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Galaxy Institutional Government Money Market Funds
Galaxy Funds
Annual Report
October 31, 1998
[LOGO] Galaxy
Funds
<PAGE>
- --------------- Institutional Government Money Market Fund
THE GALAXY FUND PORTFOLIO OF INVESTMENTS
- --------------- October 31, 1998
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
----------- --------
<S> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 78.09%
Federal Home Loan Mortgage Corporation (A) - 26.82%
$ 5,000,000 5.35%, 11/05/98 ............................................ $ 4,997,028
3,000,000 5.15%, 11/09/98 ............................................ 2,996,567
5,000,000 5.39%, 11/10/98 ............................................ 4,993,263
5,000,000 5.12%, 11/12/98 ............................................ 4,992,170
7,000,000 5.36%, 11/16/98 ............................................ 6,984,367
4,000,000 5.40%, 11/19/98 ............................................ 3,989,200
5,000,000 5.05%, 11/30/98 ............................................ 4,979,660
5,000,000 5.02%, 12/17/98 ............................................ 4,967,928
5,000,000 4.76%, 12/22/98 ............................................ 4,966,283
5,000,000 5.04%, 12/30/98 ............................................ 4,958,700
5,000,000 4.98%, 03/26/99 ............................................ 4,899,708
-------------
53,724,874
-------------
Federal National Mortgage Association - 23.02%
8,319,000 5.41%, 11/05/98 (A) ........................................ 8,313,995
6,000,000 5.43% ,11/13/98 (A) ........................................ 5,989,140
5,000,000 5.06%, 12/07/98 (A) ........................................ 4,974,700
5,000,000 5.30%, 12/08/98 (A) ........................................ 4,972,764
7,000,000 5.33%, 12/09/98 (A) ........................................ 6,960,617
5,000,000 7.05%, 12/10/98 ............................................ 5,010,444
5,000,000 5.28%, 12/18/98 (A) ........................................ 4,965,533
5,000,000 4.98%, 02/02/99 (A) ........................................ 4,935,675
-------------
46,122,868
-------------
Federal Home Loan Bank (A) - 18.33%
8,000,000 5.08%, 11/12/98 ............................................ 7,987,582
8,000,000 4.78%, 11/20/98 ............................................ 7,979,818
5,000,000 5.26%, 12/02/98 ............................................ 4,977,353
4,861,000 5.27%, 12/04/98 ............................................ 4,837,517
5,000,000 5.07%, 12/09/98 ............................................ 4,973,242
6,000,000 5.05%, 12/11/98 ............................................ 5,966,333
-------------
36,721,845
-------------
Federal Farm Credit Bank - 9.92%
4,900,000 5.50%, 11/02/98 ............................................ 4,899,991
5,000,000 5.70%, 11/03/98 ............................................ 4,999,998
3,000,000 5.09%, 11/12/98 ............................................ 2,995,334
7,000,000 4.82%, 12/01/98 (A) ........................................ 6,971,883
-------------
19,867,206
-------------
Total U.S. Government and Agency Obligations ............... 156,436,793
(Cost $156,436,793 ) -------------
</TABLE>
See Notes to Financial Statements.
1
<PAGE>
- --------------- Institutional Government Money Market Fund
THE GALAXY FUND PORTFOLIO OF INVESTMENTS (continued)
- --------------- October 31, 1998
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
----------- --------
<S> <C> <C>
REPURCHASE AGREEMENT - 21.60%
$ 43,258,000 Repurchase Agreement with:
HSBC Securities, Inc.
5.40%, 11/02/98, dated 10/30/98
Repurchase Price $43,277,466
(Collateralized by U.S. Treasury Notes
6.13%, Due 2001, 6.40%, Due 2002
Total Par $40,803,000
Market Value $44,124,840) ................................. $ 43,258,000
-------------
Total Repurchase Agreement ................................ 43,258,000
(Cost $43,258,000) -------------
<CAPTION>
Shares
---------
<S> <C> <C>
INVESTMENT COMPANY - 0.08%
157,802 Federated U.S. Treasury Cash Reserve ....................... 157,802
-------------
Total Investment Company ................................... 157,802
(Cost $157,802) -------------
Total Investments - 99.77% ................................................... 199,852,595
(Cost $199,852,595)* -------------
Net Other Assets and Liabilities - 0.23% ..................................... 466,467
-------------
Net Assets - 100.00% ......................................................... $ 200,319,062
=============
</TABLE>
- -------------------------
* Aggregate cost for Federal tax purposes.
(A) Discount yields at time of purchase.
See Notes to Financial Statements.
2
<PAGE>
- --------------- Institutional Government Money Market Fund
THE GALAXY FUND STATEMENT OF ASSETS AND LIABILITIES
- --------------- October 31, 1998
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments
Investments at amortized cost (Note 2)................................... $ 156,594,595
Repurchase agreement..................................................... 43,258,000
--------------
Total Investments at value............................................. 199,852,595
Receivable for shares sold................................................. 1,146,838
Interest and dividend receivable........................................... 399,871
--------------
Total Assets............................................................. 201,399,304
--------------
LIABILITIES:
Dividends payable.......................................................... 731,846
Payable for shares repurchased............................................. 300,000
Advisory fee payable (Note 3).............................................. 16,699
Payable to Administrator (Note 3).......................................... 18,657
Trustees' fees and expenses payable (Note 3)............................... 3,315
Payable to custodian....................................................... 172
Accrued expenses and other payables........................................ 9,553
--------------
Total Liabilities........................................................ 1,080,242
--------------
NET ASSETS.................................................................... $ 200,319,062
==============
NET ASSETS consist of:
Par value (Note 5)......................................................... $ 200,319
Paid-in capital in excess of par value..................................... 200,118,745
Undistributed net investment income........................................ 5,152
Accumulated net realized (loss) on investments sold........................ (5,154)
--------------
TOTAL NET ASSETS.............................................................. $ 200,319,062
==============
Shares of beneficial interest outstanding..................................... 200,319,064
--------------
NET ASSET VALUE,
offering and redemption price per share
(Net Assets / Shares Outstanding).......................................... $ 1.00
==============
</TABLE>
See Notes to Financial Statements.
3
<PAGE>
- --------------- Institutional Government Money Market Fund
THE GALAXY FUND STATEMENT OF OPERATIONS
- --------------- For the year ended October 31, 1998
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Interest (Note 2).......................................................... $ 8,062,610
Dividends (Note 2)......................................................... 81,600
--------------
Total investment income.................................................. 8,144,210
--------------
EXPENSES:
Investment advisory fee (Note 3)........................................... 303,488
Administration fee (Note 3)................................................ 136,086
Custodian fee ............................................................. 13,779
Fund accounting fee (Note 3)............................................... 35,479
Legal fee (Note 3)......................................................... 6,647
Audit fee.................................................................. 13,448
Transfer agent fee (Note 3)................................................ 5,001
Trustees' fees and expenses (Note 3)....................................... 3,540
Amortization of organization costs (Note 2)................................ 1,650
Reports to shareholders.................................................... 7,907
Insurance.................................................................. 2,821
Miscellaneous.............................................................. 10,120
--------------
Total expenses before reimbursement/waiver (Note 4)...................... 539,966
--------------
Less: reimbursement/waiver (Note 4)...................................... (236,477)
--------------
Total expenses net of reimbursement/waiver............................... 303,489
--------------
NET INVESTMENT INCOME........................................................ 7,840,721
--------------
NET REALIZED GAIN ON INVESTMENTS SOLD (Note 2)............................... 27,132
--------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS......................... $ 7,867,853
==============
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
- ---------------
THE GALAXY FUND Institutional Government Money Market Fund
- --------------- STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Years ended October 31,
1998 1997
---------------- ----------------
<S> <C> <C>
NET ASSETS at beginning of period............................ $ 175,140,909 $ 500,927,090
--------------- ----------------
Increase in Net Assets resulting from operations:
Net investment income..................................... 7,840,721 17,339,223
Net realized gain on investments sold..................... 27,132 28,949
--------------- ----------------
Net increase in net assets resulting from operations.... 7,867,853 17,368,172
--------------- ----------------
Dividends to shareholders from:
Net investment income..................................... (7,840,539) (17,339,223)
--------------- ----------------
Share Transactions:
Net proceeds from sales of shares......................... 560,841,497 1,530,804,105
Issued to shareholders in reinvestment of dividends....... 367,790 1,312,718
Cost of shares repurchased................................ (536,058,448) (1,857,931,953)
--------------- ---------------
Net increase(decrease) from share transactions.......... 25,150,839 (325,815,130)
--------------- ---------------
Net increase(decrease) in net assets.................... 25,178,153 (325,786,181)
--------------- ---------------
NET ASSETS at end of period (including line A)............... $ 200,319,062 $ 175,140,909
=============== ================
(A) Undistributed net investment income...................... $ 5,152 $ 4,970
=============== ================
OTHER INFORMATION:
Share Transactions:
Sold .................................................... 560,841,497 1,530,804,105
Issued to shareholders in reinvestment of dividends....... 367,790 1,312,718
Repurchased............................................... (536,058,448) (1,857,931,953)
--------------- ---------------
Net increase(decrease) in shares outstanding.............. 25,150,839 (325,815,130)
=============== ===============
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
- --------------- Institutional Government Money Market Fund (1)
THE GALAXY FUND FINANCIAL HIGHLIGHTS
- --------------- For a share outstanding throughout each period
<TABLE>
<CAPTION>
Years ended October 31,
-------------------------------------------------------------
1998 1997 1996 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 (A)................ 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.
(A) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or Administrator for the years ended October 31,
1998, 1997, 1996, 1995 and 1994 were $0.05, $ 0.05, $0.05, $ 0.05 and $
0.04, respectively.
See Notes to Financial Statements.
6
<PAGE>
- ---------------
THE GALAXY FUND NOTES TO FINANCIAL STATEMENTS
- ---------------
1. Organization
The Galaxy Fund, a Massachusetts business trust (the "Trust"), is registered
under the Investment Company Act of 1940, as amended, (the "1940 Act"), as an
open-end management investment company. As of the date of this report, the Trust
offered twenty-nine managed investment portfolios. The accompanying financial
statements and financial highlights are those of the Institutional Government
Money Market Fund (formerly known as the Institutional Treasury Money Market
Fund) (the "Fund") only.
2. Significant Accounting Policies
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies in conformity with generally accepted accounting
principles consistently followed by the Fund in the preparation of the financial
statements.
Portfolio Valuation: Securities in the Fund are valued utilizing the amortized
cost valuation method permitted in accordance with Rule 2a-7 under the 1940 Act.
This method involves valuing a portfolio security initially at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium.
Securities Transactions and Investment Income: Securities transactions are
accounted for on a trade date basis. Net realized gains or losses on sales of
securities are determined by the identified cost method. Interest income is
recorded on the accrual basis.
Dividends to Shareholders: Dividends from net investment income are declared
daily and paid monthly. Net realized capital gains, if any, are distributed at
least annually.
Income dividends and capital gain dividends are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles.
Federal Income Taxes: The Trust treats the Fund as a separate entity for
federal income tax purposes. The Fund intends to qualify each year as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended. By so qualifying, the Fund will not be subject to federal
income taxes to the extent that it distributes substantially all of its taxable
or tax-exempt income, if any, for its tax year ending October 31. In addition,
by distributing in each calendar year substantially all of its net investment
income, capital gains, and certain other amounts, if any, the Fund will not be
subject to a federal excise tax. Therefore, no federal income or excise tax
provision is recorded.
Expenses: The Trust accounts separately for the assets, liabilities and
operations of the Fund. Expenses directly attributable to the Fund are charged
to the Fund, while expenses which are attributable to more than one fund of the
Trust are allocated among the respective funds.
Repurchase Agreements: The Fund may engage in repurchase agreement
transactions with institutions that the Trust's investment advisor has
determined are creditworthy pursuant to guidelines established by the Trust's
Board of Trustees. Each repurchase agreement transaction is recorded at cost
plus accrued interest. The Fund requires that the securities collateralizing a
repurchase agreement transaction be transferred to the Trust's custodian in a
manner that is intended to enable the Fund to obtain those securities in the
event of a counterparty default. The value of the collateral securities is
monitored daily to ensure that the value of the collateral, including accrued
interest, equals or exceeds the repurchase price. Repurchase agreement
transactions involve certain risks in the event of default or insolvency of the
counterparty, including possible delays or restrictions upon a Fund's ability to
dispose of the underlying securities, and a possible decline in the value of the
underlying securities during the period while the Fund seeks to assert its
rights.
Organization Costs: The Fund bears all costs in connection with its
organization, including the fees and expenses of registering and qualifying its
initial shares for distribution under federal and state securities laws. All
such costs have been fully amortized as of October 31, 1998.
7
<PAGE>
- ---------------
THE GALAXY FUND NOTES TO FINANCIAL STATEMENTS (continued)
- ---------------
3. Investment Advisory, Administration and Other Fees
The Trust and Fleet Investment Advisors Inc. (the "Investment Advisor"), an
indirect wholly-owned subsidiary of Fleet Financial Group, Inc. and affiliate
of the Fund, are parties to an investment advisory agreement under which the
Investment Advisor provides advisory services for a fee, computed daily and
paid monthly, at the annual rate of 0.20% of the average daily net assets of
the Fund (see Note 4).
The Trust and First Data Investor Services Group, Inc. ("Investor Services
Group"), a wholly-owned subsidiary of First Data Corporation, are parties to an
administration agreement under which Investor Services Group (the
"Administrator") provides services for a fee, computed daily and paid monthly,
at the annual rate, effective September 10, 1998, of 0.09% of the first $2.5
billion of the combined average daily net assets of the Fund and the other funds
offered by the Trust with an October 31 fiscal year (whose financial statements
are provided in separate reports), 0.085% of the next $2.5 billion of combined
average daily net assets, 0.075% of the next $7 billion of combined average
daily net assets, 0.065% of the next $3 billion of combined average daily net
assets, 0.06% of the next $3 billion of combined average daily net assets and
0.0575% of combined average daily net assets in excess of $18 billion. Prior to
September 10, 1998, Investor Services Group received administration fees at the
annual rate of 0.09% of the first $2.5 billion of combined average daily net
assets of the Fund and the other funds offered by the Trust, 0.085% of the next
$2.5 billion of combined average daily net assets and 0.075% of combined average
daily net assets over $5 billion.
In addition, Investor Services Group also provides certain fund accounting,
custody administration and transfer agency services pursuant to certain fee
arrangements. In accordance with such fee arrangements, Investor Services Group
compensates the Trust's custodian bank, The Chase Manhattan Bank, for its
services.
First Data Distributors, Inc. (the "Distributor"), a wholly-owned subsidiary
of Investor Services Group and an indirect wholly-owned subsidiary of First Data
Corporation, acts as the distributor of the Trust's shares.
Certain officers of the Trust may be officers of the Administrator. Such
officers receive no compensation from the Trust for serving in their respective
roles. No officer, director or employee of the Investment Advisor serves as an
officer, trustee or employee of the Trust. Effective March 5, 1998, each Trustee
is entitled to receive for services as a trustee of the Trust, The Galaxy VIP
Fund ("VIP") and Galaxy Fund II ("Galaxy II") an aggregate fee of $40,000 per
annum plus certain other fees for attending or participating in meetings as well
as reimbursement for expenses incurred in attending meetings. Prior to March 5,
1998, each trustee was entitled to receive for services as a Trustee of the
Trust, VIP and Galaxy II an aggregate fee of $29,000 per annum plus certain
other fees for attending or participating in meetings as well as reimbursement
for expenses incurred in attending meetings. The Chairman of the Boards of
Trustees and the President and Treasurer of the Trust, VIP and Galaxy II are
also entitled to additional fees for their services in these capacities. These
fees are allocated among the funds of the Trust, VIP and Galaxy II based on
their relative net assets.
In addition, each Trustee is eligible to participate in The Galaxy
Fund/VIP/Galaxy II Deferred Compensation Plan (the "Plan"), an unfunded,
non-qualified deferred compensation plan. The Plan allows each trustee to defer
receipt of all or a percentage of fees which otherwise would be payable for
services performed.
Expenses for the year ended October 31, 1998 include legal fees paid to
Drinker Biddle & Reath LLP. A partner of that firm is Secretary of the Trust.
4. Waiver of Fees and Reimbursement of Expenses
The Investment Advisor and Administrator voluntarily agreed to waive a portion
of their fees and/or to reimburse certain expenses so that total expenses of the
Fund would not exceed certain expense limitations. For the year ended October
31, 1998, the Investment Advisor and Administrator waived fees totaling $151,744
and $61,161, respectively, and the Investment Advisor reimbursed expenses of
$23,572 with respect to the Fund. The Investment Advisor and Administrator, at
their discretion, may revise or discontinue the voluntary fee waivers and/or
expense reimbursements at anytime.
8
<PAGE>
- ---------------
THE GALAXY FUND NOTES TO FINANCIAL STATEMENTS (continued)
- ---------------
5. Shares of Beneficial Interest
The Trust's Declaration of Trust authorizes the Trustees to issue an unlimited
number of shares of beneficial interest in the Fund, each with a par value of
$0.001. The Trust's shares are classified into thirty classes of shares
consisting of one or more series of shares including: Class S - Institutional
Government Money Market Fund.
6. Capital Loss Carryforward
As of October 31, 1998, the Fund had capital loss carryforwards of $5,154
expiring in 2004.
Tax Information (unaudited)
During the year ended October 31, 1998, 60% of the income earned by the Fund
was from direct obligations of the U.S. Government. Appropriate tax information
detailing this information on a calendar year basis will accompany each
shareholder's year-end tax statement. As each state's rules on the exemption of
this income differ, please consult your tax advisor regarding specific tax
treatment.
9
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To Shareholders and the Board of Trustees of
The Galaxy Fund:
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Institutional Government Money
Market Fund, a series of The Galaxy Fund, (hereafter referred to as the "Fund")
at October 31, 1998, the results of its operations, the changes in its net
assets, and the financial highlights for each of the periods indicated therein,
in conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
Boston, Massachusetts PricewaterhouseCoopers LLP
December 23, 1998
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