of a Fund's net
assets. Investments by the Funds in non-negotiable time deposits are limited to
no more than 5% of each Fund's total assets at the time of purchase.
Domestic and foreign banks are subject to extensive but different
government regulation which may limit the amount and types of their loans and
the interest rates that may be charged. In addition, the profitability of the
banking industry is largely dependent upon the availability and cost of funds to
finance lending operations and the quality of underlying bank assets.
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<PAGE>
Investments in obligations of foreign branches of U.S. banks and U.S.
branches of foreign banks may subject a Fund to additional risks, including
future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of foreign governmental restrictions which might adversely affect the
payment of principal and interest on such obligations. In addition, foreign
branches of U.S. bank and U.S. branches of foreign banks may be subject to less
stringent reserve requirements and to different accounting, auditing, reporting
and recordkeeping standards than those applicable to domestic branches of U.S.
banks. Such investments may also subject a Fund to investment risks similar to
those accompanying direct investments in foreign securities. See "Special Risk
Considerations -- Foreign Securities." The Funds will invest in the obligations
of U.S. branches of foreign banks or foreign branches of U.S. banks only when
Fleet and/or Oechsle believe that the credit risk with respect to the instrument
is minimal.
Commercial paper may include variable and floating rate instruments which
are unsecured instruments that permit the indebtedness thereunder to vary.
Variable rate instruments provide for periodic adjustments in the interest rate.
Floating rate instruments provide for automatic adjustment of the interest rate
whenever some other specified interest rate changes. Some variable and floating
rate obligations are direct lending arrangements between the purchaser and the
issuer and there may be no active secondary market. However, in the case of
variable and floating rate obligations with a demand feature, a Fund may demand
payment of principal and accrued interest at a time specified in the instrument
or may resell the instrument to a third party. In the event that an issuer of a
variable or floating rate obligation defaulted on its payment obligation, a Fund
might be unable to dispose of the note because of the absence of a secondary
market and could, for this or other reasons, suffer a loss to the extent of the
default. The Funds may also purchase Rule 144A securities. See "Investment
Limitations" below.
VARIABLE AND FLOATING RATE OBLIGATIONS
The Funds may purchase variable and floating rate instruments in accordance
with their investment objectives and policies as described in the Prospectuses
and this Statement of Additional Information. If such an instrument is not
rated, Fleet or Oechsle, must determine that such instrument is comparable to
rated instruments eligible for purchase by the Funds and will consider the
earning power, cash flows and other liquidity ratios of the issuers and
guarantors of such instruments and will continuously monitor their financial
status in order to meet payment on demand. In determining average weighted
portfolio maturity of each of these Funds, a variable or floating rate
instrument issued or guaranteed by the U.S. Government or an agency or
instrumentality thereof will be deemed to have a maturity equal to the period
remaining until the obligation's next interest rate adjustment. Long-term
variable and floating rate obligations with a demand feature will be deemed to
have a maturity equal to the longer of the period remaining to the next interest
rate adjustment or the demand notice period.
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REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
Each Fund may purchase portfolio securities subject to the seller's
agreement to repurchase them at a mutually specified date and price ("repurchase
agreements"). Repurchase agreements will be entered into only with financial
institutions such as banks and broker/dealers which are deemed to be
creditworthy by Fleet and/or Oechsle under guidelines approved by Galaxy's Board
of Trustees. No Fund will enter into repurchase agreements with Fleet or
Oechsle or any of their affiliates. Unless a repurchase agreement has a
remaining maturity of seven days or less or may be terminated on demand upon
notice of seven days or less, the repurchase agreement will be considered an
illiquid security and will be subject to the 10% limit (15% with respect to the
Strategic Equity Fund) described below in Investment Limitation No. 3 under
"Investment Limitations" with respect to the Asset Allocation, Equity Income,
Strategic Equity, Equity Value, Equity Growth, International Equity and Small
Company Equity Funds, and to the 15% limit described below in Investment
Limitation No. 23 under "Investment Limitations" with respect to the Growth and
Income and Small Cap Value Funds.
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by a Fund at
not less than the agreed upon repurchase price. If the seller defaulted on its
repurchase obligation, the Fund holding such obligation would suffer a loss to
the extent that the proceeds from a sale of the underlying securities (including
accrued interest) were less than the repurchase price (including accrued
interest) under the agreement. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the Fund
might be delayed pending court action.
The repurchase price under a repurchase agreement generally equals the
price paid by a Fund plus interest negotiated on the basis of current short-term
rates (which may be more or less than the rate on the securities underlying the
repurchase agreement). Securities subject to a repurchase agreements will be
held by a Fund's custodian or sub-custodian in a segregated account or in the
Federal Reserve/Treasury book-entry system. Repurchase agreements are
considered to be loans by a Fund under the 1940 Act.
Each Fund may also borrow funds for temporary purposes by selling portfolio
securities to financial institutions such as banks and broker/dealers and
agreeing to repurchase them at a mutually specified date and price ("reverse
repurchase agreements"). Reverse repurchase agreements involve the risk that
the market value of the securities sold by a Fund may decline below the
repurchase price. The Funds would pay interest on amounts obtained pursuant to
a reverse repurchase agreement. Whenever a Fund enters into a reverse
repurchase agreement, it will place in a segregated custodial account liquid
assets such as cash or liquid portfolio securities equal to the repurchase price
(including accrued interest). The Fund will monitor the account to ensure such
equivalent value is maintained. Reverse repurchase agreements are considered to
be borrowings by a Fund under the 1940 Act.
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<PAGE>
SECURITIES LENDING
Each Fund may lend its portfolio securities to financial institutions such
as banks and broker/dealers in accordance with the investment limitations
described below. Such loans would involve risks of delay in receiving
additional collateral or in recovering the securities loaned or even loss of
rights in the collateral, should the borrower of the securities fail
financially. Any portfolio securities purchased with cash collateral would also
be subject to possible depreciation. A Fund that loans portfolio securities
would continue to accrue interest on the securities loaned and would also earn
income on the loans. Any cash collateral received by the Funds would be
invested in high quality, short-term "money market" instruments. Loans will
generally be short-term (except in the case of the Growth and Income and Small
Cap Value Funds which may loan their securities on a long-term or short-term
basis or both), will be made only to borrowers deemed by Fleet and/or Oechsle to
be of good standing and only when, in Fleet's and/or Oechsle's judgment, the
income to be earned from the loan justifies the attendant risks. The Funds
currently intend to limit the lending of their portfolio securities so that, at
any given time, securities loaned by a Fund represent not more than one-third of
the value of its total assets.
INVESTMENT COMPANY SECURITIES
The Asset Allocation, Equity Income, Equity Value, Equity Growth,
International Equity and Small Company Equity Funds may invest in securities
issued by other investment companies which invest in high quality, short-term
debt securities and which determine their net asset value per share based on the
amortized cost or penny-rounding method. The International Equity Fund may also
purchase shares of investment companies investing primarily in foreign
securities, including so-called "country funds." Country funds have portfolios
consisting exclusively of securities of issuers located in one foreign country.
The Growth and Income, Strategic Equity and Small Cap Value Funds may invest in
other investment companies primarily for the purpose of investing their
short-term cash which has not yet been invested in other portfolio instruments.
However, from time to time, on a temporary basis, the Growth and Income,
Strategic Equity and Small Cap Value Funds may invest exclusively in one other
investment company similar to the respective Funds. Investments in other
investment companies will cause a Fund (and, indirectly, the Fund's
shareholders) to bear proportionately the costs incurred in connection with the
investment companies' operations. Except as provided above with respect to the
Growth and Income, Strategic Equity and Small Cap Value Funds, securities of
other investment companies will be acquired by a Fund within the limits
prescribed by the 1940 Act. Each Fund currently intends to limit its
investments so that, as determined immediately after a securities purchase is
made: (a) not more than 5% of the value of its total assets will be invested in
the securities of any one investment company; (b) not more than 10% of the value
of its total assets will be invested in the aggregate in securities of other
investment companies as a group; (c) not more than 3% of the outstanding voting
stock of any one investment company will be owned by the Fund; and (d) not more
than 10% of the outstanding voting stock of any one closed-end investment
company will be owned in the aggregate by the Fund, other investment portfolios
of Galaxy, or any other investment companies advised by Fleet or Oechsle.
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REITS
Each Fund may invest up to 10% of its net assets in real estate investment
trusts ("REITs"). Equity REITs invest directly in real property while mortgage
REITs invest in mortgages on real property. REITs may be subject to certain
risks associated with the direct ownership of real estate, including declines in
the value of real estate, risks related to general and local economic
conditions, overbuilding and increased competition, increases in property taxes
and operating expenses, and variations in rental income. Generally, increases
in interest rates will decrease the value of high yielding securities and
increase the costs of obtaining financing, which could decrease the value of a
REIT's investments. In addition, equity REITs may be affected by changes in the
value of the underlying property owned by the REITs, while mortgage REITs may be
affected by the quality of credit extended. Equity and mortgage REITs are
dependent upon management skill, are not diversified and are subject to the
risks of financing projects. REITs are also subject to heavy cash flow
dependency, defaults by borrowers, self liquidation and the possibility of
failing to qualify for tax-free pass-through of income under the Internal
Revenue Code of 1986, as amended (the "Code"), and to maintain exemption from
the 1940 Act. REITs pay dividends to their shareholders based upon available
funds from operations. It is quite common for these dividends to exceed a
REIT's taxable earnings and profits resulting in the excess portion of such
dividends being designated as a return of capital. Each Fund intends to include
the gross dividends from any investments in REITs in its periodic distributions
to its shareholders and, accordingly, a portion of the Fund's distributions may
also be designated as a return of capital.
DERIVATIVE SECURITIES
The Funds may from time to time, in accordance with their respective
investment policies, purchase certain "derivative" securities. Derivative
securities are instruments that derive their value from the performance of
underlying assets, interest or currency exchange rates, or indices, and include,
but are not limited to, put and call options, stock index futures and options,
indexed securities and swap agreements, foreign currency exchange contracts and
certain asset-backed and mortgage-backed securities.
Derivative securities present, to varying degrees, market risk that the
performance of the underlying assets, interest or exchange rates or indices will
decline; credit risk that the dealer or other counterparty to the transaction
will fail to pay its obligations; volatility and leveraging risk that, if
interest or exchange rates change adversely, the value of the derivative
security will decline more than the assets, rates or indices on which it is
based; liquidity risk that a Fund will be unable to sell a derivative security
when it wants because of lack of market depth or market disruption; pricing risk
that the value of a derivative security will not correlate exactly to the value
of the underlying assets, rates or indices on which it is based; and operations
risk that loss will occur as a result of inadequate systems and controls, human
error or otherwise. Some derivative securities are more complex than others,
and for those instruments that have been developed recently, data are lacking
regarding their actual performance over complete market cycles.
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Fleet and/or Oechsle will evaluate the risks presented by the derivative
securities purchased by the Funds, and will determine, in connection with their
day-to-day management of the Funds, how such securities will be used in
furtherance of the Funds' investment objectives. It is possible, however, that
Fleet's and/or Oechsle's evaluations will prove to be inaccurate or incomplete
and, even when accurate and complete, it is possible that the Funds will,
because of the risks discussed above, incur loss as a result of their
investments in derivative securities. Further discussion of particular types of
derivative securities follows.
PUT AND CALL OPTIONS -- ASSET ALLOCATION, EQUITY INCOME, EQUITY GROWTH AND
SMALL COMPANY EQUITY FUNDS. The Asset Allocation, Equity Income, Equity Growth
and Small Company Equity Funds may purchase put options and call options on
securities and securities indices. A put option gives the buyer the right to
sell, and the writer the obligation to buy, the underlying security at the
stated exercise price at any time prior to the expiration of the option. A call
option gives the buyer the right to buy the underlying security at the stated
exercise price at any time prior to the expiration of the option. Options
involving securities indices provide the holder with the right to make or
receive a cash settlement upon exercise of the option based on movements in the
relevant index. Such options must be listed on a national securities exchange
and issued by the Options Clearing Corporation. Such options may relate to
particular securities or to various stock indexes, except that a Fund may not
write covered call options on an index. A Fund may not purchase options unless
immediately after any such transaction the aggregate amount of premiums paid for
put or call options does not exceed 5% of its total assets. Purchasing options
is a specialized investment technique that may entail the risk of a complete
loss of the amounts paid as premiums to the writer of the option.
In order to close out put or call option positions, a Fund will be required
to enter into a "closing purchase transaction" -- the purchase of a put or call
option (depending upon the position being closed out) on the same security with
the same exercise price and expiration date as the option that it previously
wrote. When a portfolio security subject to a call option is sold, a Fund will
effect a closing purchase transaction to close out any existing call option on
that security. If a Fund is unable to effect a closing purchase transaction, it
will not be able to sell the underlying security until the option expires or a
Fund delivers the underlying security upon exercise.
In contrast to an option on a particular security, an option on an index
provides the holder with the right to make or receive a cash settlement upon
exercise of the option. The amount of this settlement will be equal to the
difference between the closing price of the index at the time of exercise and
the exercise price of the option expressed in dollars, times a specified
multiple.
When a Fund purchases a put or call option, the premium paid by it is
recorded as an asset of the Fund. The amount of this asset will be subsequently
marked-to-market to reflect the current value of the option purchased. The
current value of the traded option is the last sale price or, in the absence of
a sale, the average of the closing bid and asked prices. If an option purchased
by a Fund expires unexercised, the Fund realizes a loss equal to the premium
paid. If a Fund enters into a closing sale transaction on an option purchased
by it, the Fund will realize a
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gain if the premium received by the Fund on the closing transaction is more than
the premium paid to purchase the option, or a loss if it is less.
There are several risks associated with transactions in options on
securities. For example, there are significant differences between the
securities and options markets which could result in an imperfect correlation
between the markets, causing a given transaction not to achieve its objectives.
In addition, a liquid secondary market for particular options, whether traded
over-the-counter or on a national securities exchange may be absent for reasons
which include the following: there may be insufficient trading interest in
certain options; restrictions may be imposed by an exchange on opening
transactions, closing transactions or both; trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options or underlying securities; unusual or unforeseen circumstances may
interrupt normal operations on an exchange; the facilities of an exchange or the
Options Clearing Corporation may not at all times be adequate to handle current
trading volume; or one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that exchange (or in that class or series of options) would cease to
exist, although outstanding options that had been issued by the Options Clearing
Corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms. A Fund will likely be unable to
control losses by closing its position where a liquid secondary market does not
exist. Moreover, regardless of how much the market price of the underlying
security increases or decreases, the option buyer's risk is limited to the
amount of the original investment for the purchase of the option. However,
options may be more volatile than their underlying securities, and therefore, on
a percentage basis, an investment in options may be subject to greater
fluctuation than an investment in the underlying securities.
A decision as to whether, when and how to use options involves the exercise
of skill and judgment, and even a well-conceived transaction may be unsuccessful
to some degree because of market behavior or unexpected events.
COVERED CALL OPTIONS -- ASSET ALLOCATION, EQUITY INCOME, EQUITY VALUE,
EQUITY GROWTH, INTERNATIONAL EQUITY AND SMALL COMPANY EQUITY FUNDS. To further
increase return on their portfolio securities, in accordance with their
respective investment objectives and policies, the Asset Allocation, Equity
Income, Equity Value, Equity Growth, International Equity and Small Company
Equity Funds may engage in writing covered call options (options on securities
owned by a Fund) and may enter into closing purchase transactions with respect
to such options. Such options must be listed on a national securities exchange
and issued by the Options Clearing Corporation. The aggregate value of the
securities subject to options written by the Asset Allocation, Equity Income,
Equity Value, Equity Growth, International Equity and Small Company Equity Funds
may not exceed 25% of the value of their respective net assets. By writing a
covered call option, a Fund forgoes the opportunity to profit from an increase
in the market price of the underlying security above the exercise price, except
insofar as the premium represents such a profit. A Fund will not be able to
sell the underlying security until the option expires or is exercised or the
Fund effects a closing purchase transaction by purchasing an option
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of the same series. Such options will normally be written on underlying
securities as to which Fleet and/or Oechsle does not anticipate significant
short-term capital appreciation.
The Funds may write listed covered call options. A listed call option
gives the purchaser of the option the right to buy from a clearing corporation,
and obligates the writer to sell to the clearing corporation, the underlying
security at the stated exercise price at any time prior to the expiration of the
option, regardless of the market price of the security. The premium paid to the
writer is consideration for undertaking the obligations under the option
contract. If an option expires unexercised, the writer realizes a gain in the
amount of the premium. Such a gain may be offset by a decline in the market
price of the underlying security during the option period.
A Fund may terminate its obligation to sell prior to the expiration date of
the option by executing a closing purchase transaction, which is effected by
purchasing on an exchange an option of the same series (I.E., same underlying
security, exercise price and expiration date) as the option previously written.
Such a purchase does not result in the ownership of an option. A closing
purchase transaction will ordinarily be effected to realize a profit on an
outstanding call option, to prevent an underlying security from being called, to
permit the sale of the underlying security or to permit the writing of a new
call option containing different terms on such underlying security. The cost of
such a liquidating purchase plus transaction costs may be greater than the
premium received upon the original option, in which event the writer will have
incurred a loss in the transaction. An option position may be closed out only
on an exchange that provides a secondary market for an option of the same
series. There is no assurance that a liquid secondary market on an exchange will
exist for any particular option. A covered option writer, unable to effect a
closing purchase transaction, will not be able to sell the underlying security
until the option expires or the underlying security is delivered upon exercise.
The writer in such circumstances will be subject to the risk of market decline
of the underlying security during such period. A Fund will write an option on a
particular security only if Fleet and/or Oechsle believes that a liquid
secondary market will exist on an exchange for options of the same series, which
will permit the Fund to make a closing purchase transaction in order to close
out its position.
When a Fund writes an option, an amount equal to the net premium (the
premium less the commission) received by the Fund is included as a deferred
credit in the liability section of the Fund's statement of assets and
liabilities. The amount of the deferred credit will be subsequently
marked-to-market to reflect the current value of the option written. The
current value of the traded option is the last sale price or, in the absence of
a sale price, the average of the closing bid and asked prices. If an option
expires on the stipulated expiration date or if a Fund enters into a closing
purchase transaction, it will realize a gain (or loss if the cost of a closing
purchase transaction exceeds the net premium received when the option is sold),
and the deferred credit related to such option will be eliminated. If an option
is exercised, the Fund may deliver the underlying security from its portfolio
and purchase the underlying security in the open market. In either event, the
proceeds of the sale will be increased by the net premium originally received,
and the Fund will realize a gain or loss. Premiums from expired call options
written by a Fund and net gains from closing purchase transactions are treated
as short-term capital gains for federal income tax purposes, and losses on
closing purchase transactions are treated as short-term capital losses.
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OPTIONS ON FOREIGN STOCK INDEXES -- INTERNATIONAL EQUITY FUND. The
International Equity Fund may, for the purpose of hedging its portfolio, subject
to applicable securities regulations purchase and write put and call options on
foreign stock indexes listed on foreign and domestic stock exchanges. A stock
index fluctuates with changes in the market values of the stocks included in the
index. Examples of foreign stock indexes are the Canadian Market Portfolio
Index (Montreal Stock Exchange), The Financial Times -- Stock Exchange 100
(London Stock Exchange) and the Toronto Stock Exchange Composite 300 (Toronto
Stock Exchange).
Options on stock indexes are generally similar to options on stock except
that the delivery requirements are different. Instead of giving the right to
take or make delivery of stock at a specified price, an option on a stock index
gives the holder the right to receive a cash "exercise settlement amount" equal
to (a) the amount, if any, by which the fixed exercise price of the option
exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying index on the date of exercise, multiplied by (b)
a fixed "index multiplier." Receipt of this cash amount will depend upon the
closing level of the stock index upon which the option is based being greater
than, in the case of a call, or less than, in the case of a put, the exercise
price of the option. The writer of the option is obligated, in return for the
premium received, to make delivery of this amount. The writer may offset its
position in stock index options prior to expiration by entering into a closing
transaction on an exchange or the option may expire unexercised.
The effectiveness of purchasing or writing stock index options as a hedging
technique will depend upon the extent to which price movements in the portion of
the securities portfolio of the International Equity Fund correlate with price
movements of the stock index selected. Because the value of an index option
depends upon movements in the level of the index rather than the price of a
particular stock, whether the Fund realizes a gain or loss from the purchase or
writing of options on an index is dependent upon movements in the level of stock
prices in the stock market generally or, in the case of certain indexes, in an
industry or market segment, rather than movements in the price of a particular
stock. Accordingly, successful use by the Fund of options on stock indexes will
be subject to Fleet's and/or Oechsle's ability to predict correctly movements in
the direction of the stock market generally or of a particular industry. This
requires different skills and techniques than predicting changes in the price of
individual stocks. There can be no assurance that such judgment will be
accurate or that the use of these portfolio strategies will be successful. The
Fund will engage in stock index options transactions that are determined to be
consistent with its efforts to control risk.
When the Fund writes an option on a stock index, the Fund will establish a
segregated account with its custodian or with a foreign sub-custodian in which
the Fund will deposit cash or other liquid assets in an amount equal to the
market value of the option, and will maintain the account while the option is
open.
OPTIONS AND FUTURES CONTRACTS - GROWTH AND INCOME, STRATEGIC EQUITY AND
SMALL CAP VALUE FUNDS. The Growth and Income, Strategic Equity and Small Cap
Value Funds may buy and sell options and futures contracts to manage their
exposure to changing interest rates,
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security prices and currency exchange rates. The Funds may invest in options
and futures based on any type of security, index, or currency, including options
and futures based on foreign exchanges (see "Options on Foreign Stock Indexes --
International Equity Fund" above) and options not traded on exchanges. Some
options and futures strategies, including selling futures, buying puts, and
writing calls, tend to hedge a Fund's investments against price fluctuations.
Other strategies, including buying futures, writing puts, and buying calls, tend
to increase market exposure. Options and futures may be combined with each
other or with forward contracts in order to adjust the risk and return
characteristics of the overall strategy.
Options and futures can be volatile investments, and involve certain risks.
If Fleet applies a hedge at an inappropriate time or judges market conditions
incorrectly, options and futures may lower a Fund's individual return. A Fund
could also experience losses if the prices of its options and futures positions
were poorly correlated with its other investments, or if it could not close out
its positions because of an illiquid secondary market.
The Funds will not hedge more than 20% of their respective total assets by
selling futures, buying puts, and writing calls under normal conditions. The
Funds will not buy futures or write puts whose underlying value exceeds 20% of
their respective total assets, and will not buy calls with a value exceeding 5%
of their respective total assets.
STOCK INDEX FUTURES, SWAP AGREEMENTS, INDEXED SECURITIES AND OPTIONS -
GROWTH AND INCOME, STRATEGIC EQUITY AND SMALL CAP VALUE FUNDS. The Growth and
Income, Strategic Equity and Small Cap Value Funds may utilize stock index
futures contracts, options, swap agreements, indexed securities, and options on
futures contracts for the purposes of managing cash flows into and out of their
respective portfolios and potentially reducing transaction costs, subject to the
limitation that the value of these futures contracts, swap agreements, indexed
securities, and options will not exceed 20% of the Funds' respective total
assets. The Funds will not purchase options to the extent that more than 5% of
the value of their respective total assets would be invested in premiums on open
put option positions. In addition, the Funds do not intend to invest more than
5% of the market value of their respective total assets in each of the
following: futures contracts, swap agreements, and indexed securities. When a
Fund enters into a swap agreement, liquid assets of the Fund equal to the value
of the swap agreement will be segregated by that Fund. The Funds may not use
stock index futures contracts and options for speculative purposes.
There are several risks accompanying the utilization of futures contracts.
Positions in futures contracts may be closed only on an exchange or board of
trade that furnishes a secondary market for such contracts. While the Funds
plan to utilize futures contracts only if there exists an active market for such
contracts, there is no guarantee that a liquid market will exist for the
contracts at a specified time. Furthermore, because by definition, futures
contracts look to projected price levels in the future and not to current levels
of valuation, market circumstances may result in there being a discrepancy
between the price of the stock index future and the movement in the
corresponding stock index. The absence of a perfect price correlation between
the futures contract and its underlying stock index could stem from investors
choosing to close futures contracts by offsetting transactions, rather than
satisfying additional margin requirements.
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This could result in a distortion of the relationship between the index and the
futures market. In addition, because the futures market imposes less burdensome
margin requirements than the securities market, an increased amount of
participation by speculators in the futures market could result in price
fluctuations.
As a means of reducing fluctuations in the net asset value of shares of the
Funds, the Funds may attempt to hedge all or a portion of their respective
portfolios through the purchase of listed put options on stocks, stock indices
and stock index futures contracts. These options will be used as a form of
forward pricing to protect portfolio securities against decreases in value
resulting from market factors, such as an anticipated increase in interest
rates. A purchased put option gives a Fund, in return for a premium, the right
to sell the underlying security to the writer (seller) at a specified price
during the term of the option. Put options on stock indices are similar to put
options on stocks except for the delivery requirements. Instead of giving a
Fund the right to make delivery of stock at a specified price, a put option on a
stock index gives the Fund, as holder, the right to receive an amount of cash
upon exercise of the option.
The Funds may also write covered call options. As the writer of a call
option, a Fund has the obligation upon exercise of the option during the option
period to deliver the underlying security upon payment of the exercise price.
The Funds may only: (1) buy listed put options on stock indices and stock
index futures contracts; (2) buy listed put options on securities held in their
respective portfolios; and (3) sell listed call options either on securities
held in their respective portfolios or on securities which they have the right
to obtain without payment of further consideration (or have segregated cash in
the amount of any such additional consideration). A Fund will maintain its
positions in securities, option rights, and segregated cash subject to puts and
calls until the options are exercised, closed or expired. A Fund may also enter
into stock index futures contracts. A stock index futures contract is a
bilateral agreement which obligates the seller to deliver (and the purchaser to
take delivery of) an amount of cash equal to a specific dollar amount times the
difference between the value of a specific stock index at the close of trading
of the contract and the price at which the agreement is originally made. There
is no physical delivery of the stocks constituting the index, and no price is
paid upon entering into a futures contract.
In general, option contracts are closed out prior to their expiration. A
Fund, when purchasing or selling a futures contract, will initially be required
to deposit in a segregated account in the broker's name with the Fund's
custodian an amount of cash or liquid portfolio securities approximately equal
to 5% - 10% of the contract value. This amount is known as "initial margin,"
and it is subject to change by the exchange or board of trade on which the
contract is traded. Subsequent payments to and from the broker are made on a
daily basis as the price of the index or the securities underlying the futures
contract fluctuates. These payments are known as "variation margins," and the
fluctuation in value of the long and short positions in the futures contract is
a process referred to as "marking to market." A Fund may decide to close its
position on a contract at any time prior to the contract's expiration. This is
accomplished by the Fund taking an opposite position at the then prevailing
price, thereby terminating its existing position in the contract. Because the
initial margin resembles a performance bond or good-faith
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deposit on the contract, it is returned to the Fund upon the termination of the
contract, assuming that all contractual obligations have been satisfied.
Therefore, the margin utilized in futures contracts is readily distinguishable
from the margin employed in security transactions, since the margin employed in
futures contracts does not involve the borrowing of funds to finance the
transaction.
None of the Growth and Income, Strategic Equity or Small Cap Value Funds
will enter into futures contracts if, immediately thereafter, the sum of its
initial margin deposits on open contracts exceed 5% of the market value of its
total assets. Further, a Fund will enter into stock index futures contracts
only for bona fide hedging purposes or such other purposes permitted under Part
4 of the regulations promulgated by the Commodity Futures Trading Commission.
Also, a Fund may not enter into stock index futures contracts and options to the
extent that the value of such contracts would exceed 20% of the Fund's total net
assets and may not purchase put options to the extent that more than 5% of the
value of the Fund's total assets would be invested in premiums on open put
option positions.
The Growth and Income, Strategic Equity and Small Cap Value Funds may
invest in indexed securities whose value is linked to foreign currencies,
interest rates, commodities, indices or other financial indicators. Most
indexed securities are short- to intermediate-term fixed income securities whose
values at maturity or interest rates rise or fall according to the change in one
or more specified underlying instruments. Indexed securities may be positively
or negatively indexed (i.e., their value may increase or decrease if the
underlying instrument appreciates), and may have return characteristics similar
to direct investments in the underlying instrument or to one or more options on
the underlying instrument. Indexed securities may be more volatile than the
underlying instrument itself.
As one way of managing their exposure to different types of investments,
the Growth and Income, Strategic Equity and Small Cap Value Funds may enter into
interest rate swaps, currency swaps, and other types of swap agreements such as
caps, collars, and floors. In a typical interest rate swap, one party agrees to
make regular payments equal to a floating interest rate times a "notional
principal amount," in return for payments equal to a fixed rate times the same
amount, for a specified period of time. If a swap agreement provides for
payments in different currencies, the parties might agree to exchange notional
principal amount as well. Swaps may also depend on other prices or rates, such
as the value of an index or mortgage prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by the
other party. For example, the buyer of an interest rate cap obtains the right
to receive payments to the extent that a specified interest rate exceeds an
agreed upon level, while the seller of an interest rate floor is obligated to
make payments to the extent that a specified interest rate falls below an agreed
upon level. An interest rate collar combines elements of buying a cap and
selling a floor.
Swap agreements will tend to shift a Fund's investment exposure from one
type of investment to another. For example, if a Fund agreed to exchange
payments in dollars for
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payments in foreign currency, the swap agreement would tend to decrease the
Fund's exposure to U.S. interest rates and increase its exposure to foreign
currency and interest rates. Caps and floors have an effect similar to buying
or writing options. Depending on how they are used, swap agreements may
increase or decrease the overall volatility of a Fund's investments and its
share price and yield.
Swap agreements are sophisticated hedging instruments that typically
involve a small investment of cash relative to the magnitude of risks assumed.
As a result, swaps can be highly volatile and may have a considerable impact on
the Funds' performance. Swap agreements are subject to risks related to the
counterparty's ability to perform, and may decline in value if the
counterparty's creditworthiness deteriorates. The Funds may also suffer losses
if they are unable to terminate outstanding swap agreements or reduce their
exposure through offsetting transactions.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because each Fund may buy and sell
securities denominated in currencies other than the U.S. dollar, and may receive
interest, dividends and sale proceeds in currencies other than the U.S. dollar,
the Funds from time to time may enter into foreign currency exchange
transactions to convert the U.S. dollar to foreign currencies, to convert
foreign currencies to the U.S. dollar and to convert foreign currencies to other
foreign currencies. A Fund either enters into these transactions on a spot
(I.E., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or uses forward contracts to purchase or sell foreign currencies.
Forward foreign currency exchange contracts are agreements to exchange one
currency for another -- for example, to exchange a certain amount of U.S.
dollars for a certain amount of Japanese yen -- at a future date, which may be
any fixed number of days from the date of the contract, and at a specified
price. Typically, the other party to a currency exchange contract will be a
commercial bank or other financial institution.
Forward foreign currency exchange contracts also allow a Fund to hedge the
currency risk of portfolio securities denominated in a foreign currency. This
technique permits the assessment of the merits of a security to be considered
separately from the currency risk. By separating the asset and the currency
decision, it is possible to focus on the opportunities presented by the security
apart from the currency risk. Although forward foreign currency exchange
contracts are of short duration, generally between one and twelve months, such
contracts are rolled over in a manner consistent with a more long-term currency
decision. Because there is a risk of loss to a Fund if the other party does not
complete the transaction, forward foreign currency exchange contracts will be
entered into only with parties approved by Galaxy's Board of Trustees.
A Fund may maintain "short" positions in forward foreign currency exchange
transactions, which would involve the Fund's agreeing to exchange currency that
it currently does not own for another currency -- for example, to exchange an
amount of Japanese yen that it does not own for a certain amount of U.S. dollars
- -- at a future date and at a specified price in anticipation of a decline in the
value of the currency sold short relative to the currency that the Fund has
contracted to receive in the exchange. In order to ensure that the short
position is not used to achieve leverage with respect to the Fund's investments,
the Fund will establish with its
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custodian a segregated account consisting of cash or other liquid assets equal
in value to the fluctuating market value of the currency as to which the short
position is being maintained. The value of the securities in the segregated
account will be adjusted at least daily to reflect changes in the market value
of the short position.
Forward foreign currency exchange contracts establish an exchange rate at a
future date. These contracts are transferable in the interbank market conducted
directly between currency traders (usually large commercial banks) and their
customers. A forward foreign currency exchange contract generally has no
deposit requirement and is traded at a net price without commission. Neither
spot transactions nor forward foreign currency exchange contracts eliminate
fluctuations in the prices of a Fund's portfolio securities or in foreign
exchange rates, or prevent loss if the prices of these securities should
decline.
The Funds may enter into foreign currency hedging transactions in an
attempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or changes in
foreign currency exchange rates that would adversely affect a portfolio position
or an anticipated portfolio position. Since consideration of the prospect for
currency parities will be incorporated into a Fund's long-term investment
decisions, the Funds will not routinely enter into foreign currency hedging
transactions with respect to portfolio security transactions; however, it is
important to have the flexibility to enter into foreign currency hedging
transactions when it is determined that the transactions would be in the Fund's
best interest. Although these transactions tend to minimize the risk of loss
due to a decline in the value of the hedged currency, at the same time they tend
to limit any potential gain that might be realized should the value of the
hedged currency increase. The precise matching of the forward contract amounts
and the value of the securities involved will not generally be possible because
the future value of these securities in foreign currencies will change as a
consequence of market movements in the value of those securities between the
date the forward contract is entered into and the date it matures. The
projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.
AMERICAN, EUROPEAN AND GLOBAL DEPOSITORY RECEIPTS
Each Fund may invest in ADRs and EDRs. The Growth and Income, Strategic
Equity, International Equity and Small Cap Value Funds may also invest in GDRs.
ADRs are receipts issued in registered form by a U.S. bank or trust company
evidencing ownership of underlying securities issued by a foreign issuer. EDRs
are receipts issued in Europe typically by non-U.S. banks or trust companies and
foreign branches of U.S. banks that evidence ownership of foreign or U.S.
securities. GDRs are receipts structured similarly to EDRs and are marketed
globally. ADRs may be listed on a national securities exchange or may be traded
in the over-the-counter market. EDRs are designed for use in European exchange
and over-the-counter markets. GDRs are designed for trading in non-U.S.
securities markets. ADRs, EDRs and GDRs traded in the over-the-counter market
which do not have an active or substantial secondary market will be considered
illiquid and therefore will be subject to the Funds' respective limitations with
respect to such securities. If a Fund invests in an unsponsored ADR, EDR or
GDR, there may be less information available to the Fund concerning the issuer
of the securities underlying the unsponsored ADR, EDR or GDR than is
available for an issuer of securities underlying a sponsored ADR, EDR or GDR.
ADR prices are denominated in U.S. dollars although the underlying securities
are denominated in a foreign currency. Investments in ADRs, EDRs and GDRs
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involve risks similar to those accompanying direct investments in foreign
securities. Certain of these risks are described above under "Special Risk
Considerations -- Foreign Securities."
ASSET-BACKED SECURITIES -- ASSET ALLOCATION FUND
The Asset Allocation Fund may purchase asset-backed securities, which
represent a participation in, or are secured by and payable from, a stream of
payments generated by particular assets, most often a pool of assets similar to
one another. Assets generating such payments will consist of such instruments
as motor vehicle installment purchase obligations, credit card receivables and
home equity loans. Payment of principal and interest may be guaranteed up to
certain amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with entities issuing the securities. The
estimated life of an asset-backed security varies with the prepayment experience
with respect to the underlying debt instruments. The rate of such prepayments,
and hence the life of the asset-backed security, will be primarily a function of
current market rates, although other economic and demographic factors will be
involved.
Asset-backed securities are generally issued as pass-through certificates,
which represent undivided fractional ownership interests in an underlying pool
of assets, or as debt instruments, which are also known as collateralized
obligations, and are generally issued as the debt of a special purpose entity
organized solely for the purpose of owning such assets and issuing such debt.
Asset-backed securities are often backed by a pool of assets representing the
obligations of a number of different parties.
The yield characteristics of asset-backed securities differ from
traditional debt securities. A major difference is that the principal amount of
the obligations may be prepaid at any time because the underlying assets (i.e.,
loans) generally may be prepaid at any time. As a result, if an asset-backed
security is purchased at a premium, a prepayment rate that is faster than
expected will reduce yield to maturity, while a prepayment rate that is slower
than expected will have the opposite effect of increasing yield to maturity.
Conversely, if an asset-backed security is purchased at a discount, faster than
expected prepayments will increase, while slower than expected prepayments, will
decrease, yield to maturity.
Prepayments on asset-backed securities generally increase with falling
interest rates and decrease with rising interest rates; furthermore prepayment
rates are influenced by a variety of economic and social factors. In general,
the collateral supporting non-mortgage asset-backed securities is of shorter
maturity than mortgage loans and is less likely to experience substantial
prepayments. Like other fixed income securities, when interest rates rise, the
value of an asset-backed security generally will decline; however, when interest
rates decline, the value of an asset-backed security with prepayment features
may not increase as much as that of other fixed income securities.
Asset-backed securities are subject to greater risk of default during
periods of economic downturn. Also, the secondary market for certain
asset-backed securities may not be as liquid as the market for other types of
securities, which could result in a Fund's experiencing difficulty in
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valuing or liquidating such securities. For these reasons, under certain
circumstances, asset-backed securities may be considered illiquid securities.
MORTGAGE-BACKED SECURITIES -- ASSET ALLOCATION FUND
The Asset Allocation Fund may invest in mortgage-backed securities
(including collateralized mortgage obligations) that represent pools of mortgage
loans assembled for sale to investors by various governmental agencies and
government-related organizations, such as the Government National Mortgage
Association, the Federal National Mortgage Association, and the Federal Home
Loan Mortgage Corporation. Mortgage-backed securities provide a monthly payment
consisting of interest and principal payments. Additional payment may be made
out of unscheduled repayments of principal resulting from the sale of the
underlying residential property, refinancing or foreclosure, net of fees or
costs that may be incurred. Prepayments of principal on mortgage-backed
securities may tend to increase due to refinancing of mortgages as interest
rates decline. To the extent that the Fund purchases mortgage-backed securities
at a premium, mortgage foreclosures and prepayments of principal by mortgagors
(which may be made at any time without penalty) may result in some loss of the
Fund's principal investment to the extent of the premium paid. The yield of the
Fund, should it invest in mortgage-backed securities, may be affected by
reinvestment of prepayments at higher or lower rates than the original
investment.
Other mortgage-backed securities are issued by private issuers, generally
originators of and investors in mortgage loans, including savings associations,
mortgage bankers, commercial banks, investment bankers, and special purpose
entities. These private mortgage-backed securities may be supported by U.S.
Government mortgage-backed securities or some form of non-government credit
enhancement. Mortgage-backed securities have either fixed or adjustable
interest rates. The rate of return on mortgage-backed securities may be
affected by prepayments of principal on the underlying loans, which generally
increase as interest rates decline; as a result, when interest rates decline,
holders of these securities normally do not benefit from appreciation in market
value to the same extent as holders of other non-callable debt securities. In
addition, like other debt securities, the value of mortgage-related securities,
including government and government-related mortgage pools, generally will
fluctuate in response to market interest rates.
MORTGAGE DOLLAR ROLLS -- ASSET ALLOCATION FUND
The Asset Allocation Fund may enter into mortgage "dollar rolls" in which
the Fund sells securities for delivery in the current month and simultaneously
contracts with the same counterparty to repurchase similar (same type, coupon
and maturity) but not identical securities on a specified future date not
exceeding 120 days. During the roll period, the Fund loses the right to receive
principal and interest paid on the securities sold. However, the Fund would
benefit to the extent of any difference between the price received for the
securities sold and the lower forward price for the future purchase (often
referred to as the "drop") or fee income plus the interest earned on the cash
proceeds of the securities sold until the settlement date of the forward
purchase. Unless such benefits exceed the income, capital appreciation and gain
or loss
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due to mortgage prepayments that would have been realized on the securities sold
as part of the mortgage dollar roll, the use of this technique will diminish the
investment performance of the Fund compared with what such performance would
have been without the use of mortgage dollar rolls. All cash proceeds will be
invested in instruments that are permissible investments for the Fund. The Fund
will hold and maintain in a segregated account until the settlement date cash or
other liquid assets in an amount equal to the forward purchase price.
For financial reporting and tax purposes, the Fund proposes to treat
mortgage dollar rolls as two separate transactions; one involving the purchase
of a security and a separate transaction involving a sale. The Fund does not
currently intend to enter into mortgage dollar rolls that are accounted for as a
financing.
Mortgage dollar rolls involve certain risks. If the broker-dealer to whom
the Fund sells the security becomes insolvent, the Fund's right to purchase or
repurchase the mortgage-related securities may be restricted and the instrument
which the Fund is required to repurchase may be worth less than the instrument
which the Fund originally held. Successful use of mortgage dollar rolls may
depend upon Fleet's ability to predict correctly interest rates and mortgage
prepayments. For these reasons, there is no assurance that mortgage dollar
rolls can be successfully employed.
CONVERTIBLE SECURITIES
The Funds may from time to time, in accordance with their respective
investment policies, invest in convertible securities. Convertible securities
are fixed income securities which may be exchanged or converted into a
predetermined number of shares of the issuer's underlying common stock at the
option of the holder during a specified time period. Convertible securities may
take the form of convertible preferred stock, convertible bonds or debentures,
units consisting of "usable" bonds and warrants or a combination of the features
of several of these securities.
Convertible bonds and convertible preferred stocks generally retain the
investment characteristics of fixed income securities until they have been
converted but also react to movements in the underlying equity securities. The
holder is entitled to receive the fixed income of a bond or the dividend
preference of a preferred stock until the holder elects to exercise the
conversion privilege. Usable bonds are corporate bonds that can be used in
whole or in part, customarily at full face value, in lieu of cash to purchase
the issuer's common stock. When owned as part of a unit along with warrants,
which are options to buy the common stock, they function as convertible bonds,
except that the warrants generally will expire before the bond's maturity.
Convertible securities are senior to equity securities and therefore have a
claim to the assets of the issuer prior to the holders of common stock in the
case of liquidation. However, convertible securities are generally subordinated
to similar non-convertible securities of the same issuer. The interest income
and dividends from convertible bonds and preferred stocks provide a stable
stream of income with generally higher yields than common stocks, but lower than
non-convertible securities of similar quality. A Fund will exchange or convert
the convertible securities held in its portfolio into shares of the underlying
common stock in instances in which,
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in Fleet's and/or Oechsle's opinion, the investment characteristics of the
underlying common shares will assist the Fund in achieving its investment
objective. Otherwise, a Fund will hold or trade the convertible securities. In
selecting convertible securities for a Fund, Fleet evaluates the investment
characteristics of the convertible security as a fixed income instrument, and
the investment potential of the underlying equity security for capital
appreciation. In evaluating these matters with respect to a particular
convertible security, Fleet considers numerous factors, including the economic
and political outlook, the value of the security relative to other investment
alternatives, trends in the determinants of the issuer's profits, and the
issuer's management capability and practices.
The Growth and Income and Small Cap Value Funds may invest in convertible
bonds rated "BB" or higher by S&P or Fitch IBCA, or "Ba" or higher by Moody's
at the time of investment. Securities rated "BB" by S&P or Fitch IBCA or
"Ba" by Moody's provide questionable protection of principal and interest in
that such securities either have speculative characteristics or are
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. Debt obligations
that are not rated, or not determined to be, investment grade are high-yield,
high-risk bonds, typically subject to greater market fluctuations, and
securities in the lowest rating category may be in danger of loss of income
and principal due to an issuer's default. To a greater extent than
investment grade bonds, the value of lower-rated bonds tends to reflect
short-term corporate, economic, and market developments, as well as investor
perceptions of the issuer's credit quality. In addition, lower-rated bonds
may be more difficult to dispose of or to value than higher-rated,
lower-yielding bonds. Fleet will attempt to reduce the risks described above
through diversification of each Fund's portfolio and by credit analysis of
each issuer, as well as by monitoring broad economic trends and corporate and
legislative developments. If a convertible bond is rated below "BB" or "Ba"
after a Fund has purchased it, the Fund is not required to eliminate the
convertible bond from its portfolio, but will consider appropriate action.
The investment characteristics of each convertible security vary widely,
which allows convertible securities to be employed for different investment
objectives. The Funds do not intend to invest in such lower-rated bonds
during the current fiscal year. A description of the rating categories of
S&P, Moody's and Fitch IBCA is contained in Appendix A to this Statement of
Additional Information.
WHEN-ISSUED AND DELAYED SETTLEMENT TRANSACTIONS -- GROWTH AND INCOME, STRATEGIC
EQUITY, INTERNATIONAL EQUITY AND SMALL CAP VALUE FUNDS
The Growth and Income, Strategic Equity, International Equity and Small Cap
Value Funds may purchase eligible securities on a "when-issued" basis. The
Growth and Income, Strategic Equity and Small Cap Value Funds may also purchase
eligible securities on a "delayed settlement" basis. When-issued transactions,
which involve a commitment by a Fund to purchase or sell particular securities
with payment and delivery taking place at a future date (perhaps one or two
months later), permit the Fund to lock in a price or yield on a security it owns
or intends to purchase, regardless of future changes in interest rates. Delayed
settlement describes settlement of a securities transaction in the secondary
market which will occur sometime in the future. When-issued and delayed
settlement transactions involve the risk,
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however, that the yield or price obtained in a transaction may be less favorable
than the yield or price available in the market when the securities delivery
takes place.
A Fund may dispose of a commitment prior to settlement if Fleet or Oechsle,
as the case may be, deems it appropriate to do so. In addition, a Fund may
enter into transactions to sell its purchase commitments to third parties at
current market values and simultaneously acquire other commitments to purchase
similar securities at later dates. The Funds may realize short-term profits or
losses upon the sale of such commitments.
When a Fund agrees to purchase securities on a "when-issued" or "delayed
settlement" basis, the Fund's custodian will set aside cash or liquid portfolio
securities equal to the amount of the commitment in a separate account. In the
event of a decline in the value of the securities that the custodian has set
aside, the Fund may be required to place additional assets in the separate
account in order to ensure that the value of the account remains equal to the
amount of the Fund's commitment. A Fund's net assets may fluctuate to a greater
degree if it sets aside portfolio securities to cover such purchase commitments
than if it sets aside cash.
When a Fund engages in when-issued or delayed settlement transactions, it
relies on the seller to consummate the trade. Failure of the seller to do so may
result in the Fund's incurring a loss or missing an opportunity to obtain a
price considered to be advantageous for a security. For purposes of determining
the average weighted maturity of a Fund's portfolio, the maturity of when-issued
securities is calculated from the date of settlement of the purchase to the
maturity date.
RESTRICTED AND ILLIQUID SECURITIES
Each Fund may invest in commercial paper issued in reliance on the
exemption from registration afforded by Section 4(2) of the Securities Act of
1933, as amended (the "1933 Act"). Section 4(2) commercial paper is restricted
as to disposition under federal securities law and is generally sold to
institutional investors, such as the Funds, who agree that they are purchasing
the paper for investment purposes and not with a view to public distribution.
Any resale by the purchaser must be in an exempt transaction. Section 4(2)
commercial paper is normally resold to other institutional investors like the
Funds through or with the assistance of the issuer or investment dealers who
make a market in Section 4(2) commercial paper, thus providing liquidity. The
Funds believe that Section 4(2) commercial paper and possibly certain other
restricted securities that meet the criteria for liquidity established by
Galaxy's Board of Trustees are quite liquid. The Funds intend, therefore, to
treat the restricted securities that meet the criteria for liquidity established
by the Board of Trustees, including Section 4(2) commercial paper (as determined
by Fleet), as liquid and not subject to the investment limitation applicable to
illiquid securities. In addition, because Section 4(2) commercial paper is
liquid, the Funds do not intend to subject such paper to the limitation
applicable to restricted securities.
Rule 144A under the 1933 Act allows for a broader institutional trading
market for securities otherwise subject to restrictions on resale to the general
public. Rule 144A establishes a "safe harbor" from the registration
requirements of the 1933 Act for resales of certain securities
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to qualified institutional buyers. A Fund's investment in Rule 144A securities
could have the effect of increasing the level of illiquidity of the Fund during
any period that qualified institutional buyers were no longer interested in
purchasing these securities. For purposes of each Fund's 10% limitation (15%
with respect to the Growth and Income, Small Cap Value and Strategic Equity
Funds) on purchases of illiquid instruments described under "Investment
Limitations" below, Rule 144A securities will not be considered to be illiquid
if Fleet and/or Oechsle has determined, in accordance with guidelines
established by the Board of Trustees, that an adequate trading market exists for
such securities.
PORTFOLIO SECURITIES GENERALLY
Subsequent to its purchase by a Fund, an issue of securities may cease to
be rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Board of Trustees or Fleet may determine that it is
appropriate for the Fund to continue to hold the obligation if retention is in
accordance with the interests of the particular Fund and applicable regulations
of the Securities and Exchange Commission ("SEC").
PORTFOLIO TURNOVER
Each Fund may sell a portfolio investment soon after its acquisition if
Fleet and/or Oechsle believes that such a disposition is consistent with the
Fund's investment objective. Portfolio investments may be sold for a variety of
reasons, such as a more favorable investment opportunity or other circumstances
bearing on the desirability of continuing to hold such investments. A portfolio
turnover rate of 100% or more is considered high, although the rate of portfolio
turnover will not be a limiting factor in making portfolio decisions. A high
rate of portfolio turnover involves correspondingly greater brokerage commission
expenses and other transaction costs, which must be ultimately borne by a Fund's
shareholders. High portfolio turnover may result in the realization of
substantial net capital gains; distributions derived from such gains will be
treated as ordinary income for federal income tax purposes.
INVESTMENT LIMITATIONS
In addition to each Fund's investment objective as stated in its
Prospectuses, the following investment limitations are matters of fundamental
policy and may not be changed with respect to a particular Fund without the
affirmative vote of the holders of a majority of its outstanding shares (as
defined under "Miscellaneous").
The Asset Allocation, Equity Income, Strategic Equity, Equity Value, Equity
Growth, International Equity and Small Company Equity Funds may not:
1. Make loans, except that (i) each Fund may purchase or hold debt
instruments in accordance with its investment objective and policies,
and may enter into repurchase agreements with respect to portfolio
securities, and (ii) each Fund may lend portfolio securities against
collateral consisting of cash or securities which are consistent with
its permitted
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investments, where the value of the collateral is equal at all times
to at least 100% of the value of the securities loaned.
2. Borrow money or issue senior securities, except that each Fund may
borrow from domestic banks for temporary purposes and then in amounts
not in excess of 10%, with respect to the Equity Value Fund, or 33%,
with respect to the Asset Allocation, Equity Income, Strategic Equity,
Equity Growth, International Equity and Small Company Equity Funds, of
the value of its total assets at the time of such borrowing (provided
that the Funds may borrow pursuant to reverse repurchase agreements in
accordance with their investment policies and in amounts not in excess
of 10%, with respect to the Equity Value Fund, or 33%, with respect to
the Asset Allocation, Equity Income, Strategic Equity, Equity Growth,
International Equity and Small Company Equity Funds, of the value of
their respective total assets at the time of such borrowing); or
mortgage, pledge, or hypothecate any assets except in connection with
any such borrowing and in amounts not in excess of the lesser of the
dollar amounts borrowed or 10%, with respect to the Equity Value Fund,
or 33%, with respect to the Equity Growth, Equity Income,
International Equity, Small Company Equity, Asset Allocation and
Strategic Equity Funds, of the value of a Fund's total assets at the
time of such borrowing. No Fund will purchase securities while
borrowings (including reverse repurchase agreements) in excess of 5%
of its total assets are outstanding.
3. Invest more than 10% (15% with respect to the Strategic Equity Fund)
of the value of its net assets in illiquid securities, including
repurchase agreements with remaining maturities in excess of seven
days, time deposits with maturities in excess of seven days,
restricted securities (with respect to the Equity Value Fund),
securities which are restricted as to transfer in their principal
market (with respect to the International Equity Fund), non-negotiable
time deposits and other securities which are not readily marketable.
4. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. Government, its agencies or
instrumentalities, if immediately after such purchase more than 5% of
the value of a Fund's total assets would be invested in such issuer,
except that up to 25% of the value of its total assets may be invested
without regard to this limitation.
5. Purchase securities on margin (except such short-term credits as may
be necessary for the clearance of purchases), make short sales of
securities, or maintain a short position.
6. Act as an underwriter within the meaning of the Securities Act of
1933; except insofar as a Fund might be deemed to be an underwriter
upon disposition of restricted portfolio securities; and except to the
extent that
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the purchase of securities directly from the issuer thereof in
accordance with the Fund's investment objective, policies and
limitations may be deemed to be underwriting.
7. Purchase or sell real estate; except that each Fund may purchase
securities that are secured by real estate, and the Funds may purchase
securities of issuers which deal in real estate or interests therein;
however, the Funds will not purchase or sell interests in real estate
limited partnerships.
8. Purchase or sell commodities or commodity contracts or invest in oil,
gas, or other mineral exploration or development programs or mineral
leases; provided however, that (i) the Asset Allocation, Equity
Income, Equity Value, Equity Growth, International Equity and Small
Company Equity Funds may enter into forward currency contracts and
foreign currency futures contracts and related options to the extent
permitted by their respective investment objectives and policies, and
(ii) the Strategic Equity Fund may engage in transactions involving
financial futures contracts or options on financial futures contracts.
9. Invest in or sell put options, call options, straddles, spreads, or
any combination thereof; provided, however, that each of the Asset
Allocation, Equity Income, Equity Value, Equity Growth, International
Equity and Small Company Equity Funds may write covered call options
with respect to its portfolio securities that are traded on a national
securities exchange, and may enter into closing purchase transactions
with respect to such options if, at the time of the writing of such
options, the aggregate value of the securities subject to the options
written by the Fund does not exceed 25% of the value of its total
assets; and further provided that (i) the Asset Allocation, Equity
Income, Equity Growth, International Equity and Small Company Equity
Funds may purchase put and call options to the extent permitted by
their investment objectives and policies, and (ii) the Strategic
Equity Fund may buy and sell options, including without limit buying
or writing puts and calls, based on any type of security, index or
currency, including options on foreign exchanges and options not
traded on exchanges.
10. Invest in companies for the purpose of exercising management or
control.
11. Purchase securities of other investment companies except in connection
with a merger, consolidation, reorganization, or acquisition of
assets; provided, however, that the Funds may acquire such securities
in accordance with the 1940 Act; and further provided, that the
Strategic Equity Fund may from time to time, on a temporary basis,
invest exclusively in one other investment company similar to the
Fund.
The Growth and Income and Small Cap Value Funds may not:
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<PAGE>
12. Borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an arrangement to buy it back on a
set date) or pledge securities except, under certain circumstances,
such Funds may borrow up to one-third of the value of their respective
total assets and pledge up to 10% of the value of their respective
total assets to secure such borrowings.
13. With respect to 75% of the value of their respective total assets,
invest more than 5% in securities of any one issuer, other than cash,
cash items, or securities issued or guaranteed by the government of
the United States or its agencies or instrumentalities and repurchase
agreements collateralized by such securities, or acquire more than 10%
of the outstanding voting securities of any one issuer.
14. Sell any securities short or purchase any securities on margin, but
each Fund may obtain such short-term credits as may be necessary for
the clearance of purchases and sales of portfolio securities. A
deposit or payment by a Fund of initial or variation margin in
connection with futures contracts or related options transactions is
not considered the purchase of a security on margin.
15. Issue senior securities except that each Fund may borrow money or
engage in reverse repurchase agreements in amounts up to one-third of
the value of its total assets, including the amounts borrowed; and
except to the extent that the Funds may enter into futures contracts.
No Fund will borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure to facilitate management of the portfolio by
enabling a Fund to meet redemption requests when the liquidation of
portfolio securities is deemed to be inconvenient or disadvantageous.
No Fund will purchase any securities while borrowings in excess of 5%
of its total assets are outstanding.
16. Mortgage, pledge, or hypothecate any assets except to secure permitted
borrowings. In those cases, a Fund may only mortgage, pledge, or
hypothecate assets having a market value not exceeding 10% of the
value of its total assets at the time of purchase. For purposes of
this limitation, the following will not be deemed to be pledges of a
Fund's assets: (a) the deposit of assets in escrow in connection with
the writing of covered put or call options and the purchase of
securities on a when-issued basis; and (b) collateral arrangements
with respect to: (i) the purchase and sale of stock options (and
options on stock indices) and (ii) initial or variation margin for
futures contracts. Margin deposits from the purchase and sale of
futures contracts and related options are not deemed to be a pledge.
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<PAGE>
17. Purchase or sell real estate or real estate limited partnerships,
although each Fund may invest in securities of issuers whose business
involves the purchase or sale of real estate or in securities which
are secured by real estate or interests in real estate.
18. Purchase or sell commodities, commodity contracts, or commodity
futures contracts except to the extent that a Fund may engage in
transactions involving financial futures contracts or options on
financial futures contracts.
19. Underwrite any issue of securities, except as a Fund may be deemed to
be an underwriter under the Securities Act of 1933 in connection with
the sale of securities in accordance with its investment objective,
policies and limitations.
20. Lend any of its assets except that a Fund may lend portfolio
securities up to one-third the value of its total assets. This
limitation shall not prevent a Fund from purchasing or holding money
market instruments, repurchase agreements, obligations of the U.S.
Government, its agencies or instrumentalities, variable rate demand
notes, bonds, debentures, notes, certificates of indebtedness, or
certain debt instruments as permitted by its investment objective,
policies and limitations or Galaxy's Declaration of Trust.
21. With respect to securities comprising 75% of the value of its total
assets, purchase securities issued by any one issuer (other than cash,
cash items, or securities issued or guaranteed by the government of
the United States or its agencies or instrumentalities and repurchase
agreements collateralized by such securities) if, as a result, more
than 5% of the value of its total assets would be invested in the
securities of that issuer. A Fund will not acquire more than 10% of
the outstanding voting securities of any one issuer.
22. Invest 25% of more of the value of its total assets in any one
industry (other than securities issued by the U.S. Government, its
agencies or instrumentalities). However, a Fund may invest as
temporary investments more than 25% of the value of its assets in cash
or cash items, securities issued or guaranteed by the U.S. Government,
its agencies or instrumentalities, or instruments secured by these
money market instruments, such as repurchase agreements.
The following investment policies with respect to the Growth and Income and
Small Cap Value Funds may be changed by Galaxy's Board of Trustees without
shareholder approval. Shareholders will be notified before any material change
in these limitations become effective:
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<PAGE>
23. The Funds may not invest more than 15% of their respective net assets
in securities subject to restrictions on resale under the Securities
Act of 1933 (except for commercial paper issued under Section 4(2) of
the Securities Act of 1933 and certain securities which meet the
criteria for liquidity as established by the Board of Trustees).
24. Each Fund will limit its investments in other investment companies to
not more than 3% of the total outstanding voting stock of any
investment company; will invest no more than 5% of its total assets in
any one investment company; and will invest no more than 10% of its
total assets in investment companies in general. However, these
limitations are not applicable if the securities are acquired in a
merger, consolidation, reorganization or acquisition of assets.
The Funds will purchase the securities of other investment companies
only in open market transactions involving only customary broker's
commissions. It should be noted that investment companies incur
certain expenses such as management fees, and therefore any investment
by a Fund in shares of another investment company would be subject to
such duplicate expenses.
25. Neither Fund may purchase or retain the securities of any issuer if
the officers and Trustees of Galaxy or Fleet, owning individually more
than 1/2 of 1% of the issuer's securities, together own more than 5%
of the issuer's securities.
26. Neither Fund may purchase or sell interests in oil, gas, or mineral
exploration or development programs or leases; except that the Funds
may purchase the securities of issuers which invest in or sponsor such
programs.
27. Neither Fund may purchase put options on securities, unless the
securities are held in the Fund's portfolio and not more than 5% of
the value of the Fund's total assets would be invested in premiums on
open put option positions.
28. Neither Fund may write call options on securities, unless the
securities are held in the Fund's portfolio or unless the Fund is
entitled to them in deliverable form without further payment or after
segregating cash in the amount of any further payment. Neither Fund
may write call options in excess of 5% of the value of its total
assets.
29. Neither Fund may invest more than 5% of the value of its total assets
in securities of issuers which have records of less than three years
of continuous operations, including the operation of any predecessor.
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30. Neither Fund will invest more than 15% of the value of its respective
net assets in illiquid securities, including repurchase agreements
providing for settlement in more than seven days after notice,
non-negotiable fixed time deposits with maturities over seven days,
and certain securities not determined by the Board of Trustees to be
liquid.
31. Neither Fund may invest more than 10% of its total assets in
securities subject to restrictions on resale under the Securities Act
of 1933, except for commercial paper issued under Section 4(2) of the
Securities Act of 1933 and certain other restricted securities which
meet the criteria for liquidity as established by the Board of
Trustees.
32. Neither Fund may invest in companies for the purpose of exercising
management or control.
33. Neither Fund may invest more than 5% of its net assets in warrants.
No more than 2% of this 5% may be warrants which are not listed on the
New York Stock Exchange.
In addition, the Funds may not purchase any securities which would cause
25% or more of the value of a Fund's total assets at the time of purchase to be
invested in the securities of one or more issuers conducting their principal
business activities in the same industry; provided, however that (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents, and
(c) utilities will be classified according to their services. (For example,
gas, gas transmission, electric and gas, electric and telephone each will be
considered a separate industry.)
With respect to Investment Limitation No. 2 above, (a) the Equity Value
Fund intends to limit any borrowings (including reverse repurchase
agreements) to not more than 10% of the value of its total assets at the time
of such borrowing and each of the Asset Allocation, Equity Income, Strategic
Equity, Equity Growth, International Equity and Small Company Equity Funds
intends to limit any borrowings (including reverse repurchase agreements) to
not more than 33% of the value of its total assets at the time of such
borrowing, and (b) mortgage dollar rolls entered into by the Asset Allocation
Fund that are not accounted for as financings shall not constitute borrowings.
The Growth and Income and Small Cap Value Funds intend to invest in
restricted securities. Restricted securities are any securities in which a Fund
may otherwise invest pursuant to its investment objective and policies, but
which are subject to restriction on resale under federal securities law. Each
such Fund will limit its investments in illiquid securities, including certain
restricted securities not determined by the Board of Trustees to be liquid,
non-negotiable fixed time deposits with maturities over seven days,
over-the-counter options, and repurchase agreements providing for settlement in
more than seven days after notice, to 15% of its net assets.
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Except as stated otherwise, if a percentage limitation is satisfied at the
time of investment, a later increase in such percentage resulting from a change
in the value of a Fund's portfolio securities generally will not constitute a
violation of the limitation. If the value of a Fund's holdings of illiquid
securities at any time exceeds the percentage limitation applicable at the
time of acquisition due to subsequent fluctuations in value or other reasons,
the Board of Trustees will consider what actions, if any, are appropriate to
maintain adequate liquidity. With respect to borrowings, if a Fund's asset
coverage at any time falls below that required by the 1940 Act, the Fund will
reduce the amount of its borrowings in the manner required by the 1940 Act
to the extent necessary to satisfy the asset coverage requirement.
VALUATION OF PORTFOLIO SECURITIES
VALUATION OF THE ASSET ALLOCATION, EQUITY INCOME, GROWTH AND INCOME, STRATEGIC
EQUITY, EQUITY VALUE, EQUITY GROWTH, SMALL CAP VALUE AND SMALL COMPANY EQUITY
FUNDS
In determining market value, the assets in the Asset Allocation, Equity
Income, Growth and Income, Strategic Equity, Equity Value, Equity Growth, Small
Cap Value and Small Company Equity Funds which are traded on a recognized stock
exchange are valued at the last sale price on the securities exchange on which
such securities are primarily traded or at the last sale price on the national
securities market. Securities quoted on the NASD National Market System are
also valued at the last sale price. Other securities traded on over-the-counter
markets are valued on the basis of their closing over-the-counter bid prices.
Securities for which there were no transactions are valued at the average of the
most recent bid and asked prices. Investments in debt securities with remaining
maturities of 60 days or less are valued based upon the amortized cost method.
Restricted securities, securities for which market quotations are not readily
available, and other assets are valued at fair value by Fleet under the
supervision of Galaxy's Board of Trustees. An option is generally valued at the
last sale price or, in the absence of a last sale price, the last offer price.
See "Valuation of International Equity Fund" below for a description of the
valuation of certain foreign securities held by these Funds.
VALUATION OF THE INTERNATIONAL EQUITY FUND
In determining market value, the International Equity Fund's portfolio
securities which are primarily traded on a domestic exchange are valued at the
last sale price on that exchange or, if there is no recent sale, at the last
current bid quotation. Portfolio securities which are primarily traded on
foreign securities exchanges are generally valued at the preceding closing
values of such securities on their respective exchanges, except when an
occurrence subsequent to the time a value was so established is likely to have
changed such value, then the fair value of those securities may be determined
through consideration of other factors by or under the direction of Galaxy's
Board of Trustees. A security which is listed or traded on more than one
exchange is valued at the quotation on the exchange determined to be the primary
market for such security. Investments in debt securities having a remaining
maturity of 60 days or less are valued based upon the amortized cost method.
All other securities are valued at the last current bid quotation if market
quotations are available, or at fair value as determined in accordance with
policies established in good faith by the Board of Trustees. For valuation
purposes, quotations of foreign securities in foreign currency are converted to
U.S. dollars equivalent at the prevailing market rate on the day of valuation.
An option is generally valued at the last sale price or, in the absence of a
last sale price, the last offer price.
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Certain of the securities acquired by the International Equity Fund may be
traded on foreign exchanges or over-the-counter markets on days on which the
Fund's net asset value is not calculated. In such cases, the net asset value of
the Fund's shares may be significantly affected on days when investors can
neither purchase nor redeem shares of the Fund.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares in each Fund are sold on a continuous basis by Galaxy's distributor,
First Data Distributors, Inc. ("FD Distributors"), a wholly-owned subsidiary of
First Data Investor Services Group, Inc. FD Distributors is a registered
broker/dealer with principal offices located at 4400 Computer Drive,
Westborough, Massachusetts 01581. FD Distributors has agreed to use appropriate
efforts to solicit all purchase orders.
This Statement of Additional Information provides additional purchase and
redemption information for Trust Shares, Retail A Shares and Retail B Shares of
the Funds. Purchase and redemption information for A Prime Shares and B Prime
Shares of the Funds is provided in a separate prospectus and statement of
additional information.
PURCHASES OF RETAIL A SHARES AND RETAIL B SHARES
GENERAL
Investments in Retail A Shares of the Funds are subject to a front-end
sales charge. Investments in Retail B Shares of the Funds are subject to a
back-end sales charge. This back-end sales charge declines over time and is
known as a "contingent deferred sales charge."
Investors should read "Characteristics of Retail A Shares and Retail B
Shares" and "Factors to Consider When Selecting Retail A Shares or Retail B
Shares" below before deciding between the two.
FD Distributors has established several procedures to enable different
types of investors to purchase Retail A Shares and Retail B Shares
(collectively, "Retail Shares") of the Funds. Retail Shares may be purchased by
individuals or corporations who submit a purchase application to Galaxy,
purchasing directly either for their own accounts or for the accounts of others.
Retail Shares may also be purchased by FIS Securities, Inc., Fleet Securities,
Inc., Fleet Enterprises, Inc., Fleet Financial Group, Inc., its affiliates,
their correspondent banks and other qualified banks, savings and loan
associations and broker/dealers on behalf of their customers. Purchases may
take place only on days on which FD Distributors and Galaxy's custodian and
Galaxy's transfer agent are open for business ("Business Days"). If an
institution accepts a purchase order from a customer on a non-Business Day, the
order will not be executed until it is received and accepted by FD Distributors
on a Business Day in accordance with FD Distributors' procedures.
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Galaxy has authorized certain brokers to accept purchase, exchange and
redemption orders on behalf of Galaxy with respect to Retail A Shares of the
Funds. Such brokers are authorized to designate other intermediaries to accept
purchase, exchange and redemption orders on behalf of Galaxy. Galaxy will be
deemed to have received a purchase, exchange or redemption order when such an
authorized broker or designated intermediary accepts the order. Orders for the
purchase, exchange or redemption of Retail A Shares of the Funds accepted by any
such authorized broker or designated intermediary will be effected at the Funds'
respective net asset values per share next determined after acceptance of such
order and will not be subject to the front-end sales charge with respect to
Retail A Shares described in the applicable Prospectus and in this Statement of
Additional Information.
CUSTOMERS OF INSTITUTIONS
Retail Shares purchased by institutions on behalf of their customers will
normally be held of record by the institution and beneficial ownership of Retail
Shares will be recorded by the institution and reflected in the account
statements provided to its customers. Galaxy's transfer agent may establish an
account of record for each customer of an institution reflecting beneficial
ownership of Retail Shares. Depending on the terms of the arrangement between a
particular institution and Galaxy's transfer agent, confirmations of Retail
Share purchases and redemptions and pertinent account statements will either be
sent by Galaxy's transfer agent directly to a customer with a copy to the
institution, or will be furnished directly to the customer by the institution.
Other procedures for the purchase of Retail Shares established by institutions
in connection with the requirements of their customer accounts may apply.
Customers wishing to purchase Retail Shares through their institution should
contact such entity directly for appropriate purchase instructions.
OTHER PURCHASE INFORMATION
On a Business Day when the New York Stock Exchange (the "Exchange") closes
early due to a partial holiday or otherwise, Galaxy will advance the time at
which purchase orders must be received in order to be processed on that Business
Day.
APPLICABLE SALES CHARGE -- RETAIL A SHARES
The public offering price for Retail A Shares of the Funds is the sum of
the net asset value of the Retail A Shares purchased plus any applicable
front-end sales charge as described in the applicable Prospectus. A deferred
sales charge of up to 1.00% is assessed on certain redemptions of Retail A
Shares that are purchased with no initial sales charge as part of an investment
of $500,000 or more. A portion of the front-end sales charge may be reallowed
to broker-dealers as follows:
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<TABLE>
<CAPTION>
REALLOWANCE TO
DEALERS
-------
AS A % OF
OFFERING PRICE
AMOUNT OF TRANSACTION PER SHARE
--------------------- --------------
<S> <C>
Less than $50,000 3.25
$50,000 but less than $100,000 3.00
$100,000 but less than $250,000 2.50
$250,000 but less than $500,000 2.00
$500,000 and over 0.00
</TABLE>
The appropriate reallowance to dealers will be paid by FD Distributors to
broker-dealer organizations which have entered into agreements with FD
Distributors. The reallowance to dealers may be changed from time to time.
In certain situations or for certain individuals, the front-end sales
charge for Retail A Shares of the Funds may be waived either because of the
nature of the investor or the reduced sales effort required to attract such
investments. In order to receive the sales charge waiver, an investor must
explain the status of his or her investment at the time of purchase. In
addition to the sales charge waivers described in the applicable Prospectus, no
sales charge is assessed on purchases of Retail A Shares of the Funds by the
following categories of investors or in the following types of transactions:
- purchases by directors, officers and employees of broker-dealers
having agreements with FD Distributors pertaining to the sale of
Retail A Shares to the extent permitted by such organizations;
- purchases by current and retired members of Galaxy's Board of Trustees
and members of their immediate families;
- purchases by officers, directors, employees and retirees of Fleet
Financial Group, Inc. and any of its affiliates and members of their
immediate families;
- purchases by officers, directors, employees and retirees of First Data
Corporation and any of its affiliates and members of their immediate
families;
- purchases by persons who are also plan participants in any employee
benefit plan which is the record or beneficial holder of Trust Shares
of the Funds or any of the other portfolios offered by Galaxy;
- purchases by institutional investors, including but not limited to
bank trust departments and registered investment advisers;
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- purchases by clients of investment advisers or financial planners who
place trades for their own accounts if such accounts are linked to the
master accounts of such investment advisers or financial planners on
the books of the broker-dealer through whom Retail A Shares are
purchased;
- purchases by institutional clients of broker-dealers, including
retirement and deferred compensation plans and the trusts used to fund
these plans, which place trades through an omnibus account maintained
with Galaxy by the broker-dealer; and
- purchases prior to July 1, 1999 by former deposit customers of
financial institutions (other than registered broker-dealers) acquired
by Fleet Financial Group, Inc. in February 1998.
COMPUTATION OF OFFERING PRICE - RETAIL A SHARES
An illustration of the computation of the offering price per share of
Retail A Shares of the Funds, using the value of each Fund's net assets
attributable to such Shares and the number of outstanding Retail A Shares of
each Fund at the close of business on October 31, 1998 and the maximum front-end
sales charge of 3.75%, is as follows:
<TABLE>
<CAPTION>
Asset Allocation Equity Income
Fund Fund
---------------- ----------------
<S> <C> <C>
Net Assets . . . . . . . . . . . $323,498,431 $207,850,435
Outstanding Shares . . . . . . . 19,085,603 10,569,343
Net Asset Value Per Share. . . . $16.95 $19.67
Sales Charge (3.75% of
the offering price). . . . . . . $0.66 $0.77
Offering Price to Public . . . . $17.61 $20.44
</TABLE>
-42-
<PAGE>
<TABLE>
<CAPTION>
Growth and Strategic
Income Fund Equity Fund
---------------- ----------------
<S> <C> <C>
Net Assets . . . . . . . . . . . $214,109,905 $4,050,710
Outstanding Shares . . . . . . . 14,401,818 420,985
Net Asset Value Per Share. . . . $14.87 $9.62
Sales Charge (3.75% of
the offering price). . . . . . . $0.58 $0.37
Offering Price to Public . . . . $15.45 $9.99
<CAPTION>
Equity Equity
Value Fund Growth Fund
---------------- ----------------
<S> <C> <C>
Net Assets . . . . . . . . . . . $234,729,786 $312,951,175
Outstanding Shares . . . . . . . 14,230,208 12,787,605
Net Asset Value Per Share. . . . $16.50 $24.47
Sales Charge (3.75% of
the offering price). . . . . . . $0.64 $0.95
Offering Price to Public . . . . $17.14 $25.42
<CAPTION>
International Small Cap
Equity Fund Value Fund
---------------- ----------------
<S> <C> <C>
Net Assets . . . . . . . . . . . $66,540,867 $87,780,606
Outstanding Shares . . . . . . . 3,972,244 6,486,539
Net Asset Value Per Share. . . . $16.75 $13.53
Sales Charge (3.75% of
the offering price). . . . . . . $0.65 $0.53
Offering Price to Public . . . . $17.40 $14.06
</TABLE>
-43-
<PAGE>
<TABLE>
<CAPTION>
Small Company
Equity Fund
----------------
<S> <C>
Net Assets . . . . . . . . . . . $95,831,047
Outstanding Shares . . . . . . . 7,031,742
Net Asset Value Per Share. . . . $13.63
Sales Charge (3.75% of
the offering price). . . . . . . $0.53
Offering Price to Public . . . . $14.16
QUANTITY DISCOUNTS
</TABLE>
Investors may be entitled to reduced sales charges through Rights of
Accumulation, a Letter of Intent or a combination of investments, as described
below, even if the investor does not wish to make an investment of a size that
would normally qualify for a quantity discount.
In order to obtain quantity discount benefits, an investor must notify
FD Distributors at the time of purchase that he or she would like to take
advantage of any of the discount plans described below. Upon such notification,
the investor will receive the lowest applicable sales charge. Quantity
discounts may be modified or terminated at any time and are subject to
confirmation of an investor's holdings through a check of appropriate records.
For more information about quantity discounts, please contact FD Distributors or
your financial institution.
RIGHTS OF ACCUMULATION. A reduced sales charge applies to any purchase of
Retail A Shares of any portfolio of Galaxy that is sold with a sales charge
("Eligible Fund") where an investor's then current aggregate investment in
Retail A Shares is $50,000 or more. "Aggregate investment" means the total of:
(a) the dollar amount of the then current purchase of shares of an Eligible
Fund; and (b) the value (based on current net asset value) of previously
purchased and beneficially owned shares of any Eligible Fund on which a sales
charge has been paid. If, for example, an investor beneficially owns shares of
one or more Eligible Funds with an aggregate current value of $49,000 on which a
sales charge has been paid and subsequently purchases shares of an Eligible Fund
having a current value of $1,000, the sales charge applicable to the subsequent
purchase would be reduced to 3.50% of the offering price. Similarly, with
respect to each subsequent investment, all shares of Eligible Funds that are
beneficially owned by the investor at the time of investment may be combined to
determine the applicable sales charge.
LETTER OF INTENT. By completing the Letter of Intent included as part of
the Account Application, an investor becomes eligible for the reduced sales
charge applicable to the total number of Eligible Fund Retail A Shares purchased
in a 13-month period pursuant to the terms and under the conditions set forth
below and in the Letter of Intent. To compute the applicable sales charge, the
offering price of Retail A Shares of an Eligible Fund on which a sales charge
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<PAGE>
has been paid and that are beneficially owned by an investor on the date of
submission of the Letter of Intent may be used as a credit toward completion of
the Letter of Intent. However, the reduced sales charge will be applied only to
new purchases.
First Data Investor Services Group, Inc. ("Investor Services Group"),
Galaxy's administrator, will hold in escrow Retail A Shares equal to 5% of the
amount indicated in the Letter of Intent for payment of a higher sales charge if
an investor does not purchase the full amount indicated in the Letter of Intent.
The escrow will be released when the investor fulfills the terms of the Letter
of Intent by purchasing the specified amount. If purchases qualify for a
further sales charge reduction, the sales charge will be adjusted to reflect the
investor's total purchases. If total purchases are less than the amount
specified, the investor will be requested to remit an amount equal to the
difference between the sales charge actually paid and the sales charge
applicable to the total purchases. If such remittance is not received within 20
days, Investor Services Group, as attorney-in-fact pursuant to the terms of the
Letter of Intent and at FD Distributors' direction, will redeem an appropriate
number of Retail A Shares held in escrow to realize the difference. Signing a
Letter of Intent does not bind an investor to purchase the full amount indicated
at the sales charge in effect at the time of signing, but an investor must
complete the intended purchase in accordance with the terms of the Letter of
Intent to obtain the reduced sales charge. To apply, an investor must indicate
his or her intention to do so under a Letter of Intent at the time of purchase.
QUALIFICATION FOR DISCOUNTS. For purposes of applying the Rights of
Accumulation and Letter of Intent privileges described above, the scale of sales
charges applies to the combined purchases made by any individual and/or spouse
purchasing securities for his, her or their own account or for the account of
any minor children, or the aggregate investments of a trustee or custodian of
any qualified pension or profit-sharing plan established (or the aggregate
investment of a trustee or other fiduciary) for the benefit of the persons
listed above.
REINSTATEMENT PRIVILEGE. Investors may reinvest all or any portion of
their redemption proceeds in Retail A Shares of the Funds or in Retail A Shares
of another portfolio of Galaxy within 90 days of the redemption trade date
without paying a sales load. Retail A Shares so reinvested will be purchased at
a price equal to the net asset value next determined after Galaxy's transfer
agent receives a reinstatement request and payment in proper form.
Investors wishing to exercise this Privilege must submit a written
reinstatement request to Investor Services Group as transfer agent stating that
the investor is eligible to use the Privilege. The reinstatement request and
payment must be received within 90 days of the trade date of the redemption.
Currently, there are no restrictions on the number of times an investor may use
this Privilege.
Generally, exercising the Reinstatement Privilege will not affect the
character of any gain or loss realized on redemptions for federal income tax
purposes. However, if a redemption results in a loss, the reinstatement may
result in the loss being disallowed under the Code's "wash sale" rules.
-45-
<PAGE>
GROUP SALES. Members of qualified groups may purchase Retail A Shares of
the Funds at the following group sales rates:
<TABLE>
<CAPTION>
REALLOWANCE
TOTAL SALES CHARGE TO DEALERS
--------------------------------- -----------
AS A % OF AS A % OF AS A % OF
NUMBER OF QUALIFIED OFFERING PRICE NET ASSET VALUE OFFERING PRICE
GROUP MEMBERS PER SHARE PER SHARE PER SHARE
------------------- -------------- ---------------- --------------
<S> <C> <C> <C>
50,000 but less than 250,000. . . . 3.00 3.09 3.00
250,000 but less than 500,000 . . . 2.75 2.83 2.75
500,000 but less than 750,000 . . . 2.50 2.56 2.50
750,000 and over . . . . . . . . . 2.00 2.04 2.00
</TABLE>
To be eligible for the discount, a group must meet the requirements set
forth below and be approved in advance as a qualified group by FD Distributors.
To receive the group sales charge rate, group members must purchase Retail A
Shares directly from FD Distributors in accordance with any of the procedures
described in the applicable Prospectus. Group members must also ensure that
their qualified group affiliation is identified on the purchase application.
A qualified group is a group that (i) has at least 50,000 members, (ii) was
not formed for the purpose of buying Fund shares at a reduced sales charge,
(iii) within one year of the initial member purchase, has at least 1% of its
members invested in the Funds or any of the other investment portfolios offered
by Galaxy, (iv) agrees to include Galaxy sales material in publications and
mailings to members at a reduced cost or no cost, and (v) meets certain other
uniform criteria. FD Distributors may request periodic certification of group
and member eligibility. FD Distributors reserves the right to determine whether
a group qualifies for a quantity discount and to suspend this offer at any time.
APPLICABLE SALES CHARGE - RETAIL B SHARES
The public offering price for Retail B Shares of the Funds is the net asset
value of the Retail B Shares purchased. Although investors pay no front-end
sales charge on purchases of Retail B Shares, such Shares are subject to a
contingent deferred sales charge at the rates set forth below if they are
redeemed within six years of purchase. Securities dealers, brokers, financial
institutions and other industry professionals will receive commissions from FD
Distributors in connection with sales of Retail B Shares. These commissions may
be different than the reallowances or placement fees paid to dealers in
connection with sales of Retail A Shares. Certain affiliates of Fleet may, at
their own expense, provide additional compensation to Fleet Enterprises, Inc., a
broker-dealer affiliate of Fleet, whose customers purchase significant amounts
of Retail B Shares of a Fund. See "Applicable Sales Charge -- Retail A Shares."
The contingent deferred sales charge on Retail B Shares is based on the lesser
of the net asset value of the Shares on the redemption date or the original cost
of the Shares being redeemed. As a result, no sales charge is imposed on any
increase in the principal value of an investor's Retail B
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<PAGE>
Shares. In addition, a contingent deferred sales charge will not be assessed on
Retail B Shares purchased through reinvestment of dividends or capital gains
distributions.
The proceeds from the contingent deferred sales charge that an investor may
pay upon redemption go to FD Distributors, which may use such amounts to defray
the expenses associated with the distribution-related services involved in
selling Retail B Shares.
EXEMPTIONS FROM THE CONTINGENT DEFERRED SALES CHARGE. Certain types of
redemptions may also qualify for an exemption from the contingent deferred sales
charge. In addition to the sales charge exemptions described in the applicable
Prospectus, the contingent deferred sales charge with respect to Retail B Shares
is not assessed on: (i) redemptions in connection with required (or, in some
cases, discretionary) distributions to participants or beneficiaries of an
employee pension, profit-sharing or other trust or qualified retirement or Keogh
plan, individual retirement account or custodial account maintained pursuant to
Section 403(b)(7) of the Code; (ii) redemptions in connection with required (or,
in some cases, discretionary) distributions to participants in qualified
retirement or Keogh plans, individual retirement accounts or custodial accounts
maintained pursuant to Section 403(b)(7) of the Code due to death, disability or
the attainment of a specified age; (iii) redemptions effected pursuant to a
Fund's right to liquidate a shareholder's account if the aggregate net asset
value of Retail B Shares held in the account is less than the minimum account
size; (iv) redemptions in connection with the combination of a Fund with any
other investment company registered under the 1940 Act by merger, acquisition of
assets, or by any other transaction; (v) redemptions resulting from a tax-free
return of an excess contribution pursuant to Section 408(d)(4) or (5) of the
Code; or (vi) any redemption of Retail B Shares held by an investor, provided
the investor was the beneficial owner of shares of a Fund (or any of the other
portfolios offered by Galaxy or otherwise advised by Fleet or its affiliates)
before December 1, 1995. In addition to the foregoing exemptions, no contingent
deferred sales charge will be imposed on redemptions made pursuant to the
Systematic Withdrawal Plan, subject to the limitations set forth under "Investor
Programs - Retail A Shares and Retail B Shares - Automatic Investment Program
and Systematic Withdrawal Plan" below.
CHARACTERISTICS OF RETAIL A SHARES AND RETAIL B SHARES
The primary difference between Retail A Shares and Retail B Shares lies in
their sales charge structures and shareholder servicing/distribution expenses.
An investor should understand that the purpose and function of the sales charge
structures and shareholder servicing/distribution arrangements for both Retail A
Shares and Retail B Shares are the same.
Retail A Shares of the Funds are sold at their net asset value plus a
front-end sales charge of up to 3.75%. This front-end sales charge may be
reduced or waived in some cases. See the applicable Prospectus and "Applicable
Sales Charges - Retail A Shares" and "Quantity Discounts" above. Retail A
Shares of a Fund are currently subject to ongoing shareholder servicing fees at
an annual rate of up to .30% of the Fund's average daily net assets attributable
to its Retail A Shares.
-47-
<PAGE>
Retail B Shares of the Funds are sold at net asset value without an initial
sales charge. Normally, however, a deferred sales charge is paid if the Shares
are redeemed within six years of investment. See the applicable Prospectus and
"Applicable Sales Charges - Retail B Shares" above. Retail B Shares of a Fund
are currently subject to ongoing shareholder servicing and distribution fees at
an annual rate of up to .95% of the Fund's average daily net assets attributable
to its Retail B Shares. These ongoing fees, which are higher than those charged
on Retail A Shares, will cause Retail B Shares to have a higher expense ratio
and pay lower dividends than Retail A Shares.
Six years after purchase, Retail B Shares of the Funds will convert
automatically to Retail A Shares of the Funds. The purpose of the conversion is
to relieve a holder of Retail B Shares of the higher ongoing expenses charged to
those shares, after enough time has passed to allow FD Distributors to recover
approximately the amount it would have received if a front-end sales charge had
been charged. The conversion from Retail B Shares to Retail A Shares takes
place at net asset value, as a result of which an investor receives
dollar-for-dollar the same value of Retail A Shares as he or she had of Retail B
Shares. The conversion occurs six years after the beginning of the calendar
month in which the Shares are purchased. Upon conversion, the converted shares
will be relieved of the distribution and shareholder servicing fees borne by
Retail B Shares, although they will be subject to the shareholder servicing fees
borne by Retail A Shares.
Retail B Shares acquired through a reinvestment of dividends or
distributions (as discussed under "Applicable Sales Charge - Retail B Shares")
are also converted at the earlier of two dates - six years after the beginning
of the calendar month in which the reinvestment occurred or the date of
conversion of the most recently purchased Retail B Shares that were not acquired
through reinvestment of dividends or distributions. For example, if an investor
makes a one-time purchase of Retail B Shares of a Fund, and subsequently
acquires additional Retail B Shares of such Fund only through reinvestment of
dividends and/or distributions, all of such investor's Retail B Shares in the
Fund, including those acquired through reinvestment, will convert to Retail A
Shares of such Fund on the same date.
FACTORS TO CONSIDER WHEN SELECTING RETAIL A SHARES OR RETAIL B SHARES
Before purchasing Retail A Shares or Retail B Shares of the Funds,
investors should consider whether, during the anticipated periods of their
investments in the particular Funds, the accumulated distribution and
shareholder servicing fees and potential contingent deferred sales charge on
Retail B Shares prior to conversion would be less than the initial sales charge
and accumulated shareholder servicing fees on Retail A Shares purchased at the
same time, and to what extent such differential would be offset by the higher
yield of Retail A Shares. In this regard, to the extent that the sales charge
for Retail A Shares is waived or reduced by one of the methods described above,
investments in Retail A Shares become more desirable. An investment of $250,000
or more in Retail B Shares would not be in most shareholders' best interest.
Shareholders should consult their financial advisers and/or brokers with respect
to the advisability of purchasing Retail B Shares in amounts exceeding $250,000.
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<PAGE>
Although Retail A Shares are subject to a shareholder servicing fee, they
are not subject to the higher distribution and shareholder servicing fee
applicable to Retail B Shares. For this reason, Retail A Shares can be expected
to pay correspondingly higher dividends per Share. However, because initial
sales charges are deducted at the time of purchase, purchasers of Retail A
Shares (that do not qualify for exemptions from or reductions in the initial
sales charge) would have less of their purchase price initially invested in
these Funds than purchasers of Retail B Shares in the Funds.
As described above, purchasers of Retail B Shares will have more of their
initial purchase price invested. Any positive investment return on this
additional invested amount would partially or wholly offset the expected higher
annual expenses borne by Retail B Shares. Because a Fund's future returns
cannot be predicted, there can be no assurance that this will be the case.
Holders of Retail B Shares would, however, own shares that are subject to a
contingent deferred sales charge of up to 5.00% upon redemption, depending upon
the year of redemption. Investors expecting to redeem during this six-year
period should compare the cost of the contingent deferred sales charge plus the
aggregate distribution and shareholder servicing fees on Retail B Shares to the
cost of the initial sales charge and shareholder servicing fees on the Retail A
Shares. Over time, the expense of the annual distribution and shareholder
servicing fees on the Retail B Shares may equal or exceed the initial sales
charge and annual shareholder servicing fee applicable to Retail A Shares. For
example, if net asset value remains constant, the aggregate distribution and
shareholder servicing fees with respect to Retail B Shares of a Fund would equal
or exceed the initial sales charge and aggregate shareholder servicing fees of
Retail A Shares approximately six years after the purchase. In order to reduce
such fees for investors that hold Retail B Shares for more than six years,
Retail B Shares will be automatically converted to Retail A Shares as described
above at the end of such six-year period.
PURCHASES OF TRUST SHARES
Trust Shares are sold to investors maintaining qualified accounts at bank
and trust institutions, including subsidiaries of Fleet Financial Group, Inc.,
and to participants in employer-sponsored defined contribution plans (such
institutions and plans are referred to herein collectively as "Institutions").
Trust Shares sold to such investors ("Customers") will be held of record by
Institutions. Purchases of Trust Shares will be effected only on days on which
FD Distributors, Galaxy's custodian and the purchasing Institution are open for
business ("Trust Business Days"). If an Institution accepts a purchase order
from its Customer on a non-Trust Business Day, the order will not be executed
until it is received and accepted by FD Distributors on a Trust Business Day in
accordance with the foregoing procedures.
Trust Shares of the International Equity Fund may also be sold to clients,
members and employees of Oechsle.
On a Trust Business Day when the Exchange closes early due to a partial
holiday or otherwise, Galaxy will advance the time at which purchase orders must
be received in order to be processed on that Trust Business Day.
-49-
<PAGE>
REDEMPTION OF RETAIL A SHARES, RETAIL B SHARES
AND TRUST SHARES
Redemption orders are effected at the net asset value per share next
determined after receipt of the order by FD Distributors. On a Business Day or
Trust Business Day when the Exchange closes early due to a partial holiday or
otherwise, Galaxy will advance the time at which redemption orders must be
received in order to be processed on that Business Day or Trust Business Day.
Galaxy may require any information reasonably necessary to ensure that a
redemption has been duly authorized. Proceeds from the redemptions of Retail B
Shares of the Funds will be reduced by the amount of any applicable contingent
deferred sales charge. Galaxy reserves the right to transmit redemption
proceeds within seven days after receiving the redemption order if, in its
judgment, an earlier payment could adversely affect a Fund.
If the Board of Trustees determines that conditions exist which make
payment of redemption proceeds wholly in cash unwise or undesirable, Galaxy may
make payment wholly or partly in securities or other property. Such redemptions
will only be made in "readily marketable" securities. In such an event, a
shareholder would incur transaction costs in selling the securities or other
property.
Galaxy may suspend the right of redemption or postpone the date of payment
for shares for more than seven days during any period when (a) trading in the
markets the Funds normally utilize is restricted, or an emergency, as defined by
the rules and regulations of the SEC exists making disposal of a Fund's
investments or determination of its net asset value not reasonably practicable;
(b) the Exchange is closed (other than customary weekend and holiday closings);
or (c) the SEC by order has permitted such suspension.
INVESTOR PROGRAMS-RETAIL A SHARES AND RETAIL B SHARES
The following information supplements the description in the applicable
Prospectus as to the various Investor Programs available to holders of Retail
Shares of the Funds.
EXCHANGE PRIVILEGE
The minimum initial investment to establish an account in another Fund or
portfolio by exchange, except for the Institutional Government Money Market
Fund, is $2,500, unless (i) the Retail Shares being redeemed were purchased
through a registered representative who is a Fleet Bank employee, in which event
there is no minimum investment requirement, or (ii) at the time of the exchange
the investor elects, with respect to the Fund or portfolio into which the
exchange is being made, to participate in the Automatic Investment Program
described below, in which event there is no minimum initial investment
requirement, or in the College Investment Program described below, in which
event the minimum initial investment is generally $100. The minimum initial
investment to establish an account by exchange in the Institutional Government
Money Market Fund is $2 million.
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<PAGE>
An exchange involves a redemption of all or a portion of the Retail Shares
of a Fund and the investment of the redemption proceeds in Retail Shares of
another Fund or portfolio offered by Galaxy or, with respect to Retail A Shares,
otherwise advised by Fleet or its affiliates. The redemption will be made at
the per share net asset value next determined after the exchange request is
received. The Retail Shares of a Fund or portfolio to be acquired will be
purchased at the per share net asset value next determined after acceptance of
the exchange request, plus any applicable sales charge.
Investors may find the exchange privilege useful if their investment
objectives or market outlook should change after they invest in any of the
Funds. For further information regarding Galaxy's exchange privilege, investors
should call Investor Services Group at 1-877-BUY-GALAXY (1-877-289-4252).
Customers of institutions should call their institution for such information.
Investors exercising the exchange privilege into other portfolios should request
and review these portfolios' prospectuses prior to making an exchange.
Telephone 1-877-BUY-GALAXY (1-877-289-4252) for a prospectus or to make an
exchange.
In order to prevent abuse of this privilege to the disadvantage of other
shareholders, Galaxy reserves the right to terminate the exchange privilege of
any shareholder who requests more than three exchanges a year. Galaxy will
determine whether to do so based on a consideration of both the number of
exchanges that any particular shareholder or group of shareholders has requested
and the time period over which their exchange requests have been made, together
with the level of expense to Galaxy which will result from effecting additional
exchange requests. The exchange privilege may be modified or terminated at any
time. At least 60 days' notice of any material modification or termination will
be given to shareholders except where notice is not required under the
regulations of the SEC.
For federal income tax purposes, an exchange of shares is a taxable event
and, accordingly, a capital gain or loss may be realized by an investor. Before
making an exchange request, an investor should consult a tax or other financial
adviser to determine the tax consequences.
RETIREMENT PLANS
Retail Shares of the Funds are available for purchase in connection with
the following tax-deferred prototype retirement plans:
INDIVIDUAL RETIREMENT ACCOUNTS ("IRAS") (including traditional, Roth and
Education IRAs and "roll-overs" from existing retirement plans), a
retirement-savings vehicle for qualifying individuals. The minimum initial
investment for an IRA account is $500 (including a spousal account).
SIMPLIFIED EMPLOYEE PENSION PLANS ("SEPS"), a form of retirement plan for
sole proprietors, partnerships and corporations. The minimum initial investment
for a SEP account is $500.
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<PAGE>
MULTI-EMPLOYEE RETIREMENT PLANS ("MERPS"), a retirement vehicle established
by employers for their employees which is qualified under Section 401(k) and
403(b) of the Code. The minimum initial investment for a MERP is $500.
KEOGH PLANS, a retirement vehicle for self-employed individuals. The
minimum initial investment for a Keogh Plan is $500.
Investors purchasing Retail Shares pursuant to a retirement plan are not
subject to the minimum investment provisions described in the applicable
Prospectus. Detailed information concerning eligibility and other matters
related to these plans and the form of application is available from FD
Distributors (call 1-877-BUY-GALAXY (1-877-289-4252)) with respect to IRAs, SEPs
and Keogh Plans and from Fleet Securities, Inc. (call 1-800-221-8210) with
respect to MERPs.
AUTOMATIC INVESTMENT PROGRAM AND SYSTEMATIC WITHDRAWAL PLAN
The Automatic Investment Program permits an investor to purchase Retail
Shares of a Fund each month or each quarter. Provided an investor's financial
institution allows automatic withdrawals, Retail Shares are purchased by
transferring funds from the investor's checking, bank money market, NOW or
savings account designated by the investor. The account designated will be
debited in the specified amount, and Retail Shares will be purchased, on a
monthly or quarterly basis, on any Business Day designated by the investor. If
the designated day falls on a weekend or holiday, the purchase will be made on
the Business Day closest to the designated day. Only an account maintained at a
domestic financial institution which is an Automated Clearing House ("ACH")
member may be so designated.
The Systematic Withdrawal Plan permits an investor to automatically redeem
Retail Shares on a monthly, quarterly, semi-annual, or annual basis on any
Business Day designated by the investor. If the designated day falls on a
weekend or holiday, the redemption will be made on the Business Day closest to
the designated day. Proceeds of the redemption will be sent to the
shareholder's address of record or financial institution within three Business
Days of the redemption. If redemptions exceed purchases and dividends, the
number of shares in the account will be reduced. Investors may terminate the
Systematic Withdrawal Plan at any time upon written notice to Investor Services
Group, Galaxy's transfer agent (but not less than five days before a payment
date). There is no charge for this service. Purchases of additional Retail A
Shares concurrently with withdrawals are ordinarily not advantageous because of
the sales charge involved in the additional purchases. No contingent deferred
sales charge will be assessed on redemptions of Retail B Shares made through the
Systematic Withdrawal Plan that do not exceed 12% of an account's net asset
value on an annualized basis. For example, monthly, quarterly and semi-annual
Systematic Withdrawal Plan redemptions of Retail B Shares will not be subject to
the contingent deferred sales charge if they do not exceed 1%, 3% and 6%,
respectively, of an account's net asset value on the redemption date.
Systematic Withdrawal Plan redemptions of Retail B Shares in excess of this
limit are still subject to the applicable contingent deferred sales charge.
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<PAGE>
PAYROLL DEDUCTION PROGRAM
To be eligible for the Payroll Deduction Program, the payroll department of
an investor's employer must have the capability to forward transactions directly
through the ACH, or indirectly through a third party payroll processing company
that has access to the ACH. An investor must complete and submit a Galaxy
Payroll Deduction Application to his or her employer's payroll department, which
will arrange for the specified amount to be debited from the investor's paycheck
each pay period. Retail Shares of Galaxy will be purchased within three days
after the debit occurred. If the designated day falls on a weekend or
non-Business Day, the purchase will be made on the Business Day closest to the
designated day. An investor should allow between two to four weeks for the
Payroll Deduction Program to be established after submitting an application to
the employer's payroll department.
COLLEGE INVESTMENT PROGRAM
Galaxy reserves the right to redeem accounts participating in the College
Investment Program involuntarily, upon 60 days' written notice, if the account's
net asset value falls below the applicable minimum initial investment as a
result of redemptions. Investors participating in the College Investment
Program will receive consolidated monthly statements of their accounts.
Detailed information concerning College Investment Program accounts and
applications may be obtained from FD Distributors (call 1-877-BUY-GALAXY
(1-877-289-4252)).
DIRECT DEPOSIT PROGRAM
Death or legal incapacity will terminate an investor's participation in the
Direct Deposit Program. An investor may elect at any time to terminate his or
her participation by notifying in writing the Social Security Administration.
Further, Galaxy may terminate an investor's participation upon 30 days' notice
to the investor.
TAXES
Each Fund qualified during its last taxable year and intends to continue to
qualify as a regulated investment company under Subchapter M of the Code, and to
distribute out its income to shareholders each year, so that each Fund itself
generally will be relieved of federal income and excise taxes. If a Fund were
to fail to so qualify: (1) the Fund would be taxed at regular corporate rates
without any deduction for distributions to shareholders; and (2) shareholders
would be taxed as if they received ordinary dividends, although corporate
shareholders could be eligible for the dividends received deduction.
A 4% non-deductible excise tax is imposed on regulated investment companies
that fail to currently distribute specified percentages of their ordinary
taxable income and capital gain net income (excess of capital gains over capital
losses). Each Fund intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and any capital gain net income
prior to the end of each calendar year to avoid liability for this excise tax.
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<PAGE>
The Funds will be required in certain cases to withhold and remit to the
United States Treasury 31% of taxable dividends or gross sale proceeds paid to
any shareholder who (i) has failed to provide a correct tax identification
number, (ii) is subject to backup withholding due to prior failure to properly
include on his or her return payments of taxable interest or dividends, or (iii)
has failed to certify to the Funds that he or she is not subject to back up
withholding when required to do so or that he or she is an "exempt recipient."
Dividends declared in October, November or December of any year that are
payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by a Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
TAXATION OF CERTAIN FINANCIAL INSTRUMENTS
The tax principles applicable to certain financial instruments and futures
contracts and options that may be acquired by a Fund are complex and, in some
cases, uncertain. Such investments may cause a Fund to recognize taxable income
prior to the receipt of cash, thereby requiring the Fund to liquidate other
positions, or to borrow money, so as to make sufficient distributions to
shareholders to avoid corporate-level tax. Moreover, some or all of the taxable
income recognized may be ordinary income or short-term capital gain, so that the
distributions may be taxable to shareholders as ordinary income.
TRUSTEES AND OFFICERS
The business and affairs of the Funds are managed under the direction of
Galaxy's Board of Trustees in accordance with the laws of the Commonwealth of
Massachusetts and the Trust's Declaration of Trust. The trustees and executive
officers of Galaxy, their addresses, principal occupations during the past five
years, and other affiliations are as follows:
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<PAGE>
Positions Principal Occupation
with The During Past 5 Years
Name and Address Galaxy Fund and Other Affiliations
---------------- ----------- -----------------------
Dwight E. Vicks, Jr. Chairman & President & Director, Vicks
Vicks Lithograph & Trustee Lithograph & Printing Corporation
Printing Corporation (book manufacturing and commercial
Commercial Drive printing); Director, Utica Fire
P.O. Box 270 Insurance Company; Trustee, Savings
Yorkville, NY 13495 Bank of Utica; Director, Monitor
Age 65 Life Insurance Company; Director,
Commercial Travelers Mutual
Insurance Company; Trustee, The
Galaxy VIP Fund; Trustee, Galaxy
Fund II.
John T. O'Neill1 President, Executive Vice President and CFO,
Hasbro, Inc. Treasurer & Hasbro, Inc. (toy and game
1011 Newport Avenue Trustee manufacturer); Trustee, The Galaxy
Pawtucket, RI 02862 VIP Fund; Trustee, Galaxy Fund II.
Age 54
Louis DeThomasis Trustee President, Saint Mary's College of
Saint Mary's College Minnesota; Director, Bright Day
of Minnesota Travel, Inc.; Trustee, Religious
Winona, MN 55987 Communities Trust; Trustee, The
Age 58 Galaxy VIP Fund; Trustee, Galaxy
Fund II.
Donald B. Miller Trustee Chairman, Horizon Media, Inc.
10725 Quail Covey Road (broadcast services);
Boynton Beach, FL 33436 Director/Trustee, Lexington Funds;
Age 73 Chairman, Executive Committee,
Compton International, Inc.
(advertising agency); Trustee,
Keuka College; Trustee, The Galaxy
VIP Fund; Trustee, Galaxy Fund II.
-55-
<PAGE>
Positions Principal Occupation
with The During Past 5 Years
Name and Address Galaxy Fund and Other Affiliations
---------------- ----------- -----------------------
James M. Seed Trustee Chairman and President, The Astra
The Astra Ventures, Inc. Projects, Incorporated (land
One Citizens Plaza development); President, The Astra
Providence, RI 02903 Ventures, Incorporated (previously,
Age 57 Buffinton Box Company -
manufacturer of cardboard boxes);
Commissioner, Rhode Island
Investment Commission; Trustee, The
Galaxy VIP Fund; Trustee, Galaxy
Fund II.
Bradford S. Wellman(1) Trustee Private Investor; Vice President
2468 Ohio Street and Director, Acadia Management
Bangor, ME 04401 Company (investment services);
Age 67 Director, Essex County Gas Company,
until January 1994; Director, Maine
Mutual Fire Insurance Co.; Member,
Maine Finance Authority; Trustee,
The Galaxy VIP Fund; Trustee,
Galaxy Fund II.
W. Bruce McConnel, III
Philadelphia National Secretary Partner of the law firm Drinker
Bank Building Biddle & Reath LLP, Philadelphia,
1345 Chestnut Street. Pennsylvania.
Philadelphia, PA 19107
Age 56
Jylanne Dunne Vice President Vice President, First Data
First Data Investor and Assistant Investor Services Group, Inc., 1990
Services Group, Inc. Treasurer to present.
4400 Computer Drive
Westborough, MA 01581-
5108
Age 39
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<PAGE>
Positions Principal Occupation
with The During Past 5 Years
Name and Address Galaxy Fund and Other Affiliations
---------------- ----------- -----------------------
William Greilich Vice President Vice President, First Data
First Data Investor Investor Services Group, Inc.,
Services Group, Inc. 1991-96; Vice President and
4400 Computer Drive Division Manager, First Data
Westborough, MA 01581- Investor Services Group, Inc.,
5108 1996-present.
Age 45
- --------------------
1. May be deemed to be an "interested person" within the definition set forth
in Section 2(a)(19) of the 1940 Act.
Effective March 5, 1998, each trustee receives an annual aggregate fee of
$40,000 for his services as a trustee of Galaxy, The Galaxy VIP Fund ("Galaxy
VIP") and Galaxy Fund II ("Galaxy II") (collectively, the "Trusts"), plus an
additional $2,250 for each in-person Galaxy Board meeting attended and $1,500
for each in-person Galaxy VIP or Galaxy II Board meeting attended not held
concurrently with an in-person Galaxy meeting, and is reimbursed for expenses
incurred in attending all meetings. Each trustee also receives $750 for each
telephone Board meeting in which the trustee participates, $1,000 for each
in-person Board committee meeting attended and $500 for each telephone Board
committee meeting in which the trustee participates. The Chairman of the Boards
of the Trusts is entitled to an additional annual aggregate fee in the amount of
$4,000, and the President and Treasurer of the Trusts is entitled to an
additional annual aggregate fee of $2,500 for their services in these respective
capacities. The foregoing trustees' and officers' fees are allocated among the
portfolios of the Trusts based on their relative net assets. Prior to March 5,
1998, (i) each trustee received an annual aggregate fee of $29,000 for his
services as a trustee of the Trusts, plus an additional $2,250 for each
in-person Galaxy Board meeting attended and $1,500 for each in-person Galaxy VIP
or Galaxy II Board meeting attended not held concurrently with an in-person
Galaxy Board meeting, and (ii) the President and Treasurer of the Trusts
received the same fees as they are currently paid for their services in these
capacities.
Effective March 1, 1996, each trustee became entitled to participate in The
Galaxy Fund, The Galaxy VIP Fund and Galaxy Fund II Deferred Compensation Plans
(the "Original Plans"). Effective January 1, 1997, the Original Plans were
merged into The Galaxy Fund/The Galaxy VIP Fund/Galaxy Fund II Deferred
Compensation Plan (together with the Original Plans, the "Plan"). Under the
Plan, a trustee may elect to have his deferred fees treated as if they had been
invested by the Trusts in the shares of one or more portfolios in the Trusts, or
other types of investment options, and the amount paid to the trustees under the
Plan will be determined based upon the performance of such investments.
Deferral of trustees' fees will have no effect on a portfolio's assets,
liabilities, and net income per share, and will not obligate the Trusts to
retain
-57-
<PAGE>
the services of any trustee or obligate a portfolio to any level of compensation
to the trustee. The Trusts may invest in underlying securities without
shareholder approval.
No employee of Investor Services Group, receives any compensation from
Galaxy for acting as an officer. No person who is an officer, director or
employee of Fleet or Oechsle, or any of its affiliates, serves as a trustee,
officer or employee of Galaxy. The trustees and officers of Galaxy own less
than 1% of its outstanding shares.
The following chart provides certain information about the fees received by
Galaxy's trustees in the most recently completed fiscal year.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Pension or
Retirement
Benefits Total Compensation
Accrued as Part from Galaxy and
Aggregate Compensation of Fund Fund Complex *Paid
Name of Person/Position from Galaxy Expenses to Trustees
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bradford S. Wellman $39,932 None $44,750
Trustee
- ------------------------------------------------------------------------------------------
Dwight E. Vicks, Jr. $43,949 None $49,250
Chairman and Trustee
- ------------------------------------------------------------------------------------------
Donald B. Miller** $40,380 None $45,250
Trustee
- ------------------------------------------------------------------------------------------
Rev. Louis DeThomasis $40,380 None $45,250
Trustee
- ------------------------------------------------------------------------------------------
John T. O'Neill $42,611 None $47,750
President, Treasurer
and Trustee
- ------------------------------------------------------------------------------------------
James M. Seed** $40,380 None $45,250
Trustee
- ------------------------------------------------------------------------------------------
</TABLE>
- -------------
* The "Fund Complex" consists of Galaxy, The Galaxy VIP Fund and Galaxy Fund
II which comprise a total of 43 separate portfolios.
** Deferred compensation (including interest) in the amounts of $43,744 and
$44,527 accrued during Galaxy's fiscal year ended October 31, 1998 for
Messrs. Miller and Seed, respectively.
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. However, Galaxy's Declaration of Trust provides that shareholders
shall not be subject to any personal liability for the acts or obligations of
Galaxy, and that every note, bond, contract, order or other undertaking made by
Galaxy shall contain a provision to the effect that the shareholders are not
personally liable thereunder. The Declaration of Trust provides for
indemnification out of the trust property of any shareholder held personally
liable solely by reason of his or her being or
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<PAGE>
having been a shareholder and not because of his or her acts or omissions
outside such capacity or some other reason. The Declaration of Trust also
provides that Galaxy shall, upon request, assume the defense of any claim made
against any shareholder for any act or obligation of Galaxy, and shall satisfy
any judgment thereon. Thus, the risk of shareholder liability is limited to
circumstances in which Galaxy itself would be unable to meet its obligations.
The Declaration of Trust states further that no trustee, officer or agent
of Galaxy shall be personally liable for or on account of any contract, debt,
claim, damage, judgment or decree arising out of or connected with the
administration or preservation of the trust estate or the conduct of any
business of Galaxy; nor shall any trustee be personally liable to any person for
any action or failure to act except by reason of his own bad faith, willful
misfeasance, gross negligence or reckless disregard of his duties as trustee.
The Declaration of Trust also provides that all persons having any claim against
the trustees or Galaxy shall look solely to the trust property for payment.
With the exceptions stated, the Declaration of Trust provides that a
trustee is entitled to be indemnified against all liabilities and expenses
reasonably incurred by him in connection with the defense or disposition of any
proceeding in which he may be involved or with which he may be threatened by
reason of his being or having been a trustee, and that the Board of Trustees
shall indemnify representatives and employees of Galaxy to the same extent to
which they themselves are entitled to indemnification.
INVESTMENT ADVISER AND SUB-ADVISER
Fleet serves as investment adviser to the Funds. In its advisory
agreement, Fleet has agreed to provide investment advisory services to the Funds
as described in the Prospectuses. Fleet has also agreed to pay all expenses
incurred by it in connection with its activities under the advisory agreement
other than the cost of securities (including brokerage commissions) purchased
for the Funds. See "Expenses" below.
For the services provided and expenses assumed with respect to the Funds,
Fleet is entitled to receive advisory fees, computed daily and paid monthly, at
the annual rate of 0.75% of the average daily net assets of each Fund other than
the International Equity Fund. For the services provided and the expenses
assumed with respect to the International Equity Fund, Fleet is entitled to
receive advisory fees, computed daily and paid monthly, at the annual rate of
1.15% of the first $50 million of the Fund's average daily net assets, plus
0.95% of the next $50 million of such assets, plus 0.85% of net assets in excess
of $100 million.
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<PAGE>
During the last three fiscal years, Galaxy paid advisory fees (net of fee
waivers and/or expense reimbursements) to Fleet as set forth below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1998 1997 1996
- ---- ---- ---- ----
<S> <C> <C> <C>
Asset Allocation . . . . . . . . . . . . $3,743,922 $2,313,863 $1,447,310
Equity Income. . . . . . . . . . . . . . $2,457,188 $1,947,792 $1,533,644
Growth and Income. . . . . . . . . . . . $3,701,722 $2,361,898 $1,690,599(1)
Strategic Equity . . . . . . . . . . . . $70,206(2) * *
Equity Value . . . . . . . . . . . . . . $3,782,620 $2,860,410 $2,220,230
Equity Growth. . . . . . . . . . . . . . $8,345,236 $6,555,045 $4,746,270
International Equity(3). . . . . . . . . $2,480,868 $1,844,037 $1,154,303
Small Cap Value. . . . . . . . . . . . . $2,042,588 $1,370,449 $1,079,665(1)
Small Company Equity . . . . . . . . . . $3,166,852 $2,610,431 $1,562,481
</TABLE>
* Not in operation during the period.
(1) For the period from December 4, 1995 through October 31, 1996. For the
period from November 1, 1995 to December 3, 1995, the Predecessor Growth
and Income Fund and the Predecessor Small Cap Value Fund paid $207,833 and
$128,152, respectively, to Shawmut Bank, N. A., the investment adviser to
such Predecessor Funds.
(2) For the period from March 4, 1998 (commencement of operations) through
October 31, 1998. Fleet waived advisory fees of $26,590 with respect to
the Strategic Equity Fund during this period.
(3) For the fiscal years ended October 31, 1998, October 31, 1997, and October
31, 1996, Fleet waived advisory fees of $950,363, $682,009 and $464,938,
respectively, with respect to the International Equity Fund.
During the last three fiscal years, Fleet reimbursed expenses as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1998 1997 1996
- ---- ---- ---- ----
<S> <C> <C> <C>
Asset Allocation . . . . . . . . . . . . $0 $19,254 $12,512
Equity Income. . . . . . . . . . . . . . $0 $38,298 $0
Growth and Income. . . . . . . . . . . . $150,727 $306,295 $99,656
Strategic Equity . . . . . . . . . . . . $2,915(1) * *
Equity Value . . . . . . . . . . . . . . $0 $26,294 $2,347
Equity Growth. . . . . . . . . . . . . . $0 $27,033 $9,296
International Equity . . . . . . . . . . $0 $18,362 $0
Small Cap Value Funds. . . . . . . . . . $115,022 $103,101 $63,394
Small Company Equity . . . . . . . . . . $27,376 $118,118 $331
</TABLE>
- --------------------
* Not in operation during the period.
(1) For the period from March 4, 1998 (commencement of operations) through
October 31, 1998.
The advisory agreement provides that Fleet shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Funds in
connection with the performance of its duties under the advisory agreement,
except a loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of Fleet in the
performance of its duties or from reckless disregard by it of its duties and
obligations thereunder. Unless sooner terminated, the advisory
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<PAGE>
agreement will continue in effect with respect to a particular Fund from year to
year as long as such continuance is approved at least annually (i) by the vote
of a majority of trustees who are not parties to such advisory agreement or
interested persons (as defined in the 1940 Act) of any such party, cast in
person at a meeting called for the purpose of voting on such approval; and (ii)
by Galaxy's Board of Trustees, or by a vote of a majority of the outstanding
shares of such Fund. The term "majority of the outstanding shares of such Fund"
means, with respect to approval of an advisory agreement, the vote of the lesser
of (i) 67% or more of the shares of the Fund present at a meeting, if the
holders of more than 50% of the outstanding shares of the Fund are present or
represented by proxy, or (ii) more than 50% of the outstanding shares of the
Fund. The advisory agreement may be terminated by Galaxy or by Fleet on sixty
days' written notice, and will terminate immediately in the event of its
assignment.
The advisory agreement between Galaxy and Fleet with respect to the
International Equity Fund provides that Fleet will provide a continuous
investment program for the Fund, including research and management with respect
to all securities and investments and cash equivalents in the Fund. In
addition, the advisory agreement authorizes Fleet to engage a sub-adviser to
assist it in the performance of its services. Pursuant to such authorization,
Fleet has appointed Oechsle, a Delaware limited liability company with principal
offices at One International Place, Boston, Massachusetts 02210, as the
sub-adviser to the International Equity Fund. The managing member of Oechsle is
Oechsle Group, LLC. Fleet Financial Group, Inc. owns approximately a 35%
non-voting interest in Oechsle. As of December 31, 1998, Oechsle had
discretionary management authority over approximately $211 billion in assets.
Under its sub-advisory agreement with Fleet, Oechsle determines which
securities and other investments will be purchased, retained or sold for the
Fund; places orders for the Fund; manages the Fund's overall cash position; and
provides Fleet with foreign broker research and a quarterly review of
international economic and investment developments. Fleet, among other things,
assists and consults with Oechsle in connection with the Fund's continuous
investment program; approves lists of foreign countries recommended by Oechsle
for investment; reviews the investment policies and restrictions of the Fund and
recommends appropriate changes to the Board of Trustees; and provides the Board
of Trustees and Oechsle with information concerning relevant economic and
political developments. Oechsle will provide services under this agreement in
accordance with the Fund's investment objectives, policies and restrictions.
Unless sooner terminated by Fleet or the Board of Trustees upon sixty days'
written notice or by Oechsle upon ninety days' written notice, the sub-advisory
agreement will continue in effect from year to year as long as such continuance
is approved at least annually as described above.
For the services provided and the expenses assumed pursuant to the
sub-advisory agreement, Fleet pays a fee to Oechsle, computed daily and paid
quarterly, at the annual rate of .40% of the first $50 million of the
International Equity Fund's average daily net assets, plus .35% of average daily
net assets in excess of $50 million.
For the fiscal years ended October 31, 1998 and October 31, 1997 and for
the period from August 12, 1996 through October 31, 1996, Oechsle and /or its
predecessor, Oechsle International Advisors, L.P., received sub-advisory fees of
$1,355,508, $979,810 and
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<PAGE>
$119,374, respectively, with respect to the International Equity Fund. Prior to
August 12, 1996, Wellington Management Company served as sub-adviser to the
International Equity Fund. For the period from November 1, 1995 through August
11, 1996, Wellington Management Company received sub-advisory fees of $431,198
with respect to the International Equity Fund.
Fleet and Oechsle are authorized to allocate purchase and sale orders for
portfolio securities to certain financial institutions, including, to the extent
permitted by law or order of the SEC, financial institutions that are affiliated
with Fleet or Oechsle or that have sold shares of the Funds, if Fleet or
Oechsle, as the case may be, believes that the quality of the transaction and
the commission are comparable to what they would be with other qualified
brokerage firms.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities such as shares
of the Funds, but do not prohibit such a bank holding company or its affiliates
or banks generally from acting as investment adviser, transfer agent, or
custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of customers. Fleet, the custodian and
institutions which agree to provide shareholder support services that are banks
or bank affiliates are subject to such banking laws and regulations. Should
legislative, judicial or administrative action prohibit or restrict the
activities of such companies in connection with their services to the Funds,
Galaxy might be required to alter materially or discontinue its arrangements
with such companies and change its method of operation. It is anticipated,
however, that any resulting change in the Funds' method of operation would not
affect a Fund's net asset value per share or result in financial loss to any
shareholder.
ADMINISTRATOR
Investor Services Group, located at 4400 Computer Drive, Westborough,
Massachusetts 01581-5108, serves as the Funds' administrator. Investor Services
Group is a wholly-owned subsidiary of First Data Corporation.
Investor Services Group generally assists the Funds in their administration
and operation. Investor Services Group also serves as administrator to the
other portfolios of Galaxy. For the services provided to the Funds, Investor
Services Group is entitled to receive administration fees based on the combined
average daily net assets of the Funds and the other portfolios offered by
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<PAGE>
Galaxy with an October 31 fiscal year end, computed daily and paid monthly, at
the following annual rates, effective September 10, 1998:
<TABLE>
<CAPTION>
COMBINED AVERAGE DAILY NET ASSETS ANNUAL RATE
--------------------------------- -----------
<S> <C>
Up to $2.5 billion. . . . . . . . 0.090%
From $2.5 to $5 billion . . . . . 0.085%
From $5 to $12 billion. . . . . . 0.075%
From $12 to $15 billion . . . . . 0.065%
From $15 to $18 billion . . . . . 0.060%
Over $18 billion. . . . . . . . . 0.0575%
</TABLE>
Prior to September 10, 1998, Galaxy paid Investor Services Group
administration fees based on the combined average daily net assets of the Funds
and all other portfolios offered by Galaxy at the following annual rates:
<TABLE>
<CAPTION>
COMBINED AVERAGE DAILY NET ASSETS ANNUAL RATE
--------------------------------- -----------
<S> <C>
Up to $2.5 billion. . . . . . . . 0.090%
From $2.5 to $5 billion . . . . . 0.085%
Over $5 billion . . . . . . . . . 0.075%
</TABLE>
Investor Services Group also receives a separate annual fee from each Galaxy
portfolio for certain fund accounting services.
From time to time, Investor Services Group may waive voluntarily all or a
portion of the administration fees payable to it by the Funds. For the fiscal
year ended October 31, 1998, each Fund paid Investor Services Group
administration fees at the effective annual rate of 0.08% of such Fund's
average daily net assets. During the last three fiscal years, Investor Services
Group received administration fees (net of fee waivers) as set forth below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1998 1997 1996
- ---- ---- ---- ----
<S> <C> <C> <C>
Asset Allocation . . . . . . . . . . . . $401,495 $253,881 $163,060
Equity Income. . . . . . . . . . . . . . $263,640 $216,835 $174,406
Growth and Income. . . . . . . . . . . . $413,204 $290,324 $203,187(1)
Strategic Equity . . . . . . . . . . . . $10,624(2) * *
Equity Value . . . . . . . . . . . . . . $405,740 $314,236 $249,569
Equity Growth. . . . . . . . . . . . . . $895,213 $716,320 $532,514
International Equity . . . . . . . . . . $305,871 $222,620 $141,571
Small Cap Value. . . . . . . . . . . . . $231,440 $160,350 $129,102(1)
Small Company Equity . . . . . . . . . . $342,901 $222,620 $137,000
</TABLE>
- --------------------
* Not in operation during the period.
(1) For the period from December 4, 1995 through October 31, 1996. For the
period from November 1, 1995 to December 3, 1995, Federated Administrative
Services, a subsidiary of Federated Investors, served as administrator of
the Predecessor Funds and earned the following administrative fees:
Predecessor Growth and Income Fund, $31,175, none of which was voluntarily
waived; and Predecessor Small Cap Value Fund, $19,223, none of which was
voluntarily waived.
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<PAGE>
(2) For the period from March 4, 1998 (commencement of operations) through
October 31, 1998.
During the last three fiscal years, Investor Services Group waived
administration fees as set forth below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1998 1997 1996
- ---- ---- ---- ----
<S> <C> <C> <C>
Asset Allocation . . . . . . . . . . . . $0 $0 $2,010
Equity Income. . . . . . . . . . . . . . $0 $0 $0
Growth and Income. . . . . . . . . . . . $0 $0 $0
Strategic Equity . . . . . . . . . . . . $0(1) * *
Equity Value . . . . . . . . . . . . . . $0 $0 $1,640
Equity Growth. . . . . . . . . . . . . . $0 $0 $4,360
International Equity . . . . . . . . . . $0 $0 $0
Small Cap Value. . . . . . . . . . . . . $0 $0 $0
Small Company Equity . . . . . . . . . . $0 $0 $4,570
</TABLE>
- --------------
* Not in operation during the period.
(1) For the period from March 4, 1998 (commencement of operations) through
October 31, 1998.
Under the administration agreement between Galaxy and Investor Services
Group (the "Administration Agreement"), Investor Services Group has agreed to
maintain office facilities for Galaxy, furnish Galaxy with statistical and
research data, clerical, accounting, and bookkeeping services, certain other
services such as internal auditing services required by Galaxy, and compute the
net asset value and net income of the Funds. Investor Services Group prepares
the Funds' annual and semi-annual reports to the SEC, federal and state tax
returns, and filings with state securities commissions, arranges for and bears
the cost of processing share purchase and redemption orders, maintains the
Funds' financial accounts and records, and generally assists in all aspects of
Galaxy's operations. Unless otherwise terminated, the Administration Agreement
will remain in effect until May 1, 2001 and thereafter will continue from year
to year upon annual approval of Galaxy's Board of Trustees.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase Manhattan"), located at One Chase
Manhattan Plaza, New York, New York 10081, a wholly-owned subsidiary of The
Chase Manhattan Corporation, serves as the custodian of the Funds' assets
pursuant to a Global Custody Agreement. Chase Manhattan may employ
sub-custodians for the Funds for the purpose of providing custodial services for
the Funds' foreign assets held outside the United States.
Under the Global Custody Agreement, Chase Manhattan has agreed to: (i)
maintain a separate account or accounts in the name of each Fund; (ii) hold and
disburse portfolio securities on account of each Fund; (iii) collect and make
disbursements of money on behalf of each Fund; (iv) collect and receive all
income and other payments and distributions on account of each Fund's portfolio
securities; (v) respond to correspondence from security brokers and others
relating to its duties; and (vi) make periodic reports to the Board of Trustees
concerning the
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<PAGE>
Funds' operations. Chase Manhattan is authorized to select one or more banks or
trust companies to serve as sub-custodian for the Funds, provided that Chase
Manhattan shall remain responsible for the performance of all of its duties
under the custodian agreement and shall be liable to the Funds for any loss
which shall occur as a result of the failure of a sub-custodian to exercise
reasonable care with respect to the safekeeping of the Funds' assets. In
addition, Chase Manhattan also serves as Galaxy's "foreign custody manager" (as
that term is defined in Rule 17f-5 under the 1940 Act) and in such capacity
employs sub-custodians for the Funds for the purpose of providing custodial
services for the foreign assets of those Funds held outside the U.S. The assets
of the Funds are held under bank custodianship in compliance with the 1940 Act.
Investor Services Group, a wholly-owned subsidiary of First Data
Corporation, serves as the Funds' transfer and dividend disbursing agent
pursuant to a Transfer Agency and Services Agreement (the "Transfer Agency
Agreement"). Communications to Investor Services Group should be directed to
Investor Services Group at P.O. Box 5108, 4400 Computer Drive, Westborough,
Massachusetts 01581. Under the Transfer Agency Agreement, Investor Services
Group has agreed to: (i) issue and redeem shares of each Fund; (ii) transmit all
communications by each Fund to its shareholders of record, including reports to
shareholders, dividend and distribution notices and proxy materials for meetings
of shareholders; (iii) respond to correspondence by security brokers and others
relating to its duties; (iv) maintain shareholder accounts; and (v) make
periodic reports to the Board of Trustees concerning Galaxy's operations.
Investor Services Group may enter into agreements with one or more
entities, including affiliates of Fleet, pursuant to which such entities agree
to perform certain sub-accounting and administrative functions ("Sub-Account
Services") on a per account basis with respect to Trust Shares of each Fund held
by defined contribution plans, including maintaining records reflecting
separately with respect to each plan participant's sub-account all purchases and
redemptions of Trust Shares and the dollar value of Trust Shares in each
sub-account; crediting to each participant's sub-account all dividends and
distributions with respect to that sub-account; and transmitting to each
participant a periodic statement regarding the sub-account as well as any proxy
materials, reports and other material Fund communications. Such entities are
compensated by Investor Services Group for the Sub-Account Services and in
connection therewith the transfer agency fees payable by Trust Shares of the
Funds to Investor Services Group have been increased by an amount equal to these
fees. In substance, therefore, the holders of Trust Shares of these Funds
indirectly bear these fees.
Fleet Bank, an affiliate of Fleet, is paid a fee for Sub-Account Services
performed with respect to Trust Shares of the Funds held by defined contribution
plans. Pursuant to an agreement between Fleet Bank and Investor Services Group,
Fleet Bank will be paid $21.00 per year for each defined contribution plan
participant account. For the fiscal year ended October 31, 1998, Fleet Bank
received $2,537,459 for Sub-Account Services.
-65-
<PAGE>
EXPENSES
Fleet and Investor Services Group bear all expenses in connection with the
performance of their services for the Funds, except that Galaxy bears the
expenses incurred in the Funds' operations including: taxes; interest; fees
(including fees paid to its trustees and officers who are not affiliated with
Investor Services Group); SEC fees; state securities fees; costs of preparing
and printing prospectuses for regulatory purposes and for distribution to
existing shareholders; advisory, administration, shareholder servicing, Rule
12b-1 distribution (if applicable), fund accounting and custody fees; charges of
the transfer agent and dividend disbursing agent; certain insurance premiums;
outside auditing and legal expenses; costs of independent pricing services;
costs of shareholder reports and meetings; and any extraordinary expenses. The
Funds also pay for brokerage fees and commissions in connection with the
purchase of portfolio securities.
PORTFOLIO TRANSACTIONS
Fleet or Oechsle will select specific portfolio investments and effect
transactions for the Funds. Fleet seeks to obtain the best net price and the
most favorable execution of orders. Fleet or Oechsle may, in its discretion,
effect transactions in portfolio securities with dealers who provide research
advice or other services to the Funds, Fleet or Oechsle. Fleet or Oechsle is
authorized to pay a broker or dealer who provides such brokerage and research
services a commission for executing a portfolio transaction for any Fund which
is in excess of the amount of commission another broker or dealer would have
charged for effecting that transaction if Fleet or Oechsle determines in good
faith that such commission was reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer, viewed in
terms of either that particular transaction or Fleet or Oechsle's overall
responsibilities to the particular Fund and to Galaxy. Such brokerage and
research services might consist of reports and statistics relating to specific
companies or industries, general summaries of groups of stocks or bonds and
their comparative earnings and yields, or broad overviews of the stock, bond and
government securities markets and the economy. The fees under the investment
advisory agreements between Galaxy and Fleet and Fleet and Oechsle are not
reduced by reason of receiving such brokerage and research services. The Board
of Trustees will periodically review the commissions paid by the Funds to
determine if the commissions paid over representative periods of time were
reasonable in relation to the benefits inuring to the Funds.
-66-
<PAGE>
During the fiscal year ended October 31, 1998, the Funds paid soft dollar
commissions as shown below:
<TABLE>
<CAPTION>
FUND COMMISSIONS
---- -----------
<S> <C>
Asset Allocation . . . . $215,430
Equity Income. . . . . . $242,621
Growth and Income. . . . $511,946
Strategic Equity(1). . . $102,898
Equity Value . . . . . . $885,941
Equity Growth. . . . . . $943,024
International Equity . . $334,026
Small Cap Value. . . . . $193,290
Small Company Equity . . $532,508
</TABLE>
- --------------------
(1) For the period from March 4, 1998 (commencement of operations)
through October 31, 1998.
Transactions on U.S. stock exchanges involve the payment of negotiated
brokerage commissions. On exchanges on which commissions are negotiated, the
cost of transactions may vary among different brokers. There is generally no
stated commission in the case of securities traded in U.S. over-the-counter
markets, but the prices of those securities include undisclosed commissions or
mark-ups. The cost of securities purchased from underwriters includes an
underwriting commission or concession, and the prices at which securities are
purchased from and sold to dealers include a dealer's mark-up or mark-down.
U.S. Government Securities are generally purchased from underwriters or dealers,
although certain newly issued U.S. Government Securities may be purchased
directly from the U.S. Treasury or from the issuing agency or instrumentality.
No brokerage commissions are typically paid on purchases and sales of U.S.
Government Securities.
The Funds paid brokerage commissions as shown in the table below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1998 1997 1996
- ---- ---- ---- ----
<S> <C> <C> <C>
Asset Allocation . . . . . . . . . . . . $225,758 $155,296 $112,582
Equity Income. . . . . . . . . . . . . . $304,645 $201,407 $217,231
Growth and Income. . . . . . . . . . . . $511,307 $851,919 $398,181(1)
Strategic Equity . . . . . . . . . . . . $118,965(2) * *
Equity Value . . . . . . . . . . . . . . $965,718 $934,709 $790,862
Equity Growth. . . . . . . . . . . . . . $1,128,464 $7,006,331 $539,416
International Equity . . . . . . . . . . $841,389 $851,919 $1,155,060
Small Cap Value. . . . . . . . . . . . . $223,853 $173,335 $118,396(1)
Small Company Equity . . . . . . . . . . $579,137 $354,910 $258,606
</TABLE>
- --------------------
* Not in operation during the period.
(1) For the period from December 4, 1995 through October 31, 1996.
(2) For the period from March 4, 1998 (commencement of operations) through
October 31, 1998.
-67-
<PAGE>
During the period February 1, 1998 through October 31, 1998, certain Funds
effected a portion of their portfolio transactions through Quick & Reilly
Institutional Trading ("Quick & Reilly"), a division of Fleet Securities, Inc.
which is an affiliate of Fleet. The table below discloses (1) the aggregate
amount of commissions paid to Quick & Reilly by the Funds during the period, (2)
the percentage of each Fund's aggregate brokerage commissions for the fiscal
year ended October 31, 1998 that was paid to Quick & Reilly, and (3) the
percentage of each Fund's aggregate dollar amount of transactions that involved
payment of commissions that was effected through Quick & Reilly during the
fiscal year ended October 31, 1998.
<TABLE>
<CAPTION>
For the Fiscal Year Ended October 31:
% of
% of Aggregate
Aggregate Aggregate Commission
Fund Amount Commissions Transactions
---- --------- ------------ ------------
<S> <C> <C> <C>
Asset Allocation. . . . . . . . $130,968 72.93% 78.11%
Equity Income . . . . . . . . . $108,651 40.75% 45.43%
Growth and Income . . . . . . . $118,050 32.53% 32.56%
Strategic Equity(1) . . . . . . $26,480 22.26% 27.40%
Equity Value. . . . . . . . . . $298,078 38.48% 43.86%
Equity Growth . . . . . . . . . $ 56,784 5.76% 8.21%
</TABLE>
- --------------------
(1) For the period from March 4, 1998 (commencement of operations) through
October 31, 1998.
The Funds may engage in short-term trading to achieve their investment
objectives. Portfolio turnover may vary greatly from year to year as well as
within a particular year. Except as permitted by the SEC or applicable law, the
Funds will not acquire portfolio securities from, make savings deposits in,
enter into repurchase or reverse repurchase agreements with, or sell securities
to, Fleet, Oechsle, Investor Services Group, or their affiliates, and will not
give preference to affiliates and correspondent banks of Fleet with respect to
such transactions.
Galaxy is required to identify any securities of its "regular brokers or
dealers" that the Funds have acquired during Galaxy's most recent fiscal year.
At October 31, 1998, (1) the Asset Allocation Fund held Chase Manhattan Corp.
with a value of $1,988,437; (2) the Growth & Income Fund held Chase Manhattan
Corp. with a value of $5,454,000, and held J.P. Morgan & Co. with a value of
$5,089,500; (3) the Equity Value Fund held Chase Manhattan Corp. with a value of
$7,158,375 and held Merrill Lynch & Co. with a value of $7,732,125. (4) The
Strategic Equity Fund held Chase Manhattan Corp. with a value of $1,306,687; (5)
the Equity Growth Fund held Chase Manhattan Corp. with a value of $14,203,125.
Chase Manhattan Corp., J.P. Morgan & Co. and Merrill Lynch Corp. are considered
"regular brokers or dealers" of Galaxy.
Investment decisions for each Fund are made independently from those for
the other Funds and portfolios of Galaxy and for any other investment companies
and accounts advised or managed by Fleet or Oechsle. When a purchase or sale of
the same security is made at
-68-
<PAGE>
substantially the same time on behalf of a Fund, another portfolio of Galaxy,
and/or another investment company or account, the transaction will be averaged
as to price, and available investments allocated as to amount, in a manner which
Fleet or Oechsle believes to be equitable to the Fund and such other portfolio,
investment company or account. In some instances, this investment procedure may
adversely affect the price paid or received by a Fund or the size of the
position obtained or sold by such Fund. To the extent permitted by law, Fleet
or Oechsle may aggregate the securities to be sold or purchased for a Fund with
those to be sold or purchased for Galaxy's other Funds and portfolios, or other
investment companies or accounts in order to obtain best execution.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to which it intends
to enter into servicing agreements with institutions (including Fleet Bank and
its affiliates). Pursuant to these servicing agreements, institutions render
certain administrative and support services to customers who are the beneficial
owners of Retail A Shares. Such services are provided to customers who are the
beneficial owners of Retail A Shares and are intended to supplement the services
provided by Investor Services Group as administrator and transfer agent to the
shareholders of record of the Retail A Shares. The Plan provides that Galaxy
will pay fees for such services at an annual rate of up to .50% of the average
daily net asset value of Retail A Shares owned beneficially by customers.
Institutions may receive up to one-half of this fee for providing one or more of
the following services to such customers: aggregating and processing purchase
and redemption requests and placing net purchase and redemption orders with FD
Distributors; processing dividend payments from a Fund; providing sub-accounting
with respect to Retail A Shares or the information necessary for sub-accounting;
and providing periodic mailings to customers. Institutions may also receive up
to one-half of this fee for providing one or more of these additional services
to such customers: providing customers with information as to their positions
in Retail A Shares; responding to customer inquiries; and providing a service to
invest the assets of customers in Retail A Shares.
Although the Shareholder Services Plan has been approved with respect to
both Retail A Shares and Trust Shares of the Funds, as of the date of this
Statement of Additional Information, Galaxy has entered into servicing
agreements under the Shareholder Services Plan only with respect to Retail A
Shares of each Fund, and to limit the payment under these servicing agreements
for each Fund to an aggregate fee of not more than .30% (on an annualized basis)
of the average daily net asset value of the Retail A Shares of the Fund
beneficially owned by customers of institutions. Galaxy understands that
institutions may charge fees to their customers who are the beneficial owners of
Retail A Shares in connection with their accounts with such institutions. Any
such fees would be in addition to any amounts which may be received by an
institution under the Shareholder Services Plan. Under the terms of each
servicing agreement entered into with Galaxy, institutions are required to
provide to their customers a schedule of any fees that they may charge in
connection with customer investments in Retail A Shares. As of October 31,
1998, Galaxy had entered into Servicing Agreements only with Fleet Bank and
affiliates.
-69-
<PAGE>
Each Servicing Agreement between Galaxy and a Service Organization relating
to the Services Plan requires that, with respect to those Funds which declare
dividends on a daily basis, the Service Organization agree to waive a portion of
the servicing fee payable to it under the Services Plan to the extent necessary
to ensure that the fees required to be accrued with respect to the Retail A
Shares of such Funds on any day do not exceed the income to be accrued to such
Retail A Shares on that day.
During the last three fiscal years, Galaxy made payments to Service
Organizations with respect to Retail A Shares as shown in the table below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1998 1997 1996
- ---- ---- ---- ----
<S> <C> <C> <C>
Asset Allocation . . . . . . . . . . . . $763,611 $412,384 $267,695
Equity Income. . . . . . . . . . . . . . $599,940 $434,674 $309,334
Growth and Income. . . . . . . . . . . . $472,627 $324,069 $154,838(1)
Strategic Equity . . . . . . . . . . . . $4,356(2) * *
Equity Value . . . . . . . . . . . . . . $667,247 $440,920 $331,670
Equity Growth. . . . . . . . . . . . . . $841,650 $558,695 $356,642
International Equity . . . . . . . . . . $191,712 $102,465 $79,239
Small Cap Value. . . . . . . . . . . . . $250,077 $130,739 $79,503(1)
Small Company Equity . . . . . . . . . . $343,948 $287,068 $172,887
</TABLE>
- --------------------
* Not in operation during the period.
(1) For the period from December 4, 1995 through October 31, 1996.
(2) For the period from March 4, 1998 (commencement of operations) through
October 31, 1998.
Galaxy's Servicing Agreements are governed by the Services Plan that has
been adopted by Galaxy's Board of Trustees in connection with the offering of
Retail A Shares of each Fund. Pursuant to the Services Plan, the Board of
Trustees reviews, at least quarterly, a written report of the amounts paid under
the Servicing Agreements and the purposes for which the expenditures were made.
In addition, the arrangements with Service Organizations must be approved
annually by a majority of Galaxy's trustees, including a majority of the
trustees who are not "interested persons" of Galaxy as defined in the 1940 Act
and who have no direct or indirect financial interest in such arrangements (the
"Disinterested Trustees").
The Board of Trustees has approved Galaxy's arrangements with Service
Organizations based on information provided by Galaxy's service contractors that
there is a reasonable likelihood that the arrangements will benefit the Funds
and their shareholders by affording Galaxy greater flexibility in connection
with the efficient servicing of the accounts of the beneficial owners of Retail
A Shares of the Funds. Any material amendment to Galaxy's arrangements with
Service Organizations must be approved by a majority of Galaxy's Board of
Trustees (including a majority of the Disinterested Trustees). So long as
Galaxy's arrangements with Service Organizations are in effect, the selection
and nomination of the members of Galaxy's Board of Trustees who are not
"interested persons" (as defined in the 1940 Act) of Galaxy will be committed to
the discretion of such Disinterested Trustees.
-70-
<PAGE>
DISTRIBUTION AND SERVICES PLAN
Galaxy has adopted a Distribution and Services Plan pursuant to Rule 12b-1
under the 1940 Act (the "Rule") with respect to Retail B Shares of the Funds
(the "12b-1 Plan"). Under the 12b-1 Plan, Galaxy may pay (a) FD Distributors or
another person for expenses and activities intended to result in the sale of
Retail B Shares, including the payment of commissions to broker-dealers and
other industry professionals who sell Retail B Shares and the direct or indirect
cost of financing such payments, (b) institutions for shareholder liaison
services, which means personal services for holders of Retail B Shares and/or
the maintenance of shareholder accounts, such as responding to customer
inquiries and providing information on accounts, and (c) institutions for
administrative support services, which include but are not limited to (i)
transfer agent and sub-transfer agent services for beneficial owners of Retail B
Shares; (ii) aggregating and processing purchase and redemption orders; (iii)
providing beneficial owners with statements showing their positions in Retail B
Shares; (iv) processing dividend payments; (v) providing sub-accounting services
for Retail B Shares held beneficially; (vi) forwarding shareholder
communications, such as proxies, shareholder reports, dividend and tax notices,
and updating prospectuses to beneficial owners; and (vii) receiving, translating
and transmitting proxies executed by beneficial owners.
Under the 12b-1 Plan, payments by Galaxy (i) for distribution expenses may
not exceed the annualized rate of .65% of the average daily net assets
attributable to each such Fund's outstanding Retail B Shares, and (ii) to an
institution for shareholder liaison services and/or administrative support
services may not exceed the annual rates of .25% and .25%, respectively, of the
average daily net assets attributable to each such Fund's outstanding Retail B
Shares which are owned of record or beneficially by that institution's customers
for whom the institution is the dealer of record or shareholder of record or
with whom it has a servicing relationship. As of the date of this Statement of
Additional Information, Galaxy intends to limit each Fund's payments for
shareholder liaison and administrative support services under the 12b-1 Plan to
an aggregate fee of not more than .30% (on an annualized basis) of the average
daily net asset value of Retail B Shares owned of record or beneficially by
customers of institutions.
Payments for distribution expenses under the 12b-1 Plan are subject to the
Rule. The Rule defines distribution expenses to include the cost of "any
activity which is primarily intended to result in the sale of shares issued by"
Galaxy. The Rule provides, among other things, that an investment company may
bear such expenses only pursuant to a plan adopted in accordance with the Rule.
In accordance with the Rule, the 12b-1 Plan provides that a report of the
amounts expended under the 12b-1 Plan, and the purposes for which such
expenditures were incurred, will be made to the Board of Trustees for its review
at least quarterly. The 12b-1 Plan provides that it may not be amended to
increase materially the costs which Retail B Shares of a Fund may bear for
distribution pursuant to the 12b-1 Plan without shareholder approval, and that
any other type of material amendment must be approved by a majority of the Board
of Trustees, and by a majority of the trustees who are neither "interested
persons" (as defined in the 1940 Act) of Galaxy nor have any direct or indirect
financial interest in the operation of the 12b-1 Plan
-71-
<PAGE>
or in any related agreements (the "12b-1 Trustees"), by vote cast in person at a
meeting called for the purpose of considering such amendments.
During the last three fiscal years, Retail B Shares of the Funds bore the
following distribution fees under the 12b-1 Plan:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1998 1997 1996
- ---- ---- ---- ----
<S> <C> <C> <C>
Asset Allocation . . . . . . . . . . . . $292,256 $99,219 $6,389(1)
Equity Income. . . . . . . . . . . . . . * * *
Growth and Income. . . . . . . . . . . . $306,933 $122,300 $7,070(1)
Strategic Equity . . . . . . . . . . . . $1,300(2) ** **
Equity Value . . . . . . . . . . . . . . $132,464 $50,897 $3,518(1)
Equity Growth. . . . . . . . . . . . . . $184,524 $75,906 $7,613(1)
International Equity . . . . . . . . . . * * *
Small Cap Value. . . . . . . . . . . . . * * *
Small Company Equity . . . . . . . . . . $97,785 $55,371 $7,282(1)
</TABLE>
- --------------------
* The Equity Income, International Equity and Small Cap Value Funds did not
offer Retail B Shares until November 1, 1998.
** Not in operating during the period.
(1) For the period from March 4, 1996 (initial public offering date) through
October 31, 1996.
(2) For the period from March 4, 1998 (commencement of operations) through
October 31, 1998.
During the last three the fiscal years, Retail B Shares of the Funds bore
the following shareholder servicing fees under the 12b-1 Plan:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1998 1997 1996
- ---- ---- ---- ----
<S> <C> <C> <C>
Asset Allocation . . . . . . . . . . . . $134,888 $44,293 $2,949(1)
Equity Income. . . . . . . . . . . . . . * * *
Growth and Income. . . . . . . . . . . . $124,879 $54,046 $3,263(1)
Strategic Equity . . . . . . . . . . . . $600(2) ** **
Equity Value . . . . . . . . . . . . . . $61,137 $21,199 $1,624(1)
Equity Growth. . . . . . . . . . . . . . $85,165 $34,034 $3,514(1)
International Equity . . . . . . . . . . * * *
Small Cap Value. . . . . . . . . . . . . * * *
Small Company Equity . . . . . . . . . . $45,132 $23,556 $3,361(1)
</TABLE>
- --------------------
* The Equity Income, International Equity and Small Cap Value Funds did not
offer Retail B Shares until November 1, 1998.
** Not in operation during the period.
(1) For the period from March 4, 1996 (initial public offering date) through
October 31, 1996.
(2) For the period from March 4, 1998 (commencement of operations) through
October 31, 1998.
All amounts paid under the 12b-1 Plan for these periods were attributable to
payments to broker-dealers.
-72-
<PAGE>
Galaxy's Board of Trustees has concluded that there is a reasonable
likelihood that the 12b-1 Plan will benefit the Funds and holders of Retail B
Shares. The 12b-1 Plan is subject to annual reapproval by a majority of the
12b-1 Trustees and is terminable at any time with respect to any Fund by a vote
of a majority of the 12b-1 Trustees or by vote of the holders of a majority of
the Retail B Shares of the Fund involved. Any agreement entered into pursuant
to the 12b-1 Plan with a Service Organization is terminable with respect to any
Fund without penalty, at any time, by vote of a majority of the 12b-1 Trustees,
by vote of the holders of a majority of the Retail B Shares of such Fund, by FD
Distributors or by the Service Organization. An agreement will also terminate
automatically in the event of its assignment.
As long as the 12b-1 Plan is in effect, the nomination of the trustees who
are not interested persons of Galaxy (as defined in the 1940 Act) must be
committed to the discretion of the 12b-1 Trustees.
DISTRIBUTOR
FD Distributors, a wholly-owned subsidiary of Investor Services Group,
serves as Galaxy's distributor. On March 31, 1995, Investor Services Group
acquired all of the issued and outstanding stock of FD Distributors. Prior to
that time, FD Distributors was a wholly-owned subsidiary of 440 Financial Group
of Worcester, Inc. and an indirect subsidiary of State Mutual Life Assurance
Company of America.
Unless otherwise terminated, the Distribution Agreement between Galaxy and
FD Distributors remains in effect until May 31, 1999, and thereafter will
continue from year to year upon annual approval by Galaxy's Board of Trustees,
or by the vote of a majority of the outstanding shares of Galaxy and by the vote
of a majority of the Board of Trustees of Galaxy who are not parties to the
Agreement or interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval. The Agreement will terminate
in the event of its assignment, as defined in the 1940 Act.
FD Distributors is entitled to the payment of a front-end sales charge on
the sale of Retail A Shares of the Funds as described in the applicable
Prospectus and this Statement of Additional Information. During the last three
fiscal years, FD Distributors received front-end sales charges in connection
with Retail A Share purchases as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1998 1997 1996
- ---- ---- ---- ----
<S> <C> <C> <C>
Asset Allocation . . . . . . . . . . . . $1,208,453 $1,010,359 $283,218(1)
Equity Income. . . . . . . . . . . . . . $312,155 $592,347 $310,366(1)
Growth and Income. . . . . . . . . . . . $681,018 $988,216 $279,670(2)
Strategic Equity . . . . . . . . . . . . $ 21,677(3) * *
Equity Value . . . . . . . . . . . . . . $364,586 $451,771 $115,099(1)
Equity Growth. . . . . . . . . . . . . . $548,901 $491,165 $221,387(1)
International Equity . . . . . . . . . . $126,093 $320,935 $41,596(1)
Small Cap Value. . . . . . . . . . . . . $398,478 $300,152 $34,022(2)
Small Company Equity . . . . . . . . . . $103,755 $343,614 $241,805(1)
</TABLE>
-73-
<PAGE>
- --------------------
* Not in operation during the period.
(1) For the period from December 1, 1995 (date of imposition of sales charges
on Retail A Shares) through October 31, 1996.
(2) For the period from December 4, 1995 through October 31, 1996.
(3) For the period from March 4, 1998 (commencement of operations) through
October 31, 1998.
FD Distributors retained none of the amounts shown in the table above.
FD Distributors is also entitled to the payment of contingent deferred
sales charges upon the redemption of Retail B Shares of the Funds. During the
last three fiscal years, FD Distributors received contingent deferred sales
charges in connection with Retail B Share
redemptions as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1998 1997 1996
- ---- ---- ---- ----
<S> <C> <C> <C>
Asset Allocation . . . . . . . . . . . . $142,492 $57,559 $4,687(1)
Equity Income. . . . . . . . . . . . . . * * *
Growth and Income. . . . . . . . . . . . $107,798 $49,278 $2,815(1)
Strategic Equity . . . . . . . . . . . . $112(2) ** **
Equity Value . . . . . . . . . . . . . . $44,300 $21,384 $1,517(1)
Equity Growth. . . . . . . . . . . . . . $65,766 $28,379 $7,662(1)
International Equity . . . . . . . . . . * * *
Small Cap Value. . . . . . . . . . . . . * * *
Small Company Equity . . . . . . . . . . $38,792 $34,481 $3,507(1)
</TABLE>
- --------------------
* The Equity Income, International Equity and Small Cap Value Funds did not
offer Retail B Shares until November 1, 1998.
** Not in operation during the period.
(1) For the period from March 4, 1996 (initial public offering date) through
October 31, 1996.
(2) For the period from March 4, 1998 (commencement of operations) through
October 31, 1998.
FD Distributors retained none of the amounts shown in the table above.
-74-
<PAGE>
The following table shows all sales charges, commissions and other
compensation received by FD Distributors directly or indirectly from the Funds
during the fiscal year ended October 31, 1998:
<TABLE>
<CAPTION>
Net Underwriting Compensation on Brokerage Commissions
Discounts and Redemption and in Connection with Other
Fund Commissions(1) Repurchase(2) Fund Transactions Compensation(3)
- ---- -------------- ------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Asset Allocation $1,350,945 $142,492 $ 0 $1,070,867
Equity Income $312,155 $-- $ 0 $560,611
Growth and Income $788,816 $107,798 $ 0 $892,338
Strategic Equity(4) $21,790 $112 $ 0 $3,562
Equity Value $408,886 $44,300 $ 0 $803,086
Equity Growth $614,667 $65,766 $ 0 $1,018,337
International Equity $126,093 $-- $ 0 $164,938
Small Cap Value $398,478 $-- $ 0 $179,077
Small Company Equity $142,547 $38,792 $ 0 $452,071
</TABLE>
- --------------------
(1) Represents amounts received from front-end sales charges on Retail A Shares
and commissions received in connection with sales of Retail B Shares.
(2) Represents amounts received from contingent deferred sales charges on
Retail B Shares. The basis on which such sales charges are paid is
described in the Prospectus relating to Retail B Shares. All such amounts
were paid to affiliates of Fleet.
(3) Represents payments made under the Shareholder Services Plan and
Distribution and Services Plan during the fiscal year ended October 31,
1998, which includes fees accrued in the fiscal year ended October 31,
1997, which were paid in 1998 (see "Shareholder Services Plan" and
"Distribution and Services Plan" above).
(4) For the period from March 4, 1998 (commencement of operations) through
October 31, 1998.
AUDITORS
Ernst & Young LLP, independent public accountants, with offices at 200
Clarendon Street, Hancock Tower, Boston, Massachussets 02116-5072, have been
selected as auditors for Galaxy for the fiscal year ending October 31, 1999.
The financial highlights for the respective Funds included in their
Prospectuses and the financial statements for the Funds contained in Galaxy's
Annual Report to Shareholders and incorporated by reference into this
Statement of Additional Information for the respective fiscal periods ended
October 31 of each calendar year have been audited by PricewaterhouseCoopers
LLP, Galaxy's former auditors, for the periods included in their report thereon
which appears therein.
COUNSEL
Drinker Biddle & Reath LLP (of which W. Bruce McConnel, III, Secretary of
Galaxy, is a partner), 1345 Chestnut Street, Suite 1100, Philadelphia,
Pennsylvania 19107, are counsel to Galaxy and will pass upon certain legal
matters on its behalf.
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PERFORMANCE AND YIELD INFORMATION
Investment returns and principal values will vary with market conditions so
that an investor's shares, when redeemed, may be worth more or less than their
original cost. Past performance is no guarantee of future results. Unless
otherwise indicated, total return figures include changes in share price,
deduction of any applicable sales charge, and reinvestment of dividends and
capital gains distributions, if any.
The Funds' 30-day (or one month) standard yields are calculated separately
for each series of shares in each Fund in accordance with the method prescribed
by the SEC for mutual funds:
YIELD = 2[(a-b)/cd +1) to the power of (6) - 1]
Where: a = dividends and interest earned by a Fund
during the period;
b = expenses accrued for the period (net of
reimbursements);
c = average daily number of shares outstanding during
the period entitled to receive dividends; and
d = maximum offering price per share on the last day
of the period.
For the purpose of determining net investment income earned during the period
(variable "a" in the formula), dividend income on equity securities held by a
Fund is recognized by accruing 1/360 of the stated dividend rate of the security
each day that the security is in the Fund. Except as noted below, interest
earned on debt obligations held by a Fund is calculated by computing the yield
to maturity of each obligation based on the market value of the obligation
(including actual accrued interest) at the close of business on the last
business day of each month, or, with respect to obligations purchased during the
month, the purchase price (plus actual accrued interest) and dividing the result
by 360 and multiplying the quotient by the market value of the obligation
(including actual accrued interest) in order to determine the interest income on
the obligation for each day of the subsequent month that the obligation is held
by the Fund. For purposes of this calculation, it is assumed that each month
contains 30 days. The maturity of an obligation with a call provision is the
next call date on which the obligation reasonably may be expected to be called
or, if none, the maturity date. With respect to debt obligations purchased at a
discount or premium, the formula generally calls for amortization of the
discount or premium. The amortization schedule will be adjusted monthly to
reflect changes in the market value of such debt obligations. Expenses accrued
for the period (variable "b" in the formula) include all recurring fees charged
by a Fund to all shareholder accounts in proportion to the length of the
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<PAGE>
base period and the Fund's mean (or median) account size. Undeclared earned
income will be subtracted from the offering price per share (variable "d" in the
formula).
With respect to mortgage or other receivables-backed obligations that are
expected to be subject to monthly payments of principal and interest
("pay-downs"), (i) gain or loss attributable to actual monthly pay-downs are
accounted for as an increase or decrease to interest income during the period,
and (ii) each Fund may elect either (a) to amortize the discount and premium on
the remaining security, based on the cost of the security, to the weighted
average maturity date, if such information is available, or to the remaining
term of the security, if any, if the weighted average date is not available or
(b) not to amortize discount or premium on the remaining security.
Based on the foregoing calculation, the standard yields for Retail A
Shares, Retail B Shares and Trust Shares of the Funds for the 30-day period
ended October 31, 1998 were as set forth below:
<TABLE>
<CAPTION>
Fund Retail A Retail B Trust
- ---- -------- -------- ------
<S> <C> <C> <C>
Asset Allocation . . . . . . . . . . . . 1.01% 0.41% 1.34%
Equity Income. . . . . . . . . . . . . . 0.94% --% 1.26%
Growth and Income. . . . . . . . . . . . 0.30% (0.31)% 0.59%
Strategic Equity . . . . . . . . . . . . (1.35)% (1.93)% (1.05)%
Equity Value . . . . . . . . . . . . . . 0.30% (0.30)% 0.59%
Equity Growth. . . . . . . . . . . . . . 0.03% (0.58)% 0.31%
International Equity . . . . . . . . . . (1.18)% --% (0.93)%
Small Cap Value. . . . . . . . . . . . . 8.12% --% 8.71%
Small Company Equity . . . . . . . . . . (1.19)% (1.83)% (0.96)%
</TABLE>
Each Fund that advertises its "average annual total return" computes such
return separately for each series of shares by determining the average annual
compounded rate of return during specified periods that equates the initial
amount invested to the ending redeemable value of such investment according to
the following formula:
T = [(ERV/P) - 1] to the power of (1/n)
Where: T = average annual total return;
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the l, 5 or 10 year (or other)
periods at the end of the applicable period (or a
fractional portion thereof);
P = hypothetical initial payment of $1,000; and
n = period covered by the computation, expressed in years.
Each Fund that advertises its "aggregate total return" computes such
returns separately for each series of shares by determining the aggregate
compounded rates of return during
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<PAGE>
specified periods that likewise equate the initial amount invested to the ending
redeemable value of such investment. The formula for calculating aggregate
total return is as follows:
Aggregate Total Return = [(ERV/P) - l]
The calculations are made assuming that (1) all dividends and capital gain
distributions are reinvested on the reinvestment dates at the price per share
existing on the reinvestment date, (2) all recurring fees charged to all
shareholder accounts are included, and (3) for any account fees that vary with
the size of the account, a mean (or median) account size in the Fund during the
periods is reflected. The ending redeemable value (variable "ERV" in the
formula) is determined by assuming complete redemption of the hypothetical
investment after deduction of all nonrecurring charges at the end of the
measuring period. In addition, the Funds' Retail Shares average annual total
return and aggregate total return quotations will reflect the deduction of the
maximum sales load charged in connection with purchases of Retail A Shares or
redemptions of Retail B Shares, as the case may be.
The aggregate total returns for Retail A Shares, Retail B Shares and Trust
Shares (as applicable) of the Funds from the date of initial public offering to
October 31, 1998 are set forth below:
<TABLE>
<CAPTION>
Fund Retail A(1) Retail B Trust
- ---- ---------- -------- ------
<S> <C> <C> <C>
Asset Allocation . . . . . . . . . . . . 115.30%(2) 42.43%(3) 125.64%(2)
Equity Income. . . . . . . . . . . . . . 190.44%(4) * 207.51%(4)
Growth and Income. . . . . . . . . . . . 132.56%(5) 47.47%(3) 145.36%(6)
Strategic Equity(7). . . . . . . . . . . (7.37)% (9.52)% (3.62)%
Equity Value . . . . . . . . . . . . . . 279.35%(8) 49.62%(3) 300.49%(8)
Equity Growth. . . . . . . . . . . . . . 228.47%(4) 57.90%(3) 247.26%(4)
International Equity . . . . . . . . . . 85.59%(2) * 97.55%(2)
Small Company Equity . . . . . . . . . . 74.14%(2) (2.40)%(3) 84.52%(2)
Small Cap Value. . . . . . . . . . . . . 108.42%(5) * 120.17%(6)
</TABLE>
- --------------------
* The Equity Income, International Equity and Small Cap Value Funds did not
offer Retail B Shares until November 1, 1998.
(1) On September 7, 1995, Retail Shares of the Funds were redesignated "Retail
A Shares."
(2) For the period from December 30, 1991 (initial public offering date)
through October 31, 1998.
(3) For the period from March 4, 1996 (initial public offering date) through
October 31, 1998.
(4) For the period from December 14, 1990 (initial public offering date)
through October 31, 1998.
(5) For the period from February 12, 1993 through October 31, 1998. The
Predecessor Growth and Income Fund and Predecessor Small Cap Value Fund
began offering Investment Shares, which were similar to Retail A Shares, on
February 13, 1993.
(6) For the period from December 14, 1992 (initial public offering date)
through October 31, 1998.The Predecessor Growth and Income Fund and
Predecessor Small Cap Value Fund commenced operations on December 14, 1992,
and initially offered Trust Shares, which were similar to Galaxy Trust
Shares.
(7) For the period from March 4, 1998 (initial public offering date) through
October 31, 1998.
(8) For the period from September 1, 1988 (initial public offering date)
through October 31, 1998.
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<PAGE>
The average annual total returns for Retail A Shares, Retail B Shares and
Trust Shares of the Funds for the one-year, five-year and ten-year periods (as
applicable) ended October 31, 1998 are as set forth below:
<TABLE>
<CAPTION>
Retail A Retail B Trust
One- Five- Ten- One- Five- Ten- One- Five- Ten-
Fund Year Year Year Year Year Year Year Year Year
- ---- ----- -------- ---- ---- -------- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Asset Allocation . . . . . . . 9.58% 13.26% * 8.14% * * 14.05% 14.32% *
Equity Income. . . . . . . . . 10.93% 15.41% * ** ** ** 15.67% 16.73% *
Growth and Income. . . . . . . 5.82% 16.43% * 4.52% * * 10.10% 17.66% *
Strategic Equity . . . . . . . * * * * * * * * *
Equity Value . . . . . . . . . 5.76% 16.10% 13.80% 4.57% * * 10.27% 17.37% 14.42%
Equity Growth. . . . . . . . . 10.43% 17.96% * 9.15% * * 15.17% 19.28% *
International Equity . . . . . 9.39% 8.75% * ** ** ** 14.32% 10.11% *
Small Cap Value. . . . . . . . (15.79)% 13.20% * ** ** ** (12.07)% 14.45% *
Small Company Equity . . . . . (29.04)% 7.02% * (29.95)% * * (26.00)% 8.26% *
</TABLE>
- --------------------
* Not offered during the full period.
** The Equity Income, International Equity and Small Cap Value Funds did not
offer Retail B Shares until November 1, 1998.
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders, the
performance of the Funds may be quoted and compared to that of other mutual
funds with similar investment objectives and to stock or other relevant indices
or to rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
performance of the Funds may be compared to data prepared by Lipper Analytical
Services, Inc., a widely recognized independent service which monitors the
performance of mutual funds, the S&P 500 Index, an unmanaged index of groups of
common stocks, the Consumer Price Index, or the Dow Jones Industrial Average, a
recognized unmanaged index of common stocks of 30 industrial companies listed on
the New York Stock Exchange. In addition, the performance of the International
Equity Fund may be compared to the Morgan Stanley Capital International Index or
the FT World Actuaries Index and the performance of the Small Company Equity
Fund and Small Cap Value Fund may be compared to the NASDAQ Composite Index, an
unmanaged index of over-the-counter stock prices.
Performance data as reported in national financial publications including,
but not limited to, MONEY MAGAZINE, FORBES, BARRON'S, THE WALL STREET JOURNAL
and THE NEW YORK TIMES, or
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<PAGE>
publications of a local or regional nature may also be used in comparing the
performance of the Funds. Performance data will be calculated separately for
Trust Shares, Retail A Shares, Retail B Shares, A Prime Shares and B Prime
Shares of the Funds.
The standard yield is computed as described above. Each Fund may also
advertise its "effective yield" which is calculated similarly but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested.
The Funds may also advertise their performance using "average annual total
return" figures over various periods of time. Such total return figures reflect
the average percentage change in the value of an investment in a Fund from the
beginning date of the measuring period to the end of the measuring period and
are calculated as described above. Average total return figures will be given
for the most recent one-, five- and ten-year periods (if applicable), and may be
given for other periods as well, such as from the commencement of a Fund's
operations, or on a year-by-year basis. Each Fund may also use "aggregate total
return" figures for various periods, representing the cumulative change in the
value of an investment in a Fund for the specified period. Both methods of
calculating total return reflect the maximum front-end sales load for Retail A
Shares of the Funds and the applicable contingent deferred sales charge for
Retail B Shares of the Funds and assume that dividends and capital gain
distributions made by a Fund during the period are reinvested in Fund shares.
The Funds may also advertise total return data without reflecting the sales
charges imposed on the purchase of Retail A Shares or the redemption of Retail B
Shares in accordance with the rules of the SEC. Quotations that do not reflect
the sales charges will be higher than quotations that do reflect the sales
charges.
The performance of the Funds will fluctuate and any quotation of
performance should not be considered as representative of the future performance
of the Funds. Since yields fluctuate, yield data cannot necessarily be used to
compare an investment in a Fund's shares with bank deposits, savings accounts
and similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that
performance data are generally functions of the kind and quality of the
instruments held in a portfolio, portfolio maturity, operating expenses, and
market conditions. Any additional fees charged by institutions with respect to
accounts of customers that have invested in shares of a Fund will not be
included in performance calculations.
The portfolio managers of the Funds and other investment professionals may
from time to time discuss in advertising, sales literature or other material,
including periodic publications, various topics of interest to shareholders and
prospective investors. The topics may include but are not limited to the
advantages and disadvantages of investing in tax-deferred and taxable
investments; Fund performance and how such performance may compare to various
market indices; shareholder profiles and hypothetical investor scenarios; the
economy; the financial and capital markets; investment strategies and
techniques; investment products; and tax, retirement and investment planning.
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<PAGE>
MISCELLANEOUS
As used in this Statement of Additional Information, "assets belonging to"
a particular Fund or series of a Fund means the consideration received by Galaxy
upon the issuance of shares in that particular Fund or series of the Fund,
together with all income, earnings, profits, and proceeds derived from the
investment thereof, including any proceeds from the sale of such investments,
any funds or payments derived from any reinvestment of such proceeds and a
portion of any general assets of Galaxy not belonging to a particular series or
Fund. In determining the net asset value of a particular series of a Fund,
assets belonging to the particular series of the Fund are charged with the
direct liabilities in respect of that series and with a share of the general
liabilities of Galaxy, which are allocated in proportion to the relative asset
values of the respective series and Funds at the time of allocation. Subject to
the provisions of Galaxy's Declaration of Trust, determinations by the Board of
Trustees as to the direct and allocable liabilities, and the allocable portion
of any general assets with respect to a particular series or Fund, are
conclusive.
Shareholders will receive unaudited semi-annual reports describing the
Funds' investment operations and annual financial statements audited by
independent certified public accountants.
A "vote of the holders of a majority of the outstanding shares" of a
particular Fund or a particular series of shares in a Fund means, with respect
to the approval of an investment advisory agreement, a distribution plan or a
change in an investment objective or fundamental investment policy, the
affirmative vote of the holders of the lesser of (a) more than 50% of the
outstanding shares of such Fund or such series of shares, or (b) 67% or more of
the shares of such Fund or such series of shares present at a meeting if more
than 50% of the outstanding shares of such Fund or such series of shares are
represented at the meeting in person or by proxy.
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<PAGE>
As of February 10, 1999, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding Trust
Shares of each of Galaxy's investment portfolios (including shares of the
Institutional Government Money Market Fund) were as follows: Money Market
Fund -- Fleet New York, Fleet Investment Services, 159 East Main Street,
NY/RO/TO3C, Rochester, NY 14638, Account 00000150286 (99.78%); Tax-Exempt Money
Market Fund -- Fleet New York, Fleet Investment Services, 159 East Main Street,
NY/RO/TO3C, Rochester, NY 14638, Account 00000007717 (100.00%); Government Money
Market Fund --Fleet New York, Fleet Investment Services, 159 East Main Street,
NY/RO/TO3C, Rochester, NY 14638, Account 00000012621 (98.33%); U.S. Treasury
Money Market Fund -- Fleet New York, Fleet Investment Services, 159 East Main
Street, NY/RO/TO3C, Rochester, NY 14638, Account 00000015922 (94.34%);
Institutional Government Money Market Fund -- Fleet New York, Fleet Investment
Services, 159 East Main Street, NY/RO/TO3C, Rochester, NY 14638, Account
00000000019 (85.94%); Luitpold Pharmaceuticals Inc., Kirk Sobecki, CFO, One
Luitpold Drive, Shirley, NY 11967, Account 05100261441 (13.48%); Equity Value
Fund -- Gales & Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A,
159 East Main Street, Rochester, NY 14638, Account 00000000064 (77.81%); Gales &
Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000003204 (15.83%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000011551 (6.28%); Equity Growth Fund -- Gales &
Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000000082 (70.35%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000010017 (14.77%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000030718 (14.86%); Equity Income Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000015771 (50.44%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000003748 (35.41%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000000037 (13.97%); International Equity Fund --Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000073 (44.94%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000000876 (37.67%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000004088 (14.13%); Growth and Income Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 05000503793 (68.11%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 05000503873 (22.88%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 0500503837 (9.00%); Asset Allocation Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account
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<PAGE>
00000000073 (92.96%); Gales & Co., Fleet Investment Services, Mutual Funds
Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account
00000002598 (6.48%); Small Company Equity -- Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000000046 (67.11%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000001492 (24.22%); Gales & Co., Fleet Investment Services, Mutual
Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account
00000006102 (6.76%); Small Cap Value Fund -- Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 05000503999 (54.74%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 05000503917 (26.73%); Gales & Co., Fleet Investment Services, Mutual
Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account
05000503953 (18.33%); Intermediate Government Income Fund -- Gales & Co.,
Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000038408 (39.35%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000007183 (34.25%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000037 (26.40%); High Quality Bond Fund --
Gales & Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159
East Main Street, Rochester, NY 14638, Account 00000000037 (65.56%); Gales &
Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000001465 (22.10%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000006095 (12.19%); Short-Term Bond Fund --
Gales & Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159
East Main Street, Rochester, NY 14638, Account 00000008627 (30.90%); Gales &
Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000000064 (45.50%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000001090 (23.45%); Tax-Exempt Bond Fund --
Gales & Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159
East Main Street, Rochester, NY 14638, Account 00000005809 (39.65%); Gales &
Co, Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000000028 (35.53%); Gales and Co.,
Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000000670 (24.82%); Connecticut
Municipal Bond Fund -- Gales & Co., Fleet Investment Services, Mutual Funds
Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account
00000000019 (78.73%); Gales & Co., Fleet Investment Services, Mutual Funds
Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account
00000000037 (20.73%); Massachusetts Municipal Bond Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000019 (52.51%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000073 (42.62%); Corporate Bond Fund --
Gales
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& Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159
East Main Street, Rochester, NY 14638, Account 00000000046 (47.67%); Gales &
Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000006102 (37.41%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000001492 (7.92%); New York Municipal Bond
Fund -- Gales & Co., Fleet Investment Services, Mutual Funds Unit -
NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account 00000000019
(10.94%); Gales & Co., Fleet Investment Services, Mutual Fund Unit -
NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account 00000001107
(76.04%); Gales & Co., Fleet Investment Services, Mutual Fund Unit -
NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account 00000005292
(13.03%); New Jersey Municipal Bond Fund -- Gales & Co., Fleet Investment
Services, Mutual Fund Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 5100115489 (56.68%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 5100115504 (43.32%); and Strategic Equity Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 5100115522 (98.61%).
As of February 10, 1999, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding Retail A
Shares of each of Galaxy's investment portfolios (including shares of the
Connecticut Municipal Money Market and Massachusetts Municipal Money Market
Funds) were as follows: Money Market Fund -- US Clearing, A Division of Fleet
Securities Inc., 26 Broadway, New York, NY 10004, Account 5100115684 (7.31%);
Tax-Exempt Money Market Fund -- Hope H. Van Beuren, P.O. Box 4098, Middletown,
RI 02842, Account 00000025010 (8.52%); US Clearing, A Division of Fleet
Securities, Inc., 26 Broadway, New York, NY 10004, Account 05100115684 (5.11%);
U.S. Treasury Money Market Fund -- US Clearing, a Division of Fleet Securities
Inc., 26 Broadway, New York, NY 10004, Account 05100115684 (11.57%);
Massachusetts Municipal Money Market Fund -- Fleet New York, Fleet Investment
Services, 159 East Main St., NY/RO/TO3C, Rochester, NY 14638, Account
05100058503 (56.38%); Connecticut Municipal Money Market Fund -- Fleet New York,
Fleet Investment Services, 159 East Main St., NY/RO/TO3C, Rochester, NY 14638,
Account 05100058521 (45.93%); Rhode Island Municipal Bond Fund --Gales & Co.,
Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000001492 (38.50%); James R. McCulloch, c/o
Microfibre, PO Box 1208, Pawtucket, RI 02860, Account 05000414933 (8.20%); New
York Municipal Bond Fund -- Marilyn J. Brantley, PO Box 65, 7276 Ramsey Road,
Belfast, NY 14711, Account 05100977627 (10.73%); and New Jersey Municipal Bond
Fund -- Jeffery W Golden, 7 Hampton Ridge CT, Old Tappan, NJ 07675, Account
05100780704 (19.59%); John W. Maki & Kimberly McGrath Maki JT, 1 Connet Lane,
Mendham, NJ, 07945, Account 05100011377 (18.84%); US Clearing Corp., FBO
979-06374-12, 26 Broadway, New York, NY 10004-1798, Account 07000100574
(54.10%).
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<PAGE>
As of February 10, 1999, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding Retail B
Shares of each of Galaxy's investment portfolios were as follows: Money Market
Fund -- Keith Mooradian, 10 Fox Hollow, Worcester, MA 01605, Account 05100583213
(5.33%); Steven R. Schwartz, 2393 Lake Elmo Avenue N, Lake Elmo, MN 55042-8407,
Account 5100583213 (8.45%); Worldmark Master Fund, LLC, D. Dean Rhodes auth.
officer or Richard J. Gates (investment adviser), 11466 Old Harber Road, N. Palm
Beach, FL 33408, Account 05102031823 (13.46%); Worldmark Master Fund, LLC, D.
Dean Rhodes auth. officer or Richard J. Gates (investment adviser) 11465 Old
Harbor Road, N. Palm Beach, FL 33408, Account 05102074054 (10.58%); Equity
Income Fund -- Francis G. White, 1611 Karr Valley Road, Almond, NY 14804,
Account 05103005468 (8.23%); Small Cap Value Fund -- Fleet Bank NA, Cust. of the
Roth conversion IRA, FBO Thomas Clayton, 19 Ward Avenue, Noank, CT 06340,
Account 05102095461 (6.22%); Fleet Bank NA, Cust. of the Roth Conversion IRA,
FBO Owen F. McDonald, 351 Concord Road, Billorica, MA 01821, Account 05103074295
(6.52%); Intermediate Government Income Fund -- John G. Shomsky, 144 Powder Hill
Road, Middlefield, CT 06455, Account 05102006050 (7.89%); Harold J. Andrews, 29
First Street, Bristol, CT 06010, Account 05102025206 (9.48%); Donna R. Barlett,
4 Metclaf Street, Warwick, RI 02888, Account 05102029650 (12.49%); Hong Yun
Cust, Angela Kung Utma NJ, 59 Peach Hill Court, Ramsey, NJ 07446, Account
05102063281 (7.78%); Hong Yun Cust, Yanh Zhou Utma NJ, 59 Peach Hill Court,
Ramsey, NJ 07446, Account 05102063307 (7.78%); Angelo Gugliotti, Maria
Gugliotti, Michael P. Gugliotti, Joseph A. Gugliotti JT WROS, 40 Dover Road,
Newington, CT 06111, Account 05102096399 (5.33%); Margaret M. Ferris, 30 Crocker
Avenue, W. Hartford, CT 06110, Account 05103005841 (14.90%); Eileen G. Akers, 24
Lincoln Avenue, Norwich, CT 06360, Account 05103045246 (7.82%); Short-Term Bond
Fund -- Gabriella Dulac & Alain Dulac JTWROS, 40 Dix Road, Wethersfield, CT
06109, Account 5100818032 (5.10%); Elizabeth Mugar, 10 Chestnut St., Apt. 1808,
Springfield, MA 01103, Account 5100760012 (8.09%); Tax-Exempt Bond Fund -- David
Fendler & Sylvia Fendler JTWROS, 72 Brinkerhoff Ave., Stamford, CT 06905,
Account 05100255354 (8.85%); Doris M. Peloquin, 43 Keene Street, Providence, RI
02906-1520, Account 5100506413 (5.26%); Frances E. Stady, P.O. Box 433, 3176
Main Street, Yorkshire, NY 14173, Account 05102027437 (6.81%); US Clearing
Corp., FBO 978-02869-11, 26 Broadway Street, New York, NY 10004-1798 Account
07000107096 (5.59%); and Strategic Equity Fund -- Claire M. Dileone & Susan F.
Torre JT WROS, 260 Waybosset Street, New Haven, CT 06513 (5.81%); Betsey Tan, 7
Donovan's Lane, Natick, MA 01760, Account 05101043778 (16.40%).
As of February 10, 1999, the name, address and share ownership of the
entities or persons that held beneficially more than 5% of the outstanding Trust
Shares of each of Galaxy's investment portfolios were as follows: Money Market
Fund--Stable Asset Fund, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (8.86%); Government Money Fund -- Maine Yankee Spent Fuel,
c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638 (8.51%);
Beacon Mutual Insurance Co., c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638 (5.98%); U.S. Treasury Money Fund, Loring Walcott Client
Sweep Acct., c/o Norstar Trust Co., Gales & Co., 159
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<PAGE>
East Main, Rochester, NY 14638, (21.38%); Equity Value Fund--Fleet Savings
Plus-Equity Value, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (19.73%); Equity Growth Fund--Fleet Savings Plus-Equity
Growth, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY
14638, (23.81%); Nusco Retiree Health VEBA Trust, c/o Norstar Trust Co.,
Gales & Co., 159 East Main, Rochester, NY 14638, (7.70%); International
Equity Fund--FFG International Equity Fund, c/o Norstar Trust Co., Gales &
Co., 159 East Main, Rochester, NY 14638, (14.51%); Fleet Savings Plus-Intl.
Equity, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY
14638, (9.76%); Intermediate Govt. Inc. Fund --Nusco Retiree Health VEBA
Trust, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638
(5.52%); Strategic Equity Fund--FFG Retirement & Pension VDG, c/o Fleet
Financial Group, 159 East Main, Rochester, NY 14638, (93.97%); High Quality
Bond Fund--Fleet Savings Plus Plan-HQ Bond, c/o Norstar Trust Co., Gales &
Co., 159 East Main, Rochester, NY 14638 (22.39%); Asset Allocation
Fund--Fleet Savings Plus-Asset Allocation, c/o Norstar Trust Co., Gales &
Co., 159 East Main, Rochester, NY 14638, (25.93%); Small Company Equity
Fund--Fleet Savings Plus-Small Company, c/o Norstar Trust Co., Gales & Co.,
159 East Main, Rochester, NY 14638, (32.89%); Tax Exempt Bond Fund -- Nusco
Retiree Health VEBA Trust, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (33.75%); Connecticut Municipal Bond Fund -- Florence M.
Roberts, IMA Agency, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (5.10%); Robert W. Parsons, c/o Norstar Trust Co., Gales
& Co., 159 East Main, Rochester, NY 14638 (6.15%); Paul R. Tregurtha-FLA Inv.
Cus. Agent, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY
14638 (6.06%); Winifred M. Purdy Full IM, c/o Norstar Trust Co., Gales & Co.,
159 East Main, Rochester, NY 14638 (5.83%); Corporate Bond Fund--Cole Hersee
Pension Plan, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester,
NY 14638, (7.70%); Growth Income Fund--Fleet Savings Plus-Growth Income, c/o
Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638, (40.12%);
Crumpton & Knowles IARP, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638 (5.86%); Small Cap Value Fund--FFG Emp. Ret. Misc. Assets
SNC, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638,
(26.82%); Institutional Government Fund--Aeroflex Inc. CAPFOC, c/o Norstar
Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638, (5.37%); P&P
Fireman TIC w/Custody, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638 (12.27%); New Jersey Municipal Bond Fund--Perillo Tours,
c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638,
(26.33%); Royal Chambord IMA, c/o Norstar Trust Co., Gales & Co., 159 East
Main, Rochester, NY, 14638, (13.17%); McKee Wendell A. Marital Trust, c/o
Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638, (13.07%);
Varco Inc. IMA, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester,
NY 14638, (6.58%); Tiernan Diana V IA, c/o Norstar Trust Co., Gales & Co.,
159 East Main, Rochester, NY 14638, (5.97%); and Dunnington, Ruth U., c/o
Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638, (5.26%).
-86-
<PAGE>
FINANCIAL STATEMENTS
Galaxy's Annual Report to Shareholders with respect to the Funds for the
fiscal year ended October 31, 1998 has been filed with the SEC. The
financial statements in such Annual Report (the "Financial Statements") are
incorporated by reference into this Statement of Additional Information. The
Financial Statements and Financial Highlights included in the Annual Report
for the Funds for the fiscal year ended October 31, 1998 have been audited by
Galaxy's former independent accountants, PricewaterhouseCoopers LLP, whose
report thereon also appears in such Annual Report and is incorporated herein
by reference. The Financial Statements in such Annual Report have been
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
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<PAGE>
APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's ("S&P") commercial paper rating is a current
assessment of the likelihood of timely payment of debt having an original
maturity of no more than 365 days. The following summarizes the rating
categories used by Standard and Poor's for commercial paper:
"A-1" - Obligations are rated in the highest category indicating that
the obligor's capacity to meet its financial commitment on the obligation is
strong. Within this category, certain obligations are designated with a plus
sign (+). This indicates that the obligor's capacity to meet its financial
commitment on these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rating categories. However, the obligor's capacity to meet its financial
commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
"B" - Obligations are regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and are
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.
"D" - Obligations are in payment default. The "D" rating category is
used when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The "D" rating will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually senior debt obligations not having an original
maturity in excess of one year, unless explicitly noted. The following
summarizes the rating categories used by Moody's for commercial paper:
A-1
<PAGE>
"Prime-1" - Issuers (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well-established industries; high rates of return on
funds employed; conservative capitalization structure with moderate reliance on
debt and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternate liquidity.
"Prime-2" - Issuers (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an acceptable
ability for repayment of senior short-term debt obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
"Not Prime" - Issuers do not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps
employs three designations, "D-1+," "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"D-1+" - Debt possesses the highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
"D-2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.
A-2
<PAGE>
"D-3" - Debt possesses satisfactory liquidity and other protection
factors qualify issues as to investment grade. Risk factors are larger and
subject to more variation. Nevertheless, timely payment is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to insure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or interest
payments.
Fitch IBCA short-term ratings apply to debt obligations that have
time horizons of less than 12 months for most obligations, or up to three years
for U.S. public finance securities. The following summarizes the rating
categories used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This
designation indicates the strongest capacity for timely payment of financial
commitments and may have an added "+" to denote any exceptionally strong credit
feature.
"F2" - Securities possess good credit quality. This designation
indicates a satisfactory capacity for timely payment of financial commitments,
but the margin of safety is not as great as in the case of the higher ratings.
"F3" - Securities possess fair credit quality. This designation
indicates that the capacity for timely payment of financial commitments is
adequate; however, near-term adverse changes could result in a reduction to
non-investment grade.
"B" - Securities possess speculative credit quality. This designation
indicates minimal capacity for timely payment of financial commitments, plus
vulnerability to near-term adverse changes in financial and economic conditions.
"C" - Securities possess high default risk. This designation
indicates that default is a real possibility and that the capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
"D" - Securities are in actual or imminent payment default.
Thomson BankWatch short-term ratings assess the likelihood of an
untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson BankWatch:
A-3
<PAGE>
"TBW-1" - This designation represents Thomson BankWatch's highest
category and indicates a very high likelihood that principal and interest will
be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's lowest
investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those
with higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's lowest
rating category and indicates that the obligation is regarded as non-investment
grade and therefore speculative.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
Obligations rated "BB," "B," "CCC," "CC" and "C" are regarded as
having significant speculative characteristics. "BB" indicates the least degree
of speculation and "C" the highest. While such obligations will likely have
some quality and protective
A-4
<PAGE>
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions.
"BB" - An obligation rated "BB" is less vulnerable to nonpayment than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to the obligor's inadequate capacity to meet its financial commitment on the
obligation.
"B" - An obligation rated "B" is more vulnerable to nonpayment than
obligations rated "BB", but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
"CCC" - An obligation rated "CCC" is currently vulnerable to
nonpayment, and is dependent upon favorable business, financial and economic
conditions for the obligor to meet its financial commitment on the obligation.
In the event of adverse business, financial, or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the
obligation.
"CC" - An obligation rated "CC" is currently highly vulnerable to
nonpayment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
"D" - An obligation rated "D" is in payment default. The "D" rating
category is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. The "D" rating also will
be used upon the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
"r" - This symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or volatility of
expected returns which are not addressed in the credit rating. Examples
include: obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk - such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
A-5
<PAGE>
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds are considered as medium-grade obligations, (i.e., they
are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Ba," "B," "Caa," "Ca" and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" are of poor standing; "Ca" represents obligations
which are speculative in a high degree; and "C" represents the lowest rated
class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (---) - Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic
rating classification from "Aa" through "Caa". The modifier 1 indicates that
the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range
A-6
<PAGE>
ranking; and the modifier 3 indicates a ranking in the lower end of its generic
rating category.
The following summarizes the long-term debt ratings used by Duff &
Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered to be of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable in periods of greater
economic stress.
"BBB" - Debt possesses below-average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD" and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt
rated "B" possesses the risk that obligations will not be met when due. Debt
rated "CCC" is well below investment grade and has considerable uncertainty as
to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch IBCA for corporate
and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. These ratings denote the lowest expectation of credit risk and
are assigned only in case of exceptionally strong capacity for timely payment of
financial commitments. This capacity is highly unlikely to be adversely
affected by foreseeable events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. These ratings denote a very low expectation of credit risk and
indicate very strong capacity for timely payment of financial commitments. This
capacity is not significantly vulnerable to foreseeable events.
A-7
<PAGE>
"A" - Bonds considered to be investment grade and of high credit
quality. These ratings denote a low expectation of credit risk and indicate
strong capacity for timely payment of financial commitments. This capacity may,
nevertheless, be more vulnerable to changes in circumstances or in economic
conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good credit
quality. These ratings denote that there is currently a low expectation of
credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity.
"BB" - Bonds considered to be speculative. These ratings indicate
that there is a possibility of credit risk developing, particularly as the
result of adverse economic changes over time; however, business or financial
alternatives may be available to allow financial commitments to be met.
Securities rated in this category are not investment grade.
"B" - Bonds are considered highly speculative. These ratings indicate
that significant credit risk is present, but a limited margin of safety remains.
Financial commitments are currently being met; however, capacity for continued
payment is contingent upon a sustained, favorable business and economic
environment.
"CCC," "CC," "C" - Bonds have high default risk. Default is a real
possibility, and capacity for meeting financial commitments is solely reliant
upon sustained, favorable business or economic developments. "CC" ratings
indicate that default of some kind appears probable, and "C" ratings signal
imminent default.
"DDD," "DD" and "D" - Bonds are in default. Securities are not
meeting obligations and are extremely speculative. "DDD" designates the highest
potential for recovery of amounts outstanding on any securities involved and "D"
represents the lowest potential for recovery.
To provide more detailed indications of credit quality, the Fitch IBCA
ratings from and including "AA" to "B" may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major rating
categories.
Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes
the rating categories used by Thomson BankWatch for long-term debt ratings:
"AAA" - This designation indicates that the ability to repay principal
and interest on a timely basis is extremely high.
A-8
<PAGE>
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis, with limited incremental risk compared
to issues rated in the highest category.
"A" - This designation indicates that the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BBB" - This designation represents the lowest investment-grade
category and indicates an acceptable capacity to repay principal and interest.
Issues rated "BBB" are more vulnerable to adverse developments (both internal
and external) than obligations with higher ratings.
"BB," "B," "CCC" and "CC" - These designations are assigned by
Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's rating reflects the liquidity concerns and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest, with some vulnerability to adverse
financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
A-9
<PAGE>
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
"MIG-1"/"VMIG-1" - This designation denotes best quality. There is
present strong protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high quality, with
margins of protection that are ample although not so large as in the preceding
group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality, with
all security elements accounted for but lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt instruments
in this category lack of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
A-10
<PAGE>
APPENDIX B
As stated above, the Growth and Income, Strategic Equity and Small Cap
Value Funds may enter into futures transactions for hedging purposes. The
following is a description of such transactions.
I. INTEREST RATE FUTURES CONTRACTS
USE OF INTEREST RATE FUTURES CONTRACTS. Bond prices are established in
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the future
for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, the Funds may use interest rate futures
contracts as a defense, or hedge, against anticipated interest rate changes and
not for speculation. As described below, this would include the use of futures
contract sales to protect against expected increases in interest rates and
futures contract purchases to offset the impact of interest rate declines.
The Funds presently could accomplish a similar result to that which they
hope to achieve through the use of futures contracts by selling bonds with long
maturities and investing in bonds with short maturities when interest rates are
expected to increase, or conversely, selling short-term bonds and investing in
long-term bonds when interest rates are expected to decline. However, because
of the liquidity that is often available in the futures market, the protection
is more likely to be achieved, perhaps at a lower cost and without changing the
rate of interest being earned by the Funds, through using futures contracts.
DESCRIPTION OF INTEREST RATE FUTURES CONTRACTS. An interest rate futures
contract sale would create an obligation by a Fund, as seller, to deliver the
specific type of financial instrument called for in the contract at a specific
future time for a specified price. A futures contract purchase would create an
obligation by the Fund, as purchaser, to take delivery of the specific type of
financial instrument at a specific future time at a specific price. The specific
securities delivered or taken, respectively, at settlement date, would not be
determined until at or near that date. The determination would be in accordance
with the rules of the exchange on which the futures contract sale or purchase
was made.
Although interest rate futures contracts by their terms call for actual
delivery or acceptance of securities, in most cases the contracts are closed out
before the settlement date without the making or taking of delivery of
securities. Closing out a futures contract sale is effected by a Fund's
entering into a futures contract purchase for the same aggregate amount of the
specific type of financial instrument and the same delivery date. If the price
of the sale exceeds the price of the offsetting purchase, the Fund immediately
is paid the difference and thus realizes a gain. If the offsetting purchase
price exceeds the sale price, the Fund pays the difference and realizes a loss.
Similarly, the closing out of a futures contract purchase is effected
B-1
<PAGE>
by a Fund entering into a futures contract sale. If the offsetting sale price
exceeds the purchase price, the Fund realizes a gain, and if the purchase price
exceeds the offsetting sale price, the Fund realizes a loss.
Interest rate futures contracts are traded in an auction environment on the
floors of several exchanges -- principally, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Futures Exchange. The Funds would
deal only in standardized contracts on recognized exchanges. Each exchange
guarantees performance under contract provisions through a clearing corporation,
a nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various financial
instruments including long-term United States Treasury Bonds and Notes;
Government National Mortgage Association (GNMA) modified pass-through mortgage
backed securities; three-month United States Treasury Bills; and ninety-day
commercial paper. The Funds may trade in any interest rate futures contracts
for which there exists a public market, including, without limitation, the
foregoing instruments.
EXAMPLE OF FUTURES CONTRACT SALE. The Funds would engage in an interest
rate futures contract sale to maintain the income advantage from continued
holding of a long-term bond while endeavoring to avoid part or all of the loss
in market value that would otherwise accompany a decline in long-term securities
prices. Assume that the market value of a certain security held by a particular
Fund tends to move in concert with the futures market prices of long-term United
States Treasury bonds ("Treasury bonds"). Fleet wishes to fix the current
market value of this portfolio security until some point in the future. Assume
the portfolio security has a market value of 100, and Fleet believes that,
because of an anticipated rise in interest rates, the value will decline to 95.
The Fund might enter into futures contract sales of Treasury bonds for an
equivalent of 98. If the market value of the portfolio security does indeed
decline from 100 to 95, the equivalent futures market price for the Treasury
bonds might also decline from 98 to 93.
In that case, the five point loss in the market value of the portfolio
security would be offset by the five point gain realized by closing out the
futures contract sale. Of course, the futures market price of Treasury bonds
might well decline to more than 93 or to less than 93 because of the imperfect
correlation between cash and futures prices mentioned below.
Fleet could be wrong in its forecast of interest rates, and the equivalent
futures market price could rise above 98. In this case, the market value of the
portfolio securities, including the portfolio security being protected, would
increase. The benefit of this increase would be reduced by the loss realized on
closing out the futures contract sale.
If interest rate levels did not change, the Fund in the above example might
incur a loss of 2 points (which might be reduced by an offsetting transaction
prior to the settlement date). In each transaction, transaction expenses would
also be incurred.
B-2
<PAGE>
EXAMPLE OF FUTURES CONTRACT PURCHASE. A Fund would engage in an interest
rate futures contract purchase when it is not fully invested in long-term bonds
but wishes to defer for a time the purchase of long-term bonds in light of the
availability of advantageous interim investments, e.g., shorter term securities
whose yields are greater than those available on long-term bonds. A Fund's
basic motivation would be to maintain for a time the income advantage from
investing in the short-term securities; the Fund would be endeavoring at the
same time to eliminate the effect of all or part of an expected increase in
market price of the long-term bonds that the Fund may purchase.
For example, assume that the market price of a long-term bond that the Fund
may purchase, currently yielding 10%, tends to move in concert with futures
market prices of Treasury bonds. Fleet wishes to fix the current market price
(and thus 10% yield) of the long-term bond until the time (four months away in
this example) when it may purchase the bond. Assume the long-term bond has a
market price of 100, and Fleet believes that, because of an anticipated fall in
interest rates, the price will have risen to 105 (and the yield will have
dropped to about 9 1/2%) in four months. The Fund might enter into futures
contracts purchases of Treasury bonds for an equivalent price of 98. At the
same time, the Fund would assign a pool of investments in short-term securities
that are either maturing in four months or earmarked for sale in four months,
for purchase of the long-term bond at an assumed market price of 100. Assume
these short-term securities are yielding 15%. If the market price of the
long-term bond does indeed rise from 100 to 105, the equivalent futures market
price for Treasury bonds might also rise from 98 to 103. In that case, the 5
point increase in the price that the Fund pays for the long-term bond would be
offset by the 5 point gain realized by closing out the futures contract
purchase.
Fleet could be wrong in its forecast of interest rates; long-term interest
rates might rise to above 10%; and the equivalent futures market price could
fall below 98. If short-term rates at the same time fall to 10% or below, it is
possible that the Fund would continue with its purchase program for long-term
bonds. The market price of available long-term bonds would have decreased. The
benefit of this price decrease, and thus yield increase, will be reduced by the
loss realized on closing out the futures contract purchase.
If, however, short-term rates remained above available long-term rates, it
is possible that the Fund would discontinue its purchase program for long-term
bonds. The yield on short-term securities in the portfolio, including those
originally in the pool assigned to the particular long-term bond, would remain
higher than yields on long-term bonds. The benefit of this continued
incremental income will be reduced by the loss realized on closing out the
futures contract purchase. In each transaction, expenses would also be
incurred.
II. MARGIN PAYMENTS
Unlike purchases or sales of portfolio securities, no price is paid or
received by a Fund upon the purchase or sale of a futures contract. Initially,
the Fund will be required to deposit with the broker or in a segregated account
with Galaxy's custodian an amount of cash or liquid portfolio securities, known
as initial margin, based on the value of the contract. The nature of
B-3
<PAGE>
initial margin in futures transactions is different from that of margin in
security transactions in that futures contract margin does not involve the
borrowing of funds by the customer to finance the transactions. Rather, the
initial margin is in the nature of a performance bond or good faith deposit on
the contract which is returned to the Fund upon termination of the futures
contract assuming all contractual obligations have been satisfied. Subsequent
payments, called variation margin, to and from the broker, will be made on a
daily basis as the price of the underlying instruments fluctuates making the
long and short positions in the futures contract more or less valuable, a
process known as marking-to-the-market. For example, when a particular Fund has
purchased a futures contract and the price of the contract has risen in response
to a rise in the underlying instruments, that position will have increased in
value and the Fund will be entitled to receive from the broker a variation
margin payment equal to that increase in value. Conversely, where the Fund has
purchased a futures contract and the price of the future contract has declined
in response to a decrease in the underlying instruments, the position would be
less valuable and the Fund would be required to make a variation margin payment
to the broker. At any time prior to expiration of the futures contract, Fleet
may elect to close the position by taking an opposite position, subject to the
availability of a secondary market, which will operate to terminate the Fund's
position in the futures contract. A final determination of variation margin is
then made, additional cash is required to be paid by or released to the Fund,
and the Fund realizes a loss or gain.
III. RISKS OF TRANSACTIONS IN FUTURES CONTRACTS
There are several risks in connection with the use of futures by the Growth
and Income, Strategic Equity and Small Cap Value Funds as hedging devices. One
risk arises because of the imperfect correlation between movements in the price
of the futures and movements in the price of the instruments that are the
subject of the hedge. The price of the futures may move more than or less than
the price of the instruments being hedged. If the price of the futures moves
less than the price of the instruments which are the subject of the hedge, the
hedge will not be fully effective but, if the price of the instruments being
hedged has moved in an unfavorable direction, a Fund would be in a better
position than if it had not hedged at all. If the price of the instruments
being hedged has moved in a favorable direction, this advantage will be
partially offset by the loss on the futures. If the price of the futures moves
more than the price of the hedged instruments, the Funds involved will
experience either a loss or gain on the futures, which will not be completely
offset by movements in the price of the instruments which are the subject of the
hedge. To compensate for the imperfect correlation of movements in the price of
instruments being hedged and movements in the price of futures contracts, a Fund
may buy or sell futures contracts in a greater dollar amount than the dollar
amount of instruments being hedged if the volatility over a particular time
period of the prices of such instruments has been greater than the volatility
over such time period of the futures, or if otherwise deemed to be appropriate
by the investment adviser. Conversely, a Fund may buy or sell fewer futures
contracts if the volatility over a particular time period of the prices of the
instruments being hedged is less than the volatility over such time period of
the futures contract being used, or if otherwise deemed to be appropriate by
Fleet. It is also possible that, where a Fund had sold futures to hedge its
portfolio against a decline in the market, the market may advance and the
B-4
<PAGE>
value of instruments held in the Fund may decline. If this occurred, the Fund
would lose money on the futures and also experience a decline in value in its
portfolio securities.
Where futures are purchased to hedge against a possible increase in the
price of securities before a Fund is able to invest its cash (or cash
equivalents) in an orderly fashion, it is possible that the market may decline
instead; if the Fund then concludes not to invest its cash at that time because
of concern as to possible further market decline or for other reasons, the Fund
will realize a loss on the futures contract that is not offset by a reduction in
the price of the instruments that were to be purchased.
In instances involving the purchase of futures contracts by a Fund, an
amount of cash and liquid portfolio securities, equal to the market value of the
futures contracts, will be deposited in a segregated account with Galaxy's
custodian and/or in a margin account with a broker to collateralize the position
and thereby insure that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between movements in the futures and the instruments
being hedged, the price of futures may not correlate perfectly with movement in
the cash market due to certain market distortions. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through off-setting transactions that could distort the normal relationship
between the cash and futures markets. Second, with respect to financial futures
contracts, the liquidity of the futures market depends on participants entering
into off-setting transactions rather than making or taking delivery. To the
extent participants decide to make or take delivery, liquidity in the futures
market could be reduced thus producing distortions. Third, from the point of
view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may also cause temporary
price distortions. Due to the possibility of price distortion in the futures
market, and because of the imperfect correlation between the movements in the
cash market and movements in the price of futures, a correct forecast of general
market trends or interest rate movements by the adviser may still not result in
a successful hedging transaction over a short time frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Funds
intend to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance that a liquid
secondary market on any exchange or board of trade will exist for any particular
contract or at any particular time. In such event, it may not be possible to
close a futures investment position, and in the event of adverse price
movements, a Fund would continue to be required to make daily cash payments of
variation margin. However, in the event futures contracts have been used to
hedge portfolio securities, such securities will not be sold until the futures
contract can be terminated. In such circumstances, an increase in the price of
the securities, if any, may partially or completely offset losses on the futures
contract. However, as described above, there is no guarantee that the price of
the securities will in fact correlate with the price movements in the futures
contract and thus provide an offset on a futures contract.
B-5
<PAGE>
Further, it should be noted that the liquidity of a secondary market in a
futures contract may be adversely affected by "daily price fluctuation limits"
established by commodity exchanges which limit the amount of fluctuation in a
futures contract price during a single trading day. Once the daily limit has
been reached in the contract, no trades may be entered into at a price beyond
the limit, thus preventing the liquidation of open futures positions. The
trading of futures contracts is also subject to the risk of trading halts,
suspensions, exchange or clearing house equipment failures, government
intervention, insolvency of a brokerage firm or clearing house or other
disruptions of normal activity, which could at times make it difficult or
impossible to liquidate existing positions or to recover excess variation margin
payments.
Successful use of futures by the Funds is also subject to Fleet's ability
to predict correctly movements in the direction of the market. For example, if
a particular Fund has hedged against the possibility of a decline in the market
adversely affecting securities held by it and securities prices increase
instead, the Fund will lose part or all of the benefit to the increased value of
its securities which it has hedged because it will have offsetting losses in its
futures positions. In addition, in such situations, if the Fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements. Such sales of securities may be, but will not necessarily be, at
increased prices which reflect the rising market. The Funds may have to sell
securities at a time when it may be disadvantageous to do so.
B-6
<PAGE>
THE GALAXY FUND
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 28, 1999
GALAXY SHORT-TERM BOND FUND
GALAXY INTERMEDIATE GOVERNMENT INCOME FUND
GALAXY HIGH QUALITY BOND FUND
RETAIL A SHARES, RETAIL B SHARES AND
TRUST SHARES
GALAXY CORPORATE BOND FUND
TRUST SHARES
This Statement of Additional Information is not a prospectus. The
prospectuses for the Funds as listed below, as they may be supplemented or
revised from time to time (the "Prospectuses"), as well as the Funds' Annual
Report to Shareholders dated October 31, 1998 (the "Annual Report"), may be
obtained, without charge, by writing:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
or by calling 1-877-BUY-GALAXY (1-877-289-4252)
Current Prospectuses
- --------------------
- - Prospectus for Retail A Shares and Retail B Shares of the Short-Term Bond,
Intermediate Government Income and High Quality Bond Funds dated February
28, 1999
- - Prospectus for Trust Shares of the Funds dated February 28, 1999
The financial statements included in the Annual Report and the report
thereon of PricewaterhouseCoopers LLP. The Galaxy Funds' independent
accountants, are incorporated by reference into this Statement of Additional
Information.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
DESCRIPTION OF GALAXY AND ITS SHARES . . . . . . . . . . . . . . . . . . . . .1
INVESTMENT STRATEGIES, POLICIES AND RISKS. . . . . . . . . . . . . . . . . . .4
Short-Term Bond Fund. . . . . . . . . . . . . . . . . . . . . . . . . . .4
Intermediate Government Income Fund . . . . . . . . . . . . . . . . . . .5
High Quality Bond Fund. . . . . . . . . . . . . . . . . . . . . . . . . .6
Corporate Bond Fund . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Special Risk Considerations . . . . . . . . . . . . . . . . . . . . . . .7
Foreign Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Other Investment Policies and Risk Considerations . . . . . . . . . . . .8
Variable and Floating Rate Obligations. . . . . . . . . . . . . . . . . .8
U.S. Government Obligations and Money Market Instruments. . . . . . . . .8
Municipal Securities. . . . . . . . . . . . . . . . . . . . . . . . . . 10
Stand-by Commitments. . . . . . . . . . . . . . . . . . . . . . . . . . 12
Repurchase and Reverse Repurchase Agreements. . . . . . . . . . . . . . 13
Securities Lending. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Investment Company Securities . . . . . . . . . . . . . . . . . . . . . 14
Derivative Securities . . . . . . . . . . . . . . . . . . . . . . . . . 14
When-Issued, Forward Commitment and Delayed Settlement Transactions . . 16
Asset-Backed Securities . . . . . . . . . . . . . . . . . . . . . . . . 17
Mortgage-Backed Securities. . . . . . . . . . . . . . . . . . . . . . . 18
Mortgage Dollar Rolls . . . . . . . . . . . . . . . . . . . . . . . . . 19
Stripped Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . 20
Guaranteed Investment Contracts . . . . . . . . . . . . . . . . . . . . 20
Bank Investment Contracts . . . . . . . . . . . . . . . . . . . . . . . 21
Zero Coupon Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Portfolio Turnover. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
INVESTMENT LIMITATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
VALUATION OF PORTFOLIO SECURITIES. . . . . . . . . . . . . . . . . . . . . . 24
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION . . . . . . . . . . . . . . . 25
Purchases of Retail Shares and Trust Shares of the Corporate Bond Fund. 25
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Customers of Institutions . . . . . . . . . . . . . . . . . . . . . . . 26
Other Purchase Information. . . . . . . . . . . . . . . . . . . . . . . 26
Applicable Sales Charge -- Retail A Shares. . . . . . . . . . . . . . . 27
Computation of Offering Price - Retail A Shares . . . . . . . . . . . . 28
Quantity Discounts. . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Applicable Sales Charge - Retail B Shares . . . . . . . . . . . . . . . 31
Characteristics of Retail A Shares and Retail B Shares. . . . . . . . . 32
Factors to Consider When Selecting Retail A Shares or Retail B Shares . 33
-i-
<PAGE>
Purchases of Trust Shares . . . . . . . . . . . . . . . . . . . . . . . 34
Redemption of Retail A Shares, Retail B Shares and Trust Shares . . . . 35
INVESTOR PROGRAMS - RETAIL A SHARES AND RETAIL B SHARES. . . . . . . . . . . 35
Exchange Privilege. . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Retirement Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Automatic Investment Program and Systematic Withdrawal Plan . . . . . . 37
Payroll Deduction Program . . . . . . . . . . . . . . . . . . . . . . . 38
College Investment Program. . . . . . . . . . . . . . . . . . . . . . . 38
Direct Deposit Program. . . . . . . . . . . . . . . . . . . . . . . . . 38
TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Taxation of Certain Financial Instruments . . . . . . . . . . . . . . . 39
TRUSTEES AND OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Shareholder and Trustee Liability . . . . . . . . . . . . . . . . . . . 43
INVESTMENT ADVISER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Authority to Act as Investment Adviser. . . . . . . . . . . . . . . . . 45
ADMINISTRATOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
CUSTODIAN AND TRANSFER AGENT . . . . . . . . . . . . . . . . . . . . . . . . 47
EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SHAREHOLDER SERVICES PLAN. . . . . . . . . . . . . . . . . . . . . . . . . . 50
DISTRIBUTION AND SERVICES PLAN . . . . . . . . . . . . . . . . . . . . . . . 51
DISTRIBUTOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
COUNSEL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
PERFORMANCE AND YIELD INFORMATION. . . . . . . . . . . . . . . . . . . . . . 56
Performance Reporting . . . . . . . . . . . . . . . . . . . . . . . . . 59
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
APPENDIX A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-1
APPENDIX B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-1
</TABLE>
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<PAGE>
GENERAL INFORMATION
This Statement of Additional Information should be read in conjunction with
a current Prospectus. This Statement of Additional Information relates to the
Prospectuses for Trust Shares of the four Funds listed on the cover page and
Retail A Shares and Retail B Shares of each of the Short-Term Bond, Intermediate
Government Income and High Quality Bond Funds. The Corporate Bond Fund is
authorized to offer Retail A Shares and Trust Shares but currently offers only
Trust Shares. The Short-Term Bond, Intermediate Government Income and High
Quality Bond Funds also offer A Prime Shares and B Prime Shares, which are
described in a separate statement of additional information and related
prospectus. This Statement of Additional Information is incorporated by
reference in its entirety into the Prospectuses. No investment in shares of the
Funds should be made without reading a Prospectus.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUNDS ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL VARY AS A RESULT OF MARKET CONDITIONS OR OTHER FACTORS SO THAT SHARES
OF THE FUNDS, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
THE PRINCIPAL AMOUNT INVESTED.
DESCRIPTION OF GALAXY AND ITS SHARES
The Galaxy Fund ("Galaxy") is an open-end management investment company
currently offering shares of beneficial interest in twenty-nine investment
portfolios: Money Market Fund, Government Fund, U.S. Treasury Fund, Tax-Exempt
Fund, Connecticut Municipal Money Market Fund, Massachusetts Municipal Money
Market Fund, Institutional Government Money Market Fund, Prime Reserves,
Government Reserves, Tax-Exempt Reserves, Equity Value Fund, Equity Growth Fund,
Equity Income Fund, International Equity Fund, Small Company Equity Fund, Asset
Allocation Fund, Small Cap Value Fund, Growth and Income Fund, Strategic Equity
Fund, Short-Term Bond Fund, Intermediate Government Income Fund, High Quality
Bond Fund, Corporate Bond Fund, Tax-Exempt Bond Fund, New Jersey Municipal Bond
Fund, New York Municipal Bond Fund, Connecticut Municipal Bond Fund,
Massachusetts Municipal Bond Fund and Rhode Island Municipal Bond Fund. Galaxy
is also authorized to issue shares of beneficial interest in an additional
investment portfolio, the MidCap Equity Fund. As of the date of this Statement
of Additional Information, however, the MidCap Equity Fund had not commenced
investment operations.
Galaxy was organized as a Massachusetts business trust on March 31, 1986.
Galaxy's Declaration of Trust authorizes the Board of Trustees to classify or
reclassify any unissued shares into one or more classes or series of shares by
setting or changing in any one or more respects their respective preferences,
conversion or other rights, voting powers, restrictions,
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limitations as to dividends, qualifications, and terms and conditions of
redemption. Pursuant to such authority, the Board of Trustees has authorized
the issuance of an unlimited number of shares in each of the series in the Funds
as follows: Class D shares (Trust Shares), Class D - Special Series 1 shares
(Retail A Shares), Class D shares - Special Series 2 shares (Retail B Shares),
Class D shares - Special Series 3 shares, (A Prime Shares) and Class D shares -
Special Series 4 shares (B Prime Shares), each series representing interests in
the Intermediate Government Income Fund; Class J - Series 1 shares (Trust
Shares), Class J - Series 2 shares (Retail A Shares), Class J - Series 3 shares
(Retail B Shares), Class J - Series 4 shares (A Prime Shares) and Class J -
Series 5 shares (B Prime Shares), each series representing interests in the High
Quality Bond Fund; Class L - Series 1 shares (Trust Shares), Class L - Series 2
shares (Retail A Shares), Class L - Series 3 shares (Retail B Shares), Class L -
Series 4 shares (A Prime Shares) and Class L - Series 5 shares (B Prime Shares),
each series representing interests in the Short-Term Bond Fund; and Class T -
Series 1 shares (Trust Shares) and Class T - Series 2 shares (Retail A Shares),
each series representing interests in the Corporate Bond Fund. Each Fund is
classified as a diversified company under the Investment Company Act of 1940, as
amended (the "1940 Act").
Each share of Galaxy (irrespective of series designation) has a par value
of $.001 per share, represents an equal proportionate interest in the related
investment portfolio with other shares of the same class (irrespective of series
designation), and is entitled to such dividends and distributions out of the
income earned on the assets belonging to such investment portfolio as are
declared in the discretion of Galaxy's Board of Trustees.
Shares have no preemptive rights and only such conversion or exchange
rights as the Board of Trustees may grant in its discretion. When issued for
payment as described in the Prospectuses, shares will be fully paid and
non-assessable. Each series of shares (I.E., Retail A Shares, Retail B Shares,
Trust Shares, A Prime Shares and B Prime Shares) bear pro rata the same expenses
and are entitled equally to a Fund's dividends and distributions except as
follows. Each series will bear the expenses of any distribution and/or
shareholder servicing plans applicable to such series. For example, as
described below, holders of Retail A Shares will bear the expenses of the
Shareholder Services Plan for Retail A Shares and Trust Shares (which is
currently applicable only to Retail A Shares) and holders of Retail B Shares
will bear the expenses of the Distribution and Services Plan for Retail B
Shares. In addition, each series may incur differing transfer agency fees and
may have differing sales charges. Standardized yield and total return
quotations are computed separately for each series of shares. The differences
in expenses paid by the respective series will affect their performance. See
"Shareholder Services Plan" and "Distribution and Services Plan" below.
In the event of a liquidation or dissolution of Galaxy or an individual
Fund, shareholders of a particular Fund would be entitled to receive the assets
available for distribution belonging to such Fund, and a proportionate
distribution, based upon the relative asset values of Galaxy's respective Funds,
of any general assets of Galaxy not belonging to any particular Fund, which are
available for distribution. Shareholders of a Fund are entitled to participate
in the net distributable assets of the particular Fund involved in liquidation,
based on the number of shares of the Fund that are held by each shareholder,
except that each series of a Fund would be solely
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responsible for the Fund's payments under any distribution and/or shareholder
servicing plan applicable to such series.
Holders of all outstanding shares of a particular Fund will vote together
in the aggregate and not by series on all matters, except that only shares of a
particular series of a Fund will be entitled to vote on matters submitted to a
vote of shareholders pertaining to any distribution and/or shareholder servicing
plan for such series (E.G., only Retail A Shares and Trust Shares of a Fund will
be entitled to vote on matters submitted to a vote of shareholders pertaining to
Galaxy's Shareholder Services Plan for Retail A and Trust Shares and only Retail
B Shares of a Fund will be entitled to vote on matters submitted to a vote of
shareholders pertaining to Galaxy's Distribution and Services Plan for Retail B
Shares). Further, shareholders of all of the Funds, as well as those of any
other investment portfolio now or hereafter offered by Galaxy, will vote
together in the aggregate and not separately on a Fund-by-Fund basis, except as
otherwise required by law or when permitted by the Board of Trustees. Rule
18f-2 under the 1940 Act provides that any matter required to be submitted to
the holders of the outstanding voting securities of an investment company such
as Galaxy shall not be deemed to have been effectively acted upon unless
approved by the holders of a majority of the outstanding shares of each Fund
affected by the matter. A particular Fund is deemed to be affected by a matter
unless it is clear that the interests of each Fund in the matter are
substantially identical or that the matter does not affect any interest of the
Fund. Under the Rule, the approval of an investment advisory agreement or any
change in an investment objective or a fundamental investment policy would be
effectively acted upon with respect to a Fund only if approved by a majority of
the outstanding shares of such Fund (irrespective of series designation).
However, the Rule also provides that the ratification of the appointment of
independent public accountants, the approval of principal underwriting
contracts, and the election of trustees may be effectively acted upon by
shareholders of Galaxy voting without regard to class or series.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and will vote in
the aggregate and not by class or series, except as otherwise expressly required
by law or when the Board of Trustees determines that the matter to be voted on
affects only the interests of shareholders of a particular class or series.
Voting rights are not cumulative and, accordingly, the holders of more than 50%
in the aggregate of Galaxy's outstanding shares may elect all of the trustees,
irrespective of the votes of other shareholders.
Galaxy is not required under Massachusetts law to hold annual shareholder
meetings and intends to do so only if required by the 1940 Act. Shareholders
have the right to remove Trustees. Galaxy's Declaration of Trust provides that
a meeting of shareholders shall be called by the Board of Trustees upon a
written request of shareholders owning at least 10% of the outstanding shares of
Galaxy entitled to vote.
Galaxy's Declaration of Trust authorizes the Board of Trustees, without
shareholder approval (unless otherwise required by applicable law), to (a) sell
and convey the assets of a Fund to another management investment company for
consideration which may include securities issued by the purchaser and, in
connection therewith, to cause all outstanding shares of
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the Fund involved to be redeemed at a price which is equal to their net asset
value and which may be paid in cash or by distribution of the securities or
other consideration received from the sale and conveyance; (b) sell and convert
a Fund's assets into money and, in connection therewith, to cause all
outstanding shares of the Fund involved to be redeemed at their net asset value;
or (c) combine the assets belonging to a Fund with the assets belonging to
another Fund of Galaxy and, in connection therewith, to cause all outstanding
shares of any Fund to be redeemed at their net asset value or converted into
shares of another class of Galaxy's shares at the net asset value. In the event
that shares are redeemed in cash at their net asset value, a shareholder may
receive in payment for such shares, due to changes in the market prices of the
Fund's portfolio securities, an amount that is more or less than the original
investment. The exercise of such authority by the Board of Trustees will be
subject to the provisions of the 1940 Act, and the Board of Trustees will not
take any action described in this paragraph unless the proposed action has been
disclosed in writing to the Fund's shareholders at least 30 days prior thereto.
INVESTMENT STRATEGIES, POLICIES AND RISKS
Fleet Investment Advisors Inc. ("Fleet"), the Funds' investment adviser,
will use its best efforts to achieve each Fund's investment objective, although
such achievement cannot be assured. The investment objective of a Fund as
described in its Prospectus(es) may not be changed without the approval of the
holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Except as noted below under "Investment Limitations," a
Fund's investment policies may be changed without shareholder approval. An
investor should not consider an investment in the Funds to be a complete
investment program. The following investment strategies, policies and risks
supplement those set forth in the Funds' Prospectuses.
SHORT-TERM BOND FUND
In addition to its primary investment strategies and policies as described
in its Prospectuses, the Short-Term Bond Fund may also invest, from time to
time, in municipal securities. The purchase of municipal securities may be
advantageous when, as a result of prevailing economic, regulatory or other
circumstances, the performance of such securities, on a pre-tax basis, is
comparable to that of corporate or U.S. Government debt obligations. See "Other
Investment Policies and Risk Consideration-Municipal Securities" below. The
Fund may also enter into interest rate futures contracts to hedge against
changes in market values. See "Other Investment Policies and Risk
Considerations - Derivative Securities" below. Any common stock received
through the conversion of convertible debt obligations will be sold in an
orderly manner as soon as possible.
Debt obligations rated in the lowest of the four highest rating categories
assigned by Standard & Poor's Rating Group ("S&P") ("BBB") or Moody's Investors
Service, Inc. ("Moody's") ("Baa") (or which, if unrated, are determined by Fleet
to be of comparable quality) are considered to have speculative characteristics,
even though they are of investment grade quality, and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher grade
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debt obligations. Unrated securities will be determined to be of comparable
quality to rated debt obligations if, among other things, other outstanding
obligations of the issuers of such securities are rated BBB/Baa or better. See
Appendix A to this Statement of Additional Information for a description of
S&P's and Moody's rating categories.
The obligations of foreign banks and obligations issued or guaranteed by
foreign governments or any of their political subdivisions or instrumentalities
in which the Fund may invest include debt obligations issued by Canadian
Provincial Governments, which are similar to U.S. municipal securities except
that the income derived therefrom is fully subject to U.S. federal taxation.
These instruments are denominated in either Canadian or U.S. dollars and have an
established over-the-counter market in the United States. Also included are
debt obligations of supranational entities, which include international
organizations designated or supported by governmental entities to promote
economic reconstruction or development and international banking institutions
and related government agencies. Examples of these include the International
Bank for Reconstruction and Development ("World Bank"), the Asian Development
Bank and the InterAmerican Development Bank. Obligations of supranational
entities may be supported by appropriated but unpaid commitments of their member
countries, and there is no assurance that these commitments will be undertaken
or met in the future. The Fund may not invest more than 35% of its total assets
in the securities of foreign issuers. The Fund may also invest in
dollar-denominated debt obligations of U.S. corporations issued outside the
United States.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Short-Term Bond
Fund.
INTERMEDIATE GOVERNMENT INCOME FUND
In addition to its primary investment strategies and policies as described
in its Prospectuses, the Intermediate Government Income Fund may also invest,
from time to time, in municipal securities. See "Other Investment Policies and
Risk Considerations - Municipal Securities" below. The Fund may also enter into
interest rate futures contracts to hedge against changes in market values. See
"Other Investment Policies and Risk Considerations - Derivative Securities"
below. In addition, the Fund may invest in obligations issued by Canadian
Provincial Governments and in debt obligations of supranational entities. The
Fund may also invest in dollar-denominated high quality debt obligations of U.S.
corporations issued outside the United States. Any common stock received
through the conversion of convertible debt obligations will be sold in an
orderly manner as soon as possible.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Intermediate
Government Income Fund and Appendix A to this Statement of Additional
Information for a description of S&P's and Moody's rating categories.
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HIGH QUALITY BOND FUND
In addition to its primary investment strategies and policies as described
in its Prospectuses, the High Quality Bond Fund may also invest, from time to
time, in municipal securities. See "Other Investment Policies and Risk
Considerations - Municipal Securities" below. The Fund may enter into interest
rate futures contracts to hedge against changes in the market values of fixed
income instruments that the Fund holds or intends to purchase. See "Other
Investment Policies and Risk Considerations - Derivative Securities" below. The
Fund may also invest in obligations issued by Canadian Provincial Governments
and in debt obligations of supranational entities. The Fund may also invest in
dollar-denominated high quality debt obligations of U.S. corporations issued
outside the United States. Any common stock received through the conversion of
convertible debt obligations will be sold in an orderly manner as soon as
possible.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the High Quality Bond
Fund. See "Short-Term Bond Fund" above for a description of the risks
associated with the Fund's investments in debt obligations that are rated in the
lowest of the four highest rating categories. See Appendix A to this Statement
of Additional Information for a description of S&P's and Moody's rating
categories.
CORPORATE BOND FUND
In addition to its primary investment strategies and policies as described
in its Prospectus, the Corporate Bond Fund may also invest in obligations issued
or guaranteed by the U.S. or foreign governments, their agencies or
instrumentalities, or by supranational banks or other organizations. Examples
of supranational banks include the World Bank, the Asian Development Bank and
the InterAmerican Development Bank. Obligations of supranational banks may be
supported by appropriated but unpaid commitments of their member countries and
there is no assurance that those commitments will be undertaken or met in the
future. The Fund may invest, from time to time, in municipal securities. The
purchase of municipal securities may be advantageous when, as a result of their
tax status or prevailing economic, regulatory or other circumstances, the
performance of such securities is expected to be comparable to that of corporate
or U.S. Government debt obligations. See "Other Investment Policies and Risk
Considerations - Municipal Securities" below. The Fund may enter into interest
rate futures contracts to hedge against changes in market values. See "Other
Investment Policies and Risk Considerations - Derivative Securities" below. The
Fund may also invest in "money market" instruments.
The value of convertible securities in which the Fund may invest fluctuates
in relation to changes in interest rates like bonds and, in addition, fluctuates
in relation to the underlying common stock. Any common stock received through
the conversion of convertible debt obligations will be sold in an orderly manner
as soon as possible.
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The Fund may also invest in debt obligations of foreign issuers such as
foreign corporations and banks, as well as foreign governments and their
political subdivisions. Such investments may subject the Fund to special
investment risks. See "Special Risk Considerations - Foreign Securities" below.
The Fund will not invest more than 20% of its net assets in the securities of
foreign issuers. The Fund may also invest in dollar-denominated debt
obligations of U.S. corporations issued outside the United States.
The Fund may enter into currency forward contracts (agreements to exchange
one currency for another at a future date) to manage currency risks and to
facilitate transactions in foreign securities. Although currency forward
contracts can be used to protect the Fund from adverse rate changes, they
involve a risk of loss if Fleet fails to predict foreign currency values
correctly. See "Other Investment Policies and Risk Considerations - Derivative
Securities" below.
See "Short-Term Bond Fund" above for a description of the risks associated
with the Fund's investments in debt obligations that are rated in the lowest of
the four highest rating categories and Appendix A to this Statement of
Additional Information for a description of S&P's and Moody's rating categories.
See "Other Investment Policies and Risk Considerations" below for information
regarding additional investment policies of the Fund.
SPECIAL RISK CONSIDERATIONS
FOREIGN SECURITIES
Investments by the Short-Term Bond and Corporate Bond Funds in foreign
securities may involve higher costs than investments in U.S. securities,
including higher transaction costs, as well as the imposition of additional
taxes by foreign governments. In addition, foreign investments may include
additional risks associated with currency exchange rates, less complete
financial information about the issuers, less market liquidity, and political
instability. Future political and economic developments, the possible
imposition of withholding taxes on interest income, the possible seizure or
nationalization of foreign holdings, the possible establishment of exchange
controls, or the adoption of other governmental restrictions, might adversely
affect the payment of principal and interest on foreign obligations.
Although the Short-Term Bond and Corporate Bond Funds may invest in
securities denominated in foreign currencies, the Funds value their securities
and other assets in U.S. dollars. As a result, the net asset value of the
Funds' shares may fluctuate with U.S. dollar exchange rates as well as with
price changes of the Funds' foreign securities in the various local markets and
currencies. Thus, an increase in the value of the U.S. dollar compared to the
currencies in which the Funds make their foreign investments could reduce the
effect of increases and magnify the effect of decreases in the price of the
Funds' foreign securities in their local markets. Conversely, a decrease in the
value of the U.S. dollar will have the opposite effect of magnifying the effect
of increases and reducing the effect of decreases in the prices of the Funds'
foreign securities in their local markets. In addition to favorable and
unfavorable currency exchange rate developments, the Funds are subject to the
possible imposition of exchange control regulations or freezes on convertibility
of currency.
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RATINGS
The Corporate Bond Fund's investments in obligations rated below the four
highest ratings assigned by S&P and Moody's have different risks than
investments in securities that are rated "investment grade." Risk of loss upon
default by the issuer is significantly greater because lower-rated securities
are generally unsecured and are often subordinated to other creditors of the
issuer, and because the issuers frequently have high levels of indebtedness and
are more sensitive to adverse economic conditions, such as recessions,
individual corporate developments and increasing interest rates than are
investment grade issuers. As a result, the market price of such securities may
be particularly volatile.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in the Prospectuses and this Statement of
Additional Information are among those which one or more of the Funds have the
power to utilize. Some may be employed on a regular basis; others may not be
used at all. Accordingly, reference to any particular method or technique
carries no implication that it will be utilized or, if it is, that it will be
successful.
VARIABLE AND FLOATING RATE OBLIGATIONS
The Funds may purchase variable and floating rate instruments in accordance
with their investment objectives and policies as described in the Prospectuses
and this Statement of Additional Information. If such an instrument is not
rated, Fleet must determine that such instrument is comparable to rated
instruments eligible for purchase by a Fund and will consider the earning power,
cash flows and other liquidity ratios of the issuers and guarantors of such
instruments and will continuously monitor their financial status in order to
meet payment on demand. In determining average weighted portfolio maturity of
each of these Funds, a variable or floating rate instrument issued or guaranteed
by the U.S. Government or an agency or instrumentality thereof will be deemed to
have a maturity equal to the period remaining until the obligation's next
interest rate adjustment. Long-term variable and floating rate obligations with
a demand feature will be deemed to have a maturity equal to the longer of the
period remaining to the next interest rate adjustment or the demand notice
period.
U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS
Each Fund may, in accordance with its investment policies, invest from time
to time in obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities and in "money market" instruments, including bank
obligations and commercial paper.
Examples of the types of obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities (hereinafter, "U.S. Government
obligations") that may be held by the Funds include, without limitation, direct
obligations of the U.S. Treasury, and securities issued or guaranteed by the
Federal Home Loan Banks, Federal Farm Credit Banks, Federal
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Land Banks, Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration,
Government National Mortgage Association, Federal National Mortgage Association,
General Services Administration, Central Bank for Cooperatives, Federal Home
Loan Mortgage Corporation, Federal Intermediate Credit Banks, Resolution Trust
Corporation and Maritime Administration.
U.S. Treasury securities differ only in their interest rates, maturities
and time of issuance: Treasury Bills have initial maturities of one year or
less; Treasury Notes have initial maturities of one to ten years; and Treasury
Bonds generally have initial maturities of more than ten years. Obligations of
certain agencies and instrumentalities of the U.S. Government, such as those of
the Government National Mortgage Association, are supported by the full faith
and credit of the U.S. Treasury; others, such as those of the Federal Home Loan
Banks, are supported by the right of the issuer to borrow from the Treasury;
others, such as those of the Federal National Mortgage Association, are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; still others, such as those of the Federal Home Loan
Mortgage Corporation, are supported only by the credit of the instrumentality.
No assurance can be given that the U.S. Government would provide financial
support to U.S. Government-sponsored instrumentalities if it is not obligated to
do so by law. Some of these instruments may be variable or floating rate
instruments.
Bank obligations include bankers' acceptances, negotiable certificates of
deposit, and non-negotiable time deposits issued for a definite period of time
and earning a specified return by a U.S. bank which is a member of the Federal
Reserve System or is insured by the Federal Deposit Insurance Corporation
("FDIC"), or by a savings and loan association or savings bank which is insured
by the FDIC. Bank obligations also include U.S. dollar-denominated obligations
of foreign branches of U.S. banks or of U.S. branches of foreign banks, all of
the same type as domestic bank obligations. Investments in bank obligations are
limited to the obligations of financial institutions having more than $1 billion
in total assets at the time of purchase. Investments by the Funds in
non-negotiable time deposits are limited to no more than 5% of each such Fund's
total assets at the time of purchase.
Domestic and foreign banks are subject to extensive but different
government regulation which may limit the amount and types of their loans and
the interest rates that may be charged. In addition, the profitability of the
banking industry is largely dependent upon the availability and cost of funds to
finance lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and of U.S.
branches of foreign banks may subject a Fund to additional risks, including
future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. In addition, foreign
branches of U.S. banks and U.S. branches of foreign banks may be subject to less
stringent reserve requirements and to different accounting, auditing, reporting,
and recordkeeping standards than those applicable to domestic branches of U.S.
banks. Such investments may also subject a Fund to investment risks similar to
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those accompanying direct investments in foreign securities. See "Special Risk
Considerations - Foreign Securities." The Funds will invest in the obligations
of U.S. branches of foreign banks or foreign branches of U.S. banks only when
Fleet believes that the credit risk with respect to the instrument is minimal.
Commercial paper may include variable and floating rate instruments which
are unsecured instruments that permit the indebtedness thereunder to vary.
Variable rate instruments provide for periodic adjustments in the interest rate.
Floating rate instruments provide for automatic adjustment of the interest rate
whenever some other specified interest rate changes. Some variable and floating
rate obligations are direct lending arrangements between the purchaser and the
issuer and there may be no active secondary market. However, in the case of
variable and floating rate obligations with a demand feature, a Fund may demand
payment of principal and accrued interest at a time specified in the instrument
or may resell the instrument to a third party. In the event that an issuer of a
variable or floating rate obligation defaulted on its payment obligation, a Fund
might be unable to dispose of the note because of the absence of a secondary
market and could, for this or other reasons, suffer a loss to the extent of the
default. The Funds may also purchase Rule 144A securities. See "Investment
Limitations" below.
MUNICIPAL SECURITIES
The Funds may invest in municipal securities when such investments are
deemed appropriate by Fleet in light of the Funds' investment objectives. As a
result of the favorable tax treatment afforded such obligations under the
Internal Revenue Code of 1986, as amended (the "Code"), yields on municipal
obligations can generally be expected under normal market conditions to be lower
than yields on corporate and U.S. Government obligations, although from time to
time municipal securities have outperformed, on a total return basis, comparable
corporate and federal debt obligations as a result of prevailing economic,
regulatory or other circumstances.
Municipal securities acquired by the Funds include debt obligations issued
by governmental entities to obtain funds for various public purposes, including
the construction of a wide range of public facilities, the refunding of
outstanding obligations, the payment of general operating expenses, and the
extension of loans to public institutions and facilities. Private activity
bonds that are issued by or on behalf of public authorities to finance various
privately operated facilities are "municipal securities" if the interest paid
thereon is exempt from regular federal income tax and not treated as a specific
tax preference item under the federal alternative minimum tax.
The two principal classifications of municipal securities which may be held
by the Funds are "general obligation" securities and "revenue" securities.
General obligation securities are secured by the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest.
Revenue securities are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source such as the user of the
facility being financed. Private activity bonds held by the Funds are in most
cases revenue securities and are not payable from the
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unrestricted revenues of the issuer. Consequently, the credit quality of such
private activity bonds is usually directly related to the credit standing of the
corporate user of the facility involved.
Each Fund's portfolio may also include "moral obligation" securities, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation securities is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.
There are, of course, variations in the quality of municipal securities,
both within a particular category and between categories, and the yields on
municipal securities depend upon a variety of factors, including general market
conditions, the financial condition of the issuer, general conditions of the
municipal bond market, the size of a particular offering, the maturity of the
obligation, and the rating of the issue. The ratings of a nationally recognized
statistical rating organization ("NRSRO"), such as Moody's and S&P, described in
Appendix A to this Statement of Additional Information, represent such NRSRO's
opinion as to the quality of municipal securities. It should be emphasized that
these ratings are general and are not absolute standards of quality. Municipal
securities with the same maturity, interest rate and rating may have different
yields. Municipal securities of the same maturity and interest rate with
different ratings may have the same yield. Subsequent to its purchase by a
Fund, an issue of municipal securities may cease to be rated or its rating may
be reduced below the minimum rating required for purchase by the Fund.
The payment of principal and interest on most municipal securities
purchased by the Funds will depend upon the ability of the issuers to meet their
obligations. Each state, the District of Columbia, each of their political
subdivisions, agencies, instrumentalities and authorities and each multistate
agency of which a state is a member is a separate "issuer" as that term is used
in this Statement of Additional Information. The non-governmental user of
facilities financed by private activity bonds is also considered to be an
"issuer." An issuer's obligations under its municipal securities are subject to
the provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the federal Bankruptcy Code and laws, if any,
which may be enacted by federal or state legislatures extending the time for
payment of principal or interest, or both, or imposing other constraints upon
enforcement of such obligations or upon the ability of municipalities to levy
taxes. The power or ability of an issuer to meet its obligations for the
payment of interest on and principal of its municipal securities may be
materially adversely affected by litigation or other conditions.
Among other instruments, the Funds may purchase short-term general
obligation notes, tax anticipation notes, bond anticipation notes, revenue
anticipation notes, tax-exempt commercial paper, construction loan notes and
other forms of short-term loans. Such instruments are issued with a short-term
maturity in anticipation of the receipt of tax funds, the proceeds of bond
placements or other revenues. In addition, the Funds may invest in long-term
tax-exempt instruments, such as municipal bonds and private activity bonds to
the extent consistent with the limitations set forth for each Fund.
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Private activity bonds are or have been issued to obtain funds to provide,
among other things, privately operated housing facilities, pollution control
facilities, convention or trade show facilities, mass transit, airport, port or
parking facilities and certain local facilities for water supply, gas,
electricity or sewage or solid waste disposal. Private activity bonds are also
issued to privately held or publicly owned corporations in the financing of
commercial or industrial facilities. State and local governments are authorized
in most states to issue private activity bonds for such purposes in order to
encourage corporations to locate within their communities. The principal and
interest on these obligations may be payable from the general revenues of the
users of such facilities.
Opinions relating to the validity of municipal securities and to the
exemption of interest thereon from regular federal income tax are rendered by
bond counsel to the respective issuers at the time of issuance. Neither the
Funds nor Fleet will review the proceedings relating to the issuance of
municipal securities or the bases for such opinions.
VARIABLE AND FLOATING RATE MUNICIPAL SECURITIES. Municipal securities
purchased by the Funds may include rated and unrated variable and floating rate
tax-exempt instruments. There may be no active secondary market with respect to
a particular variable or floating rate instrument. Nevertheless, the periodic
readjustments of their interest rates tend to assure that their value to a Fund
will approximate their par value. Illiquid variable and floating rate
instruments (instruments which are not payable upon seven days' notice and do
not have an active trading market) that are acquired by the Funds are subject to
the 10% (15% with respect to the Corporate Bond Fund) limit described in
Investment Limitation No. 3 under "Investment Limitations" below.
STAND-BY COMMITMENTS
Each Fund may acquire "stand-by commitments" with respect to municipal
securities held by them. Under a stand-by commitment, a dealer agrees to
purchase, at a Fund's option, specified municipal securities at a specified
price. The Funds will acquire stand-by commitments solely to facilitate
portfolio liquidity and do not intend to exercise their rights thereunder for
trading purposes. The Funds expect that stand-by commitments will generally be
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, a Fund may pay for a stand-by commitment either
separately in cash or by paying a higher price for municipal securities which
are acquired subject to the commitment (thus reducing the yield otherwise
available for the same securities). Where a Fund pays any consideration
directly or indirectly for a stand-by commitment, its cost will be reflected as
unrealized depreciation for the period during which the commitment is held by
the Fund. Stand-by commitments acquired by a Fund would be valued at zero in
determining the Fund's net asset value.
Stand-by commitments are exercisable by a Fund at any time before the
maturity of the underlying municipal security, and may be sold, transferred or
assigned by the Fund only with respect to the underlying instruments. A Fund
will enter into stand-by commitments only with
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banks and broker/dealers that present minimal credit risks. In evaluating the
creditworthiness of the issuer of a stand-by commitment, Fleet will review
periodically the issuer's assets, liabilities, contingent claims and other
relevant financial information.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
Each Fund may purchase portfolio securities subject to the seller's
agreement to repurchase them at a mutually specified date and price ("repurchase
agreements"). Repurchase agreements will be entered into only with financial
institutions such as banks and broker/dealers which are deemed to be
creditworthy by Fleet under guidelines approved by Galaxy's Board of Trustees.
No Fund will enter into repurchase agreements with Fleet or any of its
affiliates. Unless a repurchase agreement has a remaining maturity of seven
days or less or may be terminated on demand upon notice of seven days or less,
the repurchase agreement will be considered an illiquid security and will be
subject to the 10% (15% with respect to the Corporate Bond Fund) limit described
in Investment Limitation No. 3 under "Investment Limitations" below.
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by a Fund at
not less than the agreed upon repurchase price. If the seller defaulted on its
repurchase obligation, the Fund holding such obligation would suffer a loss to
the extent that the proceeds from a sale of the underlying securities (including
accrued interest) were less than the repurchase price (including accrued
interest) under the agreement. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the Fund
might be delayed pending court action.
The repurchase price under a repurchase agreement generally equals the
price paid by a Fund plus interest negotiated on the basis of current short-term
rates (which may be more or less than the rate on the securities underlying the
repurchase agreement). Securities subject to repurchase agreements will be held
by a Fund's custodian or sub-custodian in a segregated account or in the Federal
Reserve/Treasury book-entry system. Repurchase agreements are considered to be
loans by a Fund under the 1940 Act.
Each Fund may also borrow funds for temporary purposes by selling portfolio
securities to financial institutions such as banks and broker/dealers and
agreeing to repurchase them at a mutually specified date and price ("reverse
repurchase agreements"). Reverse repurchase agreements involve the risk that
the market value of the securities sold by a Fund may decline below the
repurchase price. A Fund would pay interest on amounts obtained pursuant to a
reverse repurchase agreement. Whenever a Fund enters into a reverse repurchase
agreement, it will place in a segregated custodial account liquid assets such as
cash or liquid portfolio securities equal to the repurchase price (including
accrued interest). The Fund will monitor the account to ensure such equivalent
value is maintained. Reverse repurchase agreements are considered to be
borrowings by a Fund under the 1940 Act.
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SECURITIES LENDING
Each Fund may lend its portfolio securities to financial institutions such
as banks and broker/dealers in accordance with the investment limitations
described below. Such loans would involve risks of delay in receiving
additional collateral or in recovering the securities loaned or even loss of
rights in the collateral, should the borrower of the securities fail
financially. Any portfolio securities purchased with cash collateral would also
be subject to possible depreciation. A Fund that loans portfolio securities
would continue to accrue interest on the securities loaned and would also earn
income on the loans. Any cash collateral received by a Fund would be invested
in high quality, short-term "money market" instruments. Loans will generally be
short-term, will be made only to borrowers deemed by Fleet to be of good
standing and only when, in Fleet's judgment, the income to be earned from the
loan justifies the attendant risks. The Funds currently intend to limit the
lending of their portfolio securities so that, at any given time, securities
loaned by a Fund represent not more than one-third of the value of its total
assets.
INVESTMENT COMPANY SECURITIES
The Funds may invest in securities issued by other investment companies
which invest in high quality, short-term debt securities and which determine
their net asset value per share based on the amortized cost or penny-rounding
method. Investments in other investment companies will cause a Fund (and,
indirectly, the Fund's shareholders) to bear proportionately the costs incurred
in connection with the investment companies' operations. Securities of other
investment companies will be acquired by the Funds within the limits prescribed
by the 1940 Act. Each Fund currently intends to limit its investments so that,
as determined immediately after a securities purchase is made: (a) not more than
5% of the value of its total assets will be invested in the securities of any
one investment company; (b) not more than 10% of the value of its total assets
will be invested in the aggregate in securities of other investment companies as
a group; (c) not more than 3% of the outstanding voting stock of any one
investment company will be owned by the Fund; and (d) not more than 10% of the
outstanding voting stock of any one closed-end investment company will be owned
in the aggregate by the Funds, other investment portfolios of Galaxy, or any
other investment companies advised by Fleet.
DERIVATIVE SECURITIES
The Funds may from time to time, in accordance with their respective
investment policies, purchase certain "derivative" securities. Derivative
securities are instruments that derive their value from the performance of
underlying assets, interest or currency exchange rates, or indices, and include,
but are not limited to, interest rate futures, certain asset-backed and
mortgage-backed securities, certain zero coupon bonds and currency forward
contracts.
Derivative securities present, to varying degrees, market risk that the
performance of the underlying assets, interest or exchange rates or indices will
decline; credit risk that the dealer or other counterparty to the transaction
will fail to pay its obligations; volatility and leveraging risk that, if
interest or exchange rates change adversely, the value of the derivative
security will decline more than the assets, rates or indices on which it is
based; liquidity risk that a Fund will
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be unable to sell a derivative security when it wants because of lack of market
depth or market disruption; pricing risk that the value of a derivative security
will not correlate exactly to the value of the underlying assets, rates or
indices on which it is based; and operations risk that loss will occur as a
result of inadequate systems and controls, human error or otherwise. Some
derivative securities are more complex than others, and for those instruments
that have been developed recently, data are lacking regarding their actual
performance over complete market cycles.
Fleet will evaluate the risks presented by the derivative securities
purchased by the Funds, and will determine, in connection with its day-to-day
management of the Funds, how they will be used in furtherance of the Funds'
investment objectives. It is possible, however, that Fleet's evaluations will
prove to be inaccurate or incomplete and, even when accurate and complete, it is
possible that the Funds will, because of the risks discussed above, incur loss
as a result of their investments in derivative securities.
INTEREST RATE FUTURES CONTRACTS. The Funds may enter into contracts (both
purchase and sales) which provide for the future delivery of fixed income
securities (commonly known as interest rate futures contracts). The Funds will
not engage in futures transactions for speculation, but only to hedge against
changes in the market values of securities which the Funds hold or intend to
purchase. The Funds will engage in futures transactions only to the extent
permitted by the Commodity Futures Trading Commission ("CFTC") and the
Securities and Exchange Commission ("SEC"). The purchase of futures instruments
in connection with securities which a Fund intends to purchase will require an
amount of cash and/or liquid assets, equal to the market value of the
outstanding futures contracts, to be deposited in a segregated account to
collateralize the position and thereby insure that the use of such futures is
unleveraged. Each Fund will limit its hedging transactions in futures contracts
so that, immediately after any such transaction, the aggregate initial margin
that is required to be posted by the Fund under the rules of the exchange on
which the futures contract is traded does not exceed 5% of the Fund's total
assets after taking into account any unrealized profits and unrealized losses on
the Fund's open contracts. In addition, no more than one-third of each Fund's
total assets may be covered by such contracts.
Transactions in futures as a hedging device may subject the Funds to a
number of risks. Successful use of futures by the Funds is subject to the
ability of Fleet to predict correctly movements in the direction of the market.
In addition, there may be an imperfect correlation, or no correlation at all,
between movements in the price of futures contracts and movements in the price
of the instruments being hedged. There is no assurance that a liquid market
will exist for any particular futures contract at any particular time.
Consequently, a Fund may realize a loss on a futures transaction that is not
offset by a favorable movement in the price of securities which it holds or
intends to purchase or a Fund may be unable to close a futures position in the
event of adverse price movements. Additional information concerning futures
transactions is contained in Appendix B to this Statement of Additional
Information.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS - SHORT-TERM BOND AND CORPORATE BOND
FUNDS. Because the Short-Term Bond and Corporate Bond Funds may buy and sell
securities denominated in currencies other than the U.S. dollar, and receive
interest, dividends and sale
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proceeds in currencies other than the U.S. dollar, the Funds may enter into
foreign currency exchange transactions to convert United States currency to
foreign currency and foreign currency to United States currency as well as
convert foreign currency to other foreign currencies. A Fund either enters into
these transactions on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market, or uses forward contracts to purchase or
sell foreign currencies.
A forward foreign currency exchange contract is an obligation by a Fund to
purchase or sell a specific currency at a specified price and future date, which
may be any fixed number of days from the date of the contract. Forward foreign
currency exchange contracts establish an exchange rate at a future date. These
contracts are transferable in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A
forward foreign currency exchange contract generally has no deposit requirement
and is traded at a net price without commission. Neither spot transactions nor
forward foreign currency exchange contracts eliminate fluctuations in the prices
of a Fund's portfolio securities or in foreign exchange rates, or prevent loss
if the prices of these securities should decline.
The Short-Term Bond and Corporate Bond Funds may enter into foreign
currency hedging transactions in an attempt to protect against changes in
foreign currency exchange rates between the trade and settlement dates of
specific securities transactions or changes in foreign currency exchange rates
that would adversely affect a portfolio position or an anticipated portfolio
position. Since consideration of the prospect for currency parities will be
incorporated into a Fund's long-term investment decisions, neither Fund will
routinely enter into foreign currency hedging transactions with respect to
portfolio security transactions; however, it is important to have the
flexibility to enter into foreign currency hedging transactions when it is
determined that the transactions would be in a Fund's best interest. Although
these transactions tend to minimize the risk of loss due to a decline in the
value of the hedged currency, at the same time they tend to limit any potential
gain that might be realized should the value of the hedged currency increase.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible because the future value of
these securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. The projection of currency market
movements is extremely difficult, and the successful execution of a hedging
strategy is highly uncertain.
WHEN-ISSUED, FORWARD COMMITMENT AND DELAYED SETTLEMENT TRANSACTIONS
Each Fund may purchase eligible securities on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis. Each Fund may also
purchase or sell securities on a "delayed settlement" basis. When-issued and
forward commitment transactions, which involve a commitment by a Fund to
purchase or sell particular securities with payment and delivery taking place at
a future date (perhaps one or two months later), permit the Fund to lock in a
price or yield on a security it owns or intends to purchase, regardless of
future changes in interest rates. Delayed settlement describes settlement of a
securities transaction in the secondary market which will occur sometime in the
future. When-issued, forward commitment
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and delayed settlement transactions involve the risk, however, that the yield or
price obtained in a transaction may be less favorable than the yield or price
available in the market when the security delivery takes place. It is expected
that forward commitments, when-issued purchases and delayed settlements will not
exceed 25% of the value of a Fund's total assets absent unusual market
conditions. In the event a Fund's forward commitments, when-issued purchases
and delayed settlements ever exceeded 25% of the value of its total assets, the
Fund's liquidity and the ability of Fleet to manage the Fund might be adversely
affected. The Funds do not intend to engage in when-issued purchases, forward
commitments and delayed settlements for speculative purposes, but only in
furtherance of their investment objectives.
When a Fund agrees to purchase securities on a "when-issued," "forward
commitment" or "delayed settlement" basis, the Fund's custodian will set aside
cash or liquid portfolio securities equal to the amount of the commitment in a
separate account. In the event of a decline in the value of the securities that
the custodian has set aside, the Fund may be required to place additional assets
in the separate account in order to ensure that the value of the account remains
equal to the amount of the Fund's commitment. A Fund's net assets may fluctuate
to a greater degree if it sets aside portfolio securities to cover such purchase
commitments than if it sets aside cash. Because a Fund sets aside liquid assets
to satisfy its purchase commitments in the manner described, its liquidity and
ability to manage its portfolio might be adversely affected in the event its
commitments to purchase "forward commitments," commitments to purchase
"when-issued" securities or commitments to purchase securities on a "delayed
settlement" basis exceeded 25% of the value of its assets.
When a Fund engages in "when-issued," "forward commitment" or "delayed
settlement" transactions, it relies on the seller to consummate the trade.
Failure of the seller to do so may result in the Fund's incurring a loss or
missing an opportunity to obtain a price considered to be advantageous for a
security. For purposes of determining the average weighted maturity of a Fund's
portfolio, the maturity of "when-issued" securities is calculated from the date
of settlement of the purchase to the maturity date.
ASSET-BACKED SECURITIES
Each Fund may purchase asset-backed securities, which represent a
participation in, or are secured by and payable from, a stream of payments
generated by particular assets, most often a pool of assets similar to one
another. Assets generating such payments will consist of such instruments as
motor vehicle installment purchase obligations, credit card receivables and home
equity loans. Payment of principal and interest may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with entities issuing the securities. The
estimated life of an asset-backed security varies with the prepayment experience
with respect to the underlying debt instruments. The rate of such prepayments,
and hence the life of the asset-backed security, will be primarily a function of
current market rates, although other economic and demographic factors will be
involved.
Asset-backed securities are generally issued as pass-through certificates,
which represent undivided fractional ownership interests in an underlying pool
of assets, or as debt instruments,
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which are also known as collateralized obligations, and are generally issued as
the debt of a special purpose entity organized solely for the purpose of owning
such assets and issuing such debt. Asset-backed securities are often backed by
a pool of assets representing the obligations of a number of different parties.
The yield characteristics of asset-backed securities differ from
traditional debt securities. A major difference is that the principal amount of
the obligations may be prepaid at any time because the underlying assets (i.e.,
loans) generally may be prepaid at any time. As a result, if an asset-backed
security is purchased at a premium, a prepayment rate that is faster than
expected will reduce yield to maturity, while a prepayment rate that is slower
than expected will have the opposite effect of increasing yield to maturity.
Conversely, if an asset-backed security is purchased at a discount, faster than
expected prepayments will increase, while slower than expected prepayments, will
decrease, yield to maturity.
Prepayments on asset-backed securities generally increase with falling
interest rates and decrease with rising interest rates; furthermore prepayment
rates are influenced by a variety of economic and social factors. In general,
the collateral supporting non-mortgage asset-backed securities is of shorter
maturity than mortgage loans and is less likely to experience substantial
prepayments. Like other fixed income securities, when interest rates rise, the
value of an asset-backed security generally will decline; however, when interest
rates decline, the value of an asset-backed security with prepayment features
may not increase as much as that of other fixed income securities.
Asset-backed securities are subject to greater risk of default during
periods of economic downturn. Also, the secondary market for certain
asset-backed securities may not be as liquid as the market for other types of
securities, which could result in a Fund's experiencing difficulty in valuing or
liquidating such securities. For these reasons, under certain circumstances,
asset-backed securities may be considered illiquid securities.
MORTGAGE-BACKED SECURITIES
Each Fund may invest in mortgage-backed securities (including
collateralized mortgage obligations) that represent pools of mortgage loans
assembled for sale to investors by various governmental agencies and
government-related organizations, such as the Government National Mortgage
Association, the Federal National Mortgage Association, and the Federal Home
Loan Mortgage Corporation. Mortgage-backed securities provide a monthly payment
consisting of interest and principal payments. Additional payments may be made
out of unscheduled repayments of principal resulting from the sale of the
underlying residential property, refinancing or foreclosure, net of fees or
costs that may be incurred. Prepayments of principal on mortgage-backed
securities may tend to increase due to refinancing of mortgages as interest
rates decline. To the extent that the Fund purchases mortgage-backed securities
at a premium, mortgage foreclosures and prepayments of principal by mortgagors
(which may be made at any time without penalty) may result in some loss of the
Fund's principal investment to the extent of the premium paid. The yield of a
Fund that invests in mortgage-backed securities may be affected by reinvestment
of prepayments at higher or lower rates than the original investment.
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Other mortgage-backed securities are issued by private issuers, generally
originators of and investors in mortgage loans, including savings associations,
mortgage bankers, commercial banks, investment bankers and special purpose
entities. These private mortgage-backed securities may be supported by U.S.
Government mortgage-backed securities or some form of non-government credit
enhancement. Mortgage-backed securities have either fixed or adjustable
interest rates. The rate of return on mortgage-backed securities may be
affected by prepayments of principal on the underlying loans, which generally
increase as interest rates decline; as a result, when interest rates decline,
holders of these securities normally do not benefit from appreciation in market
value to the same extent as holders of other non-callable debt securities. In
addition, like other debt securities, the value of mortgage-related securities,
including government and government-related mortgage pools, generally will
fluctuate in response to market interest rates.
MORTGAGE DOLLAR ROLLS
Each Fund may enter into mortgage "dollar rolls" in which a Fund sells
securities for delivery in the current month and simultaneously contracts with
the same counterparty to repurchase similar (same type, coupon and maturity) but
not identical securities on a specified future date not exceeding 120 days.
During the roll period, a Fund loses the right to receive principal and interest
paid on the securities sold. However, the Fund would benefit to the extent of
any difference between the price received for the securities sold and the lower
forward price for the future purchase (often referred to as the "drop") or fee
income plus the interest earned on the cash proceeds of the securities sold
until the settlement date of the forward purchase. Unless such benefits exceed
the income, capital appreciation and gain or loss due to mortgage prepayments
that would have been realized on the securities sold as part of the mortgage
dollar roll, the use of this technique will diminish the investment performance
of a Fund compared with what such performance would have been without the use of
mortgage dollar rolls. All cash proceeds will be invested in instruments that
are permissible investments for each Fund. The Funds will hold and maintain in
a segregated account until the settlement date cash or other liquid assets in an
amount equal to the forward purchase price.
For financial reporting and tax purposes, the Funds propose to treat
mortgage dollar rolls as two separate transactions, one involving the purchase
of a security and a separate transaction involving a sale. The Funds do not
currently intend to enter into mortgage dollar rolls that are accounted for as a
financing.
Mortgage dollar rolls involve certain risks. If the broker-dealer to whom
a Fund sells the security becomes insolvent, the Fund's right to purchase or
repurchase the mortgage-related securities may be restricted and the instrument
which the Fund is required to repurchase may be worth less than the instrument
which the Fund originally held. Successful use of mortgage dollar rolls may
depend upon Fleet's ability to predict correctly interest rates and mortgage
prepayments. For these reasons, there is no assurance that mortgage dollar
rolls can be successfully employed.
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STRIPPED OBLIGATIONS
To the extent consistent with its investment objective, each Fund may
purchase U.S. Treasury receipts and other "stripped" securities that evidence
ownership in either the future interest payments or the future principal
payments on U.S. Government and other obligations. These participations, which
may be issued by the U.S. Government or by private issuers, such as banks and
other institutions, are issued at their "face value," and may include stripped
mortgage-backed securities ("SMBS"), which are derivative multi-class mortgage
securities. Stripped securities, particularly SMBS, may exhibit greater price
volatility than ordinary debt securities because of the manner in which their
principal and interest are returned to investors.
SMBS are usually structured with two or more classes that receive different
proportions of the interest and principal distributions from a pool of
mortgage-backed obligations. A common type of SMBS will have one class
receiving all of the interest, while the other class will receive all of the
principal. However, in some instances, one class will receive some of the
interest and most of the principal while the other class will receive most of
the interest and the remainder of the principal. If the underlying obligations
experience greater than anticipated prepayments of principal, the Fund may fail
to fully recoup its initial investment in these securities. The market value of
the class consisting entirely of principal payments generally is extremely
volatile in response to changes in interest rates. The yields on a class of
SMBS that receives all or most of the interest are generally higher than
prevailing market yields on other mortgage-backed obligations because their cash
flow patterns are more volatile and there is a greater risk that the initial
investment will not be fully recouped. SMBS which are not issued by the U.S.
Government (or a U.S. Government agency or instrumentality) are considered
illiquid by the Funds. Obligations issued by the U.S. Government may be
considered liquid under guidelines established by Galaxy's Board of Trustees if
they can be disposed of promptly in the ordinary course of business at a value
reasonably close to that used in the calculation of net asset value per share.
GUARANTEED INVESTMENT CONTRACTS
Each Fund, except the Corporate Bond Fund, may invest in guaranteed
investment contracts ("GICs") issued by United States and Canadian insurance
companies. Pursuant to GICs, a Fund makes cash contributions to a deposit fund
of the insurance company's general account. The insurance company then credits
to the Fund payments at negotiated, floating or fixed interest rates. A GIC is
a general obligation of the issuing insurance company and not a separate
account. The purchase price paid for a GIC becomes part of the general assets
of the insurance company, and the contract is paid from the company's general
assets. The Funds will only purchase GICs that are issued or guaranteed by
insurance companies that at the time of purchase are rated at least AA by S&P or
receive a similar high quality rating from a nationally recognized service which
provides ratings of insurance companies. GICs are considered illiquid
securities and will be subject to the Funds' 10% limitation on such investments,
unless there is an active and substantial secondary market for the particular
instrument and market quotations are readily available.
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BANK INVESTMENT CONTRACTS
Each Fund may invest in bank investment contracts ("BICs") issued by banks
that meet the quality and asset size requirements for banks described above
under "U.S. Government Obligations and Money Market Instruments." Pursuant to
BICs, cash contributions are made to a deposit account at the bank in exchange
for payments at negotiated, floating or fixed interest rates. A BIC is a
general obligation of the issuing bank. BICs are considered illiquid securities
and will be subject to the Funds' 10% (15% with respect to the Corporate Bond
Fund) limitation on such investments, unless there is an active and substantial
secondary market for the particular instrument and market quotations are readily
available.
ZERO COUPON BONDS
The Corporate Bond Fund may invest in zero coupon bonds. Zero coupon bonds
do not make interest payments; instead, they are sold at a deep discount from
their face value and are redeemed at face value when they mature. Because zero
coupon bonds do not pay current income, their prices can be very volatile when
interest rates change. In calculating its daily dividend, the Fund takes into
account as income a portion of the difference between a zero coupon bond's
purchase price and its face value.
A broker/dealer creates a derivative zero by separating the interest and
principal components of a U.S. Treasury security and selling them as two
individual securities. CATS (Certificates of Accrual on Treasury Securities),
TIGRs (Treasury Investment Growth Receipts), and TRs (Treasury Receipts) are
examples of derivative zeros.
The Federal Reserve Bank creates STRIPS (Separate Trading of Registered
Interest and Principal of Securities) by separating the interest and principal
components of an outstanding U.S. Treasury bond and selling them as individual
securities. Bonds issued by the Resolution Funding Corporation (REFCORP) and
the Financing Corporation (FICO) can also be separated in this fashion.
Original issue zeros are zero coupon securities originally issued by the U.S.
Government, a U.S. Government agency or a corporation in zero coupon form.
PORTFOLIO TURNOVER
Each Fund may sell a portfolio investment soon after its acquisition if
Fleet believes that such a disposition is consistent with the Fund's investment
objective. Portfolio investments may be sold for a variety of reasons, such as
a more favorable investment opportunity or other circumstances bearing on the
desirability of continuing to hold such investments. A portfolio turnover rate
of 100% or more is considered high, although the rate of portfolio turnover will
not be a limiting factor in making portfolio decisions. A high rate of
portfolio turnover may result in the realization of substantial capital gains
and involves correspondingly greater transaction costs. To the extent that net
capital gains are realized, distributions derived from such gains are treated as
ordinary income for federal income tax purposes.
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INVESTMENT LIMITATIONS
In addition to each Fund's investment objective as stated in its
Prospectus(es), the following investment limitations are matters of fundamental
policy and may not be changed with respect to any Fund without the affirmative
vote of the holders of a majority of its outstanding shares (as defined under
"Miscellaneous").
No Fund may:
1. Make loans, except that (i) each Fund may purchase or hold debt
instruments in accordance with its investment objective and
policies, and may enter into repurchase agreements with respect
to portfolio securities, and (ii) each Fund may lend portfolio
securities against collateral consisting of cash or securities
which are consistent with the Fund's permitted investments, where
the value of the collateral is equal at all times to at least
100% of the value of the securities loaned.
2. Borrow money or issue senior securities, except that each Fund
may borrow from domestic banks for temporary purposes and then in
amounts not in excess of 10% of the value of its total assets at
the time of such borrowing (provided that each Fund may borrow
pursuant to reverse repurchase agreements in accordance with its
investment policies and in amounts not in excess of 10% of the
value of its total assets at the time of such borrowing); or
mortgage, pledge, or hypothecate any assets except in connection
with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of its
total assets at the time of such borrowing. None of the
Short-Term Bond, Intermediate Government Bond or High Quality
Bond Funds will purchase securities while borrowings (including
reverse repurchase agreements) in excess of 5% of its total
assets are outstanding.
3. Invest more than 10% (15% with respect to the Corporate Bond
Fund) of the value of its net assets in illiquid securities,
including repurchase agreements with remaining maturities in
excess of seven days, time deposits with maturities in excess of
seven days, restricted securities, non-negotiable time deposits
and other securities which are not readily marketable.
4. Purchase securities of any one issuer, other than obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, if immediately after such purchase more than
5% of the value of its total assets would be invested in such
issuer, except that up to 25% of the value of its total assets
may be invested without regard to this limitation.
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<PAGE>
5. Purchase securities on margin (except such short-term credits as
may be necessary for the clearance of purchases), make short
sales of securities, or maintain a short position.
6. Act as an underwriter within the meaning of the Securities Act of
1933; except insofar as a Fund might be deemed to be an
underwriter upon disposition of restricted portfolio securities;
and except to the extent that the purchase of securities directly
from the issuer thereof in accordance with the Fund's investment
objective, policies and limitations may be deemed to be
underwriting.
7. Purchase or sell real estate; except that each Fund may purchase
securities that are secured by real estate and may purchase
securities of issuers which deal in real estate or interests
therein; however, the Funds will not purchase or sell interests
in real estate limited partnerships.
8. Purchase or sell commodities or commodity contracts or invest in
oil, gas, or other mineral exploration or development programs or
mineral leases; provided however, that each Fund may enter into
interest rate futures contracts to the extent permitted under the
Commodity Exchange Act and the 1940 Act; and further provided
that the Short-Term Bond Fund and Corporate Bond Fund may enter
into forward currency contracts and foreign currency futures
contracts and related options to the extent permitted by their
respective investment objectives and policies.
9. Invest in or sell put options, call options, straddles, spreads,
or any combination thereof.
10. Invest in companies for the purpose of exercising management or
control.
11. Purchase securities of other investment companies except in
connection with a merger, consolidation, reorganization, or
acquisition of assets; provided, however, that each Fund may
acquire such securities in accordance with the 1940 Act.
In addition to the above limitations:
12. The Funds, with the exception of the Short-Term Bond and
Corporate Bond Funds, may not purchase foreign securities, except
that the Intermediate Government Income and High Quality Bond
Funds may purchase certificates of deposit, bankers' acceptances,
or other similar obligations issued by U.S. branches of foreign
banks or foreign branches of U.S. banks; and provided, however,
that the Intermediate Government Income and High Quality Bond
Funds may also purchase obligations of
- 23 -
<PAGE>
Canadian Provincial Governments in accordance with each Fund's
investment objective and policies.
In addition, the Funds may not purchase any securities which would cause
25% or more of the value of a Fund's total assets at the time of purchase to be
invested in the securities of one or more issuers conducting their principal
business activities in the same industry; provided, however, that (a) there is
no limitation with respect to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents, and
(c) utilities will be classified according to their services. (For example,
gas, gas transmission, electric and gas, electric and telephone each will be
considered a separate industry.)
With respect to Investment Limitation No. 2 above, (a) each Fund intends to
limit any borrowings (including reverse repurchase agreements) to not more than
10% of the value of its total assets at the time of such borrowing, and (b)
mortgage dollar rolls entered into by a Fund that are not accounted for as
financings shall not constitute borrowings.
Rule 144A under the Securities Act of 1933, as amended, (the "1933 Act")
allows for a broader institutional trading market for securities otherwise
subject to restrictions on resale to the general public. Rule 144A establishes
a "safe harbor" from the registration requirements of the 1933 Act for resales
of certain securities to qualified institutional buyers. A Fund's investment in
Rule 144A securities could have the effect of increasing the level of
illiquidity of the Fund during any period that qualified institutional buyers
were no longer interested in purchasing these securities. For purposes of the
10% (15% with respect to the Corporate Bond Fund) limitation on purchases of
illiquid instruments described under Investment Limitation No. 3 above, Rule
144A securities will not be considered to be illiquid if Fleet has determined,
in accordance with guidelines established by the Board of Trustees, that an
adequate trading market exists for such securities.
Except as stated otherwise, if a percentage limitation is satisfied at
the time of investment, a later increase in such percentage resulting from a
change in the value of a Fund's portfolio securities generally will not
constitute a violation of the limitation. If the value of a Fund's holdings
of illiquid securities at any time exceeds the percentage limitation
applicable at the time of acquisition due to subsequent fluctuations in value
or other reasons, the Board of Trustees will consider what actions, if any,
are appropriate to maintain adequate liquidity.
VALUATION OF PORTFOLIO SECURITIES
The Funds' assets are valued for purposes of pricing sales and redemptions
by an independent pricing service ("Service") approved by Galaxy's Board of
Trustees. When, in the judgment of the Service, quoted bid prices for portfolio
securities are readily available and are representative of the bid side of the
market, these investments are valued at the mean between quoted bid prices (as
obtained by the Service from dealers in such securities) and asked prices (as
calculated by the Service based upon its evaluation of the market for such
securities). Other investments are carried at fair value as determined by the
Service, based on methods which include consideration of yields or prices of
bonds of comparable quality, coupon, maturity and
- 24 -
<PAGE>
type; indications as to values from dealers; and general market conditions. The
Service may also employ electronic data processing techniques and matrix systems
to determine value. Short-term securities are valued at amortized cost, which
approximates market value. The amortized cost method involves valuing a
security at its cost on the date of purchase and thereafter assuming a constant
amortization to maturity of the difference between the principal amount due at
maturity and cost.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares in each Fund are sold on a continuous basis by Galaxy's distributor,
First Data Distributors, Inc. ("FD Distributors"), a wholly-owned subsidiary of
First Data Investor Services Group, Inc. FD Distributors is a registered
broker/dealer with principal offices located at 4400 Computer Drive,
Westborough, Massachusetts 01581. FD Distributors has agreed to use appropriate
efforts to solicit all purchase orders.
This Statement of Additional Information provides additional purchase and
redemption information for Trust Shares of the Funds and Retail A Shares and
Retail B Shares of the Tax-Exempt Bond, Intermediate Government Income and High
Quality Bond Funds. Purchase and redemption information for A Prime Shares and
B Prime Shares of the Short-Term Bond, Intermediate Government Income and High
Quality Bond Funds is provided in a separate prospectus and statement of
additional information.
PURCHASES OF RETAIL SHARES AND TRUST SHARES OF THE CORPORATE BOND FUND
GENERAL
Investments in Retail A Shares of the Short-Term Bond, Intermediate
Government Income and High Quality Bond Funds are subject to a front-end sales
charge. Investments in Retail B Shares of such Funds are subject to a back-end
sales charge. This back-end sales charge declines over time and is known as a
"contingent deferred sales charge." Investors should read "Characteristics of
Retail A Shares and Retail B Shares" and "Factors to Consider When Selecting
Retail A Shares or Retail B Shares" below before deciding between the two.
FD Distributors has established several procedures to enable different
types of investors to purchase Retail A Shares and Retail B Shares of the
Short-Term Bond, Intermediate Government Income and High Quality Bond Funds
(collectively, "Retail Shares"). These procedures also apply to purchases of
Trust Shares of the Corporate Bond Fund, in addition to the purchase information
described below under "Purchases of Trust Shares." Retail Shares and Trust
Shares of the Corporate Bond Fund may be purchased by individuals or
corporations who submit a purchase application to Galaxy, purchasing directly
either for their own accounts or for the accounts of others. Retail Shares and
Trust Shares of the Corporate Bond Fund may also be purchased by FIS Securities,
Inc., Fleet Securities, Inc., Fleet Enterprises, Inc., Fleet Financial Group,
Inc., its affiliates, their correspondent banks and other qualified banks,
savings and loan associations and broker/dealers on behalf of their customers.
Purchases may take place only on
- 25 -
<PAGE>
days on which FD Distributors and Galaxy's custodian and Galaxy's transfer agent
are open for business ("Business Days"). If an institution accepts a purchase
order from a customer on a non-Business Day, the order will not be executed
until it is received and accepted by FD Distributors on a Business Day in
accordance with FD Distributors' procedures.
Galaxy has authorized certain brokers to accept purchase, exchange and
redemption orders on behalf of Galaxy with respect to Retail A Shares of the
Short-Term Bond, Intermediate Government Income and High Quality Bond Funds.
Such brokers are authorized to designate other intermediaries to accept
purchase, exchange and redemption orders on behalf of Galaxy. Galaxy will be
deemed to have received a purchase, exchange or redemption order when such an
authorized broker or designated intermediary accepts the order. Orders for
purchase, exchange or redemption of Retail A Shares of the Short-Term Bond,
Intermediate Government Income and High Quality Bond Funds accepted by any such
authorized broker or designated intermediary will be effected at the Funds'
respective net asset values per share next determined after acceptance of such
order and will not be subject to the front-end sales charge with respect to
Retail A Shares described in the applicable Prospectus and in this Statement of
Additional Information.
CUSTOMERS OF INSTITUTIONS
Retail Shares and Trust Shares of the Corporate Bond Fund purchased by
institutions on behalf of their customers will normally be held of record by the
institution and beneficial ownership of Retail Shares and Trust Shares of the
Corporate Bond Fund will be recorded by the institution and reflected in the
account statements provided to its customers. Galaxy's transfer agent may
establish an account of record for each customer of an institution reflecting
beneficial ownership of Retail Shares and Trust Shares of the Corporate Bond
Fund. Depending on the terms of the arrangement between a particular
institution and Galaxy's transfer agent, confirmations of purchases and
redemptions of Retail Shares and Trust Shares of the Corporate Bond Fund and
pertinent account statements will either be sent by Galaxy's transfer agent
directly to a customer with a copy to the institution, or will be furnished
directly to the customer by the institution. Other procedures for the purchase
of Retail Shares and Trust Shares of the Corporate Bond Fund established by
institutions in connection with the requirements of their customer accounts may
apply. Customers wishing to purchase Retail Shares or Trust Shares of the
Corporate Bond Fund through their institution should contact such entity
directly for appropriate purchase instructions.
OTHER PURCHASE INFORMATION
On a Business Day when the New York Stock Exchange (the "Exchange') closes
early due to a partial holiday or otherwise, Galaxy will advance the time at
which purchase orders must be received in order to be processed on that Business
Day.
- 26 -
<PAGE>
APPLICABLE SALES CHARGE -- RETAIL A SHARES
The public offering price for Retail A Shares of the Funds is the sum of
the net asset value of the Retail A Shares purchased plus any applicable
front-end sales charge as described in the applicable Prospectus. A deferred
sales charge of up to 1.00% is assessed on certain redemptions of Retail A
Shares that are purchased with no initial sales charge as part of an investment
of $500,000 or more. A portion of the front-end sales charge may be reallowed
to broker-dealers as follows:
<TABLE>
<CAPTION>
REALLOWANCE TO
DEALERS
-------
AS A % OF
OFFERING PRICE
AMOUNT OF TRANSACTION PER SHARE
- --------------------- ---------
<S> <C>
Less than $50,000 3.25
$50,000 but less than $100,000 3.00
$100,000 but less than $250,000 2.50
$250,000 but less than $500,000 2.00
$500,000 and over 0.00
</TABLE>
The appropriate reallowance to dealers will be paid by FD Distributors to
broker-dealer organizations which have entered into agreements with FD
Distributors. The reallowance to dealers may be changed from time to time.
In certain situations or for certain individuals, the front-end sales
charge for Retail A Shares of the Funds may be waived either because of the
nature of the investor or the reduced sales effort required to attract such
investments. In order to receive the sales charge waiver, an investor must
explain the status of his or her investment at the time of purchase. In
addition to the sales charge waivers described in the applicable Prospectus, no
sales charge is assessed on purchases of Retail A Shares of the Funds by the
following categories of investors or in the following types of transactions:
- purchases by directors, officers and employees of broker-dealers
having agreements with FD Distributors pertaining to the sale of
Retail A Shares to the extent permitted by such organizations;
- purchases by current and retired members of Galaxy's Board of Trustees
and members of their immediate families;
- purchases by officers, directors, employees and retirees of Fleet
Financial Group, Inc. and any of its affiliates and members of their
immediate families;
- purchases by officers, directors, employees and retirees of First Data
Corporation and any of its affiliates and members of their immediate
families;
- 27 -
<PAGE>
- purchases by persons who are also plan participants in any employee
benefit plan which is the record or beneficial holder of Trust Shares
of the Funds or any of the other portfolios offered by Galaxy;
- purchases by institutional investors, including but not limited to
bank trust departments and registered investment advisers;
- purchases by clients of investment advisers or financial planners who
place trades for their own accounts if such accounts are linked to the
master accounts of such investment advisers or financial planners on
the books of the broker-dealer through whom Retail A Shares are
purchased;
- purchases by institutional clients of broker-dealers, including
retirement and deferred compensation plans and the trusts used to fund
these plans, which place trades through an omnibus account maintained
with Galaxy by the broker-dealer; and
- purchases prior to July 1, 1999 by former deposit customers of
financial institutions (other than registered broker-dealers) acquired
by Fleet Financial Group, Inc. in February 1998.
COMPUTATION OF OFFERING PRICE - RETAIL A SHARES
An illustration of the computation of the offering price per share of
Retail A Shares of the Funds, using the value of each Fund's net assets
attributable to such Shares and the number of outstanding Retail A Shares of
each Fund at the close of business on October 31, 1998 and the maximum front-end
sales charge of 3.75%, is as follows:
<TABLE>
<CAPTION>
Short-Term Intermediate Government
Bond Fund Income Fund
--------- -----------------------
<S> <C> <C>
Net Assets . . . . . . . . . . . . . . . $29,066,729 $66,864,736
Outstanding Shares . . . . . . . . . . . 2,877,232 6,367,360
Net Asset Value Per Share. . . . . . . . $10.10 $10.50
Sales Charge (3.75% of
the offering price). . . . . . . . . . . $0.39 $0.41
Offering Price to Public . . . . . . . . $10.49 $10.91
- 28 -
<PAGE>
<CAPTION>
High Quality Corporate
Bond Fund Bond Fund
--------- ---------
<S> <C> <C>
Net Assets . . . . . . . . . . . . . . . $45,879,000 N/A
Outstanding Shares . . . . . . . . . . . $4,095,956 N/A
Net Asset Value Per Share. . . . . . . . $11.20 N/A
Sales Charge (3.75% of
the offering price). . . . . . . . . . . $0.44 N/A
Offering Price to Public . . . . . . . . $11.64 N/A
</TABLE>
QUANTITY DISCOUNTS
Investors may be entitled to reduced sales charges through Rights of
Accumulation, a Letter of Intent or a combination of investments, as described
below, even if the investor does not wish to make an investment of a size that
would normally qualify for a quantity discount.
In order to obtain quantity discount benefits, an investor must notify FD
Distributors at the time of purchase that he or she would like to take advantage
of any of the discount plans described below. Upon such notification, the
investor will receive the lowest applicable sales charge. Quantity discounts
may be modified or terminated at any time and are subject to confirmation of an
investor's holdings through a check of appropriate records. For more
information about quantity discounts, please contact FD Distributors or your
financial institution.
RIGHTS OF ACCUMULATION. A reduced sales charge applies to any purchase of
Retail A Shares of any portfolio of Galaxy that is sold with a sales charge
("Eligible Fund") where an investor's then current aggregate investment in
Retail A Shares is $50,000 or more. "Aggregate investment" means the total of:
(a) the dollar amount of the then current purchase of shares of an Eligible
Fund; and (b) the value (based on current net asset value) of previously
purchased and beneficially owned shares of any Eligible Fund on which a sales
charge has been paid. If, for example, an investor beneficially owns shares of
one or more Eligible Funds with an aggregate current value of $49,000 on which a
sales charge has been paid and subsequently purchases shares of an Eligible Fund
having a current value of $1,000, the sales charge applicable to the subsequent
purchase would be reduced to 3.50% of the offering price. Similarly, with
respect to each subsequent investment, all shares of Eligible Funds that are
beneficially owned by the investor at the time of investment may be combined to
determine the applicable sales charge.
LETTER OF INTENT. By completing the Letter of Intent included as part of
the Account Application, an investor becomes eligible for the reduced sales
charge applicable to the total number of Eligible Fund Retail A Shares purchased
in a 13-month period pursuant to the terms and under the conditions set forth
below and in the Letter of Intent. To compute the applicable
- 29 -
<PAGE>
sales charge, the offering price of Retail A Shares of an Eligible Fund on which
a sales charge has been paid and that are beneficially owned by an investor on
the date of submission of the Letter of Intent may be used as a credit toward
completion of the Letter of Intent. However, the reduced sales charge will be
applied only to new purchases.
First Data Investor Services Group, Inc. ("Investor Services Group"),
Galaxy's administrator, will hold in escrow Retail A Shares equal to 5% of the
amount indicated in the Letter of Intent for payment of a higher sales charge if
an investor does not purchase the full amount indicated in the Letter of Intent.
The escrow will be released when the investor fulfills the terms of the Letter
of Intent by purchasing the specified amount. If purchases qualify for a
further sales charge reduction, the sales charge will be adjusted to reflect the
investor's total purchases. If total purchases are less than the amount
specified, the investor will be requested to remit an amount equal to the
difference between the sales charge actually paid and the sales charge
applicable to the total purchases. If such remittance is not received within 20
days, Investor Services Group, as attorney-in-fact pursuant to the terms of the
Letter of Intent and at FD Distributors' direction, will redeem an appropriate
number of Retail A Shares held in escrow to realize the difference. Signing a
Letter of Intent does not bind an investor to purchase the full amount indicated
at the sales charge in effect at the time of signing, but an investor must
complete the intended purchase in accordance with the terms of the Letter of
Intent to obtain the reduced sales charge. To apply, an investor must indicate
his or her intention to do so under a Letter of Intent at the time of purchase.
QUALIFICATION FOR DISCOUNTS. For purposes of applying the Rights of
Accumulation and Letter of Intent privileges described above, the scale of sales
charges applies to the combined purchases made by any individual and/or spouse
purchasing securities for his, her or their own account or for the account of
any minor children, or the aggregate investments of a trustee or custodian of
any qualified pension or profit-sharing plan established (or the aggregate
investment of a trustee or other fiduciary) for the benefit of the persons
listed above.
REINSTATEMENT PRIVILEGE. Investors may reinvest all or any portion of
their redemption proceeds in Retail A Shares of the Funds or in Retail A Shares
of another portfolio of Galaxy within 90 days of the redemption trade date
without paying a sales load. Retail A Shares so reinvested will be purchased at
a price equal to the net asset value next determined after Galaxy's transfer
agent receives a reinstatement request and payment in proper form.
Investors wishing to exercise this Privilege must submit a written
reinstatement request to Investor Services Group as transfer agent stating that
the investor is eligible to use the Privilege. The reinstatement request and
payment must be received within 90 days of the trade date of the redemption.
Currently, there are no restrictions on the number of times an investor may use
this Privilege.
Generally, exercising the Reinstatement Privilege will not affect the
character of any gain or loss realized on redemptions for federal income tax
purposes. However, if a redemption results in a loss, the reinstatement may
result in the loss being disallowed under the Code's "wash sale" rules.
- 30 -
<PAGE>
GROUP SALES. Members of qualified groups may purchase Retail A Shares
of the Funds at the following group sales rates:
<TABLE>
<CAPTION>
REALLOWANCE
TOTAL SALES CHARGE TO DEALERS
-------------------------------- ----------
AS A % OF AS A % OF AS A % OF
NUMBER OF QUALIFIED OFFERING PRICE NET ASSET VALUE OFFERING PRICE
GROUP MEMBERS PER SHARE PER SHARE PER SHARE
- ------------- --------- --------- ---------
<S> <C> <C> <C>
50,000 but less than 250,000 . . . . . . 3.00 3.09 3.00
250,000 but less than 500,000. . . . . . 2.75 2.83 2.75
500,000 but less than 750,000. . . . . . 2.50 2.56 2.50
750,000 and over . . . . . . . . . . . . 2.00 2.04 2.00
</TABLE>
To be eligible for the discount, a group must meet the requirements set
forth below and be approved in advance as a qualified group by FD Distributors.
To receive the group sales charge rate, group members must purchase Retail A
Shares directly from FD Distributors in accordance with any of the procedures
described in the applicable Prospectus. Group members must also ensure that
their qualified group affiliation is identified on the purchase application.
A qualified group is a group that (i) has at least 50,000 members, (ii) was
not formed for the purpose of buying Fund shares at a reduced sales charge,
(iii) within one year of the initial member purchase, has at least 1% of its
members invested in the Funds or any of the other investment portfolios offered
by Galaxy, (iv) agrees to include Galaxy sales material in publications and
mailings to members at a reduced cost or no cost, and (v) meets certain other
uniform criteria. FD Distributors may request periodic certification of group
and member eligibility. FD Distributors reserves the right to determine whether
a group qualifies for a quantity discount and to suspend this offer at any time.
APPLICABLE SALES CHARGE - RETAIL B SHARES
The public offering price for Retail B Shares of the Funds is the net asset
value of the Retail B Shares purchased. Although investors pay no front-end
sales charge on purchases of Retail B Shares, such Shares are subject to a
contingent deferred sales charge at the rates set forth below if they are
redeemed within six years of purchase. Securities dealers, brokers, financial
institutions and other industry professionals will receive commissions from FD
Distributors in connection with sales of Retail B Shares. These commissions may
be different than the reallowances or placement fees paid to dealers in
connection with sales of Retail A Shares. Certain affiliates of Fleet may, at
their own expense, provide additional compensation to Fleet Enterprises, Inc., a
broker-dealer affiliate of Fleet, whose customers purchase significant amounts
of Retail B Shares of a Fund. See "Applicable Sales Charge -- Retail A Shares."
The contingent deferred sales charge on Retail B Shares is based on the lesser
of the net asset value of the Shares on the redemption date or the original cost
of the Shares being redeemed. As a result, no sales charge is imposed on any
increase in the principal value of an investor's Retail B
- 31 -
<PAGE>
Shares. In addition, a contingent deferred sales charge will not be assessed on
Retail B Shares purchased through reinvestment of dividends or capital gains
distributions.
The proceeds from the contingent deferred sales charge that an investor may
pay upon redemption go to FD Distributors, which may use such amounts to defray
the expenses associated with the distribution-related services involved in
selling Retail B Shares.
EXEMPTIONS FROM THE CONTINGENT DEFERRED SALES CHARGE. Certain types of
redemptions may also qualify for an exemption from the contingent deferred sales
charge. In addition to the sales charge exemptions described in the applicable
Prospectus, the contingent deferred sales charge with respect to Retail B Shares
is not assessed on: (i) redemptions in connection with required (or, in some
cases, discretionary) distributions to participants or beneficiaries of an
employee pension, profit-sharing or other trust or qualified retirement or Keogh
plan, individual retirement account or custodial account maintained pursuant to
Section 403(b)(7) of the Code; (ii) redemptions in connection with required (or,
in some cases, discretionary) distributions to participants in qualified
retirement or Keogh plans, individual retirement accounts or custodial accounts
maintained pursuant to Section 403(b)(7) of the Code due to death, disability or
the attainment of a specified age; (iii) redemptions effected pursuant to a
Fund's right to liquidate a shareholder's account if the aggregate net asset
value of Retail B Shares held in the account is less than the minimum account
size; (iv) redemptions in connection with the combination of a Fund with any
other investment company registered under the 1940 Act by merger, acquisition of
assets, or by any other transaction; (v) redemptions resulting from a tax-free
return of an excess contribution pursuant to Section 408(d)(4) or (5) of the
Code; or (vi) any redemption of Retail B Shares held by an investor, provided
the investor was the beneficial owner of shares of a Fund (or any of the other
portfolios offered by Galaxy or otherwise advised by Fleet or its affiliates)
before December 1, 1995. In addition to the foregoing exemptions, no contingent
deferred sales charge will be imposed on redemptions made pursuant to the
Systematic Withdrawal Plan, subject to the limitations set forth under "Investor
Programs - Retail A Shares and Retail B Shares - Automatic Investment Program
and Systematic Withdrawal Plan" below.
CHARACTERISTICS OF RETAIL A SHARES AND RETAIL B SHARES
The primary difference between Retail A Shares and Retail B Shares lies in
their sales charge structures and shareholder servicing/distribution expenses.
An investor should understand that the purpose and function of the sales charge
structures and shareholder servicing/distribution arrangements for both Retail A
Shares and Retail B Shares are the same.
Retail A Shares of the Funds are sold at their net asset value plus a
front-end sales charge of up to 3.75%. This front-end sales charge may be
reduced or waived in some cases. See the applicable Prospectus and "Applicable
Sales Charges -- Retail A Shares" and "Quantity Discounts" above. Retail A
Shares of a Fund are currently subject to ongoing shareholder servicing fees at
an annual rate of up to .30% of the Fund's average daily net assets attributable
to its Retail A Shares.
- 32 -
<PAGE>
Retail B Shares of the Funds are sold at net asset value without an initial
sales charge. Normally, however, a deferred sales charge is paid if the Shares
are redeemed within six years of investment. See the applicable Prospectus and
"Applicable Sales Charges -- Retail B Shares" above. Retail B Shares of a Fund
are currently subject to ongoing shareholder servicing and distribution fees at
an annual rate of up to .95% of the Fund's average daily net assets attributable
to its Retail B Shares. These ongoing fees, which are higher than those charged
on Retail A Shares, will cause Retail B Shares to have a higher expense ratio
and pay lower dividends than Retail A Shares.
Six years after purchase, Retail B Shares of the Funds will convert
automatically to Retail A Shares of the Funds. The purpose of the conversion is
to relieve a holder of Retail B Shares of the higher ongoing expenses charged to
those shares, after enough time has passed to allow FD Distributors to recover
approximately the amount it would have received if a front-end sales charge had
been charged. The conversion from Retail B Shares to Retail A Shares takes
place at net asset value, as a result of which an investor receives
dollar-for-dollar the same value of Retail A Shares as he or she had of Retail B
Shares. The conversion occurs six years after the beginning of the calendar
month in which the Shares are purchased. Upon conversion, the converted shares
will be relieved of the distribution and shareholder servicing fees borne by
Retail B Shares, although they will be subject to the shareholder servicing fees
borne by Retail A Shares.
Retail B Shares acquired through a reinvestment of dividends or
distributions (as discussed under "Applicable Sales Charge -- Retail B Shares")
are also converted at the earlier of two dates -- six years after the beginning
of the calendar month in which the reinvestment occurred or the date of
conversion of the most recently purchased Retail B Shares that were not acquired
through reinvestment of dividends or distributions. For example, if an investor
makes a one-time purchase of Retail B Shares of a Fund, and subsequently
acquires additional Retail B Shares of such Fund only through reinvestment of
dividends and/or distributions, all of such investor's Retail B Shares in the
Fund, including those acquired through reinvestment, will convert to Retail A
Shares of such Fund on the same date.
FACTORS TO CONSIDER WHEN SELECTING RETAIL A SHARES OR RETAIL B SHARES
Before purchasing Retail A Shares or Retail B Shares of the Funds,
investors should consider whether, during the anticipated periods of their
investments in the particular Funds, the accumulated distribution and
shareholder servicing fees and potential contingent deferred sales charge on
Retail B Shares prior to conversion would be less than the initial sales charge
and accumulated shareholder servicing fees on Retail A Shares purchased at the
same time, and to what extent such differential would be offset by the higher
yield of Retail A Shares. In this regard, to the extent that the sales charge
for Retail A Shares is waived or reduced by one of the methods described above,
investments in Retail A Shares become more desirable. An investment of $250,000
or more in Retail B Shares would not be in most shareholders' best interest.
Shareholders should consult their financial advisers and/or brokers with respect
to the advisability of purchasing Retail B Shares in amounts exceeding $250,000.
- 33 -
<PAGE>
Although Retail A Shares are subject to a shareholder servicing fee, they
are not subject to the higher distribution and shareholder servicing fee
applicable to Retail B Shares. For this reason, Retail A Shares can be expected
to pay correspondingly higher dividends per Share. However, because initial
sales charges are deducted at the time of purchase, purchasers of Retail A
Shares (that do not qualify for exemptions from or reductions in the initial
sales charge) would have less of their purchase price initially invested in
these Funds than purchasers of Retail B Shares in the Funds.
As described above, purchasers of Retail B Shares will have more of their
initial purchase price invested. Any positive investment return on this
additional invested amount would partially or wholly offset the expected higher
annual expenses borne by Retail B Shares. Because a Fund's future returns
cannot be predicted, there can be no assurance that this will be the case.
Holders of Retail B Shares would, however, own shares that are subject to a
contingent deferred sales charge of up to 5.00% upon redemption, depending upon
the year of redemption. Investors expecting to redeem during this six-year
period should compare the cost of the contingent deferred sales charge plus the
aggregate distribution and shareholder servicing fees on Retail B Shares to the
cost of the initial sales charge and shareholder servicing fees on the Retail A
Shares. Over time, the expense of the annual distribution and shareholder
servicing fees on the Retail B Shares may equal or exceed the initial sales
charge and annual shareholder servicing fee applicable to Retail A Shares. For
example, if net asset value remains constant, the aggregate distribution and
shareholder servicing fees with respect to Retail B Shares of a Fund would equal
or exceed the initial sales charge and aggregate shareholder servicing fees of
Retail A Shares approximately six years after the purchase. In order to reduce
such fees for investors that hold Retail B Shares for more than six years,
Retail B Shares will be automatically converted to Retail A Shares as described
above at the end of such six-year period.
PURCHASES OF TRUST SHARES
Trust Shares of the Funds are sold to investors maintaining qualified
accounts at bank and trust institutions, including subsidiaries of Fleet
Financial Group, Inc., and to participants in employer-sponsored defined
contribution plans (such institutions and plans referred to herein collectively
as "Institutions"). Trust Shares sold to such investors ("Customers") will be
held of record by Institutions. Purchases of Trust Shares will be effected only
on days on which FD Distributors, Galaxy's custodian and the purchasing
Institution are open for business ("Trust Business Days"). If an Institution
accepts a purchase order from its Customer on a non-Trust Business Day, the
order will not be executed until it is received and accepted by FD Distributors
on a Trust Business Day in accordance with the foregoing procedures.
On a Trust Business Day when the Exchange closes early due to a partial
holiday or otherwise, Galaxy will advance the time at which purchase orders must
be received in order to be processed on that Trust Business Day.
- 34 -
<PAGE>
REDEMPTION OF RETAIL A SHARES, RETAIL B SHARES AND TRUST SHARES
Redemption orders are effected at the net asset value per share next
determined after receipt of the order by FD Distributors. On a Business Day or
Trust Business Day when the Exchange closes early due to a partial holiday or
otherwise, Galaxy will advance the time at which redemption orders must be
received in order to be processed on that Business Day or Trust Business Day.
Galaxy may require any information reasonably necessary to ensure that a
redemption has been duly authorized. Proceeds from the redemptions of Retail B
Shares of the Funds will be reduced by the amount of any applicable contingent
deferred sales charge. Galaxy reserves the right to transmit redemption
proceeds within seven days after receiving the redemption order if, in its
judgment, an earlier payment could adversely affect a Fund.
If the Board of Trustees determines that conditions exist which make
payment of redemption proceeds wholly in cash unwise or undesirable, Galaxy may
make payment wholly or partly in securities or other property. Such redemptions
will only be made in "readily marketable" securities. In such an event, a
shareholder would incur transaction costs in selling the securities or other
property.
Galaxy may suspend the right of redemption or postpone the date of payment
for shares for more than seven days during any period when (a) trading in the
markets the Funds normally utilize is restricted, or an emergency, as defined by
the rules and regulations of the SEC exists making disposal of a Fund's
investments or determination of its net asset value not reasonably practicable;
(b) the Exchange is closed (other than customary weekend and holiday closings);
or (c) the SEC by order has permitted such suspension.
INVESTOR PROGRAMS - RETAIL A SHARES AND RETAIL B SHARES
The following information supplements the description in the applicable
Prospectus as to the various Investor Programs available to holders of Retail
Shares of the Funds.
EXCHANGE PRIVILEGE
The minimum initial investment to establish an account in another Fund or
portfolio by exchange, except for the Institutional Government Money Market
Fund, is $2,500, unless (i) the Retail Shares being redeemed were purchased
through a registered representative who is a Fleet Bank employee, in which event
there is no minimum investment requirement, or (ii) at the time of the exchange
the investor elects, with respect to the Fund or portfolio into which the
exchange is being made, to participate in the Automatic Investment Program
described below, in which event there is no minimum initial investment
requirement, or in the College Investment Program described below, in which
event the minimum initial investment is generally $100. The minimum initial
investment to establish an account by exchange in the Institutional Government
Money Market Fund is $2 million.
An exchange involves a redemption of all or a portion of the Retail Shares
of a Fund and the investment of the redemption proceeds in Retail Shares of
another Fund or portfolio offered
- 35 -
<PAGE>
by Galaxy or, with respect to Retail A Shares, otherwise advised by Fleet or its
affiliates. The redemption will be made at the per share net asset value next
determined after the exchange request is received. The Retail Shares of a Fund
or portfolio to be acquired will be purchased at the per share net asset value
next determined after acceptance of the exchange request, plus any applicable
sales charge.
Investors may find the exchange privilege useful if their investment
objectives or market outlook should change after they invest in any of the
Funds. For further information regarding Galaxy's exchange privilege, investors
should call Investor Services Group at 1-877-BUY-GALAXY (1-877-289-4252).
Customers of institutions should call their institution for such information.
Investors exercising the exchange privilege into other portfolios should request
and review these portfolios' prospectuses prior to making an exchange.
Telephone 1-877-BUY-GALAXY (1-877-289-4252) for a prospectus or to make an
exchange.
In order to prevent abuse of this privilege to the disadvantage of other
shareholders, Galaxy reserves the right to terminate the exchange privilege of
any shareholder who requests more than three exchanges a year. Galaxy will
determine whether to do so based on a consideration of both the number of
exchanges that any particular shareholder or group of shareholders has requested
and the time period over which their exchange requests have been made, together
with the level of expense to Galaxy which will result from effecting additional
exchange requests. The exchange privilege may be modified or terminated at any
time. At least 60 days' notice of any material modification or termination will
be given to shareholders except where notice is not required under the
regulations of the SEC.
For federal income tax purposes, an exchange of shares is a taxable event
and, accordingly, a capital gain or loss may be realized by an investor. Before
making an exchange request, an investor should consult a tax or other financial
adviser to determine the tax consequences.
RETIREMENT PLANS
Retail Shares of the Funds are available for purchase in connection with
the following tax-deferred prototype retirement plans:
INDIVIDUAL RETIREMENT ACCOUNTS ("IRAS") (including traditional, Roth and
Education IRAs and "roll-overs" from existing retirement plans), a
retirement-savings vehicle for qualifying individuals. The minimum initial
investment for an IRA account is $500 (including a spousal account).
SIMPLIFIED EMPLOYEE PENSION PLANS ("SEPS"), a form of retirement plan for
sole proprietors, partnerships and corporations. The minimum initial investment
for a SEP account is $500.
- 36 -
<PAGE>
MULTI-EMPLOYEE RETIREMENT PLANS ("MERPS"), a retirement vehicle established
by employers for their employees which is qualified under Section 401(k) and
403(b) of the Code. The minimum initial investment for a MERP is $500.
KEOGH PLANS, a retirement vehicle for self-employed individuals. The
minimum initial investment for a Keogh Plan is $500.
Investors purchasing Retail Shares pursuant to a retirement plan are not
subject to the minimum investment provisions described in the applicable
Prospectus. Detailed information concerning eligibility and other matters
related to these plans and the form of application is available from FD
Distributors (call 1-877-BUY-GALAXY (1-877-289-4252)) with respect to IRAs, SEPs
and Keogh Plans and from Fleet Securities, Inc. (call 1-800-221-8210) with
respect to MERPs.
AUTOMATIC INVESTMENT PROGRAM AND SYSTEMATIC WITHDRAWAL PLAN
The Automatic Investment Program permits an investor to purchase Retail
Shares of a Fund each month or each quarter. Provided an investor's financial
institution allows automatic withdrawals, Retail Shares are purchased by
transferring funds from the investor's checking, bank money market, NOW or
savings account designated by the investor. The account designated will be
debited in the specified amount, and Retail Shares will be purchased, on a
monthly or quarterly basis, on any Business Day designated by an investor. If
the designated day falls on a weekend or holiday, the purchase will be made on
the Business Day closest to the designated day. Only an account maintained at a
domestic financial institution which is an Automated Clearing House ("ACH")
member may be so designated.
The Systematic Withdrawal Plan permits an investor to automatically redeem
Retail Shares on a monthly, quarterly, semi-annual, or annual basis on any
Business Day designated by the investor. If the designated day falls on a
weekend or holiday, the redemption will be made on the Business Day closest to
the designated day. Proceeds of the redemption will be sent to the
shareholder's address of record or financial institution within three Business
Days of the redemption. If redemptions exceed purchases and dividends, the
number of shares in the account will be reduced. Investors may terminate the
Systematic Withdrawal Plan at any time upon written notice to Investor Services
Group, Galaxy's transfer agent (but not less than five days before a payment
date). There is no charge for this service. Purchases of additional Retail A
Shares concurrently with withdrawals are ordinarily not advantageous because of
the sales charge involved in the additional purchases. No contingent deferred
sales charge will be assessed on redemptions of Retail B Shares made through the
Systematic Withdrawal Plan that do not exceed 12% of an account's net asset
value on an annualized basis. For example, monthly, quarterly and semi-annual
Systematic Withdrawal Plan redemptions of Retail B Shares will not be subject to
the contingent deferred sales charge if they do not exceed 1%, 3% and 6%,
respectively, of an account's net asset value on the redemption date.
Systematic Withdrawal Plan redemptions of Retail B Shares in excess of this
limit are still subject to the applicable contingent deferred sales charge.
- 37 -
<PAGE>
PAYROLL DEDUCTION PROGRAM
To be eligible for the Payroll Deduction Program, the payroll department of
an investor's employer must have the capability to forward transactions directly
through the ACH, or indirectly through a third party payroll processing company
that has access to the ACH. An investor must complete and submit a Galaxy
Payroll Deduction Application to his or her employer's payroll department, which
will arrange for the specified amount to be debited from an investor's paycheck
each pay period. Retail Shares of Galaxy will be purchased within three days
after the debit occurred. If the designated day falls on a weekend or
non-Business Day, the purchase will be made on the Business Day closest to the
designated day. An investor should allow between two to four weeks for the
Payroll Deduction Program to be established after submitting an application to
the employer's payroll department.
COLLEGE INVESTMENT PROGRAM
Galaxy reserves the right to redeem accounts participating in the College
Investment Program involuntarily, upon 60 days' written notice, if the account's
net asset value falls below the applicable minimum initial investment as a
result of redemptions. Investors participating in the College Investment
Program will receive consolidated monthly statements of their accounts.
Detailed information concerning College Investment Program accounts and
applications may be obtained from FD Distributors (call 1-877-BUY-GALAXY
(1-877-289-4252)).
DIRECT DEPOSIT PROGRAM
Death or legal incapacity will terminate an investor's participation in the
Direct Deposit Program. An investor may elect at any time to terminate his or
her participation by notifying in writing the Social Security Administration.
Further, Galaxy may terminate an investor's participation upon 30 days' notice
to the investor.
TAXES
Each Fund qualified during its last taxable year and intends to continue to
qualify as a regulated investment company under Subchapter M of the Code, and to
distribute out its income to shareholders each year, so that each Fund itself
generally will be relieved of federal income and excise taxes. If a Fund were
to fail to so qualify: (1) the Fund would be taxed at regular corporate rates
without any deduction for distributions to shareholders; and (2) shareholders
would be taxed as if they received ordinary dividends, although corporate
shareholders could be eligible for the dividends received deduction.
A 4% non-deductible excise tax is imposed on regulated investment companies
that fail to currently distribute specified percentages of their ordinary
taxable income and capital gain net income (excess of capital gains over capital
losses). Each Fund intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and any capital gain net income
prior to the end of each calendar year to avoid liability for this excise tax.
- 38 -
<PAGE>
The Funds will be required in certain cases to withhold and remit to the
United States Treasury 31% of taxable dividends or gross sale proceeds paid to
any shareholder who (i) has failed to provide a correct tax identification
number, (ii) is subject to backup withholding due to prior failure to properly
include on his or her return payments of taxable interest or dividends, or (iii)
has failed to certify to the Funds that he or she is not subject to back up
withholding when required to do so or that he or she is an "exempt recipient."
Dividends declared in October, November or December of any year that are
payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by a Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
TAXATION OF CERTAIN FINANCIAL INSTRUMENTS
The tax principles applicable to certain financial instruments and futures
contracts and options that may be acquired by a Fund are complex and, in some
cases, uncertain. Such investments may cause a Fund to recognize taxable income
prior to the receipt of cash, thereby requiring the Fund to liquidate other
positions, or to borrow money, so as to make sufficient distributions to
shareholders to avoid corporate-level tax. Moreover, some or all of the taxable
income recognized may be ordinary income or short-term capital gain, so that the
distributions may be taxable to shareholders as ordinary income.
TRUSTEES AND OFFICERS
The business and affairs of the Funds are managed under the direction of
Galaxy's Board of Trustees in accordance with the laws of the Commonwealth of
Massachusetts and the Trust's Declaration of Trust. The trustees and executive
officers of Galaxy, their addresses, principal occupations during the past five
years, and other affiliations are as follows:
- 39 -
<PAGE>
<TABLE>
<CAPTION>
Positions Principal Occupation
with The During Past 5 Years
Name and Address and Age Galaxy Fund and Other Affiliations
- ------------------------ ----------- ----------------------
<S> <C> <C>
Dwight E. Vicks, Jr. Chairman & President & Director, Vicks
Vicks Lithograph & Trustee Lithograph & Printing
Printing Corporation Corporation (book
Commercial Drive manufacturing and commercial
P.O. Box 270 printing); Director, Utica
Yorkville, NY 13495 Fire Insurance Company;
Age 65 Trustee, Savings Bank of
Utica; Director, Monitor Life
Insurance Company; Director,
Commercial Travelers Mutual
Insurance Company; Trustee,
The Galaxy VIP Fund; Trustee,
Galaxy Fund II.
John T. O'Neill(1) President, Executive Vice President and
Hasbro, Inc. Treasurer & CFO, Hasbro, Inc. (toy and
1011 Newport Avenue Trustee game manufacturer); Trustee,
Pawtucket, RI 02862 The Galaxy VIP Fund; Trustee,
Age 54 Galaxy Fund II.
Louis DeThomasis Trustee President, Saint Mary's
Saint Mary's College College of Minnesota;
of Minnesota Director, Bright Day Travel,
Winona, MN 55987 Inc.; Trustee, Religious
Age 58 Communities Trust; Trustee,
The Galaxy VIP Fund; Trustee,
Galaxy Fund II.
Donald B. Miller Trustee Chairman, Horizon Media, Inc.
10725 Quail Covey Road (broadcast services);
Boynton Beach, FL 33436 Director/Trustee, Lexington
Age 73 Funds; Chairman, Executive
Committee, Compton
International, Inc.
(advertising agency); Trustee,
Keuka College; Trustee, The
Galaxy VIP Fund; Trustee,
Galaxy Fund II.
- 40 -
<PAGE>
<CAPTION>
Positions Principal Occupation
with The During Past 5 Years
Name and Address and Age Galaxy Fund and Other Affiliations
- ------------------------ ----------- ----------------------
<S> <C> <C>
James M. Seed Trustee Chairman and President, The
The Astra Ventures, Inc. Astra Projects, Incorporated
One Citizens Plaza (land development); President,
Providence, RI 02903 The Astra Ventures,
Age 57 Incorporated (previously,
Buffinton Box Company -
manufacturer of cardboard
boxes); Commissioner, Rhode
Island Investment Commission;
Trustee, The Galaxy VIP Fund;
Trustee, Galaxy Fund II.
Bradford S. Wellman(1) Trustee Private Investor; Vice
2468 Ohio Street President and Director, Acadia
Bangor, ME 04401 Management Company (investment
Age 67 services); Director, Essex
County Gas Company, until
January 1994; Director, Maine
Mutual Fire Insurance Co.;
Member, Maine Finance
Authority; Trustee, The Galaxy
VIP Fund; Trustee, Galaxy Fund
II.
W. Bruce McConnel, III Secretary Partner of the law firm
Philadelphia National Drinker Biddle & Reath LLP,
Bank Building Philadelphia, Pennsylvania.
1345 Chestnut Street.
Philadelphia, PA 19107
Age 56
Jylanne Dunne Vice Vice President, First Data
First Data Investor Services President and Investor Services Group, Inc.,
Group, Inc. Assistant 1990 to present.
4400 Computer Drive Treasurer
Westborough, MA 01581-5108
Age 39
- 41 -
<PAGE>
<CAPTION>
Positions Principal Occupation
with The During Past 5 Years
Name and Address and Age Galaxy Fund and Other Affiliations
- ------------------------ ----------- ----------------------
<S> <C> <C>
William Greilich Vice Vice President, First Data
First Data Investor Services President Investor Services Group, Inc.,
Group, Inc. 1991-96; Vice President and
4400 Computer Drive Division Manager, First Data
Westborough, MA 01581-5108 Investor Services Group, Inc.,
Age 45 1996-present.
</TABLE>
- --------------------------
1. May be deemed to be an "interested person" within the definition set forth
in Section 2(a)(19) of the 1940 Act.
Effective March 5, 1998, each trustee receives an annual aggregate fee of
$40,000 for his services as a trustee of Galaxy, The Galaxy VIP Fund ("Galaxy
VIP") and Galaxy Fund II ("Galaxy II") (collectively, the "Trusts"), plus an
additional $2,250 for each in-person Galaxy Board meeting attended and $1,500
for each in-person Galaxy VIP or Galaxy II Board meeting attended not held
concurrently with an in-person Galaxy meeting, and is reimbursed for expenses
incurred in attending all meetings. Each trustee also receives $750 for each
telephone Board meeting in which the trustee participates, $1,000 for each
in-person Board committee meeting attended and $500 for each telephone Board
committee meeting in which the trustee participates. The Chairman of the Boards
of the Trusts is entitled to an additional annual aggregate fee in the amount of
$4,000, and the President and Treasurer of the Trusts is entitled to an
additional annual aggregate fee of $2,500 for their services in these respective
capacities. The foregoing trustees' and officers' fees are allocated among the
portfolios of the Trusts based on their relative net assets. Prior to March 5,
1998, (i) each trustee received an annual aggregate fee of $29,000 for his
services as a trustee of the Trusts, plus an additional $2,250 for each
in-person Galaxy Board meeting attended and $1,500 for each in-person Galaxy VIP
or Galaxy II Board meeting attended not held concurrently with an in-person
Galaxy Board meeting, and (ii) the President and Treasurer of the Trusts
received the same fees as they are currently paid for their services in these
capacities.
Effective March 1, 1996, each trustee became entitled to participate in The
Galaxy Fund, The Galaxy VIP Fund and Galaxy Fund II Deferred Compensation Plans
(the "Original Plans"). Effective January 1, 1997, the Original Plans were
merged into The Galaxy Fund/The Galaxy VIP Fund/Galaxy Fund II Deferred
Compensation Plan (together with the Original Plans, the "Plan"). Under the
Plan, a trustee may elect to have his deferred fees treated as if they had been
invested by the Trusts in the shares of one or more portfolios in the Trusts, or
other types of investment options, and the amount paid to the trustees under the
Plan will be determined based upon the performance of such investments.
Deferral of trustees' fees will have no effect on a portfolio's assets,
liabilities, and net income per share, and will not obligate the Trusts to
retain
- 42 -
<PAGE>
the services of any trustee or obligate a portfolio to any level of compensation
to the trustee. The Trusts may invest in underlying securities without
shareholder approval.
No employee of Investor Services Group receives any compensation from
Galaxy for acting as an officer. No person who is an officer, director or
employee of Fleet, or any of its affiliates, serves as a trustee, officer or
employee of Galaxy. The trustees and officers of Galaxy own less than 1% of its
outstanding shares.
The following chart provides certain information about the fees received by
Galaxy's trustees in the most recently completed fiscal year.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Pension or
Retirement
Benefits Total Compensation
Accrued as Part from Galaxy and
Aggregate Compensation of Fund Fund Complex Paid
Name of Person/Position from Galaxy Expenses to Trustees
----------------------- ----------- -------- -----------
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bradford S. Wellman $39,932 None $44,750
Trustee
- -----------------------------------------------------------------------------------------------------
Dwight E. Vicks, Jr. $43,949 None $49,250
Chairman and Trustee
- -----------------------------------------------------------------------------------------------------
Donald B. Miller** $40,380 None $45,250
Trustee
- -----------------------------------------------------------------------------------------------------
Rev. Louis DeThomasis $40,380 None $45,250
Trustee
- -----------------------------------------------------------------------------------------------------
John T. O'Neill $42,611 None $47,750
President, Treasurer
and Trustee
- -----------------------------------------------------------------------------------------------------
James M. Seed** $40,380 None $45,250
Trustee
- -----------------------------------------------------------------------------------------------------
</TABLE>
- -------------
* The "Fund Complex" consists of Galaxy, The Galaxy VIP Fund and Galaxy Fund
II, which comprise a total of 43 separate portfolios.
** Deferred compensation (including interest) in the amounts of $43,744 and
$44,527 accrued during Galaxy's fiscal year ended October 31, 1998 for
Messrs. Miller and Seed, respectively.
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. However, Galaxy's Declaration of Trust provides that shareholders
shall not be subject to any personal liability for the acts or obligations of
Galaxy, and that every note, bond, contract, order or other undertaking made by
Galaxy shall contain a provision to the effect that the shareholders are not
personally liable thereunder. The Declaration of Trust provides for
indemnification out of the
- 43 -
<PAGE>
trust property of any shareholder held personally liable solely by reason of his
or her being or having been a shareholder and not because of his or her acts or
omissions outside such capacity or some other reason. The Declaration of Trust
also provides that Galaxy shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of Galaxy, and shall
satisfy any judgment thereon. Thus, the risk of shareholder liability is limited
to circumstances in which Galaxy itself would be unable to meet its obligations.
The Declaration of Trust states further that no trustee, officer or agent
of Galaxy shall be personally liable for or on account of any contract, debt,
claim, damage, judgment or decree arising out of or connected with the
administration or preservation of the trust estate or the conduct of any
business of Galaxy; nor shall any trustee be personally liable to any person for
any action or failure to act except by reason of his own bad faith, willful
misfeasance, gross negligence or reckless disregard of his duties as trustee.
The Declaration of Trust also provides that all persons having any claim against
the trustees or Galaxy shall look solely to the trust property for payment.
With the exceptions stated, the Declaration of Trust provides that a
trustee is entitled to be indemnified against all liabilities and expenses
reasonably incurred by him in connection with the defense or disposition of any
proceeding in which he may be involved or with which he may be threatened by
reason of his being or having been a trustee, and that the Board of Trustees
shall indemnify representatives and employees of Galaxy to the same extent to
which they themselves are entitled to indemnification.
INVESTMENT ADVISER
Fleet serves as investment adviser to the Funds. In its advisory
agreement, Fleet has agreed to provide investment advisory services to the Funds
as described in the Prospectuses. Fleet has also agreed to pay all expenses
incurred by it in connection with its activities under the advisory agreement
other than the cost of securities (including brokerage commissions) purchased
for the Funds. See "Expenses" below.
For the services provided and expenses assumed with respect to the Funds,
Fleet is entitled to receive advisory fees, computed daily and paid monthly, at
an annual rate of .75% of the average daily net assets of each Fund. During the
last three fiscal years, Galaxy paid advisory fees (net of fee waivers and/or
expense reimbursements) to Fleet as set forth below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1998 1997 1996
- ---- ---- ---- ----
<S> <C> <C> <C>
Short-Term Bond. . . . . . . . . . . . . . . $390,913 $470,347 $531,062
Intermediate Government Income . . . . . . . $1,582,909 $1,535,166 $1,653,803
High Quality Bond. . . . . . . . . . . . . . $1,294,758 $1,089,506 $932,381
Corporate Bond . . . . . . . . . . . . . . . $489,512 $507,794 $604,322
</TABLE>
- 44 -
<PAGE>
During the last three fiscal years, Fleet waived advisory fees as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1998 1997 1996
- ---- ---- ---- ----
<S> <C> <C> <C>
Short-Term Bond. . . . . . . . . . . . . . . $142,191 $171,035 $193,702
Intermediate Government Income . . . . . . . $575,603 $558,241 $608,385
High Quality Bond. . . . . . . . . . . . . . $470,821 $396,183 $339,047
Corporate Bond . . . . . . . . . . . . . . . $178,004 $184,653 $219,753
</TABLE>
During the last three fiscal years, Fleet reimbursed expenses as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1998 1997 1996
- ---- ---- ---- ----
<S> <C> <C> <C>
Short-Term Bond. . . . . . . . . . . . . . . $111 $2,300 $40,375
Intermediate Government Income . . . . . . . $0 $0 $0
High Quality Bond. . . . . . . . . . . . . . $0 $28,489 $2,956
Corporate Bond . . . . . . . . . . . . . . . $0 $0 $0
</TABLE>
The advisory agreement provides that Fleet shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Funds in
connection with the performance of its duties under the advisory agreement,
except a loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of Fleet in the
performance of its duties or from reckless disregard by it of its duties and
obligations thereunder. Unless sooner terminated, the advisory agreement will
continue in effect with respect to a particular Fund from year to year as long
as such continuance is approved at least annually (i) by the vote of a majority
of trustees who are not parties to such advisory agreement or interested persons
(as defined in the 1940 Act) of any such party, cast in person at a meeting
called for the purpose of voting on such approval; and (ii) by Galaxy's Board of
Trustees, or by a vote of a majority of the outstanding shares of such Fund.
The term "majority of the outstanding shares of such Fund" means, with respect
to approval of an advisory agreement, the vote of the lesser of (i) 67% or more
of the shares of the Fund present at a meeting, if the holders of more than 50%
of the outstanding shares of the Fund are present or represented by proxy, or
(ii) more than 50% of the outstanding shares of the Fund. The advisory
agreement may be terminated by Galaxy or by Fleet on sixty days' written notice,
and will terminate immediately in the event of its assignment.
Fleet is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, to the extent permitted
by law or order of the SEC, financial institutions that are affiliated with
Fleet or that have sold shares of the Funds, if Fleet believes that the quality
of the transaction and the commission are comparable to what they would be with
other qualified brokerage firms.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof
- 45 -
<PAGE>
from sponsoring, organizing, controlling, or distributing the shares of a
registered, open-end investment company continuously engaged in the issuance of
its shares, and prohibit banks generally from issuing, underwriting, selling, or
distributing securities such as shares of the Funds, but do not prohibit such a
bank holding company or its affiliates or banks generally from acting as
investment adviser, transfer agent, or custodian to such an investment company
or from purchasing shares of such a company as agent for and upon the order of
customers. Fleet, the custodian and institutions which agree to provide
shareholder support services that are banks or bank affiliates are subject to
such banking laws and regulations. Should legislative, judicial or
administrative action prohibit or restrict the activities of such companies in
connection with their services to the Funds, Galaxy might be required to alter
materially or discontinue its arrangements with such companies and change its
method of operation. It is anticipated, however, that any resulting change in
the Funds' method of operation would not affect a Fund's net asset value per
share or result in financial loss to any shareholder.
ADMINISTRATOR
Investor Services Group, located at 4400 Computer Drive, Westborough,
Massachusetts 01581-5108, serves as the Funds' administrator. Investor Services
Group is a wholly-owned subsidiary of First Data Corporation.
Investor Services Group generally assists the Funds in their administration
and operation. Investor Services Group also serves as administrator to the
other portfolios of Galaxy. For the services provided to the Funds, Investor
Services Group is entitled to receive administration fees based on the combined
average daily net assets of the Funds and the other portfolios offered by Galaxy
with an October 31 fiscal year end, computed daily and paid monthly, at the
following annual rates, effective September 10, 1998:
<TABLE>
<CAPTION>
COMBINED AVERAGE DAILY NET ASSETS ANNUAL RATE
--------------------------------- -----------
<S> <C>
Up to $2.5 billion................ 0.090%
From $2.5 to $5 billion........... 0.085%
From $5 to $12 billion............ 0.075%
From $12 to $15 billion........... 0.065%
From $15 to $18 billion........... 0.060%
Over $18 billion.................. 0.0575%
</TABLE>
Prior to September 10, 1998, Galaxy paid Investor Services Group
administration fees based on the combined average daily net assets of the Funds
and all other portfolios offered by Galaxy at the following annual rates:
<TABLE>
<CAPTION>
COMBINED AVERAGE DAILY NET ASSETS ANNUAL RATE
--------------------------------- -----------
<S> <C>
Up to $2.5 billion................ 0.090%
From $2.5 to $5 billion........... 0.085%
Over $5 billion................... 0.075%
</TABLE>
Investor Services Group also receives a separate annual fee from each Galaxy
portfolio for certain fund accounting services.
- 46 -
<PAGE>
From time to time, Investor Services Group may waive voluntarily all or a
portion of the administration fees payable to it by the Funds. For the fiscal
year ended October 31, 1998, Investor Services Group received administration
fees at the effective annual rate of 0.08% of each Fund's average daily net
assets. During the last three fiscal years, Investor Services Group received
administration fees as set forth below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1998 1997 1996
- ---- ---- ---- ----
<S> <C> <C> <C>
Short-Term Bond......................... $57,228 $69,851 $82,440
Intermediate Government Income.......... $231,595 $227,963 $256,059
High Quality Bond....................... $189,406 $161,732 $143,905
Corporate Bond.......................... $71,640 $75,411 $93,185
</TABLE>
Under the administration agreement between Galaxy and Investor Services
Group (the "Administration Agreement"), Investor Services Group has agreed to
maintain office facilities for Galaxy, furnish Galaxy with statistical and
research data, clerical, accounting, and bookkeeping services, certain other
services such as internal auditing services required by Galaxy, and compute the
net asset value and net income of the Funds. Investor Services Group prepares
the Funds' annual and semi-annual reports to the SEC, federal and state tax
returns, and filings with state securities commissions, arranges for and bears
the cost of processing share purchase and redemption orders, maintains the
Funds' financial accounts and records, and generally assists in all aspects of
Galaxy's operations. Unless otherwise terminated, the Administration Agreement
will remain in effect until May 1, 2001 and thereafter will continue from year
to year upon approval of Galaxy's Board of Trustees.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase Manhattan"), located at One Chase
Manhattan Plaza, New York, New York 10081, a wholly-owned subsidiary of The
Chase Manhattan Corporation, serves as the custodian of the Funds' assets
pursuant to a Global Custody Agreement. Chase Manhattan may employ
sub-custodians for the Short-Term Bond and Corporate Bond Funds for the purpose
of providing custodial services for the Funds' foreign assets held outside the
United States.
Under the Global Custody Agreement, Chase Manhattan has agreed to: (i)
maintain a separate account or accounts in the name of each Fund; (ii) hold and
disburse portfolio securities on account of each Fund; (iii) collect and make
disbursements of money on behalf of each Fund; (iv) collect and receive all
income and other payments and distributions on account of each Fund's portfolio
securities; (v) respond to correspondence from security brokers and others
relating to its duties; and (vi) make periodic reports to the Board of Trustees
concerning the Funds' operations. Chase Manhattan is authorized to select one
or more banks or trust companies to serve as sub-custodian for the Funds,
provided that Chase Manhattan shall remain responsible for the performance of
all of its duties under the custodian agreement and shall be liable to the Funds
for any loss which shall occur as a result of the failure of a sub-custodian to
- 47 -
<PAGE>
exercise reasonable care with respect to the safekeeping of the Funds' assets.
In addition, Chase Manhattan also serves as Galaxy's "foreign custody manager"
(as that term is defined in Rule 17f-5 under the 1940 Act) and in such capacity
employs sub-custodians for the Funds for the purpose of providing custodial
services for the foreign assets of those Funds held outside the U.S. The assets
of the Funds are held under bank custodianship in compliance with the 1940 Act.
Investor Services Group, a wholly-owned subsidiary of First Data
Corporation, serves as the Funds' transfer and dividend disbursing agent
pursuant to a Transfer Agency and Services Agreement (the "Transfer Agency
Agreement"). Communications to Investor Services Group should be directed to
Investor Services Group at P.O. Box 5108, 4400 Computer Drive, Westborough,
Massachusetts 01581. Under the Transfer Agency Agreement, Investor Services
Group has agreed to: (i) issue and redeem shares of each Fund; (ii) transmit all
communications by each Fund to its shareholders of record, including reports to
shareholders, dividend and distribution notices and proxy materials for meetings
of shareholders; (iii) respond to correspondence by security brokers and others
relating to its duties; (iv) maintain shareholder accounts; and (v) make
periodic reports to the Board of Trustees concerning Galaxy's operations.
Investor Services Group may enter into agreements with one or more
entities, including affiliates of Fleet, pursuant to which such entities agree
to perform certain sub-accounting and administrative functions ("Sub-Account
Services") on a per account basis with respect to Trust Shares of each Fund held
by defined contribution plans, including maintaining records reflecting
separately with respect to each plan participant's sub-account all purchases and
redemptions of Trust Shares and the dollar value of Trust Shares in each
sub-account; crediting to each participant's sub-account all dividends and
distributions with respect to that sub-account; and transmitting to each
participant a periodic statement regarding the sub-account as well as any proxy
materials, reports and other material Fund communications. Such entities are
compensated by Investor Services Group for the Sub-Account Services and in
connection therewith the transfer agency fees payable by Trust Shares of the
Funds to Investor Services Group have been increased by an amount equal to these
fees. In substance, therefore, the holders of Trust Shares of these Funds
indirectly bear these fees.
Fleet Bank, an affiliate of Fleet, is paid a fee for Sub-Account Services
performed with respect to Trust Shares of the Funds held by defined contribution
plans. Pursuant to an agreement between Fleet Bank and Investor Services Group,
Fleet Bank will be paid $21.00 per year for each defined contribution plan
participant sub-account. For the fiscal year ended October 31, 1998, Fleet Bank
received $408,819 for Sub-Account Services. Investor Services Group bears this
expense directly, and shareholders of Trust Shares of the Funds bear this
expense indirectly through fees paid to Investor Services Group for transfer
agency services.
EXPENSES
Fleet and Investor Services Group bear all expenses in connection with the
performance of their services for the Funds, except that Galaxy bears the
expenses incurred in the Funds' operations including: taxes; interest; fees
(including fees paid to its trustees and officers who are
- 48 -
<PAGE>
not affiliated with Investor Services Group); SEC fees; state securities fees;
costs of preparing and printing prospectuses for regulatory purposes and for
distribution to existing shareholders; advisory, administration, shareholder
servicing, Rule 12b-1 distribution (if applicable), fund accounting and custody
fees; charges of the transfer agent and dividend disbursing agent; certain
insurance premiums; outside auditing and legal expenses; costs of independent
pricing services; costs of shareholder reports and meetings; and any
extraordinary expenses. The Funds also pay for brokerage fees and commissions
in connection with the purchase of portfolio securities.
PORTFOLIO TRANSACTIONS
Debt securities purchased or sold by the Funds are generally traded in the
over-the-counter market on a net basis (i.e., without commission) through
dealers, or otherwise involve transactions directly with the issuer of an
instrument. The cost of securities purchased from underwriters includes an
underwriting commission or concession, and the prices at which securities are
purchased from and sold to dealers include a dealer's mark-up or mark-down.
The Funds may engage in short-term trading to achieve their investment
objectives. Portfolio turnover may vary greatly from year to year as well as
within a particular year. In purchasing or selling securities for the Funds,
Fleet will seek to obtain the best net price and the most favorable execution of
orders. To the extent that the execution and price offered by more than one
broker/dealer are comparable, Fleet may effect transactions in portfolio
securities with broker/dealers who provide research, advice or other services
such as market investment literature.
Except as permitted by the SEC or applicable law, the Funds will not
acquire portfolio securities from, make savings deposits in, enter into
repurchase or reverse repurchase agreements with, or sell securities to, Fleet,
Investor Services Group, or their affiliates, and will not give preference to
affiliates and correspondent banks of Fleet with respect to such transactions.
Galaxy is required to identify any securities of its "regular brokers or
dealers" that the Funds have acquired during Galaxy's most recent fiscal year.
During fiscal year ended October 31, 1998, the Funds did not acquire or sell
securities of its regular brokers and dealers.
Investment decisions for each Fund are made independently from those for
the other Funds and portfolios of Galaxy and for any other investment companies
and accounts advised or managed by Fleet. When a purchase or sale of the same
security is made at substantially the same time on behalf of a Fund, another
portfolio of Galaxy, and/or another investment company or account, the
transaction will be averaged as to price, and available investments allocated as
to amount, in a manner which Fleet believes to be equitable to the Fund and such
other portfolio, investment company or account. In some instances, this
investment procedure may adversely affect the price paid or received by a Fund
or the size of the position obtained or sold by such Fund. To the extent
permitted by law, Fleet may aggregate the securities to be sold or purchased for
a Fund with those to be sold or purchased for Galaxy's other Funds and
portfolios, or other investment companies or accounts in order to obtain best
execution.
- 49 -
<PAGE>
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to which it intends
to enter into servicing agreements with institutions (including Fleet Bank and
its affiliates). Pursuant to these servicing agreements, institutions render
certain administrative and support services to customers who are the beneficial
owners of Retail A Shares. Such services are provided to customers who are the
beneficial owners of Retail A Shares and are intended to supplement the services
provided by Investor Services Group as administrator and transfer agent to the
shareholders of record of the Retail A Shares. The Plan provides that Galaxy
will pay fees for such services at an annual rate of up to .30% of the average
daily net asset value of Retail A Shares owned beneficially by customers.
Institutions may receive up to one-half of this fee for providing one or more of
the following services to such customers: aggregating and processing purchase
and redemption requests and placing net purchase and redemption orders with FD
Distributors; processing dividend payments from a Fund; providing sub-accounting
with respect to Retail A Shares or the information necessary for sub-accounting;
and providing periodic mailings to customers. Institutions may also receive up
to one-half of this fee for providing one or more of these additional services
to such customers: providing customers with information as to their positions
in Retail A Shares; responding to customer inquiries; and providing a service to
invest the assets of customers in Retail A Shares.
Although the Shareholder Services Plan has been approved with respect to
both Retail A Shares and Trust Shares of the Funds, as of the date of this
Statement of Additional Information, Galaxy has entered into servicing
agreements under the Shareholder Services Plan only with respect to Retail A
Shares of the Short-Term Bond, Intermediate Government Income and High Quality
Bond Funds, and to limit the payment under these servicing agreements for each
Fund to an aggregate fee of not more than .15% (on an annualized basis) of the
average daily net asset value of the Retail A Shares of the Fund beneficially
owned by customers of institutions. Galaxy understands that institutions may
charge fees to their customers who are the beneficial owners of Retail A Shares
in connection with their accounts with such institutions. Any such fees would
be in addition to any amounts which may be received by an institution under the
Shareholder Services Plan. Under the terms of each servicing agreement entered
into with Galaxy, institutions are required to provide to their customers a
schedule of any fees that they may charge in connection with customer
investments in Retail A Shares. As of October 31, 1998, Galaxy had entered into
Servicing Agreements only with Fleet Bank and affiliates.
Each Servicing Agreement between Galaxy and a Service Organization relating
to the Services Plan requires that, with respect to those Funds which declare
dividends on a daily basis, the Service Organization agree to waive a portion of
the servicing fee payable to it under the Services Plan to the extent necessary
to ensure that the fees required to be accrued with respect to the Retail A
Shares of such Funds on any day do not exceed the income to be accrued to such
Retail A Shares on that day.
- 50 -
<PAGE>
During the last three fiscal years, Galaxy made payments to Service
Organizations with respect to Retail A Shares as shown in the table below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1998 1997 1996
- ---- ---- ---- ----
<S> <C> <C> <C>
Short-Term Bond........................ $41,334 $43,131 $54,596
Intermediate Government Income......... $97,753 $102,805 $122,781
High Quality Bond...................... $52,525 $35,749 $45,938
</TABLE>
Galaxy's Servicing Agreements are governed by the Services Plan that has
been adopted by Galaxy's Board of Trustees in connection with the offering of
Retail A Shares of each Fund. Pursuant to the Services Plan, the Board of
Trustees reviews, at least quarterly, a written report of the amounts paid under
the Servicing Agreements and the purposes for which the expenditures were made.
In addition, the arrangements with Service Organizations must be approved
annually by a majority of Galaxy's trustees, including a majority of the
trustees who are not "interested persons" of Galaxy as defined in the 1940 Act
and who have no direct or indirect financial interest in such arrangements (the
"Disinterested Trustees").
The Board of Trustees has approved Galaxy's arrangements with Service
Organizations based on information provided by Galaxy's service contractors that
there is a reasonable likelihood that the arrangements will benefit the Funds
and their shareholders by affording Galaxy greater flexibility in connection
with the efficient servicing of the accounts of the beneficial owners of Retail
A Shares of the Funds. Any material amendment to Galaxy's arrangements with
Service Organizations must be approved by a majority of Galaxy's Board of
Trustees (including a majority of the Disinterested Trustees). So long as
Galaxy's arrangements with Service Organizations are in effect, the selection
and nomination of the members of Galaxy's Board of Trustees who are not
"interested persons" (as defined in the 1940 Act) of Galaxy will be committed to
the discretion of such Disinterested Trustees.
DISTRIBUTION AND SERVICES PLAN
Galaxy has adopted a Distribution and Services Plan pursuant to Rule 12b-1
under the 1940 Act (the "Rule") with respect to Retail B Shares of the
Short-Term Bond, Intermediate Government Income and High Quality Bond Funds (the
"12b-1 Plan"). Under the 12b-1 Plan, Galaxy may pay (a) FD Distributors or
another person for expenses and activities intended to result in the sale of
Retail B Shares, including the payment of commissions to broker-dealers and
other industry professionals who sell Retail B Shares and the direct or indirect
cost of financing such payments, (b) institutions for shareholder liaison
services, which means personal services for holders of Retail B Shares and/or
the maintenance of shareholder accounts, such as responding to customer
inquiries and providing information on accounts, and (c) institutions for
administrative support services, which include but are not limited to (i)
transfer agent and sub-transfer agent services for beneficial owners of Retail B
Shares; (ii) aggregating and processing purchase and redemption orders; (iii)
providing beneficial owners with statements showing their positions in Retail B
Shares; (iv) processing dividend payments; (v) providing sub-accounting services
for Retail B Shares held beneficially; (vi) forwarding shareholder
communications, such
- 51 -
<PAGE>
as proxies, shareholder reports, dividend and tax notices, and updating
prospectuses to beneficial owners; and (vii) receiving, translating and
transmitting proxies executed by beneficial owners.
Under the 12b-1 Plan, payments by Galaxy (i) for distribution expenses may
not exceed the annualized rate of .65% of the average daily net assets
attributable to each such Fund's outstanding Retail B Shares, and (ii) to an
Institution for shareholder liaison services and/or administrative support
services may not exceed the annual rates of .15% and .15%, respectively, of the
average daily net assets attributable to each such Fund's outstanding Retail B
Shares which are owned of record or beneficially by that institution's customers
for whom the institution is the dealer of record or shareholder of record or
with whom it has a servicing relationship. As of the date of this Statement of
Additional Information, Galaxy intends to limit each Fund's payments for
shareholder liaison and administrative support services under the 12b-1 Plan to
an aggregate fee of not more than .15% (on an annualized basis) of the average
daily net asset value of Retail B Shares owned of record or beneficially by
customers of institutions.
Payments for distribution expenses under the 12b-1 Plan are subject to the
Rule. The Rule defines distribution expenses to include the cost of "any
activity which is primarily intended to result in the sale of shares issued by"
Galaxy. The Rule provides, among other things, that an investment company may
bear such expenses only pursuant to a plan adopted in accordance with the Rule.
In accordance with the Rule, the 12b-1 Plan provides that a report of the
amounts expended under the 12b-1 Plan, and the purposes for which such
expenditures were incurred, will be made to the Board of Trustees for its review
at least quarterly. The 12b-1 Plan provides that it may not be amended to
increase materially the costs which Retail B Shares of a Fund may bear for
distribution pursuant to the 12b-1 Plan without shareholder approval, and that
any other type of material amendment must be approved by a majority of the Board
of Trustees, and by a majority of the trustees who are neither "interested
persons" (as defined in the 1940 Act) of Galaxy nor have any direct or indirect
financial interest in the operation of the 12b-1 Plan or in any related
agreements (the "12b-1 Trustees"), by vote cast in person at a meeting called
for the purpose of considering such amendments.
During the last three fiscal years, Retail B Shares of the Short-Term Bond
and High Quality Bond Funds bore the following distribution fees under the 12b-1
Plan:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1998 1997 1996
- ---- ---- ---- ----
<S> <C> <C> <C>
Short-Term Bond........................ $6,185 $3,443 $822(1)
High Quality Bond...................... $22,171 $7,645 $1,580(1)
</TABLE>
- --------------------
(1) For the period March 4, 1996 (initial public offering date) through
October 31, 1996.
- 52 -
<PAGE>
During the last three fiscal years, Retail B Shares of the Short-Term Bond
and High Quality Bond Funds bore the following shareholder servicing fees under
the 12b-1 Plan:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C>
Short-Term Bond. . . . . . . . . . . . $1,427 $788 $190(1)
High Quality Bond. . . . . . . . . . . $5,116 $1,729 $365(1)
</TABLE>
- -------------------------
(1) For the period March 4, 1996 (initial public offering date) through October
31, 1996.
All amounts paid under the 12b-1 Plan for these periods were attributable to
payments to broker-dealers.
Galaxy's Board of Trustees has concluded that there is a reasonable
likelihood that the 12b-1 Plan will benefit the Funds and holders of Retail B
Shares. The 12b-1 Plan is subject to annual reapproval by a majority of the
12b-1 Trustees and is terminable at any time with respect to any Fund by a vote
of a majority of the 12b-1 Trustees or by vote of the holders of a majority of
the Retail B Shares of the Fund involved. Any agreement entered into pursuant
to the 12b-1 Plan with a Service Organization is terminable with respect to any
Fund without penalty, at any time, by vote of a majority of the 12b-1 Trustees,
by vote of the holders of a majority of the Retail B Shares of such Fund, by FD
Distributors or by the Service Organization. An agreement will also terminate
automatically in the event of its assignment.
As long as the 12b-1 Plan is in effect, the nomination of the trustees who
are not interested persons of Galaxy (as defined in the 1940 Act) must be
committed to the discretion of the 12b-1 Trustees.
DISTRIBUTOR
FD Distributors, a wholly-owned subsidiary of Investor Services Group,
serves as Galaxy's distributor. On March 31, 1995, Investor Services Group
acquired all of the issued and outstanding stock of FD Distributors. Prior to
that time, FD Distributors was a wholly-owned subsidiary of 440 Financial Group
of Worcester, Inc. and an indirect subsidiary of State Mutual Life Assurance
Company of America.
Unless otherwise terminated, the Distribution Agreement between Galaxy and
FD Distributors remains in effect until May 31, 1999, and thereafter will
continue from year to year upon annual approval by Galaxy's Board of Trustees,
or by the vote of a majority of the outstanding shares of Galaxy and by the vote
of a majority of the Board of Trustees of Galaxy who are not parties to the
Agreement or interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval. The Agreement will terminate
in the event of its assignment, as defined in the 1940 Act.
FD Distributors is entitled to the payment of a front-end sales charge on
the sale of Retail A Shares of the Short-Term Bond, Intermediate Government
Income and High Quality Bond
- 53 -
<PAGE>
Funds as described in the applicable Prospectus and this Statement of Additional
Information. During the last three fiscal years, FD Distributors received
front-end sales charges in connection with Retail A Share purchases as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C>
Short-Term Bond. . . . . . . . . . . . $32,006 $15,074 $36,663(1)
Intermediate Government Income . . . . $46,625 $28,979 $41,808(1)
High Quality Bond. . . . . . . . . . . $95,494 $43,211 $63,476(1)
</TABLE>
- --------------------
(1) For the period from December 1, 1995 (date of imposition of sales charges
on Retail A Shares) through October 31, 1996.
FD Distributors retained none of the amounts shown in the table above.
FD Distributors is also entitled to the payment of contingent deferred
sales charges upon the redemption of Retail B Shares of the Funds. During the
last three fiscal years, FD Distributors received contingent deferred sales
charges in connection with Retail B Share redemptions as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1998 1997 1996(1)
---- ---- ---- -------
<S> <C> <C> <C>
Short-Term Bond. . . . . . . . . . . . . $2,849 $3,662 $499
Intermediate Government Income . . . . . * * *
High Quality Bond. . . . . . . . . . . . $9,250 $5,970 $951
</TABLE>
- -----------------
* The Intermediate Government Income Fund did not offer Retail B Shares until
November 1, 1998.
(1) For the period from March 4, 1996 (initial public offering date) through
October 31, 1996.
FD Distributors retained none of the amounts shown in the table above.
- 54 -
<PAGE>
The following table shows all sales charges, commissions and other
compensation received by FD Distributors directly or indirectly from the Funds
during the fiscal year ended October 31, 1998:
<TABLE>
<CAPTION>
BROKERAGE
NET COMMISSIONS IN
UNDERWRITING COMPENSATION ON CONNECTION
DISCOUNTS AND REDEMPTION AND WITH FUND OTHER
FUND COMMISSIONS(1) REPURCHASE(2) TRANSACTIONS COMPENSATION(3)
- ---- -------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
Short-Term $34,855 $2,849 $0 $47,139
Bond
Intermediate $46,625 N/A $0 $92,768
Government
Income
High Quality $104,744 $9,250 $0 $70,015
Bond
Corporate Bond N/A N/A $0 N/A
</TABLE>
- ----------------------
(1) Represents amounts received from front-end sales charges on Retail A Shares
and commissions received in connection with sales of Retail B Shares.
(2) Represents amounts received from contingent deferred sales charges on
Retail B Shares. The basis on which such sales charges are paid is
described in the Prospectus relating to Retail B Shares. All such amounts
were paid to affiliates of Fleet.
(3) Represents payments made under the Shareholder Services Plan and
Distribution and Services Plan during the fiscal year ended October 31,
1998, which includes fees accrued in the fiscal year ended October 31, 1997
which were paid in 1998 (see "Shareholder Services Plan" and "Distribution
and Services Plan" above).
AUDITORS
Ernst & Young LLP, independent certified public accountants with
offices at 200 Clarendon Street, Hancock Tower, Boston, Massachussets
02116-5072 have been selected as auditors for Galaxy for the fiscal year
ending October 31, 1999. The financial highlights for the respective Funds
included in their Prospectus(es) and the financial statements for the Funds
contained in Galaxy's Annual Report to Shareholders and incorporated by
reference into this Statement of Additional Information for the respective
fiscal periods ended October 31 of each calendar year have been audited by
PricewaterhouseCoopers LLP, Galaxy's former auditors, for the periods
included in their report thereon which appears therein.
COUNSEL
Drinker Biddle & Reath LLP (of which W. Bruce McConnel, III, Secretary of
Galaxy, is a partner), 1345 Chestnut Street, Suite 1100, Philadelphia,
Pennsylvania 19107, are counsel to Galaxy and will pass upon certain legal
matters on its behalf.
- 55 -
<PAGE>
PERFORMANCE AND YIELD INFORMATION
Investment returns and principal values will vary with market conditions so
that an investor's shares, when redeemed, may be worth more or less than their
original cost. Past performance is no guarantee of future results. Unless
otherwise indicated, total return figures include changes in share price,
deduction of any applicable sales charge, and reinvestment of dividends and
capital gains distributions, if any.
The Funds' 30-day (or one month) standard yields are calculated separately
for each series of shares in each Fund in accordance with the method prescribed
by the SEC for mutual funds:
6
YIELD = 2[(a-b)/cd+1) - 1]
Where: a = dividends and interest earned by a Fund during the
period;
b = expenses accrued for the period (net of
reimbursements);
c = average daily number of shares outstanding during
the period, entitled to receive dividends; and
d = maximum offering price per share on the last day
of the period.
For the purpose of determining net investment income earned during the period
(variable "a" in the formula), dividend income on equity securities held by a
Fund is recognized by accruing 1/360 of the stated dividend rate of the security
each day that the security is in the Fund. Except as noted below, interest
earned on debt obligations held by a Fund is calculated by computing the yield
to maturity of each obligation based on the market value of the obligation
(including actual accrued interest) at the close of business on the last
business day of each month, or, with respect to obligations purchased during the
month, the purchase price (plus actual accrued interest) and dividing the result
by 360 and multiplying the quotient by the market value of the obligation
(including actual accrued interest) in order to determine the interest income on
the obligation for each day of the subsequent month that the obligation is held
by the Fund. For purposes of this calculation, it is assumed that each month
contains 30 days. The maturity of an obligation with a call provision is the
next call date on which the obligation reasonably may be expected to be called
or, if none, the maturity date. With respect to debt obligations purchased at a
discount or premium, the formula generally calls for amortization of the
discount or premium. The amortization schedule will be adjusted monthly to
reflect changes in the market value of such debt obligations. Expenses accrued
for the period (variable "b" in the formula) include all
- 56 -
<PAGE>
recurring fees charged by a Fund to all shareholder accounts in proportion to
the length of the base period and the Fund's mean (or median) account size.
Undeclared earned income will be subtracted from the offering price per share
(variable "d" in the formula).
Interest earned on tax-exempt obligations that are issued without original
issue discount and have a current market discount is calculated by using the
coupon rate of interest instead of the yield to maturity. In the case of
tax-exempt obligations that are issued with original issue discount but which
have discounts based on current market value that exceed the then-remaining
portion of the original issue discount (market discount), the yield to maturity
is the imputed rate based on the original issue discount calculation. On the
other hand, in the case of tax-exempt obligations that are issued with original
issue discount but which have discounts based on current market value that are
less than the then-remaining portion of the original issue discount (market
premium), the yield to maturity is based on the market value.
With respect to mortgage or other receivables-backed obligations that are
expected to be subject to monthly payments of principal and interest
("pay-downs"), (i) gain or loss attributable to actual monthly pay-downs are
accounted for as an increase or decrease to interest income during the period,
and (ii) each Fund may elect either (a) to amortize the discount and premium on
the remaining security, based on the cost of the security, to the weighted
average maturity date, if such information is available, or to the remaining
term of the security, if any, if the weighted average date is not available or
(b) not to amortize discount or premium on the remaining security.
Based on the foregoing calculation, the standard yields for Retail A
Shares, Retail B Shares and Trust Shares (as applicable) of the Funds for the
30-day period ended October 31, 1998 were as set forth below:
<TABLE>
<CAPTION>
Fund Retail A Retail B Trust
---- -------- -------- -----
<S> <C> <C> <C>
Short-Term Bond. . . . . . . . . . . . . . 3.96% 3.44% 4.27%
Intermediate Government Income . . . . . . 4.33% * 4.65%
High Quality Bond. . . . . . . . . . . . . 4.16% 3.64% 4.48%
Corporate Bond . . . . . . . . . . . . . . ** ** 4.58%
</TABLE>
- ----------------------
* The Intermediate Government Income Fund did not offer Retail B Shares until
November 1, 1998.
** The Corporate Bond Fund does not offer Retail A Shares or Retail B Shares.
Each Fund that advertises its "average annual total return" computes such
return separately for each series of shares by determining the average annual
compounded rate of return during specified periods that equates the initial
amount invested to the ending redeemable value of such investment according to
the following formula:
1/n
T = [(ERV/P)-1]
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<PAGE>
Where: T = average annual total return;
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5 or 10 year
(or other) periods at the end of the applicable period
(or a fractional portion thereof);
P = hypothetical initial payment of $1,000; and
n = period covered by the computation, expressed in years.
Each Fund that advertises its "aggregate total return" computes such
returns separately for each series of shares by determining the aggregate
compounded rates of return during specified periods that likewise equate the
initial amount invested to the ending redeemable value of such investment. The
formula for calculating aggregate total return is as follows:
Aggregate Total Return = [(ERV/P) - 1]
The calculations are made assuming that (1) all dividends and capital gain
distributions are reinvested on the reinvestment dates at the price per share
existing on the reinvestment date, (2) all recurring fees charged to all
shareholder accounts are included, and (3) for any account fees that vary with
the size of the account, a mean (or median) account size in the Fund during the
periods is reflected. The ending redeemable value (variable "ERV" in the
formula) is determined by assuming complete redemption of the hypothetical
investment after deduction of all nonrecurring charges at the end of the
measuring period. In addition, the Funds' Retail Shares average annual total
return and aggregate total return quotations will reflect the deduction of the
maximum sales load charged in connection with purchases of Retail A Shares or
redemptions of Retail B Shares, as the case may be.
The aggregate total returns for Retail A Shares, Retail B Shares and Trust
Shares (as applicable) of the Funds from the date of initial public offering to
October 31, 1998 are set forth below:
<TABLE>
<CAPTION>
Fund Retail A(1) Retail B Trust
---- ----------- -------- -----
<S> <C> <C> <C>
Short-Term Bond. . . . . . . . . . . . 38.29%(2) 10.37%(3) 45.01%(2)
Intermediate Government Income . . . . 101.87%(4) * 112.22%(4)
High Quality Bond. . . . . . . . . . . 82.47%(5) 16.41%(3) 90.84%(5)
Corporate Bond . . . . . . . . . . . . ** ** 40.11%(6)
</TABLE>
- ----------------------
* The Intermediate Government Income Fund did not offer Retail B Shares until
November 1, 1998.
** The Corporate Bond Fund does not offer Retail A Shares or Retail B Shares.
(1) On September 7, 1995, Retail Shares of the Funds were redesignated "Retail
A Shares."
(2) For the period from December 30, 1991 (initial public offering date)
through October 31, 1998.
(3) For the period from March 4, 1996 (initial public offering date) through
October 31, 1998.
(4) For the period from September 1, 1988 (initial public offering date)
through October 31, 1998.
(5) For the period from December 14, 1990 (initial public offering date)
through October 31, 1998.
- 58 -
<PAGE>
(6) For the period from December 12, 1994 (initial public offering date)
through October 31, 1998.
The average annual total returns for Retail A Shares, Retail B Shares and
Trust Shares (as applicable) of the Funds for the one-year, five-year and
ten-year periods (as applicable) are as set forth below:
<TABLE>
<CAPTION>
Retail A Retail B Trust
-------------------- -------------------- ----------------------
One- Five- Ten- One- Five- Ten- One- Five- Ten-
Fund Year Year Year Year Year Year Year Year Year
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Short-Term Bond. . . . 2.42% 4.21% * 0.73% * * 6.68% 5.20% *
Intermediate
Government Income. . . 5.09% 4.73% 6.87% ** ** ** 9.52% 5.79% 7.40%
High Quality Bond. . . 6.19% 5.39% * 4.73% * * 10.50% 6.34% *
Corporate Bond . . . . *** *** *** *** *** *** 8.96% * *
</TABLE>
- ----------------------
* Not offered during the full period.
** The Intermediate Government Income Fund did not offer Retail B Shares until
November 1, 1998.
*** The Corporate Bond Fund does not offer Retail A Shares or Retail B Shares.
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders, the
performance of the Funds may be quoted and compared to that of other mutual
funds with similar investment objectives and to stock or other relevant indices
or to rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
performance of the Funds may be compared to data prepared by Lipper Analytical
Services, Inc., a widely recognized independent service which monitors the
performance of mutual funds.
Performance data as reported in national financial publications including,
but not limited to, MONEY MAGAZINE, FORBES, BARRON'S, THE WALL STREET JOURNAL
and THE NEW YORK TIMES, or publications of a local or regional nature may also
be used in comparing the performance of the Funds. Performance data will be
calculated separately for Trust Shares, Retail A Shares, Retail B Shares, A
Prime Shares and B Prime Shares of the Funds.
The standard yield is computed as described above. Each Fund may also
advertise its "effective yield" which is calculated similarly but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested.
The Funds may also advertise their performance using "average annual total
return" figures over various periods of time. Such total return figures reflect
the average percentage change in the value of an investment in a Fund from the
beginning date of the measuring period to the end of the measuring period and
are calculated as described above. Average total return
- 59 -
<PAGE>
figures will be given for the most recent one-, five- and ten-year periods (if
applicable), and may be given for other periods as well, such as from the
commencement of a Fund's operations, or on a year-by-year basis. Each Fund may
also use "aggregate total return" figures for various periods, representing the
cumulative change in the value of an investment in a Fund for the specified
period. Both methods of calculating total return reflect the maximum front-end
sales load for Retail A Shares of the Funds and the applicable contingent
deferred sales charge for Retail B Shares of the Funds and assume that dividends
and capital gain distributions made by a Fund during the period are reinvested
in Fund shares.
The Funds may also advertise total return data without reflecting the sales
charges imposed on the purchase of Retail A Shares or the redemption of Retail B
Shares in accordance with the rules of the SEC. Quotations that do not reflect
the sales charges will be higher than quotations that do reflect the sales
charges.
The performance of the Funds will fluctuate and any quotation of
performance should not be considered as representative of the future performance
of the Funds. Since yields fluctuate, yield data cannot necessarily be used to
compare an investment in a Fund's shares with bank deposits, savings accounts
and similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that
performance data are generally functions of the kind and quality of the
instruments held in a portfolio, portfolio maturity, operating expenses, and
market conditions. Any additional fees charged by institutions with respect to
accounts of customers that have invested in shares of a Fund will not be
included in performance calculations.
The portfolio managers of the Funds and other investment professionals may
from time to time discuss in advertising, sales literature or other material,
including periodic publications, various topics of interest to shareholders and
prospective investors. The topics may include but are not limited to the
advantages and disadvantages of investing in tax-deferred and taxable
investments; Fund performance and how such performance may compare to various
market indices; shareholder profiles and hypothetical investor scenarios; the
economy; the financial and capital markets; investment strategies and
techniques; investment products; and tax, retirement and investment planning.
MISCELLANEOUS
As used in this Statement of Additional Information, "assets belonging to"
a particular Fund or series of a Fund means the consideration received by Galaxy
upon the issuance of shares in that particular Fund or series of the Fund,
together with all income, earnings, profits, and proceeds derived from the
investment thereof, including any proceeds from the sale of such investments,
any funds or payments derived from any reinvestment of such proceeds and a
portion of any general assets of Galaxy not belonging to a particular series or
Fund. In determining the net asset value of a particular series of a Fund,
assets belonging to the particular series of the Fund are charged with the
direct liabilities in respect of that series and with a share of the general
liabilities of Galaxy, which are allocated in proportion to the relative asset
values
- 60 -
<PAGE>
of the respective series and Funds at the time of allocation. Subject to the
provisions of Galaxy's Declaration of Trust, determinations by the Board of
Trustees as to the direct and allocable liabilities, and the allocable portion
of any general assets with respect to a particular series or Fund, are
conclusive.
Shareholders will receive unaudited semi-annual reports describing the
Funds' investment operations and annual financial statements audited by
independent certified public accountants.
A "vote of the holders of a majority of the outstanding shares" of a
particular Fund or a particular series of shares in a Fund means, with respect
to the approval of an investment advisory agreement, a distribution plan or a
change in an investment objective or fundamental investment policy, the
affirmative vote of the holders of the lesser of (a) more than 50% of the
outstanding shares of such Fund or such series of shares, or (b) 67% or more of
the shares of such Fund or such series of shares present at a meeting if more
than 50% of the outstanding shares of such Fund or such series of shares are
represented at the meeting in person or by proxy.
As of February 10, 1999, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding Trust
Shares of each of Galaxy's investment portfolios (including shares of the
Institutional Government Money Market Fund) were as follows: Money Market Fund
- -- Fleet New York, Fleet Investment Services, 159 East Main Street,
NY/RO/TO3C, Rochester, NY 14638, Account 00000150286 (99.78%); Tax-Exempt
Money Market Fund -- Fleet New York, Fleet Investment Services, 159 East Main
Street, NY/RO/TO3C, Rochester, NY 14638, Account 00000007717 (100.00%);
Government Money Market Fund --Fleet New York, Fleet Investment Services, 159
East Main Street, NY/RO/TO3C, Rochester, NY 14638, Account 00000012621
(98.33%); U.S. Treasury Money Market Fund -- Fleet New York, Fleet Investment
Services, 159 East Main Street, NY/RO/TO3C, Rochester, NY 14638, Account
00000015922 (94.34%); Institutional Government Money Market Fund -- Fleet New
York, Fleet Investment Services, 159 East Main Street, NY/RO/TO3C, Rochester,
NY 14638, Account 00000000019 (85.94%); Luitpold Pharmaceuticals Inc., Kirk
Sobecki, CFO, One Luitpold Drive, Shirley, NY 11967, Account 05100261441
(13.48%); Equity Value Fund -- Gales & Co., Fleet Investment Services, Mutual
Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account
00000000064 (77.81%); Gales & Co., Fleet Investment Services, Mutual Funds
Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account
00000003204 (15.83%); Gales & Co., Fleet Investment Services, Mutual Funds
Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account
00000011551 (6.28%); Equity Growth Fund -- Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000000082 (70.35%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000010017 (14.77%); Gales & Co., Fleet Investment Services, Mutual
Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account
00000030718 (14.86%); Equity Income Fund -- Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000015771 (50.44%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000003748 (35.41%); Gales & Co., Fleet Investment Services, Mutual
Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account
00000000037 (13.97%); International Equity Fund --Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000073 (44.94%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000876 (37.67%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000004088 (14.13%); Growth and Income Fund --
Gales & Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159
East Main Street, Rochester, NY 14638, Account 05000503793 (68.11%); Gales &
Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 05000503873 (22.88%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 0500503837 (9.00%); Asset Allocation Fund --
Gales & Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159
East Main Street, Rochester, NY 14638, Account 00000000073 (92.96%); Gales &
Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000002598 (6.48%); Small Company
Equity -- Gales & Co., Fleet Investment Services, Mutual Funds Unit -
NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account 00000000046
(67.11%); Gales & Co., Fleet Investment Services, Mutual Funds Unit -
NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account 00000001492
(24.22%); Gales & Co., Fleet Investment Services, Mutual Funds Unit -
NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account 00000006102
(6.76%); Small Cap Value Fund -- Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 05000503999 (54.74%); Gales & Co., Fleet Investment Services, Mutual
Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account
05000503917 (26.73%); Gales & Co., Fleet Investment Services, Mutual Funds
Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account
05000503953 (18.33%); Intermediate Government Income Fund -- Gales & Co.,
Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000038408 (39.35%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000007183 (34.25%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000037 (26.40%); High Quality Bond Fund --
Gales & Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159
East Main Street, Rochester, NY 14638, Account 00000000037 (65.56%); Gales &
Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000001465 (22.10%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000006095 (12.19%); Short-Term Bond Fund --
Gales & Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159
East Main Street, Rochester, NY 14638, Account 00000008627 (30.90%); Gales &
Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000000064 (45.50%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000001090 (23.45%); Tax-Exempt Bond Fund --
Gales & Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159
East Main Street, Rochester, NY 14638, Account 00000005809 (39.65%); Gales &
Co, Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000000028 (35.53%); Gales and Co.,
Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000000670 (24.82%); Connecticut
Municipal Bond Fund -- Gales & Co., Fleet Investment Services, Mutual Funds
Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account
00000000019 (78.73%); Gales & Co., Fleet Investment Services, Mutual Funds
Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account
00000000037 (20.73%); Massachusetts Municipal Bond Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000019 (52.51%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000073 (42.62%); Corporate Bond Fund --
Gales & Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159
East Main Street, Rochester, NY 14638, Account 00000000046 (47.67%); Gales &
Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000006102 (37.41%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000001492 (7.92%); New York Municipal Bond
Fund -- Gales & Co., Fleet Investment Services, Mutual Funds Unit -
NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account 00000000019
(10.94%); Gales & Co., Fleet Investment Services, Mutual Fund Unit -
NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account 00000001107
(76.04%); Gales & Co., Fleet Investment Services, Mutual Fund Unit -
NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account 00000005292
(13.03%); New Jersey Municipal Bond Fund -- Gales & Co., Fleet Investment
Services, Mutual Fund Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 5100115489 (56.68%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 5100115504 (43.32%); and Strategic Equity Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 5100115522 (98.61%).
As of February 10, 1999, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding
Retail A Shares of each of Galaxy's investment portfolios (including shares
of the Connecticut Municipal Money Market and Massachusetts Municipal Money
Market Funds) were as follows: Money Market Fund -- US Clearing, A Division
of Fleet Securities Inc., 26 Broadway, New York, NY 10004, Account 5100115684
(7.31%); Tax-Exempt Money Market Fund -- Hope H. Van Beuren, P.O. Box 4098,
Middletown, RI 02842, Account 00000025010 (8.52%); US Clearing, A Division of
Fleet Securities, Inc., 26 Broadway, New York, NY 10004, Account 05100115684
(5.11%); U.S. Treasury Money Market Fund -- US Clearing, a Division of Fleet
Securities Inc., 26 Broadway, New York, NY 10004, Account 05100115684
(11.57%); Massachusetts Municipal Money Market Fund -- Fleet New York, Fleet
Investment Services, 159 East Main St., NY/RO/TO3C, Rochester, NY 14638,
Account 05100058503 (56.38%); Connecticut Municipal Money Market Fund --
Fleet New York, Fleet Investment Services, 159 East Main St., NY/RO/TO3C,
Rochester, NY 14638, Account 05100058521 (45.93%); Rhode Island Municipal
Bond Fund --Gales & Co., Fleet Investment Services, Mutual Funds Unit -
NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account 00000001492
(38.50%); James R. McCulloch, c/o Microfibre, PO Box 1208, Pawtucket, RI
02860, Account 05000414933 (8.20%); New York Municipal Bond Fund -- Marilyn
J. Brantley, PO Box 65, 7276 Ramsey Road, Belfast, NY 14711, Account
05100977627 (10.73%); and New Jersey Municipal Bond Fund -- Jeffery W Golden,
7 Hampton Ridge CT, Old Tappan, NJ 07675, Account 05100780704 (19.59%); John
W. Maki & Kimberly McGrath Maki JT, 1 Connet Lane, Mendham, NJ, 07945,
Account 05100011377 (18.84%); US Clearing Corp., FBO 979-06374-12, 26
Broadway, New York, NY 10004-1798, Account 07000100574 (54.10%).
As of February 10, 1999, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding
Retail B Shares of each of Galaxy's investment portfolios were as follows:
Money Market Fund -- Keith Mooradian, 10 Fox Hollow, Worcester, MA 01605,
Account 05100583213 (5.33%); Steven R. Schwartz, 2393 Lake Elmo Avenue N,
Lake Elmo, MN 55042-8407, Account 5100583213 (8.45%); Worldmark Master Fund,
LLC, D. Dean Rhodes auth. officer or Richard J. Gates (investment adviser),
11466 Old Harber Road, N. Palm Beach, FL 33408, Account 05102031823 (13.46%);
Worldmark Master Fund, LLC, D. Dean Rhodes auth. officer or Richard J. Gates
(investment adviser) 11465 Old Harbor Road, N. Palm Beach, FL 33408, Account
05102074054 (10.58%); Equity Income Fund -- Francis G. White, 1611 Karr
Valley Road, Almond, NY 14804, Account 05103005468 (8.23%); Small Cap Value
Fund -- Fleet Bank NA, Cust. of the Roth conversion IRA, FBO Thomas Clayton,
19 Ward Avenue, Noank, CT 06340, Account 05102095461 (6.22%); Fleet Bank NA,
Cust. of the Roth Conversion IRA, FBO Owen F. McDonald, 351 Concord Road,
Billorica, MA 01821, Account 05103074295 (6.52%); Intermediate Government
Income Fund -- John G. Shomsky, 144 Powder Hill Road, Middlefield, CT 06455,
Account 05102006050 (7.89%); Harold J. Andrews, 29 First Street, Bristol, CT
06010, Account 05102025206 (9.48%); Donna R. Barlett, 4 Metclaf Street,
Warwick, RI 02888, Account 05102029650 (12.49%); Hong Yun Cust, Angela Kung
Utma NJ, 59 Peach Hill Court, Ramsey, NJ 07446, Account 05102063281 (7.78%);
Hong Yun Cust, Yanh Zhou Utma NJ, 59 Peach Hill Court, Ramsey, NJ 07446,
Account 05102063307 (7.78%); Angelo Gugliotti, Maria Gugliotti, Michael P.
Gugliotti, Joseph A. Gugliotti JT WROS, 40 Dover Road, Newington, CT 06111,
Account 05102096399 (5.33%); Margaret M. Ferris, 30 Crocker Avenue, W.
Hartford, CT 06110, Account 05103005841 (14.90%); Eileen G. Akers, 24 Lincoln
Avenue, Norwich, CT 06360, Account 05103045246 (7.82%); Short-Term Bond Fund
- -- Gabriella Dulac & Alain Dulac JTWROS, 40 Dix Road, Wethersfield, CT 06109,
Account 5100818032 (5.10%); Elizabeth Mugar, 10 Chestnut St., Apt. 1808,
Springfield, MA 01103, Account 5100760012 (8.09%); Tax-Exempt Bond Fund --
David Fendler & Sylvia Fendler JTWROS, 72 Brinkerhoff Ave., Stamford, CT
06905, Account 05100255354 (8.85%); Doris M. Peloquin, 43 Keene Street,
Providence, RI 02906-1520, Account 5100506413 (5.26%); Frances E. Stady, P.O.
Box 433, 3176 Main Street, Yorkshire, NY 14173, Account 05102027437 (6.81%);
US Clearing Corp., FBO 978-02869-11, 26 Broadway Street, New York, NY
10004-1798 Account 07000107096 (5.59%); and Strategic Equity Fund -- Claire
M. Dileone & Susan F. Torre JT WROS, 260 Waybosset Street, New Haven, CT
06513 (5.81%); Betsey Tan, 7 Donovan's Lane, Natick, MA 01760, Account
05101043778 (16.40%).
As of February 10, 1999, the name, address and share ownership of the
entities or persons that held beneficially more than 5% of the outstanding
Trust Shares of each of Galaxy's investment portfolios were as follows:
Money Market Fund--Stable Asset Fund, c/o Norstar Trust Co., Gales & Co., 159
East Main, Rochester, NY 14638, (8.86%); Government Money Fund -- Maine
Yankee Spent Fuel, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638 (8.51%); Beacon Mutual Insurance Co., c/o Norstar Trust
Co., Gales & Co., 159 East Main, Rochester, NY 14638 (5.98%); U.S. Treasury
Money Fund, Loring Walcott Client Sweep Acct., c/o Norstar Trust Co., Gales &
Co., 159 East Main, Rochester, NY 14638, (21.38%); Equity Value Fund--Fleet
Savings Plus-Equity Value, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (19.73%); Equity Growth Fund--Fleet Savings Plus-Equity
Growth, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY
14638, (23.81%); Nusco Retiree Health VEBA Trust, c/o Norstar Trust Co.,
Gales & Co., 159 East Main, Rochester, NY 14638, (7.70%); International
Equity Fund--FFG International Equity Fund, c/o Norstar Trust Co., Gales &
Co., 159 East Main, Rochester, NY 14638, (14.51%); Fleet Savings Plus-Intl.
Equity, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY
14638, (9.76%); Intermediate Govt. Inc. Fund --Nusco Retiree Health VEBA
Trust, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638
(5.52%); Strategic Equity Fund--FFG Retirement & Pension VDG, c/o Fleet
Financial Group, 159 East Main, Rochester, NY 14638, (93.97%); High Quality
Bond Fund--Fleet Savings Plus Plan-HQ Bond, c/o Norstar Trust Co., Gales &
Co., 159 East Main, Rochester, NY 14638 (22.39%); Asset Allocation
Fund--Fleet Savings Plus-Asset Allocation, c/o Norstar Trust Co., Gales &
Co., 159 East Main, Rochester, NY 14638, (25.93%); Small Company Equity
Fund--Fleet Savings Plus-Small Company, c/o Norstar Trust Co., Gales & Co.,
159 East Main, Rochester, NY 14638, (32.89%); Tax Exempt Bond Fund -- Nusco
Retiree Health VEBA Trust, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (33.75%); Connecticut Municipal Bond Fund -- Florence M.
Roberts, IMA Agency, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (5.10%); Robert W. Parsons, c/o Norstar Trust Co., Gales
& Co., 159 East Main, Rochester, NY 14638 (6.15%); Paul R. Tregurtha-FLA Inv.
Cus. Agent, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY
14638 (6.06%); Winifred M. Purdy Full IM, c/o Norstar Trust Co., Gales & Co.,
159 East Main, Rochester, NY 14638 (5.83%); Corporate Bond Fund--Cole Hersee
Pension Plan, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester,
NY 14638, (7.70%); Growth Income Fund--Fleet Savings Plus-Growth Income, c/o
Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638, (40.12%);
Crumpton & Knowles IARP, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638 (5.86%); Small Cap Value Fund--FFG Emp. Ret. Misc. Assets
SNC, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638,
(26.82%); Institutional Government Fund-- Aeroflex Inc. CAPFOC, c/o Norstar
Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638, (5.37%); P&P
Fireman TIC w/Custody, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638 (12.27%); New Jersey Municipal Bond Fund--Perillo Tours,
c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638,
(26.33%); Royal Chambord IMA, c/o Norstar Trust Co., Gales & Co., 159 East
Main, Rochester, NY, 14638, (13.17%); McKee, Wendell A. Marital Trust, c/o
Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638, (13.07%);
Varco Inc. IMA, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester,
NY 14638, (6.58%); Tiernan, Diana V. IA, c/o Norstar Trust Co., Gales & Co.,
159 East Main, Rochester, NY 14638, (5.97%); and Dunnington, Ruth U., c/o
Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638, (5.26%).
FINANCIAL STATEMENTS
Galaxy's Annual Report to Shareholders with respect to the Funds for the
fiscal year ended October 31, 1998 has been filed with the SEC. The
financial statements in such Annual Report (the "Financial Statements") are
incorporated by reference into this Statement of Additional Information. The
Financial Statements and Financial Highlights included in the Annual Report for
the Funds for the fiscal year ended October 31, 1998 have been audited by
Galaxy's former independent accountants, PricewaterhouseCoopers LLP, whose
report thereon also appears in such Annual Report and is incorporated herein
by reference. The Financial Statements in such Annual Report have been
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
- 61 -
<PAGE>
APPENDIX A
COMMERCIAL PAPER RATINGS
- ------------------------
A Standard & Poor's ("S&P") commercial paper rating is a current
assessment of the likelihood of timely payment of debt having an original
maturity of no more than 365 days. The following summarizes the rating
categories used by Standard and Poor's for commercial paper:
"A-1" - Obligations are rated in the highest category indicating that
the obligor's capacity to meet its financial commitment on the obligation is
strong. Within this category, certain obligations are designated with a plus
sign (+). This indicates that the obligor's capacity to meet its financial
commitment on these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rating categories. However, the obligor's capacity to meet its financial
commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
"B" - Obligations are regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and are
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.
"D" - Obligations are in payment default. The "D" rating category is
used when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The "D" rating will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually senior debt obligations not having an original
maturity in excess of one year, unless explicitly noted. The following
summarizes the rating categories used by Moody's for commercial paper:
A-1
<PAGE>
"Prime-1" - Issuers (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well-established industries; high rates of return on
funds employed; conservative capitalization structure with moderate reliance on
debt and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternate liquidity.
"Prime-2" - Issuers (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an acceptable
ability for repayment of senior short-term debt obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
"Not Prime" - Issuers do not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps
employs three designations, "D-1+," "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"D-1+" - Debt possesses the highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-
free U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
"D-2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.
A-2
<PAGE>
"D-3" - Debt possesses satisfactory liquidity and other protection
factors qualify issues as to investment grade. Risk factors are larger and
subject to more variation. Nevertheless, timely payment is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to insure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or interest
payments.
Fitch IBCA short-term ratings apply to debt obligations that have
time horizons of less than 12 months for most obligations, or up to three years
for U.S. public finance securities. The following summarizes the rating
categories used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This
designation indicates the strongest capacity for timely payment of financial
commitments and may have an added "+" to denote any exceptionally strong credit
feature.
"F2" - Securities possess good credit quality. This designation
indicates a satisfactory capacity for timely payment of financial commitments,
but the margin of safety is not as great as in the case of the higher ratings.
"F3" - Securities possess fair credit quality. This designation
indicates that the capacity for timely payment of financial commitments is
adequate; however, near-term adverse changes could result in a reduction to
non-investment grade.
"B" - Securities possess speculative credit quality. This designation
indicates minimal capacity for timely payment of financial commitments, plus
vulnerability to near-term adverse changes in financial and economic conditions.
"C" - Securities possess high default risk. This designation
indicates that default is a real possibility and that the capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
"D" - Securities are in actual or imminent payment default.
Thomson BankWatch short-term ratings assess the likelihood of an
untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson BankWatch:
A-3
<PAGE>
"TBW-1" - This designation represents Thomson BankWatch's highest
category and indicates a very high likelihood that principal and interest will
be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's second-
highest category and indicates that while the degree of safety regarding timely
repayment of principal and interest is strong, the relative degree of safety is
not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's lowest
investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those
with higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's lowest
rating category and indicates that the obligation is regarded as non-investment
grade and therefore speculative.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
- ----------------------------------------------
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
Obligations rated "BB," "B," "CCC," "CC" and "C" are regarded as
having significant speculative characteristics. "BB" indicates the least degree
of speculation and "C" the highest. While such obligations will likely have
some quality and protective
A-4
<PAGE>
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions.
"BB" - An obligation rated "BB" is less vulnerable to nonpayment than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to the obligor's inadequate capacity to meet its financial commitment on the
obligation.
"B" - An obligation rated "B" is more vulnerable to nonpayment than
obligations rated "BB", but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
"CCC" - An obligation rated "CCC" is currently vulnerable to
nonpayment, and is dependent upon favorable business, financial and economic
conditions for the obligor to meet its financial commitment on the obligation.
In the event of adverse business, financial, or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the
obligation.
"CC" - An obligation rated "CC" is currently highly vulnerable to
nonpayment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
"D" - An obligation rated "D" is in payment default. The "D" rating
category is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. The "D" rating also will
be used upon the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
"r" - This symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or volatility of
expected returns which are not addressed in the credit rating. Examples
include: obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk - such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
A-5
<PAGE>
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as high-
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds are considered as medium-grade obligations, (i.e., they
are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" are of poor standing; "Ca" represents obligations
which are speculative in a high degree; and "C" represents the lowest rated
class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (---) - Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic
rating classification from "Aa" through "Caa". The modifier 1 indicates that
the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range
A-6
<PAGE>
ranking; and the modifier 3 indicates a ranking in the lower end of its generic
rating category.
The following summarizes the long-term debt ratings used by Duff &
Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered to be of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable in periods of greater
economic stress.
"BBB" - Debt possesses below-average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt
rated "B" possesses the risk that obligations will not be met when due. Debt
rated "CCC" is well below investment grade and has considerable uncertainty as
to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch IBCA for corporate
and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. These ratings denote the lowest expectation of credit risk and
are assigned only in case of exceptionally strong capacity for timely payment of
financial commitments. This capacity is highly unlikely to be adversely
affected by foreseeable events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. These ratings denote a very low expectation of credit risk and
indicate very strong capacity for timely payment of financial commitments. This
capacity is not significantly vulnerable to foreseeable events.
A-7
<PAGE>
"A" - Bonds considered to be investment grade and of high credit
quality. These ratings denote a low expectation of credit risk and indicate
strong capacity for timely payment of financial commitments. This capacity may,
nevertheless, be more vulnerable to changes in circumstances or in economic
conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good credit
quality. These ratings denote that there is currently a low expectation of
credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity.
"BB" - Bonds considered to be speculative. These ratings indicate
that there is a possibility of credit risk developing, particularly as the
result of adverse economic changes over time; however, business or financial
alternatives may be available to allow financial commitments to be met.
Securities rated in this category are not investment grade.
"B" - Bonds are considered highly speculative. These ratings indicate
that significant credit risk is present, but a limited margin of safety remains.
Financial commitments are currently being met; however, capacity for continued
payment is contingent upon a sustained, favorable business and economic
environment.
"CCC", "CC", and "C" - Bonds have high default risk. Default is a
real possibility, and capacity for meeting financial commitments is solely
reliant upon sustained, favorable business or economic developments. "CC"
ratings indicate that default of some kind appears probable, and "C" ratings
signal imminent default.
"DDD," "DD" and "D" - Bonds are in default. Securities are not
meeting obligations and are extremely speculative. "DDD" designates the highest
potential for recovery of amounts outstanding on any securities involved and "D"
represents the lowest potential for recovery.
To provide more detailed indications of credit quality, the Fitch IBCA
ratings from and including "AA" to "B" may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major rating
categories.
Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes
the rating categories used by Thomson BankWatch for long-term debt ratings:
"AAA" - This designation indicates that the ability to repay principal
and interest on a timely basis is extremely high.
A-8
<PAGE>
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis, with limited incremental risk compared
to issues rated in the highest category.
"A" - This designation indicates that the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BBB" - This designation represents the lowest investment-grade
category and indicates an acceptable capacity to repay principal and interest.
Issues rated "BBB" are more vulnerable to adverse developments (both internal
and external) than obligations with higher ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned by
Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
- ----------------------
A Standard and Poor's rating reflects the liquidity concerns and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest, with some vulnerability to adverse
financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
A-9
<PAGE>
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
"MIG-1"/"VMIG-1" - This designation denotes best quality. There is
present strong protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high quality, with
margins of protection that are ample although not so large as in the preceding
group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality, with
all security elements accounted for but lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt instruments
in this category lack of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
A-10
<PAGE>
APPENDIX B
As stated above, the Funds may enter into futures transactions for hedging
purposes. The following is a description of such transactions.
I. INTEREST RATE FUTURES CONTRACTS
USE OF INTEREST RATE FUTURES CONTRACTS. Bond prices are established in
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the future
for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, the Funds may use interest rate futures
contracts as a defense, or hedge, against anticipated interest rate changes and
not for speculation. As described below, this would include the use of futures
contract sales to protect against expected increases in interest rates and
futures contract purchases to offset the impact of interest rate declines.
The Funds presently could accomplish a similar result to that which they
hope to achieve through the use of futures contracts by selling bonds with long
maturities and investing in bonds with short maturities when interest rates are
expected to increase, or conversely, selling short-term bonds and investing in
long-term bonds when interest rates are expected to decline. However, because
of the liquidity that is often available in the futures market, the protection
is more likely to be achieved, perhaps at a lower cost and without changing the
rate of interest being earned by the Funds, through using futures contracts.
DESCRIPTION OF INTEREST RATE FUTURES CONTRACTS. An interest rate futures
contract sale would create an obligation by a Fund, as seller, to deliver the
specific type of financial instrument called for in the contract at a specific
future time for a specified price. A futures contract purchase would create an
obligation by the Fund, as purchaser, to take delivery of the specific type of
financial instrument at a specific future time at a specific price. The specific
securities delivered or taken, respectively, at settlement date, would not be
determined until at or near that date. The determination would be in accordance
with the rules of the exchange on which the futures contract sale or purchase
was made.
Although interest rate futures contracts by their terms call for actual
delivery or acceptance of securities, in most cases the contracts are closed out
before the settlement date without the making or taking of delivery of
securities. Closing out a futures contract sale is effected by a Fund's
entering into a futures contract purchase for the same aggregate amount of the
specific type of financial instrument and the same delivery date. If the price
of the sale exceeds the price of the offsetting purchase, the Fund immediately
is paid the difference and thus realizes a gain. If the offsetting purchase
price exceeds the sale price, the Fund pays the difference and realizes a loss.
Similarly, the closing out of a futures contract purchase is effected by a Fund
entering into a futures contract sale. If the offsetting sale price exceeds the
purchase
B-1
<PAGE>
price, the Fund realizes a gain, and if the purchase price exceeds the
offsetting sale price, the Fund realizes a loss.
Interest rate futures contracts are traded in an auction environment on the
floors of several exchanges -- principally, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Futures Exchange. The Funds would
deal only in standardized contracts on recognized exchanges. Each exchange
guarantees performance under contract provisions through a clearing corporation,
a nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various financial
instruments including long-term United States Treasury Bonds and Notes;
Government National Mortgage Association (GNMA) modified pass-through mortgage
backed securities; three-month United States Treasury Bills; and ninety-day
commercial paper. The Funds may trade in any interest rate futures contracts
for which there exists a public market, including, without limitation, the
foregoing instruments.
EXAMPLE OF FUTURES CONTRACT SALE. The Funds would engage in an interest
rate futures contract sale to maintain the income advantage from continued
holding of a long-term bond while endeavoring to avoid part or all of the loss
in market value that would otherwise accompany a decline in long-term securities
prices. Assume that the market value of a certain security held by a particular
Fund tends to move in concert with the futures market prices of long-term United
States Treasury bonds ("Treasury bonds"). The adviser wishes to fix the current
market value of this portfolio security until some point in the future. Assume
the portfolio security has a market value of 100, and the adviser believes that,
because of an anticipated rise in interest rates, the value will decline to 95.
The Fund might enter into futures contract sales of Treasury bonds for an
equivalent of 98. If the market value of the portfolio security does indeed
decline from 100 to 95, the equivalent futures market price for the Treasury
bonds might also decline from 98 to 93.
In that case, the five point loss in the market value of the portfolio
security would be offset by the five point gain realized by closing out the
futures contract sale. Of course, the futures market price of Treasury bonds
might well decline to more than 93 or to less than 93 because of the imperfect
correlation between cash and futures prices mentioned below.
The adviser could be wrong in its forecast of interest rates, and the
equivalent futures market price could rise above 98. In this case, the market
value of the portfolio securities, including the portfolio security being
protected, would increase. The benefit of this increase would be reduced by the
loss realized on closing out the futures contract sale.
If interest rate levels did not change, the Fund in the above example might
incur a loss of 2 points (which might be reduced by an offsetting transaction
prior to the settlement date). In each transaction, transaction expenses would
also be incurred.
EXAMPLE OF FUTURES CONTRACT PURCHASE. A Fund would engage in an interest
rate futures contract purchase when it is not fully invested in long-term bonds
but wishes to defer for a time
B-2
<PAGE>
the purchase of long-term bonds in light of the availability of advantageous
interim investments, e.g., shorter term securities whose yields are greater than
those available on long-term bonds. A Fund's basic motivation would be to
maintain for a time the income advantage from investing in the short-term
securities; the Fund would be endeavoring at the same time to eliminate the
effect of all or part of an expected increase in market price of the long-term
bonds that the Fund may purchase.
For example, assume that the market price of a long-term bond that the Fund
may purchase, currently yielding 10%, tends to move in concert with futures
market prices of Treasury bonds. The adviser wishes to fix the current market
price (and thus 10% yield) of the long-term bond until the time (four months
away in this example) when it may purchase the bond. Assume the long-term bond
has a market price of 100, and the adviser believes that, because of an
anticipated fall in interest rates, the price will have risen to 105 (and the
yield will have dropped to about 9 1/2%) in four months. The Fund might enter
into futures contracts purchases of Treasury bonds for an equivalent price of
98. At the same time, the Fund would assign a pool of investments in short-term
securities that are either maturing in four months or earmarked for sale in four
months, for purchase of the long-term bond at an assumed market price of 100.
Assume these short-term securities are yielding 15%. If the market price of the
long-term bond does indeed rise from 100 to 105, the equivalent futures market
price for Treasury bonds might also rise from 98 to 103. In that case, the 5
point increase in the price that the Fund pays for the long-term bond would be
offset by the 5 point gain realized by closing out the futures contract
purchase.
The adviser could be wrong in its forecast of interest rates; long-term
interest rates might rise to above 10%; and the equivalent futures market price
could fall below 98. If short-term rates at the same time fall to 10% or below,
it is possible that the Fund would continue with its purchase program for long-
term bonds. The market price of available long-term bonds would have decreased.
The benefit of this price decrease, and thus yield increase, will be reduced by
the loss realized on closing out the futures contract purchase.
If, however, short-term rates remained above available long-term rates, it
is possible that the Fund would discontinue its purchase program for long-term
bonds. The yield on short-term securities in the portfolio, including those
originally in the pool assigned to the particular long-term bond, would remain
higher than yields on long-term bonds. The benefit of this continued
incremental income will be reduced by the loss realized on closing out the
futures contract purchase. In each transaction, expenses would also be
incurred.
II. MUNICIPAL BOND INDEX FUTURES CONTRACTS
A municipal bond index assigns relative values to the bonds included in the
index and the index fluctuates with changes in the market values of the bonds so
included. The Chicago Board of Trade has designed a futures contract based on
the Bond Buyer Municipal Bond Index. This Index is composed of 40 term revenue
and general obligation bonds, and its composition is updated regularly as new
bonds meeting the criteria of the Index are issued and existing bonds mature.
The Index is intended to provide an accurate indicator of trends and changes in
the
B-3
<PAGE>
municipal bond market. Each bond in the Index is independently priced by six
dealer-to-dealer municipal bond brokers daily. The 40 prices then are averaged
and multiplied by a coefficient. The coefficient is used to maintain the
continuity of the Index when its composition changes. The Chicago Board of
Trade, on which futures contracts based on this Index are traded, as well as
other U.S. commodities exchanges, are regulated by the Commodity Futures Trading
Commission. Transactions on such exchange are cleared through a clearing
corporation, which guarantees the performance of the parties to each contract.
EXAMPLE OF A MUNICIPAL BOND INDEX FUTURES CONTRACT
Consider a portfolio manager holding $1 million par value of each of the
following municipal bonds on February 2 in a particular year.
<TABLE>
<CAPTION>
Current Price
(points and
Maturity thirty-seconds
Issue Coupon Issue Date Date of a point)
- ----- ------------------------------------------ --------------------------
<S> <C> <C> <C> <C>
Ohio HFA 9 3/8 5/05/83 5/1/13 94-2
NYS Power 9 3/4 5/24/83 1/1/17 102-0
San Diego, CA IDR 10 6/07/83 6/1/18 100-14
Muscatine, IA Elec 10 5/8 8/24/83 1/1/08 103-16
Mass Health & Ed 10 9/23/83 7/1/16 100-12
</TABLE>
The current value of the portfolio is $5,003,750.
To hedge against a decline in the value of the portfolio, resulting from a
rise in interest rates, the portfolio manager can use the municipal bond index
futures contract. The current value of the Municipal Bond Index is 86-09.
Suppose the portfolio manager takes a position in the futures market opposite to
his or her cash market position by selling 50 municipal bond index futures
contracts (each contract represents $100,000 in principal value) at this price.
On March 23, the bonds in the portfolio have the following values:
<TABLE>
<CAPTION>
<S> <C>
Ohio HFA 81-28
NYS Power 98-26
San Diego, CA IDB 98-11
Muscatine, IA Elec 99-24
Mass Health & Ed 97-18
</TABLE>
The bond prices have fallen, and the portfolio has sustained a loss of
$130,312. This would have been the loss incurred without hedging. However, the
Municipal Bond Index also has fallen, and its value stands at 83-27. Suppose
now the portfolio manager closes out his or her futures position by buying back
50 municipal bond index futures contracts at this price.
B-4
<PAGE>
The following table provides a summary of transactions and the results of
the hedge.
<TABLE>
<CAPTION>
Cash Market Futures Market
----------- --------------
<S> <C> <C>
February 2 $5,003,750 long posi- Sell 50 Municipal Bond
tion in municipal futures contracts at
bonds 86-09
March 23 $4,873,438 long posi- Buy 50 Municipal Bond
tion in municipal futures contracts at
bonds 83-27
$130,312 Loss $121,875 Gain
</TABLE>
While the gain in the futures market did not entirely offset the loss in
the cash market, the $8,437 loss is significantly lower than the loss which
would have been incurred without hedging.
The numbers reflected in this appendix do not take into account the effect
of brokerage fees or taxes.
III. MARGIN PAYMENTS
Unlike purchases or sales of portfolio securities, no price is paid or
received by a Fund upon the purchase or sale of a futures contract. Initially,
the Fund will be required to deposit with the broker or in a segregated account
with Galaxy's custodian an amount of cash or cash equivalents, known as initial
margin, based on the value of the contract. The nature of initial margin in
futures transactions is different from that of margin in security transactions
in that futures contract margin does not involve the borrowing of funds by the
customer to finance the transactions. Rather, the initial margin is in the
nature of a performance bond or good faith deposit on the contract which is
returned to the Fund upon termination of the futures contract assuming all
contractual obligations have been satisfied. Subsequent payments, called
variation margin, to and from the broker, will be made on a daily basis as the
price of the underlying instruments fluctuates making the long and short
positions in the futures contract more or less valuable, a process known as
marking-to-the-market. For example, when a particular Fund has purchased a
futures contract and the price of the contract has risen in response to a rise
in the underlying instruments, that position will have increased in value and
the Fund will be entitled to receive from the broker a variation margin payment
equal to that increase in value. Conversely, where the Fund has purchased a
futures contract and the price of the future contract has declined in response
to a decrease in the underlying instruments, the position would be less valuable
and the Fund would be required to make a variation margin payment to the broker.
At any time prior to expiration of the futures contract, the adviser may elect
to close the position by taking an opposite position, subject to the
availability of a secondary market, which will operate to terminate the Fund's
position in the futures contract. A final determination of variation margin is
then made, additional cash is required to be paid by or released to the Fund,
and the Fund realizes a loss or gain.
B-5
<PAGE>
IV. RISKS OF TRANSACTIONS IN FUTURES CONTRACTS
There are several risks in connection with the use of futures by the Funds
as hedging devices. One risk arises because of the imperfect correlation
between movements in the price of the futures and movements in the price of the
instruments that are the subject of the hedge. The price of the futures may
move more than or less than the price of the instruments being hedged. If the
price of the futures moves less than the price of the instruments which are the
subject of the hedge, the hedge will not be fully effective but, if the price of
the instruments being hedged has moved in an unfavorable direction, a Fund would
be in a better position than if it had not hedged at all. If the price of the
instruments being hedged has moved in a favorable direction, this advantage will
be partially offset by the loss on the futures. If the price of the futures
moves more than the price of the hedged instruments, the Funds involved will
experience either a loss or gain on the futures, which will not be completely
offset by movements in the price of the instruments which are the subject of the
hedge. To compensate for the imperfect correlation of movements in the price of
instruments being hedged and movements in the price of futures contracts, a Fund
may buy or sell futures contracts in a greater dollar amount than the dollar
amount of instruments being hedged if the volatility over a particular time
period of the prices of such instruments has been greater than the volatility
over such time period of the futures, or if otherwise deemed to be appropriate
by the investment adviser. Conversely, a Fund may buy or sell fewer futures
contracts if the volatility over a particular time period of the prices of the
instruments being hedged is less than the volatility over such time period of
the futures contract being used, or if otherwise deemed to be appropriate by
Fleet. It is also possible that, where a Fund had sold futures to hedge its
portfolio against a decline in the market, the market may advance and the value
of instrments held in the Fund may decline. If this occurred, the Fund would
lose money on the futures and also experience a decline in value in its
portfolio securities.
Where futures are purchased to hedge against a possible increase in the
price of securities before a Fund is able to invest its cash (or cash
equivalents) in an orderly fashion, it is possible that the market may decline
instead; if the Fund then concludes not to invest its cash at that time because
of concern as to possible further market decline or for other reasons, the Fund
will realize a loss on the futures contract that is not offset by a reduction in
the price of the instruments that were to be purchased.
In instances involving the purchase of futures contracts by a Fund, an
amount of cash and cash equivalents, equal to the market value of the futures
contracts, will be deposited in a segregated account with Galaxy's custodian
and/or in a margin account with a broker to collateralize the position and
thereby insure that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between movements in the futures and the instruments
being hedged, the price of futures may not correlate perfectly with movement in
the cash market due to certain market distortions. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through off-setting transactions that could distort the normal relationship
between the cash and futures markets. Second, with respect to financial futures
contracts, the liquidity of the
B-6
<PAGE>
futures market depends on participants entering into off-setting transactions
rather than making or taking delivery. To the extent participants decide to
make or take delivery, liquidity in the futures market could be reduced thus
producing distortions. Third, from the point of view of speculators, the
deposit requirements in the futures market are less onerous than margin
requirements in the securities market. Therefore, increased participation by
speculators in the futures market may also cause temporary price distortions.
Due to the possibility of price distortion in the futures market, and because of
the imperfect correlation between the movements in the cash market and movements
in the price of futures, a correct forecast of general market trends or interest
rate movements by the adviser may still not result in a successful hedging
transaction over a short time frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Funds
intend to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance that a liquid
secondary market on any exchange or board of trade will exist for any particular
contract or at any particular time. In such event, it may not be possible to
close a futures investment position, and in the event of adverse price
movements, a Fund would continue to be required to make daily cash payments of
variation margin. However, in the event futures contracts have been used to
hedge portfolio securities, such securities will not be sold until the futures
contract can be terminated. In such circumstances, an increase in the price of
the securities, if any, may partially or completely offset losses on the futures
contract. However, as described above, there is no guarantee that the price of
the securities will in fact correlate with the price movements in the futures
contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary market in a
futures contract may be adversely affected by "daily price fluctuation limits"
established by commodity exchanges which limit the amount of fluctuation in a
futures contract price during a single trading day. Once the daily limit has
been reached in the contract, no trades may be entered into at a price beyond
the limit, thus preventing the liquidation of open futures positions. The
trading of futures contracts is also subject to the risk of trading halts,
suspensions, exchange or clearing house equipment failures, government
intervention, insolvency of a brokerage firm or clearing house or other
disruptions of normal activity, which could at times make it difficult or
impossible to liquidate existing positions or to recover excess variation margin
payments.
Successful use of futures by the Funds is also subject to the adviser's
ability to predict correctly movements in the direction of the market. For
example, if a particular Fund has hedged against the possibility of a decline in
the market adversely affecting securities held by it and securities prices
increase instead, the Fund will lose part or all of the benefit to the increased
value of its securities which it has hedged because it will have offsetting
losses in its futures positions. In addition, in such situations, if the Fund
has insufficient cash, it may have to sell securities to meet daily variation
margin requirements. Such sales of securities may be, but will not necessarily
be, at increased prices which reflect the rising market. The Funds may have to
sell securities at a time when it may be disadvantageous to do so.
B-7
<PAGE>
THE GALAXY FUND
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 28, 1999
GALAXY MONEY MARKET FUND GALAXY GOVERNMENT FUND
GALAXY U.S. TREASURY FUND
RETAIL A SHARES, RETAIL B SHARES AND GALAXY TAX-EXEMPT FUND
TRUST SHARES
RETAIL A SHARES AND TRUST SHARES
GALAXY INSTITUTIONAL GOVERNMENT MONEY MARKET FUND
GALAXY CONNECTICUT MUNICIPAL MONEY MARKET FUND
GALAXY MASSACHUSETTS MUNICIPAL MONEY MARKET FUND
SHARES
This Statement of Additional Information is not a prospectus. The
prospectuses for the Funds as listed below, as they may be supplemented or
revised from time to time (the "Prospectuses"), as well as the Funds' Annual
Report to Shareholders dated October 31, 1998 (the "Annual Report"), may be
obtained, without charge, by writing:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
or by calling 1-877-BUY-GALAXY (1-877-289-4252)
Current Prospectuses
- - Prospectus for Retail A Shares and Retail B Shares of the Money Market
Fund, Retail A Shares of the Government, U.S. Treasury and Tax-Exempt
Funds, and Shares of the Connecticut Municipal Money Market and
Massachusetts Municipal Money Market Funds dated February 28, 1999
- - Prospectus for Trust Shares of the Money Market, Government, U.S. Treasury
and Tax-Exempt Funds and Shares of the Institutional Government Money
Market Fund dated February 28, 1999
The financial statements included in the Annual Report and the report
thereon of PRICEWATERHOUSECOOPERS LLP, The Galaxy Funds' independent
accountants, are INCORPORATED BY REFERENCE into this Statement of Additional
Information.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
DESCRIPTION OF GALAXY AND ITS SHARES . . . . . . . . . . . . . . . . . . . . .1
INVESTMENT STRATEGIES, POLICIES AND RISKS. . . . . . . . . . . . . . . . . . .4
Money Market Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Government Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
U.S. Treasury Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Tax-Exempt Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Institutional Government Money Market Fund. . . . . . . . . . . . . . . .5
Connecticut Municipal Money Market Fund . . . . . . . . . . . . . . . . .5
Massachusetts Municipal Money Market Fund . . . . . . . . . . . . . . . .6
Other Investment Policies and Risk Considerations . . . . . . . . . . . .6
Quality Requirements. . . . . . . . . . . . . . . . . . . . . . . . . . .7
U.S. Government Obligations . . . . . . . . . . . . . . . . . . . . . . .7
Money Market Instruments. . . . . . . . . . . . . . . . . . . . . . . . .8
Municipal Securities. . . . . . . . . . . . . . . . . . . . . . . . . . .9
Stand-By Commitments. . . . . . . . . . . . . . . . . . . . . . . . . . 12
Tender Option Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Variable and Floating Rate Instruments. . . . . . . . . . . . . . . . . 13
Repurchase and Reverse Repurchase Agreements. . . . . . . . . . . . . . 14
When-Issued and Delayed Settlement Transactions . . . . . . . . . . . . 15
Securities Lending -- Money Market and Government Funds . . . . . . . . 16
Guaranteed Investment Contracts -- Money Market Fund. . . . . . . . . . 16
Asset-Backed Securities -- Money Market Fund. . . . . . . . . . . . . . 16
Investment Company Securities -- Tax-Exempt Money Market Funds and the
Institutional Government Money Market Fund . . . . . . . . . . . . 17
Non-Diversification - Connecticut Municipal Money Market and
Massachusetts Municipal Money Market Funds . . . . . . . . . . . . 18
Connecticut Investment Risks. . . . . . . . . . . . . . . . . . . . . . 18
Massachusetts Investment Risks. . . . . . . . . . . . . . . . . . . . . 22
Portfolio Securities Generally. . . . . . . . . . . . . . . . . . . . . 22
INVESTMENT LIMITATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
NET ASSET VALUE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION . . . . . . . . . . . . . . . 31
Purchases of Retail Shares and Shares of the Institutional Government
Money Market Fund. . . . . . . . . . . . . . . . . . . . . . . . . 31
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Customers of Institutions . . . . . . . . . . . . . . . . . . . . . . . 32
Other Purchase Information. . . . . . . . . . . . . . . . . . . . . . . 32
Applicable Sales Charges - Retail B Shares. . . . . . . . . . . . . . . 32
Purchases of Trust Shares . . . . . . . . . . . . . . . . . . . . . . . 34
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
Redemption of Retail A Shares, Retail B Shares and Trust Shares . . . . 34
INVESTOR PROGRAMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Exchange Privilege - Retail Shares and Institutional Shares . . . . . . 35
Retirement Plans - Retail Shares. . . . . . . . . . . . . . . . . . . . 36
Automatic Investment Program and Systematic Withdrawal Plan -
Retail Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 37
College Investment Program - Retail Shares. . . . . . . . . . . . . . . 37
Checkwriting - Retail Shares. . . . . . . . . . . . . . . . . . . . . . 37
Direct Deposit Program - Retail Shares. . . . . . . . . . . . . . . . . 38
TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
State and Local . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
TRUSTEES AND OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Shareholder and Trustee Liability . . . . . . . . . . . . . . . . . . . 45
INVESTMENT ADVISER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Authority to Act as Investment Adviser. . . . . . . . . . . . . . . . . 48
ADMINISTRATOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
CUSTODIAN AND TRANSFER AGENT . . . . . . . . . . . . . . . . . . . . . . . . 50
EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
SHAREHOLDER SERVICES PLAN. . . . . . . . . . . . . . . . . . . . . . . . . . 53
DISTRIBUTION AND SERVICES PLAN . . . . . . . . . . . . . . . . . . . . . . . 55
DISTRIBUTOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
COUNSEL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
PERFORMANCE AND YIELD INFORMATION. . . . . . . . . . . . . . . . . . . . . . 59
Tax-Equivalency Tables - Connecticut Municipal Money Market and
Massachusetts Municipal Money Market Funds . . . . . . . . . . . . 61
Performance Reporting . . . . . . . . . . . . . . . . . . . . . . . . . 62
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
APPENDIX A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-1
</TABLE>
-II-
<PAGE>
GENERAL INFORMATION
This Statement of Additional Information should be read in conjunction with
a current Prospectus. This Statement of Additional Information relates to the
Prospectuses for Retail A Shares, Retail B Shares and Trust Shares of the Money
Market Fund, Retail A Shares and Trust Shares of each of the Government, U.S.
Treasury and Tax-Exempt Funds, and Shares of each of the Institutional
Government Money Market, Connecticut Municipal Money Market and Massachusetts
Municipal Money Market Funds. No investment in shares of the Funds should be
made without reading a Prospectus.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUNDS ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL VARY AS A RESULT OF MARKET CONDITIONS OR OTHER FACTORS SO THAT SHARES
OF THE FUNDS, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
THE PRINCIPAL AMOUNT INVESTED.
DESCRIPTION OF GALAXY AND ITS SHARES
The Galaxy Fund ("Galaxy") is an open-end management investment company
currently offering shares of beneficial interest in twenty-nine investment
portfolios: Money Market Fund, Government Fund, U.S. Treasury Fund, Tax-Exempt
Fund, Connecticut Municipal Money Market Fund, Massachusetts Municipal Money
Market Fund, Institutional Government Money Market Fund, Prime Reserves,
Government Reserves, Tax-Exempt Reserves, Equity Value Fund, Equity Growth Fund,
Equity Income Fund, International Equity Fund, Small Company Equity Fund, Asset
Allocation Fund, Small Cap Value Fund, Growth and Income Fund, Strategic Equity
Fund, Short-Term Bond Fund, Intermediate Government Income Fund, High Quality
Bond Fund, Corporate Bond Fund, Tax-Exempt Bond Fund, New Jersey Municipal Bond
Fund, New York Municipal Bond Fund, Connecticut Municipal Bond Fund,
Massachusetts Municipal Bond Fund and Rhode Island Municipal Bond Fund. Galaxy
is also authorized to issue shares of beneficial interest in an additional
investment portfolio, the MidCap Equity Fund. As of the date of this Statement
of Additional Information, however, the MidCap Equity Fund had not commenced
investment operations.
Galaxy was organized as a Massachusetts business trust on March 31, 1986.
Galaxy's Declaration of Trust authorizes the Board of Trustees to classify or
reclassify any unissued shares into one or more classes or series of shares by
setting or changing in any one or more respects their respective preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption. Pursuant to
such authority, the Board of Trustees has authorized the issuance of an
unlimited number of shares in each of the series in the Funds as follows: Class
A Shares (Retail A Shares), Class A --
-1-
<PAGE>
Special Series 1 Shares (Trust Shares) and Class A -- Special Series 2 Shares
(Retail B Shares), each series representing interests in the Money Market Fund;
Class B Shares (Retail A Shares) and Class B -- Special Series 1 Shares (Trust
Shares), each series representing interests in the Government Fund; Class E
Shares (Retail A Shares) and Class E -- Special Series 1 Shares (Trust Shares),
each series representing interests in the Tax-Exempt Fund; Class F Shares
(Retail A Shares) and Class F -- Special Series 1 Shares (Trust Shares), each
series representing interests in the U.S. Treasury Fund; Class S Shares
representing interests in the Institutional Government Money Market Fund; Class
V Shares, representing interests in the Connecticut Municipal Money Market Fund;
and Class W Shares, representing interests in the Massachusetts Municipal Money
Market Fund. Each Fund (other than the Connecticut Municipal Money Market and
Massachusetts Municipal Money Market Funds) is classified as a diversified
company under the Investment Company Act of 1940, as amended (the "1940 Act").
The Connecticut Municipal Money Market and Massachusetts Municipal Money Market
Funds are classified as non-diversified investment companies under the 1940 Act.
Each share of Galaxy (irrespective of series designation) has a par value
of $.001 per share, represents an equal proportionate interest in the related
investment portfolio with other shares of the same class (irrespective of series
designation), and is entitled to such dividends and distributions out of the
income earned on the assets belonging to such investment portfolio as are
declared in the discretion of Galaxy's Board of Trustees.
Shares have no preemptive rights and only such conversion or exchange
rights as the Board of Trustees may grant in its discretion. When issued for
payment as described in the Prospectuses, shares will be fully paid and
non-assessable. Each series of shares (i.e., Retail A Shares, Retail B Shares
and Trust Shares) bear pro rata the same expenses and are entitled equally to a
Fund's dividends and distributions except as follows. Each series will bear the
expenses of any distribution and/or shareholder servicing plans applicable to
such series. For example, as described below, holders of Retail A Shares will
bear the expenses of the Shareholder Services Plan for Retail A Shares and Trust
Shares (which is currently applicable only to Retail A Shares) and holders of
Retail B Shares will bear the expenses of the Distribution and Services Plan for
Retail B Shares. In addition, each series may incur differing transfer agency
fees and may have differing sales charges. Standardized yield and total return
quotations are computed separately for each series of shares. The differences
in expenses paid by the respective series will affect their performance. See
"Shareholder Services Plan" and Distribution and Services Plan" below.
Holders of all outstanding shares of a particular Fund will vote together
in the aggregate and not by series on all matters, except that only shares of a
particular series of a Fund will be entitled to vote on matters submitted to a
vote of shareholders pertaining to any distribution and/or shareholder servicing
plan for such series (e.g., only Retail A Shares and Trust Shares of a Fund will
be entitled to vote on matters submitted to a vote of shareholders pertaining to
Galaxy's Shareholder Services Plan for Retail A Shares and Trust Shares and only
Retail B Shares of the Money Market Fund will be entitled to vote on matters
pertaining to Galaxy's Distribution and Services Plan for Retail B Shares).
Further, shareholders of all of the Funds, as well as those of any other
investment portfolio now or hereafter offered by Galaxy, will vote
-2-
<PAGE>
together in the aggregate and not separately on a Fund-by-Fund basis, except as
otherwise required by law or when permitted by the Board of Trustees. Rule
18f-2 under the 1940 Act provides that any matter required to be submitted to
the holders of the outstanding voting securities of an investment company such
as Galaxy shall not be deemed to have been effectively acted upon unless
approved by the holders of a majority of the outstanding shares of each Fund
affected by the matter. A particular Fund is deemed to be affected by a matter
unless it is clear that the interests of each Fund in the matter are
substantially identical or that the matter does not affect any interest of the
Fund. Under the Rule, the approval of an investment advisory agreement or any
change in an investment objective or a fundamental investment policy would be
effectively acted upon with respect to a Fund only if approved by a majority of
the outstanding shares of such Fund (irrespective of series designation).
However, the Rule also provides that the ratification of the appointment of
independent public accountants, the approval of principal underwriting
contracts, and the election of trustees may be effectively acted upon by
shareholders of Galaxy voting without regard to class or series.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and will vote in
the aggregate and not by class or series, except as otherwise expressly required
by law or when the Board of Trustees determines that the matter to be voted on
affects only the interests of shareholders of a particular class or series.
Voting rights are not cumulative and, accordingly, the holders of more than 50%
in the aggregate of Galaxy's outstanding shares may elect all of the trustees,
irrespective of the votes of other shareholders.
Galaxy is not required under Massachusetts law to hold annual shareholder
meetings and intends to do so only if required by the 1940 Act. Shareholders
have the right to remove Trustees. Galaxy's Declaration of Trust provides that
a meeting of shareholders shall be called by the Board of Trustees upon a
written request of shareholders owning at least 10% of the outstanding shares of
Galaxy entitled to vote.
Galaxy's Declaration of Trust authorizes the Board of Trustees, without
shareholder approval (unless otherwise required by applicable law), to (a) sell
and convey the assets of a Fund to another management investment company for
consideration which may include securities issued by the purchaser and, in
connection therewith, to cause all outstanding shares of the Fund involved to be
redeemed at a price which is equal to their net asset value and which may be
paid in cash or by distribution of the securities or other consideration
received from the sale and conveyance; (b) sell and convert a Fund's assets into
money and, in connection therewith, to cause all outstanding shares of the Fund
involved to be redeemed at their net asset value; or (c) combine the assets
belonging to a Fund with the assets belonging to another Fund of Galaxy and, in
connection therewith, to cause all outstanding shares of any Fund to be redeemed
at their net asset value or converted into shares of another class of Galaxy's
shares at the net asset value. In the event that shares are redeemed in cash at
their net asset value, a shareholder may receive in payment for such shares, due
to changes in the market prices of the Fund's portfolio securities, an amount
that is more or less than the original investment. The exercise of such
authority by the Board of Trustees will be subject to the provisions of the 1940
Act, and the
-3-
<PAGE>
Board of Trustees will not take any action described in this paragraph unless
the proposed action has been disclosed in writing to the Fund's shareholders at
least 30 days prior thereto.
INVESTMENT STRATEGIES, POLICIES AND RISKS
Fleet Investment Advisors Inc. ("Fleet"), the Fund's investment adviser,
will use its best efforts to achieve each Fund's investment objective, although
such achievement cannot be assured. The investment objective of a Fund, as
described in its Prospectus(es), may not be changed without the approval of the
holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Except as noted herein under "Tax-Exempt Fund," "Connecticut
Municipal Money Market Fund" and "Massachusetts Municipal Money Market Fund" and
below under "Investment Limitations," a Fund's investment policies may be
changed without shareholder approval. An investor should not consider an
investment in the Funds to be a complete investment program. Each Fund will
maintain a dollar-weighted average portfolio maturity of 90 days or less in an
effort to maintain a stable net asset value per share of $1.00. The value of
the Funds' portfolio securities will generally vary inversely with changes in
prevailing interest rates. The following investment strategies, policies and
risks supplement those set forth in the Funds' Prospectuses.
MONEY MARKET FUND
Instruments in which the Money Market Fund invests have remaining
maturities of 397 days or less (except for certain variable and floating rate
notes and securities underlying certain repurchase agreements). For more
information, including applicable quality requirements, see "Other Investment
Policies and Risk Considerations" below.
GOVERNMENT FUND
Instruments in which the Government Fund invests have remaining maturities
of 397 days or less (except for certain variable and floating rate notes and
securities underlying certain repurchase agreements). See "Other Investment
Policies and Risk Considerations" below.
U.S. TREASURY FUND
Instruments in which the U.S. Treasury Fund invests may include, but are
not limited to, securities issued by the U.S. Treasury and by certain U.S.
Government agencies or instrumentalities such as the Federal Home Loan Banks and
Federal Farm Credit Banks. The Fund invests at least 65% of its total assets in
direct U.S. Government obligations. Shareholders residing in a particular state
that has an income tax law should determine through consultation with their own
tax advisers whether such interest income, when distributed by the Fund, will be
considered by the state to have retained exempt status and whether the Fund's
capital gain and other income, if any, when so distributed will be subject to
the state's income tax. See "Taxes."
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Portfolio securities held by the Fund have remaining maturities of 397 days
or less (with certain exceptions). The Fund may also invest in certain variable
and floating rate instruments. For more information, including applicable
quality requirements, see "Other Investment Policies and Risk Considerations"
below.
TAX-EXEMPT FUND
Municipal Securities in which the Tax-Exempt Fund invests present minimal
credit risk and meet the rating criteria described under "Other Investment
Policies and Risk Considerations - Quality Requirements" below. Municipal
Securities, as that term is used in this Statement of Additional Information,
are debt obligations issued by or on behalf of states, territories and
possessions of the United States, the District of Columbia, and their
authorities, agencies, instrumentalities and political subdivisions, the
interest on which, in the opinion of bond counsel or counsel to the issuer, is
exempt from federal income tax.
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Fund's shareholders, the Fund will invest, except
during temporary defensive periods, at least 80% of its assets in Municipal
Securities. The Fund's investments in private activity bonds will not be
treated as investments in Municipal Securities for purposes of the 80%
requirement mentioned above and, under normal market conditions, will not exceed
20% of the Fund's net assets when added together with any taxable investments
held by the Fund.
Although the Fund does not presently intend to do so on a regular basis, it
may invest more than 25% of its assets in Municipal Securities the interest on
which is paid solely from revenues of similar projects. To the extent that the
Fund's assets are concentrated in Municipal Securities payable from revenues on
similar projects, the Fund will be subject to the peculiar risks presented by
such projects to a greater extent than it would be if its assets were not so
invested.
The Fund's portfolio securities will generally have remaining maturities of
397 days or less (except for certain variable and floating rate notes and
securities underlying certain repurchase agreements). See "Other Investment
Policies and Risk Considerations" below.
INSTITUTIONAL GOVERNMENT MONEY MARKET FUND
Instruments in which the Institutional Government Money Market Fund invests
have remaining maturities of 397 days or less (except for certain variable and
floating rate notes and securities underlying certain repurchase agreements).
See "Other Investment Policies and Risk Considerations" below.
CONNECTICUT MUNICIPAL MONEY MARKET FUND
The Connecticut Municipal Money Market Fund attempts to achieve its
objective by investing in a portfolio of debt obligations issued by or on behalf
of the State of Connecticut, its political subdivisions, or public
instrumentalities, state or local authorities, districts or similar
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public entities created under Connecticut law, and obligations of territories
and possessions of the United States and any political sub-division or financing
authority of any of these, the interest income from which is, in the opinion of
qualified legal counsel, exempt from both federal regular income tax and the
Connecticut state income tax on individuals, trusts and estates ("Connecticut
Municipal Securities") with remaining maturities of 397 days or less at the time
of purchase (with certain exceptions). Examples of Connecticut Municipal
Securities include, but are not limited to, municipal commercial paper and other
short-term notes; variable rate demand notes; municipal bonds (including bonds
having remaining maturities of less than 397 days without demand features); and
tender option bonds. See "Other Investment Policies and Risk Considerations"
below. As a matter of fundamental policy that cannot be changed without
shareholder approval, the Fund invests its assets so that at least 80% of its
annual interest income is exempt from federal regular income tax or at least 80%
of the total value of its assets is invested in obligations the interest income
from which is exempt from federal regular income tax.
MASSACHUSETTS MUNICIPAL MONEY MARKET FUND
The Massachusetts Municipal Money Market Fund attempts to achieve its
objective by investing in a portfolio of debt obligations issued by or on behalf
of the Commonwealth of Massachusetts and its political subdivisions and
financing authorities, and obligations of other states, territories and
possessions of the United States, including the District of Columbia, and any
political sub-division or financing authority of any of these, the interest
income from which is, in the opinion of qualified legal counsel, exempt from
federal regular income tax and the income taxes imposed by the Commonwealth of
Massachusetts upon non-corporate taxpayers ("Massachusetts Municipal
Securities") with remaining maturities of 397 days or less at the time of
purchase (with certain exceptions). Examples of Massachusetts Municipal
Securities include, but are not limited to, municipal commercial paper and other
short-term notes; variable rate demand notes; municipal bonds (including bonds
having remaining maturities of less than 397 days without demand features); and
tender option bonds. See "Other Investment Policies and Risk Considerations"
below. As a matter of fundamental policy that cannot be changed without
shareholder approval, the Fund invests its assets so that at least 80% of its
annual interest income is exempt from federal regular income tax or at least 80%
of the total value of its assets are invested in obligations the interest income
from which is exempt from federal regular income tax.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in the Prospectuses and this Statement of
Additional Information are among those which one or more of the Funds have the
power to utilize. Some may be employed on a regular basis; others may not be
used at all. Accordingly, reference to any particular method or technique
carries no implication that it will be utilized or, if it is, that it will be
successful.
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QUALITY REQUIREMENTS
Each Fund will purchase only those instruments which meet the applicable
quality requirements described below. The Money Market Fund will not purchase a
security (other than a U.S. Government security) unless the security or the
issuer with respect to comparable securities (i) is rated by at least two
nationally recognized statistical rating organizations ("Rating Agencies") (such
as Standard & Poor's Ratings Group ("S&P"), Moody's Investors Service, Inc.
("Moody's") or Fitch IBCA, Inc. ("Fitch IBCA") in the highest category for
short-term debt securities, (ii) is rated by the only Rating Agency that has
issued a rating with respect to such security or issuer in such Rating Agency's
highest category for short-term debt, or (iii) if not rated, the security is
determined to be of comparable quality. The Tax-Exempt Fund, Connecticut
Municipal Money Market Fund and Massachusetts Municipal Money Market Fund
(collectively, the "Tax-Exempt Money Market Funds") will not purchase a security
(other than a U.S. Government security) unless the security (i) is rated by at
least two such Rating Agencies in one of the two highest categories for
short-term debt securities, (ii) is rated by the only Rating Agency that has
assigned a rating with respect to such security in one of such Rating Agency's
two highest categories for short-term debt securities, or (iii) if not rated,
the security is determined to be of comparable quality. These rating categories
are determined without regard to sub-categories and gradations. The Funds will
follow applicable regulations in determining whether a security rated by more
than one Rating Agency can be treated as being in the highest or, with respect
to the Tax-Exempt Money Market Funds one of the two highest, short-term rating
categories. See "Investment Limitations" below.
Determinations of comparable quality will be made in accordance with
procedures established by the Board of Trustees. Generally, if a security has
not been rated by a Rating Agency, Fleet will acquire the security if it
determines that the security is of comparable quality to securities that have
received the requisite ratings. For example, with respect to the Connecticut
Municipal Money Market and Massachusetts Municipal Money Market Funds, Fleet
will generally treat Connecticut Municipal Securities or Massachusetts Municipal
Securities, as the case may be, as eligible portfolio securities if the issuer
has received long-term bond ratings within the three highest rating categories
assigned by a Rating Agency with respect to other bond issues. Fleet also
considers other relevant information in its evaluation of unrated short-term
securities.
U.S. GOVERNMENT OBLIGATIONS
Examples of the types of obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities (hereinafter, "U.S. Government
obligations") that may be held by the Funds include, without limitation, direct
obligations of the U.S. Treasury, and securities issued or guaranteed by the
Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, Federal
Housing Administration, Farmers Home Administration, Export-Import Bank of the
United States, Small Business Administration, Government National Mortgage
Association, Federal National Mortgage Association, General Services
Administration, Central Bank for Cooperatives, Federal Home Loan Mortgage
Corporation, Federal Intermediate Credit Banks, Resolution Trust Corporation and
Maritime Administration.
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U.S. Treasury securities differ only in their interest rates, maturities
and time of issuance: Treasury Bills have initial maturities of one year or
less; Treasury Notes have initial maturities of one to ten years; and Treasury
Bonds generally have initial maturities of more than 10 years. Obligations of
certain agencies and instrumentalities of the U.S. Government, such as the
Government National Mortgage Association, are supported by the full faith and
credit of the U.S. Treasury; others, such as those of the Federal Home Loan
Banks, are supported by the right of the issuer to borrow from the Treasury;
others, such as those of the Federal National Mortgage Association, are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; still others, such as those of the Federal Home Loan
Mortgage Corporation, are supported only by the credit of the instrumentality.
No assurance can be given that the U.S. Government would provide financial
support to U.S. Government-sponsored instrumentalities if it is not obligated to
do so by law. Some U.S. Government obligations may be issued as variable or
floating rate instruments.
Securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities have historically involved little risk of loss of principal.
However, due to fluctuations in interest rates, the market value of such
securities may vary during the period a shareholder owns shares of the Funds.
The U.S. Treasury Fund will invest in those securities issued or guaranteed
as to principal and interest by the U.S. Government or by agencies or
instrumentalities thereof, the interest income from which, under current law,
generally will not be subject to state income tax by reason of federal law.
MONEY MARKET INSTRUMENTS
"Money market" instruments include bank obligations and corporate
obligations, including commercial paper and corporate bonds with remaining
maturities of 397 days or less.
Bank obligations include bankers' acceptances, negotiable certificates of
deposit and non-negotiable time deposits issued for a definite period of time
and earning a specified return by a U.S. bank that is a member of the Federal
Reserve System or is insured by the Federal Deposit Insurance Corporation
("FDIC"), or by a savings and loan association or savings bank that is insured
by the FDIC. Bank obligations also include U.S. dollar-denominated obligations
of foreign branches of U.S. banks or of U.S. branches of foreign banks, all of
the same type as domestic bank obligations. Investments in bank obligations are
limited to the obligations of financial institutions having more than $1 billion
in total assets at the time of purchase. Investments in non-negotiable time
deposits are limited to no more than 5% of the Money Market Fund's total assets
at the time of purchase. For the purposes of the Money Market Fund's investment
policy with respect to bank obligations, the assets of a bank or savings
institution will be deemed to include the assets of its U.S. and foreign
branches.
Domestic and foreign banks are subject to extensive but different
government regulations which may limit the amount and types of their loans and
the interest rates that may be charged.
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In addition, the profitability of the banking industry is largely dependent upon
the availability and cost of funds to finance lending operations and the quality
of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and of U.S.
branches of foreign banks may subject a Fund to additional investment risks,
including future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. In addition, foreign
branches of U.S. banks and U.S. branches of foreign banks may be subject to less
stringent reserve requirements and to different accounting, auditing, reporting
and recordkeeping standards than those applicable to domestic branches of U.S.
banks. Investments in the obligations of U.S. branches of foreign banks or
foreign branches of U.S. banks will be made only when Fleet believes that the
credit risk with respect to the instrument is minimal.
Commercial paper may include securities issued by corporations without
registration under the Securities Act of 1933, as amended, (the "1933 Act") in
reliance on the so-called "private placement" exemption in Section 4(2)
("Section 4(2) Paper"). Section 4(2) Paper is restricted as to disposition
under the federal securities laws in that any resale must similarly be made in
an exempt transaction. Section 4(2) Paper is normally resold to other
institutional investors through or with the assistance of investment dealers who
make a market in Section 4(2) Paper, thus providing liquidity. For purposes of
each Fund's 10% limitation on purchases of illiquid instruments described below,
Section 4(2) Paper will not be considered illiquid if Fleet has determined, in
accordance with guidelines approved by the Board of Trustees, that an adequate
trading market exists for such securities. The Money Market Fund and each
Tax-Exempt Money Market Fund may also purchase Rule 144A securities. See
"Investment Limitations" below.
MUNICIPAL SECURITIES
Municipal Securities are generally issued to finance public works, such as
airports, bridges, highways, housing, health-related entities,
transportation-related projects, educational programs, water and pollution
control and sewer works. They are also issued to repay outstanding obligations,
to raise funds for general operating expenses and to make loans to other public
institutions and for other facilities. Municipal Securities include private
activity bonds issued by or on behalf of public authorities to provide financing
aid to acquire sites or construct and equip facilities for privately or publicly
owned corporations. The availability of this financing encourages these
corporations to locate within the sponsoring communities and thereby increases
local employment.
The two principal classifications of Municipal Securities that may be held
by the Tax-Exempt Money Market Funds are "general obligation" securities and
"revenue" securities. General obligation securities are secured by the issuer's
pledge of its full faith, credit and taxing power for the payment of principal
and interest. Revenue securities are payable only from the revenues derived
from a particular facility or class of facilities or, in some cases, from the
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proceeds of a special excise tax or other specific revenue source such as the
user of the facility being financed. Private activity bonds are in most cases
revenue securities and are not payable from the unrestricted revenues of the
issuer. Consequently, the credit quality of private activity bonds is usually
directly related to the credit standing of the corporate user of the facility
involved.
The Funds' portfolios may also include "moral obligation" securities, which
are normally issued by special-purpose public authorities. If the issuer of
moral obligation securities is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment, but not a legal obligation, of the state or municipality which
created the issuer. There is no limitation on the amount of moral obligation
securities that may be held by the Funds.
Municipal Securities may include variable rate demand notes, which are
long-term Municipal Securities that have variable or floating interest rates and
provide a Fund with the right to tender the security for repurchase at its
stated principal amount plus accrued interest. Such securities typically bear
interest at a rate that is intended to cause the securities to trade at par.
The interest rate may float or be adjusted at regular intervals (ranging from
daily to annually), and is normally based on an applicable interest index or
another published interest rate or interest rate index. Most variable rate
demand notes allow a Fund to demand the repurchase of the security on not more
than seven days prior notice. Other notes only permit a Fund to tender the
security at the time of each interest rate adjustment or at other fixed
intervals. The Tax-Exempt Money Market Funds treat variable rate demand notes
as maturing on the later of the date of the next interest rate adjustment or the
date on which a Fund may next tender the security for repurchase. Variable
interest rates generally reduce changes in the market value of Municipal
Securities from their original purchase prices. Accordingly, as interest rates
decrease or increase, the potential for capital appreciation or depreciation is
less for variable rate Municipal Securities than for fixed income obligations.
The terms of these variable rate demand instruments require payment of principal
and accrued interest from the issuer of the Municipal Securities, the issuer of
the participation interest or a guarantor of either issuer.
Municipal Securities purchased by the Tax-Exempt Money Market Funds in some
cases may be insured as to the timely payment of principal and interest. There
is no guarantee, however, that the insurer will meet its obligations in the
event of a default in payment by the issuer. In other cases, Municipal
Securities may be backed by letters of credit or guarantees issued by domestic
or foreign banks or other financial institutions which are not subject to
federal deposit insurance. Adverse developments affecting the banking industry
generally or a particular bank or financial institution that has provided its
credit or guarantee with respect to a Municipal Security held by a Tax-Exempt
Money Market Fund, including a change in the credit quality of any such bank or
financial institution, could result in a loss to the Fund and adversely affect
the value of its shares. As described above under "Money Market Instruments,"
letters of credit and guarantees issued by foreign banks and financial
institutions involve certain risks in addition to those of similar instruments
issued by domestic banks and financial institutions.
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There are, of course, variations in the quality of Municipal Securities,
both within a particular category and between categories, and the yields on
Municipal Securities depend upon a variety of factors, including general market
conditions, the financial condition of the issuer, general conditions of the
municipal bond market, the size of a particular offering, the maturity of the
obligation, and the rating of the issue. The ratings of a Rating Agency, such
as Moody's, S&P and Fitch IBCA described in Appendix A hereto, represent such
Rating Agency's opinion as to the quality of Municipal Securities. It should be
emphasized that these ratings are general and are not absolute standards of
quality. Municipal Securities with the same maturity, interest rate and rating
may have different yields. Municipal Securities of the same maturity and
interest rate with different ratings may have the same yield.
The payment of principal and interest on most securities purchased by the
Tax-Exempt Money Market Funds will depend upon the ability of the issuers to
meet their obligations. Each state, the District of Columbia, each of their
political subdivisions, agencies, instrumentalities and authorities and each
multistate agency of which a state is a member is a separate "issuer" as that
term is used in this Statement of Additional Information and the Tax-Exempt
Money Market Funds' Prospectuses. The non-governmental user of facilities
financed by private activity bonds is also considered to be an "issuer." An
issuer's obligations under its Municipal Securities are subject to the
provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the federal Bankruptcy Code and laws, if any,
which may be enacted by federal or state legislatures extending the time for
payment of principal or interest, or both, or imposing other constraints upon
enforcement of such obligations or upon the ability of municipalities to levy
taxes. The power or ability of an issuer to meet its obligations for the
payment of interest on and principal of its Municipal Securities may be
materially adversely affected by litigation or other conditions.
Among other instruments, the Tax-Exempt Money Market Funds may purchase
short-term general obligation notes, tax anticipation notes, bond anticipation
notes, revenue anticipation notes, tax-exempt commercial paper, construction
loan notes and other forms of short-term loans. Such instruments are issued
with a short-term maturity in anticipation of the receipt of tax funds, the
proceeds of bond placements or other revenues. In addition, the Tax-Exempt
Money Market Funds may invest in long-term tax-exempt instruments, such as
municipal bonds and private activity bonds to the extent consistent with the
limitations set forth in the Prospectuses for the Funds including applicable
maturity restrictions.
Private activity bonds are or have been issued to obtain funds to provide,
among other things, privately operated housing facilities, pollution control
facilities, convention or trade show facilities, mass transit, airport, port or
parking facilities and certain local facilities for water supply, gas,
electricity or sewage or solid waste disposal. Private activity bonds are also
issued to privately held or publicly owned corporations in the financing of
commercial or industrial facilities. State and local governments are authorized
in most states to issue private activity bonds for such purposes in order to
encourage corporations to locate within their communities. The principal and
interest on these obligations may be payable from the general revenues of the
users of such facilities.
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From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on Municipal Securities. For example, under the Tax Reform Act of
1986, interest on certain private activity bonds must be included in an
investor's federal alternative minimum taxable income, and corporate investors
must include all tax-exempt interest in their federal alternative minimum
taxable income. Galaxy cannot, of course, predict what legislation may be
proposed in the future regarding the income tax status of interest on Municipal
Securities, or which proposals, if any, might be enacted. Such proposals, while
pending or if enacted, might materially and adversely affect the availability of
Municipal Securities for investment by the Tax-Exempt Money Market Funds and the
liquidity and value of their respective portfolios. In such an event, a Fund
would re-evaluate its investment objective and policies and consider possible
changes in its structure or possible dissolution.
Opinions relating to the validity of Municipal Securities and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the
Tax-Exempt Money Market Funds nor Fleet will review the proceedings relating to
the issuance of Municipal Securities or the bases for such opinions.
MUNIPREFERRED SECURITIES. The Connecticut Municipal Money Market and
Massachusetts Municipal Money Market Funds may purchase interests in Municipal
Securities that are offered in the form of a security representing a diversified
portfolio of investment grade bonds. These securities provide investors, such
as the Funds, with liquidity and income exempt from federal regular income tax
and some state income taxes.
STAND-BY COMMITMENTS
Each Tax-Exempt Money Market Fund may acquire "stand-by commitments" with
respect to Municipal Securities held by it. Under a stand-by commitment, a
dealer agrees to purchase from a Fund, at the Fund's option, specified Municipal
Securities at a specified price. Each Fund will acquire stand-by commitments
solely to facilitate portfolio liquidity and does not intend to exercise its
rights thereunder for trading purposes. Stand-by commitments acquired by a Fund
would be valued at zero in determining the Fund's net asset value. The default
or bankruptcy of a securities dealer giving such a commitment would not affect
the quality of the Municipal Securities purchased by a Fund. However, without a
stand-by commitment, these securities could be more difficult to sell. A Fund
will enter into stand-by commitments only with those dealers whose credit Fleet
believes to be of high quality.
Stand-by commitments are exercisable by a Fund at any time before the
maturity of the underlying Municipal Security, and may be sold, transferred or
assigned by the Fund only with respect to the underlying instruments. Although
stand-by commitments are often available without the payment of any direct or
indirect consideration, if necessary or advisable, a Fund may pay for a stand-by
commitment either separately in cash or by paying a higher price for securities
acquired subject to the commitment. Where a Fund pays any consideration
directly or indirectly for a stand-by commitment, its cost will be reflected as
unrealized depreciation for the period during which the commitment is held by
the Fund.
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A Fund will enter into stand-by commitments only with banks and
broker/dealers that present minimal credit risks. In evaluating the
creditworthiness of the issuer of a stand-by commitment, Fleet will review
periodically the issuer's assets, liabilities, contingent claims and other
relevant financial information.
TENDER OPTION BONDS
The Tax-Exempt Money Market Funds may purchase tender option bonds and
similar securities. A tender option bond generally has a long maturity and
bears interest at a fixed rate substantially higher than prevailing short-term
tax-exempt rates, and is coupled with an agreement by a third party, such as a
bank, broker-dealer or other financial institution, pursuant to which such
institution grants the security holders the option, usually upon not more than
seven days notice or at periodic intervals, to tender their securities to the
institution and receive the face value of the securities. In providing the
option, the financial institution receives a fee that reduces the fixed rate of
the underlying bond and results in a Fund effectively receiving a demand
obligation that bears interest at the prevailing short-term tax-exempt rate.
Fleet will monitor, on an ongoing basis, the creditworthiness of the issuer of
the tender option bond, the financial institution providing the option, and any
custodian holding the underlying long-term bond. The bankruptcy, receivership
or default of any of the parties to a tender option bond will adversely affect
the quality and marketability of the security.
VARIABLE AND FLOATING RATE INSTRUMENTS
Securities purchased by the Funds may include variable and floating rate
instruments. Variable rate instruments provide for periodic adjustments in the
interest rate. Floating rate instruments provide for automatic adjustment of
the interest rate whenever some other specified interest rate changes. Some
variable and floating rate obligations are direct lending arrangements between
the purchaser and the issuer and there may be no active secondary market.
However, in the case of variable and floating rate obligations with a demand
feature, a Fund may demand payment of principal and accrued interest at a time
specified in the instrument or may resell the instrument to a third party. In
the event an issuer of a variable or floating rate obligation defaulted on its
payment obligation, a Fund might be unable to dispose of the note because of the
absence of a secondary market and could, for this or other reasons, suffer a
loss to the extent of the default. Variable or floating rate instruments issued
or guaranteed by the U.S. Government or its agencies or instrumentalities are
similar in form but may have a more active secondary market. Substantial
holdings of variable and floating rate instruments could reduce portfolio
liquidity.
If a variable or floating rate instrument is not rated, Fleet must
determine that such instrument is comparable to rated instruments eligible for
purchase by the Funds and will consider the earning power, cash flows and other
liquidity ratios of the issuers and guarantors of such notes and will
continuously monitor their financial status in order to meet payment on demand.
In determining average weighted portfolio maturity of each of these Funds, a
variable or floating rate instrument issued or guaranteed by the U.S. Government
or an agency or
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instrumentality thereof will be deemed to have a maturity equal to the period
remaining until the obligation's next interest rate adjustment.
Long-term variable and floating rate obligations held by the Funds may have
maturities of more than 397 days, provided the Funds are entitled to payment of
principal upon not more than 30 days' notice or at specified intervals not
exceeding one year (upon not more than 30 days' notice).
Variable and floating rate obligations with a demand feature held by the
Funds will be deemed to have a maturity equal to the longer of the period
remaining to the next interest rate adjustment or the demand notice period.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
Each Fund, except the U.S. Treasury Fund, may purchase portfolio securities
subject to the seller's agreement to repurchase them at a mutually specified
date and price ("repurchase agreements"). Repurchase agreements will only be
entered into with financial institutions such as banks and broker/dealers that
are deemed to be creditworthy by Fleet under guidelines approved by Galaxy's
Board of Trustees. No Fund will enter into repurchase agreements with Fleet or
any of its affiliates. Unless a repurchase agreement has a remaining maturity
of seven days or less or may be terminated on demand upon notice of seven days
or less, the repurchase agreement will be considered an illiquid security and
will be subject to the 10% limit described in Investment Limitations Nos. 11 and
16 under "Investment Limitations" below with respect to the Money Market,
Government, U.S. Treasury, Institutional Government Money Market and Tax-Exempt
Funds, and to the 10% limit described under "Investment Limitations" below with
respect to the Connecticut Municipal Money Market and Massachusetts Municipal
Money Market Funds.
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by a Fund at
not less than the agreed upon repurchase price. If the seller defaulted on its
repurchase obligation, the Fund holding such obligation would suffer a loss to
the extent that the proceeds from a sale of the underlying securities (including
accrued interest) were less than the repurchase price (including accrued
interest) under the agreement. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by a Fund
might be delayed pending court action. Income on repurchase agreements is
taxable. The Tax-Exempt Fund's investments in repurchase agreements will be,
under normal market conditions, subject to such Fund's 20% overall limit on
taxable obligations.
The repurchase price under a repurchase agreement generally equals the
price paid by a Fund plus interest negotiated on the basis of current short-term
rates (which may be more or less than the rate on the securities underlying the
repurchase agreements). Securities subject to repurchase agreements will be
held by a Fund's custodian or sub-custodian in a segregated account or in the
Federal Reserve/Treasury book-entry system. Repurchase agreements are
considered to be loans by a Fund under the 1940 Act.
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The Money Market and Government Funds may also borrow funds for temporary
purposes by selling portfolio securities to financial institutions such as banks
and broker/dealers and agreeing to repurchase them at a mutually specified date
and price ("reverse repurchase agreements"). A reverse repurchase agreement
involves the risk that the market value of the securities sold by a Fund may
decline below the repurchase price. A Fund would pay interest on amounts
obtained pursuant to a reverse repurchase agreement.
Whenever a Fund enters into a reverse repurchase agreement, the Fund will
place in a segregated custodial account liquid assets such as cash or liquid
securities equal to the repurchase price (including accrued interest). The Fund
will monitor the account to ensure such equivalent values are maintained.
Reverse repurchase agreements are considered to be borrowings by a Fund under
the 1940 Act.
WHEN-ISSUED AND DELAYED SETTLEMENT TRANSACTIONS
Each Fund may purchase securities on a "when-issued" or "delayed
settlement" basis. When-issued transactions, which involve a commitment by a
Fund to purchase particular securities with payment and delivery taking place at
a future date (perhaps one or two months later) permit the Fund to lock in a
price or yield on a security it intends to purchase, regardless of future
changes in interest rates. Delayed settlement describes settlement of a
securities transaction in the secondary market sometime in the future.
When-issued and delayed settlement transactions involve the risk, however, that
the yield or price obtained in a transaction may be less favorable than the
yield or price available in the market when the securities delivery takes place.
It is expected that, absent unusual market conditions, commitments by a Fund to
purchase securities on a when-issued or delayed settlement basis will not exceed
25% of the value of its total assets. These transactions will not be entered
into for speculative purposes, but only in furtherance of a Fund's investment
objective.
When a Fund agrees to purchase securities on a "when-issued" or "delayed
settlement" basis, the Fund's custodian will set aside cash or liquid portfolio
securities equal to the amount of the commitment in a separate account. In the
event of a decline in the value of the securities that the custodian has set
aside, the Fund may be required to place additional assets in the separate
account in order to ensure that the value of the account remains equal to the
amount of the Fund's commitment. A Fund's net assets may fluctuate to a greater
degree if it sets aside portfolio securities to cover such purchase commitments
than if it sets aside cash. Because the Fund sets aside liquid assets to
satisfy its purchase commitments in the manner described, its liquidity and
ability to manage its portfolio might be affected in the event its commitments
to purchase securities on a when-issued or delayed settlement basis exceeded 25%
of the value of its assets.
When a Fund engages in when-issued or delayed settlement transactions, it
relies on the seller to consummate the trade. Failure of the seller to do so may
result in the Fund's incurring a loss or missing an opportunity to obtain a
price considered to be advantageous for a security. For purposes of determining
the average weighted maturity of a Fund's portfolio, the maturity of
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securities purchased on a when-issued or delayed settlement basis is calculated
from the date of settlement of the purchase to the maturity date.
SECURITIES LENDING -- MONEY MARKET AND GOVERNMENT FUNDS
The Money Market and Government Funds may lend their portfolio securities
to financial institutions such as banks and broker/dealers in accordance with
their investment limitations. Such loans would involve risks of delay in
receiving additional collateral or in recovering the securities loaned or even
loss of rights in the collateral should the borrower of the securities fail
financially. Any portfolio securities purchased with cash collateral would also
be subject to possible depreciation. Loans will generally be short-term, and
will be made only to borrowers deemed by Fleet to be of good standing and only
when, in Fleet's judgment, the income to be earned from the loan justifies the
attendant risks. The Funds currently intend to limit the lending of their
portfolio securities so that, at any given time, securities loaned by a Fund
represent not more than one-third of the value of its total assets.
A Fund that loans portfolio securities would continue to accrue interest on
the securities loaned and would also earn income on the loans. Any cash
collateral received by the Government Fund in connection with such loans would
be invested in short-term obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities; cash collateral received by the
other Funds would be invested in high quality, short-term "money market"
instruments.
GUARANTEED INVESTMENT CONTRACTS -- MONEY MARKET FUND
The Money Market Fund may invest in guaranteed investment contracts
("GICs") issued by United States insurance companies. Pursuant to such
contracts, the Fund makes cash contributions to a deposit fund of the insurance
company's general account. The insurance company then credits to the Fund
payments at negotiated, floating or fixed interest rates. A GIC is a general
obligation of the issuing insurance company and not a separate account. The
purchase price paid for a GIC becomes part of the general assets of the
insurance company, and the contract is paid from the company's general assets.
The Fund will only purchase GICs that are issued or guaranteed by insurance
companies that at the time of purchase are rated in accordance with the
applicable quality requirements described above under "Quality Requirements."
GICs are considered illiquid securities and will be subject to the Fund's 10%
limitation on illiquid investments, unless there is an active and substantial
secondary market for the particular instrument and market quotations are readily
available.
ASSET-BACKED SECURITIES -- MONEY MARKET FUND
The Money Market Fund may purchase asset-backed securities which represent
a participation in, or are secured by and payable from, a stream of payments
generated by particular assets, most often a pool of assets similar to one
another, such as motor vehicle receivables and credit card receivables. The
Fund will only purchase asset-backed securities that meet the applicable quality
requirements described above under "Quality Requirements."
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Asset-backed securities are generally issued as pass-through certificates,
which represent undivided fractional ownership interests in an underlying pool
of assets, or as debt instruments, which are also known as collateralized
obligations, and are generally issued as the debt of a special purpose entity
organized solely for the purpose of owning such assets and issuing such debt.
Asset-backed securities are often backed by a pool of assets representing the
obligations of a number of different parties.
The yield characteristics of asset-backed securities differ from
traditional debt securities. A major difference is that the principal amount of
the obligations may be prepaid at any time because the underlying assets (i.e.,
loans) generally may be prepaid at any time. As a result, if an asset-backed
security is purchased at a premium, a prepayment rate that is faster than
expected will reduce yield to maturity, while a prepayment rate that is slower
than expected will have the opposite effect of increasing yield to maturity.
Conversely, if an asset-backed security is purchased at a discount, faster than
expected prepayments will increase, while slower than expected prepayments will
decrease, yield to maturity.
Prepayments on asset-backed securities generally increase with falling
interest rates and decrease with rising interest rates; furthermore, prepayment
rates are influenced by a variety of economic and social factors. In general,
the collateral supporting non-mortgage asset-backed securities is of shorter
maturity than mortgage loans and is less likely to experience substantial
prepayments. Like other fixed income securities, when interest rates rise, the
value of an asset-backed security generally will decline; however, when interest
rates decline, the value of an asset-backed security with prepayment features
may not increase as much as that of other fixed income securities.
Asset-backed securities are subject to greater risk of default during
periods of economic downturn. Also, the secondary market for certain
asset-backed securities may not be as liquid as the market for other types of
securities, which could result in the Fund's experiencing difficulty in valuing
or liquidating such securities. For these reasons, under certain circumstances,
asset-backed securities may be considered illiquid securities.
INVESTMENT COMPANY SECURITIES -- TAX-EXEMPT MONEY MARKET FUNDS AND THE
INSTITUTIONAL GOVERNMENT MONEY MARKET FUND
The Tax-Exempt Money Market Funds may invest in securities issued by other
investment companies limited, with respect to the Tax-Exempt Fund, to open-end
investment companies that invest in high quality, short-term Municipal
Securities that meet the applicable quality requirements described above under
"Quality Requirements" and that determine their net asset value per share based
on the amortized cost or penny-rounding method. Such securities may be acquired
by a Fund within the limits prescribed by the 1940 Act. Except as otherwise
permitted under the 1940 Act, each Fund currently intends to limit its
investments in other investment companies so that, as determined immediately
after a securities purchase is made: (a) not more than 5% of the value of its
total assets will be invested in the securities of any one investment company;
(b) not more than 10% of the value of its total assets will be invested in the
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aggregate in securities of investment companies as a group; and (c) not more
than 3% of the outstanding voting stock of any one investment company will be
owned by the Fund. A Fund will invest in other investment companies primarily
for the purpose of investing its short-term cash which has not as yet been
invested in other portfolio instruments. However, from time to time, on a
temporary basis, the Connecticut Municipal Money Market Fund and Massachusetts
Municipal Money Market Fund may invest exclusively in one other investment
company managed similarly to the particular Fund.
The Institutional Government Money Market Fund may invest up to 5% of its
total assets in securities issued by other open-end investment companies that
invest in the types of obligations in which the Fund may invest and that
determine their net asset value per share based on the amortized cost or
penny-rounding method.
Investments in other investment companies will cause a Fund (and,
indirectly, the Fund's shareholders) to bear proportionately the costs incurred
in connection with the investment companies' operations. A Fund will invest in
other investment companies primarily for the purpose of investing its short-term
cash which has not as yet been invested in other portfolio instruments.
However, from time to time, on a temporary basis, the Connecticut Municipal
Money Market Fund and Massachusetts Municipal Money Market Fund may invest
exclusively in one other investment company managed similarly to the particular
Fund.
NON-DIVERSIFICATION - CONNECTICUT MUNICIPAL MONEY MARKET AND MASSACHUSETTS
MUNICIPAL MONEY MARKET FUNDS
The Connecticut Municipal Money Market and Massachusetts Municipal Money
Market Funds are non-diversified investment portfolios. As such, there is no
limit on the percentage of assets which can be invested in any single issuer.
An investment in one of these Funds, therefore, entails greater risk than would
exist in a diversified investment portfolio because the higher percentage of
investments among fewer issuers may result in greater fluctuation in the total
market value of the Fund's portfolio. Any economic, political, or regulatory
developments affecting the value of the securities in a Fund's portfolio will
have a greater impact on the total value of the portfolio than would be the case
if the portfolio was diversified among more issuers. The Connecticut Municipal
Money Market and Massachusetts Municipal Money Market Funds intend to comply
with Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").
This undertaking requires that at the end of each quarter of a Fund's taxable
year, with regard to at least 50% of its total assets, no more than 5% of its
total assets are invested in the securities of a single issuer; beyond that, no
more than 25% of its total assets are invested in the securities of a single
issuer.
CONNECTICUT INVESTMENT RISKS
The following information is a brief summary of factors affecting the
economies and financial strengths of the State of Connecticut, its
municipalities and its political subdivisions and does not purport to be a
complete description of such factors. Other factors will affect issuers. The
summary is based primarily upon one or more publicly available offering
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statements relating to debt offerings of the State of Connecticut that were
available prior to the date of this Statement of Additional Information. The
accuracy and completeness of the information contained in such offering
statements have not been independently verified.
The ability of the issuers of Connecticut Municipal Securities to pay the
principal and interest on their obligations may be impacted by a variety of
factors relating to the economy of Connecticut and to the fiscal stability of
issuers of Connecticut Municipal Securities. The latter may include such
matters as the ability of issuers to raise sufficient tax and other revenues to
meet their needs, the availability of aid from other governmental bodies, and
the burdens that may be imposed on issuers by law or necessity. To the extent
that the Connecticut Municipal Money Market Fund invests in obligations that are
not general obligations of their issuers, payments of principal and interest
will depend on all factors affecting the revenue sources from which payments
thereon are to be derived. The value of the obligations held by the Fund would
be adversely affected not only by any actual inability of their issuers to pay
the principal and interest thereon, but also by a public perception that such
ability is in doubt.
Manufacturing has historically been of prime economic importance to
Connecticut (sometimes referred to as the "State"). The State's manufacturing
industry is diversified, with transportation equipment (primarily aircraft
engines, helicopters and submarines) the dominant industry, followed by
fabricated metals, non-electrical machinery, and electrical equipment. As a
result of a rise in employment in service-related industries and a decline in
manufacturing employment, however, manufacturing accounted for only 17.09% of
total non-agricultural employment in Connecticut in 1997. Defense-related
business represents a relatively high proportion of the manufacturing sector.
On a per capita basis, defense awards to Connecticut have traditionally been
among the highest in the nation, and reductions in defense spending have had a
substantial adverse impact on Connecticut's economy.
The average annual unemployment rate in Connecticut increased from a low of
3.0% in 1988 to a high of 7.6% in 1992 and, after a number of important changes
in the method of calculation, was reported to be 5.8% in 1996. Average per
capita personal income of Connecticut residents increased in every year from
1989 to 1997, rising from $25,443 to $36,434. However, pockets of significant
unemployment and poverty exist in several Connecticut cities and towns.
For the four fiscal years ended June 30, 1991, the General Fund experienced
operating deficits but, for the seven fiscal years ended June 30, 1998, the
General Fund recorded operating surpluses, based on Connecticut's budgetary
method of accounting. General Fund expenditures are budgeted to be
approximately $9,972,000,000 for the 1998-99 fiscal year, compared to budgeted
expenditures of approximately $7,008,000,000 for the 1991-92 fiscal year, but a
surplus of more than $150,000,000 is expected for this year. In 1991,
legislation was enacted by the State authorizing the State Treasurer to issue
$965,710,000 of Economic Recovery Notes to fund the General Fund's accumulated
deficit. The notes were to be payable no later than June 30, 1996, but payment
of the notes scheduled to be paid during the 1995-96 fiscal year was rescheduled
to be made over the four fiscal years ending June 30, 1999. Connecticut's
general obligation bonds are rated Aa3 by Moody's
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and AA by Fitch IBCA, Inc. ("Fitch IBCA"). On October 8, 1998, S&P upgraded
its ratings of Connecticut's general obligations bonds from AA- to AA.
The State's primary method for financing capital projects is through the
sale of general obligation bonds. These bonds are backed by the full faith and
credit of the State. As of December 1, 1998, the State had authorized direct
general obligation bond indebtedness totaling $12,398,200,000, of which
$11,057,371,000 had been approved for issuance by the State Bond Commission and
$9,814,857,000 had been issued. As of December 1, 1998, net State direct
general obligation indebtedness outstanding was $6,837,131,000.
In 1995, the State established the University of Connecticut as a separate
corporate entity to issue bonds and construct certain infrastructure
improvements. The University is authorized to issue bonds totaling $962,000,000
to finance the improvements. The University's bonds will be secured by a State
debt service commitment, the aggregate amount of which is limited to
$382,000,000 for bonds issued in the four fiscal years ending June 30, 1999, and
$580,000,000 for bonds issued in the six fiscal years ending June 30, 2005.
In addition, the State has limited or contingent liability on a significant
amount of other bonds. Such bonds have been issued by the following
quasi-public agencies: the Connecticut Housing Finance Authority, the
Connecticut Development Authority, the Connecticut Higher Education Supplemental
Loan Authority, the Connecticut Resources Recovery Authority and the Connecticut
Health and Educational Facilities Authority. Such bonds have also been issued
by the cities of Bridgeport and West Haven and the Southeastern Connecticut
Water Authority. As of December 1, 1997, the amount of bonds outstanding on
which the State has limited or contingent liability totaled $4,054,900,000.
In 1984, the State established a program to plan, construct and improve the
State's transportation system (other than Bradley International Airport). The
total cost of the program through June 30, 2002, is currently estimated to be
$12.6 billion, to be met from federal, state, and local funds. The State
expects to finance most of its $5.1 billion share of such cost by issuing $4.6
billion of special tax obligation ("STO") bonds. The STO bonds are payable
solely from specified motor fuel taxes, motor vehicle receipts, and license,
permit and fee revenues pledged therefor and credited to the Special
Transportation Fund, which was established to budget and account for such
revenues.
The State, its officers and its employees are defendants in numerous
lawsuits. Although it is not possible to determine the outcome of these
lawsuits, the Attorney General has opined that an adverse decision in any of the
following cases might have a significant impact on the State's financial
position: (i) a class action by the Connecticut Criminal Defense Lawyers
Association claiming a campaign of illegal surveillance activity and seeking
damages and injunctive relief; (ii) an action on behalf of all persons with
traumatic brain injury who have been placed in certain State hospitals, and
other persons with acquired brain injury who are in the custody of the
Department of Mental Health and Addiction Services, claiming that their
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constitutional rights are violated by placement in State hospitals alleged not
to provide adequate treatment and training, and seeking placement in community
residential settings with appropriate support services; (iii) litigation
involving claims by Indian tribes to portions of the State's land area; and (iv)
an action by certain students and municipalities claiming that the State's
formula for financing public education violates the State's Constitution and
seeking a declaratory judgment and injunctive relief.
As a result of litigation on behalf of black and Hispanic school children
in the City of Hartford seeking "integrated education" within the Greater
Hartford metropolitan area, on July 9, 1996, the State Supreme Court directed
the legislature to develop appropriate measures to remedy the racial and ethnic
segregation in the Hartford public schools. The Superior Court recently ordered
the State to show cause as to whether there has been compliance with the Supreme
Court's ruling. The fiscal impact of this decision might be significant but is
not determinable at this time.
The State's Department of Information Technology is reviewing the State's
Year 2000 exposure and developing plans for modification or replacement of
existing software that it believes will prevent significant operations problems.
There is a risk that the plan will not be completed on time, that planned
testing will not reveal all problems, or that systems of others on whom the
State relies will not be timely updated. If the necessary remediations are not
completed in a timely fashion, the Year 2000 problem may have a material impact
on the operations of the State.
General obligation bonds issued by municipalities are payable primarily
from ad valorem taxes on property located in the municipality. A municipality's
property tax base is subject to many factors outside the control of the
municipality. Certain Connecticut municipalities have experienced severe fiscal
difficulties and have reported operating and accumulated deficits in recent
years. The most notable of them is the City of Bridgeport, which filed a
bankruptcy petition on June 7, 1991. The State opposed the petition. The United
States Bankruptcy Court for the District of Connecticut held that Bridgeport
had authority to file such a petition but that its petition should be dismissed
on the grounds that Bridgeport was not insolvent when the petition was filed.
State legislation enacted in 1993 prohibits municipal bankruptcy filings without
the prior written consent of the Governor. Regional economic difficulties,
reductions in revenues, and increased expenses could lead to further fiscal
problems for the State and its political subdivisions, authorities, and
agencies. This could result in declines in the value of their outstanding
obligations, increases in their future borrowing costs, and impairment of their
ability to pay debt service on their obligations.
In addition to general obligation bonds backed by the full faith and credit
of the municipality, certain municipal authorities finance projects by issuing
bonds that are not considered to be debts of the municipality. Such bonds may
be repaid only from revenues of the financed project, the revenues from which
may be insufficient to service the related debt obligations.
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MASSACHUSETTS INVESTMENT RISKS
The Massachusetts Municipal Money Market Fund's ability to achieve its
investment objective depends on the ability of issuers of Massachusetts
Municipal Securities to meet their continuing obligations to pay principal and
interest. Since the Fund invests primarily in Massachusetts Municipal
Securities, the value of the Fund's shares may be especially affected by factors
pertaining to the economy of Massachusetts and other factors specifically
affecting the ability of issuers of Massachusetts Municipal Securities to meet
their obligations. As a result, the value of the Fund's shares may fluctuate
more widely than the value of shares of a portfolio investing in securities of
issuers in a number of different states. The ability of Massachusetts and its
political subdivisions to meet their obligations will depend primarily on the
availability of tax and other revenues to those governments and on their fiscal
conditions generally. The amount of tax and other revenues available to
governmental issuers of Massachusetts Municipal Securities may be affected from
time to time by economic, political and demographic conditions within
Massachusetts. In addition, constitutional or statutory restrictions may limit
a government's power to raise revenues or increase taxes. The availability of
federal, state and local aid to an issuer of Massachusetts Municipal Securities
may also affect that issuer's ability to meet its obligations. Payments of
principal and interest on limited obligation bonds will depend on the economic
condition of the facility or specific revenue source from whose revenues the
payments will be made, which in turn could be affected by economic, political
and demographic conditions in Massachusetts or a particular locality. Any
reduction in the actual or perceived ability of an issuer of Massachusetts
Municipal Securities to meet its obligations (including a reduction in the
rating of its outstanding securities) would likely affect adversely the market
value and marketability of its obligations and could affect adversely the values
of other Massachusetts Municipal Securities as well.
PORTFOLIO SECURITIES GENERALLY
Subsequent to its purchase by a Fund, an issue of securities may cease to
be rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Board of Trustees or Fleet, pursuant to guidelines
established by the Board, will promptly consider such an event in determining
whether the Fund involved should continue to hold the obligation. The Board of
Trustees or Fleet may determine that it is appropriate for the Fund to continue
to hold the obligation if retention is in accordance with the interests of the
Fund and applicable regulations of the Securities and Exchange Commission
("SEC").
INVESTMENT LIMITATIONS
In addition to each Fund's investment objective as stated in its
Prospectus(es), the following investment limitations are matters of fundamental
policy and may not be changed with respect to a Fund without the affirmative
vote of the holders of a majority of its outstanding shares (as defined under
"Miscellaneous").
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Each of the Money Market, Government, U.S. Treasury, Tax-Exempt and
Institutional Government Money Market Funds may not:
1. Make loans, except that (i) each Fund may purchase or hold debt
instruments in accordance with its investment objective and policies,
(ii) each Fund, except the U.S. Treasury Fund, may enter into
repurchase agreements with respect to portfolio securities, and (iii)
the Money Market and Government Funds each may lend portfolio
securities against collateral consisting of cash or securities that
are consistent with the Fund's permitted investments, where the value
of the collateral is equal at all times to at least 100% of the value
of the securities loaned.
2. Purchase foreign securities, except that the Money Market Fund may
purchase certificates of deposit, bankers' acceptances, or other
similar obligations issued by U.S. branches of foreign banks or
foreign branches of U.S. banks.
3. Purchase securities on margin (except such short-term credits as may
be necessary for the clearance of purchases), make short sales of
securities, or maintain a short position.
4. Act as an underwriter within the meaning of the Securities Act of
1933; except insofar as a Fund might be deemed to be an underwriter
upon disposition of restricted portfolio securities; and except to the
extent that the purchase of securities directly from the issuer
thereof in accordance with the Fund's investment objective, policies
and limitations may be deemed to be underwriting.
5. Purchase or sell real estate; except that each taxable Fund may
purchase securities that are secured by real estate, and the Money
Market Fund may purchase securities of issuers which deal in real
estate or interests therein; and except that the Tax-Exempt Fund may
invest in Municipal Securities secured by real estate or interests
therein; however the Funds will not purchase or sell interests in real
estate limited partnerships.
6. Purchase or sell commodities or commodity contracts or invest in oil,
gas or other mineral exploration or development programs or mineral
leases.
7. Invest in or sell put options, call options, straddles, spreads, or
any combination thereof.
8. Invest in companies for the purpose of exercising management or
control.
9. Purchase securities of other investment companies except in connection
with a merger, consolidation, reorganization or acquisition of assets;
provided, however, that the Tax-Exempt and Institutional Government
Money Market Funds may acquire such securities in accordance with the
1940 Act; and provided, further, that the Institutional Government
Money Market Fund may only invest up to 5% of its total assets in
shares of other investment companies which are registered
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under the 1940 Act and which invest only in securities that the Fund
could acquire directly.
Each of the Money Market, Government, U.S. Treasury and Institutional
Government Money Market Funds may not:
10. Borrow money or issue senior securities, except that each Fund may
borrow from domestic banks for temporary purposes and then in amounts
not in excess of 10% of the value of a Fund's total assets at the time
of such borrowing (provided that the Money Market and Government Funds
may borrow pursuant to reverse repurchase agreements in accordance
with their investment policies and in amounts not in excess of 10% of
the value of their respective total assets at the time of such
borrowing); or mortgage, pledge, or hypothecate any assets except in
connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of a Fund's
total assets at the time of such borrowing. A Fund will not purchase
securities while borrowings (including reverse repurchase agreements
with respect to the Money Market and Government Funds) in excess of 5%
of its total assets are outstanding.
11. Invest more than 10% of the value of its total assets in illiquid
securities, including, with respect to the Money Market, Government
and U.S. Treasury Funds, repurchase agreements with remaining
maturities in excess of seven days, time deposits with maturities in
excess of seven days, restricted securities, non-negotiable time
deposits and other securities which are not readily marketable.
With respect to Investment Limitation No. 10 above, each of the Money
Market and Government Funds intends to limit any borrowings, including reverse
repurchase agreements, to not more than 10% of the value of its total assets at
the time of such borrowing.
With respect to Investment Limitation No. 11 above, the Institutional
Government Money Market Fund intends to limit investments in illiquid securities
to not more than 10% of the value of its net assets.
Each of the Money Market, Government, U.S. Treasury and Tax-Exempt Funds
may not:
12. Purchase securities of any one issuer if immediately after such
purchase more than 5% of the value of its total assets would be
invested in the securities of such issuer (the "5% limitation"),
except that up to 25% of the value of its total assets may be invested
without regard to the 5% limitation; notwithstanding the foregoing
restriction, each Fund may invest without regard to the 5% limitation
in U.S. Government obligations and as otherwise permitted in
accordance with Rule 2a-7 under the 1940 Act or any successor rule.
With respect to Investment Limitation No. 12 above, (a) a security is
considered to be issued by the governmental entity or entities whose assets and
revenues back the security or, with respect to a private activity bond that is
backed only by the assets and revenues of a non-
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governmental user, such non-governmental user; (b) in certain circumstances,
the guarantor of a guaranteed security may also be considered to be an issuer
in connection with such guarantee; and (c) securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities (including securities
backed by the full faith and credit of the United States) are deemed to be
U.S. Government obligations.
The Money Market Fund may not:
13. Purchase any securities other than "money-market" instruments, some of
which may be subject to repurchase agreements, but the Fund may make
interest-bearing savings deposits not in excess of 5% of the value of
its total assets at the time of deposit and may make time deposits.
The Government Fund may not:
14. Purchase securities other than obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, some of which may
be subject to repurchase agreements.
The Tax-Exempt Fund may not:
15. Borrow money or issue senior securities, except that the Fund may
borrow from banks for temporary purposes, and then in amounts not in
excess of 10% of the value of its total assets at the time of such
borrowing; or mortgage, pledge, or hypothecate any assets except in
connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of its total
assets at the time of such borrowing. The Fund will not purchase any
portfolio securities while borrowings in excess of 5% of its total
assets are outstanding.
16. Knowingly invest more than 10% of the value of its total assets in
illiquid securities, including repurchase agreements with remaining
maturities in excess of seven days and other securities which are not
readily marketable.
17. Purchase any securities that would cause 25% or more of the value of
its total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry; provided, however, that there is no
limitation with respect to securities issued or guaranteed by the
United States, any state, territory or possession of the U.S.
Government, the District of Columbia, or any of their authorities,
agencies, instrumentalities, or political subdivisions.
18. Invest in industrial revenue bonds where the payment of principal and
interest are the responsibility of a company (including its
predecessors) with less than three years of continuous operation.
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The Institutional Government Money Market Fund may not:
19. Invest in obligations having remaining maturities in excess of 397
days, except that certain variable and floating rate instruments may
bear longer maturities (provided certain provisions are met).
The Connecticut Municipal Money Market and Massachusetts Municipal Money
Market Funds may not:
20. Borrow money directly or pledge securities except, under certain
circumstances, each Fund may borrow up to one-third of the value of
its total assets and pledge up to 10% of the value of its total assets
to secure such borrowings.
21. Sell any securities short or purchase any securities on margin, but
each Fund may obtain such short-term credits as may be necessary for
clearance of transactions.
22. Issue senior securities except that each Fund may borrow money or
engage in reverse repurchase agreements in amounts up to one-third of
the value of its total assets, including the amounts borrowed.
Neither Fund will borrow money or engage in reverse repurchase
agreements for investment leverage, but rather as a temporary,
extraordinary, or emergency measure to facilitate management of the
portfolio by enabling a Fund to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. Neither Fund will purchase any securities while
borrowings in excess of 5% of its total assets are outstanding.
23. Mortgage, pledge, or hypothecate any assets except to secure permitted
borrowings. In those cases, a Fund may only mortgage, pledge, or
hypothecate assets having a market value not exceeding 10% of the
value of its total assets at the time of purchase.
24. Purchase or sell real estate or real estate limited partnerships,
although each Fund may invest in securities of issuers whose business
involves the purchase or sale of real estate or in securities which
are secured by real estate or interests in real estate.
25. Purchase or sell commodities, commodity contracts, or commodity
futures contracts.
26. Underwrite any issue of securities, except as a Fund may be deemed to
be an underwriter under the Securities Act of 1933 in connection with
the sale of securities in accordance with its investment objective,
policies and limitations.
27. Lend any of its assets except that a Fund may acquire publicly or
non-publicly issued Connecticut or Massachusetts Municipal Securities
or temporary investments or enter into repurchase agreements, in
accordance with their
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respective investment objectives, policies, limitations and Galaxy's
Declaration of Trust.
28. With respect to at least 50% of its total assets, invest more than 5%
of its total assets in the securities of a single issuer and more than
25% of its total assets in the securities of a single issuer at the
close of each quarter of each fiscal year. Under this limitation,
each governmental subdivision, including states, territories and
possessions of the United States, or their political subdivisions,
agencies, authorities, instrumentalities, or similar entities will be
considered a separate issuer if its assets and revenues are separate
from those of the governmental body creating it and the security is
backed only by its own assets and revenues. Industrial development
bonds backed only by the assets and revenue of a non-governmental user
are considered to be issued solely by that user. If, in the case of
an industrial development bond or government-issued security, a
governmental or other entity guarantees the security, such guarantee
would be considered a separate security issued by the guarantor, as
well as the other issuer, subject to limited exclusions allowed by the
1940 Act.
29. Purchase securities, if, as a result of such purchase, 25% or more of
the value of the Fund's total assets would be invested in any one
industry or in industrial development bonds or other securities, the
interest upon which is paid from revenues of similar types of
projects. However, a Fund may invest as temporary investments more
than 25% of the value of its assets in cash or cash items, securities
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, or instruments secured by these money market
instruments and repurchase agreements.
30. Invest more than 10% of its net assets in securities subject to
restrictions on resale under the Securities Act of 1933.
The following investment limitations with respect to the Connecticut
Municipal Money Market and Massachusetts Municipal Money Market Funds may be
changed by Galaxy's Board of Trustees without shareholder approval (shareholders
will be notified before any material change in this limitation becomes
effective):
31. Neither Fund will invest more than 5% of its total assets in
industrial development bonds or other Municipal Securities when the
payment of principal and interest is the responsibility of companies
(or guarantors, where applicable) with less than three years of
continuous operations, including the operation of any predecessor.
32. Each Fund will limit its investments in other investment companies to
not more than 3% of the total outstanding voting stock of any
investment company; will invest no more than 5% of its total assets in
any one investment company; and will invest no more than 10% of its
total assets in investment companies in general. However, these
limitations are not applicable if the securities are acquired in a
merger, consolidation, reorganization or acquisition of assets.
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The Funds will limit their respective investments in the securities of
other investment companies to those of money market funds which are of
comparable or better portfolio quality and have investment objectives
and policies similar to their own. Rule 2a-7 under the 1940 Act
requires that the Funds limit their investments to instruments that,
in the opinion of the Board of Trustees, present minimal credit risk
and that, if rated, meet minimum rating standards set forth in Rule
2a-7 under the 1940 Act. If the instruments are not rated, the
Trustees must determine that they are of comparable quality. Shares
of investment companies purchased by the Funds will meet these same
criteria and will have investment policies consistent with Rule 2a-7
of the 1940 Act.
33. Neither Fund may purchase or retain the securities of any issuer if
the officers and Trustees of Galaxy or Fleet, owning individually more
than 1/2 of 1% of the issuer's securities, together own more than 5%
of the issuer's securities.
34. Neither Fund may purchase or sell interests in oil, gas, or other
mineral exploration or development programs or leases.
35. Neither Fund may purchase or sell puts, calls, straddles, spreads, or
any combination thereof, except that each such Fund may purchase
Municipal Securities accompanied by agreements of sellers to
repurchase them at the Fund's option.
36. Neither Fund may invest more than 5% of the value of its total assets
in industrial development bonds where the payment of principal and
interest are the responsibility of companies (or guarantors, where
applicable) with less than three years of continuous operations,
including the operation of any predecessor.
37. Neither Fund may invest more than 10% of the value of its respective
net assets in illiquid securities, including repurchase agreements
providing for settlement in more than seven days after notice,
non-negotiable fixed time deposits with maturities over seven days,
and certain securities not determined by the Board of Trustees to be
liquid.
The Connecticut Municipal Money Market and Massachusetts Municipal Money
Market Funds may purchase restricted securities, which are any securities in
which a Fund may otherwise invest pursuant to its investment objective and
policies but which are subject to restrictions on resale under federal
securities laws. Certain restricted securities may be considered liquid
pursuant to guidelines established by the Board of Trustees. To the extent
restricted securities are deemed illiquid, each such Fund will limit its
purchase, together with other securities considered to be illiquid, to 10% of
its net assets.
In addition to the foregoing limitations, (a) the Money Market, Government
and U.S. Treasury Funds may not purchase securities that would cause 25% or more
of the value of a Fund's total assets at the time of purchase to be invested in
the securities of one or more issuers conducting their principal business
activities in the same industry; provided, however, that (i)
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there is no limitation with respect to obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, or, with respect to the
Money Market Fund, by domestic banks or by U.S. branches of foreign banks that
are subject to the same regulation as domestic banks; (ii) with respect to the
Money Market Fund, wholly-owned finance companies will be considered to be in
the industries of their parents if their activities are primarily related to
financing the activities of the parents; and (iii) with respect to the Money
Market Fund, utilities will be classified according to their services (for
example, gas, gas transmission, electric and gas, electric and telephone each
will be considered a separate industry); (b) the Connecticut Municipal Money
Market and Massachusetts Municipal Money Market Funds may not purchase
securities that would cause 25% or more of the value of a Fund's total assets at
the time of purchase to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry; provided,
however, that there is no limitation with respect to obligations issued or
guaranteed by the U.S. Government, any state, territory or possession of the
U.S. Government, the District of Columbia, or any of their authorities,
agencies, instrumentalities or political subdivisions; and (c) the Institutional
Government Money Market Fund may not purchase securities that would cause 25% or
more of the value of its total assets at the time of purchase to be invested in
the securities of one or more issuers conducting their principal business
activities in the same industry; provided, however, that there is no limitation
with respect to obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
Except as stated otherwise, if a percentage limitation is satisfied at
the time of investment, a later increase in such percentage resulting from a
change in the value of a Fund's portfolio securities generally will not
constitute a violation of the limitation. If the value of a Fund's holdings
of illiquid securities at any time exceeds the percentage limitation applicable
at the time of acquisition due to subsequent fluctuations in value or other
reasons, the Board of Trustees will consider what actions, if any, are
appropriate to maintain adequate liquidity. With respect to borrowings, if a
Fund's asset coverage at any time falls below that required by the 1940 Act,
the Fund will reduce the amount of its borrowings in the manner required by
the 1940 Act to the extent necessary to satisfy the asset coverage requirement.
Each Fund may follow non-fundamental operating policies that are more
restrictive than its fundamental investment limitations, as set forth in the
Prospectuses and this Statement of Additional Information, in order to comply
with applicable laws and regulations, including the provisions of and
regulations under the 1940 Act. In particular, each Fund will comply with the
various requirements of Rule 2a-7 under the 1940 Act which regulates money
market funds. In accordance with Rule 2a-7, the Money Market Fund is subject to
the 5% limitation contained in Investment Limitation No. 12 above as to all of
its assets; however in accordance with such Rule, the Money Market Fund will be
able to invest more than 5% (but no more than 25%) of its total assets in the
securities of a single issuer for a period of up to three business days after
the purchase thereof, provided that the Fund may not hold more than one such
investment at any one time. Adherence by a Fund to the diversification
requirements of Rule 2a-7 is deemed to constitute adherence to the
diversification requirements of Investment Limitation No. 12 above. Each Fund
will determine the effective maturity of its respective investments, as well as
its ability to consider a security as having received the requisite short-term
ratings by Rating Agencies, according to Rule 2a-7. A Fund may change these
operating policies to reflect changes in the laws and regulations without the
approval of its shareholders.
Rule 144A under the 1933 Act allows for a broader institutional trading
market for securities otherwise subject to restrictions on resale to the general
public. Rule 144A establishes a "safe harbor" from the registration
requirements of the 1933 Act for resales of certain securities
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to qualified institutional buyers. Investment by the Money Market Fund or any
Tax-Exempt Money Market Fund in Rule 144A securities could have the effect of
increasing the level of illiquidity of the Fund during any period that qualified
institutional buyers were no longer interested in purchasing these securities.
For purposes of each Fund's 10% limitation on purchases of illiquid securities
described above, Rule 144A securities will not be considered to be illiquid if
Fleet has determined, in accordance with guidelines established by the Board of
Trustees, that an adequate trading market exists for such securities.
The Connecticut Municipal Money Market and Massachusetts Municipal Money
Market Funds do not intend to borrow money in excess of 5% of the value of their
respective assets or to invest more than 5% of their respective total assets in
securities of foreign issuers during the next twelve months.
NET ASSET VALUE
Galaxy uses the amortized cost method of valuation to value shares of the
Funds. In order to use the amortized cost method, the Funds comply with the
various quality and maturity restrictions specified in Rule 2a-7 promulgated
under the 1940 Act. Pursuant to this method, a security is valued at its
initial acquisition cost, as adjusted for amortization of premium or accretion
of discount, regardless of the impact of fluctuating interest rates on the
market value of the security. Where it is not appropriate to value a security
by the amortized cost method, the security will be valued either by market
quotations or by fair value as determined by or under the direction of Galaxy's
Board of Trustees. This method may result in periods during which value, as
determined by amortized cost, is higher or lower than the price a Fund would
receive if it sold the security. The value of securities in each of these Funds
can be expected to vary inversely with changes in prevailing interest rates.
Thus, if interest rates have increased from the time a security was purchased,
such security, if sold, might be sold at a price less than its cost. Similarly,
if interest rates have declined from the time a security was purchased, such
security, if sold, might be sold at a price greater than its purchase cost. In
either instance, if the security is held to maturity, no gain or loss will be
realized.
The Funds invest only in instruments that meet the applicable quality
requirements of Rule 2a-7 and maintain a dollar-weighted average portfolio
maturity appropriate to their objective of maintaining a stable net asset value
per share, provided that none of the Funds will purchase any security deemed to
have a remaining maturity (as defined in the 1940 Act) of more than 397 days nor
maintain a dollar-weighted average portfolio maturity which exceeds 90 days.
Galaxy's Board of Trustees has established procedures reasonably designed,
taking into account current market conditions and each Fund's investment
objective, to stabilize the net asset value per share of each Fund for purposes
of sales and redemptions at $1.00. These procedures include review by the Board
of Trustees, at such intervals as it deems appropriate, to determine the extent,
if any, to which the net asset value per share of each Fund, calculated by using
available market quotations, deviates from $1.00 per share. In the event such
deviation exceeds one-half of one percent, the Board of Trustees will promptly
consider what action, if any, should be initiated. If the Board of Trustees
believes that the extent of any deviation from a Fund's $1.00 amortized cost
price per share may result in material dilution or other unfair results to new
or
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existing investors, it has agreed to take such steps as it considers appropriate
to eliminate or reduce, to the extent reasonably practicable, any such dilution
or unfair results. These steps may include selling portfolio instruments prior
to maturity; shortening the average portfolio maturity; withholding or reducing
dividends; redeeming shares in kind; reducing the number of a Fund's outstanding
shares without monetary consideration; or utilizing a net asset value per share
determined by using available market quotations.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares in each Fund are sold on a continuous basis by Galaxy's distributor,
First Data Distributors, Inc. ("FD Distributors"), a wholly-owned subsidiary of
First Data Investor Services Group, Inc. FD Distributors is a registered
broker/dealer with principal offices located at 4400 Computer Drive,
Westborough, Massachusetts 01581.
PURCHASES OF RETAIL SHARES AND SHARES OF THE INSTITUTIONAL
GOVERNMENT MONEY MARKET FUND
GENERAL
Investments in Retail A Shares of the Money Market, Government, U.S.
Treasury and Tax-Exempt Funds ("Retail A Shares"), Shares of the Connecticut
Municipal Money Market and Massachusetts Municipal Money Market Funds ("Shares")
(collectively, Retail A Shares, Shares and Retail B Shares of the Money Market
Fund may be referred to as "Retail Shares"), and Shares of the Institutional
Government Money Market Fund ("Institutional Shares") are not subject to any
sales charge. Investments in Retail B Shares of the Money Market Fund are
subject to a back-end sales charge. This back-end sales charge declines over
time and is known as a "contingent deferred sales charge." See "Applicable
Sales Charge -- Retail B Shares" below. RETAIL B SHARES OF THE MONEY MARKET
FUND HAVE HIGHER OPERATING EXPENSES THAN RETAIL A SHARES OF THE FUND AND MAY NOT
BE APPROPRIATE FOR INVESTORS THAT DO NOT PLAN TO EXCHANGE INTO RETAIL B SHARES
OF CERTAIN OF GALAXY'S NON-MONEY MARKET PORTFOLIOS.
FD Distributors has established procedures to enable different types of
investors to purchase Retail Shares and Institutional Shares. Retail Shares and
Institutional Shares may be purchased by FIS Securities, Inc., Fleet Securities,
Inc., Fleet Enterprises, Inc., Fleet Financial Group, Inc., its affiliates,
their correspondent banks and other qualified banks, saving and loan
associations and broker/dealers on behalf of their customers. Retail Shares may
also be purchased by individuals, corporations or other entities, who submit a
purchase application to Galaxy, purchasing directly for their own accounts or
for the accounts of others. Purchases of Retail Shares and Institutional Shares
may take place only on days on which FD Distributors, Galaxy's custodian and
Galaxy's transfer agent are open for business ("Business Days"). If an
institution accepts a purchase order from a customer on a non-Business Day, the
order will not be executed until it is received and accepted by FD Distributors
on a Business Day in accordance with FD Distributors' procedures.
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CUSTOMERS OF INSTITUTIONS
Retail Shares and Institutional Shares purchased by institutions on behalf
of their customers will normally be held of record by the institution and
beneficial ownership of Retail Shares and Institutional Shares will be recorded
by the institution and reflected in the account statements provided to its
customers. Galaxy's transfer agent may establish an account of record for each
customer of an institution reflecting beneficial ownership of Retail Shares.
Depending on the terms of the arrangement between a particular institution and
Galaxy's transfer agent, confirmations of Retail Share and Institutional Share
purchases and redemptions and pertinent account statements will either be sent
by Galaxy's transfer agent directly to a customer with a copy to the
institution, or will be furnished directly to the customer by the institution.
Other procedures for the purchase of Retail Shares and Institutional Shares
established by institutions in connection with the requirements of their
customer accounts may apply. Customers wishing to purchase Retail Shares or
Institutional Shares through their institution should contact such entity
directly for appropriate purchase instructions.
OTHER PURCHASE INFORMATION
On a Business Day when the New York Stock Exchange (the "Exchange") closes
early due to a partial holiday or otherwise, Galaxy will advance the time at
which purchase orders must be received in order to be processed on that Business
Day.
APPLICABLE SALES CHARGES - RETAIL B SHARES
The public offering price for Retail B Shares of the Money Market Fund is
the net asset value of the Retail B Shares purchased. Although investors pay no
front-end sales charge on purchases of Retail B Shares, such Shares are subject
to a contingent deferred sales charge at the rates set forth below if they are
redeemed within six years of purchase. Securities dealers, brokers, financial
institutions and other industry professionals will receive commissions from FD
Distributors in connection with sales of Retail B Shares. These commissions may
be different than the reallowances or placement fees paid to dealers in
connection with sales of Retail A Shares of Galaxy's non-money market
portfolios. Certain affiliates of Fleet may, at their own expense, provide
additional compensation to Fleet Enterprises, Inc., a broker-dealer affiliate of
Fleet, whose customers purchase significant amounts of Retail B Shares of the
Fund. Such compensation will not represent an additional expense to the Fund or
its shareholders, since it will be paid from the assets of Fleet's affiliates.
The contingent deferred sales charge on Retail B Shares is based on the lesser
of the offering price or the net asset value of the Shares on the redemption
date. As a result, no sales charge is imposed on any increase in the principal
value of an investor's Retail B Shares. In addition, a contingent deferred
sales charge will not be assessed on Retail B Shares purchased through
reinvestment of dividends or capital gains distributions.
The proceeds from the contingent deferred sales charge that an investor may
pay upon redemption go to FD Distributors, which may use such amounts to defray
the expenses associated with the distribution-related services involved in
selling Retail B Shares.
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EXEMPTIONS FROM THE CONTINGENT DEFERRED SALES CHARGE. Certain types of
redemptions may also qualify for an exemption from the contingent deferred sales
charge. In addition to the sales charge exemptions described in the applicable
Prospectus, the contingent deferred sales charge with respect to Retail B Shares
is not assessed on: (i) redemptions in connection with required (or, in some
cases, discretionary) distributions to participants or beneficiaries of an
employee pension, profit-sharing or other trust or qualified retirement or Keogh
plan, individual retirement account or custodial account maintained pursuant to
Section 403(b)(7) of the Code; (ii) redemptions in connection with required (or,
in some cases, discretionary) distributions to participants in qualified
retirement or Keogh plans, individual retirement accounts or custodial accounts
maintained pursuant to Section 403(b)(7) of the Code due to death, disability or
the attainment of a specified age; (iii) redemptions effected pursuant to the
Money Market Fund's right to liquidate a shareholder's account if the aggregate
net asset value of Retail B Shares held in the account is less than the minimum
account size; (iv) redemptions in connection with the combination of the Money
Market Fund with any other investment company registered under the 1940 Act by
merger, acquisition of assets, or by any other transaction; (v) redemptions
resulting from a tax-free return of an excess contribution pursuant to Section
408(d)(4) or (5) of the Code; or (vi) any redemption of Retail B Shares held by
an investor, provided the investor was the beneficial owner of shares of the
Money Market Fund (or any of the other portfolios offered by Galaxy or otherwise
advised by Fleet or its affiliates) before December 1, 1995. In addition to the
foregoing exemptions, no contingent deferred sales charge will be imposed on
redemptions made pursuant to the Systematic Withdrawal Plan, subject to the
limitations set forth under "Investor Programs - Retail Shares - Automatic
Investment Program and Systematic Withdrawal Plan" below.
Six years after purchase, Retail B Shares of the Money Market Fund will
convert automatically to Retail A Shares of the Fund. The purpose of the
conversion is to relieve a holder of Retail B Shares of the higher ongoing
expenses charged to those Shares. The conversion from Retail B Shares to Retail
A Shares takes place at net asset value, as a result of which an investor
receives dollar-for-dollar the same value of Retail A Shares as he or she had of
Retail B Shares. The conversion occurs six years after the beginning of the
calendar month in which the Retail B Shares are purchased. Upon conversion, an
investor would hold Retail A Shares subject to the operating expenses for Retail
A Shares.
Retail B Shares of the Money Market Fund acquired through a reinvestment of
dividends or distributions are also converted at the earlier of two dates -- six
years after the beginning of the calendar month in which the reinvestment
occurred or the date of conversion of the most recently purchased Retail B
Shares that were not acquired through reinvestment of dividends or
distributions. For example, if an investor makes a one-time purchase of Retail
B Shares of the Fund, and subsequently acquires additional Retail B Shares of
the Fund only through reinvestment of dividends and/or distributions, all of
such investor's Retail B Shares in the Fund, including those acquired through
reinvestment, will convert to Retail A Shares of the Fund on the same date.
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PURCHASES OF TRUST SHARES
Trust Shares of the Money Market, Government, U.S. Treasury and Tax-Exempt
Funds are sold to investors maintaining qualified accounts at bank and trust
institutions, including subsidiaries of Fleet Financial Group, Inc. and, with
respect to each Fund other than the Tax-Exempt Fund, to participants in
employer-sponsored defined contribution plans (such institutions and plans are
referred to herein collectively as "Institutions"). Trust Shares sold to such
investors ("Customers") will be held of record by Institutions. Purchases of
Trust Shares will be effected only on days on which FD Distributors, Galaxy's
custodian and the purchasing Institution are open for business ("Trust Business
Days"). If an Institution accepts a purchase order from its Customer on a
non-Trust Business Day, the order will not be executed until it is received and
accepted by FD Distributors on a Trust Business Day in accordance with the
foregoing procedures.
On a Trust Business Day when the Exchange closes early due to a partial
holiday or otherwise, Galaxy will advance the time at which purchase orders must
be received in order to be processed on that Trust Business Day.
REDEMPTION OF RETAIL A SHARES, RETAIL B SHARES AND TRUST SHARES
Redemption orders are effected at the net asset value per share next
determined after receipt of the order by FD Distributors, except that proceeds
from the redemption of Retail B Shares of the Money Market Fund will be reduced
by the amount of any applicable contingent deferred sales charge. On a Business
Day or Trust Business Day when the Exchange closes early due to a partial
holiday or otherwise, Galaxy will advance the time at which redemption orders
must be received in order to be processed on that Business Day or Trust Business
Day. Galaxy may require any information reasonably necessary to ensure that a
redemption has been duly authorized. When redeeming Retail Shares in the Money
Market Fund, investors should indicate whether they are redeeming Retail A
Shares or Retail B Shares of the Fund. If an investor owns both Retail A Shares
and Retail B Shares of the Money Market Fund, the Retail A Shares will be
redeemed first unless the investor indicates otherwise. Galaxy reserves the
right to transmit redemption proceeds within seven days after receiving the
redemption order if, in its judgment, an earlier payment could adversely affect
a Fund.
If the Board of Trustees determines that conditions exist which make
payment of redemption proceeds wholly in cash unwise or undesirable, Galaxy may
make payment wholly or partly in securities or other property. Such redemptions
will only be made in "readily marketable" securities. In such an event, a
shareholder would incur transaction costs in selling the securities or other
property.
With respect to Institutional Shares, Galaxy requires that an institution
maintain an average balance of $2,000,000 in an account. If the balance in such
account falls below that minimum, the institution may be obliged by Galaxy to
redeem all of the shares in the account. In addition, Galaxy may redeem shares
involuntarily or make payment for redemption in securities
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if it appears appropriate to do so in light of Galaxy's responsibilities under
the 1940 Act. See "Net Asset Value" above for examples of when such redemptions
might be appropriate.
Galaxy may suspend the right of redemption or postpone the date of payment
for shares for more than seven days during any period when (a) trading in the
markets the Funds normally utilize is restricted, or an emergency, as defined by
the rules and regulations of the SEC, exists making disposal of a Fund's
investments or determination of its net asset value not reasonably practicable;
(b) the Exchange is closed (other than customary weekend and holiday closings);
or (c) the SEC by order has permitted such suspension.
INVESTOR PROGRAMS
The following information supplements the description in the applicable
Prospectus as to various Investor Programs available to holders of Retail Shares
and Institutional Shares.
EXCHANGE PRIVILEGE - RETAIL SHARES AND INSTITUTIONAL SHARES
The minimum initial investment to establish a new account in another
eligible fund by exchange, except for the Institutional Government Money Market
Fund, is $2,500, unless, with respect to Retail Shares, (i) the Retail Shares
being redeemed were purchased through a registered representative who is a Fleet
Bank employee, in which event there is no minimum investment requirement, or
(ii) at the time of the exchange the investor elects, with respect to the Fund
into which the exchange is being made, to participate in the Automatic
Investment Program described below, in which event there is no minimum initial
investment requirement, or in the College Investment Program described below, in
which event the minimum initial investment is generally $100. The minimum
initial investment to establish an account by exchange in the Institutional
Government Money Market Fund is $2 million.
An exchange involves a redemption of all or a portion of Retail Shares or
Institutional Shares and the investment of the redemption proceeds in shares of
another Fund or portfolio offered by Galaxy or, with respect to Retail A Shares,
otherwise advised by Fleet or its affiliates. The redemption will be made at
the per share net asset value next determined after the exchange request is
received. The shares of a Fund or portfolio to be acquired will be purchased at
the net asset value per share next determined after acceptance of the exchange
request, plus any applicable sales charge.
Investors may find the exchange privilege useful if their investment
objectives or market outlook should change after they invest in any of the
Funds. For further information regarding Galaxy's exchange privilege, investors
should call Investor Services Group at 1-877-BUY-GALAXY (1-877-289-4252).
Customers of institutions should call their institution for such information.
Investors exercising the exchange privilege into other portfolios should request
and review the prospectuses for these portfolios prior to making an exchange.
Telephone 1-877-BUY-GALAXY (1-877-289-4252) for a prospectus or to make an
exchange.
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In order to prevent abuse of this privilege to the disadvantage of other
shareholders, Galaxy reserves the right to terminate the exchange privilege of
any shareholder who requests more than three exchanges a year. Galaxy will
determine whether to do so based on a consideration of both the number of
exchanges that any particular shareholder or group of shareholders has requested
and the time period over which their exchange requests have been made, together
with the level of expense to Galaxy which will result from effecting additional
exchange requests. The exchange privilege may be modified or terminated at any
time. At least 60 days' notice of any material modification or termination will
be given to shareholders except where notice is not required under the
regulations of the SEC.
For federal income tax purposes, an exchange of shares is a taxable event
and, accordingly, a capital gain or loss may be realized by an investor. Before
making an exchange request, an investor should consult a tax or other financial
adviser to determine the tax consequences.
RETIREMENT PLANS - RETAIL SHARES
Retail Shares of the Funds, other than the Tax-Exempt Money Market Funds,
are available for purchase in connection with the following tax-deferred
prototype retirement plans:
INDIVIDUAL RETIREMENT ACCOUNTS ("IRAS") (including traditional, Roth and
Education IRAs and "rollovers" from existing retirement plans), a retirement
savings vehicle for qualifying individuals. The minimum initial investment for
an IRA account is $500 (including a spousal account).
SIMPLIFIED EMPLOYEE PENSION PLANS ("SEPS"), a form of retirement plan for
sole proprietors, partnerships and corporations. The minimum initial investment
for a SEP account is $500.
MULTI-EMPLOYEE RETIREMENT PLANS ("MERPS"), a retirement vehicle established
by employers for their employees which is qualified under Sections 401(k) and
403(b) of the Code. The minimum initial investment for a MERP is $500.
KEOGH PLANS, a retirement vehicle for self-employed individuals. The
minimum initial investment for a Keogh Plan is $500.
Investors purchasing Retail Shares pursuant to a retirement plan are not
subject to the minimum investment provisions described in the applicable
Prospectus. Detailed information concerning eligibility, service fees and other
matters related to these plans, and the form of application, is available from
FD Distributors (call 1-877-BUY-GALAXY (1-877-289-4252)) with respect to IRAs,
SEPs and Keogh Plans and from Fleet Securities, Inc. (call 1-800-221-8210) with
respect to MERPs.
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AUTOMATIC INVESTMENT PROGRAM AND SYSTEMATIC WITHDRAWAL PLAN - RETAIL SHARES
The Automatic Investment Program permits an investor to purchase Retail
Shares of a Fund each month or each quarter. Provided an investor's financial
institution allows automatic withdrawals, Retail Shares are purchased by
transferring funds from the investor's checking, bank money market, NOW or
savings account designated by the investor. The account designated will be
debited in the specified amount and Retail Shares will be purchased on a monthly
or quarterly basis, on any Business Day designated by the investor. If the
designated day falls on a weekend or holiday, the purchase will be made on the
Business Day closest to the designated day. Only an account maintained at a
domestic financial institution which is an Automated Clearing House ("ACH")
member may be so designated.
The Systematic Withdrawal Plan permits an investor to automatically redeem
Retail Shares on a monthly, quarterly, semi-annual, or annual basis on any
Business Day designated by the investor. If the designated day falls on a
weekend or holiday, the redemption will be made on the Business Day closest to
the designated day. Proceeds of the redemption will be sent to the
shareholder's address of record or financial institution within three Business
Days of the redemption. If redemptions exceed purchases and dividends, the
number of shares in the account will be reduced. Investors may terminate the
Systematic Withdrawal Plan at any time upon written notice to Galaxy's transfer
agent (but not less than five days before a payment date). No contingent
deferred sales charge will be assessed on redemptions of Retail B Shares of the
Money Market Fund made through the Systematic Withdrawal Plan that do not exceed
12% of an account's net asset value on an annualized basis. For example,
monthly, quarterly and semi-annual Systematic Withdrawal Plan redemptions of
Retail B Shares will not be subject to the contingent deferred sales charge if
they do not exceed 1%, 3% and 6%, respectively, of an account's net asset value
on the redemption date. Systematic Withdrawal Plan redemptions of Retail B
Shares in excess of this limit are still subject to the applicable contingent
deferred sales charge.
COLLEGE INVESTMENT PROGRAM - RETAIL SHARES
Galaxy reserves the right to redeem accounts participating in the College
Investment Program involuntarily, upon 60 days' written notice, if the account's
net asset value falls below the applicable minimum initial investment as a
result of redemptions. Investors participating in the College Investment
Program will receive consolidated monthly statements of their accounts.
Detailed information concerning College Investment Program accounts and
applications may be obtained from FD Distributors (call 1-877-BUY-GALAXY
(1-877-289-4252)).
CHECKWRITING - RETAIL SHARES
Checkwriting is available for investors in Retail Shares. A charge for use
of the checkwriting privilege may be imposed by Galaxy. There is no limit to
the number of checks an investor may write per month in an amount per check of
$250 or more. To obtain checks, an investor must complete the signature card
that accompanies the account application. To establish this checkwriting
service after opening an account in a Fund, investors must contact FD
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<PAGE>
Distributors by telephone (1-877-BUY-GALAXY (1-877-289-4252)) or mail to obtain
a signature card. A signature guarantee may be required. An investor will
receive the daily dividends declared on the Retail Shares to be redeemed up to
the day that a check is presented to Galaxy's custodian for payment. Upon 30
days' written notice to investors, the checkwriting privilege may be modified or
terminated. An account in a Fund may not be closed by writing a check.
DIRECT DEPOSIT PROGRAM - RETAIL SHARES
Death or legal incapacity will terminate an investor's participation in the
Direct Deposit Program. An investor may elect at any time to terminate his or
her participation by notifying in writing the Social Security Administration.
Further, Galaxy may terminate an investor's participation upon 30 days' notice
to the investor.
TAXES
Each Fund qualified during its last taxable year and intends to continue to
qualify as a regulated investment company under Subchapter M of the Code, and to
distribute out its income to shareholders each year, so that each Fund itself
generally will be relieved of federal income and excise taxes. If a Fund were
to fail to so qualify: (1) the Fund would be taxed at regular corporate rates
without any deduction for distributions to shareholders; and (2) shareholders
would be taxed as if they received ordinary dividends, although corporate
shareholders could be eligible for the dividends received deduction.
A 4% non-deductible excise tax is imposed on regulated investment companies
that fail to distribute with respect to each calendar year at least 98% of their
ordinary taxable income and capital gain net income (excess of capital gains
over capital losses) for the one year period ending October 31 of such calendar
year. Each Fund intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and any capital gain net income
prior to the end of each calendar year to avoid liability for this excise tax.
The Funds will be required in certain cases to withhold and remit to the
United States Treasury 31% of taxable dividends or gross sale proceeds paid to
any shareholder who (i) has failed to provide a correct tax identification
number, (ii) is subject to withholding by the Internal Revenue Service for
failure to properly include on his or her return payments of taxable interest or
dividends, or (iii) has failed to certify to the Funds that he or she is not
subject to back up withholding when required to do so or that he or she is an
"exempt recipient."
A taxable gain or loss may be realized by a shareholder upon redemption,
transfer or exchange of shares of a Fund depending upon the tax basis of such
shares and their price at the time of redemption, transfer or exchange.
THE TAX-EXEMPT MONEY MARKET FUNDS. It is the policy of each Tax-Exempt
Money Market Fund to pay dividends with respect to each taxable year equal to at
least the sum of 90%
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<PAGE>
of its net exempt-interest income and 90% of its investment company taxable
income, if any. Dividends derived from exempt-interest income ("exempt-interest
dividends") may be treated by a Fund's shareholders as items of interest
excludable from their gross income under Section 103(a) of the Code, unless,
under the circumstances applicable to a particular shareholder, exclusion would
be disallowed.
Dividends from a Tax-Exempt Money Market Fund which are derived from
taxable income or from long-term or short-term capital gains will be subject to
federal income tax, whether such dividends are paid in the form of cash or
additional shares of the Fund.
An investment in a Tax-Exempt Money Market Fund is not intended to
constitute a balanced investment program. Shares of the Funds would not be
suitable for tax-exempt institutions and may not be suitable for retirement
plans qualified under Section 401 of the Code, H.R. 10 plans and individual
retirement accounts because such plans and accounts are generally tax-exempt
and, therefore, not only would the shareholder not gain any additional benefit
from the Funds' dividends being tax-exempt, but such dividends would be
ultimately taxable to the beneficiaries when distributed. In addition, the Funds
may not be an appropriate investment for entities which are "substantial users"
of facilities financed by "private activity bonds" or "related persons" thereof.
"Substantial user" is defined under U.S. Treasury Regulations to include a
non-exempt person who (i) regularly uses a part of such facilities in his or her
trade or business and whose gross revenues derived with respect to the
facilities financed by the issuance of bonds are more than 5% of the total
revenues derived by all users of such facilities, (ii) occupies more than 5% of
the usable area of such facilities or (iii) are persons for whom such facilities
or a part thereof were specifically constructed, reconstructed or acquired.
"Related persons" include certain related natural persons, affiliated
corporations, a partnership and its partners and an S corporation and its
shareholders.
In order for the Funds to pay exempt-interest dividends for any taxable
year, at the close of each taxable quarter, at least 50% of the aggregate value
of a Fund's portfolio must consist of exempt-interest obligations. Within 60
days after the close of its taxable year, each Fund will notify its shareholders
of the portion of the dividends paid by the Fund which constitutes
exempt-interest dividends with respect to such taxable year. However, the
aggregate amount of dividends so designated by a Fund cannot exceed the excess
of the amount of interest exempt from tax under Section 103 of the Code received
by the Fund over any amounts disallowed as deductions under Sections 265 and
171(a)(2) of the Code. The percentage of total dividends paid by a Fund with
respect to any taxable year that qualifies as federal exempt-interest dividends
will be the same for all shareholders receiving dividends from the Fund for such
year.
Shareholders should note that, upon the sale or exchange of Fund shares, if
the shareholder has not held such shares for more than six months, any loss on
the sale or exchange of those shares will be disallowed to the extent of the
exempt dividends received with respect to the shares.
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<PAGE>
STATE AND LOCAL
Exempt-interest dividends and other distributions paid by the Tax-Exempt
Money Market Funds may be taxable to shareholders under state or local law as
dividend income, even though all or a portion of such distributions may be
derived from interest on tax-exempt obligations which, if realized directly,
would be exempt from such income taxes.
Dividends paid by the Connecticut Municipal Money Market Fund that qualify
as exempt-interest dividends for federal income tax purposes will not be subject
to the Connecticut personal income tax imposed on resident and nonresident
individuals, trusts and estates to the extent that they are derived from
Connecticut Municipal Securities (as defined above). Other Fund dividends and
distributions, whether received in cash or additional shares, are subject to
this tax, except that, in the case of shareholders who hold their shares as
capital assets, distributions treated as capital gain dividends for federal
income tax purposes are not subject to the tax to the extent that they are
derived from obligations issued by or on behalf of the State of Connecticut, its
political subdivisions, or public instrumentalities, state or local authorities,
districts or similar public entities created under Connecticut law. Dividends
and distributions paid by the Fund that constitute items of tax preference for
purposes of the federal alternative minimum tax, other than any derived from
Connecticut Municipal Securities, could cause liability for the net Connecticut
minimum tax applicable to investors subject to the Connecticut personal income
tax who are required to pay the federal alternative minimum tax. Dividends paid
by the Connecticut Municipal Money Market Fund, including those that qualify as
exempt-interest dividends for federal income tax purposes, are taxable for
purposes of the Connecticut Corporation Business Tax; however, 70% (100% if the
investor owns at least 20% of the total voting power and value of the Fund's
shares) of amounts that are treated as dividends and not as exempt-interest
dividends or capital gain dividends for federal income tax purposes are
deductible for purposes of this tax, but no deduction is allowed for expenses
related thereto. Shares of the Fund are not subject to property taxation by
Connecticut or its political subdivisions.
Distributions by the Massachusetts Municipal Money Market Fund to its
shareholders are exempt from Massachusetts personal income taxation to the
extent they are derived from (and designated by the Fund as being derived from)
(i) interest on Massachusetts Municipal Securities, or (ii) capital gains
realized by the Fund from the sale of certain Massachusetts Municipal
Securities. Distributions from the Fund's other net investment income and
short-term capital gains will be taxable as ordinary income. Distributions from
the Fund's net long-term capital gains will be taxable as long-term capital
gains regardless of how long the shareholder has owned Fund shares. The tax
treatment of distributions is the same whether distributions are paid in cash or
in additional shares of the Fund. Distributions by the Fund to corporate
shareholders, including exempt-interest dividends, may be subject to
Massachusetts corporate excise tax.
The U.S. Treasury Fund is structured to provide shareholders, to the extent
permissible by federal and state law, with income that is exempt or excluded
from taxation at the state and local level. Many states, by statute, judicial
decision or administrative action, have taken the
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<PAGE>
position that dividends of a regulated investment company, such as the Fund,
that are attributable to interest on direct U.S. Treasury obligations or
obligations of certain U.S. Government agencies, are the functional equivalent
of interest from such obligations and are, therefore, exempt from state and
local income taxes. Shareholders should consult their own tax advisers about
the status of distributions from the Fund in their own state.
Depending upon the extent of Galaxy's activities in states and localities
in which its offices are maintained, in which its agents or independent
contractors are located, or in which it is otherwise deemed to be conducting
business, each Fund may be subject to the tax laws of such states or localities.
In addition, in those states and localities that have income tax laws, the
treatment of a Fund and its shareholders under such laws may differ from their
treatment under federal income tax laws. Under state or local law,
distributions of net investment income may be taxable to shareholders as
dividend income even though a substantial portion of such distributions may be
derived from interest on U.S. Government obligations which, if realized
directly, would be exempt from such income taxes. Shareholders are advised to
consult their tax advisers concerning the application of state and local taxes.
MISCELLANEOUS
Shareholders will be advised at least annually as to the federal income tax
consequences of distributions made each year. Shareholders of the Connecticut
Municipal Money Market and Massachusetts Municipal Money Market Funds will also
be advised as to the Connecticut personal income tax and Massachusetts personal
income tax consequences, respectively, of distributions made each year.
TRUSTEES AND OFFICERS
The business and affairs of the Funds are managed under the direction of
Galaxy's Board of Trustees in accordance with the laws of the Commonwealth of
Massachusetts and the Trust's Declaration of Trust. The trustees and executive
officers of Galaxy, their addresses, principal occupations during the past five
years, and other affiliations are as follows:
-41-
<PAGE>
<TABLE>
<CAPTION>
Positions Principal Occupation
Name and Address with The During Past 5 Years
and Age Galaxy Fund and Other Affiliations
---------------- ----------- ----------------------
<S> <C> <C>
Dwight E. Vicks, Jr. Chairman & President & Director, Vicks
Vicks Lithograph & Trustee Lithograph & Printing
Printing Corporation Corporation (book manufacturing
Commercial Drive and commercial printing);
P.O. Box 270 Director, Utica Fire Insurance
Yorkville, NY 13495 Company; Trustee, Savings Bank
Age 65 of Utica; Director, Monitor
Life Insurance Company;
Director, Commercial Travelers
Mutual Insurance Company;
Trustee, The Galaxy VIP Fund;
Trustee, Galaxy Fund II.
John T. O'Neill President, Executive Vice President and
Hasbro, Inc. Treasurer & CFO, Hasbro, Inc. (toy and game
1011 Newport Avenue Trustee manufacturer); Trustee, The
Pawtucket, RI 02862 Galaxy VIP Fund; Trustee,
Age 54 Galaxy Fund II.
Louis DeThomasis Trustee President, Saint Mary's College
Saint Mary's College of Minnesota; Director, Bright
of Minnesota Day Travel, Inc.; Trustee,
Winona, MN 55987 Religious Communities Trust;
Age 58 Trustee, The Galaxy VIP Fund;
Trustee, Galaxy Fund II.
Donald B. Miller Trustee Chairman, Horizon Media, Inc.
10725 Quail Covey Road (broadcast services);
Boynton Beach, FL 33436 Director/Trustee, Lexington
Age 73 Funds; Chairman, Executive
Committee, Compton
International, Inc.
(advertising agency); Trustee,
Keuka College; Trustee, The
Galaxy VIP Fund; Trustee,
Galaxy Fund II.
</TABLE>
-42-
<PAGE>
<TABLE>
<CAPTION>
Positions Principal Occupation
with The During Past 5 Years
Name and Address and Age Galaxy Fund and Other Affiliations
------------------------ ----------- ----------------------
<S> <C> <C>
James M. Seed Trustee Chairman and President, The
The Astra Ventures, Inc. Astra Projects, Incorporated
One Citizens Plaza (land development); President,
Providence, RI 02903 The Astra Ventures,
Age 57 Incorporated (previously,
Buffinton Box Company -
manufacturer of cardboard
boxes); Commissioner, Rhode
Island Investment Commission;
Trustee, The Galaxy VIP Fund;
Trustee, Galaxy Fund II.
Bradford S. Wellman(1)
2468 Ohio Street Trustee Private Investor; Vice
Bangor, ME 04401 President and Director, Acadia
Age 67 Management Company (investment
services); Director, Essex
County Gas Company, until
January 1994; Director, Maine
Mutual Fire Insurance Co.;
Member, Maine Finance
Authority; Trustee, The Galaxy
VIP Fund; Trustee, Galaxy Fund
II.
W. Bruce McConnel, III Secretary Partner of the law firm Drinker
Philadelphia National Biddle & Reath LLP,
Bank Building Philadelphia, Pennsylvania.
1345 Chestnut Street.
Philadelphia, PA 19107
Age 56
Jylanne Dunne Vice President Vice President, First Data
First Data Investor Services and Assistant Investor Services Group, Inc.,
Group, Inc. Treasurer 1990 to present.
4400 Computer Drive
Westborough, MA 01581-5108
Age 39
</TABLE>
-43-
<PAGE>
<TABLE>
<CAPTION>
Positions Principal Occupation
with The During Past 5 Years
Name and Address and Age Galaxy Fund and Other Affiliations
------------------------ ----------- ----------------------
<S> <C> <C>
William Greilich Vice President Vice President, Investor
First Data Investor Services Services Group, Inc., 1991-96;
Group, Inc. Vice President and Division
4400 Computer Drive Manager, First Data Investor
Westborough, MA 01581-5108 Services Group, Inc., 1996-
Age 45 present.
</TABLE>
- -------------------------
1. May be deemed to be an "interested person" within the definition set forth
in Section 2(a)(19) of the 1940 Act.
Effective March 5, 1998, each trustee receives an annual aggregate fee of
$40,000 for his services as a trustee of Galaxy, The Galaxy VIP Fund ("Galaxy
VIP") and Galaxy Fund II ("Galaxy II") (collectively, the "Trusts"), plus an
additional $2,250 for each in-person Galaxy Board meeting attended and $1,500
for each in-person Galaxy VIP or Galaxy II Board meeting attended not held
concurrently with an in-person Galaxy meeting, and is reimbursed for expenses
incurred in attending all meetings. Each trustee also receives $750 for each
telephone Board meeting in which the trustee participates, $1,000 for each
in-person Board committee meeting attended and $500 for each telephone Board
committee meeting in which the trustee participates. The Chairman of the Boards
of the Trusts is entitled to an additional annual aggregate fee in the amount of
$4,000, and the President and Treasurer of the Trusts is entitled to an
additional annual aggregate fee of $2,500 for their services in these respective
capacities. The foregoing trustees' and officers' fees are allocated among the
portfolios of the Trusts based on their relative net assets. Prior to March 5,
1998, (i) each trustee received an annual aggregate fee of $29,000 for his
services as a trustee of the Trusts, plus an additional $2,250 for each
in-person Galaxy Board meeting attended and $1,500 for each in-person Galaxy VIP
or Galaxy II Board meeting attended not held concurrently with an in-person
Galaxy Board meeting, and (ii) the President and Treasurer of the Trusts
received the same fees as they are currently paid for their services in these
capacities.
Effective March 1, 1996, each trustee became entitled to participate in The
Galaxy Fund, The Galaxy VIP Fund and Galaxy Fund II Deferred Compensation Plans
(the "Original Plans"). Effective January 1, 1997, the Original Plans were
merged into The Galaxy Fund/The Galaxy VIP Fund/Galaxy Fund II Deferred
Compensation Plan (together with the Original Plans, the "Plan"). Under the
Plan, a trustee may elect to have his deferred fees treated as if they had been
invested by the Trusts in the shares of one or more portfolios in the Trusts, or
other types of investment options, and the amount paid to the trustees under the
Plan will be determined based upon the performance of such investments.
Deferral of trustees' fees will have no effect on a portfolio's assets,
liabilities, and net income per share, and will not obligate the Trusts to
retain
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<PAGE>
the services of any trustee or obligate a portfolio to any level of compensation
to the trustee. The Trusts may invest in underlying securities without
shareholder approval.
No employee of Investor Services Group receives any compensation from
Galaxy for acting as an officer. No person who is an officer, director or
employee of Fleet, or any of its affiliates, serves as a trustee, officer or
employee of Galaxy. The trustees and officers of Galaxy own less than 1% of its
outstanding shares.
The following chart provides certain information about the fees received by
Galaxy's trustees in the most recently completed fiscal year.
<TABLE>
<CAPTION>
Pension or
Retirement Total
Benefits Compensation
Aggregate Accrued as from Galaxy and
Compensation from Part of Fund Fund Complex
Name of Person/Position Galaxy Expenses Paid to Trustees
----------------------- ------ -------- ----------------
<S> <C> <C> <C>
Bradford S. Wellman $39,932 None $44,750
Trustee
Dwight E. Vicks, Jr.
Chairman and Trustee $43,949 None $49,250
Donald B. Miller**
Trustee $40,380 None $45,250
Rev. Louis DeThomasis
Trustee $40,380 None $45,250
John T. O'Neill
President, Treasurer $42,611 None $47,750
and Trustee
James M. Seed**
Trustee $40,380 None $45,250
</TABLE>
- -------------
* The "Fund Complex" consists of Galaxy, The Galaxy VIP Fund and Galaxy Fund
II, which comprise a total of 43 separate portfolios.
** Deferred compensation (including interest) in the amounts of $43,744 and
$44,527 accrued during Galaxy's fiscal year ended October 31, 1998 for
Messrs. Miller and Seed, respectively.
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. However, Galaxy's Declaration of Trust provides that shareholders
shall not be subject to any personal liability for the acts or obligations of
Galaxy, and that every note, bond, contract, order or other undertaking made by
Galaxy shall contain a provision to the effect that the shareholders are not
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<PAGE>
personally liable thereunder. The Declaration of Trust provides for
indemnification out of the trust property of any shareholder held personally
liable solely by reason of his or her being or having been a shareholder and not
because of his or her acts or omissions outside such capacity or some other
reason. The Declaration of Trust also provides that Galaxy shall, upon request,
assume the defense of any claim made against any shareholder for any act or
obligation of Galaxy, and shall satisfy any judgment thereon. Thus, the risk of
shareholder liability is limited to circumstances in which Galaxy itself would
be unable to meet its obligations.
The Declaration of Trust states further that no trustee, officer or agent
of Galaxy shall be personally liable for or on account of any contract, debt,
claim, damage, judgment or decree arising out of or connected with the
administration or preservation of the trust estate or the conduct of any
business of Galaxy; nor shall any trustee be personally liable to any person for
any action or failure to act except by reason of his own bad faith, willful
misfeasance, gross negligence or reckless disregard of his duties as trustee.
The Declaration of Trust also provides that all persons having any claim against
the trustees or Galaxy shall look solely to the trust property for payment.
With the exceptions stated, the Declaration of Trust provides that a
trustee is entitled to be indemnified against all liabilities and expenses
reasonably incurred by him in connection with the defense or disposition of any
proceeding in which he may be involved or with which he may be threatened by
reason of his being or having been a trustee, and that the Board of Trustees
shall indemnify representatives and employees of Galaxy to the same extent to
which they themselves are entitled to indemnification.
INVESTMENT ADVISER
Fleet serves as investment adviser to the Funds. In its advisory
agreement, Fleet has agreed to provide investment advisory services to the Funds
as described in the Prospectuses. Fleet has also agreed to pay all expenses
incurred by it in connection with its activities under the advisory agreement
other than the cost of securities (including brokerage commissions) purchased
for the Funds. See "Expenses" below.
For the services provided and expenses assumed, Fleet is entitled to
receive advisory fees, computed daily and paid monthly, at the following annual
rates:
- with respect to the Money Market, Government and Tax-Exempt Funds,
.40% of the average daily net assets of each Fund;
- with respect to the U.S. Treasury, Connecticut Municipal Money Market
and Massachusetts Municipal Money Market Funds, .40% of the first
$750,000,000 of average daily net assets of each Fund plus .35% of the
average daily net assets of each Fund in excess of $750,000,000; and
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<PAGE>
- with respect to the Institutional Government Money Market Fund, .20%
of the average daily net assets of the Fund.
Fleet has advised Galaxy that, with respect to the Money Market, Government
and Tax-Exempt Funds, it intends to waive advisory fees payable to it by each
Fund in an amount equal to 0.05% of the average daily net assets of each Fund to
the extent that a Fund's net assets exceed $750,000,000.
During the last three fiscal years, Galaxy paid advisory fees (net of fee
waivers and/or expense reimbursements) to Fleet as set forth below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C>
Money Market. . . . . . . . . . . . . . . . $11,668,106 $9,458,596 $6,802,258
Government. . . . . . . . . . . . . . . . . $4,200,651 $4,214,959 $3,790,727
U. S. Treasury. . . . . . . . . . . . . . . $3,727,152 $3,439,391 $2,715,959
Tax-Exempt. . . . . . . . . . . . . . . . . $1,514,545 $1,275,727 $1,270,800
Institutional Government Money Market . . . $128,172 $350,902 $487,246
Connecticut Municipal Money Market . . . . . $567,175 $497,713 $386,073(1)
Massachusetts Municipal Money Market . . . . $361,928 $251,050 $154,616(1)
</TABLE>
- ---------------------
(1) For the period from December 4, 1995 to October 31, 1996. For the period
from November 1, 1995 to December 3, 1995, Shawmut Bank, N.A., the
investment adviser for the Predecessor Funds, earned the following advisory
fees: $43,242 and $17,003 with respect to the Predecessor Connecticut
Municipal Money Market Fund and Predecessor Massachusetts Municipal Money
Market Fund, respectively, none of which was voluntarily waived.
During the last three fiscal years, Fleet waived advisory fees as set forth
below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C>
Money Market $1,238,301 $922,657 $543,180
Government $171,522 $173,566 $113,057
U. S. Treasury $0 $0 $0
Tax-Exempt $0 $0 $0
Institutional Government Money Market $151,744 $350,901 $484,786
Connecticut Municipal Money Market $0 $0 $0
Massachusetts Municipal Money Market $0 $0 $0
</TABLE>
- ---------------------
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<PAGE>
During the last three fiscal years, Fleet reimbursed expenses as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C>
Money Market $0 $17 $85,430
Government $0 $542 $13,713
U. S. Treasury $0 $25,108 $828
Tax-Exempt $0 $15,751 $16,727
Institutional Government Money Market $23,572 $18,206 $31,826
Connecticut Municipal Money Market $54,320 $62,664 $93,862(1)
Massachusetts Municipal Money Market $58,991 $54,862 $90,548(1)
</TABLE>
- ---------------------
(1) For the period from December 4, 1995 to October 31, 1996. For the period
from November 1, 1995 to December 3, 1995, Shawmut Bank, N.A., the
investment adviser for the Predecessor Funds, reimbursed no expenses to
either of the Predecessor Funds.
The advisory agreement provides that Fleet shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Funds in
connection with the performance of its duties under the advisory agreement,
except a loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of Fleet in the
performance of its duties or from reckless disregard by it of its duties and
obligations thereunder. Unless sooner terminated, the advisory agreement will
continue in effect with respect to a particular Fund from year to year as long
as such continuance is approved at least annually (i) by the vote of a majority
of trustees who are not parties to such advisory agreement or interested persons
(as defined in the 1940 Act) of any such party, cast in person at a meeting
called for the purpose of voting on such approval; and (ii) by Galaxy's Board of
Trustees, or by a vote of a majority of the outstanding shares of such Fund.
The term "majority of the outstanding shares of such Fund" means, with respect
to approval of an advisory agreement, the vote of the lesser of (i) 67% or more
of the shares of the Fund present at a meeting, if the holders of more than 50%
of the outstanding shares of the Fund are present or represented by proxy, or
(ii) more than 50% of the outstanding shares of the Fund. The advisory
agreement may be terminated by Galaxy or by Fleet on sixty days' written notice,
and will terminate immediately in the event of its assignment.
Fleet is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, to the extent permitted
by law or order of the SEC, financial institutions that are affiliated with
Fleet or that have sold shares of the Funds, if Fleet believes that the quality
of the transaction and the commission are comparable to what they would be with
other qualified brokerage firms.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling or distributing securities such as shares of
the
-48-
<PAGE>
Funds, but such banking laws and regulations do not prohibit such a bank holding
company or its affiliates or banks generally from acting as investment adviser,
transfer agent, or custodian to such an investment company or from purchasing
shares of such a company as agent for and upon the order of customers. Fleet,
the custodian and institutions which agree to provide shareholder support
services that are banks or bank affiliates are subject to such banking laws and
regulations. Should legislative, judicial or administrative action prohibit or
restrict the activities of such companies in connection with their services to
the Funds, Galaxy might be required to alter materially or discontinue its
arrangements with such companies and change its method of operation. It is
anticipated, however, that any resulting change in the Funds' method of
operation would not affect a Fund's net asset value per share or result in
financial loss to any shareholder.
ADMINISTRATOR
Investor Services Group, located at 4400 Computer Drive, Westborough,
Massachusetts 01581-5108, serves as the Funds' administrator. Investor Services
Group is a wholly-owned subsidiary of First Data Corporation.
Investor Services Group generally assists the Funds in their administration
and operation. Investor Services Group also serves as administrator to the
other portfolios of Galaxy. For the services provided to the Funds, Investor
Services Group is entitled to receive administration fees based on the combined
average daily net assets of the Funds and the other portfolios offered by Galaxy
with an October 31 fiscal year end, computed daily and paid monthly, at the
following annual rates effective September 10, 1998:
<TABLE>
<CAPTION>
COMBINED AVERAGE DAILY NET ASSETS ANNUAL RATE
--------------------------------- -----------
<S> <C>
Up to $2.5 billion. . . . . . . . . 0.090%
From $2.5 to $5 billion . . . . . . 0.085%
From $5 to $12 billion. . . . . . . 0.075%
From $12 to $15 billion . . . . . . 0.065%
From $15 to $18 billion . . . . . . 0.060%
Over $18 billion. . . . . . . . . . 0.0575%
</TABLE>
Prior to September 10, 1998, Galaxy paid Investor Services Group
administration fees based on the combined average daily net assets of the Funds
and all other portfolios offered by Galaxy at the following annual rates:
<TABLE>
<CAPTION>
COMBINED AVERAGE DAILY NET ASSETS ANNUAL RATE
--------------------------------- -----------
<S> <C>
Up to $2.5 billion. . . . . . . . . 0.090%
From $2.5 to $5 billion . . . . . . 0.085%
Over $5 billion . . . . . . . . . . 0.075%
</TABLE>
In addition, Investor Services Group also receives a separate annual fee from
each Galaxy portfolio for certain fund accounting services.
From time to time, Investor Services Group may waive voluntarily all or a
portion of the administration fee payable to it by the Funds. For the fiscal
year ended October 31, 1998, the Money Market, Government, Tax-Exempt, U.S.
Treasury, Connecticut Municipal Money Market
-49-
<PAGE>
and Massachusetts Municipal Money Market Funds paid Investor Services Group
administration fees at the effective annual rate of 0.08% of each Fund's average
daily net assets, and the Institutional Government Money Market Fund paid
Investor Services Group administration fees (after fee waivers) at the effective
annual rate of 0.05% of the Fund's average daily net assets.
During the last three fiscal years, Investor Services Group received
administration fees (net of fee waivers) as set forth below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C>
Money Market. . . . . . . . . . . . . . . . $2,596,354 $2,118,433 $1,556,983
Government. . . . . . . . . . . . . . . . . $879,555 $895,995 $828,248
U. S. Treasury. . . . . . . . . . . . . . . $770,823 $720,691 $577,419
Tax-Exempt. . . . . . . . . . . . . . . . . $304,716 $263,643 $273,302
Institutional Government Money Market(1). . $74,925 $173,799 $243,008
Connecticut Municipal Money Market. . . . . $124,998 $101,578 $81,178(2)
Massachusetts Municipal Money Market. . . . $84,643 $51,212 $32,643(2)
</TABLE>
(1) For the fiscal years ended October 31, 1998, October 31, 1997 and October
31, 1996, Investor Services Group waived administration fees of $61,161,
$142,012 and $174,704, respectively, with respect to the Institutional
Government Money Market Fund.
(2) For the period from December 4, 1995 through October 31, 1996. For the
period from November 1, 1995 to December 3, 1995, Federated Administrative
Services, a subsidiary of Federated Investors, served as administrator of
the Predecessor Funds and earned the following administrative fees:
$12,973, and $5,101 with respect to the Predecessor Connecticut Municipal
Money Market Fund and Predecessor Massachusetts Municipal Money Market
Fund, respectively, none of which was voluntarily waived.
Under the administration agreement between Galaxy and Investor Services
Group (the "Administration Agreement"), Investor Services Group has agreed to
maintain office facilities for Galaxy, furnish Galaxy with statistical and
research data, clerical, accounting, and bookkeeping services, certain other
services such as internal auditing services required by Galaxy, and compute the
net asset value and net income of the Funds. Investor Services Group prepares
the Funds' annual and semi-annual reports to the SEC, federal and state tax
returns, and filings with state securities commissions, arranges for and bears
the cost of processing share purchase and redemption orders, maintains the
Funds' financial accounts and records, and generally assists in all aspects of
Galaxy's operations. Unless otherwise terminated, the Administration Agreement
will remain in effect until May 1, 2001 and thereafter will continue from year
to year upon annual approval of Galaxy's Board of Trustees.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase Manhattan"), located at One Chase
Manhattan Plaza, New York, New York 10081, a wholly-owned subsidiary of The
Chase Manhattan Corporation, serves as the custodian of the Funds' assets
pursuant to a Global Custody Agreement.
-50-
<PAGE>
Under the Global Custody Agreement, Chase Manhattan has agreed to: (i)
maintain a separate account or accounts in the name of each Fund; (ii) hold and
disburse portfolio securities on account of each Fund; (iii) collect and make
disbursements of money on behalf of each Fund; (iv) collect and receive all
income and other payments and distributions on account of each Fund's portfolio
securities; (v) respond to correspondence from security brokers and others
relating to its duties; and (vi) make periodic reports to the Board of Trustees
concerning the Funds' operations. Chase Manhattan is authorized to select one
or more banks or trust companies to serve as sub-custodian for the Funds,
provided that Chase Manhattan shall remain responsible for the performance of
all of its duties under the custodian agreement and shall be liable to the Funds
for any loss which shall occur as a result of the failure of a sub-custodian to
exercise reasonable care with respect to the safekeeping of the Funds' assets.
The assets of the Funds are held under bank custodianship in compliance with the
1940 Act.
Investor Services Group, a wholly-owned subsidiary of First Data
Corporation, serves as the Funds' transfer and dividend disbursing agent,
pursuant to a Transfer Agency and Services Agreement (the "Transfer Agency
Agreement"). Communications to Investor Services Group should be directed to
Investor Services Group at P.O. Box 5108, 4400 Computer Drive, Westborough,
Massachusetts 01581. Under the Transfer Agency Agreement, Investor Services
Group has agreed to: (i) issue and redeem shares of each Fund; (ii) transmit all
communications by each Fund to its shareholders of record, including reports to
shareholders, dividend and distribution notices and proxy materials for meetings
of shareholders; (iii) respond to correspondence by security brokers and others
relating to its duties; (iv) maintain shareholder accounts; and (v) make
periodic reports to the Board of Trustees concerning Galaxy's operations.
Investor Services Group may enter into agreements with one or more
entities, including affiliates of Fleet, pursuant to which such entities agree
to perform certain sub-account and administrative functions ("Sub-Account
Services") on a per account basis with respect to Trust Shares of the Money
Market, Government and U.S. Treasury Funds held by defined contribution plans,
including maintaining records reflecting separately with respect to each plan
participant's sub-account all purchases and redemptions of Trust Shares and the
dollar value of Trust Shares in each sub-account; crediting to each
participant's sub-account all dividends and distributions with respect to that
sub-account; and transmitting to each participant a periodic statement regarding
the sub-account as well as any proxy materials, reports and other material Fund
communications. Such entities are compensated by Investor Services Group for
the Sub-Account Services and in connection therewith the transfer agency fees
payable by Trust Shares of the Money Market, Government and U.S. Treasury Funds
to Investor Services Group have been increased by an amount equal to these fees.
In substance, therefore, the holders of Trust Shares of these Funds indirectly
bear these fees.
Fleet Bank, an affiliate of Fleet, is paid a fee for Sub-Account Services
performed with respect to Trust Shares of the Money Market, Government and U.S.
Treasury Funds held by defined contribution plans. Pursuant to an agreement
between Fleet Bank and Investor Services Group, Fleet Bank is paid $21.00 per
year for each defined contribution plan participant account. For the fiscal
year ended October 31, 1998, Fleet Bank received $246,187 for Sub-Account
Services. Investor Services Group bears this expense directly, and shareholders
of Trust Shares
-51-
<PAGE>
of the Funds, except the Tax-Exempt Fund, bear this expense indirectly through
fees paid to Investor Services Group for transfer agency services.
EXPENSES
Fleet and Investor Services Group bear all expenses in connection with the
performance of their services for the Funds, except that Galaxy bears the
expenses incurred in the Funds' operations including: taxes; interest; fees
(including fees paid to its trustees and officers who are not affiliated with
Investor Services Group); SEC fees; state securities fees; costs of preparing
and printing prospectuses for regulatory purposes and for distribution to
existing shareholders; advisory, administration, shareholder servicing, Rule
12b-1 distribution (if applicable), fund accounting and custody fees; charges of
the transfer agent and dividend disbursing agent; certain insurance premiums;
outside auditing and legal expenses; costs of independent pricing services;
costs of shareholder reports and meetings; and any extraordinary expenses. The
Funds also pay for brokerage fees and commissions in connection with the
purchase of portfolio securities.
PORTFOLIO TRANSACTIONS
Debt securities purchased or sold by the Funds are generally traded in the
over-the-counter market on a net basis (i.e., without commission) through
dealers, or otherwise involve transactions directly with the issuer of an
instrument. The cost of securities purchased from underwriters includes an
underwriting commission or concession, and the prices at which securities are
purchased from and sold to dealers include a dealer's mark-up or mark-down.
Transactions in the over-the-counter market are generally principal
transactions with dealers and the costs of such transactions involve dealer
spreads rather than brokerage commissions. With respect to over-the-counter
transactions, Fleet will normally deal directly with the dealers who make a
market in the securities involved except in those circumstances where better
prices and execution are available elsewhere or as described below.
The Funds do not intend to seek profits from short-term trading. Their
annual portfolio turnover will be relatively high, but since brokerage
commissions are normally not paid on money market instruments, it should not
have a material effect on the net income of any of these Funds.
In purchasing or selling securities for the Funds, Fleet will seek to
obtain the best net price and the most favorable execution of orders. To the
extent that the execution and price offered by more than one broker/dealer are
comparable, Fleet may effect transactions in portfolio securities with
broker/dealers who provide research, advice or other services such as market
investment literature.
Except as permitted by the SEC or applicable law, the Funds will not
acquire portfolio securities from, make savings deposits in, enter into
repurchase or reverse repurchase agreements
-52-
<PAGE>
with, or sell securities to, Fleet, Investor Services Group, or their
affiliates, and will not give preference to affiliates and correspondent banks
of Fleet with respect to such transactions.
Galaxy is required to identify any securities of its "regular brokers or
dealers" that the Funds have acquired during Galaxy's most recent fiscal year.
During the fiscal year ended October 31, 1998, (1) the Government Fund held HSBC
Securities, Inc. with a value of $176,649,000; (2) the Money Market Fund held
HSBC Securities, Inc. with a value of $150,000,000 and held Goldman Sachs & Co.
with a value of $149,085,000; (3) the Institutional Government Money Market Fund
held HSBC Securities, Inc. with a value of $43,258,000. HSBC Securities, Inc.
and Goldman Sachs & Co. are considered "regular brokers or dealers" of Galaxy.
Investment decisions for each Fund are made independently from those for
the other Funds and portfolios of Galaxy and for any other investment companies
and accounts advised or managed by Fleet. When a purchase or sale of the same
security is made at substantially the same time on behalf of a Fund, another
portfolio of Galaxy, and/or another investment company or account, the
transaction will be averaged as to price, and available investments allocated as
to amount, in a manner which Fleet believes to be equitable to the Fund and such
other portfolio, investment company or account. In some instances, this
investment procedure may adversely affect the price paid or received by a Fund
or the size of the position obtained or sold by such Fund. To the extent
permitted by law, Fleet may aggregate the securities to be sold or purchased for
a Fund with those to be sold or purchased for Galaxy's other Funds and
portfolios, or other investment companies or accounts in order to obtain best
execution.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan with respect to each Fund
other than the Institutional Government Money Market Fund pursuant to which
Galaxy intends to enter into servicing agreements with institutions (including
Fleet Bank and its affiliates). Pursuant to these servicing agreements,
institutions render certain administrative and support services to customers who
are the beneficial owners of Retail A Shares (Shares of the Connecticut
Municipal Money Market and Massachusetts Municipal Money Market Funds) in
consideration for payment of up to .25% (on an annualized basis) of the average
daily net asset value of Retail A Shares/Shares of a Fund beneficially owned by
such customers. Services under the Shareholder Services Plan may include:
aggregating and processing purchase and redemption requests and placing net
purchase and redemption orders with FD Distributors; processing dividend
payments from a Fund; providing customers with information as to their positions
in Retail A Shares/Shares; providing sub-accounting with respect to Retail A
Shares/Shares or the information necessary for sub-accounting; and providing
periodic mailings to customers. Such services are intended to supplement the
services provided by Investor Services Group as administrator and transfer
agent.
Although the Shareholder Services Plan has been approved with respect to
Retail A Shares of the Funds (Shares of the Connecticut Municipal Money Market
and Massachusetts Municipal Money Market Funds) and Trust Shares of the Money
Market, Government, U.S.
-53-
<PAGE>
Treasury and Tax-Exempt Funds, as of the date of this Statement of Additional
Information, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares/Shares of each
Fund, and to limit the payment under these servicing agreements for each Fund to
no more than .10% (on an annualized basis) of the average daily net asset value
of the Retail A Shares of the Fund beneficially owned by customers of
institutions. Galaxy understands that institutions may charge fees to their
customers who are the beneficial owners of Retail A Shares/Shares in connection
with their accounts with such institutions. Any such fees would be in addition
to any amounts which may be received by an institution under the Shareholder
Services Plan. Under the terms of each servicing agreement entered into with
Galaxy, institutions are required to provide to their customers a schedule of
any fees that they may charge in connection with customer investments in Retail
A Shares/Shares. As of October 31, 1998, Galaxy had entered into Servicing
Agreements only with Fleet Bank and affiliates.
Each Servicing Agreement between Galaxy and a Service Organization relating
to the Services Plan requires that, with respect to those Funds which declare
dividends on a daily basis, the Service Organization agree to waive a portion of
the servicing fee payable to it under the Services Plan to the extent necessary
to ensure that the fees required to be accrued with respect to the Retail A
Shares of such Funds on any day do not exceed the income to be accrued to such
Retail A Shares on that day.
During the last three fiscal years, Galaxy made payments to Service
Organizations with respect to Retail A Shares of the Money Market, Government,
U.S. Treasury and Tax-Exempt Funds and Shares of the Connecticut Municipal Money
Market and Massachusetts Municipal Money Market Funds as shown in the table
below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C>
Money Market . . . . . . . . . . . . . . . . $2,057,474 $1,430,359 $765,457
Government . . . . . . . . . . . . . . . . . $364,278 $346,517 $320,372
U. S. Treasury . . . . . . . . . . . . . . . $569,986 $507,400 $348,084
Tax-Exempt . . . . . . . . . . . . . . . . . $163,842 $133,048 $125,962
Connecticut Municipal Money Market . . . . . $155,374 $111,361 $104,877(1)
Massachusetts Municipal Money Market . . . . $105,230 $58,905 $38,441(1)
</TABLE>
(1) For the period from December 4, 1995 through October 31, 1996.
Galaxy's Servicing Agreements are governed by the Services Plan that has
been adopted by Galaxy's Board of Trustees in connection with the offering of
Retail A Shares of each Fund. (Shares of the Connecticut Municipal Money Market
and Massachusetts Municipal Money Market Funds). Pursuant to the Services Plan,
the Board of Trustees reviews, at least quarterly, a written report of the
amounts paid under the Servicing Agreements and the purposes for which the
expenditures were made. In addition, the arrangements with Service
Organizations must be approved annually by a majority of Galaxy's trustees,
including a majority of the trustees who are not "interested persons" of Galaxy
as defined in the 1940 Act and who have no direct or indirect financial interest
in such arrangements (the "Disinterested Trustees").
-54-
<PAGE>
The Board of Trustees has approved Galaxy's arrangements with Service
Organizations based on information provided by Galaxy's service contractors that
there is a reasonable likelihood that the arrangements will benefit the Funds
and their shareholders by affording Galaxy greater flexibility in connection
with the efficient servicing of the accounts of the beneficial owners of Retail
A Shares of the Funds. Any material amendment to Galaxy's arrangements with
Service Organizations must be approved by a majority of Galaxy's Board of
Trustees (including a majority of the Disinterested Trustees). So long as
Galaxy's arrangements with Service Organizations are in effect, the selection
and nomination of the members of Galaxy's Board of Trustees who are not
"interested persons" (as defined in the 1940 Act) of Galaxy will be committed to
the discretion of such Disinterested Trustees.
DISTRIBUTION AND SERVICES PLAN
Galaxy has adopted a Distribution and Services Plan pursuant to Rule 12b-1
under the 1940 Act ( the "Rule") with respect to Retail B Shares of the Money
Market Fund (the "12b-1 Plan"). Under the 12b-1 Plan, Galaxy may pay (a) FD
Distributors or another person for expenses and activities intended to result in
the sale of Retail B Shares, including the payment of commissions to
broker-dealers and other industry professionals who sell Retail B Shares and the
direct or indirect cost of financing such payments, (b) institutions for
shareholder liaison services, which means personal services for holders of
Retail B Shares and/or the maintenance of shareholder accounts, such as
responding to customer inquiries and providing information on accounts, and (c)
institutions for administrative support services, which include but are not
limited to (i) transfer agent and sub-transfer agent services for beneficial
owners of Retail B Shares; (ii) aggregating and processing purchase and
redemption orders; (iii) providing beneficial owners with statements showing
their positions in Retail B Shares; (iv) processing dividend payments; (v)
providing sub-accounting services for Retail B Shares held beneficially; (vi)
forwarding shareholder communications, such as proxies, shareholder reports,
dividend and tax notices, and updating prospectuses to beneficial owners; and
(vii) receiving, translating and transmitting proxies executed by beneficial
owners.
Under the 12b-1 Plan, payments by Galaxy (i) for distribution expenses may
not exceed the annualized rate of .65% of the average daily net assets
attributable to the Money Market Fund's outstanding Retail B Shares, (ii) to an
institution for shareholder liaison services and/or administrative support
services may not exceed the annual rates of .25% and .25%, respectively, of the
average daily net assets attributable to the Fund's outstanding Retail B Shares
which are owned of record or beneficially by that institution's customers for
whom the institution is the dealer of record or shareholder of record or with
whom it has a servicing relationship. As of the date of this Statement of
Additional Information, Galaxy intends to limit the Money Market Fund's payments
for shareholder liaison and administrative support services under the 12b-1 Plan
to an aggregate fee of not more than .10% (on an annualized basis) of the
average daily net asset value of Retail B Shares owned of record or beneficially
by customers of institutions.
Payments for distribution expenses under the 12b-1 Plan are subject to the
Rule. The Rule defines distribution expenses to include the cost of "any
activity which is primarily
-55-
<PAGE>
intended to result in the sale of shares issued by" Galaxy. The Rule provides,
among other things, that an investment company may bear such expenses only
pursuant to a plan adopted in accordance with the Rule. In accordance with the
Rule, the 12b-1 Plan provides that a report of the amounts expended under the
12b-1 Plan, and the purposes for which such expenditures were incurred, will be
made to the Board of Trustees for its review at least quarterly. The 12b-1 Plan
provides that it may not be amended to increase materially the costs which
Retail B Shares of the Money Market Fund may bear for distribution pursuant to
the 12b-1 Plan without shareholder approval, and that any other type of material
amendment must be approved by a majority of the Board of Trustees, and by a
majority of the trustees who are neither "interested persons" (as defined in the
1940 Act) of Galaxy nor have any direct or indirect financial interest in the
operation of the 12b-1 Plan or in any related agreements (the "12b-1 Trustees"),
by vote cast in person at a meeting called for the purpose of considering such
amendments.
During the last two fiscal years, Retail B Shares of the Money Market Fund
bore distribution fees and shareholder servicing fees under the 12b-1 Plan as
set forth in the table below:
<TABLE>
<CAPTION>
SHAREHOLDER
FOR THE FISCAL YEAR ENDED OCTOBER 31: DISTRIBUTION FEES SERVICES FEES
------------------------------------ ----------------- -------------
<S> <C> <C>
1998................................ $4,377 $674
1997................................ $1,869 $288
</TABLE>
- ----------------------
(1) For the period from March 6, 1997 (commencement of operations) through
October 31, 1997.
During this period, all amounts paid under the 12b-1 Plan were attributable to
payments to broker-dealers.
Galaxy's Board of Trustees has concluded that there is a reasonable
likelihood that the 12b-1 Plan will benefit the Money Market Fund and holders of
Retail B Shares. The 12b-1 Plan is subject to annual reapproval by a majority
of the 12b-1Trustees and is terminable at any time with respect to the Fund by a
vote of a majority of the 12b-1 Trustees or by vote of the holders of a majority
of the Retail B Shares of the Fund. Any agreement entered into pursuant to the
12b-1 Plan with a Service Organization is terminable with respect to the Fund
without penalty, at any time, by vote of a majority of the 12b-1 Trustees, by
vote of the holders of a majority of the Retail B Shares of the Fund, by FD
Distributors or by the Service Organization. An agreement will also terminate
automatically in the event of its assignment.
As long as the 12b-1 Plan is in effect, the nomination of the trustees who
are not interested persons of Galaxy (as defined in the 1940 Act) must be
committed to the discretion of the 12b-1 Trustees.
-56-
<PAGE>
DISTRIBUTOR
FD Distributors, a wholly-owned subsidiary of Investor Services Group,
serves as Galaxy's distributor. On March 31, 1995, Investor Services Group
acquired all of the issued and outstanding stock of FD Distributors. Prior to
that time, FD Distributors was a wholly-owned subsidiary of 440 Financial Group
of Worcester, Inc. and an indirect subsidiary of State Mutual Life Assurance
Company of America.
Unless otherwise terminated, the Distribution Agreement between Galaxy and
FD Distributors remains in effect until May 31, 1999, and thereafter will
continue from year to year upon annual approval by Galaxy's Board of Trustees,
or by the vote of a majority of the outstanding shares of Galaxy and by the vote
of a majority of the Board of Trustees of Galaxy who are not parties to the
Agreement or interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval. The Agreement will terminate
in the event of its assignment, as defined in the 1940 Act.
FD Distributors is entitled to the payment of contingent deferred sales
charges upon the redemption of Retail B Shares of the Money Market Fund. For
the fiscal year ended October 31, 1998, and for the period March 6, 1997
(initial public offering date) through October 31, 1997, FD Distributors
received contingent deferred sales charges of $12,243 and $655, respectively, in
connection with Retail B Share redemptions in the Money Market Fund.
-57-
<PAGE>
The following table shows all sales charges, commissions and other
compensation received by FD Distributors directly or indirectly from the Funds
during the fiscal year ended October 31, 1998:
<TABLE>
<CAPTION>
Brokerage
Net Underwriting Compensation on Commissions in
Discounts and Redemption and Connection with Other
Fund Commissions(1) Repurchase(2) Fund Transactions Compensation(3)
---- -------------- ------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Money Market $12,243 $12,243 $0 $1,861,260
Government N/A N/A $0 $363,075
Tax-Exempt N/A N/A $0 $160,391
U.S. Treasury N/A N/A $0 $563,807
Institutional N/A N/A $0 N/A
Government
Money Market
Connecticut N/A N/A $0 $152,675
Municipal Money
Market
Massachusetts N/A N/A $0 $100,982
Municipal Money
Market
</TABLE>
- ----------------
(1) Represents amounts received from commissions received in connection with
sales of Retail B Shares.
(2) Represents amounts received from contingent deferred sales charges on
Retail B Shares. The basis on which such sales charges are paid is
described in the Prospectus relating to Retail B Shares.
(3) Represents payments made under the Shareholder Services Plan and
Distribution and Services Plan during the fiscal year ended October 31,
1998, which includes fees accrued in the fiscal year ended October 31,
1997, which were paid in 1998 (see "Shareholder Services Plan" and
"Distribution and Services Plan" above).
AUDITORS
Ernst and Young LLP, independent public accountants, with offices at
200 Clarendon Street, Hancock Tower, Boston, Massachussets 02116-5072,
have been selected as auditors for Galaxy for the fiscal year ending
October 31, 1999. The financial highlights for the respective Funds included
in their Prospectuses and the financial statements for the Funds contained
in Galaxy's Annual Report to Shareholders and incorporated by reference into
this Statement of Additional Information for the respective fiscal periods ended
October 31 of each calendar year have been audited by PricewaterhouseCoopers
LLP, Galaxy's former auditors, for the periods included in their report
thereon which appears therein.
-58-
<PAGE>
COUNSEL
Drinker Biddle & Reath LLP (of which W. Bruce McConnel, III, Secretary of
Galaxy, is a partner), 1345 Chestnut Street, Suite 1100, Philadelphia,
Pennsylvania 19107, are counsel to Galaxy and will pass upon certain legal
matters on its behalf. The law firm of Day, Berry & Howard, Cityplace,
Hartford, Connecticut 06103-3499, serves as special Connecticut counsel to
Galaxy and has reviewed the portion of this Statement of Additional Information
and the Prospectus with respect to the Connecticut Municipal Money Market Fund
concerning Connecticut taxes and the description of special considerations
relating to Connecticut Municipal Securities. The law firm of Ropes & Gray, One
International Place, Boston, Massachusetts 02110-2624, serves as special
Massachusetts counsel to Galaxy and has reviewed the portion of this Statement
of Additional Information and the Prospectus with respect to the Massachusetts
Municipal Money Market Fund concerning Massachusetts taxes and the description
of special considerations relating to Massachusetts Municipal Securities.
PERFORMANCE AND YIELD INFORMATION
The standardized annualized seven-day yields for the Funds are computed by:
(1) determining the net change, exclusive of capital changes and income other
than investment income, in the value of a hypothetical pre-existing account in a
Fund having a balance of one share at the beginning of a seven-day period, for
which the yield is to be quoted, (2) dividing the net change in account value by
the value of the account at the beginning of the base period to obtain the base
period return, and (3) annualizing the results (I.E., multiplying the base
period return by (365/7)). The net change in the value of the account in each
Fund includes the value of additional shares purchased with dividends from the
original share and dividends declared on both the original share and any such
additional shares, and all fees that are charged by a Fund to all shareholder
accounts in proportion to the length of the base period, other than
non-recurring account and sales charges. For any account fees that vary with
the size of the account, the amount of fees charged is computed with respect to
the Fund's mean (or median) account size. The capital changes to be excluded
from the calculation of the net change in account value are realized gains and
losses from the sale of securities and unrealized appreciation and depreciation.
The effective compound yield quotation for each Fund is computed by adding 1 to
the unannualized base period return (calculated as described above), raising the
sum to a power equal to 365 divided by 7, and subtracting 1 from the result.
In addition, the Tax-Exempt, Connecticut Municipal Money Market and
Massachusetts Municipal Money Market Funds may calculate a "tax equivalent
yield." The tax equivalent yield is computed by dividing that portion of a
Fund's yield which is tax-exempt by one minus a stated income tax rate and
adding the product to that portion, if any, of the Fund's computed yield that is
not tax-exempt. Tax equivalent yields assume the payment of federal income
taxes at a rate of 31%. Tax equivalent yields of the Connecticut Municipal
Money Market and Massachusetts Municipal Money Market Funds assume 32.50% and
40.00% combined federal and state tax rates, respectively, and indicate what
each Fund would have had to earn to equal its actual yield, assuming that income
earned by a Fund is 100% tax-exempt.
-59-
<PAGE>
The current yields for the Funds may be obtained by calling FD Distributors
at 1-877-BUY-GALAXY (1-877-289-4252).
For the seven-day period ended October 31, 1998, the annualized yields and
effective yields for Retail A Shares of the Money Market, Government, U.S.
Treasury and Tax-Exempt Funds and Shares of the Connecticut Municipal Money
Market, Massachusetts Municipal Money Market and Institutional Government Money
Market Funds, and the tax-equivalent yield for Retail A Shares of the Tax-Exempt
Fund and Shares of the Connecticut Municipal Money Market and Massachusetts
Municipal Money Market Funds were as set forth below:
<TABLE>
<CAPTION>
ANNUALIZED EFFECTIVE TAX-EQUIVALENT
FUND YIELD YIELD YIELD
- ---- ------ ------ ------
<S> <C> <C> <C>
Money Market . . . . . . . . . . . . . . . . 4.61% 4.70% *
Government . . . . . . . . . . . . . . . . . 4.53% 4.99% *
U. S. Treasury . . . . . . . . . . . . . . . 4.24% 4.30% *
Tax-Exempt . . . . . . . . . . . . . . . . . 2.64% 2.66% 3.83%
Institutional Government Money Market. . . . 5.02% 5.15% *
Connecticut Municipal Money Market . . . . . 2.58% 2.59% 3.82%
Massachusetts Municipal Money Market . . . . 2.61% 2.63% 4.35%
</TABLE>
- ----------------------
* Not applicable
For the seven-day period ended October 31, 1998, the annualized yields and
effective yields for Trust Shares of the Money Market, Government, U.S. Treasury
and Tax-Exempt Funds, and the tax-equivalent yield for Trust Shares of the
Tax-Exempt Fund were as set forth below:
<TABLE>
<CAPTION>
ANNUALIZED EFFECTIVE TAX-EQUIVALENT
FUND YIELD YIELD YIELD
- ---- ------ ------ ------
<S> <C> <C> <C>
Money Market . . . . . . . . . . . . . . . . 4.79% 4.89% *
Government . . . . . . . . . . . . . . . . . 4.71% 4.80% *
U. S. Treasury . . . . . . . . . . . . . . . 4.40% 4.47% *
Tax-Exempt . . . . . . . . . . . . . . . . . 2.77% 2.80% 4.01%
</TABLE>
- ----------------------
* Not applicable
For the seven-day period ended October 31, 1998, the annualized yield and
effective yield for Retail B Shares of the Money Market Fund were 3.97% and
4.03%, respectively.
The U.S. Treasury Fund may calculate a "state flow through yield," which
shows the level of taxable yield needed to produce an after-tax yield equivalent
to a particular state's tax-exempt yield achieved by the Fund. The state flow
through yield refers to that portion of income that is derived from interest
income on direct obligations of the U.S. Government, its agencies or
instrumentalities and which qualifies for exemption from state taxes. The yield
calculation assumes that 100% of the interest income is exempt from state
personal income tax. A state flow through yield is computed by dividing that
portion of the Fund's yield which is tax-exempt by
-60-
<PAGE>
one minus a stated income tax rate. Based on the foregoing calculation and
assuming, for purposes of illustration, state income tax rates of 3%, 7% and
11%, the state flow through yields for the seven-day period ended October 31,
1998 for Retail A Shares and Trust Shares of the U.S. Treasury Fund were as set
forth below:
<TABLE>
<CAPTION>
SERIES 3% 7% 11%
- ------ -- -- ---
<S> <C> <C> <C>
Retail A Shares 4.37% 4.56% 4.76%
Trust Shares 4.54% 4.73% 4.94%
</TABLE>
TAX-EQUIVALENCY TABLES - CONNECTICUT MUNICIPAL MONEY MARKET AND MASSACHUSETTS
MUNICIPAL MONEY MARKET FUNDS
The Connecticut Municipal Money Market and Massachusetts Municipal Money
Market Funds may use tax-equivalency tables in advertising and sales literature.
The interest earned by the Municipal Securities in the Funds' respective
portfolios generally remains free from federal regular income tax, and from the
regular personal income tax imposed by Connecticut and Massachusetts. Some
portion of either Fund's income may, however, be subject to the federal
alternative minimum tax and state and local regular or alternative minimum
taxes. As the tables below indicate, "tax-free" investments may be attractive
choices for investors, particularly in times of narrow spreads between
"tax-free" and taxable yields.
The charts below are for illustrative purposes only and use tax brackets
that were in effect beginning January 1, 1999. These are not indicators of past
or future performance of the Connecticut Municipal Money Market and
Massachusetts Municipal Money Market Funds.
Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent for each chart. Furthermore,
additional state and local taxes paid on comparable taxable investments were not
used to increase federal deductions. Moreover, the charts do not reflect the
possible effect of all items relating to the effective marginal tax rate, such
as alternative minimum tax, personal exemptions, tax credits, the phase-out of
exemptions or credits, itemized deductions (including the federal deduction for
state taxes paid) or the possible partial disallowance of deductions.
Connecticut Note: The charts below do not address taxable equivalent
yields applicable to married taxpayers filing separate returns or heads of
households.
Investors are urged to consult their own tax advisors as to these matters.
TAXABLE YIELD EQUIVALENT FOR 1999
STATE OF CONNECTICUT
<TABLE>
<S> <C> <C> <C> <C> <C>
Federal Tax Bracket: 15.00% 28.00% 31.00% 36.00% 39.60%
Combined Federal and State: 19.50% 32.50% 35.50% 40.50% 44.10%
Joint Return: $1-43,050 $43,051-104,050 $104,051-158,550 $158,551-283,150 Over $283,150
Single Return: $1-25,750 $25,751-62,450 $62,451-130,250 $130,251-285,150 Over $283,150
Tax-Exempt Yield:
</TABLE>
Taxable Yield Equivalent
<TABLE>
<S> <C> <C> <C> <C> <C>
1.50% 1.86% 2.22% 2.33% 2.52% 2.68%
-61-
<PAGE>
2.00% 2.48% 2.96% 3.10% 3.36% 3.58%
2.50% 3.11% 3.70% 3.88% 4.20% 4.47%
3.00% 3.73% 4.44% 4.65% 5.04% 5.37%
3.50% 4.35% 5.19% 5.43% 5.88% 6.26%
4.00% 4.97% 5.93% 6.20% 6.72% 7.16%
4.50% 5.59% 6.67% 6.98% 7.56% 8.05%
5.00% 6.21% 7.41% 7.75% 8.40% 8.94%
5.50% 6.83% 8.15% 8.53% 9.24% 9.84%
6.00% 7.45% 8.89% 9.30% 10.08% 10.73%
</TABLE>
TAXABLE YIELD EQUIVALENT FOR 1999
STATE OF MASSACHUSETTS
<TABLE>
<S> <C> <C> <C> <C> <C>
Federal Tax Bracket: 15.00% 28.00% 31.00% 36.00% 39.60%
Combined Federal and State: 27.00% 40.00% 43.00% 48.00% 51.60%
Joint Return: $1-43,050 $43,151-104,050 $104,051-158,550 $158,551-283,150 Over $283,150
Single Return: $1-25,750 $25,751-62,450 $62,451-130,250 $130,251-283,150 Over $283,150
Tax-Exempt Yield:
</TABLE>
Taxable Yield Equivalent
<TABLE>
<S> <C> <C> <C> <C> <C>
1.50% 2.05% 2.50% 2.63% 2.88% 3.10%
2.00% 2.74% 3.33% 3.51% 3.85% 4.13%
2.50% 3.42% 4.17% 4.39% 4.81% 5.17%
3.00% 4.11% 5.00% 5.26% 5.77% 6.20%
3.50% 4.79% 5.83% 6.14% 6.73% 7.23%
4.00% 5.48% 6.67% 7.02% 7.69% 8.26%
4.50% 6.16% 7.50% 7.89% 8.65% 9.30%
5.00% 6.85% 8.33% 8.77% 9.62% 10.33%
5.50% 7.53% 9.17% 9.65% 10.58% 11.36%
6.00% 8.22% 10.00% 10.53% 11.54% 12.40%
</TABLE>
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders, the
yields of the Funds, as a measure of their performance, may be quoted and
compared to those of other mutual funds with similar investment objectives and
to other relevant indexes or to rankings prepared by independent services or
other financial or industry publications that monitor the performance of mutual
funds. For example, such data is reported in national financial publications
such as DONOGHUE'S MONEY FUND REPORT-Registered Trademark-, a widely recognized
independent publication that monitors the performance of mutual funds. Also,
the Funds' yield data may be reported in national financial publications
including, but not limited to, MONEY MAGAZINE, FORBES, BARRON'S, THE WALL STREET
JOURNAL, and THE NEW YORK TIMES, or in publications of a local or regional
nature. The performance of the Money Market, Government, U.S. Treasury and
Institutional Government Money Market Funds may also be compared to the average
yields reported by the BANK RATE MONITOR for money market deposit accounts
offered by the 50 leading banks and thrift institutions in the top five standard
metropolitan statistical areas. Yield data will be calculated separately for
Trust Shares, Retail A Shares and/or Retail B Shares of the Money Market,
Government, U.S. Treasury and Tax-Exempt Funds.
-62-
<PAGE>
The yield of a Fund refers to the income generated over a seven-day period
identified in the advertisement and is calculated as described above. Each Fund
may also advertise its "effective yield" which is calculated as described above.
The "effective yield" will be slightly higher because of the compounding effect
of the assumed reinvestment. Also, each Tax-Exempt Money Market Fund may from
time to time advertise a "tax-equivalent yield" to demonstrate the level of
taxable yield necessary to produce an after-tax yield equivalent to that
achieved by the Fund. The "tax-equivalent yield" is computed as described
above. The U.S. Treasury Fund may also advertise a "state flow through yield,"
as discussed above.
The Funds' yields will fluctuate and any quotation of yield should not be
considered as representative of the future performance of the Funds. Since
yields fluctuate, yield data cannot necessarily be used to compare an investment
in a Fund's shares with bank deposits, savings accounts and similar investment
alternatives which often provide an agreed or guaranteed fixed yield for a
stated period of time. Shareholders should remember that performance is
generally a function of the kind and quality of the instruments held in a
portfolio, portfolio maturity, operating expenses, and market conditions. Any
fees charged directly by institutions to accounts of customers that have
invested in shares of a Fund will not be included in calculations of yield.
The portfolio managers of the Funds and other investment professionals may
from time to time discuss in advertising, sales literature or other material,
including periodic publications, various topics of interest to shareholders and
prospective investors. The topics may include but are not limited to the
advantages and disadvantages of investing in tax-deferred and taxable
investments; Fund performance and how such performance may compare to various
market indices; shareholder profiles and hypothetical investor scenarios; the
economy; the financial and capital markets; investment strategies and
techniques; investment products; and tax, retirement and investment planning.
MISCELLANEOUS
As used in this Statement of Additional Information, "assets belonging to"
a particular Fund or series of a Fund means the consideration received by Galaxy
upon the issuance of shares in that particular Fund or series of the Fund,
together with all income, earnings, profits, and proceeds derived from the
investment thereof, including any proceeds from the sale of such investments,
any funds or payments derived from any reinvestment of such proceeds and a
portion of any general assets of Galaxy not belonging to a particular series or
Fund. In determining the net asset value of a particular series of a Fund,
assets belonging to the particular series of the Fund are charged with the
direct liabilities in respect of that series and with a share of the general
liabilities of Galaxy, which are allocated in proportion to the relative asset
values of the respective series and Funds at the time of allocation. Subject to
the provisions of Galaxy's Declaration of Trust, determinations by the Board of
Trustees as to the direct and allocable liabilities, and the allocable portion
of any general assets with respect to a particular series or Fund, are
conclusive.
-63-
<PAGE>
Shareholders will receive unaudited semi-annual reports describing the
Funds' investment operations and annual financial statements audited by
independent certified public accountants.
A "vote of the holders of a majority of the outstanding shares" of a
particular Fund or a particular series of shares in a Fund means, with respect
to the approval of an investment advisory agreement, a distribution plan or a
change in an investment objective or fundamental investment policy, the
affirmative vote of the holders of the lesser of (a) more than 50% of the
outstanding shares of such Fund or such series of shares, or (b) 67% or more of
the shares of such Fund or such series of shares present at a meeting if more
than 50% of the outstanding shares of such Fund or such series of shares are
represented at the meeting in person or by proxy.
As of February 10, 1999, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding Trust
Shares of each of Galaxy's investment portfolios (including shares of the
Institutional Government Money Market Fund) were as follows: Money Market Fund
- -- Fleet New York, Fleet Investment Services, 159 East Main Street,
NY/RO/TO3C, Rochester, NY 14638, Account 00000150286 (99.78%); Tax-Exempt
Money Market Fund -- Fleet New York, Fleet Investment Services, 159 East Main
Street, NY/RO/TO3C, Rochester, NY 14638, Account 00000007717 (100.00%);
Government Money Market Fund --Fleet New York, Fleet Investment Services, 159
East Main Street, NY/RO/TO3C, Rochester, NY 14638, Account 00000012621
(98.33%); U.S. Treasury Money Market Fund -- Fleet New York, Fleet Investment
Services, 159 East Main Street, NY/RO/TO3C, Rochester, NY 14638, Account
00000015922 (94.34%); Institutional Government Money Market Fund -- Fleet New
York, Fleet Investment Services, 159 East Main Street, NY/RO/TO3C, Rochester,
NY 14638, Account 00000000019 (85.94%); Luitpold Pharmaceuticals Inc., Kirk
Sobecki, CFO, One Luitpold Drive, Shirley, NY 11967, Account 05100261441
(13.48%); Equity Value Fund -- Gales & Co., Fleet Investment Services, Mutual
Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account
00000000064 (77.81%); Gales & Co., Fleet Investment Services, Mutual Funds
Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account
00000003204 (15.83%); Gales & Co., Fleet Investment Services, Mutual Funds
Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account
00000011551 (6.28%); Equity Growth Fund -- Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000000082 (70.35%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000010017 (14.77%); Gales & Co., Fleet Investment Services, Mutual
Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account
00000030718 (14.86%); Equity Income Fund -- Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000015771 (50.44%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000003748 (35.41%); Gales & Co., Fleet Investment Services, Mutual
Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account
00000000037 (13.97%); International Equity Fund --Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000073 (44.94%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000876 (37.67%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000004088 (14.13%); Growth and Income Fund --
Gales & Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159
East Main Street, Rochester, NY 14638, Account 05000503793 (68.11%); Gales &
Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 05000503873 (22.88%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 0500503837 (9.00%); Asset Allocation Fund --
Gales & Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159
East Main Street, Rochester, NY 14638, Account 00000000073 (92.96%); Gales &
Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000002598 (6.48%); Small Company
Equity -- Gales & Co., Fleet Investment Services, Mutual Funds Unit -
NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account 00000000046
(67.11%); Gales & Co., Fleet Investment Services, Mutual Funds Unit -
NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account 00000001492
(24.22%); Gales & Co., Fleet Investment Services, Mutual Funds Unit -
NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account 00000006102
(6.76%); Small Cap Value Fund -- Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 05000503999 (54.74%); Gales & Co., Fleet Investment Services, Mutual
Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account
05000503917 (26.73%); Gales & Co., Fleet Investment Services, Mutual Funds
Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account
05000503953 (18.33%); Intermediate Government Income Fund -- Gales & Co.,
Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000038408 (39.35%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000007183 (34.25%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000037 (26.40%); High Quality Bond Fund --
Gales & Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159
East Main Street, Rochester, NY 14638, Account 00000000037 (65.56%); Gales &
Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000001465 (22.10%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000006095 (12.19%); Short-Term Bond Fund --
Gales & Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159
East Main Street, Rochester, NY 14638, Account 00000008627 (30.90%); Gales &
Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000000064 (45.50%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000001090 (23.45%); Tax-Exempt Bond Fund --
Gales & Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159
East Main Street, Rochester, NY 14638, Account 00000005809 (39.65%); Gales &
Co, Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000000028 (35.53%); Gales and Co.,
Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000000670 (24.82%); Connecticut
Municipal Bond Fund -- Gales & Co., Fleet Investment Services, Mutual Funds
Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account
00000000019 (78.73%); Gales & Co., Fleet Investment Services, Mutual Funds
Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account
00000000037 (20.73%); Massachusetts Municipal Bond Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000019 (52.51%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000073 (42.62%); Corporate Bond Fund --
Gales & Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159
East Main Street, Rochester, NY 14638, Account 00000000046 (47.67%); Gales &
Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000006102 (37.41%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000001492 (7.92%); New York Municipal Bond
Fund -- Gales & Co., Fleet Investment Services, Mutual Funds Unit -
NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account 00000000019
(10.94%); Gales & Co., Fleet Investment Services, Mutual Fund Unit -
NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account 00000001107
(76.04%); Gales & Co., Fleet Investment Services, Mutual Fund Unit -
NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account 00000005292
(13.03%); New Jersey Municipal Bond Fund -- Gales & Co., Fleet Investment
Services, Mutual Fund Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 5100115489 (56.68%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 5100115504 (43.32%); and Strategic Equity Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 5100115522 (98.61%).
As of February 10, 1999, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding
Retail A Shares of each of Galaxy's investment portfolios (including shares
of the Connecticut Municipal Money Market and Massachusetts Municipal Money
Market Funds) were as follows: Money Market Fund -- US Clearing, A Division
of Fleet Securities Inc., 26 Broadway, New York, NY 10004, Account 5100115684
(7.31%); Tax-Exempt Money Market Fund -- Hope H. Van Beuren, P.O. Box 4098,
Middletown, RI 02842, Account 00000025010 (8.52%); US Clearing, A Division of
Fleet Securities, Inc., 26 Broadway, New York, NY 10004, Account 05100115684
(5.11%); U.S. Treasury Money Market Fund -- US Clearing, a Division of Fleet
Securities Inc., 26 Broadway, New York, NY 10004, Account 05100115684
(11.57%); Massachusetts Municipal Money Market Fund -- Fleet New York, Fleet
Investment Services, 159 East Main St., NY/RO/TO3C, Rochester, NY 14638,
Account 05100058503 (56.38%); Connecticut Municipal Money Market Fund --
Fleet New York, Fleet Investment Services, 159 East Main St., NY/RO/TO3C,
Rochester, NY 14638, Account 05100058521 (45.93%); Rhode Island Municipal
Bond Fund --Gales & Co., Fleet Investment Services, Mutual Funds Unit -
NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account 00000001492
(38.50%); James R. McCulloch, c/o Microfibre, PO Box 1208, Pawtucket, RI
02860, Account 05000414933 (8.20%); New York Municipal Bond Fund -- Marilyn
J. Brantley, PO Box 65, 7276 Ramsey Road, Belfast, NY 14711, Account
05100977627 (10.73%); and New Jersey Municipal Bond Fund -- Jeffery W Golden,
7 Hampton Ridge CT, Old Tappan, NJ 07675, Account 05100780704 (19.59%); John
W. Maki & Kimberly McGrath Maki JT, 1 Connet Lane, Mendham, NJ, 07945,
Account 05100011377 (18.84%); US Clearing Corp., FBO 979-06374-12, 26
Broadway, New York, NY 10004-1798, Account 07000100574 (54.10%).
As of February 10, 1999, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding
Retail B Shares of each of Galaxy's investment portfolios were as follows:
Money Market Fund -- Keith Mooradian, 10 Fox Hollow, Worcester, MA 01605,
Account 05100583213 (5.33%); Steven R. Schwartz, 2393 Lake Elmo Avenue N,
Lake Elmo, MN 55042-8407, Account 5100583213 (8.45%); Worldmark Master Fund,
LLC, D. Dean Rhodes auth. officer or Richard J. Gates (investment adviser),
11466 Old Harber Road, N. Palm Beach, FL 33408, Account 05102031823 (13.46%);
Worldmark Master Fund, LLC, D. Dean Rhodes auth. officer or Richard J. Gates
(investment adviser) 11465 Old Harbor Road, N. Palm Beach, FL 33408, Account
05102074054 (10.58%); Equity Income Fund -- Francis G. White, 1611 Karr
Valley Road, Almond, NY 14804, Account 05103005468 (8.23%); Small Cap Value
Fund -- Fleet Bank NA, Cust. of the Roth conversion IRA, FBO Thomas Clayton,
19 Ward Avenue, Noank, CT 06340, Account 05102095461 (6.22%); Fleet Bank NA,
Cust. of the Roth Conversion IRA, FBO Owen F. McDonald, 351 Concord Road,
Billorica, MA 01821, Account 05103074295 (6.52%); Intermediate Government
Income Fund -- John G. Shomsky, 144 Powder Hill Road, Middlefield, CT 06455,
Account 05102006050 (7.89%); Harold J. Andrews, 29 First Street, Bristol, CT
06010, Account 05102025206 (9.48%); Donna R. Barlett, 4 Metclaf Street,
Warwick, RI 02888, Account 05102029650 (12.49%); Hong Yun Cust, Angela Kung
Utma NJ, 59 Peach Hill Court, Ramsey, NJ 07446, Account 05102063281 (7.78%);
Hong Yun Cust, Yanh Zhou Utma NJ, 59 Peach Hill Court, Ramsey, NJ 07446,
Account 05102063307 (7.78%); Angelo Gugliotti, Maria Gugliotti, Michael P.
Gugliotti, Joseph A. Gugliotti JT WROS, 40 Dover Road, Newington, CT 06111,
Account 05102096399 (5.33%); Margaret M. Ferris, 30 Crocker Avenue, W.
Hartford, CT 06110, Account 05103005841 (14.90%); Eileen G. Akers, 24 Lincoln
Avenue, Norwich, CT 06360, Account 05103045246 (7.82%); Short-Term Bond Fund
- -- Gabriella Dulac & Alain Dulac JTWROS, 40 Dix Road, Wethersfield, CT 06109,
Account 5100818032 (5.10%); Elizabeth Mugar, 10 Chestnut St., Apt. 1808,
Springfield, MA 01103, Account 5100760012 (8.09%); Tax-Exempt Bond Fund --
David Fendler & Sylvia Fendler JTWROS, 72 Brinkerhoff Ave., Stamford, CT
06905, Account 05100255354 (8.85%); Doris M. Peloquin, 43 Keene Street,
Providence, RI 02906-1520, Account 5100506413 (5.26%); Frances E. Stady, P.O.
Box 433, 3176 Main Street, Yorkshire, NY 14173, Account 05102027437 (6.81%);
US Clearing Corp., FBO 978-02869-11, 26 Broadway Street, New York, NY
10004-1798 Account 07000107096 (5.59%); and Strategic Equity Fund -- Claire
M. Dileone & Susan F. Torre JT WROS, 260 Waybosset Street, New Haven, CT
06513 (5.81%); Betsey Tan, 7 Donovan's Lane, Natick, MA 01760, Account
05101043778 (16.40%).
As of February 10, 1999, the name, address and share ownership of the
entities or persons that held beneficially more than 5% of the outstanding
Trust Shares of each of Galaxy's investment portfolios were as follows:
Money Market Fund--Stable Asset Fund, c/o Norstar Trust Co., Gales & Co., 159
East Main, Rochester, NY 14638, (8.86%); Government Money Fund -- Maine
Yankee Spent Fuel, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638 (8.51%); Beacon Mutual Insurance Co., c/o Norstar Trust
Co., Gales & Co., 159 East Main, Rochester, NY 14638 (5.98%); U.S. Treasury
Money Fund, Loring Walcott Client Sweep Acct., c/o Norstar Trust Co., Gales &
Co., 159 East Main, Rochester, NY 14638, (21.38%); Equity Value Fund--Fleet
Savings Plus-Equity Value, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (19.73%); Equity Growth Fund--Fleet Savings Plus-Equity
Growth, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY
14638, (23.81%); Nusco Retiree Health VEBA Trust, c/o Norstar Trust Co.,
Gales & Co., 159 East Main, Rochester, NY 14638, (7.70%); International
Equity Fund--FFG International Equity Fund, c/o Norstar Trust Co., Gales &
Co., 159 East Main, Rochester, NY 14638, (14.51%); Fleet Savings Plus-Intl.
Equity, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY
14638, (9.76%); Intermediate Govt. Inc. Fund --Nusco Retiree Health VEBA
Trust, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638
(5.52%); Strategic Equity Fund--FFG Retirement & Pension VDG, c/o Fleet
Financial Group, 159 East Main, Rochester, NY 14638, (93.97%); High Quality
Bond Fund--Fleet Savings Plus Plan-HQ Bond, c/o Norstar Trust Co., Gales &
Co., 159 East Main, Rochester, NY 14638 (22.39%); Asset Allocation
Fund--Fleet Savings Plus-Asset Allocation, c/o Norstar Trust Co., Gales &
Co., 159 East Main, Rochester, NY 14638, (25.93%); Small Company Equity
Fund--Fleet Savings Plus-Small Company, c/o Norstar Trust Co., Gales & Co.,
159 East Main, Rochester, NY 14638, (32.89%); Tax Exempt Bond Fund -- Nusco
Retiree Health VEBA Trust, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (33.75%); Connecticut Municipal Bond Fund -- Florence M.
Roberts, IMA Agency, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (5.10%); Robert W. Parsons, c/o Norstar Trust Co., Gales
& Co., 159 East Main, Rochester, NY 14638 (6.15%); Paul R. Tregurtha-FLA Inv.
Cus. Agent, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY
14638 (6.06%); Winifred M. Purdy Full IM, c/o Norstar Trust Co., Gales & Co.,
159 East Main, Rochester, NY 14638 (5.83%); Corporate Bond Fund--Cole Hersee
Pension Plan, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester,
NY 14638, (7.70%); Growth Income Fund--Fleet Savings Plus-Growth Income, c/o
Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638, (40.12%);
Crumpton & Knowles IARP, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638 (5.86%); Small Cap Value Fund--FFG Emp. Ret. Misc. Assets
SNC, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638,
(26.82%); Institutional Government Fund-- Aeroflex Inc. CAPFOC, c/o Norstar
Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638, (5.37%); P&P
Fireman TIC w/Custody, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638 (12.27%); New Jersey Municipal Bond Fund--Perillo Tours,
c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638,
(26.33%); Royal Chambord IMA, c/o Norstar Trust Co., Gales & Co., 159 East
Main, Rochester, NY, 14638, (13.17%); McKee Wendell A. Marital Trust, c/o
Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638, (13.07%);
Varco Inc. IMA, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester,
NY 14638, (6.58%); Tiernan Diana V IA, c/o Norstar Trust Co., Gales & Co.,
159 East Main, Rochester, NY 14638, (5.97%); and Dunnington, Ruth U., c/o
Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638, (5.26%).
FINANCIAL STATEMENTS
Galaxy's Annual Report to Shareholders with respect to the Funds for the
fiscal year ended October 31, 1998 has been filed with the SEC. The financial
statements in such Annual Report (the "Financial Statements") are incorporated
by reference into this Statement of Additional Information. The Financial
Statements and Financial Highlights included in the Annual Report for the Funds
for the fiscal year ended October 31, 1998 have been audited by Galaxy's former
independent accountants, PricewaterhouseCoopers LLP, whose report thereon also
appears in such Annual Report and is incorporated herein by reference. The
Financial Statements in such Annual Report have been incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
-64-
<PAGE>
APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's ("S&P") commercial paper rating is a current
assessment of the likelihood of timely payment of debt having an original
maturity of no more than 365 days. The following summarizes the rating
categories used by Standard and Poor's for commercial paper:
"A-1" - Obligations are rated in the highest category indicating that
the obligor's capacity to meet its financial commitment on the obligation is
strong. Within this category, certain obligations are designated with a plus
sign (+). This indicates that the obligor's capacity to meet its financial
commitment on these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rating categories. However, the obligor's capacity to meet its financial
commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
"B" - Obligations are regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and are
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.
"D" - Obligations are in payment default. The "D" rating category is
used when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The "D" rating will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually senior debt obligations not having an original
maturity in excess of one year, unless explicitly noted. The following
summarizes the rating categories used by Moody's for commercial paper:
A-1
<PAGE>
"Prime-1" - Issuers (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well-established industries; high rates of return on
funds employed; conservative capitalization structure with moderate reliance on
debt and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternate liquidity.
"Prime-2" - Issuers (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an acceptable
ability for repayment of senior short-term debt obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
"Not Prime" - Issuers do not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps
employs three designations, "D-1+," "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"D-1+" - Debt possesses the highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
"D-2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.
A-2
<PAGE>
"D-3" - Debt possesses satisfactory liquidity and other protection
factors qualify issues as to investment grade. Risk factors are larger and
subject to more variation. Nevertheless, timely payment is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to insure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or interest
payments.
Fitch IBCA short-term ratings apply to debt obligations that have time
horizons of less than 12 months for most obligations, or up to three years for
U.S. public finance securities. The following summarizes the rating categories
used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This
designation indicates the strongest capacity for timely payment of financial
commitments and may have an added "+" to denote any exceptionally strong credit
feature.
"F2" - Securities possess good credit quality. This designation
indicates a satisfactory capacity for timely payment of financial commitments,
but the margin of safety is not as great as in the case of the higher ratings.
"F3" - Securities possess fair credit quality. This designation
indicates that the capacity for timely payment of financial commitments is
adequate; however, near-term adverse changes could result in a reduction to
non-investment grade.
"B" - Securities possess speculative credit quality. This designation
indicates minimal capacity for timely payment of financial commitments, plus
vulnerability to near-term adverse changes in financial and economic conditions.
"C" - Securities possess high default risk. This designation
indicates that default is a real possibility and that the capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
"D" - Securities are in actual or imminent payment default.
Thomson BankWatch short-term ratings assess the likelihood of an
untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson BankWatch:
A-3
<PAGE>
"TBW-1" - This designation represents Thomson BankWatch's highest
category and indicates a very high likelihood that principal and interest will
be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's lowest
investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's lowest
rating category and indicates that the obligation is regarded as non-investment
grade and therefore speculative.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
Obligations rated "BB," "B," "CCC," "CC" and "C" are regarded as
having significant speculative characteristics. "BB" indicates the least degree
of speculation and "C" the highest. While such obligations will likely have
some quality and protective
A-4
<PAGE>
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions.
"BB" - An obligation rated "BB" is less vulnerable to nonpayment than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to the obligor's inadequate capacity to meet its financial commitment on the
obligation.
"B" - An obligation rated "B" is more vulnerable to nonpayment than
obligations rated "BB", but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
"CCC" - An obligation rated "CCC" is currently vulnerable to
nonpayment, and is dependent upon favorable business, financial and economic
conditions for the obligor to meet its financial commitment on the obligation.
In the event of adverse business, financial, or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the
obligation.
"CC" - An obligation rated "CC" is currently highly vulnerable to
nonpayment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
"D" - An obligation rated "D" is in payment default. The "D" rating
category is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. The "D" rating also will
be used upon the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
"r" - This symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or volatility of
expected returns which are not addressed in the credit rating. Examples
include: obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk - such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
A-5
<PAGE>
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds are considered as medium-grade obligations, (i.e., they
are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" are of poor standing; "Ca" represents obligations
which are speculative in a high degree; and "C" represents the lowest rated
class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (---) - Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic
rating classification from "Aa" through "Caa." The modifier 1 indicates that
the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range
A-6
<PAGE>
ranking; and the modifier 3 indicates a ranking in the lower end of its generic
rating category.
The following summarizes the long-term debt ratings used by Duff &
Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered to be of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable in periods of greater
economic stress.
"BBB" - Debt possesses below-average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt
rated "B" possesses the risk that obligations will not be met when due. Debt
rated "CCC" is well below investment grade and has considerable uncertainty as
to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch IBCA for corporate
and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. These ratings denote the lowest expectation of credit risk and
are assigned only in case of exceptionally strong capacity for timely payment of
financial commitments. This capacity is highly unlikely to be adversely
affected by foreseeable events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. These ratings denote a very low expectation of credit risk and
indicate very strong capacity for timely payment of financial commitments. This
capacity is not significantly vulnerable to foreseeable events.
A-7
<PAGE>
"A" - Bonds considered to be investment grade and of high credit
quality. These ratings denote a low expectation of credit risk and indicate
strong capacity for timely payment of financial commitments. This capacity may,
nevertheless, be more vulnerable to changes in circumstances or in economic
conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good credit
quality. These ratings denote that there is currently a low expectation of
credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity.
"BB" - Bonds considered to be speculative. These ratings indicate
that there is a possibility of credit risk developing, particularly as the
result of adverse economic changes over time; however, business or financial
alternatives may be available to allow financial commitments to be met.
Securities rated in this category are not investment grade.
"B" - Bonds are considered highly speculative. These ratings indicate
that significant credit risk is present, but a limited margin of safety remains.
Financial commitments are currently being met; however, capacity for continued
payment is contingent upon a sustained, favorable business and economic
environment.
"CCC", "CC" and "C" - Bonds have high default risk. Default is a real
possibility, and capacity for meeting financial commitments is solely reliant
upon sustained, favorable business or economic developments. "CC" ratings
indicate that default of some kind appears probable, and "C" ratings signal
imminent default.
"DDD," "DD" and "D" - Bonds are in default. Securities are not
meeting obligations and are extremely speculative. "DDD" designates the highest
potential for recovery of amounts outstanding on any securities involved and "D"
represents the lowest potential for recovery.
To provide more detailed indications of credit quality, the Fitch IBCA
ratings from and including "AA" to "B" may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major rating
categories.
Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes
the rating categories used by Thomson BankWatch for long-term debt ratings:
"AAA" - This designation indicates that the ability to repay principal
and interest on a timely basis is extremely high.
A-8
<PAGE>
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis, with limited incremental risk compared
to issues rated in the highest category.
"A" - This designation indicates that the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BBB" - This designation represents the lowest investment-grade
category and indicates an acceptable capacity to repay principal and interest.
Issues rated "BBB" are more vulnerable to adverse developments (both internal
and external) than obligations with higher ratings.
"BB," "B," "CCC," and "CC" - These designations are assigned by
Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
Municipal Note Ratings
A Standard and Poor's rating reflects the liquidity concerns and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest, with some vulnerability to adverse
financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
A-9
<PAGE>
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
"MIG-1"/"VMIG-1" - This designation denotes best quality. There is
present strong protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high quality, with margins
of protection that are ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality, with
all security elements accounted for but lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt instruments
in this category lack of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
A-10
<PAGE>
THE GALAXY FUND
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 28, 1999
GALAXY TAX-EXEMPT BOND FUND
RETAIL A SHARES, RETAIL B SHARES AND
TRUST SHARES
GALAXY NEW JERSEY MUNICIPAL BOND FUND
GALAXY NEW YORK MUNICIPAL BOND FUND
GALAXY CONNECTICUT MUNICIPAL BOND FUND
GALAXY MASSACHUSETTS MUNICIPAL BOND FUND
GALAXY RHODE ISLAND MUNICIPAL BOND FUND
RETAIL A SHARES AND TRUST SHARES
This Statement of Additional Information is not a prospectus. The
prospectuses for the Funds as listed below, as they may be supplemented or
revised from time to time (the "Prospectuses"), as well as the Funds' Annual
Report to Shareholders dated October 31, 1998 (the "Annual Report"), may be
obtained, without charge by writing:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
or by calling 1-877-BUY-GALAXY (1-877-289-4252)
Current Prospectuses
- - Prospectus for Retail A Shares of the Funds and Retail B Shares of the
Tax-Exempt Bond Fund dated February 28, 1999
- - Prospectus for Trust Shares of the Funds dated February 28, 1999
The financial statements included in the Annual Report and the report
thereon of PricewaterhouseCoopers LLP, The Galaxy Funds' independent
accountants, are incorporated by reference into this Statement of Additional
Information.
<PAGE>
TABLE OF CONTENTS
PAGE
GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
DESCRIPTION OF GALAXY AND ITS SHARES . . . . . . . . . . . . . . . . . . . . 1
INVESTMENT STRATEGIES, POLICIES AND RISKS. . . . . . . . . . . . . . . . . . 4
Tax-Exempt Bond Fund. . . . . . . . . . . . . . . . . . . . . . . . . . 4
New Jersey Municipal Bond Fund. . . . . . . . . . . . . . . . . . . . . 5
New York Municipal Bond Fund. . . . . . . . . . . . . . . . . . . . . . 5
Connecticut Municipal Bond Fund . . . . . . . . . . . . . . . . . . . . 5
Massachusetts Municipal Bond Fund . . . . . . . . . . . . . . . . . . . 6
Rhode Island Municipal Bond Fund. . . . . . . . . . . . . . . . . . . . 7
Special Considerations and Risks. . . . . . . . . . . . . . . . . . . . 8
Investment Quality. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
General Risk Consideration. . . . . . . . . . . . . . . . . . . . . . . 8
Other Investment Policies and Risk Considerations . . . . . . . . . . . 9
Variable and Floating Rate Obligations. . . . . . . . . . . . . . . . . 9
U.S. Government Obligations and Money Market Instruments. . . . . . . . 9
Municipal Securities. . . . . . . . . . . . . . . . . . . . . . . . . .11
Stand-by Commitments. . . . . . . . . . . . . . . . . . . . . . . . . .12
Private Activity Bonds. . . . . . . . . . . . . . . . . . . . . . . . .13
Repurchase and Reverse Repurchase Agreements. . . . . . . . . . . . . .13
Securities Lending. . . . . . . . . . . . . . . . . . . . . . . . . . .14
Investment Company Securities . . . . . . . . . . . . . . . . . . . . .15
Custodial Receipts and Certificates of Participation. . . . . . . . . .15
Derivative Securities . . . . . . . . . . . . . . . . . . . . . . . . .15
Futures Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . .16
When-Issued, Forward Commitment and Delayed Settlement Transactions . .17
Asset-Backed Securities . . . . . . . . . . . . . . . . . . . . . . . .18
Mortgage-Backed Securities. . . . . . . . . . . . . . . . . . . . . . .19
Guaranteed Investment Contracts . . . . . . . . . . . . . . . . . . . .19
Bank Investment Contracts . . . . . . . . . . . . . . . . . . . . . . .20
Special Considerations Relating to New Jersey Municipal Securities. . .20
Special Considerations Relating to New York Municipal Securities. . . .23
Special Considerations Relating to Connecticut Municipal Securities . .36
Portfolio Turnover. . . . . . . . . . . . . . . . . . . . . . . . . . .39
INVESTMENT LIMITATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . .39
VALUATION OF PORTFOLIO SECURITIES. . . . . . . . . . . . . . . . . . . . . .41
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION . . . . . . . . . . . . . . .42
Purchases Of Retail A Shares And Retail B Shares. . . . . . . . . . . .42
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
Customers of Institutions . . . . . . . . . . . . . . . . . . . . . . .42
Other Purchase Information. . . . . . . . . . . . . . . . . . . . . . .43
Applicable Sales Charge -- Retail A Shares. . . . . . . . . . . . . . .43
Computation of Offering Price - Retail A Shares . . . . . . . . . . . .44
Quantity Discounts. . . . . . . . . . . . . . . . . . . . . . . . . . .46
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TABLE OF CONTENTS
(CONTINUED)
PAGE
Applicable Sales Charge - Retail B Shares . . . . . . . . . . . . . . .48
Characteristics of Retail A Shares and Retail B Shares. . . . . . . . .49
Factors to Consider When Selecting Retail A Shares or Retail B Shares .50
Purchases of Trust Shares . . . . . . . . . . . . . . . . . . . . . . .50
Redemption of Retail A Shares, Retail B Shares and Trust Shares . . . .51
INVESTOR PROGRAMS - RETAIL A SHARES AND RETAIL B SHARES. . . . . . . . . . .51
Exchange Privilege. . . . . . . . . . . . . . . . . . . . . . . . . . .51
Retirement Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . .52
Automatic Investment Program and Systematic Withdrawal Plan . . . . . .53
Payroll Deduction Program . . . . . . . . . . . . . . . . . . . . . . .54
College Investment Program. . . . . . . . . . . . . . . . . . . . . . .54
Direct Deposit Program. . . . . . . . . . . . . . . . . . . . . . . . .54
TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54
State and Local . . . . . . . . . . . . . . . . . . . . . . . . . . . .55
Taxation of Certain Financial Instruments . . . . . . . . . . . . . . .58
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58
TRUSTEES AND OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . . .58
Shareholder and Trustee Liability . . . . . . . . . . . . . . . . . . .62
INVESTMENT ADVISER . . . . . . . . . . . . . . . . . . . . . . . . . . . . .63
Authority to Act as Investment Adviser. . . . . . . . . . . . . . . . .64
ADMINISTRATOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .65
CUSTODIAN AND TRANSFER AGENT . . . . . . . . . . . . . . . . . . . . . . . .67
EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .68
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . .68
SHAREHOLDER SERVICES PLAN. . . . . . . . . . . . . . . . . . . . . . . . . .69
DISTRIBUTION AND SERVICES PLAN . . . . . . . . . . . . . . . . . . . . . . .71
DISTRIBUTOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72
AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .74
COUNSEL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .75
PERFORMANCE AND YIELD INFORMATION. . . . . . . . . . . . . . . . . . . . . .75
Tax Equivalency Tables - New Jersey Municipal Bond and
New York Municipal Bond Funds. . . . . . . . . . . . . . . . . . .80
Performance Reporting . . . . . . . . . . . . . . . . . . . . . . . . .83
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .84
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . .85
APPENDIX A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
APPENDIX B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
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<PAGE>
GENERAL INFORMATION
This Statement of Additional Information should be read in conjunction with
a current Prospectus. This Statement of Additional Information relates to the
Prospectuses for Trust Shares and Retail A Shares of the six Funds listed on the
cover page and Retail B Shares of the Tax-Exempt Bond Fund. The Tax-Exempt Bond
Fund is the only Fund that currently offers Retail B Shares. The Tax-Exempt
Bond Fund also offers A Prime Shares and B Prime Shares, which are described in
a separate statement of additional information and related prospectus. As of
the date of this Statement of Additional Information and the Prospectus for
Trust Shares of the Funds, Trust Shares of the Rhode Island Municipal Bond Fund
were not being offered to investors. This Statement of Additional Information
is incorporated by reference in its entirety into the Prospectuses. No
investment in shares of the Funds should be made without reading a Prospectus.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUNDS ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL VARY AS A RESULT OF MARKET CONDITIONS OR OTHER FACTORS
SO THAT SHARES OF THE FUNDS, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN
THEIR ORIGINAL COST. AN INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
DESCRIPTION OF GALAXY AND ITS SHARES
The Galaxy Fund ("Galaxy") is an open-end management investment
company currently offering shares of beneficial interest in twenty-nine
investment portfolios: Money Market Fund, Government Fund, U.S. Treasury Fund,
Tax-Exempt Fund, Connecticut Municipal Money Market Fund, Massachusetts
Municipal Money Market Fund, Institutional Government Money Market Fund, Prime
Reserves, Government Reserves, Tax-Exempt Reserves, Equity Value Fund, Equity
Growth Fund, Equity Income Fund, International Equity Fund, Small Company Equity
Fund, Asset Allocation Fund, Small Cap Value Fund, Growth and Income Fund,
Strategic Equity Fund, Short-Term Bond Fund, Intermediate Government Income
Fund, High Quality Bond Fund, Corporate Bond Fund, Tax-Exempt Bond Fund, New
Jersey Municipal Bond Fund, New York Municipal Bond Fund, Connecticut Municipal
Bond Fund, Massachusetts Municipal Bond Fund and Rhode Island Municipal Bond
Fund. Galaxy is also authorized to issue shares of beneficial interest in an
additional investment portfolio, the MidCap Equity Fund. As of the date of this
Statement of Additional Information, however, the MidCap Equity Fund had not
commenced investment operations.
Galaxy was organized as a Massachusetts business trust on March 31,
1986. Galaxy's Declaration of Trust authorizes the Board of Trustees to
classify or reclassify any unissued shares into one or more classes or series of
shares by setting or changing in any one or more respects their respective
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption. Pursuant to such authority, the Board of Trustees has authorized
the issuance of an unlimited number of
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shares in each of the series in the Funds as follows: Class M - Series 1 shares
(Trust Shares), Class M - Series 2 shares (Retail A Shares), Class M - Series 3
shares (Retail B Shares), Class M - Series 4 shares (A Prime Shares) and Class M
- - Series 5 shares (B Prime Shares), each series representing interests in the
Tax-Exempt Bond Fund; Class O - Series 1 shares (Trust Shares) and Class O -
Series 2 shares (Retail A Shares), each series representing interests in the New
York Municipal Bond Fund; Class P - Series 1 shares (Trust Shares) and Class P -
Series 2 shares (Retail A Shares), each series representing interests in the
Connecticut Municipal Bond Fund; Class Q - Series 1 shares (Trust Shares) and
Class Q - Series 2 shares (Retail A Shares), each series representing interests
in the Massachusetts Municipal Bond Fund; Class R - Series 1 shares (Trust
Shares) and Class R - Series 2 shares (Retail A Shares), each series
representing interests in the Rhode Island Municipal Bond Fund; and Class Y -
Series 1 shares (Trust Shares) and Class Y - Series 2 shares (Retail A Shares),
each series representing interests in the New Jersey Municipal Bond Fund. The
Tax-Exempt Bond Fund is classified as a diversified investment company and the
New Jersey Municipal Bond, New York Municipal Bond, Connecticut Municipal Bond,
Massachusetts Municipal Bond and Rhode Island Municipal Bond Funds are
classified as non-diversified companies under the Investment Company Act of
1940, as amended (the "1940 Act").
Each share of Galaxy (irrespective of series designation) has a par value
of $.001 per share, represents an equal proportionate interest in the related
investment portfolio with other shares of the same class (irrespective of series
designation), and is entitled to such dividends and distributions out of the
income earned on the assets belonging to such investment portfolio as are
declared in the discretion of Galaxy's Board of Trustees.
Shares have no preemptive rights and only such conversion or exchange
rights as the Board of Trustees may grant in its discretion. When issued for
payment as described in the Prospectuses, shares will be fully paid and
non-assessable. Each series of shares (i.e., Retail A Shares, Retail B Shares
and Trust Shares) bear pro rata the same expenses and are entitled equally to a
Fund's dividends and distributions except as follows. Each series will bear the
expenses of any distribution and/or shareholder servicing plans applicable to
such series. For example, as described below, holders of Retail A Shares will
bear the expenses of the Shareholder Services Plan for Retail A Shares and Trust
Shares (which is currently applicable only to Retail A Shares) and holders of
Retail B Shares will bear the expenses of the Distribution and Services Plan for
Retail B Shares. In addition, each series may incur differing transfer agency
fees and may have differing sales charges. Standardized yield and total return
quotations are computed separately for each series of shares. The differences
in expenses paid by the respective series will affect their performance. See
"Shareholder Services Plan" and "Distribution and Services Plan" below.
In the event of a liquidation or dissolution of Galaxy or an individual
Fund, shareholders of a particular Fund would be entitled to receive the assets
available for distribution belonging to such Fund, and a proportionate
distribution, based upon the relative asset values of Galaxy's respective Funds,
of any general assets of Galaxy not belonging to any particular Fund, which are
available for distribution. Shareholders of a Fund are entitled to participate
in the net distributable assets of the particular Fund involved in liquidation,
based on the number of shares of the Fund that are held by each shareholder,
except that each series of a Fund would be solely responsible for the Fund's
payments under any distribution and/or shareholder servicing plan applicable to
such series.
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<PAGE>
Holders of all outstanding shares of a particular Fund will vote together
in the aggregate and not by series on all matters, except that only shares of a
particular series of a Fund will be entitled to vote on matters submitted to a
vote of shareholders pertaining to any distribution and/or shareholder servicing
plan for such series (e.g., only Retail A Shares and Trust Shares of a Fund will
be entitled to vote on matters submitted to a vote of shareholders pertaining to
Galaxy's Shareholder Services Plan for Retail A and Trust Shares and only Retail
B Shares of a Fund will be entitled to vote on matters submitted to a vote of
shareholders pertaining to Galaxy's Distribution and Services Plan for Retail B
Shares). Further, shareholders of all of the Funds, as well as those of any
other investment portfolio now or hereafter offered by Galaxy, will vote
together in the aggregate and not separately on a Fund-by-Fund basis, except as
otherwise required by law or when permitted by the Board of Trustees. Rule
18f-2 under the 1940 Act provides that any matter required to be submitted to
the holders of the outstanding voting securities of an investment company such
as Galaxy shall not be deemed to have been effectively acted upon unless
approved by the holders of a majority of the outstanding shares of each Fund
affected by the matter. A particular Fund is deemed to be affected by a matter
unless it is clear that the interests of each Fund in the matter are
substantially identical or that the matter does not affect any interest of the
Fund. Under the Rule, the approval of an investment advisory agreement or any
change in an investment objective or a fundamental investment policy would be
effectively acted upon with respect to a Fund only if approved by a majority of
the outstanding shares of such Fund (irrespective of series designation).
However, the Rule also provides that the ratification of the appointment of
independent public accountants, the approval of principal underwriting
contracts, and the election of trustees may be effectively acted upon by
shareholders of Galaxy voting without regard to class or series.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and will vote in
the aggregate and not by class or series, except as otherwise expressly required
by law or when the Board of Trustees determines that the matter to be voted on
affects only the interests of shareholders of a particular class or series.
Voting rights are not cumulative and, accordingly, the holders of more than 50%
in the aggregate of Galaxy's outstanding shares may elect all of the trustees,
irrespective of the votes of other shareholders.
Galaxy is not required under Massachusetts law to hold annual shareholder
meetings and intends to do so only if required by the 1940 Act. Shareholders
have the right to remove Trustees. Galaxy's Declaration of Trust provides that
a meeting of shareholders shall be called by the Board of Trustees upon a
written request of shareholders owning at least 10% of the outstanding shares of
Galaxy entitled to vote.
Galaxy's Declaration of Trust authorizes the Board of Trustees, without
shareholder approval (unless otherwise required by applicable law), to (a) sell
and convey the assets of a Fund to another management investment company for
consideration which may include securities issued by the purchaser and, in
connection therewith, to cause all outstanding shares of the Fund involved to be
redeemed at a price which is equal to their net asset value and which may be
paid in cash or by distribution of the securities or other consideration
received from the sale and conveyance; (b) sell and convert a Fund's assets into
money and, in connection therewith, to cause all outstanding shares of the Fund
involved to be redeemed at their net asset value; or (c) combine the assets
belonging to a Fund with the assets belonging to another Fund of
- 3 -
<PAGE>
Galaxy and, in connection therewith, to cause all outstanding shares of any Fund
to be redeemed at their net asset value or converted into shares of another
class of Galaxy's shares at the net asset value. In the event that shares are
redeemed in cash at their net asset value, a shareholder may receive in payment
for such shares, due to changes in the market prices of the Fund's portfolio
securities, an amount that is more or less than the original investment. The
exercise of such authority by the Board of Trustees will be subject to the
provisions of the 1940 Act, and the Board of Trustees will not take any action
described in this paragraph unless the proposed action has been disclosed in
writing to the Fund's shareholders at least 30 days prior thereto.
INVESTMENT STRATEGIES, POLICIES AND RISKS
Fleet Investment Advisors Inc. ("Fleet"), the Funds' investment adviser,
will use its best efforts to achieve each Fund's investment objective, although
such achievement cannot be assured. The investment objective of a Fund as
described in its Prospectuses may not be changed without the approval of the
holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Except as noted herein under "New Jersey Municipal Bond
Fund," "New York Municipal Bond Fund," "Connecticut Municipal Bond Fund,"
"Massachusetts Municipal Bond Fund" and "Rhode Island Municipal Bond Fund" and
below under "Investment Limitations," a Fund's investment policies may be
changed without shareholder approval. An investor should not consider an
investment in the Funds to be a complete investment program. The following
investment strategies, policies and risks supplement those set forth in the
Funds' Prospectuses.
TAX-EXEMPT BOND FUND
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Tax-Exempt Bond Fund's shareholders, the Fund will
invest, except during temporary defensive periods, at least 80% of its total
assets in debt obligations issued by or on behalf of states, territories and
possessions of the United States, the District of Columbia and their respective
authorities, agencies, instrumentalities and political subdivisions, the
interest on which, in the opinion of bond counsel to the issuer, is exempt from
regular federal income tax ("Municipal Securities"), primarily bonds (at least
65% under normal market conditions).
Although there is no present intention to do so on a regular basis, the
Fund may invest 25% or more of its assets in Municipal Securities the interest
on which is paid solely from revenues on similar projects if such investment is
deemed necessary or appropriate by Fleet. To the extent that 25% or more of the
Fund's assets are invested in Municipal Securities payable from revenues on
similar projects, the Fund will be subject to the particular risks presented by
such projects to a greater extent than it would be if its assets were not so
concentrated.
See "Special Considerations and Risks" and "Other Investment Policies and
Risk Considerations" below for information regarding additional investment
policies of the Tax-Exempt Bond Fund.
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<PAGE>
NEW JERSEY MUNICIPAL BOND FUND
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Fund's shareholders, the New Jersey Municipal Bond Fund
will invest, except during temporary defensive periods, at least 80% of its
total assets in Municipal Securities. The Fund expects that except during
temporary defensive periods or when, in Fleet's opinion, suitable obligations
are unavailable for investment, at least 65% of the Fund's total assets will be
invested in Municipal Securities issued by or on behalf of the State of New
Jersey, its political sub-divisions, authorities, agencies, instrumentalities
and corporations, and certain other governmental issuers such as Puerto Rico,
the interest on which, in the opinion of bond counsel to the issuer, is exempt
from federal and New Jersey personal income taxes ("New Jersey Municipal
Securities"). See "Other Investment Policies and Risk Considerations - Special
Considerations Relating to New Jersey Municipal Securities" below for a
discussion of certain risks in investing in New Jersey Municipal Securities.
Dividends derived from interest on Municipal Securities other than New Jersey
Municipal Securities will generally be exempt from regular federal income tax
but may be subject to New Jersey personal income tax. See "Taxes" below.
See "Special Considerations and Risks" and "Other Investment Policies and
Risk Considerations" below for information regarding additional investment
policies of the New Jersey Municipal Bond Fund.
NEW YORK MUNICIPAL BOND FUND
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Fund's shareholders, the New York Municipal Bond Fund
will invest, except during temporary defensive periods, at least 80% of its
total assets in Municipal Securities, primarily in Municipal Securities issued
by or on behalf of the State of New York, its political sub-divisions,
authorities, agencies, instrumentalities and corporations, and certain other
governmental issuers such as Puerto Rico, the interest on which, in the opinion
of bond counsel to the issuer, is exempt from federal, New York State and New
York City personal income taxes ("New York Municipal Securities"). See "Other
Investment Policies and Risk Considerations - Special Considerations Relating to
New York Municipal Securities" below for a discussion of certain risks in
investing in New York Municipal Securities. Dividends derived from interest on
Municipal Securities other than New York Municipal Securities will generally be
exempt from regular federal income tax but may be subject to New York State and
New York City personal income tax. See "Taxes" below.
See "Special Considerations and Risks" and "Other Investment Policies and
Risk Considerations" below for information regarding additional investment
policies of the New York Municipal Bond Fund.
CONNECTICUT MUNICIPAL BOND FUND
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Fund's shareholders, the Connecticut Municipal Bond
Fund will invest, except during temporary defensive periods, at least 80% of its
total assets in Municipal Securities, primarily in Municipal Securities issued
by or on behalf of the State of Connecticut, its political sub-
- 5 -
<PAGE>
divisions, or any public instrumentality, state or local authority, district or
similar public entity created under the laws of Connecticut and certain other
governmental issuers such as Puerto Rico, the interest on which is, in the
opinion of qualified legal counsel, exempt from federal income tax and from
Connecticut personal income tax by virtue of federal law ("Connecticut Municipal
Securities"). See "Other Investment Policies and Risk Considerations - Special
Considerations Relating to Connecticut Municipal Securities" below, for a
discussion of certain risks in investing in Connecticut Municipal Securities.
Dividends derived from interest on Municipal Securities other than Connecticut
Municipal Securities will generally be exempt from regular federal income tax
but may be subject to Connecticut personal income tax. See "Taxes" below.
See "Special Considerations and Risks" and "Other Investment Policies and
Risk Considerations" below for information regarding additional investment
policies of the Connecticut Municipal Bond Fund.
MASSACHUSETTS MUNICIPAL BOND FUND
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Fund's shareholders, the Massachusetts Municipal Bond
Fund will invest, except during temporary defensive periods, at least 80% of its
total assets in Municipal Securities, primarily in Municipal Securities issued
by or on behalf of the Commonwealth of Massachusetts, its political
sub-divisions, authorities, agencies, instrumentalities and corporations, and
certain other governmental issuers such as Puerto Rico, the interest on which,
in the opinion of bond counsel to the issuer, is exempt from federal and
Massachusetts personal income taxes ("Massachusetts Municipal Securities").
Dividends derived from interest on Municipal Securities other than Massachusetts
Municipal Securities will generally be exempt from regular federal income tax
but may be subject to Massachusetts personal income tax. See "Taxes" below.
The Fund's ability to achieve its investment objective depends on the
ability of issuers of Massachusetts Municipal Securities to meet their
continuing obligations to pay principal and interest. Since the Fund invests
primarily in Massachusetts Municipal Securities, the value of the Fund's shares
may be especially affected by factors pertaining to the economy of Massachusetts
and other factors specifically affecting the ability of issuers of Massachusetts
Municipal Securities to meet their obligations. As a result, the value of the
Fund's shares may fluctuate more widely than the value of shares of a portfolio
investing in securities of issuers in a number of different states. The ability
of Massachusetts and its political subdivisions to meet their obligations will
depend primarily on the availability of tax and other revenues to those
governments and on their fiscal conditions generally. The amount of tax and
other revenues available to governmental issuers of Massachusetts Municipal
Securities may be affected from time to time by economic, political and
demographic conditions within Massachusetts. In addition, constitutional or
statutory restrictions may limit a government's power to raise revenues or
increase taxes. The availability of federal, state and local aid to an issuer
of Massachusetts Municipal Securities may also affect that issuer's ability to
meet its obligations. Payments of principal and interest on limited obligation
bonds will depend on the economic condition of the facility or specific revenue
source from whose revenues the payments will be made, which in turn could be
affected by economic, political and demographic conditions in Massachusetts or a
particular locality. Any reduction in the actual or perceived ability of an
issuer of Massachusetts Municipal Securities to meet its obligations (including
a reduction in the rating of its outstanding
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<PAGE>
securities) would likely affect adversely the market value and marketability of
its obligations and could affect adversely the values of other Massachusetts
Municipal Securities as well.
See "Special Considerations and Risks" and "Other Investment Policies and
Risk Considerations" below for information regarding additional investment
policies of the Massachusetts Municipal Bond Fund.
RHODE ISLAND MUNICIPAL BOND FUND
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Fund's shareholders, the Rhode Island Municipal Bond
Fund will invest, except during temporary defensive periods, at least 80% of its
total assets in Municipal Securities, primarily in Municipal Securities issued
by or on behalf of the State of Rhode Island, its political sub-divisions,
authorities, agencies, instrumentalities and corporations, and certain other
governmental issuers such as Puerto Rico, the interest on which, in the opinion
of bond counsel to the issuer, is exempt from federal and Rhode Island personal
income taxes ("Rhode Island Municipal Securities"). Dividends derived from
interest on Municipal Securities other than Rhode Island Municipal Securities
will generally be exempt from regular federal income tax but may be subject to
Rhode Island personal income tax. See "Taxes" below.
The Fund's ability to achieve its investment objective depends on the
ability of issuers of Rhode Island Municipal Securities to meet their continuing
obligations to pay principal and interest. Since the Fund invests primarily in
Rhode Island Municipal Securities, the value of the Fund's shares may be
especially affected by factors pertaining to the economy of Rhode Island and
other factors specifically affecting the ability of issuers of Rhode Island
Municipal Securities to meet their obligations. As a result, the value of the
Fund's shares may fluctuate more widely than the value of shares of a portfolio
investing in securities of issuers in a number of different states. The ability
of Rhode Island and its political subdivisions to meet their obligations will
depend primarily on the availability of tax and other revenues to those
governments and on their fiscal conditions generally. The amount of tax and
other revenues available to governmental issuers of Rhode Island Municipal
Securities may be affected from time to time by economic, political and
demographic conditions within Rhode Island. In addition, constitutional or
statutory restrictions may limit a government's power to raise revenues or
increase taxes. The availability of federal, state and local aid to an issuer
of Rhode Island Municipal Securities may also affect that issuer's ability to
meet its obligations. Payments of principal and interest on limited obligation
bonds will depend on the economic condition of the facility or specific revenue
source from whose revenues the payments will be made, which in turn could be
affected by economic, political and demographic conditions in Rhode Island or a
particular locality. Any reduction in the actual or perceived ability of an
issuer of Rhode Island Municipal Securities to meet its obligations (including a
reduction in the rating of its outstanding securities) would likely affect
adversely the market value and marketability of its obligations and could affect
adversely the value of other Rhode Island Municipal Securities as well.
See "Special Considerations and Risks" and "Other Investment Policies and
Risk Considerations" below for information regarding additional investment
policies of the Rhode Island Municipal Bond Fund.
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<PAGE>
SPECIAL CONSIDERATIONS AND RISKS
INVESTMENT QUALITY
Municipal Securities purchased by the Funds will consist primarily of
issues which are rated at the time of purchase within the four highest rating
categories assigned by S&P or Moody's or unrated instruments determined by Fleet
to be of comparable quality. Municipal Securities rated within the four highest
rating categories assigned by S&P ("AAA," "AA," "A" and "BBB") or Moody's
("Aaa," "Aa," "A" and "Baa") are considered to be investment grade. Municipal
Securities rated in the lowest of the four highest rating categories assigned by
S&P or Moody's are considered to have speculative characteristics, even though
they are of investment grade quality, and changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade Municipal
Securities. Such Municipal Securities will be purchased (and retained) only
when Fleet believes the issuers have an adequate capacity to pay interest and
repay principal. If the ratings of a particular Municipal Security purchased by
a Fund are subsequently downgraded below the four highest ratings categories
assigned by S&P or Moody's, such factor will be considered by Fleet in its
evaluation of the overall merits of that Municipal Security, but such ratings
will not necessarily result in an automatic sale of the Municipal Security.
Under normal market and economic conditions, at least 65% of each Fund's total
assets will be invested in Municipal Securities rated in the three highest
rating categories assigned by S&P or Moody's. See Appendix A to this Statement
of Additional Information for a description of S&P's and Moody's rating
categories.
GENERAL RISK CONSIDERATION
Generally, the market value of fixed income securities, such as Municipal
Securities, in the Funds can be expected to vary inversely to changes in
prevailing interest rates. During periods of declining interest rates, the
market value of investment portfolios comprised primarily of fixed income
securities, such as the Funds, will tend to increase, and during periods of
rising interest rates, the market value will tend to decrease. In addition,
during periods of declining interest rates, the yields of investment portfolios
comprised primarily of fixed income securities will tend to be higher than
prevailing market rates and, in periods of rising interest rates, yields will
tend to be somewhat lower. Fixed income securities with longer maturities,
which tend to produce higher yields, are subject to potentially greater capital
appreciation and depreciation than obligations with shorter maturities. Changes
in the financial strength of an issuer or changes in the ratings of any
particular security may also offset the value of these investments.
Fluctuations in the market value of fixed income securities subsequent to their
acquisition will not offset cash income from such securities but will be
reflected in a Fund's net asset value.
Although no Fund presently intends to do so on a regular basis, each Fund
may invest more than 25% of its assets in Municipal Securities the interest on
which is paid solely from revenues on similar projects if such investment is
deemed necessary or appropriate by Fleet. To the extent that a Fund's assets
are concentrated in Municipal Securities payable from revenues on similar
projects, the Fund will be subject to the particular risks presented by such
projects to a greater extent than it would be if its assets were not so
concentrated.
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The New Jersey Municipal Bond, New York Municipal Bond, Connecticut
Municipal Bond, Massachusetts Municipal Bond and Rhode Island Municipal Bond
Funds are classified as non-diversified investment companies under the 1940
Act. Investment return on a non-diversified portfolio typically is dependent
upon the performance of a smaller number of securities relative to the number
held in a diversified portfolio. Consequently, the change in value of any
one security may affect the overall value of a non-diversified portfolio more
than it would a diversified portfolio, and thereby subject the market-based
net asset value per share of the non-diversified portfolio to greater
fluctuations. In addition, a non-diversified portfolio may be more
susceptible to economic, political and regulatory developments than a
diversified investment portfolio with similar objectives may be.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in the Prospectuses and this Statement of
Additional Information are among those which one or more of the Funds have the
power to utilize. Some may be employed on a regular basis; others may not be
used at all. Accordingly, reference to any particular method or technique
carries no implication that it will be utilized or, if it is, that it will be
successful.
VARIABLE AND FLOATING RATE OBLIGATIONS
The Funds may purchase variable and floating rate instruments. If such an
instrument is not rated, Fleet must determine that such instrument is comparable
to rated instruments eligible for purchase by a Fund and will consider the
earning power, cash flows and other liquidity ratios of the issuers and
guarantors of such instruments and will continuously monitor their financial
status in order to meet payment on demand. In determining average weighted
portfolio maturity of each of these Funds, a variable or floating rate
instrument issued or guaranteed by the U.S. Government or an agency or
instrumentality thereof will be deemed to have a maturity equal to the period
remaining until the obligation's next interest rate adjustment. Long-term
variable and floating rate obligations with a demand feature will be deemed to
have a maturity equal to the longer of the period remaining to the next interest
rate adjustment or the demand notice period.
U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS
The Funds may, in accordance with their investment policies, invest from
time to time in obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and in "money market" instruments, including bank
obligations and commercial paper.
Examples of the types of obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities (hereinafter, "U.S. Government
obligations") that may be held by the Funds include, without limitation, direct
obligations of the U.S. Treasury, and securities issued or guaranteed by the
Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, Federal
Housing Administration, Farmers Home Administration, Export-Import Bank of the
United States, Small Business Administration, Government National Mortgage
Association, Federal National Mortgage Association, General Services
Administration, Central Bank for Cooperatives, Federal Home Loan Mortgage
Corporation, Federal Intermediate Credit Banks, Resolution Trust Corporation and
Maritime Administration.
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U.S. Treasury securities differ only in their interest rates, maturities
and time of issuance: Treasury Bills have initial maturities of one year or
less; Treasury Notes have initial maturities of one to ten years; and Treasury
Bonds generally have initial maturities of more than ten years. Obligations of
certain agencies and instrumentalities of the U.S. Government, such as those of
the Government National Mortgage Association, are supported by the full faith
and credit of the U.S. Treasury; others, such as those of the Federal Home Loan
Banks, are supported by the right of the issuer to borrow from the Treasury;
others, such as those of the Federal National Mortgage Association, are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; still others, such as those of the Federal Home Loan
Mortgage Corporation, are supported only by the credit of the instrumentality.
No assurance can be given that the U.S. Government would provide financial
support to U.S. Government-sponsored instrumentalities if it is not obligated to
do so by law. Some of these instruments may be variable or floating rate
instruments.
Bank obligations include bankers' acceptances, negotiable certificates of
deposit, and non-negotiable time deposits issued for a definite period of time
and earning a specified return by a U.S. bank which is a member of the Federal
Reserve System or is insured by the Federal Deposit Insurance Corporation
("FDIC"), or by a savings and loan association or savings bank which is insured
by the FDIC. Bank obligations also include U.S. dollar-denominated obligations
of foreign branches of U.S. banks or of U.S. branches of foreign banks, all of
the same type as domestic bank obligations. Investments in bank obligations are
limited to the obligations of financial institutions having more than $1 billion
in total assets at the time of purchase. Investments by the Funds in
non-negotiable time deposits are limited to no more than 5% of each such Fund's
total assets at the time of purchase.
Domestic and foreign banks are subject to extensive but different
government regulation which may limit the amount and types of their loans and
the interest rates that may be charged. In addition, the profitability of the
banking industry is largely dependent upon the availability and cost of funds to
finance lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and of U.S.
branches of foreign banks may subject a Fund to additional risks, including
future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. In addition, foreign
branches of U.S. banks and U.S. branches of foreign banks may be subject to less
stringent reserve requirements and to different accounting, auditing, reporting,
and recordkeeping standards than those applicable to domestic branches of U.S.
banks. The Funds will invest in the obligations of U.S. branches of foreign
banks or foreign branches of U.S. banks only when Fleet believes that the credit
risk with respect to the instrument is minimal.
Commercial paper may include variable and floating rate instruments
which are unsecured instruments that permit the indebtedness thereunder to
vary. Variable rate instruments provide for periodic adjustments in the
interest rate. Floating rate instruments provide for automatic adjustment of
the interest rate whenever some other specified interest rate changes. Some
variable and floating rate obligations are direct lending arrangements
between the purchaser and the issuer and there may be no active secondary
market. However, in the case of
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variable and floating rate obligations with a demand feature, a Fund may demand
payment of principal and accrued interest at a time specified in the instrument
or may resell the instrument to a third party. In the event that an issuer of a
variable or floating rate obligation defaulted on its payment obligation, a Fund
might be unable to dispose of the note because of the absence of a secondary
market and could, for this or other reasons, suffer a loss to the extent of the
default.
MUNICIPAL SECURITIES
Municipal Securities acquired by the Funds include debt obligations issued
by governmental entities to obtain funds for various public purposes, including
the construction of a wide range of public facilities, the refunding of
outstanding obligations, the payment of general operating expenses, and the
extension of loans to public institutions and facilities. Private activity
bonds that are issued by or on behalf of public authorities to finance various
privately operated facilities are "Municipal Securities" if the interest paid
thereon is exempt from regular federal income tax and not treated as a specific
tax preference item under the federal alternative minimum tax.
The two principal classifications of Municipal Securities which may be held
by the Funds are "general obligation" securities and "revenue" securities.
General obligation securities are secured by the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest.
Revenue securities are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source such as the user of the
facility being financed.
Each Fund's portfolio may also include "moral obligation" securities, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation securities is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.
There are, of course, variations in the quality of Municipal Securities,
both within a particular category and between categories, and the yields on
Municipal Securities depend upon a variety of factors, including general market
conditions, the financial condition of the issuer, general conditions of the
municipal bond market, the size of a particular offering, the maturity of the
obligation, and the rating of the issue. The ratings of a nationally recognized
statistical rating organization ("NRSRO"), such as Moody's and S&P, represent
such NRSRO's opinion as to the quality of Municipal Securities. It should be
emphasized that these ratings are general and are not absolute standards of
quality. Municipal Securities with the same maturity, interest rate and rating
may have different yields. Municipal Securities of the same maturity and
interest rate with different ratings may have the same yield. Subsequent to its
purchase by a Fund, an issue of Municipal Securities may cease to be rated or
its rating may be reduced below the minimum rating required for purchase by the
Fund.
The payment of principal and interest on most Municipal Securities
purchased by the Funds will depend upon the ability of the issuers to meet their
obligations. Each state, the District of Columbia, each of their political
subdivisions, agencies, instrumentalities and authorities and each multistate
agency of which a state is a member is a separate "issuer" as that term is used
in this Statement of Additional Information. The non-governmental user of
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facilities financed by private activity bonds is also considered to be an
"issuer." An issuer's obligations under its Municipal Securities are subject to
the provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the federal Bankruptcy Code and laws, if any,
which may be enacted by federal or state legislatures extending the time for
payment of principal or interest, or both, or imposing other constraints upon
enforcement of such obligations or upon the ability of municipalities to levy
taxes. The power or ability of an issuer to meet its obligations for the
payment of interest on and principal of its Municipal Securities may be
materially adversely affected by litigation or other conditions.
Among other instruments, the Funds may purchase short-term general
obligation notes, tax anticipation notes, bond anticipation notes, revenue
anticipation notes, tax-exempt commercial paper, construction loan notes and
other forms of short-term loans. Such instruments are issued with a short-term
maturity in anticipation of the receipt of tax funds, the proceeds of bond
placements or other revenues. In addition, the Funds may invest in long-term
tax-exempt instruments, such as municipal bonds and private activity bonds to
the extent consistent with the limitations set forth for each Fund. See
"Private Activity Bonds" below.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on Municipal Securities. For example, under the Tax Reform Act of
1986, interest on certain private activity bonds must be included in an
investor's federal alternative minimum taxable income, and corporate investors
must include all tax-exempt interest in their federal alternative minimum
taxable income. Galaxy cannot, of course, predict what legislation may be
proposed in the future regarding the income tax status of interest on Municipal
Securities, or which proposals, if any, might be enacted. Such proposals, while
pending or if enacted, might materially and adversely affect the availability of
Municipal Securities for investment by the Funds and the liquidity and value of
their respective portfolios. In such an event, each Fund would re-evaluate its
investment objective and policies and consider possible changes in its structure
or possible dissolution.
Opinions relating to the validity of Municipal Securities and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Funds
nor Fleet will review the proceedings relating to the issuance of Municipal
Securities or the bases for such opinions.
VARIABLE AND FLOATING RATE MUNICIPAL SECURITIES. Municipal Securities
purchased by the Funds may include rated and unrated variable and floating rate
tax-exempt instruments. There may be no active secondary market with respect to
a particular variable or floating rate instrument. Nevertheless, the periodic
readjustments of their interest rates tend to assure that their value to a Fund
will approximate their par value. Illiquid variable and floating rate
instruments (instruments which are not payable upon seven days' notice and do
not have an active trading market) that are acquired by the Funds are subject to
the 10% (15% with respect to the New Jersey Municipal Bond Fund) limit described
in Investment Limitation No. 3 under "Investment Limitations" below.
STAND-BY COMMITMENTS
The Funds may acquire "stand-by commitments" with respect to Municipal
Securities held by them. Under a stand-by commitment, a dealer agrees to
purchase, at a Fund's option,
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specified Municipal Securities at a specified price. The Funds will acquire
stand-by commitments solely to facilitate portfolio liquidity and do not intend
to exercise their rights thereunder for trading purposes. The Funds expect that
stand-by commitments will generally be available without the payment of any
direct or indirect consideration. However, if necessary or advisable, a Fund
may pay for a stand-by commitment either separately in cash or by paying a
higher price for portfolio securities which are acquired subject to the
commitment (thus reducing the yield otherwise available for the same
securities). Where a Fund pays any consideration directly or indirectly for a
stand-by commitment, its cost will be reflected as unrealized depreciation for
the period during which the commitment is held by the Fund. Stand-by
commitments acquired by a Fund would be valued at zero in determining the Fund's
net asset value.
Stand-by commitments are exercisable by a Fund at any time before the
maturity of the underlying Municipal Security, and may be sold, transferred or
assigned by the Fund only with respect to the underlying instruments. A Fund
will enter into stand-by commitments only with banks and broker/dealers that
present minimal credit risks. In evaluating the creditworthiness of the issuer
of a stand-by commitment, Fleet will review periodically the issuer's assets,
liabilities, contingent claims and other relevant financial information.
PRIVATE ACTIVITY BONDS
Each Fund may invest in "private activity bonds," the interest on which,
although exempt from regular federal income tax, may constitute an item of tax
preference for purposes of the federal alternative minimum tax. Investments in
such securities, however, will not be treated as investments in Municipal
Securities for purposes of the 80% requirement mentioned above and, under normal
conditions, will not exceed 20% of a Fund's total assets when added together
with any taxable investments held by the Fund.
Private activity bonds are or have been issued to obtain funds to provide,
among other things, privately operated housing facilities, pollution control
facilities, convention or trade show facilities, mass transit, airport, port or
parking facilities and certain local facilities for water supply, gas,
electricity or sewage or solid waste disposal. Private activity bonds are also
issued to privately held or publicly owned corporations in the financing of
commercial or industrial facilities. State and local governments are authorized
in most states to issue private activity bonds for such purposes in order to
encourage corporations to locate within their communities. The principal and
interest on these obligations may be payable from the general revenues of the
users of such facilities.
Private activity bonds held by the Fund are in most cases revenue
securities and are not payable from the unrestricted revenues of the issuer.
Consequently, the credit quality of such private activity bonds is usually
directly related to the credit standing of the corporate user of the facility
involved.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
Each Fund may purchase portfolio securities subject to the seller's
agreement to repurchase them at a mutually specified date and price ("repurchase
agreements"). Repurchase agreements will be entered into only with financial
institutions such as banks and broker/dealers
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which are deemed to be creditworthy by Fleet under guidelines approved by
Galaxy's Board of Trustees. No Fund will enter into repurchase agreements with
Fleet or any of its affiliates. Unless a repurchase agreement has a remaining
maturity of seven days or less or may be terminated on demand upon notice of
seven days or less, the repurchase agreement will be considered an illiquid
security and will be subject to the 10% (15% with respect to the New Jersey
Municipal Bond Fund) limit described in Investment Limitation No. 3 under
"Investment Limitations" below.
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by a Fund at
not less than the agreed upon repurchase price. If the seller defaulted on its
repurchase obligation, the Fund holding such obligation would suffer a loss to
the extent that the proceeds from a sale of the underlying securities (including
accrued interest) were less than the repurchase price (including accrued
interest) under the agreement. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the Fund
might be delayed pending court action.
The repurchase price under a repurchase agreement generally equals the
price paid by a Fund plus interest negotiated on the basis of current short-term
rates (which may be more or less than the rate on the securities underlying the
repurchase agreement). Securities subject to repurchase agreements will be held
by a Fund's custodian or sub-custodian in a segregated account or in the Federal
Reserve/Treasury book-entry system. Repurchase agreements are considered to be
loans by a Fund under the 1940 Act.
Each Fund may also borrow funds for temporary purposes by selling portfolio
securities to financial institutions such as banks and broker/dealers and
agreeing to repurchase them at a mutually specified date and price ("reverse
repurchase agreements"). Reverse repurchase agreements involve the risk that
the market value of the securities sold by a Fund may decline below the
repurchase price. A Fund would pay interest on amounts obtained pursuant to a
reverse repurchase agreement. Whenever a Fund enters into a reverse repurchase
agreement, it will place in a segregated custodial account liquid assets such as
cash or liquid portfolio securities equal to the repurchase price (including
accrued interest). The Fund will monitor the account to ensure such equivalent
value is maintained. Reverse repurchase agreements are considered to be
borrowings by a Fund under the 1940 Act.
SECURITIES LENDING
Each Fund may lend its portfolio securities to financial institutions such
as banks and broker/dealers in accordance with the investment limitations
described below. Such loans would involve risks of delay in receiving
additional collateral or in recovering the securities loaned or even loss of
rights in the collateral, should the borrower of the securities fail
financially. Any portfolio securities purchased with cash collateral would also
be subject to possible depreciation. A Fund that loans portfolio securities
would continue to accrue interest on the securities loaned and would also earn
income on the loans. Any cash collateral received by a Fund would be invested
in high quality, short-term "money market" instruments. Loans will generally be
short-term, will be made only to borrowers deemed by Fleet to be of good
standing and only when, in Fleet's judgment, the income to be earned from the
loan justifies the attendant risks. The Funds
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currently intend to limit the lending of their portfolio securities so that, at
any given time, securities loaned by a Fund represent not more than one-third of
the value of its total assets.
INVESTMENT COMPANY SECURITIES
The Funds may invest in securities issued by other investment companies
which invest in high quality, short-term debt securities and which determine
their net asset value per share based on the amortized cost or penny-rounding
method, provided, however, that the Tax-Exempt Bond Fund may only invest in
securities of other investment companies which invest in high quality short-term
Municipal Securities and which determine their net asset value per share based
on the amortized cost or penny-rounding method. Investments in other investment
companies will cause a Fund (and, indirectly, the Fund's shareholders) to bear
proportionately the costs incurred in connection with the investment companies'
operations. Securities of other investment companies will be acquired by a Fund
within the limits prescribed by the 1940 Act. Each Fund currently intends to
limit its investments so that, as determined immediately after a securities
purchase is made: (a) not more than 5% of the value of its total assets will be
invested in the securities of any one investment company; (b) not more than 10%
of the value of its total assets will be invested in the aggregate in securities
of other investment companies as a group; (c) not more than 3% of the
outstanding voting stock of any one investment company will be owned by the
Fund; and (d) not more than 10% of the outstanding voting stock of any one
closed-end investment company will be owned in the aggregate by the Fund, other
investment portfolios of Galaxy, or any other investment companies advised by
Fleet.
CUSTODIAL RECEIPTS AND CERTIFICATES OF PARTICIPATION
Securities acquired by the Funds may be in the form of custodial receipts
evidencing rights to receive a specific future interest payment, principal
payment or both on certain Municipal Securities. Such obligations are held in
custody by a bank on behalf of holders of the receipts. These custodial
receipts are known by various names, including "Municipal Receipts," "Municipal
Certificates of Accrual on Tax-Exempt Securities" ("M-CATS") and "Municipal
Zero-Coupon Receipts." The Funds may also purchase from time to time
certificates of participation that, in the opinion of counsel to the issuer, are
exempt from federal income tax. A certificate of participation gives a Fund an
undivided interest in a pool of Municipal Securities held by a bank.
Certificates of participation may have fixed, floating or variable rates of
interest. If a certificate of participation is unrated, Fleet will have
determined that the instrument is of comparable quality to those instruments in
which the Fund may invest pursuant to guidelines approved by Galaxy's Board of
Trustees. For certain certificates of participation, a Fund will have the right
to demand payment, on not more than 30 days' notice, for all or any part of the
Fund's participation interest, plus accrued interest. As to these instruments,
each Fund intends to exercise its right to demand payment as needed to provide
liquidity, to maintain or improve the quality of its investment portfolio or
upon a default (if permitted under the terms of the instrument).
DERIVATIVE SECURITIES
The Funds may from time to time, in accordance with their respective
investment policies, purchase certain "derivative" securities. Derivative
securities are instruments that derive their value from the performance of
underlying assets, interest rates, or indices, and
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include, but are not limited to, municipal bond index and interest rate futures
and certain asset-backed and mortgage-backed securities.
Derivative securities present, to varying degrees, market risk that the
performance of the underlying assets, interest rates or indices will decline;
credit risk that the dealer or other counterparty to the transaction will fail
to pay its obligations; volatility and leveraging risk that, if interest rates
change adversely, the value of the derivative security will decline more than
the assets, rates or indices on which it is based; liquidity risk that the Funds
will be unable to sell a derivative security when it wants because of lack of
market depth or market disruption; pricing risk that the value of a derivative
security will not correlate exactly to the value of the underlying assets, rates
or indices on which it is based; and operations risk that loss will occur as a
result of inadequate systems and controls, human error or otherwise. Some
derivative securities are more complex than others, and for those instruments
that have been developed recently, data are lacking regarding their actual
performance over complete market cycles.
Fleet will evaluate the risks presented by the derivative securities
purchased by the Funds, and will determine, in connection with its day-to-day
management of the Funds, how they will be used in furtherance of each Fund's
investment objective. It is possible, however, that Fleet's evaluations will
prove to be inaccurate or incomplete and, even when accurate and complete, it is
possible that the Funds will, because of the risks discussed above, incur loss
as a result of their investments in derivative securities.
FUTURES CONTRACTS
Each Fund may purchase and sell municipal bond index futures contracts as a
hedge against changes in market conditions. A municipal bond index assigns
values daily to the municipal bonds included in the index based on the
independent assessment of dealer-to-dealer municipal bond brokers. A municipal
bond index futures contract represents a firm commitment by which two parties
agree to take or make delivery of an amount equal to a specified dollar amount
multiplied by the difference between the municipal bond index value on the last
trading date of the contract and the price at which the futures contract is
originally struck. No physical delivery of the underlying securities in the
index is made.
Each Fund may also enter into contracts for the future delivery of fixed
income securities commonly known as interest rate futures contracts. Interest
rate futures contracts are similar to municipal bond index futures contracts
except that, instead of a municipal bond index, the "underlying commodity" is
represented by various types of fixed-income securities.
The Funds will not engage in futures transactions for speculation, but only
to hedge against changes in the market values of securities which the Funds hold
or intend to purchase. The Funds will engage in futures transactions only to
the extent permitted by the Commodity Futures Trading Commission ("CFTC") and
the Securities and Exchange Commission ("SEC"). The purchase of futures
instruments in connection with securities which the Funds intend to purchase
will require an amount of cash or other liquid assets, equal to the market value
of the outstanding futures contracts, to be deposited in a segregated account to
collateralize the position and thereby insure that the use of such futures is
unleveraged. Each Fund will limit its hedging transactions in futures contracts
so that, immediately after any such transaction, the aggregate initial margin
that is required to be posted by the Fund under the rules of the exchange on
which
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the futures contract is traded does not exceed 5% of the Fund's total assets
after taking into account any unrealized profits and unrealized losses on the
Fund's open contracts. In addition, no more than one-third of each Fund's total
assets may be covered by such contracts.
Transactions in futures as a hedging device may subject the Funds to a
number of risks. Successful use of futures by the Funds is subject to the
ability of Fleet to predict correctly movements in the direction of the market.
In addition, there may be an imperfect correlation, or no correlation at all,
between movements in the price of futures contracts and movements in the price
of the instruments being hedged. There is no assurance that a liquid market
will exist for any particular futures contract at any particular time.
Consequently, a Fund may realize a loss on a futures transaction that is not
offset by a favorable movement in the price of securities which it holds or
intends to purchase or may be unable to close a futures position in the event of
adverse price movements. Any income from investments in futures contracts will
be taxable. Additional information concerning futures transactions, including
special rules regarding the taxation of such transactions, is contained in this
Statement of Additional Information and in Appendix B.
WHEN-ISSUED, FORWARD COMMITMENT AND DELAYED SETTLEMENT TRANSACTIONS
Each Fund may purchase eligible securities on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis. Each Fund may also
purchase or sell eligible securities on a "delayed settlement" basis.
When-issued and forward commitment transactions, which involve a commitment by a
Fund to purchase or sell particular securities with payment and delivery taking
place at a future date (perhaps one or two months later), permit the Fund to
lock in a price or yield on a security it owns or intends to purchase,
regardless of future changes in interest rates. Delayed settlement describes
settlement of a securities transaction in the secondary market which will occur
sometime in the future. When-issued, forward commitment and delayed settlement
transactions involve the risk, however, that the yield or price obtained in a
transaction may be less favorable than the yield or price available in the
market when the security delivery takes place. It is expected that forward
commitments, when issued purchases and delayed settlements will not exceed 25%
of the value of a Fund's total assets absent unusual market conditions. In the
event a Fund's forward commitments, when-issued purchases and delayed
settlements ever exceeded 25% of the value of its total assets, the Fund's
liquidity and the ability of Fleet to manage the Fund might be adversely
affected. The Funds do not intend to engage in when-issued purchases, forward
commitments and delayed settlements for speculative purposes, but only in
furtherance of their investment objectives.
When a Fund agrees to purchase securities on a "when-issued," "forward
commitment" or "delayed settlement" basis, the Fund's custodian will set aside
cash or liquid portfolio securities equal to the amount of the commitment in a
separate account. In the event of a decline in the value of the securities that
the custodian has set aside, the Fund may be required to place additional assets
in the separate account in order to ensure that the value of the account remains
equal to the amount of the Fund's commitment. A Fund's net assets may fluctuate
to a greater degree if it sets aside portfolio securities to cover such purchase
commitments than if it sets aside cash. Because a Fund sets aside liquid assets
to satisfy its purchase commitments in the manner described, its liquidity and
ability to manage its portfolio might be adversely affected in the event its
commitments to purchase "forward commitments," commitments to purchase
"when-issued" securities or commitments to purchase securities on a "delayed
settlement" basis exceeded 25% of the value of its assets.
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<PAGE>
When a Fund engages in "when-issued," "forward commitment" or "delayed
settlement" transactions, it relies on the seller to consummate the trade.
Failure of the seller to do so may result in the Fund's incurring a loss or
missing an opportunity to obtain a price considered to be advantageous for a
security. For purposes of determining the average weighted maturity of a Fund's
portfolio, the maturity of "when-issued" securities is calculated from the date
of settlement of the purchase to the maturity date.
ASSET-BACKED SECURITIES
Each Fund may purchase asset-backed securities, which represent a
participation in, or are secured by and payable from, a stream of payments
generated by particular assets, most often a pool of assets similar to one
another. Assets generating such payments will consist of such instruments as
motor vehicle installment purchase obligations, credit card receivables and home
equity loans. Payment of principal and interest may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with entities issuing the securities. The
estimated life of an asset-backed security varies with the prepayment experience
with respect to the underlying debt instruments. The rate of such prepayments,
and hence the life of the asset-backed security, will be primarily a function of
current market rates, although other economic and demographic factors will be
involved. A Fund will not invest more than 10% of its total assets in
asset-backed securities.
Asset-backed securities are generally issued as pass-through certificates,
which represent undivided fractional ownership interests in an underlying pool
of assets, or as debt instruments, which are also known as collateralized
obligations, and are generally issued as the debt of a special purpose entity
organized solely for the purpose of owning such assets and issuing such debt.
Asset-backed securities are often backed by a pool of assets representing the
obligations of a number of different parties.
The yield characteristics of asset-backed securities differ from
traditional debt securities. A major difference is that the principal amount of
the obligations may be prepaid at any time because the underlying assets (i.e.,
loans) generally may be prepaid at any time. As a result, if an asset-backed
security is purchased at a premium, a prepayment rate that is faster than
expected will reduce yield to maturity, while a prepayment rate that is slower
than expected will have the opposite effect of increasing yield to maturity.
Conversely, if an asset-backed security is purchased at a discount, faster than
expected prepayments will increase, while slower than expected prepayments, will
decrease, yield to maturity.
Prepayments on asset-backed securities generally increase with falling
interest rates and decrease with rising interest rates; furthermore prepayment
rates are influenced by a variety of economic and social factors. In general,
the collateral supporting non-mortgage asset-backed securities is of shorter
maturity than mortgage loans and is less likely to experience substantial
prepayments. Like other fixed income securities, when interest rates rise, the
value of an asset-backed security generally will decline; however, when interest
rates decline, the value of an asset-backed security with prepayment features
may not increase as much as that of other fixed income securities.
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Asset-backed securities are subject to greater risk of default during
periods of economic downturn. Also, the secondary market for certain
asset-backed securities may not be as liquid as the market for other types of
securities, which could result in a Fund's experiencing difficulty in valuing or
liquidating such securities. For these reasons, under certain circumstances,
asset-backed securities may be considered illiquid securities.
MORTGAGE-BACKED SECURITIES
Each Fund may invest in mortgage-backed securities (including
collateralized mortgage obligations) that represent pools of mortgage loans
assembled for sale to investors by various governmental agencies and
government-related organizations, such as the Government National Mortgage
Association, the Federal National Mortgage Association, and the Federal Home
Loan Mortgage Corporation. Mortgage-backed securities provide a monthly payment
consisting of interest and principal payments. Additional payments may be made
out of unscheduled repayments of principal resulting from the sale of the
underlying residential property, refinancing or foreclosure, net of fees or
costs that may be incurred. Prepayments of principal on mortgage-backed
securities may tend to increase due to refinancing of mortgages as interest
rates decline. To the extent that the Fund purchases mortgage-backed securities
at a premium, mortgage foreclosures and prepayments of principal by mortgagors
(which may be made at any time without penalty) may result in some loss of the
Fund's principal investment to the extent of the premium paid. The yield of a
Fund that invests in mortgage-backed securities may be affected by reinvestment
of prepayments at higher or lower rates than the original investment.
Other mortgage-backed securities are issued by private issuers,
generally originators of and investors in mortgage loans, including savings
associations, mortgage bankers, commercial banks, investment bankers, and
special purpose entities. These private mortgage-backed securities may be
supported by U.S. Government mortgage-backed securities or some form of
non-government credit enhancement. Mortgage-backed securities have either
fixed or adjustable interest rates. The rate of return on mortgage-backed
securities may be affected by prepayments of principal on the underlying
loans, which generally increase as interest rates decline; as a result, when
interest rates decline, holders of these securities normally do not benefit
from appreciation in market value to the same extent as holders of other
non-callable debt securities. In addition, like other debt securities, the
value of mortgage-related securities, including government and
government-related mortgage pools, generally will fluctuate in response to
market interest rates.
GUARANTEED INVESTMENT CONTRACTS
Each Fund may invest in guaranteed investment contracts ("GICs") issued
by United States and Canadian insurance companies. Pursuant to GICs, a Fund
makes cash contributions to a deposit fund of the insurance company's general
account. The insurance company then credits to the Fund payments at
negotiated, floating or fixed interest rates. A GIC is a general obligation
of the issuing insurance company and not a separate account. The purchase
price paid for a GIC becomes part of the general assets of the insurance
company, and the contract is paid from the company's general assets. The
Funds will only purchase GICs that are issued or guaranteed by insurance
companies that at the time of purchase are rated at least AA by S&P or
receive a similar high quality rating from a nationally recognized service
which provides ratings of insurance companies. GICs are considered illiquid
securities and will be subject to the Funds'
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10% (15% with respect to the New Jersey Municipal Bond Fund) limitation on such
investments, unless there is an active and substantial secondary market for the
particular instrument and market quotations are readily available.
BANK INVESTMENT CONTRACTS
Each Fund may invest in bank investment contracts ("BICs") issued by banks
that meet the quality and asset size requirements for banks described above
under "U.S. Government Obligations and Money Market Instruments." Pursuant to
BICs, cash contributions are made to a deposit account at the bank in exchange
for payments at negotiated, floating or fixed interest rates. A BIC is a
general obligation of the issuing bank. BICs are considered illiquid securities
and will be subject to the Funds' 10% (15% with respect to the New Jersey
Municipal Bond Fund) limitation on such investments, unless there is an active
and substantial secondary market for the particular instrument and market
quotations are readily available.
SPECIAL CONSIDERATIONS RELATING TO NEW JERSEY MUNICIPAL SECURITIES
The New Jersey Municipal Bond Fund's ability to achieve its investment
objective is dependent upon the ability of the issuers of New Jersey Municipal
Securities to meet their continuing obligations for the payment of principal and
interest. Since the Fund invests primarily in New Jersey Municipal Securities,
the value of the Fund's shares may be especially affected by factors pertaining
to the economy of New Jersey and other factors specifically affecting the
ability of issuers of New Jersey Municipal Securities to meet their obligations.
The State of New Jersey generally has a diversified economic base
consisting of, among others, commerce and service industries, selective
commercial agriculture, insurance, tourism, petroleum refining and
manufacturing, although New Jersey's manufacturing industry has experienced a
downward trend in the last few years. New Jersey is a major recipient of
federal assistance and, of all the states, is among the highest in the amount of
federal aid received. Therefore, a decrease in federal financial assistance may
adversely affect the financial condition of New Jersey and its political
subdivisions and instrumentalities. While New Jersey's economic base has become
more diversified over time and thus its economy appears to be less vulnerable
during recessionary periods, a recurrence of high levels of unemployment could
adversely affect New Jersey's overall economy and the ability of New Jersey and
its political subdivisions and instrumentalities to meet their financial
obligations. In addition, New Jersey maintains a balanced budget which
restricts total appropriation increases to only 5% annually with respect to any
municipality or county. This balanced budget plan may adversely affect a
particular municipality's or county's ability to repay its obligations.
The State of New Jersey and its political subdivisions, agencies and public
authorities are authorized to issue two general classes of indebtedness: general
obligation bonds and revenue bonds. Both classes of bonds may be included in
the Fund's portfolio. The repayment of principal and interest on general
obligation bonds is secured by the full faith and credit of the issuer, backed
by the issuer's taxing authority, without recourse to any special project or
source of revenue. Special obligation or revenue bonds may be repaid only from
revenues received in connection with the project for which the bonds are issued,
special excise taxes, or other special revenue sources and generally are issued
by entities without taxing power. Neither the State of
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New Jersey nor any of its subdivisions is liable for the repayment of principal
or interest on revenue bonds except to the extent stated in the preceding
sentences.
General obligation bonds of the State are repaid from revenues obtained
through the State's general taxing authority. An inability to increase taxes
may adversely affect the State's ability to authorize or repay debt.
Public authorities, private non-profit corporations, agencies and similar
entities of New Jersey ("Authorities") are established for a variety of
beneficial purposes, including economic development, housing and mortgage
financing, health care facilities and public transportation. The Authorities
are not operating entities of the State of New Jersey, but are separate legal
entities that are managed independently. The State oversees the Authorities by
appointing the governing boards, designating management, and by significantly
influencing operations. The Authorities are not subject to New Jersey
constitutional restrictions on the incurrence of debt, applicable to the State
of New Jersey itself, and may issue special obligation or private activity bonds
in legislatively authorized amounts.
An absence or reduction of revenue will affect a bond-issuing Authority's
ability to repay debt on special obligation bonds and no assurance can be given
that sufficient revenues will be obtained to make such payments, although in
some instances repayment may be guaranteed or otherwise secured.
Various Authorities have issued bonds for the construction of health care
facilities, transportation facilities, office buildings and related facilities,
housing facilities, pollution control facilities, water and sewage facilities
and power and electric facilities. Each of these facilities may incur different
difficulties in meeting its debt repayment obligations. Hospital facilities,
for example, are subject to changes in Medicare and Medicaid reimbursement
regulations, attempts by Federal and state legislatures to limit the costs of
health care and management's ability to complete construction projects on a
timely basis as well as to maintain projected rates of occupancy and
utilization. At any given time, there are several proposals pending on a
federal and state level concerning health care which may further affect a
hospital's debt service obligation.
Housing facilities may be subject to increases in operating costs,
management's ability to maintain occupancy levels, rent restrictions and
availability of federal or state subsidies, while power and electric facilities
may be subject to increased costs resulting from environmental restrictions,
fluctuations in fuel costs, delays in licensing procedures and the general
regulatory framework in which these facilities operate. All of these entities
are constructed and operated under rigid regulatory guidelines.
Some entities which financed facilities with proceeds of private activity
bonds issued by the New Jersey Economic Development Authority, a major issuer of
special obligation bonds, have defaulted on their debt service obligations.
Because these special obligation bonds were repayable only from revenue received
from the specific projects which they funded, the New Jersey Economic
Development Authority was unable to repay the debt service to bondholders for
such facilities. Each issue of special obligation bonds, however, depends on
its own revenue for repayment, and thus these defaults should not affect the
ability of the New Jersey Economic Development Authority to repay obligations on
other bonds that it issues in the future.
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The State has experienced a gradual economic recovery in the past five
years. While unemployment in manufacturing has declined, employment gains have
been recorded in business services, construction and retail sectors. Business
investment expenditures and consumer spending have also increased substantially
in the State as well as in the Nation. To the extent that any adverse
conditions exist in the future which affect the obligor's ability to repay debt,
the value of the New Jersey Municipal Bond Fund may be immediately and
substantially affected.
The following are cases presently pending or threatened in which the State
has a potential for either a significant loss of revenue or a significant
unanticipated expenditure: (i) several labor unions have challenged 1994
legislation mandating a revaluation of several public employee pension funds
which resulted in a refund of millions of dollars in public employer
contributions to the State and significant ongoing annual savings to the State;
(ii) several cases filed in the State courts challenged the basis on which
recoveries of certain costs for residents in State psychiatric hospitals and
other facilities are shared between the State Department of Human Services and
the State's county governments, and certain counties are seeking the recovery
from the Department of costs they have incurred for the maintenance of such
residents; (iii) the County of Passaic and other parties have filed suit
alleging the State violated a 1984 consent order concerning the construction of
a resource recovery facility in that county; (iv) several Medicaid eligible
children and the Association for Children of New Jersey have filed suit claiming
the Medicaid reimbursement rates for services rendered to such children are
inadequate under federal law; (v) a coalition of churches and church leaders in
Hudson County have filed suit asserting the State-owned Liberty State Park in
Jersey City violates environmental standards; (vi) representatives of the
trucking industry have filed a constitutional challenge to annual hazardous and
solid waste licensure renewal fees; (vii) the Education Law Center filed a
motion compelling the State to close the spending gap between poor urban school
districts and wealthy rural school districts; (viii) a group of insurance
companies have filed a constitutional challenge to the State's assessment of
monies pursuant to the Fair Automobile Insurance Reform Act of 1990; (ix) a
class action consisting of prisoners with serious mental disorders has been
filed against officers of the Department of Corrections, alleging sex
discrimination, violation of the Americans with Disabilities Act of 1990, and
constitutional violations; (x) a class action has been brought in federal court
challenging the State's method of determining the monthly needs of a spouse of
an institutionalized person under the Medicare Catastrophic Act; (xi) several
suits have been filed against the State in federal court alleging that the State
committed securities fraud and environmental violations in the financing of a
new Atlantic City highway and tunnel; (xii) a class action has been filed
against the State alleging the State's breach of contract for not paying certain
Medicare co-insurance and deductibles; and (xiii) an action has been filed
challenging the State's issuance of bonds to fund the accrued liability in its
pension funds under the Pension Bond Financing Act of 1997.
Although the New Jersey Municipal Bond Fund generally intends to invest its
assets primarily in New Jersey Municipal Securities rated within the four
highest rating categories assigned by S&P or Moody's, there can be no assurance
that such ratings will remain in effect until such obligations mature or are
redeemed or will not be revised downward or withdrawn. Such revisions or
withdrawals may have an adverse affect on the market price of such securities.
Although there can be no assurance that such conditions will continue, the
State's general obligation bonds are currently rated "AA+" by S&P and "Aa1" by
Moody's.
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SPECIAL CONSIDERATIONS RELATING TO NEW YORK MUNICIPAL SECURITIES
Certain substantial issuers of New York municipal securities (including
issuers whose obligations may be acquired by the Fund) have experienced serious
financial difficulties in recent years. These difficulties have at times
jeopardized the credit standing and impaired the borrowing abilities of all New
York issuers and have generally contributed to higher interest costs for their
borrowings and fewer markets for their outstanding debt obligations. Although
several different issues of municipal securities of New York State and its
agencies and instrumentalities and of New York City have been downgraded by
Standard & Poor's and Moody's in recent years, the most recent actions of
Standard & Poor's and Moody's have been to place the debt obligations of New
York State and New York City on CreditWatch with positive implications and to
upgrade the debt obligations of New York City, respectively. Strong demand for
New York municipal securities has also at times had the effect of permitting New
York municipal securities to be issued with yields relatively lower, and after
issuance, to trade in the market at prices relatively higher, than comparably
rated municipal obligations issued by other jurisdictions. A recurrence of the
financial difficulties previously experienced by certain issuers of New York
municipal securities could result in defaults or declines in the market values
of those issuers' existing obligations and, possibly, in the obligations of
other issuers of New York municipal securities. Although as of the date of this
statement of additional information, no issuers of New York municipal securities
are in default with respect to the payment of their municipal securities, the
occurrence of any such default could affect adversely the market values and
marketability of all New York municipal securities and, consequently, the net
asset value of the Fund's portfolio.
Some of the significant financial considerations relating to the New York
Municipal Bond Fund's investments in New York Municipal Securities are
summarized below. This summary information is not intended to be a complete
description and is principally derived from official statements relating to
issues of New York Municipal Securities that were available prior to the date of
this Statement of Additional Information. The accuracy and completeness of the
information contained in those official statements have not been independently
verified.
STATE ECONOMY. New York is the third most populous state in the nation
and has a relatively high level of personal wealth. The State's economy is
diverse with a comparatively large share of the nation's finance, insurance,
transportation, communications and services employment, and a very small
share of the nation's farming and mining activity. The State's location and
its excellent air transport facilities and natural harbors have made it an
important link in international commerce. Travel and tourism constitute an
important part of the economy. Like the rest of the nation, New York has a
declining proportion of its workforce engaged in manufacturing, and an
increasing proportion engaged in service industries.
The State has historically been one of the wealthiest states in the
nation. For decades, however, the State has grown more slowly than the nation
as a whole, gradually eroding its relative economic position. State per
capita personal income has historically been significantly higher than the
national average, although the ratio has varied substantially. Because New
York City (the "City") is a regional employment center for a multi-state
region, State personal income
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measured on a residence basis understates the relative importance of the State
to the national economy and the size of the base to which State taxation
applies.
The State economic forecast has been raised slightly from the enacted
budget forecast. Continued growth is projected in 1998 and 1999 for employment,
wages, and personal income, although the growth rates of personal income and
wages are expected to be lower than those in 1997. The growth of personal
income is projected to decline from 5.7 percent in 1997 to 4.8 percent in 1998
and 4.2 percent in 1999, in part because growth in bonus payments is expected to
slow down, a distinct shift from the torrid rate of the last few years. Overall
employment growth is expected to be 1.9 percent in 1998, the strongest in a
decade, but will drop to 1.0 percent in 1999, reflecting the slowing growth in
the national economy, continued restraint in governmental spending, and
restructuring in the health care, social service, and banking sectors.
There can be no assurance that the State economy will not experience
worse-than-predicted results, with corresponding material and adverse effects on
the State's projections of receipts and disbursements.
STATE BUDGET. The State Constitution requires the governor (the
"Governor") to submit to the State legislature (the "Legislature") a balanced
executive budget which contains a complete plan of expenditures for the ensuing
fiscal year and all monies and revenues estimated to be available therefor,
accompanied by bills containing all proposed appropriations or reappropriations
and any new or modified revenue measures to be enacted in connection with the
executive budget. The entire plan constitutes the proposed State financial plan
for that fiscal year. The Governor is required to submit to the Legislature
quarterly budget updates which include a revised cash-basis state financial
plan, and an explanation of any changes from the previous state financial plan.
State law requires the Governor to propose a balanced budget each year. In
recent years, the State has closed projected budget gaps of $5.0 billion
(1995-96), $2.3 billion (1997-98), and less than $1 billion (1998-99). The
State, as part of the 1998-99 Executive Budget projections submitted to the
Legislature in February 1998, projected a 1999-00 General Fund budget gap of
approximately $1.7 billion and a 2000-01 gap of $3.7 billion. As a result of
changes made in the 1998-99 enacted budget, the 1999-00 gap is now expected to
be roughly $1.3 billion, or about $400 million less than previously projected,
after application of reserves created as part of the 1998-99 budget process.
Such reserves would not be available against subsequent year imbalances.
Sustained growth in the State's economy could contribute to closing
projected budget gaps over the next several years, both in terms of
higher-than-projected tax receipts and in lower-than-expected entitlement
spending. However, the State's projections in 1999-00 currently assume actions
to achieve $600 million in lower disbursements and $250 million in additional
receipts from the settlement of State claims against the tobacco industry.
Consistent with past practice, the projections do not include any costs
associated with new collective bargaining agreements after the expiration of the
current round of contracts at the end of the 1998-99 fiscal year. The State
expects that the 1990-00 Financial Plan will achieve savings from initiatives by
State agencies to deliver services more efficiently, workforce management
efforts, maximization of federal and non-General Fund spending offsets, and
other actions necessary to bring projected disbursements and receipts into
balance.
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The State will formally update its outyear projections of receipts and
disbursements for the 2000-01 and 2001-02 fiscal years as a part of the 1999-00
Executive Budget process, as required by law. The revised expectations for
years 2000-01 and 2001-02 will reflect the cumulative impact of tax reductions
and spending commitments enacted over the last several years as well as new
1999-00 Executive Budget recommendations. The School Tax Relief Program
("STAR"), which dedicates a portion of personal income tax receipts to fund
school tax reductions, has a significant impact on General Fund receipts. STAR
is projected to reduce personal income tax revenues available to the General
Fund by an estimated $1.3 billion in 2000-01. Measured from the 1998-99 base,
scheduled reductions to estate and gift, sales and other taxes, reflecting tax
cuts enacted in 1997-98 and 1998-99, will lower General Fund taxes and fees by
an estimated $1.8 billion in 2000-01. Disbursement projections for the outyears
currently assume additional outlays for school aid, Medicaid, welfare reform,
mental health community reinvestment, and other multi-year spending commitments
in law.
On September 11, 1997, the New York State Comptroller issued a report which
noted that the ability to deal with future budget gaps could become a
significant issue in the State's 2000-2001 fiscal year, when the cost of tax
cuts increases by $1.9 billion. The report contained projections that, based on
current economic conditions and current law for taxes and spending, showed a gap
in the 2000-2001 State fiscal year of $5.6 billion and of $7.4 billion in the
2001-2002 State fiscal year. The report noted that these gaps would be smaller
if recurring spending reductions produce savings in earlier years. The State
Comptroller has also stated that if Wall Street earnings moderate and the State
experiences a moderate recession, the gap for the 2001-2002 State fiscal year
could grow to nearly $12 billion.
The State's current fiscal year began on April 1, 1998 and ends on March
31, 1999 and is referred to herein as the State's 1998-99 fiscal year. The
Legislature adopted the debt service component of the State budget for the
1998-99 fiscal year on March 30, 1998 and the remainder of the budget on April
18, 1998. In the period prior to adoption of the budget for the current fiscal
year, the Legislature also enacted appropriations to permit the State to
continue its operations and provide for other purposes. On April 25, 1998, the
Governor vetoed certain items that the Legislature added to the Executive
Budget. The Legislature had not overridden any of the Governor's vetoes as of
the start of the legislative recess on June 19, 1998 (under the State
Constitution, the Legislature can override one or more of the Governor's vetoes
with the approval of two-thirds of the members of each house).
General Fund disbursements in 1998-99 are now projected to grow by $2.43
billion over 1997-98 levels, or $690 million more than proposed in the
Governor's Executive Budget, as amended. The change in General Fund
disbursements from the Executive Budget to the enacted budget reflects
legislative additions (net of the value of the Governor's vetoes), actions taken
at the end of the regular legislative session, as well as spending that was
originally anticipated to occur in 1997-98 but is now expected to occur in
1998-99. The State projects that the 1998-99 State Financial Plan is balanced
on a cash basis, with an estimated reserve for future needs of $761 million.
The State's enacted budget includes several new multi-year tax reduction
initiatives, including acceleration of State-funded property and local income
tax relief for senior citizens under the STAR, expansion of the child care
income-tax credit for middle-income families, a
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phased-in reduction of the general business tax, and reduction of several other
taxes and fees, including an accelerated phase-out of assessments on medical
providers. The enacted budget also provides for significant increases in
spending for public schools, special education programs, and for the State and
City university systems. It also allocates $50 million for a new Debt Reduction
Reserve Fund ("DRRF") that may eventually be used to pay debt service costs on
or to prepay outstanding State-supported bonds.
The 1998-99 State Financial Plan projects a closing balance in the General
Fund of $1.42 billion that is comprised of a reserve of $761 million available
for future needs, a balance of $400 million in the Tax Stabilization Reserve
Fund ("TSRF"), a balance of $158 million in the Community Projects Fund ("CPF"),
and a balance of $100 million in the Contingency Reserve Fund ("CRF"). The TSRF
can be used in the event of an unanticipated General Fund cash operating
deficit, as provided under the State Constitution and State Finance Law. The
CPF is used to finance various legislative and executive initiatives. The CRF
provides resources to help finance any extraordinary litigation costs during the
fiscal year.
The forecast of General Fund receipts in 1998-99 incorporates several
Executive Budget tax proposals that, if enacted, would further reduce receipts
otherwise available to the General Fund by approximately $700 million during
1998-99. The Executive Budget proposes accelerating school tax relief for
senior citizens under STAR, which is projected to reduce General Fund receipts
by $537 million in 1998-99. The proposed reduction supplements STAR tax
reductions already scheduled in law, which are projected at $187 million in
1998-99. The Budget also proposes several new tax-cut initiatives and other
funding changes that are projected to further reduce receipts available to the
General Fund by over $200 million. These initiatives include reducing the fee
to register passenger motor vehicles and earmarking a larger portion of such
fees to dedicated funds and other purposes; extending the number of weeks in
which certain clothing purchases are exempt from sales taxes; more fully
conforming State law to reflect recent Federal changes in estate taxes;
continuing lower pari-mutuel tax rates; and accelerating scheduled property tax
relief for farmers from 1999 to 1998. In addition to the specific tax and fee
reductions discussed above, the Executive Budget also proposes establishing a
reserve of $100 million to permit the acceleration into 1998-99 of other tax
reductions that are otherwise scheduled in law for implementation in future
fiscal years.
The Division of the Budget ("DOB") estimates that the 1998-99 Financial
Plan includes approximately $64 million in non-recurring resources, comprising
less than two-tenths of one percent of General Fund disbursements. The
non-recurring resources projected for use in 1998-99 consist of $27 million in
retroactive federal welfare reimbursements for family assistance recipients with
HIV/AIDS, $25 million in receipts from the Housing Finance Agency that were
originally anticipated in 1997-98, and $10 million in other measures, including
$5 million in asset sales.
Disbursements from Capital Projects funds in 1998-99 are estimated at $4.82
billion, or $1.07 billion higher than 1997-98. The proposed spending plan
includes: $2.51 billion in disbursements for transportation purposes, including
the State and local highway and bridge program; $815 million for environmental
activities; $379 million for correctional services; $228 million for the State
University of New York ("SUNY") and the City University of New York ("CUNY");
$290 million for mental hygiene projects; and $375 million for CEFAP.
Approximately, 28 percent of capital projects are proposed to be financed by
"pay-as-you-go"
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resources. State-supported bond issuances finance 46 percent of capital
projects, with federal grants financing the remaining 26 percent.
Many complex political, social and economic forces influence the State's
economy and finances, which may in turn affect the State's Financial Plan.
These forces may affect the State unpredictably from fiscal year to fiscal year
and are influenced by governments, institutions, and organizations that are not
subject to the State's control. The State Financial Plan is also necessarily
based upon forecasts of national and State economic activity. Economic
forecasts have frequently failed to predict accurately the timing and magnitude
of changes in the national and the State economies. The DOB believes that its
projections of receipts and disbursements relating to the current State
Financial Plan, and the assumptions on which they are based, are reasonable.
Actual results, however, could differ materially and adversely from their
projections, and those projections may be changed materially and adversely from
time to time.
In the past, the State has taken management actions and made use of
internal sources to address potential State financial plan shortfalls, and the
DOB believes it could take similar actions should variances occur in its
projections for the current fiscal year.
RECENT FINANCIAL RESULTS. The General Fund is the principal operating fund
of the State and is used to account for all financial transactions, except those
required to be accounted for in another fund. It is the State's largest fund
and receives almost all State taxes and other resources not dedicated to
particular purposes.
On March 31, 1998, the State recorded, on a GAAP-basis, its first-ever,
accumulated positive balance in its General Fund. This "accumulated surplus"
was $567 million. The improvement in the State's GAAP position is attributable,
in part, to the cash surplus recorded at the end of the State's 1997-98 fiscal
year. Much of that surplus is reserved for future requirements, but a portion
is being used to meet spending needs in 1998-99. Thus, the State expects some
deterioration in its GAAP position, but expects to maintain a positive GAAP
balance through the end of the current fiscal year.
The State completed its 1997-98 fiscal year with a combined Governmental
Funds operating surplus of $1.80 billion, which included an operating surplus in
the General Fund of $1.56 billion, in Capital Projects Funds of $232 million and
in Special Revenue Funds of $49 million, offset in part by an operating deficit
of $43 million in Debt Service Funds.
The State reported a General Fund operating surplus of $1.56 billion for
the 1997-98 fiscal year, as compared to an operating surplus of $1.93 billion
for the 1996-97 fiscal year. As a result, the State reported an accumulated
surplus of $567 million in the General Fund for the first time since it began
reporting its operations on a GAAP-basis. The 1997-98 fiscal year operating
surplus reflects several major factors, including the cash-basis operating
surplus resulting from the higher-than-anticipated personal income tax receipts,
an increase in taxes receivable of $681 million, an increase in other assets of
$195 million and a decrease in pension liabilities of $144 million. This was
partially offset by an increase in payables to local governments of $270 million
and tax refunds payable of $147 million.
DEBT LIMITS AND OUTSTANDING DEBT. There are a number of methods by which
the State of New York may incur debt. Under the State Constitution, the State
may not, with limited
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exceptions for emergencies, undertake long-term general obligation borrowing
(I.E., borrowing for more than one year) unless the borrowing is authorized in a
specific amount for a single work or purpose by the Legislature and approved by
the voters. There is no limitation on the amount of long-term general
obligation debt that may be so authorized and subsequently incurred by the
State.
The State may undertake short-term borrowings without voter approval (i) in
anticipation of the receipt of taxes and revenues, by issuing tax and revenue
anticipation notes, and (ii) in anticipation of the receipt of proceeds from the
sale of duly authorized but unissued general obligation bonds, by issuing bond
anticipation notes. The State may also, pursuant to specific constitutional
authorization, directly guarantee certain obligations of the State of New York'S
authorities and public benefit corporations ("Authorities"). Payments of debt
service on New York State general obligation and New York State-guaranteed bonds
and notes are legally enforceable obligations of the State of New York.
The State employs additional long-term financing mechanisms, lease-purchase
and contractual-obligation financings, which involve obligations of public
authorities or municipalities that are State-supported but are not general
obligations of the State. Under these financing arrangements, certain public
authorities and municipalities have issued obligations to finance the
construction and rehabilitation of facilities or the acquisition and
rehabilitation of equipment, and expect to meet their debt service requirements
through the receipt of rental or other contractual payments made by the State.
Although these financing arrangements involve a contractual agreement by the
State to make payments to a public authority, municipality or other entity, the
State's obligation to make such payments is generally expressly made subject to
appropriation by the Legislature and the actual availability of money to the
State for making the payments. The State has also entered into a
contractual-obligation financing arrangement with the Local Government
Assistance Corporation ("LGAC") to restructure the way the State makes certain
local aid payments.
In February 1997, the Job Development Authority ("JDA") issued
approximately $85 million of State-guaranteed bonds to refinance certain of its
outstanding bonds and notes in order to restructure and improve JDA's capital
structure. Due to concerns regarding the economic viability of its programs,
JDA's loan and loan guarantee activities had been suspended since the Governor
took office in 1995. As a result of the structural imbalances in JDA's capital
structure, and defaults in its loan portfolio and loan guarantee program
incurred between 1991 and 1996, JDA would have experienced a debt service cash
flow shortfall had it not completed its recent refinancing. JDA anticipates
that it will transact additional refinancings in 1999, 2000 and 2003 to complete
its long-term plan of finance and further alleviate cash flow imbalances which
are likely to occur in future years. The State does not anticipate that it will
be called upon to make any payments pursuant to the State guarantee in the
1997-98 fiscal year. JDA recently resumed its lending activities under a
revised set of lending programs and underwriting guidelines.
On January 13, 1992, S&P reduced its ratings on the State's general
obligation bonds from A to A- and, in addition, reduced its ratings on the
State's moral obligation, lease purchase, guaranteed and contractual obligation
debt. See Appendix "A" for an explanation of bond ratings. On August 28, 1997,
S&P revised its ratings on the State's general obligation bonds from A- to A and
revised its ratings on the State's moral obligation, lease purchase, guaranteed
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and contractual obligation debt. On March 2, 1998, S&P affirmed it's A rating
on the State's outstanding bonds.
On January 6, 1992, Moody's reduced its ratings on outstanding
limited-liability State lease purchase and contractual obligations from A to
Baa1. On February 28, 1994, Moody's reconfirmed its A rating on the State's
general obligation long-term indebtedness. On March 20, 1998, Moody's
assigned the highest commercial paper rating of P-1 to the short-term notes
of the State. On July 6, 1998, Moody's assigned an A2 rating with a stable
outlook to the State's general obligations.
The State anticipates that its capital programs will be financed, in part,
through borrowings by the State and its public authorities in the 1998-99 fiscal
year. Information on the State's five-year Capital Program and Financing Plan
for the 1998-99 through 2002-03 fiscal years, updated to reflect actions taken
in the 1998-99 State budget (the "Plan"), was released on or before July 30,
1998. The projection of State borrowings for the 1998-99 fiscal year is subject
to change as market conditions, interest rates and other factors vary throughout
the fiscal year.
The State expects to issue $528 million in general obligation bonds
(including $154 million for purposes of redeeming outstanding BANs) and $154
million in general obligation commercial paper. The State also anticipates the
issuance of up to a total of $419 million in Certificates of Participation to
finance equipment purchases (including costs of issuance, reserve funds, and
other costs) during the 1998-99 fiscal year. Of this amount, it is anticipated
that approximately $191 million will be issued to finance agency equipment
acquisitions, including amounts to address Statewide technology issues related
to Year 2000 compliance. Approximately $228 million will also be issued to
finance equipment acquisitions for welfare reform-related information technology
systems.
Borrowings by public authorities pursuant to lease-purchase and
contractual-obligation financings for capital programs of the State are
projected to total approximately $2.93 billion, including costs of issuance,
reserve funds, and other costs, net of anticipated refundings and other
adjustments in 1998-99.
As a part of the Plan, changes were proposed to the State's 1997-98
borrowing plan, including: the delay in the issuance of COPs to finance welfare
information systems until 1998-99 to permit a thorough assessment of needs; and
the elimination of issuances for the CEFAP to reflect the proposed conversion of
that bond-financed program to pay-as-you-go financing.
New York State has never defaulted on any of its general obligation
indebtedness or its obligations under lease-purchase or contractual-obligation
financing arrangements and has never been called upon to make any direct
payments pursuant to its guarantees.
LITIGATION. Certain litigation pending against New York State or its
officers or employees could have a substantial or long-term adverse effect on
New York State finances. Among the more significant of these cases are those
that involve (1) the validity of agreements and treaties by which various Indian
tribes transferred title to New York State of certain land in central and
upstate New York; (2) certain aspects of New York State's Medicaid policies,
including its rates, regulations and procedures; (3) an action against New York
State and New York City officials
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alleging inadequate shelter allowances to maintain proper housing; (4) alleged
responsibility of New York State officials to assist in remedying racial
segregation in the City of Yonkers; (5) challenges to regulations promulgated by
the Superintendent of Insurance establishing certain excess medical malpractice
premium rates; (6) challenges to the constitutionality of Public Health Law
2807-d, which imposes a gross receipts tax from certain patient care services;
(7) an action seeking enforcement of certain sales and excise taxes and tobacco
products and motor fuel sold to non-Indian consumers on Indian reservations; and
(8) a challenge to the Governor's application of his constitutional line item
veto authority.
Several actions challenging the constitutionality of legislation enacted
during the 1990 legislative session which changed actuarial funding methods for
determining state and local contributions to state employee retirement systems
have been decided against the State. As a result, the Comptroller developed a
plan to restore the State's retirement systems to prior funding levels. Such
funding is expected to exceed prior levels by $116 million in fiscal year
1996-97, $193 million in fiscal year 1997-98, peaking at $241 million in fiscal
year 1998-99. Beginning in fiscal 2001-02, State contributions required under
the Comptroller's plan are projected to be less than that required under the
prior funding method. As a result of the United States Supreme Court decision
in the case of State of Delaware v. State of New York, on January 21, 1994, the
State entered into a settlement agreement with various parties. Pursuant to all
agreements executed in connection with the action, the State was required to
make aggregate payments of $351.4 million. Annual payments to the various
parties will continue through the State's 2002-03 fiscal year in amounts which
will not exceed $48.4 million in any fiscal year subsequent to the State's
1994-95 fiscal year. Litigation challenging the constitutionality of the
treatment of certain monies held in a reserve fund was settled in June 1996 and
certain amounts in a Supplemental Reserve Fund previously credited by the State
against prior State and local pension contributions will be paid in 1998.
The legal proceedings noted above involve State finances, State programs
and miscellaneous cure rights, tort, real property and contract claims in
which the State is a defendant and the monetary damages sought are
substantial, generally in excess of $100 million. These proceedings could
affect adversely the financial condition of the State in the 1998-1999 fiscal
year or thereafter. Adverse developments in these proceedings, other
proceedings for which there are unanticipated, unfavorable and material
judgments, or the initiation of new proceedings could affect the ability of
the State to maintain a balanced financial plan. An adverse decision in any
of these proceedings could exceed the amount of the reserve established in
the State's financial plan for the payment of judgments and, therefore, could
affect the ability of the State to maintain a balanced financial plan.
Although other litigation is pending against New York State, except as
described herein, no current litigation involves New York State's authority, as
a matter of law, to contract indebtedness, issue its obligations, or pay such
indebtedness when it matures, or affects New York State's power or ability, as a
matter of law, to impose or collect significant amounts of taxes and revenues.
AUTHORITIES. The fiscal stability of New York State is related, in part,
to the fiscal stability of its Authorities, which generally have responsibility
for financing, constructing and operating revenue-producing public benefit
facilities. Authorities are not subject to the constitutional restrictions on
the incurrence of debt which apply to the State itself, and may issue
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bonds and notes within the amounts of, and as otherwise restricted by, their
legislative authorization. The State's access to the public credit markets
could be impaired, and the market price of its outstanding debt may be
materially and adversely affected, if any of the Authorities were to default on
their respective obligations, particularly with respect to debt that is
State-supported or State-related.
Authorities are generally supported by revenues generated by the projects
financed or operated, such as fares, user fees on bridges, highway tolls and
rentals for dormitory rooms and housing. In recent years, however, New York
State has provided financial assistance through appropriations, in some cases of
a recurring nature, to certain of the Authorities for operating and other
expenses and, in fulfillment of its commitments on moral obligation indebtedness
or otherwise, for debt service. This operating assistance is expected to
continue to be required in future years. In addition, certain statutory
arrangements provide for State local assistance payments otherwise payable to
localities to be made under certain circumstances to certain Authorities. The
State has no obligation to provide additional assistance to localities whose
local assistance payments have been paid to Authorities under these
arrangements. However, in the event that such local assistance payments are so
diverted, the affected localities could seek additional State funds.
NEW YORK CITY AND OTHER LOCALITIES. The fiscal health of the State may
also be impacted by the fiscal health of its localities, particularly the City,
which has required and continues to require significant financial assistance
from the State. The City depends on State aid both to enable the City to
balance its budget and to meet its cash requirements. There can be no assurance
that there will not be reductions in State aid to the City from amounts
currently projected or that State budgets will be adopted by the April 1
statutory deadline or that any such reductions or delays will not have adverse
effects on the City's cash flow or expenditures. In addition, the Federal
budget negotiation process could result in a reduction in or a delay in the
receipt of Federal grants which could have additional adverse effects on the
City's cash flow or revenues.
In 1975, New York City suffered a fiscal crisis that impaired the
borrowing ability of both the City and New York State. In that year the City
lost access to the public credit markets. The City was not able to sell
short-term notes to the public again until 1979. In 1975, S&P suspended its
A rating of City bonds. This suspension remained in effect until March 1981,
at which time the City received an investment grade rating of BBB from S&P.
On July 2, 1985, S&P revised its rating of City bonds upward to BBB+ and on
November 19, 1987, to A-. On February 3, 1998 and again on May 27, 1998, S&P
assigned a BBB+ rating to the City's general obligation debt and placed the
ratings on CreditWatch with positive implications.
Moody's ratings of City bonds were revised in November 1981 from B (in
effect since 1977) to Ba1, in November 1983 to Baa, in December 1985 to Baa1, in
May 1988 to A and again in February 1991 to Baa1. On February 25, 1998, Moody's
upgraded nearly $28 billion of the City's general obligations from Baa1 to A3.
On June 9, 1998, Moody's again assigned an A3 rating to the City's general
obligations and stated that its outlook was stable.
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New York City is heavily dependent on New York State and federal assistance
to cover insufficiencies in its revenues. There can be no assurance that in the
future federal and State assistance will enable the City to make up its budget
deficits. To help alleviate the City's financial difficulties, the Legislature
created the Municipal Assistance Corporation ("MAC") in 1975. Since its
creation, MAC has provided, among other things, financing assistance to the City
by refunding maturing City short-term debt and transferring to the City funds
received from sales of MAC bonds and notes. MAC is authorized to issue bonds
and notes payable from certain stock transfer tax revenues, from the City's
portion of the State sales tax derived in the City and, subject to certain prior
claims, from State per capita aid otherwise payable by the State to the City.
Failure by the State to continue the imposition of such taxes, the reduction of
the rate of such taxes to rates less than those in effect on July 2, 1975,
failure by the State to pay such aid revenues and the reduction of such aid
revenues below a specified level are included among the events of default in the
resolutions authorizing MAC's long-term debt. The occurrence of an event of
default may result in the acceleration of the maturity of all or a portion of
MAC's debt. MAC bonds and notes constitute general obligations of MAC and do
not constitute an enforceable obligation or debt of either the State or the
City. As of June 30, 1997, MAC had outstanding an aggregate of approximately
$4.267 billion of its bonds. MAC is authorized to issue bonds and notes to
refund its outstanding bonds and notes and to fund certain reserves, without
limitation as to principal amount, and to finance certain capital commitments to
the Transit Authority and the New York City School Construction Authority
through the 1997 fiscal year in the event the City fails to provide such
financing.
Since 1975, the City's financial condition has been subject to oversight
and review by the New York State Financial Control Board (the "Control Board")
and since 1978 the City's financial statements have been audited by independent
accounting firms. To be eligible for guarantees and assistance, the City is
required during a "control period" to submit annually for Control Board
approval, and when a control period is not in effect for Control Board review, a
financial plan for the next four fiscal years covering the City and certain
agencies showing balanced budgets determined in accordance with GAAP. New York
State also established the Office of the State Deputy Comptroller for New York
City ("OSDC") to assist the Control Board in exercising its powers and
responsibilities. On June 30, 1986, the City satisfied the statutory
requirements for termination of the control period. This means that the Control
Board's powers of approval are suspended, but the Board continues to have
oversight responsibilities.
On June 10, 1997, the City submitted to the Control Board the Financial
Plan (the "1998-2001 Financial Plan") for the 1998 through 2001 fiscal years,
relating to the City, the Board of Education ("BOE") and CUNY and reflected the
City's expense and capital budgets for the 1998 fiscal year, which were adopted
on June 6, 1997. The 1998-2001 Financial Plan projected revenues and
expenditures for the 1998 fiscal year balanced in accordance with GAAP. The
1998-99 Financial Plan projects General Fund receipts (including transfers from
other funds) of $36.22 billion, an increase of $1.02 billion over the estimated
1997-1998 level. Recurring growth in the State General Fund tax base is
projected to be approximately six percent during 1998-99, after adjusting for
tax law and administrative changes. This growth rate is lower than the rates
for 1996-97 or currently estimated for 1997-98, but roughly equivalent to the
rate for 1995-96.
The 1998-99 forecast for user taxes and fees also reflects the impact of
scheduled tax reductions that will lower receipts by $38 million, as well as the
impact of two Executive Budget
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proposals that are projected to lower receipts by an additional $79 million.
The first proposal would divert $30 million in motor vehicle registration fees
from the General Fund to the Dedicated Highway and Bridge Trust Fund; the second
would reduce fees for motor vehicle registrations, which would further lower
receipts by $49 million. The underlying growth of receipts in this category is
projected at 4 percent, after adjusting for these scheduled and recommended
changes.
In comparison to the current fiscal year, business tax receipts are
projected to decline slightly in 1998-99, falling from $4.98 billion to $4.96
billion. The decline in this category is largely attributable to scheduled tax
reductions. In total, collections for corporation and utility taxes and the
petroleum business tax are projected to fall by $107 million from 1997-98. The
decline in receipts in these categories is partially offset by growth in the
corporation franchise, insurance and bank taxes, which are projected to grow by
$88 million over the current fiscal year.
The Financial Plan is projected to show a GAAP-basis surplus of $131
million for 1997-98 and a GAAP-basis deficit of $1.3 billion for 1998-99 in the
General Fund, primarily as a result of the use of the 1997-98 cash surplus. In
1998-99, the General Fund GAAP Financial Plan shows total revenues of $34.68
billion, total expenditures of $35.94 billion, and net other financing sources
and uses of $42 million.
Although the City has maintained balanced budgets in each of its last
seventeen fiscal years and is projected to achieve balanced operating results
for the 1998 fiscal year, there can be no assurance that the gap-closing actions
proposed in the 1998-2001 Financial Plan can be successfully implemented or that
the City will maintain a balanced budget in future years without additional
State aid, revenue increases or expenditure reductions. Additional tax
increases and reductions in essential City services could adversely affect the
City's economic base.
The projections set forth in the 1998-2001 Financial Plan were based on
various assumptions and contingencies which are uncertain and which may not
materialize. Changes in major assumptions could significantly affect the City's
ability to balance its budget as required by State law and to meet its annual
cash flow and financing requirements. Such assumptions and contingencies
include the condition of the regional and local economies, the impact on real
estate tax revenues of the real estate market, wage increases for City employees
consistent with those assumed in the 1998-2001 Financial Plan, employment
growth, the ability to implement proposed reductions in City personnel and other
cost reduction initiatives, the ability of the Health and Hospitals Corporation
and the BOE to take actions to offset reduced revenues, the ability to complete
revenue generating transactions, provision of State and Federal aid and mandate
relief and the impact on City revenues and expenditures of Federal and State
welfare reform and any future legislation affecting Medicare or other
entitlements.
Implementation of the 1998-2001 Financial Plan is also dependent upon the
City's ability to market its securities successfully. The City's financing
program for fiscal years 1998 through 2001 contemplates the issuance of $5.7
billion of general obligation bonds and $5.7 billion of bonds to be issued by
the proposed New York City Transitional Finance Authority (the "Finance
Authority") to finance City capital projects. The Finance Authority was created
as part of the City's effort to assist in keeping the City's indebtedness within
the forecast level of the constitutional restrictions on the amount of debt the
City is authorized to incur. Despite this
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additional financing mechanism, the City currently projects that, if no further
action is taken, it will reach its debt limit in City fiscal year 1999-2000.
Indebtedness subject to the constitutional debt limit includes liability on
capital contracts that are expected to be funded with general obligation bonds,
as well as general obligation bonds. On June 2, 1997, an action was commenced
seeking a declaratory judgment declaring the legislation establishing the
Transitional Finance Authority to be unconstitutional. If such legislation were
voided, projected contracts for the City capital projects would exceed the
City's debt limit during fiscal year 1997-98. Future developments concerning
the City or entities issuing debt for the benefit of the City, and public
discussion of such developments, as well as prevailing market conditions and
securities credit ratings, may affect the ability or cost to sell securities
issued by the City or such entities and may also affect the market for their
outstanding securities.
The City Comptroller and other agencies and public officials have issued
reports and made public statements which, among other things, state that
projected revenues and expenditures may be different from those forecast in the
City's financial plans. It is reasonable to expect that such reports and
statements will continue to be issued and to engender public comment.
The City since 1981 has fully satisfied its seasonal financing needs in the
public credit markets, repaying all short-term obligations within their fiscal
year of issuance. Although the City's 1998 fiscal year financial plan projected
$2.4 billion of seasonal financing, the City expected to undertake only
approximately $1.4 billion of seasonal financing. The City issued $2.4 billion
of short-term obligations in fiscal year 1997. Seasonal financing requirements
for the 1996 fiscal year increased to $2.4 billion from $2.2 billion and $1.75
billion in the 1995 and 1994 fiscal years, respectively. Seasonal financing
requirements were $1.4 billion in the 1993 fiscal year. The delay in the
adoption of the State's budget in certain past fiscal years has required the
City to issue short-term notes in amounts exceeding those expected early in such
fiscal years.
Certain localities, in addition to the City, have experienced financial
problems and have requested and received additional New York State assistance
during the last several State fiscal years. The potential impact on the State
of any future requests by localities for additional assistance is not included
in the State's projections of its receipts and disbursements for the 1997-98
fiscal year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers") resulted
in the re-establishment of the Financial Control Board for the City of Yonkers
(the "Yonkers Board") by New York State in 1984. The Yonkers Board is charged
with oversight of the fiscal affairs of Yonkers. Future actions taken by the
State to assist Yonkers could result in increased State expenditures for
extraordinary local assistance.
Beginning in 1990, the City of Troy experienced a series of budgetary
deficits that resulted in the establishment of a Supervisory Board for the City
of Troy in 1994. The Supervisory Board's powers were increased in 1995, when
Troy MAC was created to help Troy avoid default on certain obligations. The
legislation creating Troy MAC prohibits the city of Troy from seeking federal
bankruptcy protection while Troy MAC bonds are outstanding. Troy MAC has issued
bonds to effect a restructuring of the City of Troy's obligations.
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Eighteen municipalities received extraordinary assistance during the 1996
legislative session through $50 million in special appropriations targeted for
distressed cities, and that was largely continued in 1997. Twenty-eight
municipalities are scheduled to share in more than $32 million in targeted
unrestricted aid allocated in the 1997-98 budget. An additional $21 million
will be dispersed among all cities, towns and villages, a 3.97% increase in
General Purpose State Aid.
The 1998-99 budget includes an additional $29.4 million in unrestricted aid
targeted to 57 municipalities across the State. Other assistance for
municipalities with special needs totals more than $25.6 million. Twelve
upstate cities will receive $24.2 million in one-time assistance from a cash
flow acceleration of State aid.
Municipalities and school districts have engaged in substantial short-term
and long-term borrowings. In 1996, the total indebtedness of all localities in
the State other than New York City was approximately $20 billion. A small
portion (approximately $77.2 million) of that indebtedness represented borrowing
to finance budgetary deficits and was issued pursuant to enabling State
legislation. State law requires the Comptroller to review and make
recommendations concerning the budgets of those local government units, other
than New York City, that are authorized by State law to issue debt to finance
deficits during the period that such deficit financing is outstanding.
Twenty-one localities had outstanding indebtedness for deficit financing at the
close of their fiscal year ending in 1996.
From time to time, federal expenditure reductions could reduce, or in some
cases eliminate, federal funding of some local programs and accordingly might
impose substantial increased expenditure requirements on affected localities.
If the State, the City or any of the Authorities were to suffer serious
financial difficulties jeopardizing their respective access to the public credit
markets, the marketability of notes and bonds issued by localities within the
State could be adversely affected. Localities also face anticipated and
potential problems resulting from certain pending litigation, judicial decisions
and long-range economic trends. Long-range potential problems of declining
urban population, increasing expenditures and other economic trends could
adversely affect localities and require increasing State assistance in the
future.
YEAR 2000 COMPLIANCE. The State is currently addressing "Year 2000" data
processing compliance issues. The Year 2000 compliance issue ("Y2K") arises
because most computer software programs allocate two digits to the data field
for "year" on the assumption that the first two digits will be "19". Such
programs will thus interpret the year 2000 as the year 1900 absent
reprogramming. Y2K could impact both the ability to enter data into computer
programs and the ability of such programs to correctly process data.
The Office for Technology is monitoring compliance on a quarterly basis and
is providing assistance and assigning resources to accelerate compliance for
mission critical systems, with most compliance testing expected to be completed
by mid-1999. There can be no guarantee, however, that all of the State's
mission-critical and high-priority computer systems will be Year 2000 compliant
and that there will not be an adverse impact upon State operations or State
finances as a result.
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SPECIAL CONSIDERATIONS RELATING TO CONNECTICUT MUNICIPAL SECURITIES
The following information is a brief summary of factors affecting the
economies and financial strengths of the State of Connecticut, its
municipalities and its political subdivisions and does not purport to be a
complete description of such factors. Other factors will affect issuers. The
summary is based primarily upon one or more publicly available offering
statements relating to debt offerings of this State of Connecticut that were
available prior to the date of this Statement of Additional Information. The
accuracy and completeness of the information contained in such offering
statements have not been independently verified.
The ability of the issuers of Connecticut Municipal Securities to pay the
principal and interest on their obligations may be impacted by a variety of
factors relating to the economy of Connecticut and to the fiscal stability of
issuers of Connecticut Municipal Securities. The latter may include such
matters as the ability of issuers to raise sufficient tax and other revenues to
meet their needs, the availability of aid from other governmental bodies, and
the burdens that may be imposed on issuers by law or necessity. To the extent
that the Fund invests in obligations that are not general obligations of their
issuers, payments of principal and interest will depend on all factors affecting
the revenue sources from which payments thereon are to be derived. The value of
the obligations held by the Fund would be adversely affected not only by any
actual inability of their issuers to pay the principal and interest thereon, but
also by a public perception that such ability is in doubt.
Manufacturing has historically been of prime economic importance to
Connecticut (sometimes referred to as the "State"). The State's manufacturing
industry is diversified, with transportation equipment (primarily aircraft
engines, helicopters and submarines) the dominant industry, followed by
fabricated metals, non-electrical machinery, and electrical equipment. As a
result of a rise in employment in service-related industries and a decline in
manufacturing employment, however, manufacturing accounted for only 17.09% of
total non-agricultural employment in Connecticut in 1997. Defense-related
business represents a relatively high proportion of the manufacturing sector.
On a per capita basis, defense awards to Connecticut have traditionally been
among the highest in the nation, and reductions in defense spending have had a
substantial adverse impact on Connecticut's economy.
The average annual unemployment rate in Connecticut increased from a low of
3.0% in 1988 to a high of 7.6% in 1992 and, after a number of important changes
in the method of calculation, was reported to be 5.8% in 1996. Average per
capita personal income of Connecticut residents increased in every year from
1989 to 1997, rising from $25,443 to $36,434. However, pockets of significant
unemployment and poverty exist in several Connecticut cities and towns.
For the four fiscal years ended June 30, 1991, the General Fund experienced
operating deficits but, for the seven fiscal years ended June 30, 1998, the
General Fund recorded operating surpluses, based on Connecticut's budgetary
method of accounting. General Fund expenditures are budgeted to be
approximately $9,972,000,000 for the 1998-99 fiscal year, compared to budgeted
expenditures of approximately $7,008,000,000 for the 1991-92 fiscal year, but a
surplus of more than $150,000,000 is expected for this year. In 1991,
legislation was enacted by the State authorizing the State Treasurer to issue
$965,710,000 of Economic Recovery Notes to fund the General Fund's accumulated
deficit. The notes were to be payable no later than June 30,
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1996, but payment of the notes scheduled to be paid during the 1995-96 fiscal
year was rescheduled to be made over the four fiscal years ending June 30,
1999. Connecticut's general obligation bonds are rated Aa3 by Moody's and AA
by Fitch IBCA, Inc. ("Fitch IBCA"). On October 8, 1998, S&P upgraded its
ratings of Connecticut's general obligations bonds from AA- to AA.
The State's primary method for financing capital projects is through the
sale of general obligation bonds. These bonds are backed by the full faith and
credit of the State. As of December 1, 1998, the State had authorized direct
general obligation bond indebtedness totaling $12,398,200,000, of which
$11,057,371,000 had been approved for issuance by the State Bond Commission and
$9,814,857,000 had been issued. As of December 1, 1998, net State direct
general obligation indebtedness outstanding was $6,837,131,000.
In 1995, the State established the University of Connecticut as a separate
corporate entity to issue bonds and construct certain infrastructure
improvements. The University is authorized to issue bonds totaling $962,000,000
to finance the improvements. The University's bonds will be secured by a State
debt service commitment, the aggregate amount of which is limited to
$382,000,000 for bonds issued in the four fiscal years ending June 30, 1999, and
$580,000,000 for bonds issued in the six fiscal years ending June 30, 2005.
In addition, the State has limited or contingent liability on a significant
amount of other bonds. Such bonds have been issued by the following
quasi-public agencies: the Connecticut Housing Finance Authority, the
Connecticut Development Authority, the Connecticut Higher Education Supplemental
Loan Authority, the Connecticut Resources Recovery Authority and the Connecticut
Health and Educational Facilities Authority. Such bonds have also been issued
by the cities of Bridgeport and West Haven and the Southeastern Connecticut
Water Authority. As of December 1, 1997, the amount of bonds outstanding on
which the State has limited or contingent liability totaled $4,054,900,000.
In 1984, the State established a program to plan, construct and improve the
State's transportation system (other than Bradley International Airport). The
total cost of the program through June 30, 2002, is currently estimated to be
$12.6 billion, to be met from federal, state, and local funds. The State
expects to finance most of its $5.1 billion share of such cost by issuing $4.6
billion of special tax obligation ("STO") bonds. The STO bonds are payable
solely from specified motor fuel taxes, motor vehicle receipts, and license,
permit and fee revenues pledged therefor and credited to the Special
Transportation Fund, which was established to budget and account for such
revenues.
The State, its officers and its employees are defendants in numerous
lawsuits. Although it is not possible to determine the outcome of these
lawsuits, the Attorney General has opined that an adverse decision in any of the
following cases might have a significant impact on the State's financial
position: (i) a class action by the Connecticut Criminal Defense Lawyers
Association claiming a campaign of illegal surveillance activity and seeking
damages and injunctive relief; (ii) an action on behalf of all persons with
traumatic brain injury who have been
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placed in certain State hospitals, and other persons with acquired brain injury
who are in the custody of the Department of Mental Health and Addiction
Services, claiming that their constitutional rights are violated by placement in
State hospitals alleged not to provide adequate treatment and training, and
seeking placement in community residential settings with appropriate support
services; (iii) litigation involving claims by Indian tribes to portions of the
State's land area; and (iv) an action by certain students and municipalities
claiming that the State's formula for financing public education violates the
State's Constitution and seeking a declaratory judgment and injunctive relief.
As a result of litigation on behalf of black and Hispanic school children
in the City of Hartford seeking "integrated education" within the Greater
Hartford metropolitan area, on July 9, 1996, the State Supreme Court directed
the legislature to develop appropriate measures to remedy the racial and ethnic
segregation in the Hartford public schools. The Superior Court recently ordered
the State to show cause as to whether there has been compliance with the Supreme
Court's ruling. The fiscal impact of this decision might be significant but is
not determinable at this time.
The State's Department of Information Technology is reviewing the
State's Year 2000 exposure and developing plans for modification or
replacement of existing software that it believes will prevent significant
operations problems. There is a risk that the plan will not be completed on
time, that planned testing will not reveal all problems, or that systems of
others on whom the State relies will not be timely updated. If the necessary
remediations are not completed in a timely fashion, the Year 2000 problem may
have a material impact on the operations of the State.
General obligation bonds issued by municipalities are payable primarily
from ad valorem taxes on property located in the municipality. A municipality's
property tax base is subject to many factors outside the control of the
municipality. Certain Connecticut municipalities have experienced severe fiscal
difficulties and have reported operating and accumulated deficits in recent
years. The most notable of them is the City of Bridgeport, which filed a
bankruptcy petition on June 7, 1991. The State opposed the petition. The
United States Bankruptcy Court for the District of Connecticut held that
Bridgeport had authority to file such a petition but that its petition should be
dismissed on the grounds that Bridgeport was not insolvent when the petition was
filed. State legislation enacted in 1993 prohibits municipal bankruptcy filings
without the prior written consent of the Governor. Regional economic
difficulties, reductions in revenues, and increased expenses could lead to
further fiscal problems for the State and its political subdivisions,
authorities, and agencies. This could result in declines in the value of their
outstanding obligations, increases in their future borrowing costs, and
impairment of their ability to pay debt service on their obligations.
In addition to general obligation bonds backed by the full faith and credit
of the municipality, certain municipal authorities finance projects by issuing
bonds that are not considered to be debts of the municipality. Such bonds may
be repaid only from revenues of the financed project, the revenues from which
may be insufficient to service the related debt obligations.
- 38 -
<PAGE>
PORTFOLIO TURNOVER
Each Fund may sell a portfolio investment soon after its acquisition if
Fleet believes that such a disposition is consistent with the Fund's investment
objective. Portfolio investments may be sold for a variety of reasons, such as
a more favorable investment opportunity or other circumstances bearing on the
desirability of continuing to hold such investments. A portfolio turnover rate
of 100% or more is considered high, although the rate of portfolio turnover will
not be a limiting factor in making portfolio decisions. A high rate of
portfolio turnover may result in the realization of substantial capital gains
and involves correspondingly greater transaction costs. To the extent that net
capital gains are realized, distributions derived from such gains are treated as
ordinary income for federal income tax purposes.
INVESTMENT LIMITATIONS
In addition to each Fund's investment objective as stated in its
Prospectuses, the following investment limitations are matters of fundamental
policy and may not be changed with respect to any Fund without the affirmative
vote of the holders of a majority of its outstanding shares (as defined under
"Miscellaneous").
No Fund may:
1. Make loans, except that (i) each Fund may purchase or hold debt
instruments in accordance with its investment objective and policies,
and may enter into repurchase agreements with respect to portfolio
securities, and (ii) each Fund may lend portfolio securities against
collateral consisting of cash or securities which are consistent with
its permitted investments, where the value of the collateral is equal
at all times to at least 100% of the value of the securities loaned.
2. Borrow money or issue senior securities, except that each Fund may
borrow from domestic banks for temporary purposes and then in amounts
not in excess of 10% of the value of its total assets at the time of
such borrowing (provided that each Fund may borrow pursuant to reverse
repurchase agreements in accordance with its investment policies and
in amounts not in excess of 10% of the value of its total assets at
the time of such borrowing); or mortgage, pledge, or hypothecate any
assets except in connection with any such borrowing and in amounts not
in excess of the lesser of the dollar amounts borrowed or 10% of the
value of its total assets at the time of such borrowing. No Fund will
purchase securities while borrowings (including reverse repurchase
agreements) in excess of 5% of its total assets are outstanding.
3. Invest more than 10% (15% with respect to the New Jersey Municipal
Bond Fund) of the value of its net assets in illiquid securities,
including repurchase agreements with remaining maturities in excess of
seven days, time deposits with maturities in excess of seven days,
restricted securities, non-negotiable time deposits and other
securities which are not readily marketable.
- 39 -
<PAGE>
4. Purchase any securities which would cause 25% or more of the value of
a Fund's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry; provided, however, that there is no
limitation with respect to securities issued or guaranteed by the U.S.
Government, any state, territory or possession of the U. S.
Government, the District of Columbia, or any of their authorities,
agencies, instrumentalities or political subdivisions.
5. Purchase securities on margin (except such short-term credits as may
be necessary for the clearance of purchases), make short sales of
securities, or maintain a short position.
6. Act as an underwriter within the meaning of the Securities Act of
1933; except insofar as a Fund might be deemed to be an underwriter
upon disposition of restricted portfolio securities; and except to the
extent that the purchase of securities directly from the issuer
thereof in accordance with the Fund's investment objective, policies
and limitations may be deemed to be underwriting.
7. Purchase or sell real estate; except that each Fund may invest in
Municipal Securities secured by real estate or interests therein;
however, the Funds will not purchase or sell interests in real estate
limited partnerships.
8. Purchase or sell commodities or commodity contracts or invest in oil,
gas, or other mineral exploration or development programs or mineral
leases; provided however, that the Funds may enter into municipal bond
index futures contracts and interest rate futures contracts to the
extent permitted under the Commodity Exchange Act and the 1940 Act.
9. Invest in or sell put options, call options, straddles, spreads, or
any combination thereof.
10. Invest in companies for the purpose of exercising management or
control.
11. Purchase securities of other investment companies except in connection
with a merger, consolidation, reorganization, or acquisition of
assets; provided, however, that each Fund may acquire such securities
in accordance with the 1940 Act.
12. Invest in industrial revenue bonds where the payment of principal and
interest are the responsibility of a company (including its
predecessors) with less than three years of continuous operation.
13. Purchase foreign securities, except that the Funds may purchase
certificates of deposit, bankers' acceptances, or other similar
obligations issued by U.S. branches of foreign banks or foreign
branches of U.S. banks.
In addition, the Tax-Exempt Bond Fund may not:
- 40 -
<PAGE>
14. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. Government, its agencies or
instrumentalities, if immediately after such purchase more than 5% of
the value of its total assets would be invested in the securities of
such issuer, except that up to 25% of the value of its total assets
may be invested without regard to this limitation.
In addition, the New Jersey Municipal Bond, New York Municipal Bond,
Connecticut Municipal Bond, Massachusetts Municipal Bond and Rhode Island
Municipal Bond Funds may not:
15. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. Government, its agencies or
instrumentalities, if immediately after such purchase more than 5% of
the value of its total assets would be invested in the securities of
such issuer, except that up to 50% of the value of a Fund's total
assets may be invested without regard to this 5% limitation, provided
that no more than 25% of the value of a Fund's total assets are
invested in the securities of any one issuer.
With respect to Investment Limitation No. 2 above, each Fund intends to
limit any borrowings (including reverse repurchase agreements) to not more than
10% of the value of its total assets at the time of such borrowing.
Except as stated otherwise, if a percentage limitation is satisfied at
the time of investment, a later increase in such percentage resulting from a
change in the value of a Fund's portfolio securities generally will not
constitute a violation of the limitation. If the value of a Fund's holdings of
illiquid securities at any time exceeds the percentage limitation applicable
at the time of acquisition due to subsequent fluctuations in value or other
reasons, the Board of Trustees will consider what actions, if any, are
appropriate to maintain adequate liquidity.
VALUATION OF PORTFOLIO SECURITIES
The Funds' assets are valued for purposes of pricing sales and redemptions
by an independent pricing service ("Service") approved by Galaxy's Board of
Trustees. When, in the judgment of the Service, quoted bid prices for portfolio
securities are readily available and are representative of the bid side of the
market, these investments are valued at the mean between quoted bid prices (as
obtained by the Service from dealers in such securities) and asked prices (as
calculated by the Service based upon its evaluation of the market for such
securities). Other investments are carried at fair value as determined by the
Service, based on methods which include consideration of yields or prices of
bonds of comparable quality, coupon, maturity and type; indications as to values
from dealers; and general market conditions. The Service may also employ
electronic data processing techniques and matrix systems to determine value.
Short-term securities are valued at amortized cost, which approximates market
value. The amortized cost method involves valuing a security at its cost on the
date of purchase and thereafter assuming a constant amortization to maturity of
the difference between the principal amount due at maturity and cost.
- 41 -
<PAGE>
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares in each Fund are sold on a continuous basis by Galaxy's distributor,
First Data Distributors, Inc. ("FD Distributors"), a wholly-owned subsidiary of
First Data Investor Services Group, Inc. FD Distributors is a registered
broker/dealer with principal offices located at 4400 Computer Drive,
Westborough, Massachusetts 01581. FD Distributors has agreed to use appropriate
efforts to solicit all purchase orders.
This Statement of Additional Information provides additional purchase and
redemption information for Trust Shares and Retail A Shares of each Fund and
Retail B Shares of the Tax-Exempt Bond Fund. Purchase and redemption
information for A Prime Shares and B Prime Shares of the Tax-Exempt Bond Fund
are described in a separate prospectus and statement of additional information.
PURCHASES OF RETAIL A SHARES AND RETAIL B SHARES
GENERAL
Investments in Retail A Shares of the Funds are subject to a front-end
sales charge. Investments in Retail B Shares of the Tax-Exempt Bond Fund are
subject to a back-end sales charge. This back-end sales charge declines over
time and is known as a "contingent deferred sales charge."
Investors should read "Characteristics of Retail A Shares and Retail B
Shares" and "Factors to Consider When Selecting Retail A Shares or Retail B
Shares" below before deciding between the two with respect to the Tax-Exempt
Bond Fund.
FD Distributors has established several procedures to enable different
types of investors to purchase Retail A Shares of the Funds and Retail B Shares
of the Tax-Exempt Bond Fund (collectively, "Retail Shares"). Retail Shares may
be purchased by individuals or corporations who submit a purchase application to
Galaxy, purchasing directly either for their own accounts or for the accounts of
others. Retail Shares may also be purchased by FIS Securities, Inc., Fleet
Securities, Inc., Fleet Enterprises, Inc., Fleet Financial Group, Inc., its
affiliates, their correspondent banks and other qualified banks, savings and
loan associations and broker/dealers on behalf of their customers. Purchases
may take place only on days on which FD Distributors and Galaxy's custodian and
Galaxy's transfer agent are open for business ("Business Days"). If an
institution accepts a purchase order from a customer on a non-Business Day, the
order will not be executed until it is received and accepted by FD Distributors
on a Business Day in accordance with FD Distributors' procedures.
CUSTOMERS OF INSTITUTIONS
Retail Shares purchased by institutions on behalf of their customers will
normally be held of record by the institution and beneficial ownership of Retail
Shares will be recorded by the institution and reflected in the account
statements provided to its customers. Galaxy's transfer agent may establish an
account of record for each customer of an institution reflecting beneficial
ownership of Retail Shares. Depending on the terms of the arrangement between a
particular institution and Galaxy's transfer agent, confirmations of Retail
Share purchases and redemptions
- 42 -
<PAGE>
and pertinent account statements will either be sent by Galaxy's transfer agent
directly to a customer with a copy to the institution, or will be furnished
directly to the customer by the institution. Other procedures for the purchase
of Retail Shares established by institutions in connection with the requirements
of their customer accounts may apply. Customers wishing to purchase Retail
Shares through their institution should contact such entity directly for
appropriate purchase instructions.
OTHER PURCHASE INFORMATION
On a Business Day when the New York Stock Exchange (the "Exchange") closes
early due to a partial holiday or otherwise, Galaxy will advance the time at
which purchase orders must be received in order to be processed on that Business
Day.
APPLICABLE SALES CHARGE -- RETAIL A SHARES
The public offering price for Retail A Shares of the Funds is the sum of
the net asset value of the Retail A Shares purchased plus any applicable
front-end sales charge as described in the applicable Prospectus. A deferred
sales charge of up to 1.00% is assessed on certain redemptions of Retail A
Shares that are purchased with no initial sales charge as part of an investment
of $500,000 or more. A portion of the front-end sales charge may be reallowed
to broker-dealers as follows:
<TABLE>
<CAPTION>
REALLOWANCE TO
DEALERS
-------
AS A % OF
OFFERING PRICE
AMOUNT OF TRANSACTION PER SHARE
- --------------------- ---------
<S> <C>
Less than $50,000 3.25
$50,000 but less than $100,000 3.00
$100,000 but less than $250,000 2.50
$250,000 but less than $500,000 2.00
$500,000 and over 0.00
</TABLE>
The appropriate reallowance to dealers will be paid by FD Distributors to
broker-dealer organizations which have entered into agreements with FD
Distributors. The reallowance to dealers may be changed from time to time.
In certain situations or for certain individuals, the front-end sales
charge for Retail A Shares of the Funds may be waived either because of the
nature of the investor or the reduced sales effort required to attract such
investments. In order to receive the sales charge waiver, an investor must
explain the status of his or her investment at the time of purchase. In
addition to the sales charge waivers described in the applicable Prospectus, no
sales charge is assessed on purchases of Retail A Shares of the Funds by the
following categories of investors or in the following types of transactions:
- 43 -
<PAGE>
- purchases by directors, officers and employees of broker-dealers
having agreements with FD Distributors pertaining to the sale of
Retail A Shares to the extent permitted by such organizations;
- purchases by current and retired members of Galaxy's Board of Trustees
and members of their immediate families;
- purchases by officers, directors, employees and retirees of Fleet
Financial Group, Inc. and any of its affiliates and members of their
immediate families;
- purchases by officers, directors, employees and retirees of First Data
Corporation and any of its affiliates and members of their immediate
families;
- purchases by persons who are also plan participants in any employee
benefit plan which is the record or beneficial holder of Trust Shares
of the Funds or any of the other portfolios offered by Galaxy;
- purchases by institutional investors, including but not limited to
bank trust departments and registered investment advisers;
- purchases by clients of investment advisers or financial planners who
place trades for their own accounts if such accounts are linked to the
master accounts of such investment advisers or financial planners on
the books of the broker-dealer through whom Retail A Shares are
purchased;
- purchases by institutional clients of broker-dealers, including
retirement and deferred compensation plans and the trusts used to
fund these plans, which place trades through an omnibus account
maintained with Galaxy by the broker-dealer; and
- purchases prior to July 1, 1999 by former deposit customers of
financial institutions (other than registered broker-dealers) acquired
by Fleet Financial Group, Inc. in February 1998.
COMPUTATION OF OFFERING PRICE - RETAIL A SHARES
An illustration of the computation of the offering price per share of
Retail A Shares of the Funds, using the value of each Fund's net assets
attributable to such Shares and the number of outstanding Retail A Shares of
each Fund at the close of business on October 31, 1998 and the maximum front-end
sales charge of 3.75%, is as follows:
- 44 -
<PAGE>
<TABLE>
<CAPTION>
Tax-Exempt New Jersey Municipal
Bond Fund Bond Fund
--------- ---------
<S> <C> <C>
Net Assets . . . . . . . . . . . . . . . . . . . . . . $24,763,900 $814,931
Outstanding Shares . . . . . . . . . . . . . . . . . . 2,191,991 79,614
Net Asset Value Per Share. . . . . . . . . . . . . . . $11.30 $10.24
Sales Charge (3.75% of
the offering price). . . . . . . . . . . . . . . . . . $0.44 $0.40
Offering Price to Public . . . . . . . . . . . . . . . $11.74 $10.64
<CAPTION>
New York Municipal Connecticut Municipal
Bond Fund Bond Fund
--------- ---------
<S> <C> <C>
Net Assets . . . . . . . . . . . . . . . . . . . . . . $48,218,478 $24,855,550
Outstanding Shares . . . . . . . . . . . . . . . . . . 4,216,530 2,297,604
Net Asset Value Per Share. . . . . . . . . . . . . . . $11.44 $10.82
Sales Charge (3.75% of
the offering price). . . . . . . . . . . . . . . . . . $0.45 $0.42
Offering Price to Public . . . . . . . . . . . . . . . $11.89 $11.24
<CAPTION>
Massachusetts Rhode Island
Municipal Bond Municipal Bond
Bond Fund Bond Fund
--------- ---------
<S> <C> <C>
Net Assets . . . . . . . . . . . . . . . . . . . . . . $44,188,605 $20,209,657
Outstanding Shares . . . . . . . . . . . . . . . . . . 4,196,694 1,807,697
Net Asset Value Per Share. . . . . . . . . . . . . . . $10.53 $11.18
Sales Charge (3.75% of
the offering price). . . . . . . . . . . . . . . . . . $0.41 $0.44
Offering Price to Public . . . . . . . . . . . . . . . $10.94 $11.62
</TABLE>
- 45 -
<PAGE>
QUANTITY DISCOUNTS
Investors may be entitled to reduced sales charges through Rights of
Accumulation, a Letter of Intent or a combination of investments, as described
below, even if the investor does not wish to make an investment of a size that
would normally qualify for a quantity discount.
In order to obtain quantity discount benefits, an investor must notify FD
Distributors at the time of purchase that he or she would like to take advantage
of any of the discount plans described below. Upon such notification, the
investor will receive the lowest applicable sales charge. Quantity discounts
may be modified or terminated at any time and are subject to confirmation of an
investor's holdings through a check of appropriate records. For more
information about quantity discounts, please contact FD Distributors or your
financial institution.
RIGHTS OF ACCUMULATION. A reduced sales charge applies to any purchase of
Retail A Shares of any portfolio of Galaxy that is sold with a sales charge
("Eligible Fund") where an investor's then current aggregate investment in
Retail A Shares is $50,000 or more. "Aggregate investment" means the total of:
(a) the dollar amount of the then current purchase of shares of an Eligible
Fund; and (b) the value (based on current net asset value) of previously
purchased and beneficially owned shares of any Eligible Fund on which a sales
charge has been paid. If, for example, an investor beneficially owns shares of
one or more Eligible Funds with an aggregate current value of $49,000 on which a
sales charge has been paid and subsequently purchases shares of an Eligible Fund
having a current value of $1,000, the sales charge applicable to the subsequent
purchase would be reduced to 3.50% of the offering price. Similarly, with
respect to each subsequent investment, all shares of Eligible Funds that are
beneficially owned by the investor at the time of investment may be combined to
determine the applicable sales charge.
LETTER OF INTENT. By completing the Letter of Intent included as part of
the Account Application, an investor becomes eligible for the reduced sales
charge applicable to the total number of Eligible Fund Retail A Shares purchased
in a 13-month period pursuant to the terms and under the conditions set forth
below and in the Letter of Intent. To compute the applicable sales charge, the
offering price of Retail A Shares of an Eligible Fund on which a sales charge
has been paid and that are beneficially owned by an investor on the date of
submission of the Letter of Intent may be used as a credit toward completion of
the Letter of Intent. However, the reduced sales charge will be applied only to
new purchases.
First Data Investor Services Group, Inc. ("Investor Services Group"),
Galaxy's administrator, will hold in escrow Retail A Shares equal to 5% of
the amount indicated in the Letter of Intent for payment of a higher sales
charge if an investor does not purchase the full amount indicated in the
Letter of Intent. The escrow will be released when the investor fulfills the
terms of the Letter of Intent by purchasing the specified amount. If
purchases qualify for a further sales charge reduction, the sales charge will
be adjusted to reflect the investor's total purchases. If total purchases
are less than the amount specified, the investor will be requested to remit
an amount equal to the difference between the sales charge actually paid and
the sales charge applicable to the total purchases. If such remittance is
not received within 20 days, Investor Services Group, as attorney-in-fact
pursuant to the terms of the Letter of Intent and at FD Distributors'
direction, will redeem an appropriate number of Retail A Shares held in
escrow to realize the difference. Signing a Letter of Intent does not bind
an investor to purchase the full amount indicated at the sales charge in
effect at the time of signing, but an investor must
- 46 -
<PAGE>
complete the intended purchase in accordance with the terms of the Letter of
Intent to obtain the reduced sales charge. To apply, an investor must indicate
his or her intention to do so under a Letter of Intent at the time of purchase.
QUALIFICATION FOR DISCOUNTS. For purposes of applying the Rights of
Accumulation and Letter of Intent privileges described above, the scale of sales
charges applies to the combined purchases made by any individual and/or spouse
purchasing securities for his, her or their own account or for the account of
any minor children, or the aggregate investments of a trustee or custodian of
any qualified pension or profit-sharing plan established (or the aggregate
investment of a trustee or other fiduciary) for the benefit of the persons
listed above.
REINSTATEMENT PRIVILEGE. Investors may reinvest all or any portion of
their redemption proceeds in Retail A Shares of the Funds or in Retail A Shares
of another portfolio of Galaxy within 90 days of the redemption trade date
without paying a sales load. Retail A Shares so reinvested will be purchased at
a price equal to the net asset value next determined after Galaxy's transfer
agent receives a reinstatement request and payment in proper form.
Investors wishing to exercise this Privilege must submit a written
reinstatement request to Investor Services Group as transfer agent stating that
the investor is eligible to use the Privilege. The reinstatement request and
payment must be received within 90 days of the trade date of the redemption.
Currently, there are no restrictions on the number of times an investor may use
this Privilege.
Generally, exercising the Reinstatement Privilege will not affect the
character of any gain or loss realized on redemptions for federal income tax
purposes. However, if a redemption results in a loss, the reinstatement may
result in the loss being disallowed under the "wash sale" rules of the Internal
Revenue Code of 1986, as amended (the "Code").
GROUP SALES. Members of qualified groups may purchase Retail A Shares of
the Funds at the following group sales rates:
<TABLE>
<CAPTION>
REALLOWANCE
TOTAL SALES CHARGE TO DEALERS
------------------ ----------
AS A % OF AS A % OF AS A % OF
NUMBER OF QUALIFIED OFFERING NET ASSET OFFERING
GROUP MEMBERS PRICE VALUE PRICE
- ------------- PER SHARE PER SHARE PER SHARE
--------- --------- ---------
<S> <C> <C> <C>
50,000 but less than 250,000 3.00 3.09 3.00
250,000 but less than 500,000 2.75 2.83 2.75
500,000 but less than 750,000 2.50 2.56 2.50
750,000 and over 2.00 2.04 2.00
</TABLE>
To be eligible for the discount, a group must meet the requirements set
forth below and be approved in advance as a qualified group by FD Distributors.
To receive the group sales charge rate, group members must purchase Retail A
Shares directly from FD Distributors in accordance with any of the procedures
described in the applicable Prospectus. Group members must also ensure that
their qualified group affiliation is identified on the purchase application.
- 47 -
<PAGE>
A qualified group is a group that (i) has at least 50,000 members, (ii) was
not formed for the purpose of buying Fund shares at a reduced sales charge,
(iii) within one year of the initial member purchase, has at least 1% of its
members invested in the Funds or any of the other investment portfolios offered
by Galaxy, (iv) agrees to include Galaxy sales material in publications and
mailings to members at a reduced cost or no cost, and (v) meets certain other
uniform criteria. FD Distributors may request periodic certification of group
and member eligibility. FD Distributors reserves the right to determine whether
a group qualifies for a quantity discount and to suspend this offer at any time.
APPLICABLE SALES CHARGE - RETAIL B SHARES
The public offering price for Retail B Shares of the Tax-Exempt Bond Fund
is the net asset value of the Retail B Shares purchased. Although investors pay
no front-end sales charge on purchases of Retail B Shares, such Shares are
subject to a contingent deferred sales charge at the rates set forth below if
they are redeemed within six years of purchase. Securities dealers, brokers,
financial institutions and other industry professionals will receive commissions
from FD Distributors in connection with sales of Retail B Shares. These
commissions may be different than the reallowances or placement fees paid to
dealers in connection with sales of Retail A Shares. Certain affiliates of
Fleet may, at their own expense, provide additional compensation to Fleet
Enterprises, Inc., a broker-dealer affiliate of Fleet, whose customers purchase
significant amounts of Retail B Shares of the Fund. See "Applicable Sales
Charge -- Retail A Shares." The contingent deferred sales charge on Retail B
Shares is based on the lesser of the net asset value of the Shares on the
redemption date or the original cost of the Shares being redeemed. As a result,
no sales charge is imposed on any increase in the principal value of an
investor's Retail B Shares. In addition, a contingent deferred sales charge
will not be assessed on Retail B Shares purchased through reinvestment of
dividends or capital gains distributions.
The proceeds from the contingent deferred sales charge that an investor may
pay upon redemption go to FD Distributors, which may use such amounts to defray
the expenses associated with the distribution-related services involved in
selling Retail B Shares.
EXEMPTIONS FROM THE CONTINGENT DEFERRED SALES CHARGE. Certain types of
redemptions may also qualify for an exemption from the contingent deferred sales
charge. In addition to the sales charge exemptions described in the applicable
Prospectus, the contingent deferred sales charge with respect to Retail B Shares
is not assessed on: (i) redemptions in connection with required (or, in some
cases, discretionary) distributions to participants or beneficiaries of an
employee pension, profit-sharing or other trust or qualified retirement or Keogh
plan, individual retirement account or custodial account maintained pursuant to
Section 403(b)(7) of the Code; (ii) redemptions in connection with required (or,
in some cases, discretionary) distributions to participants in qualified
retirement or Keogh plans, individual retirement accounts or custodial accounts
maintained pursuant to Section 403(b)(7) of the Code due to death, disability or
the attainment of a specified age; (iii) redemptions effected pursuant to the
Fund's right to liquidate a shareholder's account if the aggregate net asset
value of Retail B Shares held in the account is less than the minimum account
size; (iv) redemptions in connection with the combination of the Fund with any
other investment company registered under the 1940 Act by merger, acquisition of
assets, or by any other transaction; (v) redemptions resulting from a tax-free
return of an excess contribution pursuant to Section 408(d)(4) or (5) of the
Code; or (vi) any redemption of Retail B Shares held by investors, provided the
investor was the beneficial owner of shares of the
- 48 -
<PAGE>
Fund (or any of the other portfolios offered by Galaxy or otherwise advised by
Fleet or its affiliates) before December 1, 1995. In addition to the foregoing
exemptions, no contingent deferred sales charge will be imposed on redemptions
made pursuant to the Systematic Withdrawal Plan, subject to the limitations set
forth under "Investor Programs -- Retail A Shares and Retail B Shares --
Automatic Investment Program and Systematic Withdrawal Plan" below.
CHARACTERISTICS OF RETAIL A SHARES AND RETAIL B SHARES
The primary difference between Retail A Shares and Retail B Shares lies in
their sales charge structures and shareholder servicing/distribution expenses.
An investor should understand that the purpose and function of the sales charge
structures and shareholder servicing/distribution arrangements for both Retail A
Shares and Retail B Shares are the same.
Retail A Shares of the Funds are sold at their net asset value plus a
front-end sales charge of up to 3.75%. This front-end sales charge may be
reduced or waived in some cases. See the applicable Prospectus and "Applicable
Sales Charges -- Retail A Shares" and "Quantity Discounts" above. Retail A
Shares of a Fund are currently subject to ongoing shareholder servicing fees at
an annual rate of up to .30% of the Fund's average daily net assets attributable
to its Retail A Shares.
Retail B Shares of the Tax-Exempt Bond Fund are sold at net asset value
without an initial sales charge. Normally, however, a deferred sales charge is
paid if the Shares are redeemed within six years of investment. See the
applicable Prospectus and "Applicable Sales Charges -- Retail B Shares" above.
Retail B Shares of the Fund are currently subject to ongoing shareholder
servicing and distribution fees at an annual rate of up to .95% of the Fund's
average daily net assets attributable to its Retail B Shares. These ongoing
fees, which are higher than those charged on Retail A Shares, will cause Retail
B Shares to have a higher expense ratio and pay lower dividends than Retail A
Shares.
Six years after purchase, Retail B Shares of the Fund will convert
automatically to Retail A Shares of the Fund. The purpose of the conversion is
to relieve a holder of Retail B Shares of the higher ongoing expenses charged to
those shares, after enough time has passed to allow FD Distributors to recover
approximately the amount it would have received if a front-end sales charge had
been charged. The conversion from Retail B Shares to Retail A Shares takes
place at net asset value, as a result of which an investor receives
dollar-for-dollar the same value of Retail A Shares as he or she had of Retail B
Shares. The conversion occurs six years after the beginning of the calendar
month in which the Shares are purchased. Upon conversion, the converted shares
will be relieved of the distribution and shareholder servicing fees borne by
Retail B Shares, although they will be subject to the shareholder servicing fees
borne by Retail A Shares.
Retail B Shares acquired through a reinvestment of dividends or
distributions (as discussed under "Applicable Sales Charge -- Retail B Shares")
are also converted at the earlier of two dates -- six years after the beginning
of the calendar month in which the reinvestment occurred or the date of
conversion of the most recently purchased Retail B Shares that were not acquired
through reinvestment of dividends or distributions. For example, if an investor
makes a one-time purchase of Retail B Shares of the Fund, and subsequently
acquires additional Retail B Shares of the Fund only through reinvestment of
dividends and/or distributions, all of such
- 49 -
<PAGE>
investor's Retail B Shares in the Fund, including those acquired through
reinvestment, will convert to Retail A Shares of the Fund on the same date.
FACTORS TO CONSIDER WHEN SELECTING RETAIL A SHARES OR RETAIL B SHARES
Investors deciding whether to purchase Retail A Shares or Retail B Shares
of the Tax-Exempt Bond Fund should consider whether, during the anticipated
periods of their investments in the Fund, the accumulated distribution and
shareholder servicing fees and potential contingent deferred sales charge on
Retail B Shares prior to conversion would be less than the initial sales charge
and accumulated shareholder servicing fees on Retail A Shares purchased at the
same time, and to what extent such differential would be offset by the higher
yield of Retail A Shares. In this regard, to the extent that the sales charge
for Retail A Shares is waived or reduced by one of the methods described above,
investments in Retail A Shares become more desirable. An investment of $250,000
or more in Retail B Shares would not be in most shareholders' best interest.
Shareholders should consult their financial advisers and/or brokers with respect
to the advisability of purchasing Retail B Shares in amounts exceeding $250,000.
Although Retail A Shares are subject to a shareholder servicing fee, they
are not subject to the higher distribution and shareholder servicing fee
applicable to Retail B Shares. For this reason, Retail A Shares can be expected
to pay correspondingly higher dividends per Share. However, because initial
sales charges are deducted at the time of purchase, purchasers of Retail A
Shares (that do not qualify for exemptions from or reductions in the initial
sales charge) would have less of their purchase price initially invested in the
Fund than purchasers of Retail B Shares in the Fund.
As described above, purchasers of Retail B Shares will have more of their
initial purchase price invested. Any positive investment return on this
additional invested amount would partially or wholly offset the expected higher
annual expenses borne by Retail B Shares. Because the Fund's future returns
cannot be predicted, there can be no assurance that this will be the case.
Holders of Retail B Shares would, however, own shares that are subject to a
contingent deferred sales charge of up to 5.00% upon redemption, depending upon
the year of redemption. Investors expecting to redeem during this six-year
period should compare the cost of the contingent deferred sales charge plus the
aggregate distribution and shareholder servicing fees on Retail B Shares to the
cost of the initial sales charge and shareholder servicing fees on the Retail A
Shares. Over time, the expense of the annual distribution and shareholder
servicing fees on the Retail B Shares may equal or exceed the initial sales
charge and annual shareholder servicing fee applicable to Retail A Shares. For
example, if net asset value remains constant, the aggregate distribution and
shareholder servicing fees with respect to Retail B Shares of a Fund would equal
or exceed the initial sales charge and aggregate shareholder servicing fees of
Retail A Shares approximately six years after the purchase. In order to reduce
such fees for investors that hold Retail B Shares for more than six years,
Retail B Shares will be automatically converted to Retail A Shares as described
above at the end of such six-year period.
PURCHASES OF TRUST SHARES
Trust Shares are sold to investors maintaining qualified accounts at bank
and trust institutions, including subsidiaries of Fleet Financial Group, Inc.,
and to participants in employer-sponsored defined contribution plans (such
institutions and plans referred to herein
- 50 -
<PAGE>
collectively as "Institutions"). Trust Shares sold to such investors
("Customers") will be held of record by Institutions. Purchases of Trust Shares
will be effected only on days on which FD Distributors, Galaxy's custodian and
the purchasing Institution are open for business ("Trust Business Days"). If an
Institution accepts a purchase order from its Customer on a non-Trust Business
Day, the order will not be executed until it is received and accepted by FD
Distributors on a Trust Business Day in accordance with the foregoing
procedures.
On a Trust Business Day when the Exchange closes early due to a partial
holiday or otherwise, Galaxy will advance the time at which purchase orders must
be received in order to be processed on that Trust Business Day.
REDEMPTION OF RETAIL A SHARES, RETAIL B SHARES
AND TRUST SHARES
Redemption orders are effected at the net asset value per share next
determined after receipt of the order by FD Distributors. On a Business Day or
Trust Business Day when the Exchange closes early due to a partial holiday or
otherwise, Galaxy will advance the time at which redemption orders must be
received in order to be processed on that Business Day or Trust Business Day.
Galaxy may require any information reasonably necessary to ensure that a
redemption has been duly authorized. Proceeds from the redemptions of Retail B
Shares of the Funds will be reduced by the amount of any applicable contingent
deferred sales charge. Galaxy reserves the right to transmit redemption
proceeds within seven days after receiving the redemption order if, in its
judgment, an earlier payment could adversely affect a Fund.
If the Board of Trustees determines that conditions exist which make
payment of redemption proceeds wholly in cash unwise or undesirable, Galaxy may
make payment wholly or partly in securities or other property. Such redemptions
will only be made in "readily marketable" securities. In such an event, a
shareholder would incur transaction costs in selling the securities or other
property.
Galaxy may suspend the right of redemption or postpone the date of payment
for shares for more than seven days during any period when (a) trading in the
markets the Funds normally utilize is restricted, or an emergency, as defined by
the rules and regulations of the SEC exists making disposal of a Fund's
investments or determination of its net asset value not reasonably practicable;
(b) the Exchange is closed (other than customary weekend and holiday closings);
or (c) the SEC by order has permitted such suspension.
INVESTOR PROGRAMS - RETAIL A SHARES AND RETAIL B SHARES
The following information supplements the description in the applicable
Prospectus as to the various Investor Programs available to holders of Retail
Shares of the Funds.
EXCHANGE PRIVILEGE
The minimum initial investment to establish an account in another Fund or
portfolio by exchange, except for the Institutional Government Money Market
Fund, is $2,500, unless (i) the Retail Shares being redeemed were purchased
through a registered representative who is a Fleet
- 51 -
<PAGE>
Bank employee, in which event there is no minimum investment requirement, or
(ii) at the time of the exchange the investor elects, with respect to the Fund
or portfolio into which the exchange is being made, to participate in the
Automatic Investment Program described below, in which event there is no minimum
initial investment requirement, or in the College Investment Program described
below, in which event the minimum initial investment is generally $100. The
minimum initial investment to establish an account by exchange in the
Institutional Government Money Market Fund is $2 million.
An exchange involves a redemption of all or a portion of the Retail Shares
of a Fund and the investment of the redemption proceeds in Retail Shares of
another Fund or portfolio offered by Galaxy or, with respect to Retail A Shares,
otherwise advised by Fleet or its affiliates. The redemption will be made at
the per share net asset value next determined after the exchange request is
received. The Retail Shares of a Fund or portfolio to be acquired will be
purchased at the per share net asset value next determined after acceptance of
the exchange request, plus any applicable sales charge.
Investors may find the exchange privilege useful if their investment
objectives or market outlook should change after they invest in any of the
Funds. For further information regarding Galaxy's exchange privilege, investors
should call Investor Services Group at 1-877-BUY-GALAXY (1-877-289-4252).
Customers of institutions should call their institution for such information.
Customers exercising the exchange privilege into other portfolios should request
and review these portfolios' prospectuses prior to making an exchange.
Telephone 1-877-BUY-GALAXY (1-877-289-4252) for a prospectus or to make an
exchange.
In order to prevent abuse of this privilege to the disadvantage of other
shareholders, Galaxy reserves the right to terminate the exchange privilege of
any shareholder who requests more than three exchanges a year. Galaxy will
determine whether to do so based on a consideration of both the number of
exchanges that any particular shareholder or group of shareholders has requested
and the time period over which their exchange requests have been made, together
with the level of expense to Galaxy which will result from effecting additional
exchange requests. The exchange privilege may be modified or terminated at any
time. At least 60 days' notice of any material modification or termination will
be given to shareholders except where notice is not required under the
regulations of the SEC.
For federal income tax purposes, an exchange of shares is a taxable event
and, accordingly, a capital gain or loss may be realized by an investor. Before
making an exchange request, an investor should consult a tax or other financial
adviser to determine the tax consequences.
RETIREMENT PLANS
Retail Shares of the Funds are available for purchase in connection with
the following tax-deferred prototype retirement plans:
INDIVIDUAL RETIREMENT ACCOUNTS ("IRAS") (including traditional, Roth and
Education IRAs and "roll-overs" from existing retirement plans), a
retirement-savings vehicle for qualifying individuals. The minimum initial
investment for an IRA account is $500 (including a spousal account).
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<PAGE>
SIMPLIFIED EMPLOYEE PENSION PLANS ("SEPs"), a form of retirement plan for
sole proprietors, partnerships and corporations. The minimum initial investment
for a SEP account is $500.
MULTI-EMPLOYEE RETIREMENT PLANS ("MERPs"), a retirement vehicle established
by employers for their employees which is qualified under Section 401(k) and
403(b) of the code. The minimum initial investment for a MERP is $500.
KEOGH PLANS, a retirement vehicle for self-employed individuals. The
minimum initial investment for a keogh plan is $500.
Investors purchasing Retail Shares pursuant to a retirement plan are not
subject to the minimum investment provisions described in the applicable
Prospectus. Detailed information concerning eligibility and other matters
related to these plans and the form of application is available from FD
Distributors (call 1-877-BUY-GALAXY (1-877-289-4252)) with respect to IRAs,
SEPs and Keogh Plans and from Fleet Securities, Inc. (call 1-800-221-8210)
with respect to MERPs.
AUTOMATIC INVESTMENT PROGRAM AND SYSTEMATIC WITHDRAWAL PLAN
The Automatic Investment Program permits an investor to purchase Retail
Shares of a Fund each month or each quarter. Provided an investor's financial
institution allows automatic withdrawals, Retail Shares are purchased by
transferring funds from the investor's checking, bank money market, NOW or
savings account designated by the investor. The account designated will be
debited in the specified amount, and Retail Shares will be purchased, on a
monthly or quarterly basis, on any Business Day designated by the investor. If
the designated day falls on a weekend or holiday, the purchase will be made on
the Business Day closest to the designated day. Only an account maintained at a
domestic financial institution which is an Automated Clearing House ("ACH")
member may be so designated.
The Systematic Withdrawal Plan permits an investor to automatically redeem
Retail Shares on a monthly, quarterly, semi-annual, or annual basis on any
Business Day designated by an investor, if the account has a starting value of
at least $10,000. If the designated day falls on a weekend or holiday, the
redemption will be made on the Business Day closest to the designated day.
Proceeds of the redemption will be sent to the shareholder's address of record
or financial institution within three Business Days of the redemption. If
redemptions exceed purchases and dividends, the number of shares in the account
will be reduced. Investors may terminate the Systematic Withdrawal Plan at any
time upon written notice to Investor Services Group, Galaxy's transfer agent
(but not less than five days before a payment date). There is no charge for
this service. Purchases of additional Retail A Shares concurrently with
withdrawals are ordinarily not advantageous because of the sales charge involved
in the additional purchases. No contingent deferred sales charge will be
assessed on redemptions of Retail B Shares made through the Systematic
Withdrawal Plan that do not exceed 12% of an account's net asset value on an
annualized basis. For example, monthly, quarterly and semi-annual Systematic
Withdrawal Plan redemptions of Retail B Shares will not be subject to the
contingent deferred sales charge if they do not exceed 1%, 3% and 6%,
respectively, of an account's net asset value
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<PAGE>
on the redemption date. Systematic Withdrawal Plan redemptions of Retail B
Shares in excess of this limit are still subject to the applicable contingent
deferred sales charge.
PAYROLL DEDUCTION PROGRAM
To be eligible for the Payroll Deduction Program, the payroll department of
an investor's employer must have the capability to forward transactions directly
through the ACH, or indirectly through a third party payroll processing company
that has access to the ACH. An investor must complete and submit a Galaxy
Payroll Deduction Application to his or her employer's payroll department, which
will arrange for the specified amount to be debited from the investor's paycheck
each pay period. Retail Shares of Galaxy will be purchased within three days
after the debit occurred. If the designated day falls on a weekend or
non-Business Day, the purchase will be made on the Business Day closest to the
designated day. An investor should allow between two to four weeks for the
Payroll Deduction Program to be established after submitting an application to
the employer's payroll department.
COLLEGE INVESTMENT PROGRAM
Galaxy reserves the right to redeem accounts participating in the College
Investment Program involuntarily, upon 60 days' written notice, if the account's
net asset value falls below the applicable minimum initial investment as a
result of redemptions. Investors participating in the College Investment
Program will receive consolidated monthly statements of their accounts.
Detailed information concerning College Investment Program accounts and
applications may be obtained from FD Distributors (call 1-877-BUY-GALAXY
(1-877-289-4252)).
DIRECT DEPOSIT PROGRAM
Death or legal incapacity will terminate an investor's participation in the
Direct Deposit Program. An investor may elect at any time to terminate his or
her participation by notifying in writing the Social Security Administration.
Further, Galaxy may terminate an investor's participation upon 30 days' notice
to the investor.
TAXES
Each Fund qualified during its last taxable year and intends to continue to
qualify as a regulated investment company under Subchapter M of the Code, and to
invest all, or substantially all, of its assets in debt obligations the interest
on which is exempt for federal income tax purposes, so that the Fund itself
generally will be relieved of federal income and excise taxes. If a Fund were
to fail to so qualify: (1) the Fund would be taxed on its taxable income at
regular corporate rates without any deduction for distributions to shareholders;
and (2) shareholders would be taxed as if they received ordinary dividends,
although corporate shareholders could be eligible for the dividends received
deduction. For a Fund to pay tax-exempt dividends for any taxable year, at
least 50% of the aggregate value of the Fund's assets at the close of each
quarter of the Fund's taxable year must consist of exempt-interest obligations.
A 4% non-deductible excise tax is imposed on regulated investment companies
that fail to distribute with respect to each calendar year at least 98% of their
ordinary taxable income and
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<PAGE>
capital gain net income (excess of capital gains over capital losses) for the
one year period ending October 31 of such calendar year. Each Fund intends to
make sufficient distributions or deemed distributions of its ordinary taxable
income and any capital gain net income prior to the end of each calendar year to
avoid liability for this excise tax.
The Funds will be required in certain cases to withhold and remit to the
United States Treasury 31% of taxable dividends or gross sale proceeds paid to
any shareholder who (i) has failed to provide a correct tax identification
number, (ii) is subject to withholding by the Internal Revenue Service for
failure to properly include on his or her return payments of taxable interest or
dividends, or (iii) has failed to certify to the Funds that he or she is not
subject to back up withholding when required to do so or that he or she is an
"exempt recipient."
Dividends declared in October, November or December of any year which are
payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by a Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
An investment in a Fund is not intended to constitute a balanced investment
program. Shares of the Funds would not be suitable for tax-exempt institutions
and may not be suitable for retirement plans qualified under Section 401 of the
Code, H.R. 10 plans and individual retirement accounts because such plans and
accounts are generally tax-exempt and, therefore, not only would the shareholder
not gain any additional benefit from the Funds' dividends being tax-exempt, but
such dividends would be ultimately taxable to the beneficiaries when
distributed. In addition, the Funds may not be an appropriate investment for
entities which are "substantial users" of facilities financed by "private
activity bonds" or "related persons" thereof. "Substantial user" is defined
under U.S. Treasury Regulations to include a non-exempt person who (i) regularly
uses a part of such facilities in his or her trade or business and whose gross
revenues derived with respect to the facilities financed by the issuance of
bonds are more than 5% of the total revenues derived by all users of such
facilities, (ii) occupies more than 5% of the usable area of such facilities or
(iii) are persons for whom such facilities or a part thereof were specifically
constructed, reconstructed or acquired. "Related persons" include certain
related natural persons, affiliated corporations, a partnership and its partners
and an S corporation and its shareholders.
STATE AND LOCAL
Exempt-interest dividends and other distributions paid by the Funds may be
taxable to shareholders under state or local law as dividend income, even though
all or a portion of such distributions may be derived from interest on
tax-exempt obligations which, if realized directly, would be exempt from such
income taxes.
It is anticipated that substantially all dividends paid by the New Jersey
Municipal Bond Fund will not be subject to New Jersey personal income tax. In
accordance with the provisions of New Jersey law as currently in effect,
distributions paid by a "qualified investment fund" will not be subject to the
New Jersey personal income tax to the extent that the distributions are
attributable to income received as interest or gain from New Jersey Municipal
Securities (as defined above), or as interest or gain from direct U.S.
Government obligations. Distributions by a "qualified investment fund" that are
attributable to most other sources will be subject to the
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<PAGE>
New Jersey personal income tax. Shares of the Fund are not subject to property
taxation by New Jersey or its political subdivisions.
The New Jersey personal income tax is not applicable to corporations. For
all corporations subject to the New Jersey Corporation Business Tax, dividends
and distributions from a "qualified investment fund" are included in the net
income tax base for purposes of computing the Corporation Business Tax.
Furthermore, any gain upon the redemption or sale of shares by a corporate
shareholder is also included in the net income tax base for purposes of
computing the Corporation Business Tax.
With respect to the New York Municipal Bond Fund, exempt-interest dividends
(as defined for federal income tax purposes), derived from interest on New York
Municipal Securities (as defined above) will be exempt from New York State and
New York City personal income taxes (but not corporate franchise taxes),
provided the interest on such obligations is and continues to be exempt from
applicable federal, New York State and New York City income taxes. To the
extent that investors are subject to state and local taxes outside of New York
State and New York City, dividends by the Fund may be taxable income for
purposes thereof. Dividends and distributions derived from income (including
capital gains on all New York Municipal Securities) other than interest on New
York Municipal Securities described above are not exempt from New York State and
New York City taxes. Interest or indebtedness incurred or continued by a
shareholder to purchase or carry shares of the Fund is not deductible for
federal, New York State or New York City personal income tax purposes.
Dividends paid by the Connecticut Municipal Bond Fund that qualify as
exempt-interest dividends for federal income tax purposes are not subject to
the Connecticut personal income tax imposed on resident and non-resident
individuals, trusts and estates to the extent that they are derived from
Connecticut Municipal Securities (as defined above). Other Fund dividends
and distributions, whether received in cash or additional shares, are subject
to this tax, except that, in the case of shareholders who hold their shares
of the Fund as capital assets, distributions treated as capital gain
dividends for federal income tax purposes are not subject to the tax to the
extent that they are derived from obligations issued by or on behalf of the
State of Connecticut, its political subdivisions, or public
instrumentalities, state or local authorities, districts or similar public
entities created under Connecticut law. Dividends and distributions paid by
the Fund that constitute items of tax preference for purposes of the federal
alternative minimum tax, other than any derived from Connecticut Municipal
Securities, could cause liability for the net Connecticut minimum tax
applicable to investors subject to the Connecticut personal income tax who
are required to pay the federal alternative minimum tax. Dividends paid by
the Fund, including those that qualify as exempt-interest dividends for
federal income tax purposes, are taxable for purposes of the Connecticut
Corporation Business Tax; however, 70% (100% if the investor owns at least
20% of the total voting power and value of the Fund's shares) of amounts that
are treated as dividends and not as exempt-interest dividends or capital gain
dividends for federal income tax purposes are deductible for purposes of this
tax, but no deduction is allowed for expenses related thereto. Shares of the
Fund are not subject to property taxation by Connecticut or its political
subdivisions.
Distributions by the Massachusetts Municipal Bond Fund to its shareholders
are exempt from Massachusetts personal income taxation to the extent they are
derived from (and designated by the Fund as being derived from) (i) interest on
Massachusetts Municipal Securities (as defined
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<PAGE>
above), (ii) capital gains realized by the Fund from the sale of certain
Massachusetts Municipal Securities, or (iii) interest on U.S. Government
obligations exempt from state income taxation. Distributions from the Fund's
other net investment income and short-term capital gains will be taxable as
ordinary income. Distributions from the Fund's net long-term capital gains will
be taxable as long-term capital gains regardless of how long the shareholder has
owned Fund shares. The tax treatment of distributions is the same whether
distributions are paid in cash or in additional shares of the Fund. In 1994,
the Massachusetts personal income tax statute was modified to provide for
graduated rates of tax (with some exceptions) on gains from the sale or exchange
of capital assets held for more than one year based on the length of time the
asset has been held since January 1, 1995. The Massachusetts Department of
Revenue has released proposed regulations providing that the holding period of
the mutual fund (rather than that of its shareholders) will be determinative for
purposes of applying the revised statute to shareholders that receive capital
gain distributions (other than exempt capital gain distributions, as discussed
above), so long as the mutual fund separately designates the amount of such
distributions attributable to each of six classes of gains from the sale or
exchange of capital assets held for more than one year in a notice provided to
shareholders and the Commissioner of Revenue on or before March 1 of the
calendar year after the calendar year of such distributions. In the absence of
such notice, the holding period of the assets giving rise to such gain is deemed
to be more than one but not more than two years. Shareholders should consult
their tax advisers with respect to the Massachusetts tax treatment of capital
gain distributions from the Fund.
Distributions by the Massachusetts Municipal Bond Fund to corporate
shareholders, including exempt-interest dividends, may be subject to
Massachusetts corporate excise tax. Fund shares are not, however, subject to
property taxation by Massachusetts or its political subdivisions.
The Rhode Island Municipal Bond Fund has received a ruling from the Rhode
Island Division of Taxation to the effect that distributions by it to its
shareholders are exempt from Rhode Island personal income taxation and the Rhode
Island business corporation tax to the extent they are derived from (and
designated by the Fund as being derived from) interest earned on Rhode Island
Municipal Securities (as defined above) or obligations of the United States.
Distributions from the Fund's other net investment income and short-term capital
gains will be taxable as ordinary income. Distributions from the Fund's net
long-term capital gains will be taxable as long-term capital gains regardless of
how long the shareholder has owned Fund shares. The tax treatment of
distributions is the same whether distributions are paid in cash or in
additional shares of the Fund.
The Rhode Island Municipal Bond Fund will be subject to the Rhode Island
business corporation tax on its "gross income" apportioned to the State of Rhode
Island. For this purpose, gross income does not include interest income earned
by the Fund on Rhode Island Municipal Securities and obligations of the United
States, capital gains realized by the Fund on the sale of certain Rhode Island
Municipal Securities, and 50 percent of the Fund's other net capital gains.
Depending upon the extent of Galaxy's activities in states and
localities in which its offices are maintained, in which its agents or
independent contractors are located, or in which it is otherwise deemed to be
conducting business, each Fund may be subject to the tax laws of such states
or localities. In addition, in those states and localities that have income
tax laws, the treatment of a Fund and its shareholders under such laws may
differ from their treatment under
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<PAGE>
federal income tax laws. Under state or local law, distributions of net
investment income may be taxable to shareholders as dividend income even though
a substantial portion of such distributions may be derived from interest on U.S.
Government obligations which, if realized directly, would be exempt from such
income taxes. Shareholders are advised to consult their tax advisers concerning
the application of state and local taxes.
TAXATION OF CERTAIN FINANCIAL INSTRUMENTS
Special rules govern the federal income tax treatment of financial
instruments that may be held by the Funds. These rules may have a particular
impact on the amount of income or gain that the Funds must distribute to their
respective shareholders to comply with certain distribution requirements imposed
by the Code and on the income or gain qualifying under source of income
requirements established by the Code.
Generally, futures contracts and options on futures contracts held by the
Funds (as described above) (collectively, the "Instruments") at the close of
their taxable year are treated for federal income tax purposes as sold for their
fair market value on the last business day of such year, a process known as
"mark-to-market." Forty percent of any gain or loss resulting from such
constructive sales will be treated as short-term capital gain or loss and 60% of
such gain or loss will be treated as long-term capital gain or loss without
regard to the period a Fund has held the Instruments ("the 40-60 rule"). The
amount of any capital gain or loss actually realized by a Fund in a subsequent
sale or other disposition of those Instruments is adjusted to reflect any
capital gain or loss taken into account by the Fund in a prior year as a result
of the constructive sale of the Instruments. With respect to certain
Instruments, deductions for interest and carrying charges may not be allowed.
In accordance with Treasury regulations, certain transactions that are part
of a "Section 988 hedging transaction" (as defined in the Code and Treasury
regulations) may be integrated and treated as a single transaction or otherwise
treated consistently for purposes of the Code. "Section 988 hedging
transactions" are not subject to the mark-to-market or loss deferral rules under
the Code.
MISCELLANEOUS
Shareholders will be advised annually as to the federal income tax
consequences and, with respect to shareholders of the New Jersey Municipal Bond,
New York Municipal Bond, Connecticut Municipal Bond, Massachusetts Municipal
Bond and Rhode Island Municipal Bond Funds, the New Jersey personal income tax,
New York State and New York City personal income tax, Connecticut personal
income tax, Massachusetts personal income tax and Rhode Island personal income
tax consequences, respectively, of distributions made each year.
TRUSTEES AND OFFICERS
The business and affairs of the Funds are managed under the direction of
Galaxy's Board of Trustees in accordance with the laws of the Commonwealth of
Massachusetts and the Trust's Declaration of Trust. The trustees and executive
officers of Galaxy, their addresses, principal occupations during the past five
years, and other affiliations are as follows:
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<PAGE>
<TABLE>
<CAPTION>
Positions Principal Occupation
with The During Past 5 Years
Name and Address Galaxy Fund and Other Affiliations
- ---------------- ----------- ----------------------
<S> <C> <C>
Dwight E. Vicks, Jr. Chairman & President & Director, Vicks Lithograph & Printing
Vicks Lithograph & Trustee Corporation (book manufacturing and commercial
Printing Corporation printing); Director, Utica Fire Insurance Company;
Commercial Drive Trustee, Savings Bank of Utica; Director, Monitor
P.O. Box 270 Life Insurance Company; Director, Commercial
Yorkville, NY 13495 Travelers Mutual Insurance Company; Trustee, The
Age 65 Galaxy VIP Fund; Trustee, Galaxy Fund II.
John T. O'Neill(1)
Hasbro, Inc. President, Executive Vice President and CFO, Hasbro, Inc. (toy
1011 Newport Avenue Treasurer & and game manufacturer); Trustee, The Galaxy VIP Fund;
Pawtucket, RI 02862 Trustee Trustee, Galaxy Fund II.
Age 54
Louis DeThomasis Trustee President, Saint Mary's College of Minnesota;
Saint Mary's College Director, Bright Day Travel, Inc.; Trustee, Religious
of Minnesota Communities Trust; Trustee, The Galaxy VIP Fund;
Winona, MN 55987 Trustee, Galaxy Fund II.
Age 58
Donald B. Miller Trustee Chairman, Horizon Media, Inc. (broadcast services);
10725 Quail Covey Road Director/Trustee, Lexington Funds; Chairman,
Boynton Beach, FL 33436 Executive Committee, Compton International, Inc.
Age 73 (advertising agency); Trustee, Keuka College;
Trustee, The Galaxy VIP Fund; Trustee, Galaxy Fund II.
James M. Seed Trustee Chairman and President, The Astra Projects,
The Astra Ventures, Inc. Incorporated (land development); President, The Astra
One Citizens Plaza Ventures, Incorporated (previously, Buffinton Box
Providence, RI 02903 Company - manufacturer of cardboard boxes);
Age 57 Commissioner, Rhode Island Investment Commission;
Trustee, The Galaxy VIP Fund; Trustee, Galaxy Fund II.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Positions Principal Occupation
with The During Past 5 Years
Name and Address Galaxy Fund and Other Affiliations
- ---------------- ----------- ----------------------
<S> <C> <C>
Bradford S. Wellman(1) Trustee Private Investor; Vice President and Director, Acadia
2468 Ohio Street Management Company (investment services); Director,
Bangor, ME 04401 Essex County Gas Company, until January 1994;
Age 67 Director, Maine Mutual Fire Insurance Co.; Member,
Maine Finance Authority; Trustee, The Galaxy VIP
Fund; Trustee, Galaxy Fund II.
W. Bruce McConnel, III Secretary Partner of the law firm Drinker Biddle & Reath LLP,
Philadelphia National Philadelphia, Pennsylvania.
Bank Building
1345 Chestnut Street.
Philadelphia, PA 19107
Age 56
Jylanne Dunne Vice President and Vice President, First Data Investor Services Group,
First Data Investor Services Group, Inc. and Assistant Inc., 1990 to present.
4400 Computer Drive Treasurer
Westborough, MA 01581-5108
Age 39
William Greilich Vice President Vice President, First Data Investor Services Group,
First Data Investor Services Group, Inc. Inc., 1991-96; Vice President and Division Manager,
4400 Computer Drive First Data Investor Services Group, Inc., 1996-
Westborough, MA 01581-5108 present.
Age 45
</TABLE>
- ---------------------------------
1. May be deemed to be an "interested person" within the definition set forth
in Section 2(a)(19) of the 1940 Act.
Effective March 5, 1998, each trustee receives an annual aggregate fee of
$40,000 for his services as a trustee of Galaxy, The Galaxy VIP Fund ("Galaxy
VIP") and Galaxy Fund II ("Galaxy II") (collectively, the "Trusts"), plus an
additional $2,250 for each in-person Galaxy Board meeting attended and $1,500
for each in-person Galaxy VIP or Galaxy II Board meeting attended not held
concurrently with an in-person Galaxy meeting, and is reimbursed for expenses
incurred in attending all meetings. Each trustee also receives $750 for each
telephone Board meeting in which the trustee participates, $1,000 for each
in-person Board committee meeting
- 60 -
<PAGE>
attended and $500 for each telephone Board committee meeting in which the
trustee participates. The Chairman of the Boards of the Trusts is entitled to
an additional annual aggregate fee in the amount of $4,000, and the President
and Treasurer of the Trusts is entitled to an additional annual aggregate fee of
$2,500 for their services in these respective capacities. The foregoing
trustees' and officers' fees are allocated among the portfolios of the Trusts
based on their relative net assets. Prior to March 5, 1998, (i) each trustee
received an annual aggregate fee of $29,000 for his services as a trustee of the
Trusts, plus an additional $2,250 for each in-person Galaxy Board meeting
attended and $1,500 for each in-person Galaxy VIP or Galaxy II Board meeting
attended not held concurrently with an in-person Galaxy Board meeting, and (ii)
the President and Treasurer of the Trusts received the same fees as they are
currently paid for their services in these capacities.
Effective March 1, 1996, each trustee became entitled to participate in The
Galaxy Fund, The Galaxy VIP Fund and Galaxy Fund II Deferred Compensation Plans
(the "Original Plans"). Effective January 1, 1997, the Original Plans were
merged into The Galaxy Fund/The Galaxy VIP Fund/Galaxy Fund II Deferred
Compensation Plan (together with the Original Plans, the "Plan"). Under the
Plan, a trustee may elect to have his deferred fees treated as if they had been
invested by the Trusts in the shares of one or more portfolios in the Trusts, or
other types of investment options, and the amount paid to the trustees under the
Plan will be determined based upon the performance of such investments.
Deferral of trustees' fees will have no effect on a portfolio's assets,
liabilities, and net income per share, and will not obligate the Trusts to
retain the services of any trustee or obligate a portfolio to any level of
compensation to the trustee. The Trusts may invest in underlying securities
without shareholder approval.
No employee of Investor Services Group receives any compensation from
Galaxy for acting as an officer. No person who is an officer, director or
employee of Fleet or any of its affiliates, serves as a trustee, officer or
employee of Galaxy. The trustees and officers of Galaxy own less than 1% of its
outstanding shares.
The following chart provides certain information about the fees received by
Galaxy's trustees in the most recently completed fiscal year.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PENSION OR TOTAL
RETIREMENT COMPENSATION
BENEFITS FROM GALAXY AND
AGGREGATE ACCRUED AS FUND
COMPENSATION PART OF FUND COMPLEX*PAID
NAME OF PERSON/POSITION FROM GALAXY EXPENSES TO TRUSTEES
----------------------- ----------- -------- -----------
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Bradford S. Wellman $39,932 None $44,750
Trustee
- --------------------------------------------------------------------------------
Dwight E. Vicks, Jr. $43,949 None $49,250
Chairman and Trustee
- --------------------------------------------------------------------------------
Donald B. Miller** $40,380 None $45,250
Trustee
- --------------------------------------------------------------------------------
Rev. Louis DeThomasis $40,380 None $45,250
Trustee
- --------------------------------------------------------------------------------
John T. O'Neill $42,611 None $47,750
President, Treasurer
and Trustee
- --------------------------------------------------------------------------------
James M. Seed** $40,380 None $45,250
Trustee
- --------------------------------------------------------------------------------
</TABLE>
- -------------------
* The "Fund Complex" consists of Galaxy, The Galaxy VIP Fund and Galaxy
Fund II which comprise a total of 43 separate portfolios.
** Deferred compensation (including interest) in the amounts of $43,744
and $44,527 accrued during Galaxy's fiscal year ended October 31, 1998
for Messrs. Miller and Seed, respectively.
- 61 -
<PAGE>
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. However, Galaxy's Declaration of Trust provides that shareholders
shall not be subject to any personal liability for the acts or obligations of
Galaxy, and that every note, bond, contract, order or other undertaking made by
Galaxy shall contain a provision to the effect that the shareholders are not
personally liable thereunder. The Declaration of Trust provides for
indemnification out of the trust property of any shareholder held personally
liable solely by reason of his or her being or having been a shareholder and not
because of his or her acts or omissions outside such capacity or some other
reason. The Declaration of Trust also provides that Galaxy shall, upon
request, assume the defense of any claim made against any shareholder for any
act or obligation of Galaxy, and shall satisfy any judgment thereon. Thus, the
risk of shareholder liability is limited to circumstances in which Galaxy itself
would be unable to meet its obligations.
The Declaration of Trust states further that no trustee, officer or agent
of Galaxy shall be personally liable for or on account of any contract, debt,
claim, damage, judgment or decree arising out of or connected with the
administration or preservation of the trust estate or the conduct of any
business of Galaxy; nor shall any trustee be personally liable to any person for
any action or failure to act except by reason of his own bad faith, willful
misfeasance, gross negligence or reckless disregard of his duties as trustee.
The Declaration of Trust also provides that all persons having any claim against
the trustees or Galaxy shall look solely to the trust property for payment.
With the exceptions stated, the Declaration of Trust provides that a
trustee is entitled to be indemnified against all liabilities and expenses
reasonably incurred by him in connection with the defense or disposition of any
proceeding in which he may be involved or with which he may be threatened by
reason of his being or having been a trustee, and that the Board of Trustees
shall indemnify representatives and employees of Galaxy to the same extent to
which they themselves are entitled to indemnification.
- 62 -
<PAGE>
INVESTMENT ADVISER
Fleet serves as investment adviser to the Funds. In its advisory
agreement, Fleet has agreed to provide investment advisory services to the Funds
as described in the Prospectuses. Fleet has also agreed to pay all expenses
incurred by it in connection with its activities under the advisory agreement
other than the cost of securities (including brokerage commissions) purchased
for the Funds. See "Expenses" below.
For the services provided and expenses assumed with respect to the Funds,
Fleet is entitled to receive advisory fees, computed daily and paid monthly, at
the annual rate of .75% of the average daily net assets of each Fund. Fleet is
currently waiving a portion of the advisory fees payable to it by the Funds so
that it is entitled to receive advisory fees at the annual rate of .55% of each
Fund's average daily net assets, but Fleet may in its discretion revise or
discontinue this waiver at any time. During the last three fiscal years, Galaxy
paid advisory fees (net of fee waivers and/or expense reimbursements) to Fleet
as set forth below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1998 1997 1996
- ---- ---- ---- ----
<S> <C> <C> <C>
Tax-Exempt Bond....................... $864,035 $789,598 $696,116
New Jersey Municipal Bond............. $ 7,348(1) * *
New York Municipal Bond............... $406,853 $351,041 $360,298
Connecticut Municipal Bond............ $118,625 $ 74,799 $ 67,091
Massachusetts Municipal Bond.......... $184,536 $102,040 $ 78,783
Rhode Island Municipal Bond........... $ 60,214 $ 37,641 $ 38,943
</TABLE>
- -------------------
* Not in operation during the period.
(1) For the period from April 3, 1998 (commencement of operations) through
October 31, 1998.
During the last three fiscal years, Fleet waived advisory fees as set forth
below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1998 1997 1996
- ---- ---- ---- -----
<S> <C> <C> <C>
Tax-Exempt Bond....................... $318,713 $287,127 $253,133
New Jersey Municipal Bond............. $ 20,153(1) * *
New York Municipal Bond............... $148,595 $127,651 $131,020
Connecticut Municipal Bond............ $160,488 $149,599 $163,904
Massachusetts Municipal Bond.......... $246,101 $204,080 $191,624
Rhode Island Municipal Bond........... $ 80,524 $ 75,284 $ 60,030
</TABLE>
- -------------------
* Not in operation during the period.
(1) For the period from April 3, 1998 (commencement of operations) through
October 31, 1998.
During the last three fiscal years, Fleet reimbursed expenses as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1998 1997 1996
- ---- ---- ---- ----
<S> <C> <C> <C>
Tax-Exempt Bond................... $12,427 $73,334 $ 62,854
New Jersey Municipal Bond......... $ 2,729(1) * *
New York Municipal Bond........... $ 1,784 $48,842 $123,317
Connecticut Municipal Bond........ $0 $0 $0
Massachusetts Municipal Bond...... $0 $0 $0
Rhode Island Municipal Bond....... $0 $538 $ 15,079
</TABLE>
- ---------------------
* Not in operation during the period.
(1) For the period from April 3, 1998 (Commencement of Operations) through
October 31, 1998.
- 63 -
<PAGE>
The advisory agreement provides that Fleet shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Funds in
connection with the performance of its duties under the advisory agreement,
except a loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of Fleet in the
performance of its duties or from reckless disregard by it of its duties and
obligations thereunder. Unless sooner terminated, the advisory agreement will
continue in effect with respect to a particular Fund from year to year as long
as such continuance is approved at least annually (i) by the vote of a majority
of trustees who are not parties to such advisory agreement or interested persons
(as defined in the 1940 Act) of any such party, cast in person at a meeting
called for the purpose of voting on such approval; and (ii) by Galaxy's Board of
Trustees, or by a vote of a majority of the outstanding shares of such Fund.
The term "majority of the outstanding shares of such Fund" means, with respect
to approval of an advisory agreement, the vote of the lesser of (i) 67% or more
of the shares of the Fund present at a meeting, if the holders of more than 50%
of the outstanding shares of the Fund are present or represented by proxy, or
(ii) more than 50% of the outstanding shares of the Fund. The advisory
agreement may be terminated by Galaxy or by Fleet on sixty days' written notice,
and will terminate immediately in the event of its assignment.
The organizational arrangements of Fleet require that all investment
decisions with respect to the Funds be made by Fleet's Tax-Exempt Investment
Policy Committee and no one person is responsible for making recommendations to
that Committee.
Fleet is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, to the extent permitted
by law or order of the SEC, financial institutions that are affiliated with
Fleet or that have sold shares of the Funds, if Fleet believes that the quality
of the transaction and the commission are comparable to what they would be with
other qualified brokerage firms.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities such as shares
of the Funds, but do not prohibit such a bank holding company or its affiliates
or banks generally from acting as investment adviser, transfer agent, or
custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of customers. Fleet, the
- 64 -
<PAGE>
custodian and institutions which agree to provide shareholder support services
that are banks or bank affiliates are subject to such banking laws and
regulations. Should legislative, judicial or administrative action prohibit or
restrict the activities of such companies in connection with their services to
the Funds, Galaxy might be required to alter materially or discontinue its
arrangements with such companies and change its method of operation. It is
anticipated, however, that any resulting change in the Funds' method of
operation would not affect a Fund's net asset value per share or result in
financial loss to any shareholder.
ADMINISTRATOR
Investor Services Group, located at 4400 Computer Drive, Westborough,
Massachusetts 01581-5108, serves as the Funds' administrator. Investor Services
Group is a wholly-owned subsidiary of First Data Corporation.
Investor Services Group generally assists the Funds in their administration
and operation. Investor Services Group also serves as administrator to the
other portfolios of Galaxy. For the services provided to the Funds, Investor
Services Group is entitled to receive administration fees based on the combined
average daily net assets of the Funds and the other portfolios offered by Galaxy
with an October 31 fiscal year end, computed daily and paid monthly, at the
following rates, effective September 10, 1998:
<TABLE>
<CAPTION>
COMBINED AVERAGE DAILY NET ASSETS ANNUAL RATE
--------------------------------- -----------
<S> <C>
Up to $2.5 billion................... 0.090%
From $2.5 to $5 billion.............. 0.085%
From $5 to $12 billion............... 0.075%
From $12 to $15 billion.............. 0.065%
From $15 to $18 billion.............. 0.060%
Over $18 billion..................... 0.0575%
</TABLE>
Prior to September 10, 1998, Galaxy paid Investor Services Group
administration fees based on the combined average daily net assets of the Funds
and all other portfolios offered by Galaxy at the following annual rates:
<TABLE>
<CAPTION>
COMBINED AVERAGE DAILY NET ASSETS ANNUAL RATE
--------------------------------- -----------
<S> <C>
Up to $2.5 billion..................... 0.090%
From $2.5 to $5 billion................ 0.085%
Over $5 billion........................ 0.075%
</TABLE>
Investor Services Group also receives a separate annual fee from each Galaxy
portfolio for certain fund accounting services.
From time to time, Investor Services Group may waive voluntarily all or a
portion of the administration fee payable to it by the Funds. For the fiscal
year ended October 31, 1998, Investor Services Group received administration
fees at the effective annual rate of 0.08% of each Fund's average daily net
assets.
Under the administration agreement between Galaxy and Investor Services
Group (the "Administration Agreement"), Investor Services Group has agreed to
maintain office facilities for Galaxy, furnish Galaxy with statistical and
research data, clerical, accounting, and bookkeeping services, certain other
services such as internal auditing services required by
- 65 -
<PAGE>
Galaxy, and compute the net asset value and net income of the Funds. Investor
Services Group prepares the Funds' annual and semi-annual reports to the SEC,
federal and state tax returns, and filings with state securities commissions,
arranges for and bears the cost of processing share purchase and redemption
orders, maintains the Funds' financial accounts and records, and generally
assists in all aspects of Galaxy's operations. Unless otherwise terminated, the
Administration Agreement will remain in effect until May 1, 2001 and thereafter
will continue from year to year upon annual approval of Galaxy's Board of
Trustees.
- 66 -
<PAGE>
During the last three fiscal years, Investor Services Group received
administration fees (net of fee waivers) as set forth below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1998 1997 1996
- ---- ---- ---- ----
<S> <C> <C> <C>
Tax-Exempt Bond....................... $127,627 $117,223 $108,062
New Jersey Municipal Bond............. $--(1) * *
New York Municipal Bond............... $9,775 $26,292 $55,624
Connecticut Municipal Bond............ $29,946 $0 $0
Massachusetts Municipal Bond.......... $46,188 $2,406 $0
Rhode Island Municipal Bond........... $15,172 $12,293 $11,196
</TABLE>
- ---------------------
* Not in operation during the period.
(1) For the period from April 3, 1998 (commencement of operations) through
October 31, 1998.
During the last three fiscal years, Investor Services Group waived
administration fees as set forth below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1998 1997 1996
- ---- ---- ---- ----
<S> <C> <C> <C>
Tax-Exempt Bond........................ $0 $0 $0
New Jersey Municipal Bond.............. $3,235(1) * *
New York Municipal Bond................ $50,001 $25,827 $0
Connecticut Municipal Bond............. $0 $39,755 $46,559
Massachusetts Municipal Bond........... $0 $30,919 $46,772
Rhode Island Municipal Bond............ $0 $0 $0
</TABLE>
- ---------------------
* Not in operation during the period.
(1) For the period from April 3, 1998 (commencement of operations) through
October 31, 1998.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase Manhattan"), located at One Chase
Manhattan Plaza, New York, New York 10081, a wholly-owned subsidiary of The
Chase Manhattan Corporation, serves as the custodian of the Funds' assets
pursuant to a Global Custody Agreement.
Under the Global Custody Agreement, Chase Manhattan has agreed to: (i)
maintain a separate account or accounts in the name of each Fund; (ii) hold and
disburse portfolio securities on account of each Fund; (iii) collect and make
disbursements of money on behalf of each Fund; (iv) collect and receive all
income and other payments and distributions on account of each Fund's portfolio
securities; (v) respond to correspondence from security brokers and others
relating to its duties; and (vi) make periodic reports to the Board of Trustees
concerning the Funds' operations. Chase Manhattan is authorized to select one
or more banks or trust companies to serve as sub-custodian for the Funds,
provided that Chase Manhattan shall remain responsible for the performance of
all of its duties under the custodian agreement and shall be liable to the Funds
for any loss which shall occur as a result of the failure of a sub-custodian to
- 67 -
<PAGE>
exercise reasonable care with respect to the safekeeping of the Funds' assets.
The assets of the Funds are held under bank custodianship in compliance with the
1940 Act.
Investor Services Group, a wholly-owned subsidiary of First Data
Corporation, serves as the Funds' transfer and dividend disbursing agent
pursuant to a Transfer Agency and Services Agreement (the "Transfer Agency
Agreement"). Communications to Investor Services Group should be directed to
Investor Services Group at P.O. Box 5108, 4400 Computer Drive, Westborough,
Massachusetts 01581. Under the Transfer Agency Agreement, Investor Services
Group has agreed to: (i) issue and redeem shares of each Fund; (ii) transmit all
communications by each Fund to its shareholders of record, including reports to
shareholders, dividend and distribution notices and proxy materials for meetings
of shareholders; (iii) respond to correspondence by security brokers and others
relating to its duties; (iv) maintain shareholder accounts; and (v) make
periodic reports to the Board of Trustees concerning Galaxy's operations.
EXPENSES
Fleet and Investor Services Group bear all expenses in connection with the
performance of their services for the Funds, except that Galaxy bears the
expenses incurred in the Funds' operations including: taxes; interest; fees
(including fees paid to its trustees and officers who are not affiliated with
Investor Services Group); SEC fees; state securities fees; costs of preparing
and printing prospectuses for regulatory purposes and for distribution to
existing shareholders; advisory, administration, shareholder servicing, Rule
12b-1 distribution (if applicable), fund accounting and custody fees; charges of
the transfer agent and dividend disbursing agent; certain insurance premiums;
outside auditing and legal expenses; costs of independent pricing services;
costs of shareholder reports and meetings; and any extraordinary expenses. The
Funds also pay for brokerage fees and commissions in connection with the
purchase of portfolio securities.
PORTFOLIO TRANSACTIONS
Debt securities purchased or sold by the Funds are generally traded in the
over-the-counter market on a net basis (i.e., without commission) through
dealers, or otherwise involve transactions directly with the issuer of an
instrument. The cost of securities purchased from underwriters includes an
underwriting commission or concession, and the prices at which securities are
purchased from and sold to dealers include a dealer's mark-up or mark-down.
The Funds may engage in short-term trading to achieve their investment
objectives. Portfolio turnover may vary greatly from year to year as well as
within a particular year. In purchasing or selling securities for the Funds,
Fleet will seek to obtain the best net price and the most favorable execution of
orders. To the extent that the execution and price offered by more than one
broker/dealer are comparable, Fleet may effect transactions in portfolio
securities with broker/dealers who provide research, advice or other services
such as market investment literature.
Except as permitted by the SEC or applicable law, the Funds will not
acquire portfolio securities from, make savings deposits in, enter into
repurchase or reverse repurchase agreements
- 68 -
<PAGE>
with, or sell securities to, Fleet, Investor Services Group, or their
affiliates, and will not give preference to affiliates and correspondent banks
of Fleet with respect to such transactions.
Galaxy is required to identify any securities of its "regular brokers or
dealers" that the Funds have acquired during Galaxy's most recent fiscal year.
During the fiscal year ended October 31, 1998, the Funds did not acquire or sell
securities of Galaxy's regular brokers and dealers.
Investment decisions for each Fund are made independently from those for
the other Funds and portfolios of Galaxy and for any other investment companies
and accounts advised or managed by Fleet. When a purchase or sale of the same
security is made at substantially the same time on behalf of a Fund, another
portfolio of Galaxy, and/or another investment company or account, the
transaction will be averaged as to price, and available investments allocated as
to amount, in a manner which Fleet believes to be equitable to the Fund and such
other portfolio, investment company or account. In some instances, this
investment procedure may adversely affect the price paid or received by a Fund
or the size of the position obtained or sold by such Fund. To the extent
permitted by law, Fleet may aggregate the securities to be sold or purchased for
a Fund with those to be sold or purchased for Galaxy's other Funds and
portfolios, or other investment companies or accounts in order to obtain best
execution.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to which it intends
to enter into servicing agreements with institutions (including Fleet Bank and
its affiliates). Pursuant to these servicing agreements, institutions render
certain administrative and support services to customers who are the beneficial
owners of Retail A Shares. Such services are provided to customers who are the
beneficial owners of Retail A Shares and are intended to supplement the services
provided by Investor Services Group as administrator and transfer agent to the
shareholders of record of the Retail A Shares. The Plan provides that Galaxy
will pay fees for such services at an annual rate of up to .30% of the average
daily net asset value of Retail A Shares owned beneficially by customers.
Institutions may receive up to one-half of this fee for providing one or more of
the following services to such customers: aggregating and processing purchase
and redemption requests and placing net purchase and redemption orders with FD
Distributors; processing dividend payments from a Fund; providing sub-accounting
with respect to Retail A Shares or the information necessary for sub-accounting;
and providing periodic mailings to customers. Institutions may also receive up
to one-half of this fee for providing one or more of these additional services
to such customers: providing customers with information as to their positions
in Retail A Shares; responding to customer inquiries; and providing a service to
invest the assets of customers in Retail A Shares.
Although the Shareholder Services Plan has been approved with respect to
both Retail A Shares and Trust Shares of the Funds, as of the date of this
Statement of Additional Information, Galaxy has entered into servicing
agreements under the Shareholder Services Plan only with respect to Retail A
Shares of each Fund, and to limit the payment under these servicing agreements
for each Fund to an aggregate fee of not more than .15% (on an annualized basis)
of the average daily net asset value of the Retail A Shares of the Fund
beneficially owned by customers of institutions. Galaxy understands that
institutions may charge fees to their
- 69 -
<PAGE>
customers who are the beneficial owners of Retail A Shares in connection with
their accounts with such institutions. Any such fees would be in addition to
any amounts which may be received by an institution under the Shareholder
Services Plan. Under the terms of each servicing agreement entered into with
Galaxy, institutions are required to provide to their customers a schedule of
any fees that they may charge in connection with customer investments in Retail
A Shares. As of October 31, 1998, Galaxy had entered into Servicing Agreements
only with Fleet Bank and affiliates.
Each Servicing Agreement between Galaxy and a Service Organization relating
to the Services Plan requires that, with respect to those Funds which declare
dividends on a daily basis, the Service Organization agree to waive a portion of
the servicing fee payable to it under the Services Plan to the extent necessary
to ensure that the fees required to be accrued with respect to the Retail A
Shares of such Funds on any day do not exceed the income to be accrued to such
Retail A Shares on that day.
During the last three fiscal years, Galaxy made payments to Service
Organizations with respect to Retail A Shares as shown in the table below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1998 1997 1996
- ---- ---- ---- ----
<S> <C> <C> <C>
Tax-Exempt Bond........................ $38,181 $37,652 $42,210
New Jersey Municipal Bond.............. $386(1) * *
New York Municipal Bond................ $64,145 $56,596 $57,674
Connecticut Municipal Bond............. $37,207 $32,160 $36,878
Massachusetts Municipal Bond........... $58,742 $40,842 $38,823
Rhode Island Municipal Bond............ $0 $0 $0
</TABLE>
- ------------------
* Not in operation during the period.
(1) For the period from April 3, 1998 (commencement of operations) through
October 31, 1998.
Galaxy's Servicing Agreements are governed by the Services Plan that has
been adopted by Galaxy's Board of Trustees in connection with the offering of
Retail A Shares of each Fund. Pursuant to the Services Plan, the Board of
Trustees reviews, at least quarterly, a written report of the amounts paid under
the Servicing Agreements and the purposes for which the expenditures were made.
In addition, the arrangements with Service Organizations must be approved
annually by a majority of Galaxy's trustees, including a majority of the
trustees who are not "interested persons" of Galaxy as defined in the 1940 Act
and who have no direct or indirect financial interest in such arrangements (the
"Disinterested Trustees").
The Board of Trustees has approved Galaxy's arrangements with Service
Organizations based on information provided by Galaxy's service contractors that
there is a reasonable likelihood that the arrangements will benefit the Funds
and their shareholders by affording Galaxy greater flexibility in connection
with the efficient servicing of the accounts of the beneficial owners of Retail
A Shares of the Funds. Any material amendment to Galaxy's arrangements with
Service Organizations must be approved by a majority of Galaxy's Board of
Trustees (including a majority of the Disinterested Trustees). So long as
Galaxy's arrangements with Service Organizations are in effect, the selection
and nomination of the members of Galaxy's Board of Trustees who are not
"interested persons" (as defined in the 1940 Act) of Galaxy will be committed to
the discretion of such Disinterested Trustees.
- 70 -
<PAGE>
DISTRIBUTION AND SERVICES PLAN
Galaxy has adopted a Distribution and Services Plan pursuant to Rule 12b-1
under the 1940 Act (the "Rule") with respect to Retail B Shares of the
Tax-Exempt Bond Fund (the "12b-1 Plan"). Under the 12b-1 Plan, Galaxy may pay
(a) FD Distributors or another person for expenses and activities intended to
result in the sale of Retail B Shares, including the payment of commissions to
broker-dealers and other industry professionals who sell Retail B Shares and the
direct or indirect cost of financing such payments, (b) institutions for
shareholder liaison services, which means personal services for holders of
Retail B Shares and/or the maintenance of shareholder accounts, such as
responding to customer inquiries and providing information on accounts, and (c)
institutions for administrative support services, which include but are not
limited to (i) transfer agent and sub-transfer agent services for beneficial
owners of Retail B Shares; (ii) aggregating and processing purchase and
redemption orders; (iii) providing beneficial owners with statements showing
their positions in Retail B Shares; (iv) processing dividend payments; (v)
providing sub-accounting services for Retail B Shares held beneficially; (vi)
forwarding shareholder communications, such as proxies, shareholder reports,
dividend and tax notices, and updating prospectuses to beneficial owners; and
(vii) receiving, translating and transmitting proxies executed by beneficial
owners.
Under the 12b-1 Plan for Retail B Shares, payments by Galaxy (i) for
distribution expenses may not exceed the annualized rate of .65% of the average
daily net assets attributable to the Fund's outstanding Retail B Shares, and
(ii) to an institution for shareholder liaison services and/or administrative
support services may not exceed the annual rates of .15% and .15%, respectively,
of the average daily net assets attributable to the Fund's outstanding Retail B
Shares which are owned of record or beneficially by that institution's customers
for whom the institution is the dealer of record or shareholder of record or
with whom it has a servicing relationship. As of the date of this Statement of
Additional Information, Galaxy intends to limit the Fund's payments for
shareholder liaison and administrative support services under the 12b-1 Plan to
an aggregate fee of not more than .15% (on an annualized basis) of the average
daily net asset value of Retail B Shares owned of record or beneficially by
customers of institutions.
Payments for distribution expenses under the 12b-1 Plan are subject to the
Rule. The Rule defines distribution expenses to include the cost of "any
activity which is primarily intended to result in the sale of shares issued by"
Galaxy. The Rule provides, among other things, that an investment company may
bear such expenses only pursuant to a plan adopted in accordance with the Rule.
In accordance with the Rule, the 12b-1 Plan provides that a report of the
amounts expended under the 12b-1 Plan, and the purposes for which such
expenditures were incurred, will be made to the Board of Trustees for its review
at least quarterly. The 12b-1 Plan provides that it may not be amended to
increase materially the costs which Retail B Shares of a Fund may bear for
distribution pursuant to the 12b-1 Plan without shareholder approval, and that
any other type of material amendment must be approved by a majority of the Board
of Trustees, and by a majority of the trustees who are neither "interested
persons" (as defined in the 1940 Act) of Galaxy nor have any direct or indirect
financial interest in the operation of the 12b-1 Plan or in any related
agreements (the "12b-1 Trustees"), by vote cast in person at a meeting called
for the purpose of considering such amendments.
- 71 -
<PAGE>
During the last three fiscal years, Retail B Shares of the Tax-Exempt Bond
Fund bore the following distribution fees and shareholder servicing fees under
the 12b-1 Plan:
<TABLE>
<CAPTION>
SHAREHOLDER
FOR THE FISCAL YEAR ENDED OCTOBER 31: DISTRIBUTION FEES SERVICING FEES
- ------------------------------------- ----------------- --------------
<S> <C> <C>
1998............................................................................ $15,405 $3,555
1997............................................................................ $7,788 $1,784
1996(1)......................................................................... $300 $0
</TABLE>
- -----------------------
(1) For the period from March 4, 1996 (initial public offering date) through
October 31, 1996.
During these periods, all amounts paid under the 12b-1 Plan were attributable to
payments to broker-dealers.
Galaxy's Board of Trustees has concluded that there is a reasonable
likelihood that the 12b-1 Plan will benefit the Fund and holders of Retail B
Shares. The 12b-1 Plan is subject to annual reapproval by a majority of the
12b-1 Trustees and is terminable at any time with respect to the Fund by a vote
of a majority of such Trustees or by vote of the holders of a majority of the
Retail B Shares of the Fund. Any agreement entered into pursuant to the 12b-1
Plan with a Service Organization is terminable with respect to the Fund without
penalty, at any time, by vote of a majority of the 12b-1 Trustees, by vote of
the holders of a majority of the Retail B Shares of the Fund, by FD Distributors
or by the Service Organization. An agreement will also terminate automatically
in the event of its assignment.
As long as the 12b-1 Plan is in effect, the nomination of the trustees who
are not interested persons of Galaxy (as defined in the 1940 Act) must be
committed to the discretion of the 12b-1 Trustees.
DISTRIBUTOR
FD Distributors, a wholly-owned subsidiary of Investor Services Group,
serves as Galaxy's distributor. On March 31, 1995, Investor Services Group
acquired all of the issued and outstanding stock of FD Distributors. Prior to
that time, FD Distributors was a wholly-owned subsidiary of 440 Financial Group
of Worcester, Inc. and an indirect subsidiary of State Mutual Life Assurance
Company of America.
Unless otherwise terminated, the Distribution Agreement between Galaxy and
FD Distributors remains in effect until May 31, 1999, and thereafter will
continue from year to year upon annual approval by Galaxy's Board of Trustees,
or by the vote of a majority of the outstanding shares of Galaxy and by the vote
of a majority of the Board of Trustees of Galaxy who are not parties to the
Agreement or interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval. The Agreement will terminate
in the event of its assignment, as defined in the 1940 Act.
FD Distributors is entitled to the payment of a front-end sales charge on
the sale of Retail A Shares of the Funds as described in the applicable
Prospectus and this Statement of Additional
72
<PAGE>
Information. During the last three fiscal years, FD Distributors received
front-end sales charges in connection with Retail A Share purchases as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1998 1997 1996 (1)
- ---- ---- ---- --------
<S> <C> <C> <C>
Tax-Exempt Bond........................ $18,288 $19,403 $32,788
New Jersey Municipal Bond.............. $4,020(2) * *
New York Municipal Bond................ $71,005 $49,295 $58,347
Connecticut Municipal Bond............. $54,683 $46,322 $28,847
Massachusetts Municipal Bond........... $175,611 $140,492 $119,132
Rhode Island Municipal Bond............ $38,348 $22,941 $27,227
</TABLE>
- ------------------
* Not in operation during the period.
(1) For the period from December 1, 1995 (date of imposition of sales charges
on Retail A Shares) through October 31, 1996.
(2) For the period from April 3, 1998 (commencement of operations) through
October 31, 1998.
FD Distributors retained none of the amounts shown in the table above.
FD Distributors is also entitled to the payment of contingent deferred
sales charges upon the redemption of Retail B Shares of the Tax-Exempt Bond
Fund. For the fiscal years ended October 31, 1998 and October 31, 1997, and for
the period from March 4, 1996 (initial public offering date) through October 31,
1996, FD Distributors received contingent deferred sales charges in connection
with Retail B Share redemptions of the Tax-Exempt Bond Fund in the amounts of
$7,124, $5,353 and $0, respectively. FD Distributors retained none of this
amount.
- 73 -
<PAGE>
The following table shows all sales charges, commissions and other
compensation received by FD Distributors directly or indirectly from the Funds
during the fiscal year ended October 31, 1998:
<TABLE>
<CAPTION>
Brokerage
Net Underwriting Discounts Compensation on Commissions in
Discounts and Redemption and Connection with Other
Fund Commmissions (1) Repurchase (2) Fund Transactions Compensation (3)
---- ---------------- -------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Tax-Exempt $25,412 $7,124 $0 $53,117
Bond
New Jersey $4,020 N/A $0 $26
Municipal
Bond
New York $71,005 N/A $0 $59,751
Municipal
Bond
Connecticut $54,683 N/A $0 $36,365
Municipal
Bond
Massachusetts $175,611 N/A $0 $55,781
Municipal
Bond
Rhode Island $38,348 N/A $0 $0
Municipal
Bond
</TABLE>
______________________
(1) Represents amounts received from front-end sales charges on Retail A Shares
and commissions received in connection with sales of Retail B Shares.
(2) Represents amounts received from contingent deferred sales charges on
Retail B Shares. The basis on which such sales charges are paid is
described in the Prospectus relating to Retail B Shares. All such amounts
were paid to affiliates of Fleet.
(3) Represents payments made under the Shareholder Services Plan and
Distribution and Services Plan during the fiscal year ended October 31,
1998, which includes fees accrued in the fiscal year ended October 31, 1997
which were paid in 1998 (see "Shareholder Services Plan" and "Distribution
and Services Plan" above).
AUDITORS
Ernst & Young LLP, independent public accountants, with offices at
200 Clarendon Street, Hancock Tower, Boston, Massassachusetts 02116-5072
have been selected as auditors for Galaxy for the fiscal year ending
October 31, 1999. The financial highlights for the respective Funds included
in their Prospectuses and the financial statements for the Funds contained in
Galaxy's Annual Report to Shareholders and incorporated by reference into this
Statement of Additional Information for the respective fiscal periods ended
October 31 of each calendar year have been audited by PricewaterhouseCoopers
LLP, Galaxy's former auditors, for the periods included in their report thereon
which appears therein.
- 74 -
<PAGE>
COUNSEL
Drinker Biddle & Reath LLP (of which W. Bruce McConnel, III, Secretary of
Galaxy, is a partner), 1345 Chestnut Street, Suite 1100, Philadelphia,
Pennsylvania 19107, are counsel to Galaxy, will pass upon certain legal matters
on its behalf, and has reviewed the portion of this Statement of Additional
Information and the Prospectuses with respect to the New Jersey Municipal Bond
Fund concerning New Jersey taxes and the description of special considerations
relating to New Jersey Municipal Securities. The law firm of Willkie Farr &
Gallagher, One Citicorp Center, 153 East 53rd Street, New York, New York 10022,
serves as special New York counsel to Galaxy and has reviewed the portion of
this Statement of Additional Information and the Prospectuses with respect to
the New York Municipal Bond Fund concerning New York taxes and the description
of special considerations relating to New York Municipal Securities. The law
firm of Day, Berry & Howard, Cityplace, Hartford, Connecticut 06103-3499 serves
as special Connecticut counsel to Galaxy and has reviewed the portion of this
Statement of Additional Information and the Prospectuses with respect to the
Connecticut Municipal Bond Fund concerning Connecticut taxes and the description
of special considerations relating to Connecticut Municipal Securities. The law
firm of Ropes & Gray, One International Place, Boston, Massachusetts 02110-2624
serves as special Massachusetts counsel and special Rhode Island counsel to
Galaxy and has reviewed the portion of this Statement of Additional Information
and the Prospectuses with respect to the Massachusetts Municipal Bond Fund
concerning Massachusetts taxes and the description of special considerations
relating to Massachusetts Municipal Securities and the portion of this Statement
of Additional Information and the Prospectus with respect to the Rhode Island
Municipal Bond Fund concerning Rhode Island taxes and the description of Special
Considerations relating to Rhode Island Municipal Securities.
PERFORMANCE AND YIELD INFORMATION
Investment returns and principal values will vary with market conditions so
that an investor's shares, when redeemed, may be worth more or less than their
original cost. Past performance is no guarantee of future results. Unless
otherwise indicated, total return figures include changes in share price,
deduction of any applicable sales charge, and reinvestment of dividends and
capital gains distributions, if any.
The Funds' 30-day (or one month) standard yields are calculated separately
for each series of shares in each Fund in accordance with the method prescribed
by the SEC for mutual funds:
YIELD = 2[((a-b)/cd+1)to the power of (6)-1]
Where: a = dividends and interest earned by a Fund during the period;
b = expenses accrued for the period (net of reimbursements);
- 75 -
<PAGE>
c = average daily number of shares outstanding during the
period, entitled to receive dividends; and
d = maximum offering price per share on the last day of the
period.
For the purpose of determining net investment income earned during the period
(variable "a" in the formula), dividend income on equity securities held by a
Fund is recognized by accruing 1/360 of the stated dividend rate of the security
each day that the security is in the Fund. Except as noted below, interest
earned on debt obligations held by a Fund is calculated by computing the yield
to maturity of each obligation based on the market value of the obligation
(including actual accrued interest) at the close of business on the last
business day of each month, or, with respect to obligations purchased during the
month, the purchase price (plus actual accrued interest) and dividing the result
by 360 and multiplying the quotient by the market value of the obligation
(including actual accrued interest) in order to determine the interest income on
the obligation for each day of the subsequent month that the obligation is held
by the Fund. For purposes of this calculation, it is assumed that each month
contains 30 days. The maturity of an obligation with a call provision is the
next call date on which the obligation reasonably may be expected to be called
or, if none, the maturity date. With respect to debt obligations purchased at a
discount or premium, the formula generally calls for amortization of the
discount or premium. The amortization schedule will be adjusted monthly to
reflect changes in the market value of such debt obligations. Expenses accrued
for the period (variable "b" in the formula) include all recurring fees charged
by a Fund to all shareholder accounts in proportion to the length of the base
period and the Fund's mean (or median) account size. Undeclared earned income
will be subtracted from the offering price per share (variable "d" in the
formula).
Interest earned on tax-exempt obligations that are issued without original
issue discount and have a current market discount is calculated by using the
coupon rate of interest instead of the yield to maturity. In the case of
tax-exempt obligations that are issued with original issue discount but which
have discounts based on current market value that exceed the then-remaining
portion of the original issue discount (market discount), the yield to maturity
is the imputed rate based on the original issue discount calculation. On the
other hand, in the case of tax-exempt obligations that are issued with original
issue discount but which have discounts based on current market value that are
less than the then-remaining portion of the original issue discount (market
premium), the yield to maturity is based on the market value.
With respect to mortgage or other receivables-backed obligations that are
expected to be subject to monthly payments of principal and interest
("pay-downs"), (i) gain or loss attributable to actual monthly pay-downs are
accounted for as an increase or decrease to interest income during the period,
and (ii) each Fund may elect either (a) to amortize the discount and premium on
the remaining security, based on the cost of the security, to the weighted
average maturity date, if such information is available, or to the remaining
term of the security, if any, if the weighted average date is not available or
(b) not to amortize discount or premium on the remaining security.
The "tax-equivalent" yield of the New Jersey Municipal Bond, New York
Municipal Bond, Connecticut Municipal Bond, Massachusetts Municipal Bond and
Rhode Island Municipal Bond Funds is computed by: (a) dividing the portion of
each Fund's yield (calculated as above)
- 76 -
<PAGE>
that is exempt from both federal and state income taxes by one minus a stated
combined federal and state income tax rate; (b) dividing the portion of the
Fund's yield (calculated as above) that is exempt from federal income tax only
by one minus a stated federal income tax rate; and (c) adding the figures
resulting from (a) and (b) above to that portion, if any, of the yield that is
not exempt from federal income tax. The tax-equivalent yield of the Tax-Exempt
Bond Fund is computed by (a) dividing the portion of the yield (calculated as
above) that is exempt from federal income tax by one minus a stated federal
income tax rate and (b) adding that figure to that portion, if any, of the yield
that is not exempt from federal income tax.
- 77 -
<PAGE>
Based on the foregoing calculations, the standard yields and tax-equivalent
yields for Retail A Shares and Trust Shares of the Funds for the 30-day period
ended October 31, 1998 were as set forth below:
<TABLE>
<CAPTION>
RETAIL A TRUST
TAX- TAX-
FUND STANDARD EQUIVALENT STANDARD EQUIVALENT
- ---- -------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Tax-Exempt Bond 3.68% 5.75% 3.97% 6.20%
New Jersey Municipal Bond 3.40% 5.31% 3.55% 5.55%
New York Municipal Bond 3.45% 5.39% 3.74% 5.84%
Connecticut Municipal Bond 3.28% 5.13% 3.57% 5.58%
Massachusetts Municipal Bond 3.84% 6.00% 4.00% 6.25%
Rhode Island Municipal Bond 3.97% 6.20% * *
</TABLE>
- --------------------
* The Rhode Island Municipal Bond Fund does not offer Trust Shares.
Based on the foregoing calculations, (i) the standard yield for Retail B
Shares of the Tax-Exempt Bond Fund for the 30-day period ended October 31, 1998
was 3.14%, and (ii) the tax-equivalent yield for Retail B Shares of the
Tax-Exempt Bond Fund for the 30-day period ended October 31, 1998 was 4.91%.
Each Fund that advertises its "average annual total return" computes such
return separately for each series of shares by determining the average annual
compounded rate of return during specified periods that equates the initial
amount invested to the ending redeemable value of such investment according to
the following formula:
(1/n)
T = [(ERV/P)-1]
Where: T = average annual total return;
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the l, 5 or 10 year
(or other) period at the end of the applicable period
(or a fractional portion thereof);
P = hypothetical initial payment of $1,000; and
n = period covered by the computation, expressed in years.
Each Fund that advertises its "aggregate total return" computes such
returns separately for each series of shares by determining the aggregate
compounded rates of return during specified periods that likewise equate the
initial amount invested to the ending redeemable value of such investment. The
formula for calculating aggregate total return is as follows:
- 78 -
<PAGE>
Aggregate Total Return = [(ERV/P)-1]
The calculations are made assuming that (1) all dividends and capital gain
distributions are reinvested on the reinvestment dates at the price per share
existing on the reinvestment date, (2) all recurring fees charged to all
shareholder accounts are included, and (3) for any account fees that vary with
the size of the account, a mean (or median) account size in the Fund during the
periods is reflected. The ending redeemable value (variable "ERV" in the
formula) is determined by assuming complete redemption of the hypothetical
investment after deduction of all nonrecurring charges at the end of the
measuring period. In addition, the Funds' Retail Shares average annual return
and aggregate total return quotations will reflect the deduction of the maximum
sales load charged in connection with purchases of Retail A shares or
redemptions of Retail B shares, as the case may be.
The aggregate total returns for Retail A Shares and Trust Shares of the
Funds from the date of initial public offering through October 31, 1998 are set
forth below:
<TABLE>
<CAPTION>
FUND RETAIL A TRUST
- ---- -------- -----
<S> <C> <C>
Tax-Exempt Bond 52.29%(1) 59.70%(1)
New Jersey Municipal Bond 0.43%(2) 4.48%(2)
New York Municipal Bond 50.21%(3) 57.31%(3)
Connecticut Municipal Bond 32.61%(4) 38.98%(4)
Massachusetts Municipal Bond 30.86%(5) 36.92%(5)
Rhode Island Municipal Bond 30.40%(6) *
</TABLE>
- ---------------------
* The Rhode Island Municipal Bond Fund does not offer Trust Shares.
(1) For the period from December 30, 1991 (initial public offering date)
through October 31, 1998.
(2) For the period from April 3, 1998 (initial public offering date) through
October 31, 1998.
(3) For the period from December 31, 1991 (initial public offering date)
through October 31, 1998.
(4) For the period from March 16, 1993 (initial public offering date) through
October 31, 1998.
(5) For the period from March 12, 1993 (initial public offering date) through
October 31, 1998.
(6) For the period from December 20, 1994 (initial public offering date)
through October 31, 1998.
The aggregate total return for Retail B Shares of the Tax-Exempt Bond Fund
from March 4, 1996 (initial public offering date) through October 31, 1998 was
12.48%.
The average annual total returns for Retail A Shares and Trust Shares (as
applicable) of the Funds for the one-year and five-year periods (as applicable)
ended October 31, 1998 are as set forth below:
<TABLE>
<CAPTION>
RETAIL A TRUST
-------- -----
FUND ONE-YEAR FIVE-YEAR ONE-YEAR FIVE-YEAR
- ---- -------- --------- -------- ---------
<S> <C> <C> <C> <C>
Tax-Exempt Bond............................. 3.57% 4.73% 7.85% 5.73%
New Jersey Municipal Bond................... * * * *
New York Municipal Bond..................... 3.63% 4.58% 7.82% 5.55%
Connecticut Municipal Bond.................. 3.52% 4.63% 7.81% 5.61%
Massachusetts Municipal Bond................ 3.19% 4.42% 7.42% 5.37%
Rhode Island Municipal Bond................. 3.28% * ** **
</TABLE>
- -----------------
* Not offered during the full period.
** The Rhode Island Municipal Bond Fund does not offer Trust Shares.
- 79 -
<PAGE>
The average annual total return for Retail B Shares of the Tax-Exempt Bond
Fund for the one-year period ended October 31, 1998 was 1.95%.
TAX EQUIVALENCY TABLES - NEW JERSEY MUNICIPAL BOND AND NEW YORK MUNICIPAL BOND
FUNDS
The New Jersey Municipal Bond and New York Municipal Bond Funds may use
tax-equivalency tables in advertising and sales. These tables are intended to
demonstrate the advantages of investing in tax free investments such as the New
Jersey Municipal Bond and New York Municipal Bond Funds. The tax exempt yields
used here are hypothetical and no assurance can be made that the Fund will
obtain any particular yield. A Fund's yield fluctuates as market conditions
change.
The tax brackets and related yield calculations are based on the expected
1999 Federal and state marginal tax rates. The combined Federal and state rate
reflects an assumed deduction of the state tax liability. In fact, however,
certain limitations on this deductibility may apply. Also, the tables do not
reflect the phase out of personal exemptions and itemized deductions which will
apply to certain higher income taxpayers.
Investors are urged to consult their tax advisors as to these matters.
- 80 -
<PAGE>
New Jersey 1999
Equivalent yields: tax-exempt
<TABLE>
<CAPTION>
New Jersey New Jersey Tax Equivalent Yields:**
$ Taxable Income* State Federal & Federal ------------------------------------
Single Rate Rate Effective Rate 1.5% 2.0% 2.5%
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
0-20,000 1.40% 15.0% 16.19% 1.79% 2.39% 2.98%
20,001-25,750 1.75% 15.0% 16.49% 1.80% 2.39% 2.99%
25,751-35,000 1.75% 28.0% 29.26% 2.12% 2.83% 3.53%
35,001-40,000 3.50% 28.0% 30.52% 2.16% 2.88% 3.60%
40,001-62,450 5.525% 28.0% 31.98% 2.21% 2.94% 3.68%
62,451-75,000 5.525% 31.0% 34.81% 2.30% 3.07% 3.84%
75,001-130,250 6.37% 31.0% 35.40% 2.32% 3.10% 3.87%
130,251-283,150 6.37% 36.0% 40.08% 2.50% 3.34% 4.17%
OVER 283,150 6.37% 39.6% 43.45% 2.65% 3.54% 4.42%
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
----------------------------------------------------------------------------------------
3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0%
- ---------------------------------------------------------------------------------------------------------------
0-20,000 3.58% 4.18% 4.77% 5.37% 5.97% 6.56% 7.16%
20,001-25,750 3.59% 4.19% 4.79% 5.39% 5.99% 6.59% 7.18%
25,751-35,000 4.24% 4.95% 5.65% 6.36% 7.07% 7.77% 8.48%
35,001-40,000 4.32% 5.04% 5.76% 6.48% 7.20% 7.92% 8.64%
40,001-62,450 4.41% 5.15% 5.88% 6.62% 7.35% 8.09% 8.82%
62,451-75,000 4.60% 5.37% 6.14% 6.90% 7.67% 8.44% 9.20%
75,001-130,250 4.64% 5.42% 6.19% 6.97% 7.74% 8.51% 9.29%
130,251-283,150 5.01% 5.84% 6.68% 7.51% 8.34% 9.18% 10.01%
OVER 283,150 5.30% 6.19% 7.07% 7.96% 8.84% 9.73% 10.61%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
New Jersey New Jersey Tax Equivalent Yields:**
$ Taxable Income State Federal & Federal ------------------------------------
Married Filing Jointly Rate Rate Effective Rate 1.5% 2.0% 2.5%
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
0-20,000 1.40% 15.0% 16.19% 1.79% 2.39% 2.98%
20,001-43,050 1.75% 15.0% 16.49% 1.80% 2.39% 2.99%
43,051-50,000 1.75% 28.0% 29.26% 2.12% 2.83% 3.53%
50,001-70,000 2.45% 28.0% 29.76% 2.14% 2.85% 3.56%
70,001-80,000 3.50% 28.0% 30.52% 2.16% 2.88% 3.60%
80,001-104,050 5.525% 28.0% 31.98% 2.21% 2.94% 3.68%
104,051-150,000 5.525% 31.0% 34.81% 2.30% 3.07% 3.84%
150,001-158,550 6.37% 31.0% 35.40% 2.32% 3.10% 3.87%
158,551-283,150 6.37% 36.0% 40.08% 2.50% 3.34% 4.17%
OVER 283,150 6.37% 39.6% 43.45% 2.65% 3.54% 4.42%
<CAPTION>
----------------------------------------------------------------------------------------
3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0%
- ---------------------------------------------------------------------------------------------------------------
0-20,000 3.58% 4.18% 4.77% 5.37% 5.97% 6.56% 7.16%
20,001-43,050 3.59% 4.19% 4.79% 5.39% 5.99% 6.59% 7.18%
43,051-50,000 4.24% 4.95% 5.65% 6.36% 7.07% 7.77% 8.48%
50,001-70,000 4.27% 4.98% 5.70% 6.41% 7.12% 7.83% 8.54%
70,001-80,000 4.32% 5.04% 5.76% 6.48% 7.20% 7.92% 8.64%
80,001-104,050 4.41% 5.15% 5.88% 6.62% 7.35% 8.09% 8.82%
104,051-150,000 4.60% 5.37% 6.14% 6.90% 7.67% 8.44% 9.20%
150,001-158,550 4.64% 5.42% 6.19% 6.97% 7.74% 8.51% 9.29%
158,551-283,150 5.01% 5.84% 6.68% 7.51% 8.34% 9.18% 10.01%
Over 283,150 5.30% 6.19% 7.07% 7.96% 8.84% 9.73% 10.61%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
* This amount represents taxable income as defined in the Internal Revenue
Code. It is assumed that taxable income for New Jersey tax purposes is the
same as defined in the Internal Revenue Code. In fact, however, New Jersey
taxable income may differ due to differences in exemptions, itemized
deductions and other items.
** Each entry represents the taxable yield that is the equivalent to the
specified Federal and New Jersey tax-exempt yield for a New Jersey taxpayer
in the specified income bracket.
- 81 -
<PAGE>
NEW YORK STATE AND CITY: 1999
Equivalent yields: Tax-exempt 23-Feb-99
<TABLE>
<CAPTION>
Taxable Income* State New York State New York State
----------------------------- State City Federal and Federal City and Federal
Single City rate*** rate Combined rate Effective Date Effective Rate**
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
0 - 8,000 3.05% 4% 7.04950% 15% 18.40% 20.99%
8,001 - 11,000 3.05% 4.5% 7.54950% 15% 18.83% 21.42%
11,001 - 12,000 3.05% 5.25% 8.29950% 15% 19.46% 22.05%
12,001 - 13,000 3.71% 5.25% 8.96355% 15% 19.46% 22.62%
13,001 - 20,000 3.71% 5.9% 9.61355% 15% 20.02% 23.17%
20,001 - 25,000 3.71% 6.85% 10.56355% 15% 20.82% 23.98%
25,001 - 25,750 3.77% 6.85% 10.62055% 15% 20.82% 24.03%
25,751 - 50,000 3.77% 6.85% 10.62055% 28% 32.93% 35.65%
50,001 - 61,450 3.83% 6.85% 10.62055% 28% 32.93% 35.69%
61,451 - 130,250 3.83% 6.85% 10.67755% 31% 35.73% 38.37%
130,251 - 283,150 3.83% 6.85% 10.67755% 36% 40.38% 42.83%
over 283,150 3.83% 6.85% 10.67755% 39.6% 43.74% 46.05%
-----------------------------------------------------------------------------------------
New York Tax Equivalent Yields:****
- ----------------------------------------------------------------------------
1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 5.0% 5.5% 6.0%
- ----------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
1.90% 2.53% 3.16% 3.80% 4.43% 5.06% 6.33% 6.96% 7.59%
1.91% 2.55% 3.18% 3.82% 4.45% 5.09% 6.36% 7.00% 7.64%
1.92% 2.57% 3.21% 3.85% 4.49% 5.13% 6.41% 7.06% 7.70%
1.94% 2.58% 3.23% 3.88% 4.52% 5.17% 6.46% 7.11% 7.75%
1.95% 2.60% 3.25% 3.90% 4.56% 5.21% 6.51% 7.16% 7.81%
1.97% 2.63% 3.29% 3.95% 4.60% 5.26% 6.58% 7.23% 7.89%
1.97% 2.63% 3.29% 3.95% 4.61% 5.27% 6.58% 7.24% 7.90%
2.33% 3.11% 3.88% 4.66% 5.44% 6.22% 7.77% 8.55% 9.32%
2.33% 3.11% 3.89% 4.66% 5.44% 6.22% 7.77% 8.55% 9.33%
2.43% 3.25% 4.06% 4.87% 5.68% 6.49% 8.11% 8.92% 9.74%
2.62% 3.50% 4.37% 5.25% 6.12% 7.00% 8.75% 9.62% 10.50%
2.78% 3.71% 4.63% 5.55% 6.49% 7.41% 9.27% 10.19% 11.12%
- ---------------------------------------------------------------------------
<CAPTION>
Taxable Income* State New York State New York State
----------------------------- State City Federal and Federal City and Federal
Joint City rate*** rate Combined rate Effective Date Effective Rate**
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
0 - 16,000 3.05% 4% 7.04950% 15% 18.40% 20.99%
16,001 - 21,600 3.05% 4.5% 7.54950% 15% 18.83% 21.42%
21,601 - 22,000 3.71% 4.5% 8.21355% 15% 18.83% 21.88%
22,001 - 26,000 3.71% 5.25% 8.96355% 15% 19.46% 22.62%
26,001 - 40,000 3.71% 5.9% 9.61355% 15% 20.02% 23.17%
40,001 - 43,050 3.71% 6.85% 10.56355% 15% 20.82% 23.98%
43,051 - 45,000 3.71% 6.85% 10.56355% 28% 32.93% 35.61%
45,001 - 90,000 3.77% 6.85% 10.62055% 28% 32.93% 35.65%
90,001 - 104,050 3.83% 6.85% 10.67755% 28% 32.93% 35.69%
104,051 - 158,550 3.83% 6.85% 10.67755% 31% 35.73% 38.37%
158,551 - 283,150 3.83% 6.85% 10.67755% 36% 40.38% 42.83%
over 283,150 3.83% 6.85% 10.67755% 39.6% 43.74% 46.05%
- ------------------------------------------------------------------------------------------------
New York Tax Equivalent Yields:****
- ---------------------------------------------------------------------------
1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 5.0% 5.5% 6.0%
- ---------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
1.90% 2.53% 3.16% 3.80% 4.43% 5.06% 6.33% 6.96% 7.59%
1.91% 2.55% 3.18% 3.82% 4.45% 5.09% 6.36% 7.00% 7.64%
1.92% 2.56% 3.20% 3.85% 4.49% 5.13% 6.41% 7.05% 7.69%
1.94% 2.59% 3.23% 3.88% 4.52% 5.17% 6.46% 7.11% 7.75%
1.95% 2.60% 3.25% 3.90% 4.56% 5.21% 6.51% 7.16% 7.81%
1.97% 2.63% 3.29% 3.95% 4.60% 5.26% 6.58% 7.23% 7.89%
2.33% 3.11% 3.88% 4.66% 5.44% 6.21% 7.76% 8.54% 9.32%
2.33% 3.11% 3.88% 4.66% 5.44% 6.22% 7.77% 8.55% 9.32%
2.33% 3.11% 3.89% 4.66% 5.44% 6.22% 7.77% 8.55% 9.33%
2.43% 3.25% 4.06% 4.87% 5.68% 6.49% 8.11% 8.92% 9.74%
2.62% 3.50% 4.37% 5.25% 6.12% 7.00% 8.75% 9.62% 10.50%
2.78% 3.71% 4.63% 5.56% 6.49% 7.41% 9.27% 10.19% 11.12%
- --------------------------------------------------------------------------
</TABLE>
* This amount represents taxable income as defined in the Internal
Revenue Code. It is assumed that taxable income as defined in the
Internal Revenue Code is the same as under the New York State or City
Personal Income Tax law; however, New York state or city taxable income
may differ due to differences in exemptions, itemized deductions, and
other items.
** For federal tax purposes, these combined rates reflect the applicable
marginal rates for 1998, including indexing for inflation. These rates
include the effect of deducting state and city taxes on your Federal
return. For New York purposes, these combined rates reflect the
expected New York State and New York City tax and surcharge rates for
1998.
*** The New York city rate is comprised of the tax base rate, city
surcharge, and the additional city surcharge for 1998.
**** These represent New York State, City, and Federal Equivalent Yields.
- 82 -
<PAGE>
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders, the
performance of the Funds may be quoted and compared to that of other mutual
funds with similar investment objectives and to stock or other relevant bond
indices or to rankings prepared by independent services or other financial or
industry publications that monitor the performance of mutual funds. For
example, the performance of the Funds may be compared to data prepared by Lipper
Analytical Services, Inc., a widely recognized independent service which
monitors the performance of mutual funds.
Performance data as reported in national financial publications including,
but not limited to, MONEY MAGAZINE, FORBES, BARRON'S, THE WALL STREET JOURNAL,
and THE NEW YORK TIMES, or publications of a local or regional nature, may also
be used in comparing the performance of the Funds. Performance data will be
calculated separately for Trust Shares, Retail A Shares, Retail B Shares, A
Prime Shares and B Prime Shares of the Funds.
The standard yield is computed as described above. Each Fund may also
advertise its "effective yield" which is calculated similarly but, when
annualized, the income earned by an investment in a Fund is assumed to be
reinvested. Each Fund may also quote its "tax equivalent yield" which
demonstrates the level of taxable yield necessary to produce an after-tax
equivalent yield to the Fund's tax-free yield. It is calculated as described
above. A Fund's tax-equivalent yield will always be higher than its yield.
The Funds may also advertise their performance using "average annual total
return" figures over various periods of time. Such total return figures reflect
the average percentage change in the value of an investment in a Fund from the
beginning date of the measuring period to the end of the measuring period and
are calculated as described above. Average total return figures will be given
for the most recent one-, five- and ten-year periods (if applicable), and may be
given for other periods as well, such as from the commencement of a Fund's
operations, or on a year-by-year basis. Each Fund may also use "aggregate total
return" figures for various periods, representing the cumulative change in the
value of an investment in a Fund for the specified period. Both methods of
calculating total return reflect the maximum front-end sales load charged by the
Funds for Retail A Shares and the applicable contingent deferred sales charge
for Retail B Shares of the Tax-Exempt Bond Fund and assume that dividends and
capital gains distributions made by a Fund during the period are reinvested in
Fund shares.
The Funds may also advertise total return data without reflecting the sales
charges imposed on the purchase of Retail A Shares or the redemption of Retail B
Shares in accordance with the rules of the SEC. Quotations that do not reflect
the sales charges will be higher than quotations that do reflect the sales
charges.
The performance of the Funds will fluctuate and any quotation of
performance should not be considered as representative of the future performance
of the Funds. Since yields fluctuate, yield data cannot necessarily be used to
compare an investment in a Fund's shares with bank deposits, savings accounts
and similar investment alternatives which often provide an agreed or
- 83 -
<PAGE>
guaranteed fixed yield for a stated period of time. Shareholders should
remember that performance data are generally functions of the kind and quality
of the instruments held in a portfolio, portfolio maturity, operating expenses,
and market conditions. Any additional fees charged by institutions with respect
to accounts of customers that have invested in shares of a Fund will not be
included in performance calculations.
The portfolio managers of the Funds and other investment professionals may
from time to time discuss in advertising, sales literature or other material,
including periodic publications, various topics of interest to shareholders and
prospective investors. The topics may include but are not limited to the
advantages and disadvantages of investing in tax-deferred and taxable
investments; Fund performance and how such performance may compare to various
market indices; shareholder profiles and hypothetical investor scenarios; the
economy; the financial and capital markets; investment strategies and
techniques; investment products; and tax, retirement and investment planning.
MISCELLANEOUS
As used in this Statement of Additional Informational, "assets belonging
to" a particular Fund or series of a Fund means the consideration received by
Galaxy upon the issuance of shares in that particular Fund or series of the
Fund, together with all income, earnings, profits, and proceeds derived from the
investment thereof, including any proceeds from the sale of such investments,
any funds or payments derived from any reinvestment of such proceeds and a
portion of any general assets of Galaxy not belonging to a particular series or
Fund. In determining the net asset value of a particular series of a Fund,
assets belonging to the particular series of the Fund are charged with the
direct liabilities in respect of that series and with a share of the general
liabilities of Galaxy, which are allocated in proportion to the relative asset
values of the respective series and Funds at the time of allocation. Subject to
the provisions of Galaxy's Declaration of Trust, determinations by the Board of
Trustees as to the direct and allocable liabilities, and the allocable portion
of any general assets with respect to a particular series or Fund, are
conclusive.
Shareholders will receive unaudited semi-annual reports describing the
Funds' investment operations and annual financial statements audited by
independent certified public accountants.
A "vote of the holders of a majority of the outstanding shares" of a
particular Fund or a particular series of shares in a Fund means, with respect
to the approval of an investment advisory agreement, a distribution plan or a
change in an investment objective or fundamental investment policy, the
affirmative vote of the holders of the lesser of (a) more than 50% of the
outstanding shares of such Fund or such series of shares, or (b) 67% or more of
the shares of such Fund or such series of shares present at a meeting if more
than 50% of the outstanding shares of such Fund or such series of shares are
represented at the meeting in person or by proxy.
As of February 10, 1999, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding Trust
Shares of each of Galaxy's investment portfolios (including shares of the
Institutional Government Money Market Fund) were as follows: Money Market
Fund -- Fleet New York, Fleet Investment Services, 159 East Main Street,
NY/RO/TO3C, Rochester, NY 14638, Account 00000150286 (99.78%); Tax-Exempt Money
Market Fund -- Fleet New York, Fleet Investment Services, 159 East Main Street,
NY/RO/TO3C, Rochester, NY 14638, Account 00000007717 (100.00%); Government Money
Market Fund --Fleet New York, Fleet Investment Services, 159 East Main Street,
NY/RO/TO3C, Rochester, NY 14638, Account 00000012621 (98.33%); U.S. Treasury
Money Market Fund -- Fleet New York, Fleet Investment Services, 159 East Main
Street, NY/RO/TO3C, Rochester, NY 14638, Account 00000015922 (94.34%);
Institutional Government Money Market Fund -- Fleet New York, Fleet Investment
Services, 159 East Main Street, NY/RO/TO3C, Rochester, NY 14638, Account
00000000019 (85.94%); Luitpold Pharmaceuticals Inc., Kirk Sobecki, CFO, One
Luitpold Drive, Shirley, NY 11967, Account 05100261441 (13.48%); Equity Value
Fund -- Gales & Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A,
159 East Main Street, Rochester, NY 14638, Account 00000000064 (77.81%); Gales &
Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000003204 (15.83%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000011551 (6.28%); Equity Growth Fund -- Gales &
Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000000082 (70.35%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000010017 (14.77%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000030718 (14.86%); Equity Income Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000015771 (50.44%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000003748 (35.41%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000000037 (13.97%); International Equity Fund --Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000073 (44.94%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000000876 (37.67%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000004088 (14.13%); Growth and Income Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 05000503793 (68.11%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 05000503873 (22.88%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 0500503837 (9.00%); Asset Allocation Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000073 (92.96%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000002598 (6.48%); Small Company Equity -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000046 (67.11%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000001492 (24.22%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000006102 (6.76%); Small Cap Value Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 05000503999 (54.74%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 05000503917 (26.73%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 05000503953 (18.33%); Intermediate Government Income Fund -- Gales &
Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000038408 (39.35%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000007183 (34.25%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000000037 (26.40%); High Quality Bond Fund -- Gales & Co.,
Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000037 (65.56%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000001465 (22.10%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000006095 (12.19%); Short-Term Bond Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000008627 (30.90%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000000064 (45.50%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000001090 (23.45%); Tax-Exempt Bond Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000005809 (39.65%); Gales & Co, Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000000028 (35.53%); Gales and Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000000670 (24.82%); Connecticut Municipal Bond Fund -- Gales & Co.,
Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000019 (78.73%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000000037 (20.73%); Massachusetts Municipal Bond Fund -- Gales
& Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000000019 (52.51%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000073 (42.62%); Corporate Bond Fund -- Gales
& Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000000046 (47.67%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000006102 (37.41%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000001492 (7.92%); New York Municipal Bond Fund -- Gales & Co.,
Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000019 (10.94%); Gales & Co., Fleet Investment
Services, Mutual Fund Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000001107 (76.04%); Gales & Co., Fleet Investment Services,
Mutual Fund Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000005292 (13.03%); New Jersey Municipal Bond Fund -- Gales & Co.,
Fleet Investment Services, Mutual Fund Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 5100115489 (56.68%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 5100115504 (43.32%); and Strategic Equity Fund -- Gales & Co.,
Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 5100115522 (98.61%).
- 84 -
<PAGE>
As of February 10, 1999, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding Retail A
Shares of each of Galaxy's investment portfolios (including shares of the
Connecticut Municipal Money Market and Massachusetts Municipal Money Market
Funds) were as follows: Money Market Fund -- US Clearing, A Division of Fleet
Securities Inc., 26 Broadway, New York, NY 10004, Account 5100115684 (7.31%);
Tax-Exempt Money Market Fund -- Hope H. Van Beuren, P.O. Box 4098, Middletown,
RI 02842, Account 00000025010 (8.52%); US Clearing, A Division of Fleet
Securities, Inc., 26 Broadway, New York, NY 10004, Account 05100115684 (5.11%);
U.S. Treasury Money Market Fund -- US Clearing, a Division of Fleet Securities
Inc., 26 Broadway, New York, NY 10004, Account 05100115684 (11.57%);
Massachusetts Municipal Money Market Fund -- Fleet New York, Fleet Investment
Services, 159 East Main St., NY/RO/TO3C, Rochester, NY 14638, Account
05100058503 (56.38%); Connecticut Municipal Money Market Fund -- Fleet New York,
Fleet Investment Services, 159 East Main St., NY/RO/TO3C, Rochester, NY 14638,
Account 05100058521 (45.93%); Rhode Island Municipal Bond Fund --Gales & Co.,
Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000001492 (38.50%); James R. McCulloch, c/o
Microfibre, PO Box 1208, Pawtucket, RI 02860, Account 05000414933 (8.20%); New
York Municipal Bond Fund -- Marilyn J. Brantley, PO Box 65, 7276 Ramsey Road,
Belfast, NY 14711, Account 05100977627 (10.73%); and New Jersey Municipal Bond
Fund -- Jeffery W Golden, 7 Hampton Ridge CT, Old Tappan, NJ 07675, Account
05100780704 (19.59%); John W. Maki & Kimberly McGrath Maki JT, 1 Connet Lane,
Mendham, NJ, 07945, Account 05100011377 (18.84%); US Clearing Corp., FBO
979-06374-12, 26 Broadway, New York, NY 10004-1798, Account 07000100574
(54.10%).
As of February 10, 1999, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding Retail B
Shares of each of Galaxy's investment portfolios were as follows: Money Market
Fund -- Keith Mooradian, 10 Fox Hollow, Worcester, MA 01605, Account 05100583213
(5.33%); Steven R. Schwartz, 2393 Lake Elmo Avenue N, Lake Elmo, MN 55042-8407,
Account 5100583213 (8.45%); Worldmark Master Fund, LLC, D. Dean Rhodes auth.
officer or Richard J. Gates (investment adviser), 11466 Old Harber Road, N. Palm
Beach, FL 33408, Account 05102031823 (13.46%); Worldmark Master Fund, LLC, D.
Dean Rhodes auth. officer or Richard J. Gates (investment adviser) 11465 Old
Harbor Road, N. Palm Beach, FL 33408, Account 05102074054 (10.58%); Equity
Income Fund -- Francis G. White, 1611 Karr Valley Road, Almond, NY 14804,
Account 05103005468 (8.23%); Small Cap Value Fund -- Fleet Bank NA, Cust. of the
Roth conversion IRA, FBO Thomas Clayton, 19 Ward Avenue, Noank, CT 06340,
Account 05102095461 (6.22%); Fleet Bank NA, Cust. of the Roth Conversion IRA,
FBO Owen F. McDonald, 351 Concord Road, Billorica, MA 01821, Account 05103074295
(6.52%); Intermediate Government Income Fund -- John G. Shomsky, 144 Powder Hill
Road, Middlefield, CT 06455, Account 05102006050 (7.89%); Harold J. Andrews, 29
First Street, Bristol, CT 06010, Account 05102025206 (9.48%); Donna R. Barlett,
4 Metclaf Street, Warwick, RI 02888, Account 05102029650 (12.49%); Hong Yun
Cust, Angela Kung Utma NJ, 59 Peach Hill Court, Ramsey, NJ 07446, Account
05102063281 (7.78%); Hong Yun Cust, Yanh Zhou Utma NJ, 59 Peach Hill Court,
Ramsey, NJ 07446, Account 05102063307 (7.78%); Angelo Gugliotti, Maria
Gugliotti, Michael P. Gugliotti, Joseph A. Gugliotti JT WROS, 40 Dover Road,
Newington, CT 06111, Account 05102096399 (5.33%); Margaret M. Ferris, 30 Crocker
Avenue, W. Hartford, CT 06110, Account 05103005841 (14.90%); Eileen G. Akers, 24
Lincoln Avenue, Norwich, CT 06360, Account 05103045246 (7.82%); Short-Term Bond
Fund -- Gabriella Dulac & Alain Dulac JTWROS, 40 Dix Road, Wethersfield, CT
06109, Account 5100818032 (5.10%); Elizabeth Mugar, 10 Chestnut St., Apt. 1808,
Springfield, MA 01103, Account 5100760012 (8.09%); Tax-Exempt Bond Fund -- David
Fendler & Sylvia Fendler JTWROS, 72 Brinkerhoff Ave., Stamford, CT 06905,
Account 05100255354 (8.85%); Doris M. Peloquin, 43 Keene Street, Providence, RI
02906-1520, Account 5100506413 (5.26%); Frances E. Stady, P.O. Box 433, 3176
Main Street, Yorkshire, NY 14173, Account 05102027437 (6.81%); US Clearing
Corp., FBO 978-02869-11, 26 Broadway Street, New York, NY 10004-1798 Account
07000107096 (5.59%); and Strategic Equity Fund -- Claire M. Dileone & Susan F.
Torre JT WROS, 260 Waybosset Street, New Haven, CT 06513 (5.81%); Betsey Tan, 7
Donovan's Lane, Natick, MA 01760, Account 05101043778 (16.40%).
As of February 10, 1999, the name, address and share ownership of the
entities or persons that held beneficially more than 5% of the outstanding Trust
Shares of each of Galaxy's investment portfolios were as follows: Money Market
Fund--Stable Asset Fund, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (8.86%); Government Money Fund -- Maine Yankee Spent Fuel,
c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638 (8.51%);
Beacon Mutual Insurance Co., c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638 (5.98%); U.S. Treasury Money Fund, Loring Walcott Client
Sweep Acct., c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY
14638, (21.38%); Equity Value Fund--Fleet Savings Plus-Equity Value, c/o Norstar
Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638, (19.73%); Equity
Growth Fund--Fleet Savings Plus-Equity Growth, c/o Norstar Trust Co., Gales &
Co., 159 East Main, Rochester, NY 14638, (23.81%); Nusco Retiree Health VEBA
Trust, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638,
(7.70%); International Equity Fund--FFG International Equity Fund, c/o Norstar
Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638, (14.51%); Fleet
Savings Plus-Intl. Equity, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (9.76%); Intermediate Govt. Inc. Fund --Nusco Retiree
Health VEBA Trust, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester,
NY 14638 (5.52%); Strategic Equity Fund--FFG Retirement & Pension VDG, c/o Fleet
Financial Group, 159 East Main, Rochester, NY 14638, (93.97%); High Quality Bond
Fund--Fleet Savings Plus Plan-HQ Bond, c/o Norstar Trust Co., Gales & Co., 159
East Main, Rochester, NY 14638 (22.39%); Asset Allocation Fund--Fleet Savings
Plus-Asset Allocation, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (25.93%); Small Company Equity Fund--Fleet Savings
Plus-Small Company, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (32.89%); Tax Exempt Bond Fund -- Nusco Retiree Health VEBA
Trust, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638,
(33.75%); Connecticut Municipal Bond Fund -- Florence M. Roberts, IMA Agency,
c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638, (5.10%);
Robert W. Parsons, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester,
NY 14638 (6.15%); Paul R. Tregurtha-FLA Inv. Cus. Agent, c/o Norstar Trust Co.,
Gales & Co., 159 East Main, Rochester, NY 14638 (6.06%); Winifred M. Purdy Full
IM, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638
(5.83%); Corporate Bond Fund--Cole Hersee Pension Plan, c/o Norstar Trust Co.,
Gales & Co., 159 East Main, Rochester, NY 14638, (7.70%); Growth Income
Fund--Fleet Savings Plus-Growth Income, c/o Norstar Trust Co., Gales & Co., 159
East Main, Rochester, NY 14638, (40.12%); Crumpton & Knowles IARP, c/o Norstar
Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638 (5.86%); Small Cap
Value Fund--FFG Emp. Ret. Misc. Assets SNC, c/o Norstar Trust Co., Gales & Co.,
159 East Main, Rochester, NY 14638, (26.82%); Institutional Government Fund--
Aeroflex Inc. CAPFOC, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (5.37%); P&P Fireman TIC w/Custody, c/o Norstar Trust Co.,
Gales & Co., 159 East Main, Rochester, NY 14638 (12.27%); New Jersey Municipal
Bond Fund--Perillo Tours, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (26.33%); Royal Chambord IMA, c/o Norstar Trust Co., Gales
& Co., 159 East Main, Rochester, NY, 14638, (13.17%); McKee Wendell A. Marital
Trust, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638,
(13.07%); Varco Inc. IMA, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (6.58%); Tiernan Diana V IA, c/o Norstar Trust Co., Gales &
Co., 159 East Main, Rochester, NY 14638, (5.97%); and Dunnington, Ruth U., c/o
Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638, (5.26%).
FINANCIAL STATEMENTS
Galaxy's Annual Report to Shareholders with respect to the Funds for the
fiscal year ended October 31, 1998 has been filed with the SEC. The
financial statements in such Annual Report (the "Financial Statements") are
incorporated by reference into this Statement of Additional Information. The
Financial Statements and Financial Highlights included in the Annual Report
for the Funds for the fiscal year ended October 31, 1998 have been audited by
Galaxy's former independent accountants, PricewaterhouseCoopers LLP, whose
report thereon also appears in such Annual Report and is incorporated
herein by reference. The Financial Statements in such Annual Report have
been incorporated herein by reference in reliance upon such report given upon
the authority of such firm as experts in accounting and auditing.
- 85 -
<PAGE>
APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's ("S&P") commercial paper rating is a current
assessment of the likelihood of timely payment of debt having an original
maturity of no more than 365 days. The following summarizes the rating
categories used by Standard and Poor's for commercial paper:
"A-1" - Obligations are rated in the highest category indicating that
the obligor's capacity to meet its financial commitment on the obligation is
strong. Within this category, certain obligations are designated with a plus
sign (+). This indicates that the obligor's capacity to meet its financial
commitment on these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rating categories. However, the obligor's capacity to meet its financial
commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
"B" - Obligations are regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and are
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.
"D" - Obligations are in payment default. The "D" rating category is
used when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The "D" rating will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually senior debt obligations not having an original
maturity in excess of one year, unless explicitly noted. The following
summarizes the rating categories used by Moody's for commercial paper:
A-1
<PAGE>
"Prime-1" - Issuers (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well-established industries; high rates of return on
funds employed; conservative capitalization structure with moderate reliance on
debt and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternate liquidity.
"Prime-2" - Issuers (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an acceptable
ability for repayment of senior short-term debt obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level
of debt protection measurements and may require relatively high financial
leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuers do not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps
employs three designations, "D-1+," "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"D-1+" - Debt possesses the highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
"D-2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.
A-2
<PAGE>
"D-3" - Debt possesses satisfactory liquidity and other protection
factors qualify issues as to investment grade. Risk factors are larger and
subject to more variation. Nevertheless, timely payment is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to insure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or interest
payments.
Fitch IBCA short-term ratings apply to debt obligations that have
time horizons of less than 12 months for most obligations, or up to three years
for U.S. public finance securities. The following summarizes the rating
categories used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This
designation indicates the strongest capacity for timely payment of financial
commitments and may have an added "+" to denote any exceptionally strong credit
feature.
"F2" - Securities possess good credit quality. This designation
indicates a satisfactory capacity for timely payment of financial commitments,
but the margin of safety is not as great as in the case of the higher ratings.
"F3" - Securities possess fair credit quality. This designation
indicates that the capacity for timely payment of financial commitments is
adequate; however, near-term adverse changes could result in a reduction to
non-investment grade.
"B" - Securities possess speculative credit quality. This designation
indicates minimal capacity for timely payment of financial commitments, plus
vulnerability to near-term adverse changes in financial and economic conditions.
"C" - Securities possess high default risk. This designation
indicates that default is a real possibility and that the capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
"D" - Securities are in actual or imminent payment default.
Thomson BankWatch short-term ratings assess the likelihood of an
untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson BankWatch:
A-3
<PAGE>
"TBW-1" - This designation represents Thomson BankWatch's highest
category and indicates a very high likelihood that principal and interest will
be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's lowest
investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those
with higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's lowest
rating category and indicates that the obligation is regarded as non-investment
grade and therefore speculative.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
Obligations rated "BB," "B," "CCC," "CC" and "C" are regarded as
having significant speculative characteristics. "BB" indicates the least degree
of speculation and "C" the highest. While such obligations will likely have
some quality and protective
A-4
<PAGE>
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions.
"BB" - An obligation rated "BB" is less vulnerable to nonpayment than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to the obligor's inadequate capacity to meet its financial commitment on the
obligation.
"B" - An obligation rated "B" is more vulnerable to nonpayment than
obligations rated "BB", but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
"CCC" - An obligation rated "CCC" is currently vulnerable to
nonpayment, and is dependent upon favorable business, financial and economic
conditions for the obligor to meet its financial commitment on the obligation.
In the event of adverse business, financial, or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the
obligation.
"CC" - An obligation rated "CC" is currently highly vulnerable to
nonpayment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
"D" - An obligation rated "D" is in payment default. The "D" rating
category is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. The "D" rating also will
be used upon the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
"r" - This symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or volatility of
expected returns which are not addressed in the credit rating. Examples
include: obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk - such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
A-5
<PAGE>
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds are considered as medium-grade obligations, (i.e., they
are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" are of poor standing; "Ca" represents obligations
which are speculative in a high degree; and "C" represents the lowest rated
class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (---) - Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic
rating classification from "Aa" through "Caa". The modifier 1 indicates that
the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range
A-6
<PAGE>
ranking; and the modifier 3 indicates a ranking in the lower end of its generic
rating category.
The following summarizes the long-term debt ratings used by Duff &
Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered to be of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable in periods of greater
economic stress.
"BBB" - Debt possesses below-average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt
rated "B" possesses the risk that obligations will not be met when due. Debt
rated "CCC" is well below investment grade and has considerable uncertainty as
to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch IBCA for corporate
and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. These ratings denote the lowest expectation of credit risk and
are assigned only in case of exceptionally strong capacity for timely payment of
financial commitments. This capacity is highly unlikely to be adversely
affected by foreseeable events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. These ratings denote a very low expectation of credit risk and
indicate very strong capacity for timely payment of financial commitments. This
capacity is not significantly vulnerable to foreseeable events.
A-7
<PAGE>
"A" - Bonds considered to be investment grade and of high credit
quality. These ratings denote a low expectation of credit risk and indicate
strong capacity for timely payment of financial commitments. This capacity may,
nevertheless, be more vulnerable to changes in circumstances or in economic
conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good credit
quality. These ratings denote that there is currently a low expectation of
credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity.
"BB" - Bonds considered to be speculative. These ratings indicate
that there is a possibility of credit risk developing, particularly as the
result of adverse economic changes over time; however, business or financial
alternatives may be available to allow financial commitments to be met.
Securities rated in this category are not investment grade.
"B" - Bonds are considered highly speculative. These ratings
indicate that significant credit risk is present, but a limited margin of
safety remains. Financial commitments are currently being met; however,
capacity for continued payment is contingent upon a sustained, favorable
business and economic environment.
"CCC", "CC", "C" - Bonds have high default risk. Default is a real
possibility, and capacity for meeting financial commitments is solely reliant
upon sustained, favorable business or economic developments. "CC" ratings
indicate that default of some kind appears probable, and "C" ratings signal
imminent default.
"DDD," "DD" and "D" - Bonds are in default. Securities are not
meeting obligations and are extremely speculative. "DDD" designates the highest
potential for recovery of amounts outstanding on any securities involved and "D"
represents the lowest potential for recovery.
To provide more detailed indications of credit quality, the Fitch IBCA
ratings from and including "AA" to "B" may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major rating
categories.
Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes
the rating categories used by Thomson BankWatch for long-term debt ratings:
"AAA" - This designation indicates that the ability to repay principal
and interest on a timely basis is extremely high.
A-8
<PAGE>
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis, with limited incremental risk compared
to issues rated in the highest category.
"A" - This designation indicates that the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BBB" - This designation represents the lowest investment-grade
category and indicates an acceptable capacity to repay principal and interest.
Issues rated "BBB" are more vulnerable to adverse developments (both internal
and external) than obligations with higher ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned by
Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's rating reflects the liquidity concerns and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest, with some vulnerability to adverse
financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
A-9
<PAGE>
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
"MIG-1"/"VMIG-1" - This designation denotes best quality. There is
present strong protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high quality, with
margins of protection that are ample although not so large as in the preceding
group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality, with
all security elements accounted for but lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt instruments
in this category lack of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
A-10
<PAGE>
APPENDIX B
As stated above, the Funds may enter into futures transactions for hedging
purposes. The following is a description of such transactions.
I. INTEREST RATE FUTURES CONTRACTS
USE OF INTEREST RATE FUTURES CONTRACTS. Bond prices are established in
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the future
for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, the Funds may use interest rate futures
contracts as a defense, or hedge, against anticipated interest rate changes and
not for speculation. As described below, this would include the use of futures
contract sales to protect against expected increases in interest rates and
futures contract purchases to offset the impact of interest rate declines.
The Funds presently could accomplish a similar result to that which they
hope to achieve through the use of futures contracts by selling bonds with long
maturities and investing in bonds with short maturities when interest rates are
expected to increase, or conversely, selling short-term bonds and investing in
long-term bonds when interest rates are expected to decline. However, because
of the liquidity that is often available in the futures market, the protection
is more likely to be achieved, perhaps at a lower cost and without changing the
rate of interest being earned by the Funds, through using futures contracts.
DESCRIPTION OF INTEREST RATE FUTURES CONTRACTS. An interest rate futures
contract sale would create an obligation by a Fund, as seller, to deliver the
specific type of financial instrument called for in the contract at a specific
future time for a specified price. A futures contract purchase would create an
obligation by the Fund, as purchaser, to take delivery of the specific type of
financial instrument at a specific future time at a specific price. The specific
securities delivered or taken, respectively, at settlement date, would not be
determined until at or near that date. The determination would be in accordance
with the rules of the exchange on which the futures contract sale or purchase
was made.
Although interest rate futures contracts by their terms call for actual
delivery or acceptance of securities, in most cases the contracts are closed out
before the settlement date without the making or taking of delivery of
securities. Closing out a futures contract sale is effected by a Fund's
entering into a futures contract purchase for the same aggregate amount of the
specific type of financial instrument and the same delivery date. If the price
of the sale exceeds the price of the offsetting purchase, the Fund immediately
is paid the difference and thus realizes a gain. If the offsetting purchase
price exceeds the sale price, the Fund pays the difference and realizes a loss.
Similarly, the closing out of a futures contract purchase is effected by a Fund
entering into a futures contract sale. If the offsetting sale price exceeds the
purchase
B-1
<PAGE>
price, the Fund realizes a gain, and if the purchase price exceeds the
offsetting sale price, the Fund realizes a loss.
Interest rate futures contracts are traded in an auction environment on the
floors of several exchanges -- principally, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Futures Exchange. The Funds would
deal only in standardized contracts on recognized exchanges. Each exchange
guarantees performance under contract provisions through a clearing corporation,
a nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various financial
instruments including long-term United States Treasury Bonds and Notes;
Government National Mortgage Association (GNMA) modified pass-through mortgage
backed securities; three-month United States Treasury Bills; and ninety-day
commercial paper. The Funds may trade in any interest rate futures contracts
for which there exists a public market, including, without limitation, the
foregoing instruments.
EXAMPLE OF FUTURES CONTRACT SALE. The Funds would engage in an interest
rate futures contract sale to maintain the income advantage from continued
holding of a long-term bond while endeavoring to avoid part or all of the loss
in market value that would otherwise accompany a decline in long-term securities
prices. Assume that the market value of a certain security held by a particular
Fund tends to move in concert with the futures market prices of long-term United
States Treasury bonds ("Treasury bonds"). Fleet wishes to fix the current
market value of this portfolio security until some point in the future. Assume
the portfolio security has a market value of 100, and Fleet believes that,
because of an anticipated rise in interest rates, the value will decline to 95.
The Fund might enter into futures contract sales of Treasury bonds for an
equivalent of 98. If the market value of the portfolio security does indeed
decline from 100 to 95, the equivalent futures market price for the Treasury
bonds might also decline from 98 to 93.
In that case, the five point loss in the market value of the portfolio
security would be offset by the five point gain realized by closing out the
futures contract sale. Of course, the futures market price of Treasury bonds
might well decline to more than 93 or to less than 93 because of the imperfect
correlation between cash and futures prices mentioned below.
Fleet could be wrong in its forecast of interest rates, and the equivalent
futures market price could rise above 98. In this case, the market value of the
portfolio securities, including the portfolio security being protected, would
increase. The benefit of this increase would be reduced by the loss realized on
closing out the futures contract sale.
If interest rate levels did not change, the Fund in the above example might
incur a loss of 2 points (which might be reduced by an offsetting transaction
prior to the settlement date). In each transaction, transaction expenses would
also be incurred.
EXAMPLE OF FUTURES CONTRACT PURCHASE. A Fund would engage in an interest
rate futures contract purchase when it is not fully invested in long-term bonds
but wishes to defer for a time
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<PAGE>
the purchase of long-term bonds in light of the availability of advantageous
interim investments, e.g., shorter term securities whose yields are greater
than those available on long-term bonds. A Fund's basic motivation would be
to maintain for a time the income advantage from investing in the short-term
securities; the Fund would be endeavoring at the same time to eliminate the
effect of all or part of an expected increase in market price of the
long-term bonds that the Fund may purchase.
For example, assume that the market price of a long-term bond that the Fund
may purchase, currently yielding 10%, tends to move in concert with futures
market prices of Treasury bonds. Fleet wishes to fix the current market price
(and thus 10% yield) of the long-term bond until the time (four months away in
this example) when it may purchase the bond. Assume the long-term bond has a
market price of 100, and Fleet believes that, because of an anticipated fall in
interest rates, the price will have risen to 105 (and the yield will have
dropped to about 9 1/2%) in four months. The Fund might enter into futures
contracts purchases of Treasury bonds for an equivalent price of 98. At the
same time, the Fund would assign a pool of investments in short-term securities
that are either maturing in four months or earmarked for sale in four months,
for purchase of the long-term bond at an assumed market price of 100. Assume
these short-term securities are yielding 15%. If the market price of the
long-term bond does indeed rise from 100 to 105, the equivalent futures market
price for Treasury bonds might also rise from 98 to 103. In that case, the 5
point increase in the price that the Fund pays for the long-term bond would be
offset by the 5 point gain realized by closing out the futures contract
purchase.
Fleet could be wrong in its forecast of interest rates; long-term interest
rates might rise to above 10%; and the equivalent futures market price could
fall below 98. If short-term rates at the same time fall to 10% or below, it is
possible that the Fund would continue with its purchase program for long-term
bonds. The market price of available long-term bonds would have decreased. The
benefit of this price decrease, and thus yield increase, will be reduced by the
loss realized on closing out the futures contract purchase.
If, however, short-term rates remained above available long-term rates, it
is possible that the Fund would discontinue its purchase program for long-term
bonds. The yield on short-term securities in the portfolio, including those
originally in the pool assigned to the particular long-term bond, would remain
higher than yields on long-term bonds. The benefit of this continued
incremental income will be reduced by the loss realized on closing out the
futures contract purchase. In each transaction, expenses would also be
incurred.
II. MUNICIPAL BOND INDEX FUTURES CONTRACTS
A municipal bond index assigns relative values to the bonds included in the
index and the index fluctuates with changes in the market values of the bonds so
included. The Chicago Board of Trade has designed a futures contract based on
the Bond Buyer Municipal Bond Index. This Index is composed of 40 term revenue
and general obligation bonds, and its composition is updated regularly as new
bonds meeting the criteria of the Index are issued and existing bonds mature.
The Index is intended to provide an accurate indicator of trends and changes in
the municipal bond market. Each bond in the Index is independently priced by
six dealer-to-dealer
B-3
<PAGE>
municipal bond brokers daily. The 40 prices then are averaged and multiplied by
a coefficient. The coefficient is used to maintain the continuity of the Index
when its composition changes. The Chicago Board of Trade, on which futures
contracts based on this Index are traded, as well as other U.S. commodities
exchanges, are regulated by the Commodity Futures Trading Commission.
Transactions on such exchange are cleared through a clearing corporation, which
guarantees the performance of the parties to each contract.
The Tax-Exempt Bond Fund, New Jersey Municipal Bond, New York Municipal
Bond Fund, Connecticut Municipal Bond Fund, Massachusetts Municipal Bond Fund
and Rhode Island Municipal Bond Fund will sell index futures contracts in order
to offset a decrease in market value of their respective portfolio securities
that might otherwise result from a market decline. A Fund may do so either to
hedge the value of its portfolio as a whole, or to protect against declines
occurring prior to sales of securities, in the value of the securities to be
sold. Conversely, a Fund will purchase index futures contracts in anticipation
of purchases of securities. In a substantial majority of these transactions, a
Fund will purchase such securities upon termination of the long futures
position, but a long futures position may be terminated without a corresponding
purchase of securities.
Closing out a futures contract sale prior to the settlement date may be
effected by a Fund's entering into a futures contract purchase for the same
aggregate amount of the index involved and the same delivery date. If the price
in the sale exceeds the price in the offsetting purchase, the Fund is paid the
difference and thus realizes a gain. If the offsetting purchase price exceeds
the sale price, the Fund pays the difference and realizes a loss. Similarly,
the closing out of a futures contract purchase is effected by a Fund's entering
into a futures contract sale. If the offsetting sale price exceeds the purchase
price, the Fund realizes a gain, and if the purchase price exceeds the
offsetting sale price, the Fund realizes a loss.
EXAMPLE OF A MUNICIPAL BOND INDEX FUTURES CONTRACT
Consider a portfolio manager holding $1 million par value of each of the
following municipal bonds on February 2 in a particular year.
<TABLE>
<CAPTION>
Current Price
(points and
Maturity thirty-seconds
Issue Coupon Issue Date Date of a point)
- --------------------------------------------- -----------------------------
<S> <C> <C> <C> <C>
Ohio HFA 9 3/8 5/05/83 5/1/13 94-2
NYS Power 9 3/4 5/24/83 1/1/17 102-0
San Diego, CA IDR 10 6/07/83 6/1/18 100-14
Muscatine, IA Elec 10 5/8 8/24/83 1/1/08 103-16
Mass Health & Ed 10 9/23/83 7/1/16 100-12
</TABLE>
The current value of the portfolio is $5,003,750.
B-4
<PAGE>
To hedge against a decline in the value of the portfolio, resulting from a
rise in interest rates, the portfolio manager can use the municipal bond index
futures contract. The current value of the Municipal Bond Index is 86-09.
Suppose the portfolio manager takes a position in the futures market opposite to
his or her cash market position by selling 50 municipal bond index futures
contracts (each contract represents $100,000 in principal value) at this price.
On March 23, the bonds in the portfolio have the following values:
Ohio HFA 81-28
NYS Power 98-26
San Diego, CA IDB 98-11
Muscatine, IA Elec 99-24
Mass Health & Ed 97-18
The bond prices have fallen, and the portfolio has sustained a loss of
$130,312. This would have been the loss incurred without hedging. However, the
Municipal Bond Index also has fallen, and its value stands at 83-27. Suppose
now the portfolio manager closes out his or her futures position by buying back
50 municipal bond index futures contracts at this price.
The following table provides a summary of transactions and the results of
the hedge.
<TABLE>
<CAPTION>
Cash Market Futures Market
----------- --------------
<S> <C> <C>
February 2 $5,003,750 long posi- Sell 50 Municipal Bond
tion in municipal futures contracts at
bonds 86-09
March 23 $4,873,438 long posi- Buy 50 Municipal Bond
tion in municipal futures contracts at
bonds 83-27
-------------------- -----------------------
$130,312 Loss $121,875 Gain
</TABLE>
While the gain in the futures market did not entirely offset the loss in
the cash market, the $8,437 loss is significantly lower than the loss which
would have been incurred without hedging.
The numbers reflected in this appendix do not take into account the effect
of brokerage fees or taxes.
III. MARGIN PAYMENTS
Unlike purchases or sales of portfolio securities, no price is paid or
received by a Fund upon the purchase or sale of a futures contract. Initially,
the Fund will be required to deposit with the broker or in a segregated account
with Galaxy's custodian an amount of cash or cash equivalents, known as initial
margin, based on the value of the contract. The nature of initial margin in
futures transactions is different from that of margin in security transactions
in that
B-5
<PAGE>
futures contract margin does not involve the borrowing of funds by the
customer to finance the transactions. Rather, the initial margin is in the
nature of a performance bond or good faith deposit on the contract which is
returned to the Fund upon termination of the futures contract assuming all
contractual obligations have been satisfied. Subsequent payments, called
variation margin, to and from the broker, will be made on a daily basis as
the price of the underlying instruments fluctuates making the long and short
positions in the futures contract more or less valuable, a process known as
marking-to-the-market. For example, when a particular Fund has purchased a
futures contract and the price of the contract has risen in response to a
rise in the underlying instruments, that position will have increased in
value and the Fund will be entitled to receive from the broker a variation
margin payment equal to that increase in value. Conversely, where the Fund
has purchased a futures contract and the price of the future contract has
declined in response to a decrease in the underlying instruments, the
position would be less valuable and the Fund would be required to make a
variation margin payment to the broker. At any time prior to expiration of
the futures contract, Fleet may elect to close the position by taking an
opposite position, subject to the availability of a secondary market, which
will operate to terminate the Fund's position in the futures contract. A
final determination of variation margin is then made, additional cash is
required to be paid by or released to the Fund, and the Fund realizes a loss
or gain.
IV. RISKS OF TRANSACTIONS IN FUTURES CONTRACTS
There are several risks in connection with the use of futures by the Funds
as hedging devices. One risk arises because of the imperfect correlation
between movements in the price of the futures and movements in the price of the
instruments that are the subject of the hedge. The price of the futures may
move more than or less than the price of the instruments being hedged. If the
price of the futures moves less than the price of the instruments which are the
subject of the hedge, the hedge will not be fully effective but, if the price of
the instruments being hedged has moved in an unfavorable direction, a Fund would
be in a better position than if it had not hedged at all. If the price of the
instruments being hedged has moved in a favorable direction, this advantage will
be partially offset by the loss on the futures. If the price of the futures
moves more than the price of the hedged instruments, the Funds involved will
experience either a loss or gain on the futures, which will not be completely
offset by movements in the price of the instruments which are the subject of the
hedge. To compensate for the imperfect correlation of movements in the price of
instruments being hedged and movements in the price of futures contracts, a Fund
may buy or sell futures contracts in a greater dollar amount than the dollar
amount of instruments being hedged if the volatility over a particular time
period of the prices of such instruments has been greater than the volatility
over such time period of the futures, or if otherwise deemed to be appropriate
by the investment adviser. Conversely, a Fund may buy or sell fewer futures
contracts if the volatility over a particular time period of the prices of the
instruments being hedged is less than the volatility over such time period of
the futures contract being used, or if otherwise deemed to be appropriate by
Fleet. It is also possible that, where a Fund had sold futures to hedge its
portfolio against a decline in the market, the market may advance and the value
of instrments held in the Fund may decline. If this occurred, the Fund would
lose money on the futures and also experience a decline in value in its
portfolio securities.
B-6
<PAGE>
Where futures are purchased to hedge against a possible increase in the
price of securities before a Fund is able to invest its cash (or cash
equivalents) in an orderly fashion, it is possible that the market may decline
instead; if the Fund then concludes not to invest its cash at that time because
of concern as to possible further market decline or for other reasons, the Fund
will realize a loss on the futures contract that is not offset by a reduction in
the price of the instruments that were to be purchased.
In instances involving the purchase of futures contracts by a Fund, an
amount of cash and cash equivalents, equal to the market value of the futures
contracts, will be deposited in a segregated account with Galaxy's custodian
and/or in a margin account with a broker to collateralize the position and
thereby insure that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between movements in the futures and the instruments
being hedged, the price of futures may not correlate perfectly with movement in
the cash market due to certain market distortions. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through off-setting transactions that could distort the normal relationship
between the cash and futures markets. Second, with respect to financial futures
contracts, the liquidity of the futures market depends on participants entering
into off-setting transactions rather than making or taking delivery. To the
extent participants decide to make or take delivery, liquidity in the futures
market could be reduced thus producing distortions. Third, from the point of
view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may also cause temporary
price distortions. Due to the possibility of price distortion in the futures
market, and because of the imperfect correlation between the movements in the
cash market and movements in the price of futures, a correct forecast of general
market trends or interest rate movements by the adviser may still not result in
a successful hedging transaction over a short time frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Funds
intend to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance that a liquid
secondary market on any exchange or board of trade will exist for any particular
contract or at any particular time. In such event, it may not be possible to
close a futures investment position, and in the event of adverse price
movements, a Fund would continue to be required to make daily cash payments of
variation margin. However, in the event futures contracts have been used to
hedge portfolio securities, such securities will not be sold until the futures
contract can be terminated. In such circumstances, an increase in the price of
the securities, if any, may partially or completely offset losses on the futures
contract. However, as described above, there is no guarantee that the price of
the securities will in fact correlate with the price movements in the futures
contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary market in a
futures contract may be adversely affected by "daily price fluctuation limits"
established by commodity exchanges which limit the amount of fluctuation in a
futures contract price during a single
B-7
<PAGE>
trading day. Once the daily limit has been reached in the contract, no trades
may be entered into at a price beyond the limit, thus preventing the liquidation
of open futures positions. The trading of futures contracts is also subject to
the risk of trading halts, suspensions, exchange or clearing house equipment
failures, government intervention, insolvency of a brokerage firm or clearing
house or other disruptions of normal activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.
Successful use of futures by the Funds is also subject to Fleet's ability
to predict correctly movements in the direction of the market. For example, if
a particular Fund has hedged against the possibility of a decline in the market
adversely affecting securities held by it and securities prices increase
instead, the Fund will lose part or all of the benefit to the increased value of
its securities which it has hedged because it will have offsetting losses in its
futures positions. In addition, in such situations, if the Fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements. Such sales of securities may be, but will not necessarily be, at
increased prices which reflect the rising market. The Funds may have to sell
securities at a time when it may be disadvantageous to do so.
B-8
<PAGE>
THE GALAXY FUND
FORM N-1A
PART C. OTHER INFORMATION
Item 23. Exhibits
(a) (1) Declaration of Trust dated March 31, 1986.(4)
(2) Amendment No. 1 to the Declaration of Trust dated as of
April 26, 1988.(4)
(3) Certificate pertaining to Classification of Shares
dated May 5, 1986 pertaining to Class A and Class B
shares.(4)
(4) Certificate of Classification of Shares dated December
9, 1987 pertaining to Class C, Class D and Class E
shares.(4)
(5) Certificate of Classification of Shares dated November
8, 1989 pertaining to Class C - Special Series 1 and
Class D - Special Series 1 shares.(4)
(6) Certificate of Classification of Shares dated August
16, 1990 pertaining to Class F shares; Class G - Series
1 shares; Class G - Series 2 shares; Class H - Series 1
shares; Class H - Series 2 shares; Class I - Series 1
shares; Class I - Series 2 shares; Class J - Series 1
shares; and Class J - Series 2 shares.(4)
(7) Certificate of Classification of Shares dated December
10, 1991 pertaining to Class K - Series 1 shares; Class
K - Series 2 shares; Class L - Series 1 shares; Class L
- Series 2 shares; Class M - Series 1 shares; Class M -
Series 2 shares; Class N - Series 1 shares; Class N -
Series 2 shares; Class O - Series 1 shares; and Class O
- Series 2 shares.(4)
(8) Certificate of Classification of Shares dated February
22, 1993 pertaining to Class P - Series 1 shares; Class
P - Series 2 shares; Class Q - Series 1 shares; Class Q
- Series 2 shares; Class R - Series 1 shares; Class R -
Series 2 shares; and Class S shares.(4)
(9) Certificate of Classification of Shares dated December
7, 1994 pertaining to Class T - Series 1 shares and
Class T - Series 2 shares.(4)
-1-
<PAGE>
(10) Certificate of Classification of Shares pertaining to
Class U - Series 1 shares and Class U - Series 2
shares; Class V shares; Class W shares; and Class X -
Series 1 shares and Class X - Series 2 shares.(8)
(11) Certificate of Classification of Shares pertaining to
Class C - Special Series 2 shares; Class H - Series 3
shares; Class J - Series 3 shares; Class K - Series 3
shares; Class L - Series 3 shares; Class M - Series 3
shares; Class N - Series 3 shares; and Class U - Series
3 shares.(8)
(l2) Certificate of Classification of Shares pertaining to
Class A - Special Series 2 shares.(8)
(13) Certificate of Classification of Shares pertaining to
Class Y - Series 1 shares and Class Y - Series 2
shares; Class Z - Series 1 shares, Class Z - Series 2
shares and Class Z - Series 3 shares; and Class AA -
Series 1 shares, Class AA - Series 2 shares and Class
AA - Series 3 shares.(8)
(14) Certificate of Classification of Shares pertaining to
Class BB; Class CC and Class DD shares.(8)
(15) Certificate of Classification of Shares pertaining to
Class C - Special Series 3 shares; Class C - Special
Series 4 shares; Class D - Special Series 3 shares;
Class D - Special Series 4 shares; Class G - Series 4
shares; Class G - Series 5 shares; Class H - Series 4
shares; Class H - Series 5 shares; Class I - Series 4
shares; Class I - Series 5 shares; Class J - Series 4
shares; Class J - Series 5 shares; Class K - Series 4
shares; Class K - Series 5 shares; Class L - Series 4
shares; Class L - Series 5 shares; Class M - Series 4
shares; Class M - Series 5 shares; Class N - Series 4
shares; Class N - Series 5 shares; Class U - Series 4
shares; Class U - Series 5 shares; Class X - Series 4
shares; Class X - Series 5 shares; Class AA - Series 4
shares; and Class AA - Series 5 shares.(8)
-2-
<PAGE>
(16) Certificate of Classification of Shares pertaining to
Class D - Special Series 2 shares; Class G - Series 3
shares; Class I - Series 3 shares; and Class X - Series
3 shares.(8)
(b) Code of Regulations.(4)
(c) Article V, Section 5.1, and Article VIII, Section 8.1,
of Registrant's Declaration of Trust incorporated
herein by reference as Exhibit (a)(1), and Amendment
No. 1 to Registrant's Declaration of Trust
incorporated herein by reference as Exhibit (a)(2).
(d) (1) Advisory Agreement between the Registrant and Fleet
Investment Advisors Inc. with respect to the Money
Market, Government, U.S. Treasury, Tax-Exempt,
Institutional Government Money Market (formerly
Institutional Treasury Money Market), Short-Term Bond,
Intermediate Government Income (formerly Intermediate
Bond), Corporate Bond, High Quality Bond, Tax-Exempt
Bond, New York Municipal Bond, Connecticut Municipal
Bond, Massachusetts Municipal Bond, Rhode Island
Municipal Bond, Equity Value, Equity Growth, Equity
Income, International Equity, Small Company Equity and
Asset Allocation Funds dated as of May 19, 1994.(2)
(2) Addendum No. 1 to Advisory Agreement between the
Registrant and Fleet Investment Advisors Inc. with
respect to the Connecticut Municipal Money Market,
Massachusetts Municipal Money Market, Growth and Income
and Small Cap Value Funds dated as of December 1,
1995.(1)
(3) Addendum No. 2 to Advisory Agreement between the
Registrant and Fleet Investment Advisors Inc. with
respect to the New Jersey Municipal Bond Fund, MidCap
Equity Fund and Strategic Equity Fund dated as of
March 3, 1998.(5)
(4) Addendum No. 3 to Advisory Agreement dated September
18, 1998 between the Registrant and Fleet Investment
Advisors Inc. with respect to the Prime Reserves,
Government Reserves and Tax-Exempt Reserves.(8)
-3-
<PAGE>
(5) Sub-Advisory Agreement between Fleet Investment
Advisors Inc. and Oechsle International Advisors, LLC
with respect to the International Equity Fund dated as
of October 8, 1998.(8)
(e) (1) Distribution Agreement between the Registrant and First
Data Distributors, Inc. dated as of June 1, 1997.(3)
(2) Amendment No. 1 dated March 3, 1998 to Distribution
Agreement between the Registrant and First Data
Distributors, Inc. with respect to the New Jersey
Municipal Bond Fund, MidCap Equity Fund and Strategic
Equity Fund.(5)
(3) Amendment No. 2 dated September 18, 1998 to
Distribution Agreement between the Registrant and First
Data Distributors, Inc. with respect to the Prime
Reserves, Government Reserves and Tax-Exempt
Reserves.(8)
(4) Amendment No. 3 dated December 3, 1998 to Distribution
Agreement between the Registrant and First Data
Distributors, Inc.(8)
(f) The Galaxy Fund/The Galaxy VIP Fund/Galaxy Fund II
Deferred Compensation Plan and Related Agreement
effective as of January 1, 1997.(2)
(g) (1) Global Custody Agreement between the Registrant
and The Chase Manhattan Bank dated as of November 1,
1991.(4)
(2) Form of Amendment to Global Custody Agreement between
the Registrant and The Chase Manhattan Bank with
respect to the New Jersey Municipal Bond, MidCap Equity
and Strategic Equity Funds.(3)
(3) Form of Amendment to Global Custody Agreement between
the Registrant and The Chase Manhattan Bank with
respect to the Prime Reserves, Government Reserves and
Tax-Exempt Reserves.(5)
(4) Amendment dated December 2, 1998 to Global Custody
Agreement between the Registrant and The Chase
Manhattan Bank with respect to foreign custody
monitoring delegation.
-4-
<PAGE>
(5) Consent to Assignment of Global Custody Agreement
between the Registrant, The Chase Manhattan Bank, N.A.
and 440 Financial Group of Worcester, Inc. to The
Shareholder Services Group, Inc. d/b/a 440 Financial
dated March 31, 1995.(4)
(h) (1) Administration Agreement between the Registrant and
First Data Investor Services Group, Inc. dated as of
June 1, 1997.(3)
(2) Amendment No. 1 dated March 3, 1998 to Administration
Agreement between the Registrant and First Data
Investor Services Group, Inc. with respect to the New
Jersey Municipal Bond Fund, MidCap Equity Fund and
Strategic Equity Fund.(5)
(3) Amendment No. 2 dated as of March 5, 1998 to
Administration Agreement between the Registrant and
First Data Investor Services Group, Inc.(6)
(4) Amendment No. 3 dated as of September 18, 1998 to
Administration Agreement between the Registrant and
First Data Investor Services Group, Inc. with respect
to the Prime Reserves, Government Reserves and
Tax-Exempt Reserves Fund.(8)
(5) Amendment No. 4 dated as of September 10, 1998 to
Administration Agreement between the Registrant and
First Data Investor Services Group, Inc.
(6) Transfer Agency and Services Agreement between the
Registrant and First Data Investor Services Group, Inc.
dated as of June 1, 1997.(3)
(7) Amendment No. 1 dated March 3, 1998 to Transfer Agency
and Services Agreement between the Registrant and First
Data Investor Services Group, Inc. with respect to the
New Jersey Municipal Bond Fund, MidCap Equity Fund and
Strategic Equity Fund.(5)
(8) Amendment No. 2 dated as of March 5, 1998 to Transfer
Agency and Services Agreement between the Registrant
and First Data Investor Services Group, Inc. (6)
-5-
<PAGE>
(9) Amendment No. 3 dated as of September 18, 1998 to
Transfer Agency and Services Agreement between the
Registrant and First Data Investor Services Group, Inc.
with respect to the Prime Reserves, Government Reserves
and Tax-Exempt Reserves Fund.(8)
(10) Amendment No. 4 dated as of September 10, 1998 to
Transfer Agency and Services Agreement between
Registrant and First Data Investor Services Group,
Inc.
(11) Shareholder Services Plan for Trust Shares and Retail A
Shares and Related Forms of Servicing Agreements.(3)
(i) (1) Opinion of counsel dated February 27, 1998 that shares
will be validly issued, fully paid and
non-assessable.(4)
(2) Opinion of counsel dated June 30, 1998 that shares will
be validly issued, fully paid and non-assessable.(5)
(3) Opinion of counsel dated September 11, 1998 that shares
will be validly issued, fully paid and
non-assessable.(6)
(4) Opinion of counsel dated October 5, 1998 that shares
will be validly issued, fully paid and
non-assessable.(7)
(j) (1) Consent of Drinker Biddle & Reath LLP.
(2) Consent of PricewaterhouseCoopers LLP.
(3) Consent of Willkie Farr & Gallagher.
(4) Consent of Ropes & Gray.
(5) Consent of Day, Berry & Howard.
(k) None.
(l) (1) Purchase Agreement between the Registrant and Shearson
Lehman Brothers Inc. dated July 24, 1986.(4)
(2) Purchase Agreement between the Registrant and Shearson
Lehman Brothers Inc. dated October 11, 1990 with
respect to the Treasury, Equity Growth, Equity Income,
International Equity and High Quality Bond Funds.(4)
(3) Purchase Agreement between the Registrant and SMA
Equities, Inc. dated December 30, 1991 with respect to
the Small Company Equity
-6-
<PAGE>
Fund, Short-Term Bond Fund, Tax-Exempt Bond Fund, Asset
Allocation Fund, and New York Municipal Bond Fund.(4)
(4) Purchase Agreement between the Registrant and Allmerica
Investments, Inc. dated February 22, 1993 with respect
to the Connecticut Municipal Bond, Massachusetts
Municipal Bond, Rhode Island Municipal Bond and
Institutional Government Money Market (formerly
Institutional Treasury Money Market) Funds.(4)
(5) Purchase Agreement between the Registrant and 440
Financial Distributors, Inc. dated May 19, 1994 with
respect to the Corporate Bond Fund.(4)
(6) Purchase Agreement between the Registrant and First
Data Investor Services, Inc. dated February 28, 1996
with respect to the Connecticut Municipal Money Market,
Massachusetts Municipal Money Market Money, Growth and
Income and Small Cap Value Funds.(4)
(7) Purchase Agreement between the Registrant and First
Data Distributors, Inc. with respect to the New Jersey
Municipal Bond Fund.(5)
(8) Form of Purchase Agreement between the Registrant and
First Data Distributors, Inc. with respect to the
MidCap Equity Fund.(3)
(9) Purchase Agreement between the Registrant and First
Data Distributors, Inc. with respect to the Strategic
Equity Fund.(5)
(10) Purchase Agreement between the Registrant and First
Data Distributors, Inc. dated September 18, 1998 with
respect to the Prime Reserves, Government Reserves and
Tax-Exempt Reserves.
(m) (1) Distribution and Services Plan for Retail B Shares and
Related Form of Servicing Agreement.(6)
(2) Distribution and Services Plan and Related Form of
Servicing Agreement with respect to the Prime Reserves,
Government Reserves and Tax-Exempt Reserves.(5)
(3) Distribution Plan for A Prime Shares.(6)
-7-
<PAGE>
(4) Distribution and Services Plan for B Prime Shares and
Related Form of Servicing Agreement.(6)
(n) Financial Data Schedules.
(o) Amended and Restated Plan Pursuant to Rule 18f-3 for
Operation of a Multi-Class System.(6)
- ------------------------------------
(1) Filed electronically as an Exhibit and incorporated herein by
reference to Post-Effective Amendment No. 27 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-4806 and 811-4636)
on March 4, 1996.
(2) Filed electronically as an Exhibit and incorporated herein by
reference to Post-Effective Amendment No. 29 to the Registrant's
Registration Statement on Form N-1A as filed with the Commission on
December 30, 1996.
(3) Filed electronically as an Exhibit and incorporated herein by
reference to Post-Effective Amendment No. 31 to the Registrant's
Registration Statement on Form N-1A as filed with the Commission on
December 15, 1997.
(4) Filed electronically as an Exhibit and incorporated herein by
reference to Post-Effective Amendment No. 32 to the Registrant's
Registration Statement on Form N-1A as filed with the Commission on
February 27, 1998.
(5) Filed electronically as an Exhibit and incorporated herein by
reference to Post-Effective Amendment No. 33 to the Registrant's
Registration Statement on Form N-1A as filed with the Commission on
June 30, 1998.
(6) Filed electronically as an Exhibit and incorporated herein by
reference to Post-Effective Amendment No. 34 to the Registrant's
Registration Statement on Form N-1A as filed with the Commission on
September 11, 1998.
(7) Filed electronically as an Exhibit and incorporated herein by
reference to Post-Effective Amendment No. 35 to the Registrant's
Registration Statement on Form N-1A as filed with the Commission on
October 5, 1998.
(8) Filed electronically as an Exhibit and incorporated herein by
reference to Post-Effective Amendment No. 36 to the Registrant's
Registration Statement on Form N-1A as filed with the Commission on
December 30, 1998.
-8-
<PAGE>
Item 24. Persons Controlled By or Under Common Control with
Registrant
Registrant is controlled by its Board of Trustees.
Item 25. Indemnification
Indemnification of the Registrant's principal underwriter, custodian and
transfer agent against certain losses is provided for, respectively, in Section
1.19 of the Distribution Agreement incorporated herein by reference as Exhibit
(e)(1), in Section 12 of the Global Custody Agreement incorporated herein by
reference as Exhibit (g)(1) and in Article 10 of the Transfer Agency and
Services Agreement incorporated herein by reference as Exhibit (h)(6). The
Registrant has obtained from a major insurance carrier a directors' and
officers' liability policy covering certain types of errors and omissions. In
addition, Section 9.3 of the Registrant's Declaration of Trust dated March 31,
1986, incorporated herein by reference as Exhibit (a)(1), provides as follows:
9.3 INDEMNIFICATION OF TRUSTEES, REPRESENTATIVES AND EMPLOYEES. The Trust
shall indemnify each of its Trustees against all liabilities and
expenses (including amounts paid in satisfaction of judgments, in
compromise, as fines and penalties, and as counsel fees) reasonably
incurred by him in connection with the defense or disposition of any
action, suit or other proceeding, whether civil or criminal, in which
he may be involved or with which he may be threatened, while as a
Trustee or thereafter, by reason of his being or having been such a
Trustee EXCEPT with respect to any matter as to which he shall have
been adjudicated to have acted in bad faith, willful misfeasance,
gross negligence or reckless disregard of his duties, provided that as
to any matter disposed of by a compromise payment by such person,
pursuant to a consent decree or otherwise, no indemnification either
for said payment or for any other expenses shall be provided unless
the Trust shall have received a written opinion from independent legal
counsel approved by the Trustees to the effect that if either the
matter of willful misfeasance, gross negligence or reckless disregard
of duty, or the matter of bad faith had been adjudicated, it would in
the opinion of such counsel have been adjudicated in favor of such
person. The rights accruing to any person under these provisions
shall not exclude any other right to which he may be lawfully
entitled, PROVIDED that no person may satisfy any right of indemnity
or reimbursement hereunder except out of the property of the Trust.
The Trustees may make advance payments in connection with the
indemnification under this Section 9.3, PROVIDED that the indemnified
person shall have given a written
-9-
<PAGE>
undertaking to reimburse the Trust in the event it is subsequently
determined that he is not entitled to such indemnification.
The Trustees shall indemnify representatives and employees of the
Trust to the same extent that Trustees are entitled to indemnification
pursuant to this Section 9.3.
Insofar as indemnification for liability arising under the Securities
Act of 1933, as amended, may be permitted to trustees, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a trustee, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or controlling person
in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
Item 26. (a) Business and Other Connections of Investment Adviser
Fleet Investment Advisors Inc. ("Fleet") is an investment adviser
registered under the Investment Advisers Act of 1940 (the
"Advisers Act").
The list required by this Item 28 of officers and directors of
Fleet, together with information as to any business profession,
vocation or employment of a substantial nature engaged in by such
officers and directors during the past two years is incorporated
herein by reference to Schedules A and D of Form ADV filed by
Fleet pursuant to the Advisers Act (SEC File No. 801-20312).
(b) Business and Other Connections of Sub-Adviser
Oechsle International Advisors, LLC. ("Oechsle") is an investment
adviser registered under the Investment Advisers Act of 1940 (the
"Advisers Act").
-10-
<PAGE>
The list required by this Item 28 of the officers of Oechsle,
together with information as to any business profession, vocation
or employment of a substantial nature engaged in by such officers
during the past two years, is incorporated herein by reference to
Schedules A and D of Form ADV filed by Oechsle pursuant to the
Advisers Act (SEC File No. 801-28111).
Item 27. Principal Underwriter
(a) In addition to The Galaxy Fund, First Data Distributors, Inc.
(the "Distributor") currently acts as distributor for The Galaxy
VIP Fund, Galaxy Fund II, Allegheny Funds, Wilshire Target Funds,
Inc., Panorama Trust, Undiscovered Managers Funds, LKCM Funds,
ABN Amro Funds, First Choice Funds Trust, Forward Funds, Inc.,
IBJ Funds Trust, ICM Series Trust, Light Revolution Funds, Inc.
and BT Insurance Funds Trust. The Distributor is registered with
the Securities and Exchange Commission as a broker-dealer and is
a member of the National Association of Securities Dealers. The
Distributor is a wholly-owned subsidiary of First Data Investor
Services Group, Inc., 4400 Computer Drive, Westborough
01581-5108.
(b) The information required by this Item 29 (b) with respect to each
director, officer, or partner of the Distributor, is incorporated
by reference to Schedule A of Form BD filed by the Distributor,
with the Securities and Exchange Commission pursuant to the
Securities Act of 1934 (File No. 8-45467).
(c) The Distributor receives no compensation from the Registrant for
distribution of its shares other than payments for distribution
assistance pursuant to Registrant's Distribution and Services
Plan for Retail B Shares, Distribution and Services Plan for the
Prime Reserves, Government Reserves and Tax-Exempt Reserves,
Distribution Plan for A Prime Shares and Distribution and
Services Plan for B Prime Shares. The Distributor is an
affiliated person of First Data Investor Services Group, Inc.,
the Registrant's administrator, which receives administration,
fund accounting and transfer agency fees as described in parts A
and B.
-11-
<PAGE>
Item 28. Location of Accounts and Records
(1) Fleet Investment Advisors Inc., 75 State Street, Boston,
Massachusetts 02109 (records relating to its functions as
investment adviser to all of the Registrant's Funds).
(2) Oechsle International Advisors, LLC, One International Place,
Boston, Massachusetts 02210 (records relating to its functions as
sub-investment adviser to the International Equity Fund).
(3) First Data Distributors, Inc., 4400 Computer Drive, Westborough,
Massachusetts 01581-5108 (records relating to its functions as
distributor).
(4) First Data Investor Services Group, Inc. 53 State Street, Mail
Stop BOS 425, Boston, MA 02109 (records relating to its
functions as administrator).
(5) First Data Investor Services Group, Inc. 4400 Computer Drive,
Westborough, MA 01581-5108 (records relating to its functions as
transfer agent).
(6) Drinker Biddle & Reath LLP, Philadelphia National Bank Building,
1345 Chestnut Street, Philadelphia, Pennsylvania 19107
(Registrant's Declaration of Trust, Code of Regulations and
Minute Books).
(7) The Chase Manhattan Bank, 1211 Avenue of the Americas, New York,
New York 10036 (records relating to its functions as custodian).
Item 29. Management Services
Inapplicable.
Item 30. Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest available Annual
Reports to Shareholders which includes Management's Discussion of the
Registrant's performance, upon request and without charge.
-12-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, Registrant hereby certifies
that it meets all of the requirements for effectiveness of this Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933, as amended,
and has duly caused this Post-Effective Amendment No. 37 to its Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in Bonita Springs, Florida, on the 26th day of February, 1999.
THE GALAXY FUND
Registrant
/s/ John T. O'Neill
--------------------------------------
President
John T. O'Neill
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 37 to the Registration Statement has been signed below
by the following persons in the capacities and on the dates indicated.
Signature Title Date
/s/ John T. O'Neill
- ------------------------ Trustee, President February 26, 1999
John T. O'Neill and Treasurer
*/s/Dwight E. Vicks, Jr. Chairman of the Board February 26, 1999
- ------------------------- of Trustees
Dwight E. Vicks, Jr.
*/s/Donald B. Miller Trustee February 26, 1999
- -------------------------
Donald B. Miller
*/s/Louis DeThomasis Trustee February 26, 1999
- -------------------------
Louis DeThomasis
*/s/Bradford S. Wellman Trustee February 26, 1999
- -------------------------
Bradford S. Wellman
*/s/James M. Seed Trustee February 26, 1999
- -------------------------
James M. Seed
*By: /s/ John T. O'Neill
----------------------
John T. O'Neill
Attorney-In-Fact
-14-
<PAGE>
THE GALAXY FUND
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints
John T. O'Neill and W. Bruce McConnel, III, and either of them, his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
trustee or officer, or both, of The Galaxy Fund (the "Trust"), to execute any
and all amendments to the Trust's Registration Statement on Form N-1A pursuant
to the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended (the "Acts"), and all instruments necessary or incidental in
connection therewith pursuant to said Acts and any rules, regulations, or
requirements of the Securities and Exchange Commission in respect thereof, and
to file the same with the Securities and Exchange Commission, and either of said
attorneys shall have full power and authority, to do and perform in the name and
on behalf of the undersigned in any and all capacities, every act whatsoever
requisite or necessary to be done, as fully and to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorneys, or either of them, may lawfully do or cause to be done by virtue
hereof.
Dated: December 4, 1996 /s/Dwight E. Vicks, Jr.
-------------------------
Dwight E. Vicks, Jr.
<PAGE>
THE GALAXY FUND
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints
John T. O'Neill and W. Bruce McConnel, III, and either of them, his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
trustee or officer, or both, of The Galaxy Fund (the "Trust"), to execute any
and all amendments to the Trust's Registration Statement on Form N-1A pursuant
to the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended (the "Acts"), and all instruments necessary or incidental in
connection therewith pursuant to said Acts and any rules, regulations, or
requirements of the Securities and Exchange Commission in respect thereof, and
to file the same with the Securities and Exchange Commission, and either of said
attorneys shall have full power and authority, to do and perform in the name and
on behalf of the undersigned in any and all capacities, every act whatsoever
requisite or necessary to be done, as fully and to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorneys, or either of them, may lawfully do or cause to be done by virtue
hereof.
Dated: December 5, 1996 /s/Donald B. Miller
--------------------
Donald B. Miller
<PAGE>
THE GALAXY FUND
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints
John T. O'Neill and W. Bruce McConnel, III, and either of them, his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
trustee or officer, or both, of The Galaxy Fund (the "Trust"), to execute any
and all amendments to the Trust's Registration Statement on Form N-1A pursuant
to the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended (the "Acts"), and all instruments necessary or incidental in
connection therewith pursuant to said Acts and any rules, regulations, or
requirements of the Securities and Exchange Commission in respect thereof, and
to file the same with the Securities and Exchange Commission, and either of said
attorneys shall have full power and authority, to do and perform in the name and
on behalf of the undersigned in any and all capacities, every act whatsoever
requisite or necessary to be done, as fully and to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorneys, or either of them, may lawfully do or cause to be done by virtue
hereof.
Dated: December 5, 1996 /s/Brother Louis DeThomasis
----------------------------
Brother Louis DeThomasis
<PAGE>
THE GALAXY FUND
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints
John T. O'Neill and W. Bruce McConnel, III, and either of them, his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
trustee or officer, or both, of The Galaxy Fund (the "Trust"), to execute any
and all amendments to the Trust's Registration Statement on Form N-1A pursuant
to the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended (the "Acts"), and all instruments necessary or incidental in
connection therewith pursuant to said Acts and any rules, regulations, or
requirements of the Securities and Exchange Commission in respect thereof, and
to file the same with the Securities and Exchange Commission, and either of said
attorneys shall have full power and authority, to do and perform in the name and
on behalf of the undersigned in any and all capacities, every act whatsoever
requisite or necessary to be done, as fully and to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorneys, or either of them, may lawfully do or cause to be done by virtue
hereof.
Dated: December 5, 1996 /s/Bradford S. Wellman
-----------------------
Bradford S. Wellman
<PAGE>
THE GALAXY FUND
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints
John T. O'Neill and W. Bruce McConnel, III, and either of them, his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
trustee or officer, or both, of The Galaxy Fund (the "Trust"), to execute any
and all amendments to the Trust's Registration Statement on Form N-1A pursuant
to the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended (the "Acts"), and all instruments necessary or incidental in
connection therewith pursuant to said Acts and any rules, regulations, or
requirements of the Securities and Exchange Commission in respect thereof, and
to file the same with the Securities and Exchange Commission, and either of said
attorneys shall have full power and authority, to do and perform in the name and
on behalf of the undersigned in any and all capacities, every act whatsoever
requisite or necessary to be done, as fully and to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorneys, or either of them, may lawfully do or cause to be done by virtue
hereof.
Dated: December 5, 1996 /s/James M. Seed
-----------------
James M. Seed
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- ------------
<S> <C>
(g)(4) Amendment dated December 2, 1998 to Global Custody
Agreement between the Registrant and The Chase
Manhattan Bank with respect to foreign custody
monitoring delegation.
(h)(5) Amendment No. 4 dated as of September 10, 1998 to
Administration Agreement between the Registrant and
First Data Investor Services Group, Inc.
(h)(10) Amendment No. 4 dated as of September 10, 1998 to
Transfer Agency and Services Agreement between
Registrant and First Data Investor Services Group, Inc.
(j)(1) Consent of Drinker Biddle & Reath LLP.
(j)(2) Consent of PricewaterhouseCoopers LLP.
(j)(3) Consent of Willkie Farr & Gallagher.
(j)(4) Consent of Ropes and Gray.
(j)(5) Consent of Day, Berry & Howard.
(l)(10) Purchase Agreement dated as of September 18, 1998
between the Registrant and First Data Distributors,
Inc. with respect to the Prime Reserves, Government
Reserves and Tax-Exempt Reserves.
(n) Financial Data Schedules.
</TABLE>
<PAGE>
AMENDMENT, dated December 2, 1998 to the November 1, 1991 Global
Custody Agreement ("Agreement"), between The Galaxy Fund ("Customer"), having a
place of business at 4400 Computer Dr., Westborough, MA 01581-5120, and The
Chase Manhattan Bank ("Bank"), having a place of business at 270 Park Ave., New
York, N.Y. 10017-2070.
It is hereby agreed as follows:
Section 1. Except as modified hereby, the Agreement is confirmed
in all respects. Capitalized terms used herein without definition shall have
the meanings ascribed to them in the Agreement.
Section 2. The Agreement is amended by deleting the mutual fund
rider thereto and inserting, in lieu thereof, the following investment company
rider:
"Add a new Section 15 to the Agreement as follows:
15. COMPLIANCE WITH SEC RULE 17f-5.
(a) Customer's board of trustees (or equivalent body) (hereinafter
"Board") hereby delegates to Bank, and Bank hereby accepts the delegation to it,
of the obligation to perform as Customer's "Foreign Custody Manager" (as that
term is defined in SEC rule 17f-5(a)(2)), both for the purpose of selecting
Eligible Foreign Custodians (as that term is defined in SEC rule 17f-5(a)(1)),
and as the same may be amended from time to time, or that have otherwise been
made exempt pursuant to an SEC exemptive order) to hold Assets and of evaluating
the contractual arrangements with such Eligible Foreign Custodians (as set forth
in SEC rule 17f-5(c)(2)); provided that, the term Eligible Foreign Custodian
shall not include any "Compulsory Depository." For each Compulsory Depository
used or intended to be used by Customer of which Bank is advised, Bank shall
provide Customer from time to time with information addressing the factors set
forth in SEC Rule 17f-5(c)(1) to the extent reasonably available to Bank,
together with Bank's analysis of the same (as an example of which is set forth
in Appendix 1 hereto) to assist Customer in determining the appropriateness of
placing Assets therein. A Compulsory Depository shall mean a securities
depository or clearing agency the use of which is compulsory because: (1) its
use is required by law or regulation, (2) securities cannot be withdrawn from
the depository, or (3) maintaining securities outside the depository is not
consistent with prevailing custodial practices in the country which the
depository serves. Compulsory Depositories used by Chase as of the date hereof
are set forth in Appendix 1-A hereto, and as the same may be amended on notice
to Customer from time to time.
(b) In connection with the foregoing, Bank shall:
(i) provide written reports notifying Customer's Board of the
placement of Assets with particular Eligible Foreign Custodians and of
any material change in the arrangements with such Eligible Foreign
Custodians, with such reports to be provided to Customer's Board at
such times as the Board deems reasonable and appropriate based on the
circumstances of Customer's foreign custody arrangements (and until
further notice from Customer such reports shall be
-1-
<PAGE>
provided not less than quarterly with respect to the placement of
Assets with particular Eligible Foreign Custodians and with reasonable
promptness (but not less than quarterly) upon the occurrence of any
material change in the contracts, arrangements, procedures or
practices with such Eligible Foreign Custodians);
(ii) exercise such reasonable care, prudence and diligence in
performing as Customer's Foreign Custody Manager as a person having
responsibility for the safekeeping of Assets would exercise;
(iii) in selecting an Eligible Foreign Custodian, first have
determined that Assets placed and maintained in the safekeeping of
such Eligible Foreign Custodian shall be subject to reasonable care,
based on the standards applicable to custodians in the relevant
market, after having considered all factors relevant to the
safekeeping of such Assets, including, without limitation, those
factors set forth in SEC rule 17f-5(c)(1)(i)-(iv);
(iv) determine that the written contract with the Eligible Foreign
Custodian (or, in the case of an Eligible Foreign Custodian that is a
securities depository or clearing agency, such contract, the rules or
established practices or procedures of the depository, or any
combination of the foregoing) requires that the Eligible Foreign
Custodian will provide reasonable care for Assets based on the
standards applicable to custodians in the relevant market; and
(v) have established a system to monitor the continued
appropriateness of maintaining Assets with particular Eligible Foreign
Custodians and of the governing contractual arrangements.
Subject to (b)(i)-(v) above, Bank is hereby authorized to place and maintain
Assets on behalf of Customer with Eligible Foreign Custodians pursuant to a
written contract deemed appropriate by Bank.
(c) Except as expressly provided herein, Customer shall be solely
responsible to assure that the maintenance of Assets hereunder complies with the
rules, regulations, interpretations and exemptive orders promulgated by or under
the authority of the SEC.
(d) Bank represents to Customer that it is a U.S. Bank as defined in
Rule 17f-5(a)(7). Customer represents to Bank that: (1) the Assets being placed
and maintained in Bank's custody are subject to the Investment Company Act of
1940, as amended (the " 1940 Act"), as the same may be amended from time to
time; (2) its Board has determined that it is reasonable to rely on Bank to
perform as Customer's Foreign Custody Manager; and (3) its Board or its
investment adviser shall have determined that Customer may maintain Assets in
each country in which Customer's Assets shall be held hereunder and determined
to accept the risks arising therefrom (including, but not limited to, a
country's financial infrastructure (and including any Compulsory Depository
operating in such country), prevailing custody and settlement practices, laws
applicable to the safekeeping and recovery of Assets held in custody, and the
likelihood of nationalization, currency controls and the like) (collectively
("Country Risk")). Nothing
-2-
<PAGE>
contained herein shall require Bank to make any selection or to engage in any
monitoring on behalf of Customer that would entail consideration of Country
Risk.
(e) Bank shall provide to Customer such information relating to
Country Risk as is specified in Appendix 1-B hereto. Customer hereby
acknowledges that: (i) such information is solely designed to inform Customer of
market conditions and procedures and is not intended as a recommendation to
invest or not invest in particular markets; and (ii) Bank has gathered the
information from sources it considers reliable, but that Bank shall have no
responsibility for inaccuracies or incomplete information.
2. Add the following after the first sentence of Section 3 of the
Agreement:
At the request of Customer, Bank may, but need not, add to Schedule A
an Eligible Foreign Custodian that is either a bank or a non-
Compulsory Depository where Bank has not acted as Foreign Custody
Manager with respect to the selection thereof. Bank shall notify
Customer in the event that it elects to add any such entity.
3. Add the following language to the end of Section 3 of the
Agreement:
The term Subcustodian as used herein shall mean the following:
(a) a "U.S. Bank," which shall mean a U.S. bank as defined in SEC
rule 17f-5(a)(7); and
(b) an "Eligible Foreign Custodian," which shall mean (i) a banking
institution or trust company, incorporated or organized under the laws
of a country other then the United States, that is regulated as such
by that country's government or an agency thereof, (ii) a
majority-owned direct or indirect subsidiary of a U.S. bank or bank
holding company which subsidiary is incorporated or organized under
the laws of a country other than the United States; (iii) a securities
depository or clearing agency (other than a Compulsory Depository),
incorporated or organized under the laws of a country other than the
United States, that acts as a system for the central handling of
securities or equivalent book-entries in that country and that is
regulated by a foreign financial regulatory authority as defined under
section 2(a)(50) of the 1940 Act, (iv) a securities depository or
clearing agency organized under the laws of a country other than the
United States when acting as a transnational system ("Transnational
Depository") for the central handling of securities or equivalent
book-entries, and (v) any other entity that shall have been so
qualified by exemptive order, rule or other appropriate action of the
SEC.
-3-
<PAGE>
(c) The term Subcustodian as used in Section 12(a)(i) (except the
last sentence thereof) shall not include any Eligible Foreign
Custodian as to which Bank has not acted as Foreign Custody Manager,
any Compulsory Depository and any Transnational Depository."
********************
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above written.
THE GALAXY FUND THE CHASE MANHATTAN BANK
By: /s/ Jylanne Dunne By: /s/ James E. Cecere, Jr.
-------------------------- --------------------------
Name: Jylanne Dunne Name: James E. Cecere, Jr.
Title: Vice President Title: Vice President
Date: December 2, 1998 Date: December 2, 1998
-4-
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
APPENDIX 1-A
CENTRAL DEPOSITORIES
AS OF NOVEMBER 1998
- ---------------------------------------------------------------------------------------------------------------------
COUNTRY DEPOSITORY INSTRUMENT
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ARGENTINA CAJA DE VALORES S.A. Equity, Corporate & Government Debt
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
AUSTRALIA AUSTRACLEAR LTD. Corporate Debt, Money Market & Semi-Government Debt
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
CHESS Equity
(Clearing House Electronic Subregister System)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
RITS Government Debt
(Reserve Bank Information and Transfer System)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
AUSTRIA OSTERREICHISCHE KONTROLBANK AG Equity, Corporate + Government Debt
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
BELGIUM CIK Equity + Corporate Debt
(Caisse Interprofessionelle de Depots et de COMPULSORY
Virements de Titres s.a.
- ---------------------------------------------------------------------------------------------------------------------
BANQUE NATIONALE DE BELGIQUE Treasury Bills + Government Debt
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
BRAZIL CBLC Equity
(Companhia Brasileira de Liquidacao e
Custodia)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
BVRJ Equity
(Bolsa de Valores de Rio de Janeiro)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
BULGARIA BNB Government Debt
(Bulgaria National Bank)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
CENTRAL DEPOSITORY A.D. Equity
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
CANADA CDS Equity, Corporate + Government Debt
(The Canadian Depository for Securities Ltd.)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
CHINA, SSCCRC Equity
SHANGHAI (Shanghai Securities Central Clearing and
Registration Corporation) COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
CHINA, SSCC Equity
SHENZHEN (Shenzhen Securities Clearing Company, Limited)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
COLOMBIA DCV Government debt issued, guaranteed or administered
(Deposito Central de Valores) by the central bank.
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
-5-
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
APPENDIX 1-A
CENTRAL DEPOSITORIES
AS OF NOVEMBER 1998
- ---------------------------------------------------------------------------------------------------------------------
COUNTRY DEPOSITORY INSTRUMENT
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CROATIA CDA Equity and listed government debt. (Created in
(Central Depository Agency) April 1997, the CDA is expected to be operational
in 1999)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
CROATIA MINISTRY OF FINANCE REGISTRY & NATIONAL BANK Short-term debt issued by the Ministry of Finance
OF CROATIA REGISTRY and the National Bank of Croatia, respectively.
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
CZECH SCP Equity + Long-Term Government Debt
REPUBLIC (Stredisko cennych papiru)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
DENMARK VP Equity, Corporate + Government Debt
(Vaerdipapircentralen)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
EGYPT MISR CLEARING, SETTLEMENT AND DEPOSITORY, Equity
S.A.E.
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
ESTONIA EVK Equity
(Estonian Central Depository for Securities
Limited)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
EUROMARKET CEDEL & EUROCLEAR Euro-Debt
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
FINLAND CSR Equity + Government Debt
(Central Share Registry Finland)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
FRANCE SICOVAM Equity + Corporate Debt
(Societe Interprofessioelle pour la
Compensation des Valeurs Mobilieres, S.A.)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
GERMANY DBC Equity, Corporate + Government Debt
(Deutsche Boerse Clearing AG)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
GREECE APOTHETIRIO TITLON A.E. Equity
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
BANK OF GREECE Government Debt
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
HONG KONG CCASS Equity
(Central Clearing and Settlement System)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
CMU Corporate + Government Debt
(Central Moneymarkets Unit)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
HUNGARY KELER LTD. Equity + Government Debt
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
-6-
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
APPENDIX 1-A
CENTRAL DEPOSITORIES
AS OF NOVEMBER 1998
- ---------------------------------------------------------------------------------------------------------------------
COUNTRY DEPOSITORY INSTRUMENT
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INDIA NSDL Equity + Corporate Debt
(National Securities Depository Limited)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
IRELAND CRESTCo LIMITED Equity
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
GSO Government Debt
(Gilt Settlement Office)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
ISRAEL TASE CLEARING HOUSE Equity, Corporate + Government Debt
(Tel Aviv Stock Exchange Clearing House)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
ITALY MONTE TITOLI S.P.A. Equity Corporate Debt
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
BANK OF ITALY Government Debt
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
JAPAN JASDEC Equity
(Japan Securities Depository Center)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
BANK OF JAPAN Registered Government Debt
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
KAZAHKSTAN CENTRAL SECURITIES DEPOSITORY Mandatory for all equity securities traded on the
Kazahkstan Stock Exchange. Currently all trading
is over the counter.
VOLUNTARY
- ---------------------------------------------------------------------------------------------------------------------
LATVIA LCD Equity + Government Debt
(Latvian Central Depository)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
LEBANON MIDCLEAR Equity
(Custodian and Clearing Center of Lebanon and
the Middle East)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
LITHUANIA CSDL Equity + Government Debt
(Central Securities Depository of Lithuania)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
LUXEMBOURG CEDEL BANK, S.A. Equity
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
MALAYSIA MCD Equity
(Malaysian Central Depository Snd Bhd) COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
MAURITIUS CDS Equity
(Central Depository and Settlement Company
Limited)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
-7-
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
APPENDIX 1-A
CENTRAL DEPOSITORIES
AS OF NOVEMBER 1998
- ---------------------------------------------------------------------------------------------------------------------
COUNTRY DEPOSITORY INSTRUMENT
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MEXICO INDEVAL Equity, Corporate + Government Debt
(Institucion para el Deposito de Valores)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
MOROCCO MAROCLEAR Equity + Corporate Debt (will be compulsory as of
March 21, 1999)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
NETHERLANDS NECIGEF Equity, Corp. + Govt. D
(Nederlands Centraal Insituut voor Giraal
Effectenverkeer B.V.)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
NEW ZEALAND AUSTRACLEAR NEW ZEALAND Equity, Corporate + Government Debt
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
NORWAY VPS Equity, Corporate + Government Debt
(Verdipapirsentralen)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
OMAN MSM Equity
(Muscat Securities Market)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
PAKISTAN CDC Equity
(Central Depository Company of Pakistan
Limited)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
PERU CAVALI Equity
(Caja de Valores y Liquidaciones)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
PHILIPPINES PCD Equity
(Philippine Central Depository Inc.)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
POLAND NDS Equity, Long-Term Government Debt + Vouchers
(National Securities Depository)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
CRT Treasury-Bills
(Central Registry of Treasury Bills)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
PORTUGAL INTERBOLSA Equity, Corporate + Government Debt
(Central de Valores Mobiliarios e Sistema de
Liquidacao e Compensacao)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
ROMANIA SNCDD - RASDAQ Equity
(National Company for Clearing, Settlement and
Depository for Securities)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
BSE Equity
(Bucharest Stock Exchange Registry)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
NATIONAL BANK OF ROMANIA Treasury-Bills
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
-8-
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
APPENDIX 1-A
CENTRAL DEPOSITORIES
AS OF NOVEMBER 1998
- ---------------------------------------------------------------------------------------------------------------------
COUNTRY DEPOSITORY INSTRUMENT
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
RUSSIA VNESTORGBANK Ministry of Finance Bonds
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
NATIONAL DEPOSITORY CENTER GKOs are Treasury Bills with three months to one
year maturity; OFZs are Federal Loan bonds with one
to two years' maturity.
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
SINGAPORE CDP Equity + Corporate Debt and Malaysian equities
(Central Depository (Pte.) Ltd.) traded on CLOB
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
MONETARY AUTHORITY OF SINGAPORE Government Debt
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
SLOVAK SCP Equity + Government Debt
REPUBLIC (Stredisko Cennych Papierov)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
SLOVAK NATIONAL BANK OF SLOVAKIA Treasury-Bills
REPUBLIC
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
SLOVENIA KDD Equity + Corporate Debt
(The Centralna Klirinsko Depotna Druzba d.d.)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
SOUTH AFRICA CD Corporate + Government Debt
(Central Depository (Pty) Limited)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
SOUTH KOREA KSD Equity, Corporate + Government Debt
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
SPAIN SCLV Equity + Corporate Debt
(Servicio de Compensacion v Liquidacion de
Valores. S.A.)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
CBEO Government Debt
(Central Book Entry Office)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
SRI LANKA CDS Equity
(Central Depository System (Pte) Limited)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
SWEDEN VPC Equity, Corporate + Government Debt
(Vardepapperscentralen AB)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
SWITZERLAND SEGA Equity, Corporate + Government Debt
(Schweizerische Effekten-Giro AG)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
TAIWAN TSCD Equity + Government Debt
(Taiwan Securities Central Depository Co., Ltd.)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
-9-
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
APPENDIX 1-A
CENTRAL DEPOSITORIES
AS OF NOVEMBER 1998
- ---------------------------------------------------------------------------------------------------------------------
COUNTRY DEPOSITORY INSTRUMENT
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
THAILAND TSDC Equity, Corporate + Government Debt
(Thailand Securities Depository Company
Limited)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
TUNISIA STICODEVAM Equity
(Societe Tunisienne Interprofesionnelle pour la
Compensation et le Depot des Valeurs Mobilieres)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
MINISTRY OF FINANCE Government Debt tradable on the stock exchange
(BTNBs)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
CENTRAL BANK OR TUNISIA Government Debt not tradable on the stock exchange
(BTCs)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
TURKEY IMKB TAKAS VE SAKLAMA BANKASI A.S. Equity + Corporate Debt
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
CENTRAL BANK OF TURKEY Government Debt
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
UNITED CRESTCo LIMITED Equity + Corp. Debt
KINGDOM
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
CMO Sterline CDs & CP
(Central Moneymarket Office)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
CGO Gilts
(Central Gilts Office)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
UNITED STATES DTC Equity + Corporate Debt
(Depository Trust Company)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
PTC Mortgage Back Debt
(Participants Trust Company)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
FED BOOK-ENTRY SYSTEM Government Debt
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
ZAMBIA LUSE Equity + Government Debt
(LuSE Central Shares Depository Limited)
COMPULSORY
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
-10-
<PAGE>
Appendix 1-B
Information Regarding Country Risk
----------------------------------
1. To aid Customer's board in its determinations regarding Country
Risk, Bank shall furnish board annually and upon the initial placing of Assets
into a country the following information (check items applicable):
A Opinions of local counsel concerning:
X i. Whether applicable foreign law would restrict the access afforded
- --- Customer's independent public accountants to books and records
kept by an eligible foreign custodian located in that country.
X ii. Whether applicable foreign law would restrict the Customer's
- --- ability to recover its assets in the event of the bankruptcy of
an Eligible Foreign Custodian located in that country.
X iii. Whether applicable foreign law would restrict the Customer's
- --- ability to recover assets that are lost while under the control
of an Eligible Foreign Custodian located in the country.
B. Written information concerning:
X i. The likelihood of expropriation, nationalization, freezes, or
- --- confiscation of Customer's assets.
X ii. Whether difficulties in converting Customer's cash and cash
- --- equivalents to U.S. dollars are reasonably foreseeable.
C. A market report with respect to the following topics:
(i) securities regulatory environment, (ii) foreign ownership
restrictions, (iii) foreign exchange, (iv) securities settlement and
registration, (v) taxation, and (vi) compulsory depositories
(including depository evaluation).
2. To aid Customer's board in monitoring Country Risk, Bank shall
furnish board the following additional information:
Market flashes, including with respect to changes in the information
in market reports.
-11-
<PAGE>
CHASE
SETTLEMENT SYSTEM MARKET PRACTICE ASSESSMENT
COLOMBIA
EQUITY, REGISTERED CORPORATE + GOVERNMENT DEBT
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
EFFICIENCY MARKET PRACTICES
- --------------------------------------------------------------------------------
SCALE: 1=BEST PRACTICE 2=MID-RANGE 3=WORST PRACTICE
- --------------------------------------------------------------------------------
PRACTICE DESCRIPTION MARKET CHASE
PRACTICE PRACTICE
IMPACT
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
TRADE There is no formal trade matching, although
MATCHING local custodian banks make every effort to 3 3
effect matching on behalf of their clients.
In addition, there is a numbering system
which facilitates matching, but does not
conform to the ISIN standard.
- --------------------------------------------------------------------------------
SETTLEMENT Securities and cash settle on a gross basis.
TYPE 3 3
- --------------------------------------------------------------------------------
SECURITIES Securities can be immobilized at the central
TYPE depository. However, over 80% of securities 3 3
are held in physical form of which 70% are
registered. (See separate assessment for
bearer physical debt: Physical Corporate +
Government Debt).
- --------------------------------------------------------------------------------
DEPOSITORY Deposito Central de Valores (DECEVAL) is the
central depository for equities. It is not 3 3
mandatory to hold securities in DECEVAL and
most market participants, including Chase's
custodian bank, do not use it because of
market concerns about deficient practices at
the depository which include lack of
corporate action services. DECEVAL was
established in 1992, and is owned by the
three stock exchanges in Colombia and 57
financial institutions. At year end 1996,
equity was COP5 billion (approximately US$5
million). There are contingency plans in
place to address business continuity.
- --------------------------------------------------------------------------------
FAILURE There are no defined failure provisions or
PROVISIONS buy-in requirements. In addition, securities 3 3
lending is not permitted.
- --------------------------------------------------------------------------------
TRADE DATE/ For equities, settlement normally takes place
SETTLEMENT on T+3, but can be extended to T+6. For 1 1
DATE LAPSE debt, settlement takes place on trade date
but can be extended to T+1. Most foreigners
settle equity on T+3 and debt on T+1.
- --------------------------------------------------------------------------------
REGULATORY The Superintendency of Securities regulates
OVERSIGHT the stock exchange and market participants. 2 2
The Superintendency of Banks and the central
bank oversee financial institutions and the
payment system. The regulators consistently
enforce existing rules and regulations, and
continue to develop regulations in
conjunction with new market activities.
- --------------------------------------------------------------------------------
SECURITIES A number of regulations were established in
LEGAL 1991 and amended by Resolution 1.295 of 1996, 2 2
FRAMEWORK which govern investment and market practices.
The banking sector is covered by Resolution
663 from 1993. Although relatively new, the
securities legal framework continues to
evolve with developments in the capital
markets. In addition, there are no
arbitration procedures in place.
- --------------------------------------------------------------------------------
EFFICIENCY AVERAGE 2.5 2.5
- --------------------------------------------------------------------------------
</TABLE>
-12-
<PAGE>
CHASE
SETTLEMENT SYSTEM MARKET PRACTICE ASSESSMENT
COLOMBIA
EQUITY, REGISTERED CORPORATE + GOVERNMENT DEBT
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FINALITY - BUY-SIDE MARKET PRACTICES
- --------------------------------------------------------------------------------
SCALE: 1=BEST PRACTICE 2=MID-RANGE 3=WORST PRACTICE
- --------------------------------------------------------------------------------
PRACTICE DESCRIPTION MARKET CHASE
PRACTICE PRACTICE
IMPACT
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
TIMING OF Good title is effective on settlement date
RECEIPT OF upon receipt of a 'PAPELETA,' a stock 1 1
GOOD TITLE exchange receipt.
On settlement date, custodian banks only make
payment after receiving the 'PAPELETA' from
the broker, which represents legal title.
The broker delivers the share certificates,
or a previously traded 'PAPELETA' and a
transfer letter, to the stock exchange. The
stock exchange sends share certificates to
the registrar companies, which take 10-15
days to re-issue securities. The registrar
companies return the registered shares to the
stock exchange, who forwards them to the
custodian bank. Securities can be sold while
out for re-registration.
- --------------------------------------------------------------------------------
INTERIM Registration is effected by the registrars,
EXPOSURE who receive the shares from the stock 2 2
TYPE exchange.
- --------------------------------------------------------------------------------
DEFAULT There are minimal limited default protections
PROTECTION in the form of a stock exchange guaranty fund 3 3
of COP3.5 million (approximately US$3,276),
which covers brokers and is available to all
market participants. However, there are no
loss sharing provisions for participants in
the payment system.
- --------------------------------------------------------------------------------
BUY-SIDE FINALITY AVERAGE 2.0 2.0
- --------------------------------------------------------------------------------
</TABLE>
-13-
<PAGE>
CHASE
SETTLEMENT SYSTEM MARKET PRACTICE ASSESSMENT
COLOMBIA
EQUITY, REGISTERED CORPORATE + GOVERNMENT DEBT
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FINALITY - BUY-SIDE MARKET PRACTICES
- --------------------------------------------------------------------------------
SCALE: 1=BEST PRACTICE 2=MID-RANGE 3=WORST PRACTICE
- --------------------------------------------------------------------------------
PRACTICE DESCRIPTION MARKET CHASE
PRACTICE PRACTICE
IMPACT
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
TIMING OF Good funds are received on settlement date
RECEIPT OF or SD+1, depending on the method of payment, 2 2
GOOD FUNDS after securities are released.
On settlement date, the custodian bank
exchanges a 'PAPELETA' and transfer letter,
and/or share certificates for either a
cashier's check or a wire payment via the
central bank's electronic payment system,
SEBRA. Wires can be confined as received as
the electronic wire payments are effective
immediately, whereas payment by check settles
on SD+1. However, over 98% of payments are
made by cashier's check. This results in
overnight exposure to clearing banks, as
securities are released PRIOR to receipt of
good funds.
{Payment via wire transfer would eliminate
overnight exposure.}
- --------------------------------------------------------------------------------
INTERIM Payment exposure is to clearing banks, until
EXPOSURE good funds are received. 2 2
TYPE
{There is no exposure with wire transfers.}
- --------------------------------------------------------------------------------
DEFAULT There are minimal default protections and no
PROTECTION loss sharing provisions. For details, see 3 3
above.
- --------------------------------------------------------------------------------
SELL-SIDE FINALITY AVERAGE 2.3 2.3
- --------------------------------------------------------------------------------
</TABLE>
-14-
<PAGE>
CHASE
SETTLEMENT SYSTEM MARKET PRACTICE ASSESSMENT
COLOMBIA
EQUITY, REGISTERED CORPORATE + GOVERNMENT DEBT
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FINALITY - TITLE VS. CASH SUMMARY
- --------------------------------------------------------------------------------
SCALE: 1=BEST PRACTICE 2=MID-RANGE 3=WORST PRACTICE
- --------------------------------------------------------------------------------
PRACTICE DESCRIPTION MARKET CHASE
PRACTICE PRACTICE
IMPACT
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
TITLE Securities and cash settle separately. Good
title is received upon delivery of a Tc Tc
VS. 'PAPELETA,' the stock exchange receipt,
before payment is made. Good funds are
CASH received on settlement date or SD+1,
depending on the method of payment. Wire
payments via the central bank's payment
system are effective immediately, while a
clearing bank's cashier check clears on SD+1.
Sellers have overnight exposure to clearing
banks for payment by cashier check, as
securities are released before payment is
made.
- --------------------------------------------------------------------------------
TITLE VS. CASH ASSESSMENT (BEST < - > WORST) 2 2
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
TC Good title is exchanged with good funds simultaneously at settlement.
Tc Good title is received at settlement, but good funds lag settlement.
tC Good funds are received at settlement, but good title lags settlement.
tc The instruments exchanged on settlement date, if any, involve interim
exposures.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SETTLEMENT SYSTEM MARKET PRACTICE ASSESSMENTS HAVE BEEN DEVISED TO ASSIST
INVESTORS AS AN EXPOSURE IDENTIFICATION TOOL. THE ANALYSIS CONTAINED HEREIN
AND AS REVISED FROM TIME TO TIME IS INTENDED TO AUGMENT, RATHER THAN
SUBSTITUTE FOR, INVESTOR DUE DILIGENCE. WHILE WE MAKE EVERY EFFORT TO ENSURE
ACCURACY, CHASE ASSUMES NO LIABILITY FOR ANY LOSSES AND/OR DAMAGES,
CONSEQUENTIAL OR OTHERWISE, WHICH MAY RESULT FROM APPLICATION OF THE
INFORMATION CONTAINED HEREIN.
- --------------------------------------------------------------------------------
-15-
<PAGE>
CHASE
SETTLEMENT SYSTEM MARKET PRACTICE ASSESSMENT
COLOMBIA
GOVERNMENT DEBT - DCV
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
EFFICIENCY MARKET PRACTICES
- --------------------------------------------------------------------------------
SCALE: 1=BEST PRACTICE 2=MID-RANGE 3=WORST PRACTICE
- --------------------------------------------------------------------------------
PRACTICE DESCRIPTION MARKET CHASE
PRACTICE PRACTICE
IMPACT
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
TRADE There is no formal trade matching, although
MATCHING local custodian banks make every effort to 3 3
effect matching on behalf of their clients.
In addition, there is a numbering system
which facilitates matching, but does not
conform to the ISIN standard.
- --------------------------------------------------------------------------------
SETTLEMENT Securities and cash settle on a gross basis.
TYPE 3 3
- --------------------------------------------------------------------------------
SECURITIES Securities are dematerialized.
TYPE 1 1
- --------------------------------------------------------------------------------
DEPOSITORY DepOsito Central de Valores (DCV) is the
central registry for government debt issued, 1 1
guaranteed or administered by the central
bank. Although settlement is not mandatory
in the DCV, there is greater exposure to
sellers settling outside the DCV and
withdrawal of securities is difficult to
arrange. The DCV was established in 1990,
and is owned by the central bank. There are
contingency plans in place to address
business continuity.
- --------------------------------------------------------------------------------
FAILURE There are no defined failure provisions or
PROVISIONS buy-in requirements. In addition, securities 3 3
lending is not permitted.
- --------------------------------------------------------------------------------
TRADE DATE/ Settlement normally takes place on trade
SETTLEMENT date, but can be extended to T+5. Most 1 1
DATE LAPSE foreigners settle on T+1.
- --------------------------------------------------------------------------------
REGULATORY The Superintendency of Securities (SDV)
OVERSIGHT regulates the stock exchanges and market 2 2
participants. The Superintendency of Banks
and the central bank oversee financial
institutions and the payment system, SEBRA.
The regulators consistently enforce existing
rules and regulations, and continue to
develop regulations in conjunction with new
market activities.
- --------------------------------------------------------------------------------
SECURITIES A number of regulations were established in
LEGAL 1991 and amended by Resolution 1.295 of 1996, 2 2
FRAMEWORK which govern investment and market practices.
The banking sector is covered by Resolution
663 from 1993. Although relatively new, the
securities legal framework continues to
evolve with developments in the capital
markets. In addition, there are no
arbitration procedures in place.
- --------------------------------------------------------------------------------
EFFICIENCY AVERAGE 2.0 2.0
- --------------------------------------------------------------------------------
</TABLE>
-16-
<PAGE>
CHASE
SETTLEMENT SYSTEM MARKET PRACTICE ASSESSMENT
COLOMBIA
GOVERNMENT DEBT - DCV
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FINALITY - BUY-SIDE MARKET PRACTICES
- --------------------------------------------------------------------------------
SCALE: 1=BEST PRACTICE 2=MID-RANGE 3=WORST PRACTICE
- --------------------------------------------------------------------------------
PRACTICE DESCRIPTION MARKET CHASE
PRACTICE PRACTICE
IMPACT
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
TIMING OF Good title is effective on settlement date
RECEIPT OF upon receipt in DCV. 1 1
GOOD TITLE
On settlement date, the buyer's custodian
bank only makes payment after confirming
title electronically on their DCV account.
- --------------------------------------------------------------------------------
INTERIM The central registry effects book-entry
EXPOSURE movement of title. 1 1
TYPE
- --------------------------------------------------------------------------------
DEFAULT There are minimal limited default protections
PROTECTION in the form of a stock exchange guaranty fund 3 3
of COP3.5 million (approximately US$3,276)
which cover brokers and is available to all
market participants. However, there are no
loss sharing provisions for participants in
the payment system, SEBRA.
- --------------------------------------------------------------------------------
BUY-SIDE FINALITY AVERAGE 1.7 1.7
- --------------------------------------------------------------------------------
</TABLE>
-17-
<PAGE>
CHASE
SETTLEMENT SYSTEM MARKET PRACTICE ASSESSMENT
COLOMBIA
GOVERNMENT DEBT - DCV
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FINALITY - SELL-SIDE MARKET PRACTICES
- --------------------------------------------------------------------------------
SCALE: 1=BEST PRACTICE 2=MID-RANGE 3=WORST PRACTICE
- --------------------------------------------------------------------------------
PRACTICE DESCRIPTION MARKET CHASE
PRACTICE PRACTICE
IMPACT
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
TIMING OF Good funds are received on settlement date or
RECEIPT OF SD+1, depending on the method of payment, 2 2
GOOD FUNDS after securities are released.
On settlement date, the custodian bank
instructs movement of title in DCV after
receiving either a cashier's check or a wire
payment via the central bank's electronic
payment system, SEBRA. The seller's
custodian bank can confirm receipt of the
wire payments electronically, as they are
effective immediately, whereas payment by
check settles on SD+1. However, over 98% of
payments are made by cashier's check. This
results in overnight exposure to clearing
banks, as securities are released PRIOR to
receipt of good funds.
{Payment via wire transfer would eliminate
overnight exposure.}
- --------------------------------------------------------------------------------
INTERIM Payment exposure is to clearing banks, until
EXPOSURE good funds are received. 2 2
TYPE
{There is no exposure with wire transfers.}
- --------------------------------------------------------------------------------
DEFAULT There are minimal default protections, and no
PROTECTION loss sharing provisions. For details, see 3 3
above.
- --------------------------------------------------------------------------------
SELL-SIDE FINALITY AVERAGE 2.3 2.3
- --------------------------------------------------------------------------------
</TABLE>
-18-
<PAGE>
CHASE
SETTLEMENT SYSTEM MARKET PRACTICE ASSESSMENT
COLOMBIA
GOVERNMENT DEBT - DCV
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FINALITY - TITLE VS. CASH SUMMARY
- --------------------------------------------------------------------------------
SCALE: 1=BEST PRACTICE 2=MID-RANGE 3=WORST PRACTICE
- --------------------------------------------------------------------------------
PRACTICE DESCRIPTION MARKET CHASE
PRACTICE PRACTICE
IMPACT
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
TITLE Securities and cash settle separately. Good
title is received upon receipt in DCV, before Tc Tc
VS. payment is made. Good funds are received on
settlement date or SD+1, depending on the
CASH method of payment. Wire payments via the
central bank's payment system are effective
immediately, while a clearing bank's
cashier's check clears on SD+1. Sellers have
overnight exposure to clearing banks, as
securities are released before payment is
made.
- --------------------------------------------------------------------------------
TITLE VS. CASH ASSESSMENT (BEST < - > WORST) 2 2
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
TC Good title is exchanged with good funds simultaneously at settlement.
Tc Good title is received at settlement, but good funds lag settlement.
tC Good funds are received at settlement, but good title lags settlement.
tc The instruments exchanged on settlement date, if any, involve interim
exposures.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SETTLEMENT SYSTEM MARKET PRACTICE ASSESSMENTS HAVE BEEN DEVISED TO ASSIST
INVESTORS AS AN EXPOSURE IDENTIFICATION TOOL. THE ANALYSIS CONTAINED HEREIN
AND AS REVISED FROM TIME TO TIME IS INTENDED TO AUGMENT, RATHER THAN
SUBSTITUTE FOR, INVESTOR DUE DILIGENCE. WHILE WE MAKE EVERY EFFORT TO ENSURE
ACCURACY, CHASE ASSUMES NO LIABILITY FOR ANY LOSSES AND/OR DAMAGES,
CONSEQUENTIAL OR OTHERWISE, WHICH MAY RESULT FROM APPLICATION OF THE
INFORMATION CONTAINED HEREIN.
- --------------------------------------------------------------------------------
-19-
<PAGE>
CHASE
SETTLEMENT SYSTEM MARKET PRACTICE ASSESSMENT
COLOMBIA
PHYSICAL CORPORATE + GOVERNMENT DEBT
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
EFFICIENCY MARKET PRACTICES
- --------------------------------------------------------------------------------
SCALE: 1=BEST PRACTICE 2=MID-RANGE 3=WORST PRACTICE
- --------------------------------------------------------------------------------
PRACTICE DESCRIPTION MARKET CHASE
PRACTICE PRACTICE
IMPACT
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
TRADE There is no formal trade matching, although
MATCHING local custodian banks make every effort to 3 3
effect matching on behalf of their clients.
In addition, there is a numbering system
which facilitates matching, but does not
conform to the ISIN standard.
- --------------------------------------------------------------------------------
SETTLEMENT Securities and cash settle on a gross basis.
TYPE 3 3
- --------------------------------------------------------------------------------
SECURITIES Securities can be immobilized at the central
TYPE depository. However, over 80% of securities 3 3
are held in physical form, of which 30% are
in bearer form. (See separate assessment for
registered physical debt: Equity, Registered
Corporate + Government Debt).
- --------------------------------------------------------------------------------
DEPOSITORY Deposito Central de Valores (DECEVAL) is the
central depository. It is not mandatory to 3 3
hold securities in DECEVAL and most market
participants, including Chase's subcustodian
bank, do not use it because of market
concerns about deficient practices at the
depository, including lack of corporate
action services. DECEVAL was established in
1992, and is owned by the three stock
exchanges in Columbia and 57 financial
institutions. At year end 1996 equity was
COP5 billion (approximately US$5 million).
There are contingency plans in place to
address business continuity.
- --------------------------------------------------------------------------------
FAILURE There are no defined failure provisions or
PROVISIONS buy-in requirements. In addition, securities 3 3
lending is not permitted
- --------------------------------------------------------------------------------
TRADE DATE/ Settlement normally takes place on trade
SETTLEMENT date, but can be extended to T+5. Most 1 1
DATE LAPSE foreigners settle on T+1.
- --------------------------------------------------------------------------------
REGULATORY The Superintendency of Securities (SDV)
OVERSIGHT regulates the stock exchanges and market 2 2
participants. The Superintendency of Banks
and the central bank oversee financial
institutions and the payment system, SEBRA.
The regulators consistently enforce existing
rules and regulations, and continue to
develop regulations in conjunction with new
market activities.
- --------------------------------------------------------------------------------
SECURITIES A number of regulations were established in
LEGAL 1991 and amended by Resolution 1.295 of 1996, 2 2
FRAMEWORK which govern investment and market practices.
The banking sector is covered by Resolution
663 from 1993. Although relatively new, the
securities legal framework continues to
evolve with developments in the capital
markets. In addition, there are no
arbitration procedures in place.
- --------------------------------------------------------------------------------
EFFICIENCY AVERAGE 2.5 2.5
- --------------------------------------------------------------------------------
</TABLE>
-20-
<PAGE>
CHASE
SETTLEMENT SYSTEM MARKET PRACTICE ASSESSMENT
COLOMBIA
PHYSICAL CORPORATE + GOVERNMENT DEBT
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FINALITY - BUY-SIDE MARKET PRACTICES
- --------------------------------------------------------------------------------
SCALE: 1=BEST PRACTICE 2=MID-RANGE 3=WORST PRACTICE
- --------------------------------------------------------------------------------
PRACTICE DESCRIPTION MARKET CHASE
PRACTICE PRACTICE
IMPACT
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
TIMING OF Good title is effective on settlement date
RECEIPT OF upon receipt of the endorsed bearer 1 1
GOOD TITLE certificates.
On settlement date, custodian banks only make
payment after receiving endorsed bearer
certificates from the broker, which
represents legal title.
- --------------------------------------------------------------------------------
INTERIM As securities are in bearer form, there is no
EXPOSURE exposure. 1 1
TYPE
- --------------------------------------------------------------------------------
DEFAULT There are minimal default protections in the
PROTECTION form of a stock exchange guaranty fund of 3 3
COP3.5 million (approximately US$3,276) which
cover brokers and is available to all market
participants. However, there are no loss
sharing provisions for participants in the
payment system, SEBRA.
- --------------------------------------------------------------------------------
BUY-SIDE FINALITY AVERAGE 1.7 1.7
- --------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------
FINALITY - SELL-SIDE MARKET PRACTICES
- --------------------------------------------------------------------------------
SCALE: 1=BEST PRACTICE 2=MID-RANGE 3=WORST PRACTICE
- --------------------------------------------------------------------------------
PRACTICE DESCRIPTION MARKET CHASE
PRACTICE PRACTICE
IMPACT
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
TIMING OF Good funds are received on settlement date or
RECEIPT OF SD+1, depending on the method of payment, 2 2
GOOD FUNDS after securities are released.
On settlement date, the custodian bank
exchanges certificate for either a cashier's
check or a wire payment via the central
bank's electronic payment system, SEBRA. The
seller's custodian bank can confirm receipt
of the wire payments electronically, as they
are effective immediately, whereas payment by
check settles on SD+1. However, over 98% of
payments are made by cashier's check. This
results in overnight exposure to clearing
banks, as securities are released PRIOR to
receipt of good funds.
{Payment via wire transfer would eliminate
overnight exposure.}
- --------------------------------------------------------------------------------
INTERIM Payment exposure is to clearing banks, until
EXPOSURE good funds are received. 2 2
TYPE
{There is no exposure with wire transfers.}
- --------------------------------------------------------------------------------
DEFAULT There are minimal default protections, and no
PROTECTION loss sharing provisions. For details, see 3 3
above.
- --------------------------------------------------------------------------------
SELL-SIDE FINALITY AVERAGE 2.3 2.3
- --------------------------------------------------------------------------------
</TABLE>
-21-
<PAGE>
CHASE
SETTLEMENT SYSTEM MARKET PRACTICE ASSESSMENT
COLOMBIA
PHYSICAL CORPORATE + GOVERNMENT DEBT
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FINALITY - TITLE VS. CASH SUMMARY
- --------------------------------------------------------------------------------
SCALE: 1=BEST PRACTICE 2=MID-RANGE 3=WORST PRACTICE
- --------------------------------------------------------------------------------
PRACTICE DESCRIPTION MARKET CHASE
PRACTICE PRACTICE
IMPACT
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
TITLE Securities and cash settle separately. Good
title is received upon receipt of the Tc Tc
VS. endorsed bearer certificates. Good funds are
received on settlement date or SD+1,
CASH depending on the method of payment. Wire
payments via the central bank's payment
system are effective immediately, while a
clearing bank's cashier's check clears on
SD+1. Sellers have overnight exposure to
clearing banks, as securities are released
before payment is made.
- --------------------------------------------------------------------------------
TITLE VS. CASH ASSESSMENT (BEST < - > WORST) 2 2
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
TC Good title is exchanged with good funds simultaneously at settlement.
Tc Good title is received at settlement, but good funds lag settlement.
tC Good funds are received at settlement, but good title lags settlement.
tc The instruments exchanged on settlement date, if any, involve interim
exposures.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SETTLEMENT SYSTEM MARKET PRACTICE ASSESSMENTS HAVE BEEN DEVISED TO ASSIST
INVESTORS AS AN EXPOSURE IDENTIFICATION TOOL. THE ANALYSIS CONTAINED HEREIN
AND AS REVISED FROM TIME TO TIME IS INTENDED TO AUGMENT, RATHER THAN
SUBSTITUTE FOR, INVESTOR DUE DILIGENCE. WHILE WE MAKE EVERY EFFORT TO ENSURE
ACCURACY, CHASE ASSUMES NO LIABILITY FOR ANY LOSSES AND/OR DAMAGES,
CONSEQUENTIAL OR OTHERWISE, WHICH MAY RESULT FROM APPLICATION OF THE
INFORMATION CONTAINED HEREIN.
- --------------------------------------------------------------------------------
-22-
<PAGE>
AMENDMENT NO. 4 TO ADMINISTRATION AGREEMENT
This Amendment No. 4, dated as of September 10, 1998, is entered into
between FIRST DATA INVESTOR SERVICES GROUP, INC., a Massachusetts corporation
("FDISG") and THE GALAXY FUND, a Massachusetts business trust (the "Company").
WHEREAS, FDISG and the Company have entered into an Administration
Agreement, dated as of June 1, 1997, as amended on March 3, 1998 and March 5,
1998 (the "Administration Agreement"), pursuant to which the Company appointed
FDISG to act as Administrator for the Company's portfolios (the "Funds"); and
WHEREAS, Section 9 of the Administration Agreement provides that no
change, termination, modification, or waiver of any term or condition of the
Administration Agreement shall be valid unless in writing signed by each party;
NOW THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Section 8(a) of the Administration Agreement is amended and
restated in its entirety to read as follows:
"(a) This Agreement shall continue in effect with respect to each
Fund until May 31, 2001 (the "Initial Term"), unless earlier
terminated pursuant to the terms of this Agreement. Thereafter, this
Agreement shall continue with respect to each Fund for additional
terms of one (1) year ("Renewal Terms") each, provided such
continuance is specifically reviewed and approved at least annually
(i) by the vote of a majority of the Company's Board of Trustees or by
the vote of a majority of the outstanding voting securities of such
Fund and (ii) by a majority of the Company's Trustees who are not
parties to the Agreement or interested persons (as defined in the 1940
Act) of any party to the Agreement."
2. The section of Schedule B of the Administration Agreement
entitled "Administration Fees" is amended and restated in its entirety to read
as follows:
"ADMINISTRATION FEES:
"FDISG shall be paid an annual administration fee at the annual
rate of .09% of the first $2.5 billion of the Funds' combined average
daily net assets, .085% of the next $2.5 billion of combined average
daily net assets, .075% of the next $7 billion of combined average
daily net assets, .065% of the next $3 billion of combined average
daily net assets, .06% of the next $3 billion of combined average
daily net assets and .0575% of combined average daily net assets in
excess of $18 billion."
<PAGE>
3. The following paragraph is added to the Administration Agreement as
Section 17:
"17. YEAR 2000. FDISG's services hereunder shall be rendered,
and its computer systems used in rendering such services shall operate and
function, without any Year 2000 Error. The term "Year 2000 Error" means:
(a) any failure of FDISG's systems to properly record,
store, process, calculate or present calendar dates falling on and after
(and, if applicable, spans of time including) January 1, 2000 as a result
of the occurrence or use of data consisting of such dates;
(b) any failure of FDISG's systems to calculate any
information dependent on or relating to dates on or after January 1, 2000
in the same manner, and with the same functionality, date integrity and
performance, as such systems record, store, process, calculate and present
calendar dates on or before December 31, 1999, or information dependent on
or relating to such dates; or
(c) any loss of functionality or performance with respect
to the introduction of records or processing of data containing dates
falling on or after January 1, 2000."
4. Except to the extent amended hereby, the Administration Agreement
shall remain unchanged and in full force and effect and is hereby ratified and
confirmed in all respects as amended hereby.
IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 4 as
of the day and year first above written.
FIRST DATA INVESTOR SERVICES
GROUP, INC.
By: /s/ Jylanne M. Dunne
----------------------------
Name: Jylanne M. Dunne
Title: Senior Vice President
THE GALAXY FUND
By: /s/ John T. O'Neill
----------------------------
Name: John T. O'Neill
Title: President
-2-
<PAGE>
AMENDMENT NO. 4 TO
TRANSFER AGENCY AND SERVICES AGREEMENT
This Amendment No. 4, dated as of September 10, 1998, is entered into
between THE GALAXY FUND (the "Fund"), a Massachusetts business trust, and FIRST
DATA INVESTOR SERVICES GROUP, INC. ("FDISG"), a Massachusetts corporation.
WHEREAS, the Fund and FDISG have entered into a Transfer Agency and
Services Agreement, dated as of June 1, 1997, as amended on March 3, 1998 and
March 5, 1998 (the "Transfer Agency Agreement"), pursuant to which the Fund
appointed FDISG to act as the transfer agent, dividend disbursing agent and
agent in connection with certain other activities for the Fund's portfolios; and
WHEREAS, Section 25.1 of the Transfer Agency Agreement provides, in
part, that no change, termination, modification or waiver of any term or
condition of the Transfer Agency Agreement shall be valid unless in writing
signed by each party;
NOW THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Section 13.1 of the Transfer Agency Agreement is amended and
restated to read as follows:
"13.1. This Agreement shall continue in effect until May 31,
2001 (the "Initial Term")."
2. The following paragraph is added to Schedule A of the Transfer
Agency Agreement as Section 11:
"11. OTHER SERVICES.
(a) FDISG shall manage and fund the process of redesigning
and recreating the Fund's web site pursuant to the requirements of the
Marketing Department of Fleet Investment Management.
(b) FDISG shall enable its ImpressNET product and link it
to the Fund's web site and will waive all fees associated with ImpressNET's
set-up, customization and annual software and hardware maintenance.
(c) FDISG shall provide at no cost to the Fund a two-person
dedicated programming team to focus exclusively on Fund systems priorities
as identified by Fleet Investment Management."
<PAGE>
3. The following is added to Schedule B of the Transfer Agency
Agreement:
"IMPRESSNET TRANSACTION FEES
Account inquiry $. 10/ea
Financial trades $ .50/transaction
Registration fee $2.50/one-time fee"
4. The following paragraph is added to the Transfer Agency Agreement
as Article 26:
"ARTICLE 26 YEAR 2000.
FDISG's services hereunder shall be rendered, and its
computer systems used in rendering such services shall operate and
function, without any Year 2000 Error. The term "Year 2000 Error"
means:
(a) any failure of FDISG's systems to properly record,
store, process, calculate or present calendar dates falling on and
after (and, if applicable, spans of time including) January 1, 2000 as
a result of the occurrence or use of data consisting of such dates;
(b) any failure of FDISG's systems to calculate any
information dependent on or relating to dates on or after January 1,
2000 in the same manner, and with the same functionality, date
integrity and performance, as such systems record, store, process,
calculate and present calendar dates on or before December 31, 1999,
or information dependent on or relating to such dates; or
(c) any loss of functionality or performance with respect
to the introduction of records or processing of data containing dates
falling on or after January 1, 2000."
5. Except to the extent amended hereby, the Transfer Agency
Agreement shall remain unchanged and in full force and effect and is hereby
ratified and confirmed in all respects as amended hereby.
-2-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 4
as of the day and year first above written.
THE GALAXY FUND
By: /s/ John T. O'Neill
--------------------------
Name: John T. O'Neill
Title: President
FIRST DATA INVESTOR SERVICES
GROUP, INC.
By: /s/ Jylanne M. Dunne
--------------------------
Name: Jylanne M. Dunne
Title: Senior Vice President
-3-
<PAGE>
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the references to our
Firm under the caption "Counsel" in the Statements of Additional Information
that are included in Post-Effective Amendment No. 37 to the Registration
Statement (No. 33-4806) on Form N-1A under the Securities Act of 1933, as
amended, of The Galaxy Fund. This consent does not constitute a consent under
Section 7 of the Securities Act of 1933, and in consenting to the use of our
name and the references to our Firm under such caption we have not certified any
part of the Registration Statement and do not otherwise come within the
categories of persons whose consent is required under Section 7 or the rules and
regulations of the Securities and Exchange Commission thereunder.
/s/Drinker Biddle & Reath LLP
-----------------------------
Philadelphia, Pennsylvania Drinker Biddle & Reath LLP
February 26, 1999
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of
The Galaxy Fund:
We hereby consent to the following with respect to Post-Effective Amendment
No. 37 to the Registration Statement on Form N-1A (File No. 33-4806) under the
Securities Act of 1933, as amended, of The Galaxy Fund:
1. The incorporation by reference of our report dated December 23, 1998
accompanying the financial statements of the Money Market Fund, Government Fund,
Tax-Exempt Fund, U.S. Treasury Fund, Connecticut Municipal Money Market Fund and
Massachusetts Municipal Money Market Fund (six series of The Galaxy Fund) as of
October 31, 1998 into the applicable Statement of Additional Information.
2. The incorporation by reference of our report dated December 23, 1998
accompanying the financial statements of the Institutional Government Money
Market Fund (one series of The Galaxy Fund) as of October 31, 1998 into the
applicable Statement of Additional Information.
3. The incorporation by reference of our report dated December 23, 1998
accompanying the financial statements of the Asset Allocation Fund, Equity
Income Fund, Growth and Income Fund, Strategic Equity Fund, Equity Value Fund,
Equity Growth Fund, Small Cap Value Fund, Small Company Equity Fund and
International Equity Fund (nine series of The Galaxy Fund) as of October 31,
1998 into the applicable Statement of Additional Information.
4. The incorporation by reference of our report dated December 23, 1998
accompanying the financial statements of the Short-Term Bond Fund, Intermediate
Government Income Fund, Corporate Bond Fund and High Quality Bond Fund (four
series of The Galaxy Fund) as of October 31, 1998 into the applicable Statement
of Additional Information.
5. The incorporation by reference of our report dated December 23, 1998
accompanying the financial statements of the Tax-Exempt Bond Fund, New Jersey
Municipal Bond Fund, New York Municipal Bond Fund, Connecticut Municipal Bond
Fund, Massachusetts Municipal Bond Fund and Rhode Island Municipal Bond Fund
(six series of The Galaxy Fund) as of October 31, 1998 into the applicable
Statement of Additional Information.
6. The reference to our firm under the heading "Financial Highlights" in
the Prospectuses.
<PAGE>
7. The reference to our firm on the cover page and under the headings
"Auditors" and "Financial Statements" in the Statements of Additional
Information.
/s/ PricewaterhouseCoopers LLP
------------------------------
Pricewaterhouse Coopers LLP
Boston, Massachusetts
February 26, 1999
-2-
<PAGE>
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the references to our
Firm under the caption "Counsel" included in the Statement of Additional
Information that is included in Post-Effective Amendment No. 37 to the
Registration Statement on Form N-1A (Securities Act File No. 33-4806, Investment
Company File No. 811-4636) of The Galaxy Fund - New York Municipal Bond Fund.
/s/ Willkie Farr & Gallagher
----------------------------
Willkie Farr & Gallagher
February 26, 1999
New York, New York
<PAGE>
February 26, 1999
The Galaxy Fund
4400 Computer Drive
Westborough, Massachusetts 01581-5108
Re: Connecticut Municipal Bond Fund and
Connecticut Municipal Money Market Fund
---------------------------------------
Ladies and Gentlemen:
We hereby consent, without admitting that we are in the category of
persons whose consent is required, to the reference to us under the caption
"Counsel" in the Statements of Additional Information included in Post-Effective
Amendment No. 37 to your Registration Statement on Form N-1A (No. 33-4806) as
filed with the Securities and Exchange Commission
Very truly yours,
/s/ Day, Berry & Howard
-----------------------
Day, Berry & Howard
<PAGE>
February 26, 1999
The Galaxy Fund
4400 Computer Drive
Westborough, Massachusetts 01581-5108
Ladies and Gentlemen:
We hereby consent to the reference to us under the caption "Counsel"
in the Statements of Additional Information that relate to your Massachusetts
Municipal Bond Fund, Rhode Island Municipal Bond Fund and Massachusetts
Municipal Money Market Fund that are included in Post-Effective Amendment No. 37
to your Registration Statement on Form N-1A (No. 33-4806), which you have
informed us is to be filed with the Securities and Exchange Commission.
Very truly yours,
/s/ Ropes & Gray
----------------
Ropes & Gray
<PAGE>
PURCHASE AGREEMENT
The Galaxy Fund, a Massachusetts business trust (the "Trust"), and First
Data Distributors, Inc., a Massachusetts corporation ("FD Distributors"),
hereby agree with each other as follows:
1. The Trust hereby offers FD Distributors and FD Distributors
hereby purchases (i) ten (10) Class BB shares, each such share representing an
interest in the Trust's Prime Reserves, (ii) ten (10) Class CC shares, each such
share representing an interest in the Trust's Government Reserves, and (iii) ten
(10) Class DD shares, each such share representing an interest in the Trust's
Tax-Exempt Reserves, at a purchase price of $1.00 per share, aggregating to
thirty (30) shares of beneficial interest in the Trust (such shares of
beneficial interest in the Trust being hereinafter collectively known as
"Shares"). FD Distributors hereby acknowledges purchase of the Shares and the
Trust hereby acknowledges receipt from FD Distributors of funds in the amount of
$30 in full payment for the Shares.
2. FD Distributors represents and warrants to the Trust that the
Shares are being acquired for investment purposes and not with a view to the
distribution thereof.
3. The names "The Galaxy Fund" and "Trustees of The Galaxy Fund"
refer respectively to the Trust created and the Trustees, as trustees but not
individually or personally, acting from time to time under a Declaration of
Trust dated March 31, 1986 which is hereby referred to and a copy of which is on
file at the office of the State Secretary of the Commonwealth of Massachusetts
and at the principal office of the Trust. The obligations of "The Galaxy Fund"
entered into in the name or on behalf thereof by any of the Trustees,
representatives or agents are made not individually, but in such capacities, and
are not binding upon any of the Trustees, shareholders or representatives of the
Trust personally, but bind only the Trust property, and all persons dealing with
any class of shares of the Trust must look solely to the Trust property
belonging to such class for the enforcement of any claims against the Trust.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the 18th day of September, 1998.
THE GALAXY FUND
By: /s/ William Greilich
-----------------------------
William Greilich
Vice President
FIRST DATA DISTRIBUTORS, INC.
By: /s/ Scott M. Hacker
-----------------------------
Vice President & Treasurer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> MONEY MARKET FUND RETAIL A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 3,424,170,039
<INVESTMENTS-AT-VALUE> 3,424,170,039
<RECEIVABLES> 29,449,068
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,453,619,107
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 49,899,888
<TOTAL-LIABILITIES> 49,899,888
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,139,789,251
<SHARES-COMMON-STOCK> 2,139,851,262
<SHARES-COMMON-PRIOR> 1,878,546,452
<ACCUMULATED-NII-CURRENT> 242,576
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 1,342,001
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 2,139,212,517
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 180,949,214
<OTHER-INCOME> 0
<EXPENSES-NET> 19,574,124
<NET-INVESTMENT-INCOME> 161,375,090
<REALIZED-GAINS-CURRENT> 10,935
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 161,386,025
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 101,530,947
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,260,244,949
<NUMBER-OF-SHARES-REDEEMED> 6,099,746,389
<SHARES-REINVESTED> 100,806,250
<NET-CHANGE-IN-ASSETS> 386,895,823
<ACCUMULATED-NII-PRIOR> 225,864
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 1,352,936
<GROSS-ADVISORY-FEES> 12,906,407
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 20,812,425
<AVERAGE-NET-ASSETS> 2,057,474,776
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.05
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.67
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 012
<NAME> MONEY MARKET FUND TRUST
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 3,424,170,039
<INVESTMENTS-AT-VALUE> 3,424,170,039
<RECEIVABLES> 29,449,068
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,453,619,107
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 44,899,888
<TOTAL-LIABILITIES> 44,899,888
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,263,423,207
<SHARES-COMMON-STOCK> 1,263,368,278
<SHARES-COMMON-PRIOR> 1,138,662,931
<ACCUMULATED-NII-CURRENT> 242,576
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 1,342,001
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,262,899,754
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 180,949,214
<OTHER-INCOME> 0
<EXPENSES-NET> 19,574,124
<NET-INVESTMENT-INCOME> 161,375,090
<REALIZED-GAINS-CURRENT> 10,935
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 161,386,025
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 59,798,762
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,082,969,065
<NUMBER-OF-SHARES-REDEEMED> 1,958,736,900
<SHARES-REINVESTED> 473,182
<NET-CHANGE-IN-ASSETS> 386,895,823
<ACCUMULATED-NII-PRIOR> 225,864
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 1,352,936
<GROSS-ADVISORY-FEES> 12,906,407
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 20,812,425
<AVERAGE-NET-ASSETS> 1,168,453,453
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.05
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.49
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 013
<NAME> MONEY MARKET FUND RETAIL B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 3,424,170,039
<INVESTMENTS-AT-VALUE> 3,424,170,039
<RECEIVABLES> 29,449,068
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,453,619,107
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 49,899,888
<TOTAL-LIABILITIES> 49,899,888
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,606,186
<SHARES-COMMON-STOCK> 1,607,007
<SHARES-COMMON-PRIOR> 748,988
<ACCUMULATED-NII-CURRENT> 242,576
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 1,342,001
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,606,948
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 180,949,214
<OTHER-INCOME> 0
<EXPENSES-NET> 19,574,124
<NET-INVESTMENT-INCOME> 161,375,090
<REALIZED-GAINS-CURRENT> 10,935
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 161,386,025
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 28,669
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,169,532
<NUMBER-OF-SHARES-REDEEMED> 5,336,739
<SHARES-REINVESTED> 25,226
<NET-CHANGE-IN-ASSETS> 386,895,823
<ACCUMULATED-NII-PRIOR> 225,864
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 1,352,936
<GROSS-ADVISORY-FEES> 12,906,407
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 20,812,425
<AVERAGE-NET-ASSETS> 673,450
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.04
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<PER-SHARE-NAV-END> 1.00
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 021
<NAME> GOVERNMENT FUND RETAIL A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 1,038,921,300
<INVESTMENTS-AT-VALUE> 1,038,921,300
<RECEIVABLES> 42,393,217
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 7,900
<TOTAL-ASSETS> 1,081,322,417
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6,047,479
<TOTAL-LIABILITIES> 6,047,479
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 352,722,653
<SHARES-COMMON-STOCK> 353,001,963
<SHARES-COMMON-PRIOR> 350,695,086
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 45,378
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 843,555
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 352,799,163
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 60,528,990
<OTHER-INCOME> 0
<EXPENSES-NET> 6,239,214
<NET-INVESTMENT-INCOME> 54,289,776
<REALIZED-GAINS-CURRENT> 27,699
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 54,317,475
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 17,622,243
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 820,134,497
<NUMBER-OF-SHARES-REDEEMED> 835,396,007
<SHARES-REINVESTED> 17,568,387
<NET-CHANGE-IN-ASSETS> 93,903,021
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 45,378
<OVERDIST-NET-GAINS-PRIOR> 871,254
<GROSS-ADVISORY-FEES> 4,372,173
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,410,736
<AVERAGE-NET-ASSETS> 364,277,940
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.05
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<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.70
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 022
<NAME> GOVERNMENT FUND TRUST
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 1,038,921,300
<INVESTMENTS-AT-VALUE> 1,038,921,300
<RECEIVABLES> 42,393,217
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 7,900
<TOTAL-ASSETS> 1,081,322,417
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6,047,479
<TOTAL-LIABILITIES> 6,047,479
<SENIOR-EQUITY> 0
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<SHARES-COMMON-STOCK> 723,161,908
<SHARES-COMMON-PRIOR> 631,593,463
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 45,378
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 843,555
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 722,475,775
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 60,528,990
<OTHER-INCOME> 0
<EXPENSES-NET> 6,239,214
<NET-INVESTMENT-INCOME> 54,289,776
<REALIZED-GAINS-CURRENT> 27,699
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 54,317,475
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 36,667,533
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,513,726,831
<NUMBER-OF-SHARES-REDEEMED> 1,422,804,753
<SHARES-REINVESTED> 646,367
<NET-CHANGE-IN-ASSETS> 93,903,021
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 45,378
<OVERDIST-NET-GAINS-PRIOR> 871,254
<GROSS-ADVISORY-FEES> 4,372,173
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,410,736
<AVERAGE-NET-ASSETS> 728,765,229
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.05
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.51
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 031
<NAME> EQUITY VALUE FUND RETAIL A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 428,794,329
<INVESTMENTS-AT-VALUE> 512,817,054
<RECEIVABLES> 1,063,193
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 14,717
<TOTAL-ASSETS> 513,894,964
<PAYABLE-FOR-SECURITIES> 752,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 878,854
<TOTAL-LIABILITIES> 1,630,854
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 198,802,102
<SHARES-COMMON-STOCK> 14,230,208
<SHARES-COMMON-PRIOR> 10,026,959
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 17,912,238
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 84,022,725
<NET-ASSETS> 234,729,786
<DIVIDEND-INCOME> 6,516,463
<INTEREST-INCOME> 1,154,402
<OTHER-INCOME> 0
<EXPENSES-NET> 6,163,410
<NET-INVESTMENT-INCOME> 1,507,455
<REALIZED-GAINS-CURRENT> 18,125,207
<APPREC-INCREASE-CURRENT> 21,688,342
<NET-CHANGE-FROM-OPS> 41,321,004
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 476,968
<DISTRIBUTIONS-OF-GAINS> 32,768,243
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,201,249
<NUMBER-OF-SHARES-REDEEMED> 2,145,298
<SHARES-REINVESTED> 2,147,298
<NET-CHANGE-IN-ASSETS> 73,132,788
<ACCUMULATED-NII-PRIOR> 11,330
<ACCUMULATED-GAINS-PRIOR> 77,863,018
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,782,620
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,163,410
<AVERAGE-NET-ASSETS> 222,415,482
<PER-SHARE-NAV-BEGIN> 18.21
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 1.50
<PER-SHARE-DIVIDEND> 0.04
<PER-SHARE-DISTRIBUTIONS> 3.20
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.50
<EXPENSE-RATIO> 1.37
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 033
<NAME> EQUITY VALUE FUND RETAIL B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 428,794,329
<INVESTMENTS-AT-VALUE> 512,817,054
<RECEIVABLES> 1,063,193
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 14,717
<TOTAL-ASSETS> 513,894,964
<PAYABLE-FOR-SECURITIES> 752,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 878,854
<TOTAL-LIABILITIES> 1,630,854
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 23,340,729
<SHARES-COMMON-STOCK> 1,404,985
<SHARES-COMMON-PRIOR> 820,173
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 17,912,238
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 84,022,725
<NET-ASSETS> 23,102,812
<DIVIDEND-INCOME> 6,516,463
<INTEREST-INCOME> 1,154,402
<OTHER-INCOME> 0
<EXPENSES-NET> 6,163,410
<NET-INVESTMENT-INCOME> 1,507,455
<REALIZED-GAINS-CURRENT> 18,125,207
<APPREC-INCREASE-CURRENT> 21,688,342
<NET-CHANGE-FROM-OPS> 41,321,004
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 2,708,059
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 547,518
<NUMBER-OF-SHARES-REDEEMED> 139,566
<SHARES-REINVESTED> 176,860
<NET-CHANGE-IN-ASSETS> 73,132,788
<ACCUMULATED-NII-PRIOR> 11,330
<ACCUMULATED-GAINS-PRIOR> 77,863,018
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,782,620
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,163,410
<AVERAGE-NET-ASSETS> 20,379,025
<PER-SHARE-NAV-BEGIN> 18.24
<PER-SHARE-NII> 0.08
<PER-SHARE-GAIN-APPREC> 1.48
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 3.20
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.44
<EXPENSE-RATIO> 2.06
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 032
<NAME> EQUITY VALUE FUND TRUST
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 428,794,329
<INVESTMENTS-AT-VALUE> 512,817,054
<RECEIVABLES> 1,063,193
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 14,717
<TOTAL-ASSETS> 513,894,964
<PAYABLE-FOR-SECURITIES> 752,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 878,854
<TOTAL-LIABILITIES> 1,630,854
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 188,186,316
<SHARES-COMMON-STOCK> 15,412,611
<SHARES-COMMON-PRIOR> 13,262,128
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 17,912,238
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 84,022,725
<NET-ASSETS> 254,431,512
<DIVIDEND-INCOME> 6,516,463
<INTEREST-INCOME> 1,154,402
<OTHER-INCOME> 0
<EXPENSES-NET> 6,163,410
<NET-INVESTMENT-INCOME> 1,507,455
<REALIZED-GAINS-CURRENT> 18,125,207
<APPREC-INCREASE-CURRENT> 21,688,342
<NET-CHANGE-FROM-OPS> 41,321,004
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<DISTRIBUTIONS-OF-INCOME> 1,186,963
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<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,384,178
<NUMBER-OF-SHARES-REDEEMED> 3,499,469
<SHARES-REINVESTED> 2,265,774
<NET-CHANGE-IN-ASSETS> 73,132,788
<ACCUMULATED-NII-PRIOR> 11,330
<ACCUMULATED-GAINS-PRIOR> 77,863,018
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,782,620
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,163,410
<AVERAGE-NET-ASSETS> 261,554,969
<PER-SHARE-NAV-BEGIN> 18.21
<PER-SHARE-NII> 0.08
<PER-SHARE-GAIN-APPREC> 1.49
<PER-SHARE-DIVIDEND> 0.07
<PER-SHARE-DISTRIBUTIONS> 3.20
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.51
<EXPENSE-RATIO> 1.03
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 041
<NAME> INTERMEDIATE GOVERNMENT INCOME FUND RETAIL A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 293,765,809
<INVESTMENTS-AT-VALUE> 303,448,059
<RECEIVABLES> 13,827,199
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 107,382
<TOTAL-ASSETS> 317,382,640
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<OTHER-ITEMS-LIABILITIES> 1,386,620
<TOTAL-LIABILITIES> 10,754,731
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 296,675,698
<SHARES-COMMON-STOCK> 6,367,360
<SHARES-COMMON-PRIOR> 6,443,770
<ACCUMULATED-NII-CURRENT> 169,845
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 23,453,360
<ACCUM-APPREC-OR-DEPREC> 9,682,250
<NET-ASSETS> 66,864,736
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 18,715,219
<OTHER-INCOME> 0
<EXPENSES-NET> 2,288,404
<NET-INVESTMENT-INCOME> 16,426,815
<REALIZED-GAINS-CURRENT> 3,980,175
<APPREC-INCREASE-CURRENT> 5,732,449
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<NUMBER-OF-SHARES-SOLD> 1,383,512
<NUMBER-OF-SHARES-REDEEMED> 1,731,933
<SHARES-REINVESTED> 272,011
<NET-CHANGE-IN-ASSETS> 31,787,580
<ACCUMULATED-NII-PRIOR> 678,013
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 27,265,428
<GROSS-ADVISORY-FEES> 2,158,512
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,864,007
<AVERAGE-NET-ASSETS> 65,168,987
<PER-SHARE-NAV-BEGIN> 10.18
<PER-SHARE-NII> 0.57
<PER-SHARE-GAIN-APPREC> 0.34
<PER-SHARE-DIVIDEND> 0.59
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<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.50
<EXPENSE-RATIO> 1.01
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 042
<NAME> INTERMEDIATE GOVERNMENT INCOME FUND TRUST
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 293,765,809
<INVESTMENTS-AT-VALUE> 303,448,059
<RECEIVABLES> 13,827,199
<ASSETS-OTHER> 0
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<TOTAL-ASSETS> 317,382,640
<PAYABLE-FOR-SECURITIES> 9,368,111
<SENIOR-LONG-TERM-DEBT> 0
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<TOTAL-LIABILITIES> 10,754,731
<SENIOR-EQUITY> 0
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<SHARES-COMMON-STOCK> 22,832,135
<SHARES-COMMON-PRIOR> 20,542,780
<ACCUMULATED-NII-CURRENT> 169,845
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 23,453,360
<ACCUM-APPREC-OR-DEPREC> 9,682,250
<NET-ASSETS> 239,763,173
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 18,715,219
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<EXPENSES-NET> 2,288,404
<NET-INVESTMENT-INCOME> 16,426,815
<REALIZED-GAINS-CURRENT> 3,980,175
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<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 5,459,216
<NUMBER-OF-SHARES-REDEEMED> 3,517,644
<SHARES-REINVESTED> 347,783
<NET-CHANGE-IN-ASSETS> 31,787,580
<ACCUMULATED-NII-PRIOR> 678,013
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 27,265,428
<GROSS-ADVISORY-FEES> 2,158,512
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,864,007
<AVERAGE-NET-ASSETS> 222,632,594
<PER-SHARE-NAV-BEGIN> 10.18
<PER-SHARE-NII> 0.59
<PER-SHARE-GAIN-APPREC> 0.35
<PER-SHARE-DIVIDEND> 0.62
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<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.50
<EXPENSE-RATIO> 0.73
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 051
<NAME> TAX-EXEMPT FUND RETAIL A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 384,121,538
<INVESTMENTS-AT-VALUE> 384,121,538
<RECEIVABLES> 9,364,231
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 11,234
<TOTAL-ASSETS> 393,497,003
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<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,981,587
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<PAID-IN-CAPITAL-COMMON> 164,397,371
<SHARES-COMMON-STOCK> 164,397,370
<SHARES-COMMON-PRIOR> 151,962,949
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 19,528
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 131,571
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 164,339,861
<DIVIDEND-INCOME> 102,874
<INTEREST-INCOME> 13,236,174
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<EXPENSES-NET> 2,233,884
<NET-INVESTMENT-INCOME> 11,105,164
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<NET-CHANGE-FROM-OPS> 11,105,164
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<DISTRIBUTIONS-OF-INCOME> 4,682,093
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<NUMBER-OF-SHARES-SOLD> 472,089,252
<NUMBER-OF-SHARES-REDEEMED> 464,321,475
<SHARES-REINVESTED> 4,666,644
<NET-CHANGE-IN-ASSETS> 70,293,298
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 19,941
<OVERDIST-NET-GAINS-PRIOR> 131,571
<GROSS-ADVISORY-FEES> 1,514,545
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,233,884
<AVERAGE-NET-ASSETS> 163,842,209
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.03
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.67
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 052
<NAME> TAX-EXEMPT FUND TRUST
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 384,121,538
<INVESTMENTS-AT-VALUE> 384,121,538
<RECEIVABLES> 9,364,231
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 11,234
<TOTAL-ASSETS> 393,497,003
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,981,587
<TOTAL-LIABILITIES> 1,981,587
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 227,269,144
<SHARES-COMMON-STOCK> 227,269,144
<SHARES-COMMON-PRIOR> 169,410,680
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 19,528
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<NAME> U.S. TREASURY FUND RETAIL A
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<NUMBER> 062
<NAME> U.S. TREASURY FUND TRUST
<S> <C>
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 071
<NAME> INTERNATIONAL EQUITY FUND RETAIL A
<S> <C>
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 072
<NAME> INTERNATIONAL EQUITY FUND TRUST
<S> <C>
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<TABLE> <S> <C>
<PAGE>
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<SERIES>
<NUMBER> 081
<NAME> EQUITY GROWTH FUND RETAIL A
<S> <C>
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 083
<NAME> EQUITY GROWTH FUND RETAIL B
<S> <C>
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 082
<NAME> EQUITY GROWTH FUND TRUST
<S> <C>
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 091
<NAME> EQUITY INCOME FUND RETAIL A
<S> <C>
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<PER-SHARE-DIVIDEND> 0.25
<PER-SHARE-DISTRIBUTIONS> 1.58
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.67
<EXPENSE-RATIO> 1.34
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 092
<NAME> EQUITY INCOME FUND TRUST
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 261,795,792
<INVESTMENTS-AT-VALUE> 334,749,340
<RECEIVABLES> 964,130
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 2,404
<TOTAL-ASSETS> 335,715,874
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 498,274
<TOTAL-LIABILITIES> 498,274
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 77,009,490
<SHARES-COMMON-STOCK> 6,469,073
<SHARES-COMMON-PRIOR> 6,343,694
<ACCUMULATED-NII-CURRENT> 601,021
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 31,256,958
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 72,953,548
<NET-ASSETS> 127,367,165
<DIVIDEND-INCOME> 5,919,202
<INTEREST-INCOME> 2,738,174
<OTHER-INCOME> 0
<EXPENSES-NET> 3,853,299
<NET-INVESTMENT-INCOME> 4,804,077
<REALIZED-GAINS-CURRENT> 31,256,958
<APPREC-INCREASE-CURRENT> 8,105,519
<NET-CHANGE-FROM-OPS> 44,166,554
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,137,883
<DISTRIBUTIONS-OF-GAINS> 9,987,624
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 780,277
<NUMBER-OF-SHARES-REDEEMED> 1,031,181
<SHARES-REINVESTED> 376,283
<NET-CHANGE-IN-ASSETS> 46,437,101
<ACCUMULATED-NII-PRIOR> 505,696
<ACCUMULATED-GAINS-PRIOR> 24,382,637
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,457,188
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,853,299
<AVERAGE-NET-ASSETS> 127,645,006
<PER-SHARE-NAV-BEGIN> 18.84
<PER-SHARE-NII> 0.34
<PER-SHARE-GAIN-APPREC> 2.42
<PER-SHARE-DIVIDEND> 0.33
<PER-SHARE-DISTRIBUTIONS> 1.58
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.69
<EXPENSE-RATIO> 0.92
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 101
<NAME> HIGH QUALITY BOND FUND RETAIL A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 253,089,093
<INVESTMENTS-AT-VALUE> 265,042,541
<RECEIVABLES> 14,396,296
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 16,228
<TOTAL-ASSETS> 279,455,065
<PAYABLE-FOR-SECURITIES> 9,616,850
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,396,853
<TOTAL-LIABILITIES> 11,013,703
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 44,002,848
<SHARES-COMMON-STOCK> 4,095,956
<SHARES-COMMON-PRIOR> 2,611,095
<ACCUMULATED-NII-CURRENT> 203,154
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,266,220
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11,953,448
<NET-ASSETS> 45,879,000
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 14,829,475
<OTHER-INCOME> 0
<EXPENSES-NET> 2,112,058
<NET-INVESTMENT-INCOME> 12,717,417
<REALIZED-GAINS-CURRENT> 5,166,591
<APPREC-INCREASE-CURRENT> 5,644,735
<NET-CHANGE-FROM-OPS> 23,528,743
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,841,859
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,460,852
<NUMBER-OF-SHARES-REDEEMED> 1,118,893
<SHARES-REINVESTED> 142,902
<NET-CHANGE-IN-ASSETS> 56,094,787
<ACCUMULATED-NII-PRIOR> 204,729
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 2,911,674
<GROSS-ADVISORY-FEES> 1,765,579
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,582,879
<AVERAGE-NET-ASSETS> 35,017,915
<PER-SHARE-NAV-BEGIN> 10.70
<PER-SHARE-NII> 0.58
<PER-SHARE-GAIN-APPREC> 0.50
<PER-SHARE-DIVIDEND> 0.58
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.20
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 103
<NAME> HIGH QUALITY BOND FUND RETAIL B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 253,089,093
<INVESTMENTS-AT-VALUE> 265,042,541
<RECEIVABLES> 14,396,296
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 16,228
<TOTAL-ASSETS> 279,455,065
<PAYABLE-FOR-SECURITIES> 9,616,850
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,396,853
<TOTAL-LIABILITIES> 11,013,703
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,198,835
<SHARES-COMMON-STOCK> 483,866
<SHARES-COMMON-PRIOR> 186,672
<ACCUMULATED-NII-CURRENT> 203,154
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,266,220
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11,953,448
<NET-ASSETS> 5,419,579
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 14,829,475
<OTHER-INCOME> 0
<EXPENSES-NET> 2,112,058
<NET-INVESTMENT-INCOME> 12,717,417
<REALIZED-GAINS-CURRENT> 5,166,591
<APPREC-INCREASE-CURRENT> 5,644,735
<NET-CHANGE-FROM-OPS> 23,528,743
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 157,568
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 339,876
<NUMBER-OF-SHARES-REDEEMED> 54,909
<SHARES-REINVESTED> 12,227
<NET-CHANGE-IN-ASSETS> 56,094,787
<ACCUMULATED-NII-PRIOR> 204,729
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 2,911,674
<GROSS-ADVISORY-FEES> 1,765,579
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,582,879
<AVERAGE-NET-ASSETS> 3,410,894
<PER-SHARE-NAV-BEGIN> 10.70
<PER-SHARE-NII> 0.52
<PER-SHARE-GAIN-APPREC> 0.50
<PER-SHARE-DIVIDEND> 0.52
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.20
<EXPENSE-RATIO> 1.61
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 102
<NAME> HIGH QUALITY BOND FUND TRUST
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 253,089,093
<INVESTMENTS-AT-VALUE> 265,042,541
<RECEIVABLES> 14,396,296
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 16,228
<TOTAL-ASSETS> 279,455,065
<PAYABLE-FOR-SECURITIES> 9,616,850
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,396,853
<TOTAL-LIABILITIES> 11,013,703
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 204,816,857
<SHARES-COMMON-STOCK> 19,385,125
<SHARES-COMMON-PRIOR> 17,038,805
<ACCUMULATED-NII-CURRENT> 203,154
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,266,220
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11,953,448
<NET-ASSETS> 217,142,783
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 14,829,475
<OTHER-INCOME> 0
<EXPENSES-NET> 2,112,058
<NET-INVESTMENT-INCOME> 12,717,417
<REALIZED-GAINS-CURRENT> 5,166,591
<APPREC-INCREASE-CURRENT> 5,644,735
<NET-CHANGE-FROM-OPS> 23,528,743
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 10,708,262
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,817,335
<NUMBER-OF-SHARES-REDEEMED> 4,104,688
<SHARES-REINVESTED> 633,673
<NET-CHANGE-IN-ASSETS> 56,094,787
<ACCUMULATED-NII-PRIOR> 204,729
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 2,911,674
<GROSS-ADVISORY-FEES> 1,765,579
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,582,879
<AVERAGE-NET-ASSETS> 196,983,246
<PER-SHARE-NAV-BEGIN> 10.70
<PER-SHARE-NII> 0.59
<PER-SHARE-GAIN-APPREC> 0.50
<PER-SHARE-DIVIDEND> 0.59
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.20
<EXPENSE-RATIO> 0.87
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 111
<NAME> SHORT TERM BOND FUND RETAIL A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 67,649,973
<INVESTMENTS-AT-VALUE> 68,640,511
<RECEIVABLES> 895,443
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 69,535,954
<PAYABLE-FOR-SECURITIES> 1,068,031
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 243,073
<TOTAL-LIABILITIES> 1,311,104
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 30,920,032
<SHARES-COMMON-STOCK> 2,877,232
<SHARES-COMMON-PRIOR> 2,793,617
<ACCUMULATED-NII-CURRENT> 123,662
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 5,875,747
<ACCUM-APPREC-OR-DEPREC> 990,538
<NET-ASSETS> 29,066,729
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,393,632
<OTHER-INCOME> 0
<EXPENSES-NET> 683,157
<NET-INVESTMENT-INCOME> 3,710,475
<REALIZED-GAINS-CURRENT> 276,632
<APPREC-INCREASE-CURRENT> 473,071
<NET-CHANGE-FROM-OPS> 4,460,178
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,464,083
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,555,052
<NUMBER-OF-SHARES-REDEEMED> 1,595,494
<SHARES-REINVESTED> 124,057
<NET-CHANGE-IN-ASSETS> (10,477,957)
<ACCUMULATED-NII-PRIOR> 190,129
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 6,036,241
<GROSS-ADVISORY-FEES> 533,215
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 825,459
<AVERAGE-NET-ASSETS> 27,555,955
<PER-SHARE-NAV-BEGIN> 10.01
<PER-SHARE-NII> 0.51
<PER-SHARE-GAIN-APPREC> 0.11
<PER-SHARE-DIVIDEND> 0.53
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.10
<EXPENSE-RATIO> 1.11
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 112
<NAME> SHORT TERM BOND FUND TRUST
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 67,649,973
<INVESTMENTS-AT-VALUE> 68,640,511
<RECEIVABLES> 895,443
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 69,535,954
<PAYABLE-FOR-SECURITIES> 1,068,031
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 243,073
<TOTAL-LIABILITIES> 1,311,104
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 40,954,382
<SHARES-COMMON-STOCK> 3,768,577
<SHARES-COMMON-PRIOR> 4,979,085
<ACCUMULATED-NII-CURRENT> 123,662
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 5,875,747
<ACCUM-APPREC-OR-DEPREC> 990,538
<NET-ASSETS> 38,071,475
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,393,632
<OTHER-INCOME> 0
<EXPENSES-NET> 683,157
<NET-INVESTMENT-INCOME> 3,710,475
<REALIZED-GAINS-CURRENT> 276,632
<APPREC-INCREASE-CURRENT> 473,071
<NET-CHANGE-FROM-OPS> 4,460,178
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,384,791
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,986,106
<NUMBER-OF-SHARES-REDEEMED> 3,298,697
<SHARES-REINVESTED> 102,083
<NET-CHANGE-IN-ASSETS> (10,477,957)
<ACCUMULATED-NII-PRIOR> 190,129
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 6,036,241
<GROSS-ADVISORY-FEES> 533,215
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 825,459
<AVERAGE-NET-ASSETS> 42,587,931
<PER-SHARE-NAV-BEGIN> 10.01
<PER-SHARE-NII> 0.54
<PER-SHARE-GAIN-APPREC> 0.11
<PER-SHARE-DIVIDEND> 0.56
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.10
<EXPENSE-RATIO> 0.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 113
<NAME> SHORT TERM BOND FUND RETAIL B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 67,649,973
<INVESTMENTS-AT-VALUE> 68,640,511
<RECEIVABLES> 895,443
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 69,535,954
<PAYABLE-FOR-SECURITIES> 1,068,031
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 243,073
<TOTAL-LIABILITIES> 1,311,104
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,111,983
<SHARES-COMMON-STOCK> 107,567
<SHARES-COMMON-PRIOR> 90,407
<ACCUMULATED-NII-CURRENT> 123,662
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 5,875,747
<ACCUM-APPREC-OR-DEPREC> 990,538
<NET-ASSETS> 1,086,646
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,393,632
<OTHER-INCOME> 0
<EXPENSES-NET> 683,157
<NET-INVESTMENT-INCOME> 3,710,475
<REALIZED-GAINS-CURRENT> 276,632
<APPREC-INCREASE-CURRENT> 473,071
<NET-CHANGE-FROM-OPS> 4,460,178
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 44,206
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 101,000
<NUMBER-OF-SHARES-REDEEMED> 87,671
<SHARES-REINVESTED> 3,381
<NET-CHANGE-IN-ASSETS> (10,477,957)
<ACCUMULATED-NII-PRIOR> 190,129
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 6,036,241
<GROSS-ADVISORY-FEES> 533,215
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 825,459
<AVERAGE-NET-ASSETS> 951,522
<PER-SHARE-NAV-BEGIN> 10.01
<PER-SHARE-NII> 0.45
<PER-SHARE-GAIN-APPREC> 0.11
<PER-SHARE-DIVIDEND> 0.47
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.10
<EXPENSE-RATIO> 1.78
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 121
<NAME> TAX-EXEMPT BOND FUND RETAIL A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 152,974,031
<INVESTMENTS-AT-VALUE> 161,152,042
<RECEIVABLES> 2,538,977
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 163,691,019
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 548,519
<TOTAL-LIABILITIES> 548,519
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 23,020,812
<SHARES-COMMON-STOCK> 2,191,991
<SHARES-COMMON-PRIOR> 2,302,321
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 18,625
<ACCUMULATED-NET-GAINS> 1,985,278
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,178,011
<NET-ASSETS> 24,763,900
<DIVIDEND-INCOME> 77,144
<INTEREST-INCOME> 8,313,696
<OTHER-INCOME> 0
<EXPENSES-NET> 1,213,741
<NET-INVESTMENT-INCOME> 7,177,099
<REALIZED-GAINS-CURRENT> 1,998,815
<APPREC-INCREASE-CURRENT> 2,771,283
<NET-CHANGE-FROM-OPS> 11,947,197
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,112,721
<DISTRIBUTIONS-OF-GAINS> 209,400
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 367,769
<NUMBER-OF-SHARES-REDEEMED> 568,242
<SHARES-REINVESTED> 90,143
<NET-CHANGE-IN-ASSETS> 13,769,629
<ACCUMULATED-NII-PRIOR> 40,027
<ACCUMULATED-GAINS-PRIOR> 1,240,020
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,195,175
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,544,881
<AVERAGE-NET-ASSETS> 25,453,984
<PER-SHARE-NAV-BEGIN> 11.06
<PER-SHARE-NII> 0.49
<PER-SHARE-GAIN-APPREC> 0.33
<PER-SHARE-DIVIDEND> 0.49
<PER-SHARE-DISTRIBUTIONS> 0.09
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.30
<EXPENSE-RATIO> 0.94
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 122
<NAME> TAX-EXEMPT BOND FUND TRUST
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 152,974,031
<INVESTMENTS-AT-VALUE> 161,152,042
<RECEIVABLES> 2,538,977
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 163,691,019
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 548,519
<TOTAL-LIABILITIES> 548,519
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 127,359,585
<SHARES-COMMON-STOCK> 12,008,253
<SHARES-COMMON-PRIOR> 11,050,094
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 18,625
<ACCUMULATED-NET-GAINS> 1,985,278
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,178,011
<NET-ASSETS> 135,663,700
<DIVIDEND-INCOME> 77,144
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<SHARES-REINVESTED> 279,668
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<ACCUMULATED-GAINS-PRIOR> 1,240,020
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<GROSS-EXPENSE> 1,544,881
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 123
<NAME> TAX-EXEMPT BOND FUND RETAIL B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 152,974,031
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<SENIOR-EQUITY> 0
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<SHARES-COMMON-PRIOR> 152,789
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 18,625
<ACCUMULATED-NET-GAINS> 1,985,278
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,178,011
<NET-ASSETS> 2,714,900
<DIVIDEND-INCOME> 77,144
<INTEREST-INCOME> 8,313,696
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<REALIZED-GAINS-CURRENT> 1,998,815
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<DISTRIBUTIONS-OF-GAINS> 14,270
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<NUMBER-OF-SHARES-SOLD> 127,743
<NUMBER-OF-SHARES-REDEEMED> 45,412
<SHARES-REINVESTED> 5,196
<NET-CHANGE-IN-ASSETS> 13,769,629
<ACCUMULATED-NII-PRIOR> 40,027
<ACCUMULATED-GAINS-PRIOR> 1,240,020
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<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,195,175
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<GROSS-EXPENSE> 1,544,881
<AVERAGE-NET-ASSETS> 2,369,998
<PER-SHARE-NAV-BEGIN> 11.06
<PER-SHARE-NII> 0.42
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<PER-SHARE-DIVIDEND> 0.42
<PER-SHARE-DISTRIBUTIONS> 0.09
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<PER-SHARE-NAV-END> 11.30
<EXPENSE-RATIO> 1.55
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 131
<NAME> NEW YORK MUNICIPAL BOND FUND RETAIL A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 77,586,880
<INVESTMENTS-AT-VALUE> 82,010,030
<RECEIVABLES> 1,336,896
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<OTHER-ITEMS-ASSETS> 0
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<TOTAL-LIABILITIES> 327,250
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<PAID-IN-CAPITAL-COMMON> 45,957,994
<SHARES-COMMON-STOCK> 4,216,530
<SHARES-COMMON-PRIOR> 3,464,721
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 839
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 513,349
<ACCUM-APPREC-OR-DEPREC> 4,423,150
<NET-ASSETS> 48,218,478
<DIVIDEND-INCOME> 32,849
<INTEREST-INCOME> 3,786,066
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<EXPENSES-NET> 601,190
<NET-INVESTMENT-INCOME> 3,217,725
<REALIZED-GAINS-CURRENT> 822,875
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<NUMBER-OF-SHARES-SOLD> 1,490,812
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<SHARES-REINVESTED> 117,233
<NET-CHANGE-IN-ASSETS> 17,023,834
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 4,150
<OVERDIST-NET-GAINS-PRIOR> 1,333,280
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 825,442
<AVERAGE-NET-ASSETS> 42,763,317
<PER-SHARE-NAV-BEGIN> 11.09
<PER-SHARE-NII> 0.48
<PER-SHARE-GAIN-APPREC> 0.35
<PER-SHARE-DIVIDEND> 0.48
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.44
<EXPENSE-RATIO> 0.87
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 132
<NAME> NEW YORK MUNICIPAL BOND FUND TRUST
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 77,586,880
<INVESTMENTS-AT-VALUE> 82,010,030
<RECEIVABLES> 1,336,896
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
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<PAYABLE-FOR-SECURITIES> 0
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<TOTAL-LIABILITIES> 327,250
<SENIOR-EQUITY> 0
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<SHARES-COMMON-PRIOR> 2,484,601
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 839
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<OVERDISTRIBUTION-GAINS> 513,349
<ACCUM-APPREC-OR-DEPREC> 4,423,150
<NET-ASSETS> 34,801,198
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<EXPENSES-NET> 601,190
<NET-INVESTMENT-INCOME> 3,217,725
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<NUMBER-OF-SHARES-SOLD> 771,140
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<SHARES-REINVESTED> 17,092
<NET-CHANGE-IN-ASSETS> 17,023,834
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 4,150
<OVERDIST-NET-GAINS-PRIOR> 1,333,280
<GROSS-ADVISORY-FEES> 557,232
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 825,442
<AVERAGE-NET-ASSETS> 31,534,274
<PER-SHARE-NAV-BEGIN> 11.09
<PER-SHARE-NII> 0.50
<PER-SHARE-GAIN-APPREC> 0.35
<PER-SHARE-DIVIDEND> 0.50
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<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.44
<EXPENSE-RATIO> 0.72
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 141
<NAME> ASSET ALLOCATION FUND RETAIL A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 510,219,963
<INVESTMENTS-AT-VALUE> 599,544,116
<RECEIVABLES> 14,236,790
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<OTHER-ITEMS-ASSETS> 0
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<ACCUMULATED-NET-GAINS> 15,539,843
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<SHARES-REINVESTED> 1,234,122
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<ACCUMULATED-NII-PRIOR> 1,372,678
<ACCUMULATED-GAINS-PRIOR> 28,895,845
<OVERDISTRIB-NII-PRIOR> 0
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<PER-SHARE-NII> 0.38
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<PER-SHARE-DIVIDEND> 0.40
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 143
<NAME> ASSET ALLOCATION FUND RETAIL B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 510,219,963
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<RECEIVABLES> 14,236,790
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<NET-ASSETS> 57,876,192
<DIVIDEND-INCOME> 2,742,916
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<NET-INVESTMENT-INCOME> 12,249,136
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<NET-CHANGE-IN-ASSETS> 220,372,554
<ACCUMULATED-NII-PRIOR> 1,372,678
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<AVERAGE-NET-ASSETS> 44,962,565
<PER-SHARE-NAV-BEGIN> 16.43
<PER-SHARE-NII> 0.29
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 142
<NAME> ASSET ALLOCATION FUND TRUST
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 510,219,963
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<NUMBER-OF-SHARES-SOLD> 4,431,090
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<SHARES-REINVESTED> 1,053,874
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<ACCUMULATED-NII-PRIOR> 1,372,678
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,533,187
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<PER-SHARE-NAV-BEGIN> 16.47
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<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 151
<NAME> SMALL COMPANY EQUITY FUND RETAIL A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 341,365,884
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<OVERDISTRIBUTION-GAINS> 33,529,140
<ACCUM-APPREC-OR-DEPREC> (8,467,586)
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<NET-CHANGE-IN-ASSETS> (130,005,990)
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<PER-SHARE-NII> (0.19)
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 153
<NAME> SMALL COMPANY EQUITY FUND RETAIL B
<S> <C>
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<FISCAL-YEAR-END> OCT-31-1998
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 152
<NAME> SMALL COMPANY EQUITY FUND TRUST
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 341,365,884
<INVESTMENTS-AT-VALUE> 332,898,298
<RECEIVABLES> 2,053,330
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 514
<TOTAL-ASSETS> 334,952,142
<PAYABLE-FOR-SECURITIES> 1,491,818
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,388,907
<TOTAL-LIABILITIES> 3,880,725
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 255,566,171
<SHARES-COMMON-STOCK> 15,947,373
<SHARES-COMMON-PRIOR> 14,574,149
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 33,529,140
<ACCUM-APPREC-OR-DEPREC> (8,467,586)
<NET-ASSETS> 222,675,208
<DIVIDEND-INCOME> 579,103
<INTEREST-INCOME> 824,083
<OTHER-INCOME> 0
<EXPENSES-NET> 5,238,779
<NET-INVESTMENT-INCOME> (3,835,593)
<REALIZED-GAINS-CURRENT> (33,381,616)
<APPREC-INCREASE-CURRENT> (78,673,832)
<NET-CHANGE-FROM-OPS> (115,891,041)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 33,030,610
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 15,624,925
<NUMBER-OF-SHARES-REDEEMED> 15,661,716
<SHARES-REINVESTED> 1,410,015
<NET-CHANGE-IN-ASSETS> (130,005,990)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 48,390,306
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,194,228
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,266,155
<AVERAGE-NET-ASSETS> 289,537,263
<PER-SHARE-NAV-BEGIN> 21.32
<PER-SHARE-NII> (0.14)
<PER-SHARE-GAIN-APPREC> (4.96)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 2.26
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.96
<EXPENSE-RATIO> 1.09
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 161
<NAME> MASSACHUSETTS MUNICIPAL BOND FUND RETAIL A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 64,242,894
<INVESTMENTS-AT-VALUE> 66,728,553
<RECEIVABLES> 1,062,660
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 12,554
<TOTAL-ASSETS> 67,803,767
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 244,037
<TOTAL-LIABILITIES> 244,037
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 42,963,850
<SHARES-COMMON-STOCK> 4,196,694
<SHARES-COMMON-PRIOR> 3,250,152
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 21,727
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 371,855
<ACCUM-APPREC-OR-DEPREC> 2,485,659
<NET-ASSETS> 44,188,605
<DIVIDEND-INCOME> 29,122
<INTEREST-INCOME> 2,890,345
<OTHER-INCOME> 0
<EXPENSES-NET> 415,864
<NET-INVESTMENT-INCOME> 2,503,603
<REALIZED-GAINS-CURRENT> 342,455
<APPREC-INCREASE-CURRENT> 1,189,694
<NET-CHANGE-FROM-OPS> 4,035,752
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,670,216
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,892,528
<NUMBER-OF-SHARES-REDEEMED> 1,072,707
<SHARES-REINVESTED> 126,721
<NET-CHANGE-IN-ASSETS> 20,254,938
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 45,590
<OVERDIST-NET-GAINS-PRIOR> 709,198
<GROSS-ADVISORY-FEES> 430,637
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 415,864
<AVERAGE-NET-ASSETS> 39,161,601
<PER-SHARE-NAV-BEGIN> 10.25
<PER-SHARE-NII> 0.46
<PER-SHARE-GAIN-APPREC> 0.27
<PER-SHARE-DIVIDEND> 0.45
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.53
<EXPENSE-RATIO> 0.78
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 162
<NAME> MASSACHUSETTS MUNICIPAL BOND FUND TRUST
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 64,242,894
<INVESTMENTS-AT-VALUE> 66,728,553
<RECEIVABLES> 1,062,660
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 12,554
<TOTAL-ASSETS> 67,803,767
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 244,037
<TOTAL-LIABILITIES> 244,037
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 22,503,803
<SHARES-COMMON-STOCK> 2,219,558
<SHARES-COMMON-PRIOR> 1,364,310
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 21,727
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 371,855
<ACCUM-APPREC-OR-DEPREC> 2,485,659
<NET-ASSETS> 23,371,125
<DIVIDEND-INCOME> 29,122
<INTEREST-INCOME> 2,890,345
<OTHER-INCOME> 0
<EXPENSES-NET> 415,864
<NET-INVESTMENT-INCOME> 2,503,603
<REALIZED-GAINS-CURRENT> 342,455
<APPREC-INCREASE-CURRENT> 1,189,694
<NET-CHANGE-FROM-OPS> 4,035,752
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 814,636
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,174,113
<NUMBER-OF-SHARES-REDEEMED> 318,922
<SHARES-REINVESTED> 57
<NET-CHANGE-IN-ASSETS> 20,254,938
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 45,590
<OVERDIST-NET-GAINS-PRIOR> 709,198
<GROSS-ADVISORY-FEES> 430,637
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 415,864
<AVERAGE-NET-ASSETS> 18,256,727
<PER-SHARE-NAV-BEGIN> 10.25
<PER-SHARE-NII> 0.47
<PER-SHARE-GAIN-APPREC> 0.27
<PER-SHARE-DIVIDEND> 0.46
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.53
<EXPENSE-RATIO> 0.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 171
<NAME> CONNECTICUT MUNICIPAL BOND FUND RETAIL A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 36,194,460
<INVESTMENTS-AT-VALUE> 38,356,627
<RECEIVABLES> 884,191
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 39,240,818
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 472,733
<TOTAL-LIABILITIES> 472,733
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 23,959,854
<SHARES-COMMON-STOCK> 2,297,604
<SHARES-COMMON-PRIOR> 2,230,405
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 14,614
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 798,949
<ACCUM-APPREC-OR-DEPREC> 2,162,167
<NET-ASSETS> 24,855,550
<DIVIDEND-INCOME> 19,448
<INTEREST-INCOME> 1,805,097
<OTHER-INCOME> 0
<EXPENSES-NET> 301,785
<NET-INVESTMENT-INCOME> 1,522,760
<REALIZED-GAINS-CURRENT> 229,881
<APPREC-INCREASE-CURRENT> 949,373
<NET-CHANGE-FROM-OPS> 2,702,014
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 996,397
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 697,310
<NUMBER-OF-SHARES-REDEEMED> 694,286
<SHARES-REINVESTED> 64,175
<NET-CHANGE-IN-ASSETS> 5,546,801
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 14,293
<OVERDIST-NET-GAINS-PRIOR> 1,028,830
<GROSS-ADVISORY-FEES> 279,113
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 462,273
<AVERAGE-NET-ASSETS> 24,804,410
<PER-SHARE-NAV-BEGIN> 10.47
<PER-SHARE-NII> 0.43
<PER-SHARE-GAIN-APPREC> 0.35
<PER-SHARE-DIVIDEND> 0.43
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.82
<EXPENSE-RATIO> 0.88
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 172
<NAME> CONNECTICUT MUNICIPAL BOND FUND TRUST
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 36,194,460
<INVESTMENTS-AT-VALUE> 38,356,627
<RECEIVABLES> 884,191
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 39,240,818
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 472,733
<TOTAL-LIABILITIES> 472,733
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 13,459,627
<SHARES-COMMON-STOCK> 1,286,023
<SHARES-COMMON-PRIOR> 942,246
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 14,614
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 798,949
<ACCUM-APPREC-OR-DEPREC> 2,162,167
<NET-ASSETS> 13,912,535
<DIVIDEND-INCOME> 19,448
<INTEREST-INCOME> 1,805,097
<OTHER-INCOME> 0
<EXPENSES-NET> 301,785
<NET-INVESTMENT-INCOME> 1,522,760
<REALIZED-GAINS-CURRENT> 229,881
<APPREC-INCREASE-CURRENT> 949,373
<NET-CHANGE-FROM-OPS> 2,702,014
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 526,684
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,242,161
<NUMBER-OF-SHARES-REDEEMED> 898,692
<SHARES-REINVESTED> 308
<NET-CHANGE-IN-ASSETS> 5,546,801
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 14,293
<OVERDIST-NET-GAINS-PRIOR> 1,028,830
<GROSS-ADVISORY-FEES> 297,113
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 462,273
<AVERAGE-NET-ASSETS> 12,410,710
<PER-SHARE-NAV-BEGIN> 10.47
<PER-SHARE-NII> 0.45
<PER-SHARE-GAIN-APPREC> 0.35
<PER-SHARE-DIVIDEND> 0.45
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.82
<EXPENSE-RATIO> 0.66
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 18
<NAME> INSTITUTIONAL GOVERNMENT MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 199,852,595
<INVESTMENTS-AT-VALUE> 199,852,595
<RECEIVABLES> 1,546,709
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 201,399,304
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,080,242
<TOTAL-LIABILITIES> 1,080,242
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 200,319,064
<SHARES-COMMON-STOCK> 200,319,064
<SHARES-COMMON-PRIOR> 175,168,225
<ACCUMULATED-NII-CURRENT> 5,152
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 5,154
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 200,319,062
<DIVIDEND-INCOME> 81,600
<INTEREST-INCOME> 8,062,610
<OTHER-INCOME> 0
<EXPENSES-NET> 303,489
<NET-INVESTMENT-INCOME> 7,840,721
<REALIZED-GAINS-CURRENT> 27,132
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 7,867,853
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 7,840,539
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 560,841,497
<NUMBER-OF-SHARES-REDEEMED> 536,058,448
<SHARES-REINVESTED> 367,790
<NET-CHANGE-IN-ASSETS> 25,178,153
<ACCUMULATED-NII-PRIOR> 4,970
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 32,286
<GROSS-ADVISORY-FEES> 303,488
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 539,966
<AVERAGE-NET-ASSETS> 151,743,831
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.05
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 19
<NAME> CORPORATE BOND FUND TRUST
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 80,276,513
<INVESTMENTS-AT-VALUE> 82,810,813
<RECEIVABLES> 2,340,399
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 12,240
<TOTAL-ASSETS> 85,163,452
<PAYABLE-FOR-SECURITIES> 1,030,642
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 568,156
<TOTAL-LIABILITIES> 1,598,798
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 82,948,231
<SHARES-COMMON-STOCK> 7,666,685
<SHARES-COMMON-PRIOR> 8,627,190
<ACCUMULATED-NII-CURRENT> 131,668
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 2,049,545
<ACCUM-APPREC-OR-DEPREC> 2,534,300
<NET-ASSETS> 83,564,654
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,895,040
<OTHER-INCOME> 0
<EXPENSES-NET> 734,061
<NET-INVESTMENT-INCOME> 5,160,979
<REALIZED-GAINS-CURRENT> 1,076,268
<APPREC-INCREASE-CURRENT> 1,374,412
<NET-CHANGE-FROM-OPS> 7,611,659
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5,434,239
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,187,748
<NUMBER-OF-SHARES-REDEEMED> 3,424,617
<SHARES-REINVESTED> 276,364
<NET-CHANGE-IN-ASSETS> (8,163,729)
<ACCUMULATED-NII-PRIOR> 265,994
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 2,986,952
<GROSS-ADVISORY-FEES> 667,516
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 912,065
<AVERAGE-NET-ASSETS> 89,002,040
<PER-SHARE-NAV-BEGIN> 10.63
<PER-SHARE-NII> 0.62
<PER-SHARE-GAIN-APPREC> 0.30
<PER-SHARE-DIVIDEND> 0.65
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.90
<EXPENSE-RATIO> 0.82
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 20
<NAME> RHODE ISLAND MUNICIPAL BOND FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 19,420,016
<INVESTMENTS-AT-VALUE> 20,440,542
<RECEIVABLES> 331,164
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 3,482
<TOTAL-ASSETS> 20,775,188
<PAYABLE-FOR-SECURITIES> 508,056
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 57,475
<TOTAL-LIABILITIES> 565,531
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 19,112,836
<SHARES-COMMON-STOCK> 1,807,697
<SHARES-COMMON-PRIOR> 1,571,137
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 10,223
<ACCUMULATED-NET-GAINS> 86,518
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,020,526
<NET-ASSETS> 20,209,657
<DIVIDEND-INCOME> 12,988
<INTEREST-INCOME> 991,044
<OTHER-INCOME> 0
<EXPENSES-NET> 152,045
<NET-INVESTMENT-INCOME> 851,987
<REALIZED-GAINS-CURRENT> 87,401
<APPREC-INCREASE-CURRENT> 376,671
<NET-CHANGE-FROM-OPS> 1,316,059
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 837,839
<DISTRIBUTIONS-OF-GAINS> 37,088
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 725,416
<NUMBER-OF-SHARES-REDEEMED> 526,601
<SHARES-REINVESTED> 37,745
<NET-CHANGE-IN-ASSETS> 3,075,242
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 37,141
<OVERDISTRIB-NII-PRIOR> 25,307
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 140,738
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 232,569
<AVERAGE-NET-ASSETS> 18,850,186
<PER-SHARE-NAV-BEGIN> 10.91
<PER-SHARE-NII> 0.50
<PER-SHARE-GAIN-APPREC> 0.29
<PER-SHARE-DIVIDEND> 0.50
<PER-SHARE-DISTRIBUTIONS> 0.02
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.18
<EXPENSE-RATIO> 0.81
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 211
<NAME> GROWTH AND INCOME RETAIL A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 461,595,370
<INVESTMENTS-AT-VALUE> 524,751,103
<RECEIVABLES> 1,296,884
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 29,897
<TOTAL-ASSETS> 526,077,884
<PAYABLE-FOR-SECURITIES> 2,162,297
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,529,753
<TOTAL-LIABILITIES> 4,692,050
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 197,064,185
<SHARES-COMMON-STOCK> 14,401,818
<SHARES-COMMON-PRIOR> 8,734,857
<ACCUMULATED-NII-CURRENT> 78,104
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 31,149,481
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 63,155,733
<NET-ASSETS> 214,109,905
<DIVIDEND-INCOME> 8,335,192
<INTEREST-INCOME> 2,096,273
<OTHER-INCOME> 0
<EXPENSES-NET> 6,251,099
<NET-INVESTMENT-INCOME> 4,180,366
<REALIZED-GAINS-CURRENT> 31,756,496
<APPREC-INCREASE-CURRENT> 4,195,055
<NET-CHANGE-FROM-OPS> 40,131,917
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,497,114
<DISTRIBUTIONS-OF-GAINS> 24,191,677
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,417,123
<NUMBER-OF-SHARES-REDEEMED> 2,556,615
<SHARES-REINVESTED> 1,806,453
<NET-CHANGE-IN-ASSETS> 97,670,430
<ACCUMULATED-NII-PRIOR> 325,489
<ACCUMULATED-GAINS-PRIOR> 71,001,802
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,852,449
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,401,826
<AVERAGE-NET-ASSETS> 196,036,255
<PER-SHARE-NAV-BEGIN> 16.24
<PER-SHARE-NII> 0.12
<PER-SHARE-GAIN-APPREC> 1.32
<PER-SHARE-DIVIDEND> 0.13
<PER-SHARE-DISTRIBUTIONS> 2.68
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.87
<EXPENSE-RATIO> 1.28
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 213
<NAME> GROWTH AND INCOME RETAIL B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 461,595,370
<INVESTMENTS-AT-VALUE> 524,751,103
<RECEIVABLES> 1,296,884
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 29,897
<TOTAL-ASSETS> 526,077,884
<PAYABLE-FOR-SECURITIES> 2,162,297
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,529,753
<TOTAL-LIABILITIES> 4,692,050
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 53,160,597
<SHARES-COMMON-STOCK> 3,587,678
<SHARES-COMMON-PRIOR> 2,167,788
<ACCUMULATED-NII-CURRENT> 78,104
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 31,149,481
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 63,155,733
<NET-ASSETS> 53,215,788
<DIVIDEND-INCOME> 8,335,192
<INTEREST-INCOME> 2,096,273
<OTHER-INCOME> 0
<EXPENSES-NET> 6,251,099
<NET-INVESTMENT-INCOME> 4,180,366
<REALIZED-GAINS-CURRENT> 31,756,496
<APPREC-INCREASE-CURRENT> 4,195,055
<NET-CHANGE-FROM-OPS> 40,131,917
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 88,866
<DISTRIBUTIONS-OF-GAINS> 5,994,237
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,368,708
<NUMBER-OF-SHARES-REDEEMED> 374,402
<SHARES-REINVESTED> 425,584
<NET-CHANGE-IN-ASSETS> 97,670,430
<ACCUMULATED-NII-PRIOR> 325,489
<ACCUMULATED-GAINS-PRIOR> 71,001,802
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,852,449
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,401,826
<AVERAGE-NET-ASSETS> 47,220,438
<PER-SHARE-NAV-BEGIN> 16.23
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 1.31
<PER-SHARE-DIVIDEND> 0.03
<PER-SHARE-DISTRIBUTIONS> 2.68
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.83
<EXPENSE-RATIO> 2.02
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 212
<NAME> GROWTH AND INCOME TRUST
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 461,595,370
<INVESTMENTS-AT-VALUE> 524,751,103
<RECEIVABLES> 1,296,884
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 29,897
<TOTAL-ASSETS> 526,077,884
<PAYABLE-FOR-SECURITIES> 2,162,297
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,529,753
<TOTAL-LIABILITIES> 4,692,050
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 176,777,734
<SHARES-COMMON-STOCK> 17,046,177
<SHARES-COMMON-PRIOR> 15,153,822
<ACCUMULATED-NII-CURRENT> 78,104
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 31,149,481
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 63,155,733
<NET-ASSETS> 254,060,141
<DIVIDEND-INCOME> 8,335,192
<INTEREST-INCOME> 2,096,273
<OTHER-INCOME> 0
<EXPENSES-NET> 6,251,099
<NET-INVESTMENT-INCOME> 4,180,366
<REALIZED-GAINS-CURRENT> 31,756,496
<APPREC-INCREASE-CURRENT> 4,195,055
<NET-CHANGE-FROM-OPS> 40,131,917
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,841,771
<DISTRIBUTIONS-OF-GAINS> 41,422,903
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,666,013
<NUMBER-OF-SHARES-REDEEMED> 4,690,328
<SHARES-REINVESTED> 2,916,670
<NET-CHANGE-IN-ASSETS> 97,670,430
<ACCUMULATED-NII-PRIOR> 325,489
<ACCUMULATED-GAINS-PRIOR> 71,001,802
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,852,449
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,401,826
<AVERAGE-NET-ASSETS> 270,403,160
<PER-SHARE-NAV-BEGIN> 16.28
<PER-SHARE-NII> 0.15
<PER-SHARE-GAIN-APPREC> 1.31
<PER-SHARE-DIVIDEND> 0.16
<PER-SHARE-DISTRIBUTIONS> 2.68
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.90
<EXPENSE-RATIO> 1.03
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 221
<NAME> SMALL CAP VALUE RETAIL A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 299,536,097
<INVESTMENTS-AT-VALUE> 292,861,162
<RECEIVABLES> 1,527,202
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 294,388,364
<PAYABLE-FOR-SECURITIES> 2,708,003
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,515,246
<TOTAL-LIABILITIES> 4,223,249
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 90,304,671
<SHARES-COMMON-STOCK> 6,486,539
<SHARES-COMMON-PRIOR> 3,480,451
<ACCUMULATED-NII-CURRENT> 240,012
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 27,382,595
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (6,674,935)
<NET-ASSETS> 87,780,606
<DIVIDEND-INCOME> 2,531,840
<INTEREST-INCOME> 2,317,860
<OTHER-INCOME> 0
<EXPENSES-NET> 3,042,898
<NET-INVESTMENT-INCOME> 1,806,802
<REALIZED-GAINS-CURRENT> 27,382,595
<APPREC-INCREASE-CURRENT> (70,528,722)
<NET-CHANGE-FROM-OPS> (41,339,325)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 335,684
<DISTRIBUTIONS-OF-GAINS> 9,778,432
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,791,402
<NUMBER-OF-SHARES-REDEEMED> 4,451,699
<SHARES-REINVESTED> 666,385
<NET-CHANGE-IN-ASSETS> 37,249,643
<ACCUMULATED-NII-PRIOR> 374,156
<ACCUMULATED-GAINS-PRIOR> 37,785,570
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,157,610
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,157,920
<AVERAGE-NET-ASSETS> 83,359,098
<PER-SHARE-NAV-BEGIN> 18.29
<PER-SHARE-NII> 0.08
<PER-SHARE-GAIN-APPREC> (2.08)
<PER-SHARE-DIVIDEND> 0.08
<PER-SHARE-DISTRIBUTIONS> 2.68
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.53
<EXPENSE-RATIO> 1.31
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 222
<NAME> SMALL CAP VALUE TRUST
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 299,536,097
<INVESTMENTS-AT-VALUE> 292,861,162
<RECEIVABLES> 1,527,202
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 294,388,364
<PAYABLE-FOR-SECURITIES> 2,708,003
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,515,246
<TOTAL-LIABILITIES> 4,223,249
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 178,912,772
<SHARES-COMMON-STOCK> 14,864,972
<SHARES-COMMON-PRIOR> 10,303,620
<ACCUMULATED-NII-CURRENT> 240,012
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 27,382,595
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (6,674,935)
<NET-ASSETS> 202,384,509
<DIVIDEND-INCOME> 2,531,840
<INTEREST-INCOME> 2,317,860
<OTHER-INCOME> 0
<EXPENSES-NET> 3,042,898
<NET-INVESTMENT-INCOME> 1,806,802
<REALIZED-GAINS-CURRENT> 27,382,595
<APPREC-INCREASE-CURRENT> (70,528,722)
<NET-CHANGE-FROM-OPS> (41,339,325)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,582,494
<DISTRIBUTIONS-OF-GAINS> 28,007,227
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,874,052
<NUMBER-OF-SHARES-REDEEMED> 1,941,937
<SHARES-REINVESTED> 1,629,237
<NET-CHANGE-IN-ASSETS> 37,249,643
<ACCUMULATED-NII-PRIOR> 374,156
<ACCUMULATED-GAINS-PRIOR> 37,785,570
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,157,610
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,157,920
<AVERAGE-NET-ASSETS> 204,322,192
<PER-SHARE-NAV-BEGIN> 18.37
<PER-SHARE-NII> 0.11
<PER-SHARE-GAIN-APPREC> (2.06)
<PER-SHARE-DIVIDEND> 0.13
<PER-SHARE-DISTRIBUTIONS> 2.68
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.61
<EXPENSE-RATIO> 0.96
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 23
<NAME> MASSACHUSETTS MUNICIPAL MONEY MARKET
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 127,433,443
<INVESTMENTS-AT-VALUE> 127,433,443
<RECEIVABLES> 1,020,858
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 20,083
<TOTAL-ASSETS> 128,474,384
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 552,469
<TOTAL-LIABILITIES> 552,469
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 127,934,548
<SHARES-COMMON-STOCK> 127,934,384
<SHARES-COMMON-PRIOR> 80,977,987
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 53
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 12,580
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 127,921,915
<DIVIDEND-INCOME> 48,981
<INTEREST-INCOME> 3,565,137
<OTHER-INCOME> 0
<EXPENSES-NET> 652,425
<NET-INVESTMENT-INCOME> 2,961,693
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 2,961,693
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,961,746
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 287,313,215
<NUMBER-OF-SHARES-REDEEMED> 241,929,813
<SHARES-REINVESTED> 1,572,995
<NET-CHANGE-IN-ASSETS> 46,956,344
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 12,580
<GROSS-ADVISORY-FEES> 420,919
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 711,416
<AVERAGE-NET-ASSETS> 105,229,847
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.03
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.62
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 24
<NAME> CONNECTICUT MUNICIPAL MONEY MARKET
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 173,520,307
<INVESTMENTS-AT-VALUE> 173,520,307
<RECEIVABLES> 4,627,542
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 178,147,849
<PAYABLE-FOR-SECURITIES> 12,059,223
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 902,999
<TOTAL-LIABILITIES> 12,962,222
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 165,198,175
<SHARES-COMMON-STOCK> 165,191,556
<SHARES-COMMON-PRIOR> 137,100,566
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 5,112
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 7,436
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 165,185,627
<DIVIDEND-INCOME> 62,199
<INTEREST-INCOME> 5,296,260
<OTHER-INCOME> 0
<EXPENSES-NET> 963,320
<NET-INVESTMENT-INCOME> 4,395,139
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 4,395,139
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,395,162
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 439,511,535
<NUMBER-OF-SHARES-REDEEMED> 414,491,588
<SHARES-REINVESTED> 3,071,043
<NET-CHANGE-IN-ASSETS> 28,090,967
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 5,089
<OVERDIST-NET-GAINS-PRIOR> 7,436
<GROSS-ADVISORY-FEES> 621,495
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,017,640
<AVERAGE-NET-ASSETS> 155,373,789
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.03
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.62
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 251
<NAME> STRATEGIC EQUITY RETAIL A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 63,576,672
<INVESTMENTS-AT-VALUE> 68,442,650
<RECEIVABLES> 97,568
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 41,134
<TOTAL-ASSETS> 68,581,352
<PAYABLE-FOR-SECURITIES> 770,269
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 116,487
<TOTAL-LIABILITIES> 886,756
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,073,009
<SHARES-COMMON-STOCK> 420,985
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 8,943
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 240,711
<ACCUM-APPREC-OR-DEPREC> 4,865,978
<NET-ASSETS> 4,050,710
<DIVIDEND-INCOME> 119,536
<INTEREST-INCOME> 74,208
<OTHER-INCOME> 0
<EXPENSES-NET> 172,053
<NET-INVESTMENT-INCOME> 21,691
<REALIZED-GAINS-CURRENT> (240,711)
<APPREC-INCREASE-CURRENT> 4,865,978
<NET-CHANGE-FROM-OPS> 4,646,958
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,095
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 445,623
<NUMBER-OF-SHARES-REDEEMED> 24,750
<SHARES-REINVESTED> 112
<NET-CHANGE-IN-ASSETS> 67,694,566
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 99,711
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 212,195
<AVERAGE-NET-ASSETS> 2,189,838
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> (0.38)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.62
<EXPENSE-RATIO> 1.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 252
<NAME> STRATEGIC EQUITY TRUST
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 63,576,672
<INVESTMENTS-AT-VALUE> 68,442,650
<RECEIVABLES> 97,568
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 41,134
<TOTAL-ASSETS> 68,581,352
<PAYABLE-FOR-SECURITIES> 770,269
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 116,487
<TOTAL-LIABILITIES> 886,756
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 58,407,337
<SHARES-COMMON-STOCK> 6,547,910
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 8,943
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 240,711
<ACCUM-APPREC-OR-DEPREC> 4,865,978
<NET-ASSETS> 63,060,808
<DIVIDEND-INCOME> 119,536
<INTEREST-INCOME> 74,208
<OTHER-INCOME> 0
<EXPENSES-NET> 172,053
<NET-INVESTMENT-INCOME> 21,691
<REALIZED-GAINS-CURRENT> (240,711)
<APPREC-INCREASE-CURRENT> 4,865,978
<NET-CHANGE-FROM-OPS> 4,646,958
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 13,906
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,546,472
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 1,438
<NET-CHANGE-IN-ASSETS> 67,694,566
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 99,711
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 212,195
<AVERAGE-NET-ASSETS> 17,560,549
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.01
<PER-SHARE-GAIN-APPREC> (0.37)
<PER-SHARE-DIVIDEND> 0.01
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.63
<EXPENSE-RATIO> 1.27
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 253
<NAME> STRATEGIC EQUITY RETAIL B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 63,576,672
<INVESTMENTS-AT-VALUE> 68,442,650
<RECEIVABLES> 97,568
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 41,134
<TOTAL-ASSETS> 68,581,352
<PAYABLE-FOR-SECURITIES> 770,269
<SENIOR-LONG-TERM-DEBT> 0
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<TABLE> <S> <C>
<PAGE>
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<NUMBER> 254
<NAME> NEW JERSEY MUNICIPAL BOND RETAIL A
<S> <C>
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 255
<NAME> NEW JERSEY MUNICIPAL BOND TRUST
<S> <C>
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</TABLE>
